8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

______________________

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

____________________

Date of report (Date of earliest event reported): July 15, 2010

Applied DNA Sciences, Inc

(Exact Name of Registrant as Specified in Charter)

Delaware (State or Other Jurisdiction of Incorporation) 002-90539 (Commission File Number) 59-2262718 (IRS Employer Identification No.)

25 Health Sciences Drive, Suite 113

Stony Brook, New York 11790

(Address of Principal Executive Offices) (Zip Code)

631-444- 8090

(Registrant’s telephone number, including area code)

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01  Entry into a Material Definitive Agreement

Item 2.03  Creation of a Direct Financial Obligation

Item 3.02  Unregistered Sales of Equity Securities

Closing on Private Placement.  On July 15, 2010, Applied DNA Sciences, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the purchasers named therein (the “Purchasers”), pursuant to which the Company issued and sold to the Purchasers an aggregate of $1,100,000 in principal amount of senior secured convertible notes (the “Notes”) bearing interest at a rate of 10% per annum (the “Private Placement”).

The Notes are convertible, in whole or in part, at any time, at the option of the Purchasers, into either (A) such number of shares of the Company’s common stock, $0.001 par value per share  (“Common Stock”), determined by dividing (i) the principal amount of each Note, together with any and all accrued and unpaid interest and penalties, by (ii) a conversion price of $0.04405, 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 (the “Common Conversion Price”) or (B) securities issued in any Subsequent Financing (“Subsequent Securities”) at a conversion price equal to 80% of the price per Subsequent Security paid by investors for Subsequent Securities in a Subsequent Financing (the “Subsequ ent Financing Price”).  A “Subsequent Financing” is the sale by the Company or an affiliate thereof of securities at any time after July 15, 2010 and prior to the earlier of (i) a Qualified Financing or (ii) July 15, 2011.  A Purchaser may convert its Notes in whole in connection with any one Subsequent Financing or in part in connection with one or more Subsequent Financings.

The Notes shall be automatically converted upon the earlier of (I) July 15, 2011 and (II) the completion of a Qualified Financing at the election of each Purchaser into either (A) shares of Common Stock at the Common Conversion Price, (B) Subsequent Securities at a conversion price equal to 80% of the Subsequent Financing Price, or (C) securities issued in a Qualified Financing (the “Qualified Financing Securities”) at a conversion price equal to 80% of the price per Qualified Security paid by investors for the Qualified Securities in the Qualified Financing.  A “Qualified Financing” is the sale by the Company or an affiliate thereof of securities resulting in gross proceeds (before transaction fees and expenses) in a single transaction equal to or in excess of $10 million.

Upon any Change in Control (as defined in the Notes), the Purchasers have the right to require the Company to redeem the Notes, in whole or in part, at a redemption price equal to the Change of Control Redemption Price (as defined in the Notes).

The Notes contain certain events of default that are customarily included in financing of this nature.  If an event of default occurs, the Purchasers may require the Company to redeem the Notes, in whole or in part, at a redemption price equal to the Event of Default Redemption Price (as defined in the Notes).

The Notes bear interest at the rate of 10% per annum and are due and payable in full on July 15, 2011.  Until the principal and accrued but unpaid interest under the Notes are paid in full, or converted into Conversion Shares pursuant to their terms, the Company’s obligations under the Notes will be secured by a lien on all assets of the Company and the assets of APDN (B.V.I.) Inc., the Company’s wholly-owned subsidiary (“APDN BVI”), in favor of Etico Capital, LLC, as Collateral Agent for the Purchasers pursuant to security agreements dated as of the date of the Purchase Agreement (the “Security Agreements”).  In addition, pursuant to a security agreement dated as of the date of the Purchase Agreement (the “Prior Investor Security Agreement”), APDN BVI granted a lien on all of its assets to secure the Company’s obligations on $2,700,000 aggregate principal amount of promissory notes issued to prior investors.  The security interest granted pursuant to the Prior Investor Security Agreement ranks pari passu with the security interest granted in favor of Etico Capital, LLC.

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The Company also entered into a registration rights agreement, dated as of the date of the Purchase Agreement (the “Registration Rights Agreement”), with the Purchasers, pursuant to which the Company has agreed to prepare and file a registration statement with the Securities Exchange Commission (the “SEC”) to register under the Securities Act of 1933, as amended (the “Securities Act”) resales from time to time of the Conversion Shares issued or issuable upon conversion or redemption of the Notes.  The Company is required to file a registration statement within 45 days of receiving a Demand Registration Request (as defined in the Registration Rights Agreement), and to cause the registration statement to be declared effective within 45 days (or 90 days if the registration statement is review ed by the SEC).  The Company will be required to pay penalties to Purchasers in the event that these deadlines are not met.

Basis Financial LLC, a registered broker dealer firm, (the “Placement Agent”), acted as our placement agent with respect to the Private Placement.  In connection with the Private Placement, the Company paid the Placement Agent commissions and discounts aggregating $110,000.  In addition, the Placement Agent received 3,297,286 shares of the Company’s Common Stock and was issued a warrant with a seven-year term to purchase 10% of the securities sold in the Private Placement (the “Warrant”).

The Private Placement, as well as the issuance of shares of Common Stock and the Warrant to the Placement Agent, was completed in reliance upon the exemption from registration provided for by Section 4(2) of the Securities Act and by Rule 506 of Regulation D promulgated under the Securities Act.  Each of the Purchasers represented to the Company in the Purchase Agreement that it is an “accredited investor” as that term is defined in Rule 501 of Regulation D.  This Current Report on Form 8-K shall not constitute an offer to sell, the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.

Copies of the form of Purchase Agreement, the form of Note, the form of Registration Rights Agreement, the Security Agreements, the form of Prior Investor Security Agreement and the form of Warrant are attached as exhibits and are incorporated herein by reference.  The respective descriptions of the Purchase Agreement, Note, Registration Rights Agreement, Security Agreements, Prior Security Agreement and the Warrant contained herein are brief summaries only and are qualified in their entirety by the respective terms of each document incorporated herein by reference.

Cancellation and Reissuance of Prior Notes. On July 15, 2010, the Company cancelled a $450,000 principal amount promissory note previously issued to an accredited investor (“Prior Investor”) on June 4, 2010 and, in lieu thereof, issued to the Prior Investor a $450,000 principal amount senior secured convertible note (the “Conversion Note”) containing the same terms as the form of Note issued to the Purchasers in the Private Placement, which terms are described in Item 1.01 of this Current Report on Form 8-K.  In connection with the sale of the Conversion Note to the Prior Investor, the Company paid the Placement Agent commissions and discounts aggregating $22,500.

On the same date, the Company cancelled a $675,000 principal amount promissory note previously issued to James A. Hayward, the Company’s Chairman, President and Chief Executive Officer on June 4, 2010 (the “Prior Hayward Note”), and, in lieu thereof, issued to Dr. Hayward a $450,000 principal amount senior secured convertible note containing the same terms as the form of Note issued to the Purchasers in the Private Placement, which terms are described in Item 1.01 of this Current Report on Form 8-K (the “New Hayward Note”), and a $225,000 principal amount promissory note containing the same terms as the Prior Hayward Note, which terms were reported on our Current Report on Form 8-K filed with the SEC on June 8, 2010 (the “Revised Hayward Note”).  A copy of the Revised Hayward Note is attached as an exhibit hereto and is incorporated herein by reference.

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As of the result of the transactions described above, on July 15, 2010, the Company issued an aggregate of $2,000,000 in principal amount of senior secured convertible notes.

Item 9.01 Financial Statements and Exhibits

(d)Exhibits.
Exhibit 10.1	Form of Securities Purchase Agreement.
Exhibit 10.2	Form of Note.
Exhibit 10.3	Form of Registration Rights Agreement.
Exhibit 10.4	Security Agreement, dated July 15, 2010, made by the Company in favor of Etico Capital, LLC.
Exhibit 10.5	Security Agreement, dated July 15, 2010, made by APDN BVI in favor of Etico Capital, LLC.
Exhibit 10.6	Trademark Security Agreement, dated July 15, 2010, made by the Company in favor of Etico Capital, LLC.
Exhibit 10.7	Trademark Security Agreement, dated July 15, 2010, made by APDN BVI in favor of Etico Capital, LLC.
Exhibit 10.8	Trademark Security Agreement, dated July 15, 2010, made by APDN BVI, as successor in interest by merger to Rixflex Holdings Limited, in favor of Etico Capital, LLC.
Exhibit 10.9	Patent Security Agreement, dated July 15, 2010, made by APDN BVI in favor of Etico Capital, LLC.
Exhibit 10.10	Patent Security Agreement, dated July 15, 2010, made by APDN BVI, as successor in interest by merger to Rixflex Holdings Limited, in favor of Etico Capital, LLC.
Exhibit 10.11	Form of Prior Investor Security Agreement.
Exhibit 10.12	Form of Warrant.
Exhibit 10.13	10% Secured Convertible Promissory Note issued by the Company to James A. Hayward.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Applied DNA Sciences, Inc.

(Registrant)

By: /s/ James A. Hayward

James A. Hayward

Chief Executive Officer

Date: July 16, 2010

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EX-10.1

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 Sharesissuable 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) 10,000,000shares 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 Notesat 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.

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(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.

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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.

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(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.

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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.

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(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.

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(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 theConversion 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 AmericanStock Transferand 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”);

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July 15, 2010

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(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.

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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.

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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”);

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(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.

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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.

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(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.

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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.

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(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.

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(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.

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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

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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.

EX-10.2

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.

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(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:”

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(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;

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(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.

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(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.

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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.

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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.

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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).

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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 IssuanceDate 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.

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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.

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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.

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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]

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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.

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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.

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(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”).

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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:

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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.

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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.

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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”).

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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.

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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.

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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.

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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:

EX-10.3

Exhibit 10.3

REGISTRATION RIGHTS AGREEMENT

REGISTRATION RIGHTS AGREEMENT (this “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 undersigned buyers (each, a “Buyer”, and collectively, the “Buyers”).

WHEREAS:

A.           In connection with the Securities Purchase Agreement, dated as of July 15, 2010, by and among the Company and the Buyers (the “Securities Purchase Agreement”), the Company has agreed, upon the terms and subject to the conditions set forth in the Securities Purchase Agreement, to issue and sell to each Buyer senior secured convertible notes of the Company (the “Notes”), which may, among other things, be convertible into shares of the Company’s common stock, $0.001 par value per share (the “Common Stock,” as converted, the “Conversion Shares”) in accordance with the terms of the Notes.

B.           To induce the Buyers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “1933 Act”), and applicable state securities laws.

NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Buyers hereby agree as follows:

1.  Definitions.

Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement.  As used in this Agreement, the following terms shall have the following meanings:

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

b.“Effective Date” means the date the Registration Statement (as defined below) is declared effective by the SEC.

c.“Effectiveness Deadline” means, with respect to any registration statement required to be filed to cover the resale by the Investors of the Registrable Securities pursuant to Section 2, 45 days after the Filing Date, or if there is a review of the Registration Statement by the SEC, 90 days after the Filing Date.

d.“Filing Date” means with respect to any registration statement required to be filed to cover the resale by the Investors of the Registrable Securities pursuant to Section 2.

e.“Filing Deadline” means with respect to any registration statement required to be filed to cover the resale by the Investors of the Registrable Securities pursuant to Section 2, 45 days following the Demand Registration Request (as defined below), unless the Demand Registration Request is made after September 30, 2010 but before the financial statements for the year ended September 30, 2010 are available, in which case the Filing Deadline means the later of (i) one Business Day following the availability of the financial statements fo r the year ended September 30, 2010 and (ii) 45 days following the Demand Registration Request.

f.“Investor” means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9.

g.“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.

h.“register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415 and the declaration or ordering of effectiveness of such Registration Statement(s) by the SEC.

i.“Registrable Securities” means (i) the Conversion Shares issued or issuable upon conversion or redemption of the Note and (ii) any share capital of the Company issued or issuable with respect to the Conversion Shares or the Notes as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise.

j.“Registration Statement” means a registration statement or registration statements of the Company filed under the 1933 Act covering the Registrable Securities.

k.“Required Holders” means the holders of at least a majority of the Registrable Securities.

l.“Rule 415” means Rule 415 under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis.

m.    “SEC” means the United States Securities and Exchange Commission.

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2.  Registration.

a.Demand Registration.  Subject to the terms and conditions of this Agreement, if at any time following the date hereof the Company receives a written request from the Required Holders that the Company register under the 1933 Act any of the Registrable Securities held by the Required Holders (such a written request being hereinafter referred to as a “Demand Registration Request”), the Company shall file, as promptly as re asonably practicable but no later than the Filing Deadline, a registration statement under the 1933 Act covering all of the Registrable Securities. The registration statement shall be on Form S-1 (except if the Company is not then eligible to register for resale the Registrable Securities on Form S-1, in which case such registration shall be on another appropriate form for such purpose).  The Registration Statement shall contain the “Selling Shareholders” and “Plan of Distribution” sections in substantially the form attached hereto as Exhibit B. The Company shall use its reasonable efforts to cause the registration statement to be declared effec tive or otherwise to become effective under the 1933 Act as soon as reasonably practicable but, in any event, no later than the Effectiveness Deadline.  By 9:30 am on the date following the Effective Date, the Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with sales pursuant to such Registration Statement.

b.Eligibility for Form S-3.  If at any time the Company becomes eligible to register the resale of the Registrable Securities on Form S-3, it shall promptly convert any then effective Registration Statement(s) to Form S-3 and shall file any future Registration Statements on Form S-3 so long as so eligible.

c.Effect of Failure to File and Obtain and Maintain Effectiveness of Registration Statement.  If (i) a Registration Statement covering Registrable Securities required to be covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not filed with the SEC on or before the respective Filing Deadline (a “Filing Failure”) or (B) not declared effective by the SEC on or before the respective Effec tiveness Deadline (an “Effectiveness Failure”) or (ii) on any day after the Effective Date sales of all of the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(q)) pursuant to such Registration Statement (including, without limitation, because of a failure to keep such Registration Statement effective or a failure to disclose such information as is necessary for sales to be made pursuant to such Registration Statement) (a “Maintenance Failure”) then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), the Company shall pay to each holder of Registrable Securities relating to such Registration Statement an amount in cash equal to one percent (1.0%) of the aggregate Purchase Price (as such term is defined in the Securities Purchase Agreement) of such Investor’s Notes relating to the Registrable Securities included in such Registration Statement on each of the following dates: (i) the day of a Filing Failure and on every thirtieth day (pro rated for periods totaling less than thirty (30) days) thereafter until the earlier of the date such Filing Failure is cured and the date all of the Registrable 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 thereto) promulgated under the 1933 Act; (ii) the day of an Effectiveness Failure and on every thirtieth day (pro rated for periods totaling less than thirty (30) days) thereafter until the earlier of the date such Effectiveness Failure is cured and the date all of the Registrable 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 thereto) promulgated under the 1933 Act; and (iii) the initial day of a Maintenance Failure and on every thirtieth day (pro rated for periods totaling less than thirty (30) days) thereafter until the earlier of the date such Maintenance Failure is cured and the date all of the Registrable 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 thereto) promulgated under the 1933 Act.  The payments to which a holder shall be entitled pursuant to this Section 2(c) are referred to herein as “Registration Delay Payments”.  Registration Delay Payments shall be paid on the day of the Filing Failure, Effectiveness Failure and the initial day of a Maintenance Failure, as applicable, and thereafter on the earlier of (I) the thirtieth day after the event or failure giving rise to the Registration Delay Payments has occurred, (II) the third Business Day after the event or failure giving rise to the Registration Delay Payments is cured and (III) the date all of the Registrable 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 thereto) promulgated under the 1933 Act.  In the event the Company fails to make Registration Delay Payments in a timely manner, such Registration Delay Payments shall bear interest at the rate of one percent (1.0%) per month (prorated for partial months) until paid in full but in no event in excess of the maximum amount of interest permissible under applicable law.  Notwithstanding anything herein to the contrary, in no event s hall the Registration Delay Payments exceed twelve percent (12.0%) of the aggregate Purchase Price for all Investors (the “Registration Delay Payments Cap”).  Any amount in excess of the Registration Delay Payments Cap (the “Excess Registration Delay Payments”) shall cause the Conversion Price of the Investor’s Notes to be lowered by an amount equal to the quotient of the amount of such Investors Excess Registration Delay Payments divided by the then outstanding amount of such Investor’s Notes.  Notwithstanding anything to the contrary contained herein, no Registration Delay Payments shall be payable with respect to any Registrable Securities excluded from a Registration Statement by election of an Investor.

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3.  Related Obligations.

At such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a) or 2(b), the Company will use its reasonable efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:

a.The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities and use its reasonable efforts to cause such Registration Statement relating to the Registrable Securities to become effective as soon as reasonably practicable after such filing (but in no event later than the Effectiveness Deadline).  The Company shall keep each Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by such Registration Statement without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under the 1933 Act or (ii) the date on which the Investors shall have sold all of the Registrable Securities covered by such Registration Statement (the “Registration Period”).  The Company shall ensure that each Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of prospectuses, in the light of the circumstances in which they were made) not misleading.  The term “reasonable efforts” shall mean, among other things, that the Company shall submit to the SEC, within two (2) Business Days after the later of the date that (i) th e Company learns that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has no further comments on a particular Registration Statement, as the case may be, and (ii) the approval of Investors whose Registrable Securities are included in such Registration Statement (which approval is immediately sought), a request for acceleration of effectiveness of such Registration Statement to a time and date, subject to acceptance by the SEC, not later than two (2) Business Days after the submission of such request.

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b.The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall ha ve been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement.  In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company filing a report on Form 10-Q, Form 10-K, or any analogous report under the Securities Exchange Act of 1934, as amended (the “1934 Act”), the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the SEC as soon as reasonably practicable after the 1934 Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement.

c.The Company shall permit the Investors whose Registrable Securities are included in any Registration Statement to review (i) a Registration Statement at least three (3) Business Days prior to its filing with the SEC and (ii) all amendments and supplements to all Registration Statements (except for Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q or any similar or successor reports) within a reasonable number of days prior to their filing with the SEC.  The Company shall furnish to the Investors whose Registrable Securities are included in a Registration Statement, without charge, (i) copies of any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any Registration Statement, (ii) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by an such Investor, and all exhibits and (iii) upon the effectiveness of any Registration Statement, such number of copies of the prospectus included in such Registration Statement and all amendments and supplements thereto as such Investor may reasonably request.

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d.The Company shall use its reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by the Investors of the Registrable Securities covered by a Registration Statement under such other securities or “blue sky” laws of all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (w) make any change to its certificate of incorporation or bylaws, (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction.  The Company shall promptly notify each Investor of the Registrable Securities covered by a Registration Statement of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of an y of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of notice of the initiation or threatening of any proceeding for such purpose.

e.The Company shall notify each Investor of the Registrable Securities covered by a Registration Statement in writing of the happening of any event, as promptly as reasonably practicable after becoming aware of such event, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and, subject to Se ction 3(q), promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to such Investor as such Investor may reasonably request.  The Company shall also promptly notify each Investor of the Registrable Securities covered by a Registration Statement in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each such Investor by facsimile or e-mail on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a Registration Statement would be appropriate.< /font>

f.The Company shall use its reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of notice of the initiation or threat of any proceeding for such purpose.

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g.If any Investors of the Registrable Securities covered by a Registration Statement is required under applicable securities laws to be described in the Registration Statement as an underwriter, at the reasonable request of such Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) a letter, dated as of such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten pub lic offering, addressed to such Investor, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to such Investor.

h.Upon the written request of any Investor of the Registrable Securities covered by a Registration Statement in connection with such Investor’s due diligence requirements, if any, the Company shall make available for inspection by such Investor or agents retained by such Investor (collectively, the “Inspectors”), all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally a vailable to the public other than by disclosure in violation of this Agreement or any other agreement.  Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.  Nothing herein shall be deemed to limit the Investors’ ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

i.The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement.  The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor of the Registrable Securities covered by a Registration Statement is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at such Investor’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

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j.The Company shall use its reasonable efforts either to (i) cause all of the Registrable Securities covered by a Registration Statement to be listed or quoted on each securities exchange, bulletin board or quotation system on which securities of the same class or series issued by the Company are then listed or quoted.

k.The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request.

l.If requested by an Investor of the Registrable Securities covered by a Registration Statement, the Company shall (i) as soon as reasonably practicable incorporate in a prospectus supplement or post-effective amendment such information as such Investor reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) as soon as reasonably practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) as soon as reasonably practicable, supplement or make amendments to any Registration Statement if reasonably requested by such Investor holding any Registrable Securities.

m.    The Company shall use its reasonable efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

n.The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Company’s fiscal quarter next following the effective date of a Registration Statement.

o.The Company shall otherwise use its reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

p.Within two (2) Business Days after a Registration Statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.

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q.Notwithstanding anything to the contrary herein, at any time after the Effective Date, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company otherwise required (a “Grace Period”); provided that no Grace Period shall exceed ten (10) consecutive days and during any three hundred sixty five (365) day period such Grace Periods shall not exceed an aggregate of twenty-five (25) days and the first day of any Grace Period must be at least five (5) trading days after the last day of any prior Grace Period (each, an “Allowable Grace Period”).  For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Investors receive the notice referred to in clause (i) and shall end on and include the later of the date the Investors receive the notice referred to in clause (ii) and the date referred to in such notice.  The provisions of Section 3(f) hereof shall not be applicable during the period of any Allowable Grace Period.  Upon expiration of the Grace Period, the Company shall again be bound by the first sen tence of Section 3(e) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable.  Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale and delivered a copy of the prospectus included as part of the Registration Statement (unless an exemption from such prospectus delivery requirement exists) prior to the Investor’s receipt of the notice of a Grace Period and for which the Investor has not yet settled.

4.  Obligations of the Investors.

a.At least five (5) Business Days prior to the first anticipated filing date of a Registration Statement, the Company shall notify each Investor whose Registrable Securities are to be included in a Registration Statement in writing of the information the Company requires from each such Investor.  It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.

b.Each Investor whose Registrable Securities are to be included in a Registration Statement agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder.

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c.Each Investor whose Registrable Securities are to be included in a Registration Statement agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of 3(e), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or the first sentence of 3(e) or receipt of notice that no supplement or amendment is required.

d.Each Investor whose Registrable Securities are to be included in a Registration Statement covenants and agrees that it will comply with the prospectus delivery requirements of the 1933 Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to the Registration Statement.

5.  Expenses of Registration.

All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company shall be paid by the Company.

6.  Indemnification.

In the event any Registrable Securities are included in a Registration Statement under this Agreement:

a.To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor whose Registrable Securities are included in a Registration Statement, the directors, officers, members, partners, employees, agents, representatives of, and each Person, if any, who controls any Investor whose Registrable Securities are included in a Registration Statement within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon:  (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in the light of the circumstances under whic h the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”).  Subject to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a):  (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) and (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or delayed.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.

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b.In connection with any Registration Statement in which a Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each, an “Indemnified Party”), against any Claim or Indemnified Damages to which any of them may b ecome subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(c), such Investor will reimburse any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreason ably withheld or delayed; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.  Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented.

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c.Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding.  In the case of an Indemnified Person, legal counsel referred to in the immediately preceding sentence shall be selected by the Investors holding at least a majorityin interest of the Registrable Securities included in the Registration Statement to which the Claim relates.  The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim.  The indemnifying party shall keep the Indemnified Party or Indemnified Person reasonably apprised at all times as to the status of the defense or any settlement negotiations with respect thereto.  No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent.  No indemnifying party shall , without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim or litigation, and such settlement shall not include any admission as to fault on the part of the Indemnified Party.  Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.

d.The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.

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e.The indemnity agreements contained herein shall be in addition to  (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.

7.  Contribution.

To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that:  (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable S ecurities pursuant to such Registration Statement.

8.  Reports Under the 1934 Act.

With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees to:

a.make and keep public information available, as those terms are understood and defined in Rule 144;

b.file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and

c.furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.

9.   Assignment of Registration Rights.

The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of such Investor’s Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act or applicable state securities la ws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement.

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10.Amendment of Registration Rights.

Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Holders.  Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company.  No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities.  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 this Agreement unless the same consideration also is offered to all of the parties to this Agreement.

11.Miscellaneous.

a.A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities.  If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the such record owner of such Registrable Securities.

b.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 (1) Business Day after deposit with a nationally recognized overnight delivery 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

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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.

If to a Buyer, to its address and facsimile number set forth on the Schedule of Buyers attached hereto, 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 a courier or overnight courier service shall be rebuttable evidence of personal servi ce, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.

c.Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.

d.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 t ransaction 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.  If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or e nforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.  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 HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

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e.This Agreement, the other Transaction Documents (as defined in the Securities Purchase Agreement) and the instruments referenced herein and therein constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.  There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein.  This Agreement, the other Transaction Documents and the instruments referenced herein and therein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.

f.Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.

g.The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

h.This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement.  This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.

i.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.

j.All consents and other determinations required to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders.

k.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.

l.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.

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m.    The obligations of each Investor hereunder are several and not joint with the obligations of any other Investor, and no provision of this Agreement is intended to confer any obligations on any Investor vis-à-vis any other Investor.  Nothing contained herein, and no action taken by any Investor pursuant hereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated herein.

[Signature Page Follows]

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

[BUYERS]:
By:
	Name:
	Title:

SCHEDULE OF BUYERS

Buyer Buyer’s Address and Facsimile Number Buyer’s Representative’s
Address and Facsimile Number

EXHIBIT A

FORM OF NOTICE OF EFFECTIVENESS

OF REGISTRATION STATEMENT

American Stock Transfer and Trust Company

6201 15th Ave.

Brooklyn, New York 11219

Telephone: (718) 921-8210

Facsimile: (718) 921-8355

Attention:      [                ]

Re:         APPLIED DNA SCIENCES, INC. INC.

Ladies and Gentlemen:

[We are][I am] counsel to Applied DNA Sciences, Inc., a Delaware corporation (the “Company”), and have represented the Company in connection with that certain Securities Purchase Agreement, dated as of July 15, 2010 (the “Securities Purchase Agreement”), entered into by and among the Company and the buyers named therein (collectively, the “Holders”) pursuant to which the Company issued to the Holders secured convertible notes (the “Notes”) which are 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 Holders (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the resale of 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 _______, 2010, 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 Holders as a selling shareholder thereunder.

In connection with the foregoing, [we][I] advise you that a member of the SEC’s staff has advised [us][me] 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] [I] 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 Holders 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.

	Very truly yours,
	[ISSUER’S COUNSEL]
	By:
CC:            [LIST NAMES OF HOLDERS]

EXHIBIT B

SELLING STOCKHOLDERS

The shares of common stock being offered by the selling shareholders are those issuable upon conversion of the secured convertible notes.  We are registering the shares of common stock in order to permit the selling shareholders to offer the shares for resale from time to time.  Except for the ownership of the secured convertible notes, the selling shareholders have not had any material relationship with us within the past three years.

The table below lists the selling shareholders and other information regarding the beneficial ownership of the shares of common stock by each of the selling shareholders.  The second column lists the number of shares of common stock beneficially owned by each selling shareholder, based on its ownership of the shares of the secured convertible notes, as of ________, 2010, assuming conversion of all secured convertible notes held by the selling shareholders on that date, without regard to any limitations on conversions and/or redemptions of the secured convertible notes.

The third column lists the shares of common stock being offered by this prospectus by the selling shareholders.

The fourth column assumes the sale of all of the shares offered by the selling shareholders pursuant to this prospectus.

PLAN OF DISTRIBUTION

We are registering the shares of common stock issuable upon conversion of the secured convertible notes to permit the resale of these shares of common stock by the holders of the secured convertible notes from time to time after the date of this prospectus.  We will not receive any of the proceeds from the sale by the selling shareholders of the shares of common stock.  We will bear all fees and expenses incident to our obligation to register the shares of common stock.

The selling shareholders may sell all or a portion of the shares of common stock beneficially owned by them and offered hereby from time to time directly or through one or more underwriters, broker-dealers or agents.  If the shares of common stock are sold through underwriters or broker-dealers, the selling shareholders will be responsible for underwriting discounts or commissions or agent’s commissions.  The shares of common stock may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices.  These sales may be effected in transactions, which may involve crosses or block transactions,

● on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

● in the over-the-counter market;

● in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

● through the writing of options, whether such options are listed on an options exchange or otherwise;

● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

● block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

● purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

● an exchange distribution in accordance with the rules of the applicable exchange;

● privately negotiated transactions;

● short sales;

● sales pursuant to Rule 144;

● broker-dealers may agree with the selling shareholders to sell a specified number of such shares at a stipulated price per share;

● a combination of any such methods of sale; and

● any other method permitted pursuant to applicable law.

If the selling shareholders effect such transactions by selling shares of common stock to or through underwriters, broker-dealers or agents, such underwriters, broker-dealers or agents may receive commissions in the form of discounts, concessions or commissions from the selling shareholders or commissions from purchasers of the shares of common stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions or commissions as to particular underwriters, broker-dealers or agents may be in excess of those customary in the types of transactions involved).  In connection with sales of the shares of common stock or otherwise, the selling shareholders may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the shares of common stock in the course o f hedging in positions they assume.  The selling shareholders may also sell shares of common stock short and deliver shares of common stock covered by this prospectus to close out short positions and to return borrowed shares in connection with such short sales.  The selling shareholders may also loan or pledge shares of common stock to broker-dealers that in turn may sell such shares.

The selling shareholders may pledge or grant a security interest in some or all of the secured convertible notes or shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933, as amended, amending, if necessary, the list of selling shareholders to include the pledgee, transferee or other successors in interest as selling shareholders under this prospectus.  The selling shareholders also may transfer and donate the shares of common stock in other circumstances in which case the transferees, donees, pledgees or other successors in interest wil l be the selling beneficial owners for purposes of this prospectus.

The selling shareholders and any broker-dealer participating in the distribution of the shares of common stock may be deemed to be “underwriters” within the meaning of the Securities Act, and any commission paid, or any discounts or concessions allowed to, any such broker-dealer may be deemed to be underwriting commissions or discounts under the Securities Act.  At the time a particular offering of the shares of common stock is made, a prospectus supplement, if required, will be distributed which will set forth the aggregate amount of shares of common stock being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions and other terms constituting compensation from the selling shareholders and any discounts, commissions or concessions allowed o r reallowed or paid to broker-dealers.

Under the securities laws of some states, the shares of common stock may be sold in such states only through registered or licensed brokers or dealers.  In addition, in some states the shares of common stock may not be sold unless such shares have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.

There can be no assurance that any selling shareholder will sell any or all of the shares of common stock registered pursuant to the shelf registration statement, of which this prospectus forms a part.

The selling shareholders and any other person participating in such distribution will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder, including, without limitation, Regulation M of the Exchange Act, which may limit the timing of purchases and sales of any of the shares of common stock by the selling shareholders and any other participating person.  Regulation M may also restrict the ability of any person engaged in the distribution of the shares of common stock to engage in market-making activities with respect to the shares of common stock.  All of the foregoing may affect the marketability of the shares of common stock and the ability of any person or entity to engage in market-making activities with respect to the shares of common stock.

We will pay all expenses of the registration of the shares of common stock pursuant to the registration rights agreement, estimated to be $[_______] in total, including, without limitation, Securities and Exchange Commission filing fees and expenses of compliance with state securities or “blue sky” laws; provided, however, that a selling shareholder will pay all underwriting discounts and selling commissions, if any.  We will indemnify the selling shareholders against liabilities, including some liabilities under the Securities Act, in accordance with the registration rights agreements, or the selling shareholders will be entitled to contribution.  We may be indemnified by the selling shareholders against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the selling shareholder specifically for use in this prospectus, in accordance with the related registration rights agreement, or we may be entitled to contribution.

Once sold under the shelf registration statement, of which this prospectus forms a part, the shares of common stock will be freely tradable in the hands of persons other than our affiliates.

EX-10.4

Exhibit 10.4

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of July 15, 2010 (this “Agreement”) made by APPLIED DNA SCIENCES, INC., a Delaware corporation (the “Grantor”),  in favor of ETICO CAPITAL, LLC., a limited liability company organized under the laws of the Delaware, in its capacity as collateral agent (in such capacity, the “Collateral Agent”) for the “Buyers” (as defined below) party to the Securities Purchase Agreement, dated as of even date herewith (as amended, restated or otherwise modified from time to time, the “Securities Purchase Agreement”).

W I T N E S S E T H:

WHEREAS, the Company and each party listed as a “Buyer” on the Schedule of Buyers attached thereto (collectively, the “Buyers”) are parties to the Securities Purchase Agreement, pursuant to which the Company shall be required to sell, and the Buyers shall purchase or have the right to purchase, the “Notes” (as defined therein) issued pursuant thereto (as such Notes may be amended, restated, replaced or otherwise modified from time to time in accordance with the terms thereof, collectively, the “Notes”); and

WHEREAS, it is a condition precedent to the Buyers purchasing the Notes pursuant to the Securities Purchase Agreement that the Grantor shall have executed and delivered to the Collateral Agent this Agreement providing for the grant to the Collateral Agent for the benefit of the Buyers of a security interest in all personal property of the Grantor to secure all of the Company’s obligations under the Securities Purchase Agreement, the Notes, and the “Transaction Documents” (as defined in the Securities Purchase Agreement) (the “Transaction Documents”).

NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Buyers to perform under the Securities Purchase Agreement, the Grantor agrees with the Collateral Agent, for the benefit of the Buyers, as follows:

SECTION 1.Definitions.

(a)Reference is hereby made to the Securities Purchase Agreement and the Notes for a statement of the terms thereof. All terms used in this Agreement and the recitals hereto which are defined in the Securities Purchase Agreement, the Notes or in Articles 8 or 9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the “Code”), and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

(b)As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

“Copyright Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Grantor as licensee or licensor and providing for the grant of any right to use or sell any works covered by any copyright (including, without limitation, all Copyright Licenses set forth in Schedule II hereto).

“Copyrights” means all domestic and foreign copyrights, whether registered or not, including, without limitation, all copyright rights throughout the universe (whether now or hereafter arising) in any and all media (whether now or hereafter developed), in and to all original works of authorship fixed in any tangible medium of expression, acquired or used by the Grantor (including, without limitation, all copyrights described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Copyright Office or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

“Event of Default” shall have the meaning set forth in the Notes.

“Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“Intellectual Property” means the Copyrights, Trademarks and Patents.

“Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.

“Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights).

“Patent Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Grantor as licensee or licensor and providing for the grant of any right to manufacture, use or sell any invention covered by any Patent (including, without limitation, all Patent Licenses set forth in Schedule II hereto).

“Patents” means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and other general intangibles of like nature, now existing or hereafter acquired (including, without limitation, all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how and formulae described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

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“Trademark Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Grantor as licensor or licensee and providing for the grant of any right concerning any Trademark, together with any goodwill connected with and symbolized by any such trademark licenses, contracts or agreements and the right to prepare for sale or lease and sell or lease any and all Inventory now or hereafter owned by the Grantor and now or hereafter covered by such licenses (including, without limitation, all Trademark Licenses described in Schedule II hereto).

“Trademarks” means all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers and all general intangibles of like nature, now or hereafter owned, adopted, acquired or used by the Grantor (including, without limitation, all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof), and all reissues, extensions or renewals thereof, together with all goodwill of the business symbolized by such marks and all customer lists, formulae and other Records of the Grantor relating to the distribution of products and services in connection with which any of such marks are used.

SECTION 2.Grant of Security Interest.  As collateral security for all of the “Obligations” (as defined in Section 3 hereof), the Grantor hereby pledges and assigns to the Collateral Agent for the benefit of the Buyers, and grants to the Collateral Agent for the benefit of the Buyers a continuing security interest in, all personal property of the Grantor, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (collectively, the “Collateral”), including, without limitation, the following:

(a)         all Accounts;

(b)         all Chattel Paper (whether tangible or electronic);

(c)         the Commercial Tort Claims specified on Schedule VI hereto;

(d)         all Deposit Accounts, all cash and other property from time to time deposited therein and the monies and property in the possession or under the control of the Collateral Agent or any Buyer or any affiliate, representative, agent or correspondent of the Collateral Agent or any Buyer;

(e)         all Documents;

(f)         all Equipment;

(g)         all Fixtures;

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(h)         all General Intangibles (including, without limitation, all Payment Intangibles);

(i)          all Goods

(j)          all Instruments (including, without limitation, Promissory Notes and each certificated Security);

(k)         all Inventory;

(l)          all Investment Property;

(m)        all Copyrights, Patents and Trademarks, and all Licenses;

(n)         all Letter-of-Credit Rights;

(o)         all Supporting Obligations;

(p)         all other tangible and intangible personal property of the Grantor (whether or not subject to the Code), including, without limitation, all bank and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of the Grantor described in the preceding clauses of this Section 2 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter held by the Grantor in respect of any of the items listed above), and all books, correspondence, files and other Records, including, without limitation, all tapes, desks, cards, Software, data and computer programs in the possession or under the control of the Grantor or any other Person from time to time acting for the Grantor to the extent of the Grantor’s rights therein, that at any time evidence or contain information relating to any of the property described in the preceding clauses of this Section 2 or are otherwise necessary or helpful in the collection or realization thereof; and

(q)         all Proceeds, including all cash Proceeds and non-cash Proceeds, and products of any and all of the foregoing Collateral;

in each case howsoever the Grantor’s interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

The security interest of the Collateral Agent in the Collateral granted hereby is in all respects pari passu with the security interest granted in favor of the individuals and entities listed on Schedule 4(g) hereto pursuant to the secured convertible promissory notes issued by the Company and listed on Schedule 4(g).

SECTION 3.Security for Obligations.  The security interest created hereby in the Collateral constitutes continuing collateral security for all of the Obligations (as hereinafter defined).  The term “Obligations” shall mean for so long as the Notes are outstanding the payment by the Company, as and when due and payable (by scheduled maturity, required prepayment, acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the Securities Purchase Agreement, the Notes and the other Transaction Documents, including, without limitation, (A) all principal of and interest on the Notes (including, without limitation, all interest that accrues after the commencement of any Insolvency Proceeding (as defined in the Security Agreement) of the Grantor, whether or not the payment of such interest is unenforceable or is not allowable due to the existence of such Insolvency Proceeding), and (B) all fees, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under any of the Transaction Documents.

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SECTION 4.Representations and Warranties.  The Grantor represents and warrants as of the date of this Agreement as follows:

(a)         Schedule I hereto sets forth the exact legal name of the Grantor, and the state of incorporation and the organizational identification number of the Grantor in such state.

(b)         There is no pending or, to its knowledge, written notice threatening any action, suit, proceeding or claim affecting the Grantor before any governmental authority or any arbitrator, or any order, judgment or award issued by any governmental authority or arbitrator, in each case, that may adversely affect the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise by the Collateral Agent of any of its rights or remedies hereunder.

(c)         All Federal, state and local tax returns and other reports required by applicable law to be filed by the Grantor have been filed, or extensions have been obtained, and all taxes, assessments and other governmental charges imposed upon the Grantor or any property of the Grantor (including, without limitation, all federal income and social security taxes on employees’ wages) and which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves have been set aside for the payment thereof in accordance with generally accepted accounting principles consistently applied (“GAAP”), and except for taxes that do not, individually or in the aggregate, exceed $50,000 at any one time outstanding.

(d)         All Equipment, Fixtures, Goods and Inventory of the Grantor now existing are, and all Equipment, Fixtures, Goods and Inventory of the Grantor hereafter existing will be, located and/or based at the addresses specified therefor in Schedule III hereto, except that the Grantor will give the Collateral Agent written notice of any change in the location of any such Collateral within 5 days of such change, other than to locations set forth on Schedule III hereto (or a new Schedule III delivered by the Grantor to Collateral Agent from time to time) and with respect to which the Collateral Agent has filed financing statements and otherwise fully perfected its Liens thereon or will take such actions pursuant to Section 5(n).  The Grantor’s chief place of business and chief executive office, the place where the Grantor keeps its Records concerning Accounts and all originals of all Chattel Paper are located at the addresses specified therefor in Schedule III hereto.  None of the Accounts is evidenced by Promissory Notes or other Instruments.  Set forth in Schedule IV hereto is a complete and accurate list, as of the date of this Agreement, of (i) each Promissory Note, Security and other Instrument owned by the Grantor and (ii) each Deposit Account, Securities Account and Commodities Account of the Grantor, together with the name and address of each institution at which each such account is maintained, the account number for each such account and a description of the purpose of each such account. Set forth in Schedule II hereto is a complete and correct list of each trade name used by the Grantor and the name of, and each trade name used by, each person from which the Grantor has acquired any substantial part of the Collateral.

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(e)         The Grantor has delivered to the Collateral Agent complete and correct copies of each License described in Schedule II hereto, including all schedules and exhibits thereto, which represents all of the Licenses existing on the date of this Agreement.  Each such License sets forth the entire agreement and understanding of the parties thereto relating to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to the matters covered thereby or the rights of such Grantor or any of its affiliates in respect thereof.  Each material License now existing is, and any material License entered into in the future will be, the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms. To the knowledge of the Grantor, no default under any material License by any such party has occurred, nor does any defense, offset, deduction or counterclaim exist thereunder in favor of any such party.

(f)         The Grantor owns and controls, or otherwise possesses adequate rights to use, all Trademarks, Patents and Copyrights, which are the only trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, rights of publicity necessary to conduct its business in substantially the same manner as conducted as of the date hereof. Schedule II hereto sets forth a true and complete list of all registered Copyrights, including applications therefor, issued and provisional Patents, including applications therefor, Trademarks, including applications therefor, and Licenses owned or used by the Grantor as of the date hereof. To the best knowledge of the Grantor, all such Intellectual Property of the Grantor is subsisting and in full force and effect, has not been adjudged invalid or unenforceable, is valid and enforceable and has not been abandoned in whole or in part. Except as set forth in Schedule II, no such Intellectual Property is the subject of any licensing or franchising agreement. The Grantor has no knowledge of any conflict with the rights of others to any such Intellectual Property and, to the knowledge of the Grantor, the Grantor is not now infringing or in conflict with any such rights of others in any material respect, and to the best knowledge of the Grantor, no other Person is now infringing or in conflict in any material respect with any such properties, assets and rights owned or used by the Grantor. No Grantor has received any notice that it is violating or has violated the trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, rights of publicity or other intellectual property rights of any third party.

(g)         The Grantor is and will be at all times the sole and exclusive owner of, or otherwise has and will have adequate rights in, the Collateral free and clear of any Liens, except for Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except such as (i) may have been filed in favor of the Collateral Agent and/or the Buyers relating to this Agreement or the other Security Documents and (ii) are described on Schedule 4(g) hereto.

(h)         The exercise by the Collateral Agent of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding on or otherwise affecting the Grantor or any of its properties and will not result in or require the creation of any Lien, upon or with respect to any of its properties.

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(i)          No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body, is required for (i) the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or (ii) the exercise by the Collateral Agent of any of its rights and remedies hereunder, except as follows: (A) for the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements described in Schedule V hereto (or a new Schedule V delivered by the Grantor to Collateral Agent from time to time), all of which financing statements have been duly filed and are in full force and effect or will be duly filed and in full force and effect, (B) with respect to Deposit Accounts, and all cash and other property from time to time deposited therein, for the execution of a control agreement with the depository institution with which such account is maintained, as provided in Section 5(i), (C) with respect to Commodity Contracts, for the execution of a control agreement with the commodity intermediary with which such commodity contract is carried, as provided in Section 5(i), (D) with respect to the perfection of the security interest created hereby in the United States Intellectual Property and Licenses, for the recording of the appropriate documents in the United States Patent and Trademark Office or the United States Copyright Office, as applicable, (E) with respect to the perfection of the security interest created hereby in foreign Intellectual Property and Licenses, for registrations and filings in jurisdictions located outside of the United States and covering rights in such jurisdictions relating to such foreign Intellectual Property and Licenses, (F) with respect to the perfection of the security interest created hereby in Titled Collateral, for the submission of an appropriate application requesting that the Lien of the Collateral Agent be noted on the Certificate of Title or certificate of ownership, completed and authenticated by the Grantor, together with the Certificate of Title or certificate of ownership, with respect to such Titled Collateral, to the appropriate governmental authority, (G) with respect to the perfection of the security interest created hereby in any Letter-of-Credit Rights, for the consent of the issuer of the applicable letter of credit to the assignment of proceeds as provided in the Uniform Commercial Code as in effect in the applicable jurisdiction, (H) with respect to any action that may be necessary to obtain control of Collateral constituting Deposit Accounts, Commodity Contracts, Electronic Chattel Paper, Investment Property or Letter-of-Credit Rights, the taking of such actions, and (I) the Collateral Agent having possession of all Documents, Chattel Paper, Instruments and cash constituting Collateral (subclauses (A), (B), (C), (D), (E), (F), G), (H) and (I), each a “Perfection Requirement” and collectively, the “Perfection Requirements”).

(j)          This Agreement creates in favor of the Collateral Agent a legal, valid and enforceable security interest in the Collateral, as security for the Obligations. The Perfection Requirements result in the perfection of such security interests. Such security interests are, or in the case of Collateral in which the Grantor obtains rights after the date hereof, will be, perfected, first priority security interests, subject only to Permitted Liens and the Perfection Requirements and the financing statements described in Schedule 4(g).

(k)         As of the date hereof, the Grantor holds no Commercial Tort Claims or has knowledge of any pending Commercial Tort Claims, except for such Commercial Tort Claims described in Schedule VI.

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SECTION 5.Covenants as to the Collateral.  So long as any of the Obligations shall remain outstanding, unless the Collateral Agent shall otherwise consent in writing:

(a)         Further Assurances.  The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that the Collateral Agent may reasonably request in order to: (i) perfect and protect the security interest purported to be created hereby; (ii) enable the Collateral Agent to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) otherwise effect the purposes of this Agreement, including, without limitation: (A) marking conspicuously all Chattel Paper and each License and, at the request of the Collateral Agent, each of its Records pertaining to the Collateral with a legend, in form and substance satisfactory to the Collateral Agent, indicating that such Chattel Paper, License or Collateral is subject to the security interest created hereby, (B) delivering and pledging to the Collateral Agent each Promissory Note, Security, Chattel Paper or other Instrument, now or hereafter owned by the Grantor, duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Collateral Agent, (C) executing and filing (to the extent, if any, that the Grantor’s signature is required thereon) or authenticating the filing of, such financing or continuation statements, or amendments thereto, as may be necessary or that the Collateral Agent may reasonably request in order to perfect and preserve the security interest purported to be created hereby, (D) furnishing to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral in each case as the Collateral Agent may reasonably request, all in reasonable detail, (E) if any Collateral shall be in the possession of a third party, notifying such Person of the Collateral Agent’s security interest created hereby and obtaining a written acknowledgment from such Person that such Person holds possession of the Collateral for the benefit of the Collateral Agent, which such written acknowledgement shall be in form and substance reasonably satisfactory to the Collateral Agent, (F) if at any time after the date hereof, the Grantor acquires or holds any Commercial Tort Claim, promptly notifying the Collateral Agent in a writing signed by the Grantor setting forth a brief description of such Commercial Tort Claim and granting to the Collateral Agent a security interest therein and in the proceeds thereof, which writing shall incorporate the provisions hereof and shall be in form and substance satisfactory to the Collateral Agent, (G) upon the acquisition after the date hereof by the Grantor of any motor vehicle or other Equipment subject to a certificate of title or ownership (other than a Motor Vehicle or Equipment that is subject to a purchase money security interest), causing the Collateral Agent to be listed as the lienholder on such certificate of title or ownership and delivering evidence of the same to the Collateral Agent in accordance with Section 5(j) hereof if and to the extent requested by the Collateral Agent and (H) filing, and causing the filing of, such agreements, documents and instruments with the United States Patent and Trademark Office and with all other foreign, federal, state and local governmental agencies and other Persons as, in the sole discretion of the Collateral Agent, were and are necessary to reflect the Grantor’s ownership in all of its Copyrights, Patents and Trademarks.

(b)         Location of Equipment and Inventory.  The Grantor will keep the Equipment and Inventory (i) at the locations specified therefor on Schedule III hereto, or (ii) at such other locations set forth on Schedule III (or a new Schedule III delivered by the Grantor to Collateral Agent from time to time) and with respect to which the Collateral Agent has filed financing statements and otherwise fully perfected its Liens thereon, or (iii) at such other locations in the United States, provided that within 5 days following the relocation of Equipment or Inventory to such other location or the acquisition of Equipment or Inventory, Grantor shall deliver to the Collateral Agent a new Schedule III indicating such new locations.

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(c)           Condition of Equipment.  The Grantor will maintain or cause the Equipment (to the extent necessary or useful to its business) to be maintained and preserved in good condition, repair and working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or damage to any Equipment of the Grantor within a commercially reasonable time after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable, consistent with past practice, or which the Collateral Agent may request.  The Grantor will promptly furnish to the Collateral Agent a statement describing in reasonable detail any such loss or damage in excess of $50,000 per occurrence to any Equipment.

(d)          Taxes, Etc.  The Grantor agrees to pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith by appropriate proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been set aside for the payment thereof.

(e)           Provisions Concerning the Accounts and the Licenses.

(i)         The Grantor will (A) give the Collateral Agent at least 30 days’ prior written notice of any change in such Grantor’s name, identity or organizational structure, (B) maintain its jurisdiction of incorporation, organization or formation as set forth in Schedule I hereto, (C) immediately notify the Collateral Agent upon obtaining an organizational identification number, if on the date hereof such Grantor did not have such identification number, and (D) keep adequate records concerning the Accounts and Chattel Paper and permit representatives of the Collateral Agent during normal business hours on reasonable notice to such Grantor, to inspect and make abstracts from such Records and Chattel Paper.

(ii)         The Grantor will, except as otherwise provided in this subsection (f), continue to collect, at its own expense, all amounts due or to become due under the Accounts. In connection with such collections, the Grantor may (and, at the Collateral Agent’s direction, will) take such action as the Grantor or the Collateral Agent may deem necessary or advisable to enforce collection or performance of the Accounts; provided, however, that the Collateral Agent shall have the right at any time, upon the occurrence and during the continuance of an Event of Default, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to the Collateral Agent and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Grantor thereunder directly to the Collateral Agent or its designated agent and, upon such notification and at the expense of the Grantor and to the extent permitted by law, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as the Grantor might have done. After receipt by the Grantor of a notice from the Collateral Agent that the Collateral Agent has notified, intends to notify, or has enforced or intends to enforce the Grantor’s rights against the account debtors or obligors under any Accounts as referred to in the proviso to the immediately preceding sentence, (A) all amounts and proceeds (including Instruments) received by the Grantor in respect of the Accounts shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Collateral Agent in the same form as so received (with any necessary endorsement) to be applied as specified in Section 7(b) hereof, and the Grantor will not adjust, settle or compromise the amount or payment of any Account or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon. In addition, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent may (in its sole and absolute discretion) direct any or all of the banks and financial institutions with which the Grantor either maintains a Deposit Account or a lockbox or deposits the proceeds of any Accounts to send immediately to the Collateral Agent by wire transfer (to such account as the Collateral Agent shall specify, or in such other manner as the Collateral Agent shall direct) all or a portion of such securities, cash, investments and other items held by such institution. Any such securities, cash, investments and other items so received by the Collateral Agent shall be applied as specified in accordance with Section 7(b) hereof.

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(iii)        Upon the occurrence and during the continuance of any breach or default under any material License referred to in Schedule II hereto by any party thereto other than the Grantor, the Grantor party thereto will, promptly after obtaining knowledge thereof, give the Collateral Agent written notice of the nature and duration thereof, specifying what action, if any, it has taken and proposes to take with respect thereto and thereafter will take reasonable steps to protect and preserve its rights and remedies in respect of such breach or default, or will obtain or acquire an appropriate substitute License.  The Grantor will, at its expense, promptly deliver to the Collateral Agent a copy of each notice or other communication received by it by which any other party to any material License referred to in Schedule II hereto purports to exercise any of its rights or affect any of its obligations thereunder, together with a copy of any reply by such Grantor thereto.  The Grantor will exercise promptly and diligently each and every right which it may have under each material License (other than any right of termination) and will duly perform and observe in all respects all of its obligations under each material License and will take all action reasonably necessary to maintain such Licenses in full force and effect. The Grantor will not, without the prior written consent of the Collateral Agent, cancel, terminate, amend or otherwise modify in any respect, or waive any provision of, any material License referred to in Schedule II hereto.

(f)           Transfers and Other Liens.

(i)         The Grantor will not sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any of the Collateral, except as expressly permitted by the other Transaction Documents.

(ii)        The Grantor will not create, suffer to exist or grant any Lien upon or with respect to any Collateral other than a Permitted Lien.

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(g)           Intellectual Property.

(i)         If applicable, the Grantor shall, upon the Collateral Agent’s written request, duly execute and deliver a security agreement or security agreements relating to Intellectual Property. The Grantor (either itself or through licensees) will, and will cause each licensee thereof to, take all action necessary to maintain all of the Intellectual Property in full force and effect, including, without limitation, using the proper statutory notices and markings and using the Trademarks on each applicable trademark class of goods in order to so maintain the Trademarks in full force and free from any claim of abandonment for non-use, and the Grantor will not (nor permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Intellectual Property may become invalidated; provided, however, that so long as no Event of Default has occurred and is continuing, the Grantor shall have no obligation to use or to maintain any Intellectual Property (A) that relates solely to any product or work, that has been, or is in the process of being, discontinued, abandoned or terminated, (B) that is being replaced with Intellectual Property substantially similar to the Intellectual Property that may be abandoned or otherwise become invalid, so long as the failure to use or maintain such Intellectual Property does not materially adversely affect the validity of such replacement Intellectual Property and so long as such replacement Intellectual Property is subject to the Lien created by this Agreement or (C) that is substantially the same as another Intellectual Property that is in full force, so long the failure to use or maintain such Intellectual Property does not materially adversely affect the validity of such replacement Intellectual Property and so long as such other Intellectual Property is subject to the Lien and security interest created by this Agreement.  The Grantor will cause to be taken all necessary steps in any proceeding before the United States Patent and Trademark Office and the United States Copyright Office or any similar office or agency in any other country or political subdivision thereof to maintain each registration of the Intellectual Property (other than the Intellectual Property described in the proviso to the immediately preceding sentence), including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and payment of maintenance fees, filing fees, taxes or other governmental fees. If any Intellectual Property (other than Intellectual Property described in the proviso to the first sentence of subsection (i) of this clause (h)) is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, the Grantor shall (x) upon learning of such infringement, misappropriation, dilution or other violation, promptly notify the Collateral Agent and (y) to the extent the Grantor shall deem appropriate under the circumstances, promptly sue for infringement, misappropriation, dilution or other violation, seek injunctive relief where appropriate and recover any and all damages for such infringement, misappropriation, dilution or other violation, or take such other actions as such Grantor shall deem appropriate under the circumstances to protect such Intellectual Property.  The Grantor shall furnish to the Collateral Agent from time to time upon its request statements and schedules further identifying and describing the Intellectual Property and Licenses and such other reports in connection with the Intellectual Property and Licenses as the Collateral Agent may reasonably request, all in reasonable detail and promptly upon request of the Collateral Agent, following receipt by the Collateral Agent of any such statements, schedules or reports, the Grantor shall modify this Agreement by amending Schedule II hereto, as the case may be, to include any Intellectual Property and License, as the case may be, which becomes part of the Collateral under this Agreement and shall execute and authenticate such documents and do such acts as shall be necessary or, in the reasonable judgment of the Collateral Agent, desirable to subject such Intellectual Property and Licenses to the Lien and security interest created by this Agreement. Notwithstanding anything herein to the contrary, upon the occurrence and during the continuance of an Event of Default, the Grantor may not abandon or otherwise permit any Intellectual Property to become invalid without the prior written consent of the Collateral Agent, and if any Intellectual Property is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, the Grantor will take such action as the Collateral Agent shall deem appropriate under the circumstances to protect such Intellectual Property.

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(ii)        In no event shall the Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any Trademark or Copyright or the issuance of any Patent with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, or in any similar office or agency of the United States or any country or any political subdivision thereof unless it gives the Collateral Agent prior written notice thereof. Upon request of the Collateral Agent, the Grantor shall execute, authenticate and deliver any and all assignments, agreements, instruments, documents and papers as the Collateral Agent may reasonably request to evidence the Collateral Agent’s security interest hereunder in such Intellectual Property and the General Intangibles of the Grantor relating thereto or represented thereby, and the Grantor hereby appoints the Collateral Agent its attorney-in-fact to execute and/or authenticate and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed, and such power (being coupled with an interest) shall be irrevocable until the indefeasible payment in full in cash of all of the Obligations in full.

(h)          Deposit, Commodities and Securities Accounts. Upon the Collateral Agent’s written request, the Grantor shall cause each bank and other financial institution with an account referred to in Schedule IV hereto to execute and deliver to the Collateral Agent a control agreement, in form and substance reasonably satisfactory to the Collateral Agent, duly executed by the Grantor and such bank or financial institution, or enter into other arrangements in form and substance satisfactory to the Collateral Agent, pursuant to which such institution shall irrevocably agree, inter alia, that (i) it will comply at any time with the instructions originated by the Collateral Agent to such bank or financial institution directing the disposition of cash, Commodity Contracts, securities, Investment Property and other items from time to time credited to such account, without further consent of the Grantor, which instructions the Collateral Agent will not give to such bank or other financial institution in the absence of a continuing Event of Default, (ii) all Commodity Contracts, securities, Investment Property and other items of the Grantor deposited with such institution shall be subject to a perfected, first priority security interest in favor of the Collateral Agent, except for Permitted Liens, (iii) any right of set off (other than recoupment of standard fees), banker’s Lien or other similar Lien, security interest or encumbrance shall be fully waived as against the Collateral Agent, and (iv) upon receipt of written notice from the Collateral Agent during the continuance of an Event of Default, such bank or financial institution shall immediately send to the Collateral Agent by wire transfer (to such account as the Collateral Agent shall specify, or in such other manner as the Collateral Agent shall direct) all such cash, the value of any Commodity Contracts, securities, Investment Property and other items held by it. Without the prior written consent of the Collateral Agent, the Grantor shall not make or maintain any Deposit Account, Commodity Account or Securities Account except for the accounts set forth in Schedule IV hereto. The provisions of this paragraph 5(i) shall not apply to Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the Grantor’s employees.

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(i)            Motor Vehicles.

(i)         Upon the Collateral Agent’s written request, the Grantor shall deliver to the Collateral Agent originals of the certificates of title or ownership for all motor vehicles owned by it with the Collateral Agent listed as lienholder, for the benefit of the Buyers.

(ii)        The Grantor hereby appoints the Collateral Agent as its attorney-in-fact, effective the date hereof and terminating upon the termination of this Agreement, for the purpose of (A) executing on behalf of such Grantor title or ownership applications for filing with appropriate state agencies to enable motor vehicles now owned or hereafter acquired by such Grantor to be retitled and the Collateral Agent listed as lienholder thereof, (B) filing such applications with such state agencies, and (C) executing such other documents and instruments on behalf of, and taking such other action in the name of the Grantor as the Collateral Agent may deem necessary or advisable to accomplish the purposes hereof (including, without limitation, for the purpose of creating in favor of the Collateral Agent a perfected Lien on the motor vehicles and exercising the rights and remedies of the Collateral Agent hereunder). This appointment as attorney-in-fact is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in full in cash.

(j)            Control.  Upon the Collateral Agent’s request, the Grantor hereby agrees to take any or all action that may be necessary or that the Collateral Agent may reasonably request in order for the Collateral Agent to obtain control in accordance with Sections 9-105 through and including 9-107 of the Code with respect to the following Collateral: (i) Electronic Chattel Paper, (ii) Investment Property, and (iii) Letter-of-Credit Rights.

(k)           Inspection and Reporting.  The Grantor shall permit the Collateral Agent, or any agents or representatives thereof or such professionals or other Persons as the Collateral Agent may designate, during normal business hours, after reasonable notice in the absence of an Event of Default and not more than once a year in the absence of an Event of Default, (i) to examine and make copies of and abstracts from the Grantor’s records and books of account, (ii) to visit and inspect its properties, (iii) to verify materials, leases, Instruments, Accounts, Inventory and other assets of the Grantor from time to time, (iii) to conduct audits, physical counts, appraisals and/or valuations, examinations at the locations of the Grantor. The Grantor shall also permit the Collateral Agent, or any agent or representatives thereof or such professionals or other Persons as the Collateral Agent may designate to discuss the Grantor’s affairs, finances and accounts with any of its directors, officers, managerial employees, independent accountants or any of its other representatives.

(l)           Fixture Filings.  At the Collateral Agent’s request, the Grantor shall cause financing statements to be filed in the appropriate county clerk’s offices in order to perfect the security interest of the Collateral Agent in and to all Fixtures constituting Collateral.

SECTION 6.Additional Provisions Concerning the Collateral.

(a)          The Grantor hereby (i) authorizes the Collateral Agent to file one or more Uniform Commercial Code financing or continuation statements, and amendments thereto, relating to the Collateral and (ii) ratifies such authorization to the extent that the Collateral Agent has filed any such financing or continuation statements, or amendments thereto, prior to the date hereof. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

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(b)         The Grantor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact and proxy, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Collateral Agent’s discretion, so long as an Event of Default shall have occurred and is continuing, to take any action and to execute any instrument which the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Grantor under Section 5 hereof), including, without limitation, (i) to obtain and adjust insurance required to be paid to the Collateral Agent pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, (iii) to receive, endorse, and collect any drafts or other Instruments, Documents and Chattel Paper, (iv) to file any claims or take any action or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Collateral Agent and the Buyers with respect to any Collateral, and (v) to execute assignments, licenses and other documents to enforce the rights of the Collateral Agent and the Buyers with respect to any Collateral. This power is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in full in cash.

(c)         For the purpose of enabling the Collateral Agent to exercise rights and remedies hereunder, at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Grantor hereby grants to the Collateral Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Grantor) to use, assign, license or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. Notwithstanding anything contained herein to the contrary, but subject to the provisions of the Securities Purchase Agreement that limit the right of the Grantor to dispose of its property, and Section 5(g) and Section 5(h) hereof, so long as no Event of Default shall have occurred and be continuing, the Grantor may exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of its business. In furtherance of the foregoing, unless an Event of Default shall have occurred and be continuing, the Collateral Agent shall from time to time, upon the request of the Grantor, execute and deliver any instruments, certificates or other documents, in the form so requested to allow it to take any action permitted above (including relinquishment of the license provided pursuant to this clause (c) as to any Intellectual Property). Further, upon the indefeasible payment in full in cash of all of the Obligations, the Collateral Agent (subject to Section 10(e) hereof) shall release and reassign to the Grantor all of the Collateral Agent’s right, title and interest in and to the Intellectual Property, and the Licenses, all without recourse, representation or warranty whatsoever. The exercise of rights and remedies hereunder by the Collateral Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Grantor in accordance with the second sentence of this clause (c). The Grantor hereby releases the Collateral Agent from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by the Collateral Agent under the powers of attorney granted herein other than actions taken or omitted to be taken through the Collateral Agent’s gross negligence or willful misconduct, as determined by a final determination of a court of competent jurisdiction.

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(d)        If the Grantor fails to perform any agreement or obligation contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement or obligation, in the name of such Grantor or the Collateral Agent, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by such Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.

(e)         The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

(f)         Anything herein to the contrary notwithstanding (i) the Grantor shall remain liable under the Licenses and otherwise with respect to any of the Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Collateral Agent of any of its rights hereunder shall not release the Grantor from any of its obligations under the Licenses or otherwise in respect of the Collateral, and (iii) the Collateral Agent shall not have any obligation or liability by reason of this Agreement under the Licenses or with respect to any of the other Collateral, nor shall the Collateral Agent be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

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SECTION 7.Remedies Upon Event of Default.  If any Event of Default shall have occurred and be continuing:

(a)         The Collateral Agent may exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the Code, and also may (i) take absolute control of the Collateral, including, without limitation, transfer into the Collateral Agent’s name or into the name of its nominee or nominees (to the extent the Collateral Agent has not theretofore done so) and thereafter receive, for the benefit of the Collateral Agent, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act with respect thereto as though it were the outright owner thereof, (ii) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent forthwith, assemble all or part of its respective Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place or places to be designated by the Collateral Agent that is reasonably convenient to both parties, and the Collateral Agent may enter into and occupy any premises owned or leased by the Grantor where the Collateral or any part thereof is located or assembled for a reasonable period in order to effectuate the Collateral Agent’s rights and remedies hereunder or under law, without obligation to the Grantor in respect of such occupation, and (iii) without notice except as specified below and without any obligation to prepare or process the Collateral for sale, (A) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable and/or (B) lease, license or dispose of the Collateral or any part thereof upon such terms as the Collateral Agent may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale or any other disposition of its respective Collateral shall be required by law, at least ten (10) days’ notice to the Grantor of the time and place of any public sale or the time after which any private sale or other disposition of its respective Collateral is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale or other disposition of any Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Grantor hereby waives any claims against the Collateral Agent and the Buyers arising by reason of the fact that the price at which its respective Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Collateral Agent accepts the first offer received and does not offer such Collateral to more than one offeree, and waives all rights that the Grantor may have to require that all or any part of such Collateral be marshaled upon any sale (public or private) thereof. The Grantor hereby acknowledges that (i) any such sale of its respective Collateral by the Collateral Agent shall be made without warranty, (ii) the Collateral Agent may specifically disclaim any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii) above shall not adversely affect the commercial reasonableness of any such sale of Collateral. In addition to the foregoing, (1) upon written notice to the Grantor from the Collateral Agent after and during the continuance of an Event of Default, such Grantor shall cease any use of the Intellectual Property or any trademark, patent or copyright similar thereto for any purpose described in such notice; (2) the Collateral Agent may, at any time and from time to time after and during the continuance of an Event of Default, upon 10 days’ prior notice to such Grantor, license, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any of the Intellectual Property, throughout the universe for such term or terms, on such conditions, and in such manner, as the Collateral Agent shall in its sole discretion determine; and (3) the Collateral Agent may, at any time, pursuant to the authority granted in Section 6 hereof (such authority being effective upon the occurrence and during the continuance of an Event of Default), execute and deliver on behalf of such Grantor, one or more instruments of assignment of the Intellectual Property (or any application or registration thereof), in form suitable for filing, recording or registration in any country.

(b)         Any cash held by the Collateral Agent as Collateral and all cash Proceeds received by the Collateral Agent in respect of any sale of or collection from, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 8 hereof) by the Collateral Agent against, all or any part of the Obligations in such order as the Collateral Agent shall elect, consistent with the provisions of the Securities Purchase Agreement. Any surplus of such cash or cash Proceeds held by the Collateral Agent and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.

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(c)         In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Collateral Agent and the Buyers are legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at the highest rate specified in the Notes for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Collateral Agent to collect such deficiency.

(d)        The Grantor hereby acknowledges that if the Collateral Agent complies with any applicable state, provincial, or federal law requirements in connection with a disposition of the Collateral, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Collateral.

(e)         The Collateral Agent shall not be required to marshal any present or future collateral security (including, but not limited to, this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the Collateral Agent’s rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that the Grantor lawfully may, the Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Collateral Agent’s rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Grantor hereby irrevocably waives the benefits of all such laws.

SECTION 8.Indemnity and Expenses.

(a)         The Grantor agrees, jointly and severally, to defend, protect, indemnify and hold the Collateral Agent and each of the Buyers, jointly and severally, harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, fees, costs and expenses (including, without limitation, reasonable legal fees, costs, expenses, and disbursements of such Person’s counsel) to the extent that they arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except to the extent resulting from such Person’s gross negligence or willful misconduct, as determined by a final judgment of a court of competent jurisdiction.

(b)         The Grantor agrees, jointly and severally, to pay to the Collateral Agent upon demand the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Collateral Agent and of any experts and agents (including, without limitation, any collateral trustee which may act as agent of the Collateral Agent), which the Collateral Agent may incur in connection with (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the failure by the Grantor to perform or observe any of the provisions hereof.

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SECTION 9.Notices. Etc.  All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt requested), telecopied, e-mailed or delivered, if to the Grantor at its address specified the signature pages and if to the Collateral Agent to it, at its address specified on the signature pages below; or as to any such Person, at such other address as shall be designated by such Person in a written notice to all other parties hereto complying as to delivery with the terms of this Section 9. All such notices and other communications shall be effective (a) if sent by certified mail, return receipt requested, when received or three days after deposited in the mails, whichever occurs first, (b) if telecopied or e-mailed, when transmitted (during normal business hours) and confirmation is received, and otherwise, the day after the notice or communication was transmitted and confirmation is received, or (c) if delivered in person, upon delivery.

SECTION 10.Miscellaneous.

(a)         No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Grantor and the Collateral Agent, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by the Grantor and the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

(b)        No failure on the part of the Collateral Agent to exercise, and no delay in exercising, any right hereunder or under any of the other Transaction Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Collateral Agent or any Buyer provided herein and in the other Transaction Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Collateral Agent or any Buyer under any of the other Transaction Documents against any party thereto are not conditional or contingent on any attempt by such Person to exercise any of its rights under any of the other Transaction Documents against such party or against any other Person, including but not limited to, the Grantor.

(c)         Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

(d)         This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the indefeasible payment in full in cash of the Obligations, and (ii) be binding on the Grantor and all other Persons who become bound as debtor to this Agreement in accordance with Section 9-203(d) of the Code and shall inure, together with all rights and remedies of the Collateral Agent and the Buyers hereunder, to the benefit of the Collateral Agent and the Buyers and their respective permitted successors, transferees and assigns. Without limiting the generality of clause (ii) of the immediately preceding sentence, without notice to the Grantor, the Collateral Agent and the Buyers may assign or otherwise transfer their rights and obligations under this Agreement and any of the other Transaction Documents, to any other Person and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Collateral Agent and the Buyers herein or otherwise. Upon any such assignment or transfer, all references in this Agreement to the Collateral Agent or any such Buyer shall mean the assignee of the Collateral Agent or such Buyer. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Collateral Agent, and any such assignment or transfer without the consent of the Collateral Agent shall be null and void.

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(e)         Upon the indefeasible payment in full in cash of the Obligations, (i) this Agreement and the security interests created hereby shall terminate and all rights to the Collateral shall revert to the Grantor, and (ii) the Collateral Agent will, upon the Grantor’s request and at such Grantor’s expense, (A) return to the Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and (B) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever.

(f)         THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

(g)         ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

(h)         THE GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COLLATERAL AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, ORAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.

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(i)         The Grantor irrevocably consents to the service of process of any of the aforesaid courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Grantor at its address provided herein, such service to become effective 10 days after such mailing.

(j)         Nothing contained herein shall affect the right of the Collateral Agent to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Grantor or any property of the Grantor in any other jurisdiction.

(k)        The Grantor irrevocably and unconditionally waives any right it may have to claim or recover in any legal action, suit or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

(l)         Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

(m)       This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together constitute one in the same Agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written.

APPLIED DNA SCIENCES, INC.
By:	/s/ Dr. James A. Hayward
	Name:  Dr. James A. Hayward
	Title:    President and Chief Executive Officer
	Address:  25 Health Sciences Drive
	Stony Brook, NY 11790
	Facsimile: (631) 444-6935
	Email: james.hayward@adnas.com

ETICO CAPITAL, LLC
By:	/s/ Scott A. Weisman
	Name:  Scott A. Weisman
	Title:    Managing Director
	Address:  405 Lexington Avenue
	New York, NY 10174
	Facsimile: (203) 529- 0096
	Email: sweisman@eticocapital.com

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Schedule I

Grantor

Legal Name of Grantor – Applied DNA Sciences, Inc.

State of Incorporation – Delaware

Organizational Identification Number – 4635076

Schedule II

Copyrights, Patents and Trademarks

The following are used by the Grantor:

PATENTS
Patents Issued
Patent Name	Patent No	Assignee of Record	Date Issued	Jurisdiction
Nucleic Acid as Marker for Product  Anticounterfeiting and Identification	(570982/196181) 89108443	APDN (B.V.I.) Inc.	1/11/2004 – 3/16/2020 3/17/2000	Taiwan
Method of using ribonucleic acid as marker for product anti-counterfeit labeling	CN1324955 00107580.2	APDN (B.V.I.) Inc.	2/2/2005	China
EppenLocker (A Leakage Prevention Apparatus of Microcentrifuge)	529633 203050	APDN Inc.	4/21/2003- 3/9/2012 3/10/2000	Taiwan
Multiple Tube Structure for Multiple PCR in a Closed Container	519130 205554	APDN Inc.	1/21/2003- 6/19/2012 6/20/2000	Taiwan
A Device for Multiple Polymerase Chain Reactions In  a Closed Container and a Method of Using Thereof	231311	APDN  Inc.	4/21/2005- 6/12/2020 6/12/2000	Taiwan
A Method of marking solid or liquid substances with nucleic acid for anti-counterfeiting and authentication	7115301 (10/748,412)	APDN (B.V.I.) Inc.	10/3/2006	United States
A novel nucleic acid based steganography system and applications thereof	MY 135976-A	APDN (B.V.I.) Inc.	7/31/2008	Malaysia
	KR 20050025256 679484 (61387/2004)	APDN (B.V.I.) Inc.	3/14/2005 8/3/2005	Korea
Method for Mixing Ribonucleic Acid in Water Insoluble Media and Application Thereof	JP2004159502 3930794	Rixflex Holding Limited*	6/10/2004 8/31/2002	Japan
Method for Mixing Ribonucleic Acid in Water Insoluble Media and Application Thereof	EP1394544	APDN (B.V.I.) Inc.	3/3/2004	EU
Method of dissolving nucleic acid in water insoluble medium and its application	CN100349315C 03155949.2	APDN (B.V.I.) Inc.	11/7/2007 (8/27/2003)	China
A Nucleic Acid Based Steganography System and Application thereof	EP1568783	APDN (B.V.I.) Inc.	8/31/2005	EU
A Nucleic Acid Based Steganography System and Application Thereof	DE 602004007474.8	APDN (B.V.I.) Inc	4/24/2008	Germany
System and Method for authenticating multiple components associated with a particular product	WO2006127558 A2	APDN	11/30/2006	EU

Patents Pending
Patent Name	Publication No	Filed in Name of	Date Published	Jurisdiction
Method for Mixing Nucleic Acid in Water Insoluble Media and Application Thereof	20040058374 (10/645,602)	Rixflex Holdings Limited*	3/25/2004	United States
Novel nucleic acid based steganography system and application thereof	20050059059 (10/909,431)	Rixflex Holdings Limited*	3/17/2005	United States
Cryptic method of secret information carried in DNA molecule and it deencryption method	200506064 (921221490)	APDN (B.V.I.) Inc.	8/6/2003	Taiwan
A novel nucleic acid based steganography system and applications thereof	1-2004-00742	APDN (B.V.I.) Inc.	8/4/2004	Vietnam
A novel nucleic acid based steganography system and applications thereof	092819	APDN (B.V.I.)  Inc. pending	8/4/2004	Thailand
A Method for encrypting and decrypting specific message by using nucleic acid molecules	JP2005055900 2004-225987	Rixflex Holdings Limited*	3/3/2005	Japan
	P-00200400374	APDN (B.V.I.) Inc	8/4/2004	Indonesia
Methods and Systems for the Generation of Plurality of Security Markers and the Detection Thereof	12/690,799	APDN (B.V.I.) Inc.	None	United States

Published Patent Applications
Patent Name	Patent Appl. No	Assignee of Record	Publication Date	Jurisdiction
System and Method for Marking Textiles with Nucleic Acids	publication # 20050112610 (10/825,968)	APDN (B.V.I.) Inc.	5/26/2005	United States
System and Method for Authenticating Multiple Components Associated with a Particular Good	20070048761 (11/437,265)	APDN (B.V.I.) Inc.	3/1/2007	United States
System and Method for Secure Document Printing and Detection	20090042191 (11/954,044)	APDN (B.V.I.) Inc.	2/12/2009	United States
System and Method for Authenticating Tablets	20090075261 (11/954,055)	APDN (B.V.I.) Inc.	3/19/2009	United States
System and Method for Authenticating Sports Identification Goods	20080293052 (11/954,051)	APDN (B.V.I.) Inc.	11/27/2008	United States
Optical Reporter Compositions	20080299667 (11/954,030)	APDN (B.V.I.) Inc.	12/4/2008	United States
Methods for Covalent Linking of Optical Reporters	20080312427 (11/954,009)	APDN (B.V.I.) Inc.	12/12/2008	United States
Method for Authenticating Articles with Optical Reporters	20080299559 (11/954,038)	APDN (B.V.I.) Inc.	12/4/2008	United States
Methods for Genetic Analysis of Textiles made of Gossypium Barbadense and Gossypium Hirsutum Cotton	Published by WIPO WO 2010/056642 12/269,737	APDN (B.V.I.) Inc.	05/20/2010.	United States
Methods for Genetic Analysis of Textiles made of Gossypium Barbadense and Gossypium Hirsutum  Cotton	Published by WIPO WO 2010/056642 PCT/US09/63814	APDN (B.V.I.) Inc.	05/20/2010	WIPO
Methods for Genotyping Mature Cotton Fibers and Textiles	Published by WIPO WO 2010/056645 12/269,757	APDN (B.V.I.) Inc.	Published by WIPO   05/20/2010.	United States
Methods for Genotyping Mature Cotton Fibers and Textiles	Published by WIPO WO 2010/056645 PCT/US09/63818	APDN (B.V.I.) Inc.	05/20/2010	WIPO
Incorporating Water Soluble Security Markers into Cyanoacrylate Solutions	20090286250 (12/465,450)	APDN (B.V.I.) Inc.	11/19/2009	United States

The following are owned by the Grantor:

TRADEMARKS
Registered	TM Reg #	Assignee of Record	Registered	Jurisdiction
APPLIED DNA	3489209	APDN	8/19/2008	United States
SIGNATURE	3482366	APDN	8/5/2008	United States
SIGNATURE	005419031	Apdn	10/26/2006	EU
SIGNATURE	1143760	APDN	10/27/2006	Australia
AZSURE	3698729	APDN	10/20/2009	United States
AZSURE	1022396	APDN	1109/2009	EU

Pending	TM Reg #	Assignee of Record	Filed	Jurisdiction
FIBERTYPING	77/488531	APDN	6/2/2008	United States
PIMATYPING	77/488647	APDN	6/2/2008	United States
BIOMATERIAL GENOTYPING	77/771522	APDN	6/30/2009	United States
FIBERTYPING	77/728499	APDN	05/04/2009	United States
PIMATYPING	77/728511	APDN	05/04/2009	United States

* Rixflex has been merged with and into APDN (B.V.I.) Inc.

Licenses

None.

Trade Names

Grantor uses the following trade names: Applied DNA Sciences, Inc., APDN, ADNAS

Trade names used by each person from whom the Grantor has acquired a substantial part of the Collateral: Biowell Technology, Inc., Rixflex Holdings Limited

Schedule III

Equipment, Fixtures, Goods and Inventory

Locations of Equipment, Fixtures, Goods and Inventory

25 Health Sciences Drive, Suite 113

Stony Brook, New York 11790

Chief Executive Office

25 Health Sciences Drive, Suite 113

Stony Brook, New York 11790

Schedule IV

(i)  Promissory Notes, Securities and other Instruments owned by Grantor

None.

(ii) Deposit Accounts, Securities Accounts, Commodities Accounts

Deposit Accounts
Institution	Account Name	Account Number	Description
Bank of America	Applied DNA Sciences, Inc.	XXXXXX-1068	Operating, Checking
Bank of America	Applied DNA Sciences, Inc.	XXXXXX-0878	Money Market
Bank of America	Applied DNA Sciences, Inc.	XXXXXX-5941	Escrow

Schedule V (Schedule 4(g))

Financing Statements and Other Required or Advisable Documents, Instruments and Certificates

Grantor has granted a security interest in all of its assets to holders of the following secured convertible promissory notes (the “Existing Promissory Notes”):

Promissory Notes 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.

Promissory Notes 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.

Promissory Notes 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

* 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.

A UCC-1 was filed in connection with each of the Existing Promissory Notes.

Schedule VI

Commercial Tort Claims

Applied DNA Sciences, Inc. v. Paul Reep et al. (Los Angeles County Superior Court Case No. BC 345702)

On August 27, 2008, the Superior Court of the State of California for the County of Los Angeles rendered judgment against the defendants Peter Brocklesby and Cheri Lu Brocklesby in the above action in the amount of $5,668,962.  As of the date hereof, the Company has not sought payment on this judgment against the defendants.

EX-10.5

Exhibit 10.5

SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of July 15, 2010 (this “Agreement”) made by APDN (B.V.I.) INC., a corporation organized under the laws of the British Virgin Islands (the “Grantor”), in favor of ETICO CAPITAL, LLC., a limited liability company organized under the laws of the Delaware, in its capacity as collateral agent (in such capacity, the “Collateral Agent”) for the “Buyers” (as defined below) party to the Securities Purchase Agreement, dated as of even date herewith (as amended, restated or otherwise modified from time to time, the “Securities Purchase Agreement”).

W I T N E S S E T H:

WHEREAS, Applied DNA Sciences, Inc. (the “Company”) and each party listed as a “Buyer” on the Schedule of Buyers attached thereto (collectively, the “Buyers”) are parties to the Securities Purchase Agreement, pursuant to which the Company shall be required to sell, and the Buyers shall purchase or have the right to purchase, the “Notes” (as defined therein) issued pursuant thereto (as such Notes may be amended, restated, replaced or otherwise modified from time to time in accordance with the terms thereof, collectively, the “Notes”); and

WHEREAS, it is a condition precedent to the Buyers purchasing the Notes pursuant to the Securities Purchase Agreement that the Grantor shall have executed and delivered to the Collateral Agent this Agreement providing for the grant to the Collateral Agent for the benefit of the Buyers of a security interest in all personal property of the Grantor to secure all of the Company’s obligations under the Securities Purchase Agreement, the Notes, and the “Transaction Documents” (as defined in the Securities Purchase Agreement) (the “Transaction Documents”).

NOW, THEREFORE, in consideration of the premises and the agreements herein and in order to induce the Buyers to perform under the Securities Purchase Agreement, the Grantor agrees with the Collateral Agent, for the benefit of the Buyers, as follows:

SECTION 1.Definitions.

(a)Reference is hereby made to the Securities Purchase Agreement and the Notes for a statement of the terms thereof. All terms used in this Agreement and the recitals hereto which are defined in the Securities Purchase Agreement, the Notes or in Articles 8 or 9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the “Code”), and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

(b)As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

“Copyright Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Grantor as licensee or licensor and providing for the grant of any right to use or sell any works covered by any copyright (including, without limitation, all Copyright Licenses set forth in Schedule II hereto).

“Copyrights” means all domestic and foreign copyrights, whether registered or not, including, without limitation, all copyright rights throughout the universe (whether now or hereafter arising) in any and all media (whether now or hereafter developed), in and to all original works of authorship fixed in any tangible medium of expression, acquired or used by the Grantor (including, without limitation, all copyrights described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Copyright Offic e or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

“Event of Default” shall have the meaning set forth in the Notes.

“Insolvency Proceeding” means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code (Chapter 11 of Title 11 of the United States Code) or under any other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, or extensions generally with creditors, or proceedings seeking reorganization, arrangement, or other similar relief.

“Intellectual Property” means the Copyrights, Trademarks and Patents.

“Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.

“Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights).

“Patent Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Grantor as licensee or licensor and providing for the grant of any right to manufacture, use or sell any invention covered by any Patent (including, without limitation, all Patent Licenses set forth in Schedule II hereto).

“Patents” means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and other general intangibles of like nature, now existing or hereafter acquired (including, without limitation, all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how and formulae described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

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“Trademark Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Grantor as licensor or licensee and providing for the grant of any right concerning any Trademark, together with any goodwill connected with and symbolized by any such trademark licenses, contracts or agreements and the right to prepare for sale or lease and sell or lease any and all Inventory now or hereafter owned by the Grantor and now or hereafter covered by such licenses (including, without limitation, all Trademark Licenses described in Schedule II hereto).

“Trademarks” means all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers and all general intangibles of like nature, now or hereafter owned, adopted, acquired or used by the Grantor (including, without limitation, all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof), and all reissues, extensions or renewals thereof, together with all goodwill of the business symbolized by such marks and all customer lists, formulae and other Records of the Grantor relating to the distribution of products and services in connection with which any of such marks are used.

SECTION 2.Grant of Security Interest.  As collateral security for all of the “Obligations” (as defined in Section 3 hereof), the Grantor hereby pledges and assigns to the Collateral Agent for the benefit of the Buyers, and grants to the Collateral Agent for the benefit of the Buyers a continuing security interest in, all personal property of the Grantor, wherever located and whet her now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (collectively, the “Collateral”), including, without limitation, the following:

(a)all Accounts;

(b)all Chattel Paper (whether tangible or electronic);

(c)the Commercial Tort Claims specified on Schedule VI hereto;

(d)all Deposit Accounts, all cash and other property from time to time deposited therein and the monies and property in the possession or under the control of the Collateral Agent or any Buyer or any affiliate, representative, agent or correspondent of the Collateral Agent or any Buyer;

(e)all Documents;

(f)all Equipment;

(g)all Fixtures;

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(h)all General Intangibles (including, without limitation, all Payment Intangibles);

(i)  all Goods

(j)all Instruments (including, without limitation, Promissory Notes and each certificated Security);

(k)all Inventory;

(l)all Investment Property;

(m)all Copyrights, Patents and Trademarks, and all Licenses;

(n)all Letter-of-Credit Rights;

(o)all Supporting Obligations;

(p)all other tangible and intangible personal property of the Grantor (whether or not subject to the Code), including, without limitation, all bank and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of the Grantor described in the preceding clauses of this Section 2 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter h eld by the Grantor in respect of any of the items listed above), and all books, correspondence, files and other Records, including, without limitation, all tapes, desks, cards, Software, data and computer programs in the possession or under the control of the Grantor or any other Person from time to time acting for the Grantor to the extent of the Grantor’s rights therein, that at any time evidence or contain information relating to any of the property described in the preceding clauses of this Section 2 or are otherwise necessary or helpful in the collection or realization thereof; and

(q)all Proceeds, including all cash Proceeds and non-cash Proceeds, and products of any and all of the foregoing Collateral;

in each case howsoever the Grantor’s interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

The security interest of the Collateral Agent in the Collateral granted hereby is in all respects pari passu with the security interest granted in favor of the individuals and entities listed on Schedule 4(g) hereto pursuant to the secured convertible promissory notes issued by the Company and listed on Schedule 4(g).

SECTION 3.Security for Obligations.  The security interest created hereby in the Collateral constitutes continuing collateral security for all of the following obligations, whether now existing or hereafter incurred (collectively, the “Obligations”):

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(a)for so long as the Notes are outstanding, the payment by the Company, as and when due and payable (by scheduled maturity, required prepayment, acceleration, demand or otherwise), of all amounts from time to time owing by it in respect of the Securities Purchase Agreement, the Notes and the other Transaction Documents, including, without limitation, (A) all principal of and interest on the Notes (including, without limitation, all interest that accrues after the commencement of any Insolvency Proceeding (as defined in the Security Agreement) of the Grantor, whether or not the payment of such interest is unenforceable or is not allowable due to the exist ence of such Insolvency Proceeding), and (B) all fees, commissions, expense reimbursements, indemnifications and all other amounts due or to become due under any of the Transaction Documents; and

(b)for so long as the Notes are outstanding, the due performance and observance by the Grantor of all of its other obligations from time to time existing in respect of any of the Transaction Documents, including, without limitation, under this Agreement.

SECTION 4.Representations and Warranties.  The Grantor represents and warrants as of the date of this Agreement as follows:

(a)Schedule I hereto sets forth the exact legal name of the Grantor, and the jurisdiction of incorporation and the organizational identification number of the Grantor in such jurisdiction.

(b)There is no pending or, to its knowledge, written notice threatening any action, suit, proceeding or claim affecting the Grantor before any governmental authority or any arbitrator, or any order, judgment or award issued by any governmental authority or arbitrator, in each case, that may adversely affect the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or the exercise by the Collateral Agent of any of its rights or remedies hereunder.

(c)All Federal, state and local tax returns and other reports required by applicable law to be filed by the Grantor have been filed, or extensions have been obtained, and all taxes, assessments and other governmental charges imposed upon the Grantor or any property of the Grantor (including, without limitation, all federal income and social security taxes on employees’ wages) and which have become due and payable on or prior to the date hereof have been paid, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequa te reserves have been set aside for the payment thereof in accordance with generally accepted accounting principles consistently applied (“GAAP”), and except for taxes that do not, individually or in the aggregate, exceed $50,000 at any one time outstanding.

(d)All Equipment, Fixtures, Goods and Inventory of the Grantor now existing are, and all Equipment, Fixtures, Goods and Inventory of the Grantor hereafter existing will be, located and/or based at the addresses specified therefor in Schedule III hereto, except that the Grantor will give the Collateral Agent written notice of any change in the location of any such Collateral within 5 days of such change, other than to locations set forth on Sc hedule III hereto (or a new Schedule III delivered by the Grantor to Collateral Agent from time to time) and with respect to which the Collateral Agent has filed financing statements, other required or advisable documents, instruments and certificates for the purpose of recording and/or perfecting Liens, and otherwise fully perfected its Liens thereon or will take such actions pursuant to Section 5(n).  The Grantor’s chief place of business and chief executive office, the place where the Grantor keeps its Records concerning Accounts and all originals of all Chattel Paper are located at the addresses specified therefor in Schedule III hereto.  None of the Accounts is evidenced by Promissory Notes or other Instruments.  Set forth in Schedule IV hereto is a complete and accurate list, as of the date of this Agreement, of (i) each Promissory Note, Security and other Instrument owned by the Grantor and (ii) each Deposit Account, Securities Account and Commodities Account of the Grantor, together with the name and address of each institution at which each such account is maintained, the account number for each such account and a description of the purpose of each such account. Set forth in Schedule II hereto is a complete and correct list of each trade name used by the Grantor and the name of, and each trade name used by, each person from which the Grantor has acquired any substantial part of the Collateral.

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(e)The Grantor has delivered to the Collateral Agent complete and correct copies of each License described in Schedule II hereto, including all schedules and exhibits thereto, which represents all of the Licenses existing on the date of this Agreement.  Each such License sets forth the entire agreement and understanding of the parties thereto relating to the subject matter thereof, and there are no other agreements, arrangements or understandings, written or oral, relating to the matters covered thereby or the rights of such Grantor or any of its affiliates in respect thereof.  Each material License now existing is, and any material License entered into in the future will be, the legal, valid and binding obligation of the parties thereto, enforceable against such parties in accordance with its terms. To the knowledge of the Grantor, no default under any material License by any such party has occurred, nor does any defense, offset, deduction or counterclaim exist thereunder in favor of any such party.

(f)The Grantor owns and controls, or otherwise possesses adequate rights to use, all Trademarks, Patents and Copyrights, which are the only trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, rights of publicity necessary to conduct its business in substantially the same manner as conducted as of the date hereof.  Schedule II hereto sets forth a true and complete list of all registered Copyrights, including applications therefor, issued and provisional Patents, includi ng applications therefor, Trademarks, including applications therefor, and Licenses owned or used by the Grantor as of the date hereof. To the best knowledge of the Grantor, all such Intellectual Property of the Grantor is subsisting and in full force and effect, has not been adjudged invalid or unenforceable, is valid and enforceable and has not been abandoned in whole or in part. Except as set forth in Schedule II, no such Intellectual Property is the subject of any licensing or franchising agreement. The Grantor has no knowledge of any conflict with the rights of others to any such Intellectual Property and, to the knowledge of the Grantor, the Grantor is not now infringing or in conflict with any such rights of others in any material respect, and to the best knowledge of the Grantor, no other Person is now infringing or in conflict in any material respect with any such properties, assets and ri ghts owned or used by the Grantor.  The Grantor has not received any notice that it is violating or has violated the trademarks, patents, copyrights, inventions, trade secrets, proprietary information and technology, know-how, formulae, rights of publicity or other intellectual property rights of any third party.

(g)The Grantor is and will be at all times the sole and exclusive owner of, or otherwise has and will have adequate rights in, the Collateral free and clear of any Liens, except for Permitted Liens. No effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any recording or filing office except such as (i) may have been filed in favor of the Collateral Agent and/or the Buyers relating to this Agreement or the other Security Documents and (ii) are described on Schedule 4(g) here to.

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(h)The exercise by the Collateral Agent of any of its rights and remedies hereunder will not contravene any law or any contractual restriction binding on or otherwise affecting the Grantor or any of its properties and will not result in or require the creation of any Lien, upon or with respect to any of its properties.

(i)No authorization or approval or other action by, and no notice to or filing with, any governmental authority or other regulatory body, is required for (i) the grant by the Grantor, or the perfection, of the security interest purported to be created hereby in the Collateral, or (ii) the exercise by the Collateral Agent of any of its rights and remedies hereunder, except as follows: (A) for the filing under the Uniform Commercial Code as in effect in the applicable jurisdiction of the financing statements or other required or advisable documents, instruments and certificates for the purpose of recording and/or perfecting Liens under other applicable law, in each case described in Schedule V hereto (or a new Schedule V delivered by the Grantor to Collateral Agent from time to time), all of which financing statements and other documents, instruments and certificates have been duly filed and are in full force and effect or will be duly filed and in full force and effect, (B) with respect to Deposit Accounts, and all cash and other property from time to time deposited therein, for the execution of a control agreement with the depository institution with which such account is maintained, as provided in Section 5(i), (C) with respect to Commodity Contracts, for the execution of a control agreement with the commodity intermediary with which such commodity contract is carried, as provided in Section 5(i), (D) with respect to the perfection of the security interest created hereby in the United States Intellectual Property and Licenses, for the recording of the appropriate documents in the United States Patent and Trademark Office or the United States Copyright Office, as applicable, (E) with respect to the perfection of the security interest created hereby in foreign Intellectual Property and Licenses, for registrations and filings in jurisdictions located outside of the United States and covering rights in such jurisdictions relating to such foreign Intellectual Property and Licenses, (F) with respect to the perfection of the security interest created hereby in Titled Collateral, for the submission of an appropriate application requesting that the Lien of the Collateral Agent be noted on the Certificate of Title or certificate o f ownership, completed and authenticated by the Grantor, together with the Certificate of Title or certificate of ownership, with respect to such Titled Collateral, to the appropriate governmental authority, (G) with respect to the perfection of the security interest created hereby in any Letter-of-Credit Rights, for the consent of the issuer of the applicable letter of credit to the assignment of proceeds as provided in the Uniform Commercial Code as in effect in the applicable jurisdiction, (H) with respect to any action that may be necessary to obtain control of Collateral constituting Deposit Accounts, Commodity Contracts, Electronic Chattel Paper, Investment Property or Letter-of-Credit Rights, the taking of such actions, and (I) the Collateral Agent having possession of all Documents, Chattel Paper, Instruments and cash constituting Collateral (subclauses (A), (B), (C), (D), (E), (F), G), (H) and (I), each a “Perfection Requirement” and collectively, the “Perfection Requirements”).

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(j)This Agreement creates in favor of the Collateral Agent a legal, valid and enforceable security interest in the Collateral, as security for the Obligations. The Perfection Requirements result in the perfection of such security interests. Such security interests are, or in the case of Collateral in which the Grantor obtains rights after the date hereof, will be, perfected, first priority security interests, subject only to Permitted Liens and the Perfection Requirements and the financing statements and other required or advisable documents, instruments and certificates described in Schedule 4(g).

(k)As of the date hereof, the Grantor holds no Commercial Tort Claims or has knowledge of any pending Commercial Tort Claims, except for such Commercial Tort Claims described in Schedule VI.

(l)In the first half of 2005, Biowell Technology, Inc. (“Biowell”) transferred substantially all of its intellectual property to Rixflex Holdings Limited, a British Virgin Islands company (“Rixflex”), and on July 12, 2005, Rixflex merged with and into Grantor.  As a result of such transfer and such merger, all of Biowell’s intellectual property transferred to Rixflex and all of Rixflex’s intelle ctual property now is owned by the Grantor.  Prior to the date hereof, the Grantor has filed duly executed agreements, documents and instruments with all the United States Patent and Trademark Office and with all other foreign, federal, state and local governmental agencies and other Persons as were and are necessary to reflect the Grantor’s ownership, as a result of such the foregoing transfer and merger, of all such transferred Biowell intellectual property and all of Rixflex’s intellectual property.

SECTION 5.Covenants as to the Collateral.  So long as any of the Obligations shall remain outstanding, unless the Collateral Agent shall otherwise consent in writing:

(a)Further Assurances.  The Grantor will at its expense, at any time and from time to time, promptly execute and deliver all further instruments and documents and take all further action that the Collateral Agent may reasonably request in order to: (i) perfect and protect the security interest purported to be created hereby; (ii) enable the Collateral Agent to exercise and enforce its rights and remedies hereunder in respect of the Collateral; or (iii) otherwise effect the purposes of this Agreement, including, without limitation: (A) marking conspicuously all Chattel Paper and each License and, at the request of the Collateral Agent, each of its Records pertaining to the Collateral with a legend, in form and substance satisfactory to the Collateral Agent, indicating that such Chattel Paper, License or Collateral is subject to the security interest created hereby, (B) delivering and pledging to the Collateral Agent each Promissory Note, Security, Chattel Paper or other Instrument, now or hereafter owned by the Grantor, duly endorsed and accompanied by executed instruments of transfer or assignment, all in form and substance satisfactory to the Collateral Agent, (C) executing and filing (to the extent, if any, that the Grantor’s signature is required thereon) or authenticating the filing of, such financing or continuation statements, or amendments thereto, or other required or advisable documents, instruments and certificates for the purpose of recording and/or perfecting Liens, as may be necessary or that the Collateral Agent may re asonably request in order to perfect and preserve the security interest purported to be created hereby, (D) furnishing to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral in each case as the Collateral Agent may reasonably request, all in reasonable detail, (E) if any Collateral shall be in the possession of a third party, notifying such Person of the Collateral Agent’s security interest created hereby and obtaining a written acknowledgment from such Person that such Person holds possession of the Collateral for the benefit of the Collateral Agent, which such written acknowledgement shall be in form and substance reasonably satisfactory to the Collateral Agent, (F) if at any time after the date hereof, the Grantor acquires or holds any Commercial Tort Claim, promptly notifying the Collateral Agent in a writing signed by the Grantor setting forth a brief description of such Commercia l Tort Claim and granting to the Collateral Agent a security interest therein and in the proceeds thereof, which writing shall incorporate the provisions hereof and shall be in form and substance satisfactory to the Collateral Agent, (G) upon the acquisition after the date hereof by the Grantor of any motor vehicle or other Equipment subject to a certificate of title or ownership (other than a Motor Vehicle or Equipment that is subject to a purchase money security interest), causing the Collateral Agent to be listed as the lienholder on such certificate of title or ownership and delivering evidence of the same to the Collateral Agent in accordance with Section 5(j) hereof if and to the extent requested by the Collateral Agent and (H) filing, and causing the filing of, such agreements, documents and instruments with the United States Patent and Trademark Office and with all other foreign, federal, state and local governmental agencies and other Persons as, in the sole discretion of the Collateral Agent, were and are necessary to reflect the Grantor’s ownership in all of its Copyrights, Patents and Trademarks, including, without limitation, all Copyrights, Patents and Trademarks transferred by Biowell to Rixflex and/or owned by Rixflex and all of its Copyrights, Patents and Trademarks described in the Company’s filings with the Securities and Exchange Commission.

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(b)Location of Equipment and Inventory.  The Grantor will keep the Equipment and Inventory (i) at the locations specified therefor on Schedule III hereto, or (ii) at such other locations set forth on Schedule III (or a new Schedule III delivered by the Grantor to Collateral Agent from time to time) and with respect to which the Collateral Agent has filed financing statements, other required or advisable documents, instruments and certificates for the purpose of recording and/or perfecting Liens and otherwise fully perfected its Liens thereon, or (iii) at such other locations in the United States or the British Virgin Islands, provided that within 5 days following the relocation of Equipment or Inventory to such other location or the acquisition of Equipment or Inventory, Grantor shall deliver to the Collateral Agent a new Schedule III indicating such new locations.

(c)Condition of Equipment.  The Grantor will maintain or cause the Equipment (to the extent necessary or useful to its business) to be maintained and preserved in good condition, repair and working order, ordinary wear and tear excepted, and will forthwith, or in the case of any loss or damage to any Equipment of the Grantor within a commercially reasonable time after the occurrence thereof, make or cause to be made all repairs, replacements and other improvements in connection therewith which are necessary or desirable, consistent wit h past practice, or which the Collateral Agent may request.  The Grantor will promptly furnish to the Collateral Agent a statement describing in reasonable detail any such loss or damage in excess of $50,000 per occurrence to any Equipment.

(d)Taxes, Etc.  The Grantor agrees to pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith by appropriate proceedings which stay the imposition of any penalty, fine or Lien resulting from the non-payment thereof and with respect to which adequate reserves in accordance with GAAP have been set aside for the payme nt thereof.

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(e)Provisions Concerning the Accounts and the Licenses.

(i)The Grantor will (A) give the Collateral Agent at least 30 days’ prior written notice of any change in such Grantor’s name, identity or organizational structure, (B) maintain its jurisdiction of incorporation, organization or formation as set forth in Schedule I hereto, (C) immediately notify the Collateral Agent upon obtaining an organizational identification number, if on the date hereof such Grantor did not have such identification number, and (D) keep adequate records concerning the Accounts and Chattel Paper and permit repre sentatives of the Collateral Agent during normal business hours on reasonable notice to such Grantor, to inspect and make abstracts from such Records and Chattel Paper.

(ii)The Grantor will, except as otherwise provided in this subsection (f), continue to collect, at its own expense, all amounts due or to become due under the Accounts. In connection with such collections, the Grantor may (and, at the Collateral Agent’s direction, will) take such action as the Grantor or the Collateral Agent may deem necessary or advisable to enforce collection or performance of the Accounts; provided, however, that the Collateral Agent shall have the right at any time, upon the occurrence and during the continuance of an Event of Default, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to the Collateral Agent and to direct such account debtors or obligors to make payment of all amounts due or to become due to the Grantor thereunder directly to the Collateral Agent or its designated agent and, upon such notification and at the expense of the Grantor and to the extent permitted by law, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as the Grantor might have done. After receipt by the Grantor of a notice from the Collateral Agent that the Collateral Agent has notified, intends to notify, or has enforced or intends to enforce the Grantor’s rights against the account debtors or obligors under any Accounts as referred to in the proviso to the immediately preceding sentence, (A) all amounts and proceeds (including Instruments) received by the Grantor in respect of the Accounts shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds of the Grantor and shall be forthwith paid over to the Collateral Agent in the same form as so received (with any necessary endorsement) to be applied as specified in Section 7(b) hereof, and the Grantor will not adjust, settle or compromise the amount or payment of any Account or release wholly or partly any account debtor or obligor thereof or allow any credit or discount thereon. In addition, upon the occurrence and during the continuance of an Event of Default, the Collateral Agent may (in its sole and absolute discretion) direct any or all of the banks and financial institutions with which the Grantor either maintains a Deposit Account or a lockbox or deposits the pro ceeds of any Accounts to send immediately to the Collateral Agent by wire transfer (to such account as the Collateral Agent shall specify, or in such other manner as the Collateral Agent shall direct) all or a portion of such securities, cash, investments and other items held by such institution. Any such securities, cash, investments and other items so received by the Collateral Agent shall be applied as specified in accordance with Section 7(b) hereof.

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(iii)Upon the occurrence and during the continuance of any breach or default under any material License referred to in Schedule II hereto by any party thereto other than the Grantor, the Grantor party thereto will, promptly after obtaining knowledge thereof, give the Collateral Agent written notice of the nature and duration thereof, specifying what action, if any, it has taken and proposes to take with respect thereto and thereafter will take reasonable steps to protect and preserve its rights and remedies in respect of such breach or default, or w ill obtain or acquire an appropriate substitute License.  The Grantor will, at its expense, promptly deliver to the Collateral Agent a copy of each notice or other communication received by it by which any other party to any material License referred to in Schedule II hereto purports to exercise any of its rights or affect any of its obligations thereunder, together with a copy of any reply by such Grantor thereto.  The Grantor will exercise promptly and diligently each and every right which it may have under each material License (other than any right of termination) and will duly perform and observe in all respects all of its obligations under each material License and will take all action reasonably necessary to maintain such Licenses in full force and effect. The Grantor will not, without the prior written consent of the Collateral Agent, cancel, terminate, amend or otherwis e modify in any respect, or waive any provision of, any material License referred to in Schedule II hereto.

(f)Transfers and Other Liens.

(i)The Grantor will not sell, assign (by operation of law or otherwise), lease, license, exchange or otherwise transfer or dispose of any of the Collateral, except as expressly permitted by the other Transaction Documents.

(ii)The Grantor will not create, suffer to exist or grant any Lien upon or with respect to any Collateral other than a Permitted Lien.

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(g)Intellectual Property.

(i)If applicable, the Grantor shall, upon the Collateral Agent’s written request, duly execute and deliver a security agreement or security agreements relating to Intellectual Property. The Grantor (either itself or through licensees) will, and will cause each licensee thereof to, take all action necessary to maintain all of the Intellectual Property in full force and effect, including, without limitation, using the proper statutory notices and markings and using the Trademarks on each applicable trademark class of goods in order to so maintain the Trademarks in full force and free from any claim of abandonment for non-use, and the Grantor will not (nor permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Intellectual Property may become invalidated; provided, however, that so long as no Event of Default has occurred and is continuing, the Grantor shall have no obligation to use or to maintain any Intellectual Property (A) that relates solely to any product or work, that has been, or is in the process of being, discontinued, abandoned or terminated, (B) that is being replaced with Intellectual Property substantially similar to the Intellectual Property that may be abandoned or otherwise become invalid, so long as the failure to use or maintain such Intellectual Property does not materially adversely affect the validity of such replacement Intellectual Property and so long as such replacement Intell ectual Property is subject to the Lien created by this Agreement or (C) that is substantially the same as another Intellectual Property that is in full force, so long the failure to use or maintain such Intellectual Property does not materially adversely affect the validity of such replacement Intellectual Property and so long as such other Intellectual Property is subject to the Lien and security interest created by this Agreement.  The Grantor will cause to be taken all necessary steps in any proceeding before the United States Patent and Trademark Office and the United States Copyright Office or any similar office or agency in any other country or political subdivision thereof to maintain each registration of the Intellectual Property (other than the Intellectual Property described in the proviso to the immediately preceding sentence), including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings and payment of maintenance fees, filing fees, taxes or other governmental fees. If any Intellectual Property (other than Intellectual Property described in the proviso to the first sentence of subsection (i) of this clause (h)) is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, the Grantor shall (x) upon learning of such infringement, misappropriation, dilution or other violation, promptly notify the Collateral Agent and (y) to the extent the Grantor shall deem appropriate under the circumstances, promptly sue for infringement, misappropriation, dilution or other violation, seek injunctive relief where appropriate and recover any and all damages for such infringement, misappropriation, dilution or other violation, or take such other actions as such Grantor shall deem appropriate under the circumstances to protect such Intellectual Property.  The Grantor shall furnish to the Collateral Agent from time to time upon its request statements and schedules further identifying and describing the Intellectual Property and Licenses and such other reports in connection with the Intellectual Property and Licenses as the Collateral Agent may reasonably request, all in reasonable detail and promptly upon request of the Collateral Agent, following receipt by the Collateral Agent of any such statements, schedules or reports, the Grantor shall modify this Agreement by amending Schedule II hereto, as the case may be, to include any Intellectual Property and License, as the case may be, which becomes part of the Collateral under this Agreement and shall execute and authenticate such documents and do such acts as shall be necessary or, in the reasonable judgment of the Collateral Agent, desirable to subject such Intellectual Property and Licenses to the Lien and security interest created by this Agreement. Notwithstanding anything herein to the contrary, upon the occurrence and during the continuance of an Event of Default, the Grantor may not abandon or otherwise permit any Intellectual Property to become invalid without the prior written consent of the Collateral Agent, and if any Intellectual Property is infringed, misappropriated, diluted or otherwise violated in any material respect by a third party, the Grantor will take such action as the Collateral Agent shall deem appropriate under the circumstances to protect such Intellectual Property.

(ii)In no event shall the Grantor, either itself or through any agent, employee, licensee or designee, file an application for the registration of any Trademark or Copyright or the issuance of any Patent with the United States Patent and Trademark Office or the United States Copyright Office, as applicable, or in any similar office or agency of the United States or any country or any political subdivision thereof unless it gives the Collateral Agent prior written notice thereof. Upon request of the Collateral Agent, the Grantor shall execute, authenticate and deliver any and all assignments, agreements, instruments, documents and papers as the Collateral Agent may reasonably request to evidence the Collateral Agent’s security interest hereunder in such Intellectual Property and the General Intangibles of the Grantor relating thereto or represented thereby, and the Grantor hereby appoints the Collateral Agent its attorney-in-fact to execute and/or authenticate and file all such writings for the foregoing purposes, all acts of such attorney being hereby ratified and confirmed, and such power (being coupled with an interest) shall be irrevocable until the indefeasible payment in full in cash of all of the Obligations in full.

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(h)Deposit, Commodities and Securities Accounts. Upon the Collateral Agent’s written request, the Grantor shall cause each bank and other financial institution with an account referred to in Schedule IV hereto to execute and deliver to the Collateral Agent a control agreement, in form and substance reasonably satisfactory to the Collateral Agent, duly executed by the Grantor and such bank or financial institution, or enter into o ther arrangements in form and substance satisfactory to the Collateral Agent, pursuant to which such institution shall irrevocably agree, inter alia, that (i) it will comply at any time with the instructions originated by the Collateral Agent to such bank or financial institution directing the disposition of cash, Commodity Contracts, securities, Investment Property and other items from time to time credited to such account, without further consent of the Grantor, which instructions the Collateral Agent will not give to such bank or other financial institution in the absence of a continuing Event of Default, (ii) all Commodity Contracts, securities, Investment Property and other items of the Grantor deposited with such institution shall be subject to a perfected, first priority security i nterest in favor of the Collateral Agent, except for Permitted Liens, (iii) any right of set off (other than recoupment of standard fees), banker’s Lien or other similar Lien, security interest or encumbrance shall be fully waived as against the Collateral Agent, and (iv) upon receipt of written notice from the Collateral Agent during the continuance of an Event of Default, such bank or financial institution shall immediately send to the Collateral Agent by wire transfer (to such account as the Collateral Agent shall specify, or in such other manner as the Collateral Agent shall direct) all such cash, the value of any Commodity Contracts, securities, Investment Property and other items held by it. Without the prior written consent of the Collateral Agent, the Grantor shall not make or maintain any Deposit Account, Commodity Account or Securities Account except for the accounts set forth in Schedule IV hereto. The provisions of this paragraph 5(i) shall not apply to Deposit Accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the Grantor’s employees.

(i)   Motor Vehicles.

 (i)Upon the Collateral Agent’s written request, the Grantor shall deliver to the Collateral Agent originals of the certificates of title or ownership for all motor vehicles owned by it with the Collateral Agent listed as lienholder, for the benefit of the Buyers.

 (ii)The Grantor hereby appoints the Collateral Agent as its attorney-in-fact, effective the date hereof and terminating upon the termination of this Agreement, for the purpose of (A) executing on behalf of such Grantor title or ownership applications for filing with appropriate state agencies to enable motor vehicles now owned or hereafter acquired by such Grantor to be retitled and the Collateral Agent listed as lienholder thereof, (B) filing such applications with such state agencies, and (C) executing such other documents and instruments on behalf of, and taking such other action in the name of the Grantor as the Collateral Agent may deem necess ary or advisable to accomplish the purposes hereof (including, without limitation, for the purpose of creating in favor of the Collateral Agent a perfected Lien on the motor vehicles and exercising the rights and remedies of the Collateral Agent hereunder). This appointment as attorney-in-fact is coupled with an interest and is irrevocable until all of the Obligations are indefeasibly paid in full in cash.

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(j)Control.  Upon the Collateral Agent’s request, the Grantor hereby agrees to take any or all action that may be necessary or that the Collateral Agent may reasonably request in order for the Collateral Agent to obtain control in accordance with Sections 9-105 through and including 9-107 of the Code with respect to the following Collateral: (i) Electronic Chattel Paper, (ii) Investment Property, and (iii) Letter-of-Credit Rights.

(k)Inspection and Reporting.  The Grantor shall permit the Collateral Agent, or any agents or representatives thereof or such professionals or other Persons as the Collateral Agent may designate, during normal business hours, after reasonable notice in the absence of an Event of Default and not more than once a year in the absence of an Event of Default, (i) to examine and make copies of and abstracts from the Grantor’s records and books of account, (ii) to visit and inspect its properties, (iii) to verify materials, leases, Inst ruments, Accounts, Inventory and other assets of the Grantor from time to time, (iii) to conduct audits, physical counts, appraisals and/or valuations, examinations at the locations of the Grantor. The Grantor shall also permit the Collateral Agent, or any agent or representatives thereof or such professionals or other Persons as the Collateral Agent may designate, to discuss the Grantor’s affairs, finances and accounts with any of its directors, officers, managerial employees, independent accountants or any of its other representatives.

(l)Fixture Filings.  At the Collateral Agent’s request, the Grantor shall cause financing statements and other required or advisable documents, instruments and certificates for the purpose of recording and/or perfecting Liens to be filed in the appropriate county clerk’s offices in order to perfect the security interest of the Collateral Agent in and to all Fixtures constituting Collateral.

SECTION 6.Additional Provisions Concerning the Collateral.

(a)The Grantor hereby (i) authorizes the Collateral Agent to file one or more Uniform Commercial Code financing or continuation statements and any other required or advisable documents, instruments and certificates and amendments thereto relating to the Collateral and (ii) ratifies such authorization to the extent that the Collateral Agent has filed any such financing or continuation statements, or amendments thereto, prior to the date hereof. A photocopy or other reproduction of this Agreement or any financing statement covering the Collateral or any part thereof shall be sufficient as a financing statement where permitted by law.

(b)The Grantor hereby irrevocably appoints the Collateral Agent as its attorney-in-fact and proxy, with full authority in the place and stead of such Grantor and in the name of such Grantor or otherwise, from time to time in the Collateral Agent’s discretion, so long as an Event of Default shall have occurred and is continuing, to take any action and to execute any instrument which the Collateral Agent may reasonably deem necessary or advisable to accomplish the purposes of this Agreement (subject to the rights of the Grantor under Section 5 hereof), including, without limitation, (i) to obtain and adjust insurance required to be paid to the Collateral Agent pursuant to Section 5(e) hereof, (ii) to ask, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any Collateral, (iii) to receive, endorse, and collect any drafts or other Instruments, Documents and Chattel Paper, (iv) to file any claims or take any action or institute any proceedings which the Collateral Agent may deem necessary or desirable for the collection of any Collateral or otherwise to enforce the rights of the Collateral Agent and the Buyers with respect to any Collateral, and (v) to execute assignments, licenses and other documents to enforce the rights of the Collateral Agent and the Buyers with respect to any Collateral. This power is coupled with an interest and is irrevocab le until all of the Obligations are indefeasibly paid in full in cash.

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(c)For the purpose of enabling the Collateral Agent to exercise rights and remedies hereunder, at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Grantor hereby grants to the Collateral Agent, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Grantor) to use, assign, license or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, wherever the same may be located, including in such license reasonable access to all media in which any of the licensed items may be r ecorded or stored and to all computer programs used for the compilation or printout thereof. Notwithstanding anything contained herein to the contrary, but subject to the provisions of the Securities Purchase Agreement that limit the right of the Grantor to dispose of its property, and Section 5(g) and Section 5(h) hereof, so long as no Event of Default shall have occurred and be continuing, the Grantor may exploit, use, enjoy, protect, license, sublicense, assign, sell, dispose of or take other actions with respect to the Intellectual Property in the ordinary course of its business. In furtherance of the foregoing, unless an Event of Default shall have occurred and be continuing, the Collateral Agent shall from time to time, upon the request of the Grantor, execute and deliver any instru ments, certificates or other documents, in the form so requested, to allow it to take any action permitted above (including relinquishment of the license provided pursuant to this clause (c) as to any Intellectual Property). Further, upon the indefeasible payment in full in cash of all of the Obligations, the Collateral Agent (subject to Section 10(e) hereof) shall release and reassign to the Grantor all of the Collateral Agent’s right, title and interest in and to the Intellectual Property, and the Licenses, all without recourse, representation or warranty whatsoever. The exercise of rights and remedies hereunder by the Collateral Agent shall not terminate the rights of the holders of any licenses or sublicenses theretofore granted by the Grantor in accordance with the second sentence of this clause (c). The Grantor hereby releases the Collateral Agent from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by the Collateral Agent under the powers of attorney granted herein other than actions taken or omitted to be taken through the Collateral Agent’s gross negligence or willful misconduct, as determined by a final determination of a court of competent jurisdiction.

(d)If the Grantor fails to perform any agreement or obligation contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement or obligation, in the name of such Grantor or the Collateral Agent, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by such Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.

(e)The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.

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(f)Anything herein to the contrary notwithstanding (i) the Grantor shall remain liable under the Licenses and otherwise with respect to any of the Collateral to the extent set forth therein to perform all of its obligations thereunder to the same extent as if this Agreement had not been executed, (ii) the exercise by the Collateral Agent of any of its rights hereunder shall not release the Grantor from any of its obligations under the Licenses or otherwise in respect of the Collateral, and (iii) the Collateral Agent shall not have any obligation or liability by reason of this Agreement under the Licenses or with respect to any of the other Collateral, nor shall the Collateral Agent be obligated to perform any of the obligations or duties of the Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

SECTION 7.Remedies Upon Event of Default.  If any Event of Default shall have occurred and be continuing:

(a)The Collateral Agent may exercise in respect of the Collateral, in addition to any other rights and remedies provided for herein or otherwise available to it, all of the rights and remedies of a secured party upon default under the Code, and also may (i) take absolute control of the Collateral, including, without limitation, transfer into the Collateral Agent’s name or into the name of its nominee or nominees (to the extent the Collateral Agent has not theretofore done so) and thereafter receive, for the benefit of the Collateral Agent, all payments made thereon, give all consents, waivers and ratifications in respect thereof and otherwise act wi th respect thereto as though it were the outright owner thereof, (ii) require the Grantor to, and the Grantor hereby agrees that it will at its expense and upon request of the Collateral Agent forthwith, assemble all or part of its respective Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place or places to be designated by the Collateral Agent that is reasonably convenient to both parties, and the Collateral Agent may enter into and occupy any premises owned or leased by the Grantor where the Collateral or any part thereof is located or assembled for a reasonable period in order to effectuate the Collateral Agent’s rights and remedies hereunder or under law, without obligation to the Grantor in respect of such occupation, and (iii) without notice except as specified below and without any obligation to prepare or process the Collateral for sale, (A) sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent’s offices or elsewhere, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable and/or (B) lease, license or dispose of the Collateral or any part thereof upon such terms as the Collateral Agent may deem commercially reasonable. The Grantor agrees that, to the extent notice of sale or any other disposition of its respective Collateral shall be required by law, at least ten (10) days’ notice to the Grantor of the time and place of any public sale or the time after which any private sale or other disposition of its respective Collateral is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale or other disposition of any Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. The Grantor hereby waives any claims against the Collateral Agent and the Buyers arising by reason of the fact that the price at which its respective Collateral may have been sold at a private sale was less than the price which might have been obtained at a public sale or was less than the aggregate amount of the Obligations, even if the Collateral Agent accepts the first offer received and does not offer such Collateral to more than one offeree, and waives all rights that the Grantor may have to require that all or any part of such Collateral be marshaled upon any sale (public or private) thereof. The Grantor hereby acknowledges that (i) any such sale of its respective Collateral by the Collateral Agent shall be made without warranty, (ii) the Collateral Agent may specifically disclaim any warranties of title, possession, quiet enjoyment or the like, and (iii) such actions set forth in clauses (i) and (ii) above shall not a dversely affect the commercial reasonableness of any such sale of Collateral. In addition to the foregoing, (1) upon written notice to the Grantor from the Collateral Agent after and during the continuance of an Event of Default, such Grantor shall cease any use of the Intellectual Property or any trademark, patent or copyright similar thereto for any purpose described in such notice; (2) the Collateral Agent may, at any time and from time to time after and during the continuance of an Event of Default, upon 10 days’ prior notice to such Grantor, license, whether general, special or otherwise, and whether on an exclusive or non-exclusive basis, any of the Intellectual Property, throughout the universe for such term or terms, on such conditions, and in such manner, as the Collateral Agent shall in its sole discretion determine; and (3) the Collateral Agent may, at any time, pursuant to the authority granted in Section 6 hereof (such authority being effective upon the occurrence and during the continuance of an Event of Default), execute and deliver on behalf of such Grantor, one or more instruments of assignment of the Intellectual Property (or any application or registration thereof), in form suitable for filing, recording or registration in any country.

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(b)Any cash held by the Collateral Agent as Collateral and all cash Proceeds received by the Collateral Agent in respect of any sale of or collection from, or other realization upon, all or any part of the Collateral shall be applied (after payment of any amounts payable to the Collateral Agent pursuant to Section 8 hereof) by the Collateral Agent against, all or any part of the Obligations in such order as the Collateral Agent shall elect, consistent with the provisions of the Securities Purchase Agreement. Any surplus of such cash or cash Proc eeds held by the Collateral Agent and remaining after the indefeasible payment in full in cash of all of the Obligations shall be paid over to whomsoever shall be lawfully entitled to receive the same or as a court of competent jurisdiction shall direct.

(c)In the event that the proceeds of any such sale, collection or realization are insufficient to pay all amounts to which the Collateral Agent and the Buyers are legally entitled, the Grantor shall be liable for the deficiency, together with interest thereon at the highest rate specified in the Notes for interest on overdue principal thereof or such other rate as shall be fixed by applicable law, together with the costs of collection and the reasonable fees, costs, expenses and other client charges of any attorneys employed by the Collateral Agent to collect such deficiency.

(d)The Grantor hereby acknowledges that if the Collateral Agent complies with any applicable state, provincial, or federal law requirements in connection with a disposition of the Collateral, such compliance will not adversely affect the commercial reasonableness of any sale or other disposition of the Collateral.

(e)The Collateral Agent shall not be required to marshal any present or future collateral security (including, but not limited to, this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the Collateral Agent’s rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that the Grantor lawfully may, the Grantor hereby agrees that it will not invoke any law relating to the marshaling of collateral which might cause delay in or impede the enforcement of the Collateral Agent’s rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Grantor hereby irrevocably waives the benefits of all such laws.

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SECTION 8.Indemnity and Expenses.

(a)The Grantor agrees, jointly and severally, to defend, protect, indemnify and hold the Collateral Agent and each of the Buyers, jointly and severally, harmless from and against any and all claims, damages, losses, liabilities, obligations, penalties, fees, costs and expenses (including, without limitation, reasonable legal fees, costs, expenses, and disbursements of such Person’s counsel) to the extent that they arise out of or otherwise result from this Agreement (including, without limitation, enforcement of this Agreement), except to the extent resulting from such Person’s gross negligence or willful misconduct, as determined by a final j udgment of a court of competent jurisdiction.

(b)The Grantor agrees, jointly and severally, to pay to the Collateral Agent upon demand the amount of any and all costs and expenses, including the reasonable fees, costs, expenses and disbursements of counsel for the Collateral Agent and of any experts and agents (including, without limitation, any collateral trustee which may act as agent of the Collateral Agent), which the Collateral Agent may incur in connection with (i) the preparation, negotiation, execution, delivery, recordation, administration, amendment, waiver or other modification or termination of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any Collateral, (iii) the exercise or enforcement of any of the rights of the Collateral Agent hereunder, or (iv) the failure by the Grantor to perform or observe any of the provisions hereof.

SECTION 9.Notices. Etc.  All notices and other communications provided for hereunder shall be in writing and shall be mailed (by certified mail, postage prepaid and return receipt requested), telecopied, e-mailed or delivered, if to the Grantor at its address specified on the signature pages below and if to the Collateral Agent to it, at its address specified on the signature pages below; or as to any such Person, at such other address as shall be designated by such Person in a written notice to all o ther parties hereto complying as to delivery with the terms of this Section 9. All such notices and other communications shall be effective (a) if sent by certified mail, return receipt requested, when received or three days after deposited in the mails, whichever occurs first, (b) if telecopied or e-mailed, when transmitted (during normal business hours) and confirmation is received, and otherwise, the day after the notice or communication was transmitted and confirmation is received, or (c) if delivered in person, upon delivery.

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SECTION 10.Certain Waivers.

(a)The Grantor acknowledges and agrees that its obligations hereunder shall be unconditional, irrespective of (i) the validity or enforceability of the Obligations or any part thereof, or of any of the Transaction Documents, (ii) the waiver or consent by any Person with respect to any provision of any Transaction Document, or any amendment, modification or other change with respect to any Transaction Document, (iii) any merger or consolidation of the Company, the Grantor or any other guarantor of or pledgor with regard to all or part of the Obligations into or with any Person or any change in the ownership of the equity of the Company, or any such guarant or of all or part of the Obligations, (iv) any dissolution of any pledgor or guarantor or any insolvency, bankruptcy, liquidation, reorganization or similar proceedings with respect to the Company, the Grantor or any other guarantor or pledgor with regard to all or part of the Obligations, (v) any action or inaction on the part of any Person, including without limitation the absence of any attempt to collect the Obligations from the Company, the Grantor or any other guarantor of or pledgor with regard to all or part of the Obligations or other action to enforce the same or the failure by any Person to take any steps to perfect and maintain its Lien on, or to preserve its rights to, any security or collateral for the Obligations, (vi) any Person’s election, in any proceeding instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. Section 101 et seq.), as amended (the “Bankr uptcy Code”) of the application of Section 1111(b)(2) of the Bankruptcy Code, (vii) any borrowing or grant of a Lien by the Company, the Grantor or any other guarantor of or pledgor with regard to all or part of the Obligations, as debtor-in-possession, under Section 364 of the Bankruptcy Code, (viii) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of any Buyer’s or the Collateral Agent’s claims for repayment of the Obligations, (ix) the inability to enforce the Obligations of the Company as a result of the automatic stay provisions under Section 362 of the Bankruptcy Code, or (ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of the Company, any Guarantor or any other guarantor of all or part of the Obligations.

(b)No payment made by or for the account or benefit of any Person (including, without limitation, (i) a payment made by the Company in respect of the Obligations, (ii) a payment made by any other guarantor or pledgor, (iii) a payment made by means of set-off or other application of funds), or (iv) any other action or event shall entitle the Grantor, by subrogation or otherwise, to any payment by the Company or from or out of any property of the Company, and no Guarantor shall exercise any right or remedy against the Company or any property of the Company including, without limitation, any right of contribution or reimbursement by reason of any performance by any other Person, until the Obligations have been indefeasibly paid in full.

(c)The Grantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of any Insolvency Proceeding of the Company, protest or notice with respect to the Obligations and all demands whatsoever, and covenants that this Agreement will not be discharged, except by complete and irrevocable payment and performance of the Obligations.  Except as expressly provided herein or in any other Transaction Document, no notice to any Person shall be required for the Collateral Agent to make any demand or take any action hereunder.

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(d)The Collateral Agent and the Buyers each is hereby authorized, without notice or demand to any Guarantor and without affecting or impairing the liability of the Grantor hereunder, to, from time to time, (i) renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, the Obligations or otherwise modify, amend or change the terms of any Transaction Document, (ii) accept partial payments on the Obligations, (iii) take and hold collateral for the payment of the Obligations, and exchange, enforce, waive and release any such collateral, (iv) apply such collateral and direct the order or manner of sale thereof as in thei r sole discretion they may determine and (v) settle, release, compromise, collect or otherwise liquidate the Obligations and any collateral therefor in any manner.

(e)The Grantor also waives all set-offs and counterclaims and all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Agreement.  The Grantor further waives all notices of the existence, creation or incurring of new or additional indebtedness, arising either from additional loans or other financial accommodations extended to the Company or otherwise, and also waives all notices that the principal amount, or any portion thereof, or any interest under or on any Transaction Document is due, notices of any and all proceedings to collect from the maker, any endorser or any other guarantor of all or any part of the Obligations, or from anyone else, and, to the extent permitted by law, notices of exchange, sale, surrender or other handling of any security or collateral to secure payment of the Obligations.

(f)At any time and from time to time, without terminating, affecting or impairing the validity of this Agreement or the obligations of the Grantor hereunder, the Buyers and the Collateral Agent may deal with the Company in the same manner and as fully as if this Agreement did not exist and shall be entitled, among other things, to grant the Company, without notice or demand and without affecting the Grantor’s liability hereunder, such extension or extensions of time to perform, renew, compromise, accelerate or otherwise change the time for payment of or otherwise change the terms of indebtedness or any part thereof contained in or arising under the Transaction Documents, or to waive any obligation of the Company to perform, any act or acts as the Collateral Agent or the Buyers, as the case may be, may deem advisable.

SECTION 11.Miscellaneous.

(a)The term “Grantor” used in this Agreement shall include the Grantor as defined on page 1 of this Agreement, the Grantor as successor by merger to Rixflex and the Grantor as the ultimate assignee of the intellectual property of Biowell transferred to Rixflex as more fully described in Section 4 of this Agreement.

(b)No amendment of any provision of this Agreement shall be effective unless it is in writing and signed by the Grantor and the Collateral Agent, and no waiver of any provision of this Agreement, and no consent to any departure by the Grantor therefrom, shall be effective unless it is in writing and signed by the Grantor and the Collateral Agent, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

(c)No failure on the part of the Collateral Agent to exercise, and no delay in exercising, any right hereunder or under any of the other Transaction Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The rights and remedies of the Collateral Agent or any Buyer provided herein and in the other Transaction Documents are cumulative and are in addition to, and not exclusive of, any rights or remedies provided by law. The rights of the Collateral Agent or any Buyer under any of the other Transaction Documents against any party thereto are not conditional or contingent on any attempt by such Person to exercise any of its rights under any of the other Transaction Documents against such party or against any other Person, including but not limited to, the Grantor.

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(d)Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction.

(e)This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the indefeasible payment in full in cash of the Obligations, and (ii) be binding on the Grantor and all other Persons who become bound as debtor to this Agreement in accordance with Section 9-203(d) of the Code and other applicable law and shall inure, together with all rights and remedies of the Collateral Agent and the Buyers hereunder, to the benefit of the Collateral Agent and the Buyers and their respective permitted successors, transferees and assigns. Without limiting the generality of clause (ii) of the immediately pr eceding sentence, without notice to the Grantor, the Collateral Agent and the Buyers may assign or otherwise transfer their rights and obligations under this Agreement and any of the other Transaction Documents, to any other Person and such other Person shall thereupon become vested with all of the benefits in respect thereof granted to the Collateral Agent and the Buyers herein or otherwise. Upon any such assignment or transfer, all references in this Agreement to the Collateral Agent or any such Buyer shall mean the assignee of the Collateral Agent or such Buyer. None of the rights or obligations of the Grantor hereunder may be assigned or otherwise transferred without the prior written consent of the Collateral Agent, and any such assignment or transfer without the consent of the Collateral Agent shall be null and void.

(f)Upon the indefeasible payment in full in cash of the Obligations, (i) this Agreement and the security interests created hereby shall terminate and all rights to the Collateral shall revert to the Grantor, and (ii) the Collateral Agent will, upon the Grantor’s request and at such Grantor’s expense, (A) return to the Grantor such of the Collateral as shall not have been sold or otherwise disposed of or applied pursuant to the terms hereof, and (B) execute and deliver to the Grantor such documents as the Grantor shall reasonably request to evidence such termination, all without any representation, warranty or recourse whatsoever.

(g)THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW) AND EXCEPT TO THE EXTENT THAT THE VALIDITY AND PERFECTION OR THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED HEREBY, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

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(h)ANY LEGAL ACTION, SUIT OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF NEW YORK OR THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS THEREOF, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE GRANTOR HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. THE GRANTOR HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION, SUIT OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT.

(i)THE GRANTOR AND (BY ITS ACCEPTANCE OF THE BENEFITS OF THIS AGREEMENT) THE COLLATERAL AGENT WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, ORAL OR WRITTEN STATEMENT OR OTHER ACTION OF THE PARTIES HERETO.

(j)The Grantor irrevocably consents to the service of process of any of the aforesaid courts in any such action, suit or proceeding by the mailing of copies thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Grantor at its address provided herein, such service to become effective 10 days after such mailing.

(k)Nothing contained herein shall affect the right of the Collateral Agent to serve process in any other manner permitted by law or commence legal proceedings or otherwise proceed against the Grantor or any property of the Grantor in any other jurisdiction.

(l) The Grantor irrevocably and unconditionally waives any right it may have to claim or recover in any legal action, suit or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

(m)Section headings herein are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

(n)This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original, but all of which taken together constitute one in the same Agreement.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be executed and delivered by its officer thereunto duly authorized, as of the date first above written.

APDN (B.V.I.) INC.
By:	/s/ Dr. James A Hayward
	Name: Dr. James A. Hayward
	Title:   President and Chief Executive Officer
	Address: 25 Health Sciences Drive, Suite 113
	Facsimile: (631) 444-6935
	Email: james.hayward@adnas.com
ETICO CAPITAL, LLC
By:	/s/ Scott A. Weisman
	Name:  Scott A. Weisman
	Title:    Managing Director
	Address:  405 Lexington Avenue
	New York, NY 10174
	Facsimile: (203) 529- 0096
	Email: sweisman@eticocapital.com

-23-

Schedule I

Grantor

Legal Name of Grantor – APDN (B.V.I.) Inc.

Jurisdiction of Incorporation – British Virgin Islands

Organizational Identification Number – 656029

Schedule II

Copyrights, Patents and Trademarks

The following are owned by the Grantor:

PATENTS
Patents Issued
Patent Name	Patent No	Assignee of Record	Date Issued	Jurisdiction
Nucleic Acid as Marker for Product Anticounterfeiting and Identification	(570982/196181) 89108443	APDN (B.V.I.) Inc.	1/11/2004 – 3/16/2020 3/17/2000	Taiwan
Method of using ribonucleic acid as marker for product anti-counterfeit labeling	CN1324955 00107580.2	APDN (B.V.I.) Inc.	2/2/2005	China
EppenLocker (A Leakage Prevention Apparatus of Microcentrifuge)	529633 203050	APDN Inc.	4/21/2003-3/9/2012 3/10/2000	Taiwan
Multiple Tube Structure for Multiple PCR in a Closed Container	519130 205554	APDN Inc.	1/21/2003-6/19/2012 6/20/2000	Taiwan
A Device for Multiple Polymerase Chain Reactions In  a Closed Container and a Method of Using Thereof	231311	APDN  Inc.	4/21/2005-6/12/2020 6/12/2000	Taiwan
A Method of marking solid or liquid substances with nucleic acid for anti-counterfeiting and authentication	7115301 (10/748,412)	APDN (B.V.I.) Inc.	10/3/2006	United States
A novel nucleic acid based steganography system and applications thereof	MY 135976-A	APDN (B.V.I.) Inc.	7/31/2008	Malaysia
	KR 20050025256 679484 (61387/2004)	APDN (B.V.I.) Inc.	3/14/2005 8/3/2005	Korea
Method for Mixing Ribonucleic Acid in Water Insoluble Media and Application Thereof	JP2004159502 3930794	Rixflex Holding Limited*	6/10/2004 8/31/2002	Japan
Method for Mixing Ribonucleic Acid in Water Insoluble Media and Application Thereof	EP1394544	APDN (B.V.I.) Inc.	3/3/2004	EU
Method of dissolving nucleic acid in water insoluble medium and its application	CN100349315C 03155949.2	APDN (B.V.I.) Inc.	11/7/2007 (8/27/2003)	China
A Nucleic Acid Based Steganography System and Application thereof	EP1568783	APDN (B.V.I.) Inc.	8/31/2005	EU
A Nucleic Acid Based Steganography System and Application Thereof	DE 602004007474.8	APDN (B.V.I.) Inc	4/24/2008	Germany
System and Method for authenticating multiple components associated with a particular product	WO2006127558 A2	APDN	11/30/2006	EU

Patents Pending
Patent Name	Publication No	Filed in Name of	Date Published	Jurisdiction
Method for Mixing Nucleic Acid in Water Insoluble Media and Application Thereof	20040058374 (10/645,602)	Rixflex Holdings Limited*	3/25/2004	United States
Novel nucleic acid based steganography system and application thereof	20050059059 (10/909,431)	Rixflex Holdings Limited*	3/17/2005	United States
Cryptic method of secret information carried in DNA molecule and it deencryption method	200506064 (921221490)	APDN (B.V.I.) Inc.	8/6/2003	Taiwan
A novel nucleic acid based steganography system and applications thereof	1-2004-00742	APDN (B.V.I.) Inc.	8/4/2004	Vietnam
A novel nucleic acid based steganography system and applications thereof	092819	APDN (B.V.I.)  Inc. pending	8/4/2004	Thailand
A Method for encrypting and decrypting specific message by using nucleic acid molecules	JP2005055900 2004-225987	Rixflex Holdings Limited*	3/3/2005	Japan
	P-00200400374	APDN (B.V.I.) Inc	8/4/2004	Indonesia
Methods and Systems for the Generation of Plurality of Security Markers and the Detection Thereof	12/690,799	APDN (B.V.I.) Inc.	None	United States

Published Patent Applications
Patent Name	Patent Appl. No	Assignee of Record	Publication Date	Jurisdiction
System and Method for Marking Textiles with Nucleic Acids	publication # 20050112610 (10/825,968)	APDN (B.V.I.) Inc.	5/26/2005	United States
System and Method for Authenticating Multiple Components Associated with a Particular Good	20070048761 (11/437,265)	APDN (B.V.I.) Inc.	3/1/2007	United States
System and Method for Secure Document Printing and Detection	20090042191 (11/954,044)	APDN (B.V.I.) Inc.	2/12/2009	United States
System and Method for Authenticating Tablets	20090075261 (11/954,055)	APDN (B.V.I.) Inc.	3/19/2009	United States
System and Method for Authenticating Sports Identification Goods	20080293052 (11/954,051)	APDN (B.V.I.) Inc.	11/27/2008	United States
Optical Reporter Compositions	20080299667 (11/954,030)	APDN (B.V.I.) Inc.	12/4/2008	United States
Methods for Covalent Linking of Optical Reporters	20080312427 (11/954,009)	APDN (B.V.I.) Inc.	12/12/2008	United States
Method for Authenticating Articles with Optical Reporters	20080299559 (11/954,038)	APDN (B.V.I.) Inc.	12/4/2008	United States
Methods for Genetic Analysis of Textiles made of Gossypium Barbadense and Gossypium Hirsutum Cotton	Published by WIPO WO 2010/056642 12/269,737	APDN (B.V.I.) Inc.	05/20/2010.	United States
Methods for Genetic Analysis of Textiles made of Gossypium Barbadense and Gossypium Hirsutum  Cotton	Published by WIPO WO 2010/056642 PCT/US09/63814	APDN (B.V.I.) Inc.	05/20/2010	WIPO
Methods for Genotyping Mature Cotton Fibers and Textiles	Published by WIPO WO 2010/056645 12/269,757	APDN (B.V.I.) Inc.	Published by WIPO 05/20/2010.	United States
Methods for Genotyping Mature Cotton Fibers and Textiles	Published by WIPO WO 2010/056645 PCT/US09/63818	APDN (B.V.I.) Inc.	05/20/2010	WIPO
Incorporating Water Soluble Security Markers into Cyanoacrylate Solutions	20090286250 (12/465,450)	APDN (B.V.I.) Inc.	11/19/2009	United States

The following are used by the Grantor:

TRADEMARKS
Registered	TM Reg #	Assignee of Record	Registered	Jurisdiction
APPLIED DNA	3489209	APDN	8/19/2008	United States
SIGNATURE	3482366	APDN	8/5/2008	United States
SIGNATURE	005419031	Apdn	10/26/2006	EU
SIGNATURE	1143760	APDN	10/27/2006	Australia
AZSURE	3698729	APDN	10/20/2009	United States
AZSURE	1022396	APDN	1109/2009	EU

Pending	TM Reg #	Assignee of Record	Filed	Jurisdiction
FIBERTYPING	77/488531	APDN	6/2/2008	United States
PIMATYPING	77/488647	APDN	6/2/2008	United States
BIOMATERIAL GENOTYPING	77/771522	APDN	6/30/2009	United States
FIBERTYPING	77/728499	APDN	05/04/2009	United States
PIMATYPING	77/728511	APDN	05/04/2009	United States

* Rixflex has been merged with and into APDN (B.V.I.) Inc.

Licenses

None.

Trade Names

Grantor uses the following trade names APDN (B.V.I.) Inc.

Trade names used by each person from whom the Grantor has acquired a substantial part of the Collateral: Biowell Technology, Inc., Rixflex Holdings Limited

Schedule III

Equipment, Fixtures, Goods and Inventory

Locations of Equipment, Fixtures, Goods and Inventory

25 Health Sciences Drive, Suite 113

Stony Brook, New York 11790

Registered Office

P.O. Box 3170

Nemours Chambers

Road Town, Tortola

British Virgin Islands, VG1110

Schedule IV

(i)  Promissory Notes, Securities and other Instruments owned by Grantor

None.

(ii) Deposit Accounts, Securities Accounts, Commodities Accounts

None.

Schedule V (Schedule 4(g))

Financing Statements and Other Required or Advisable Documents, Instruments and Certificates

The Grantor has granted a security interest in all of its assets, 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 Agreement, to holders of the following secured convertible promissory notes (the “Existing Promissory Notes”):

Promissory Notes 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.

Promissory Notes 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.

Promissory Notes 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.

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.

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.

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.

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.

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.

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.

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.

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.

* 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.

A UCC-1 was filed in connection with each of the Existing Promissory Notes.

Schedule VI

Commercial Tort Claims

None.

EX-10.6

Exhibit 10.6

TRADEMARK SECURITY AGREEMENT

SECURITY AGREEMENT (the “Agreement”) made as of this 15th day of July 2010 by APPLIED DNA SCIENCES, INC. (“Grantor”), in favor of ETICO CAPITAL, LLC, as Agent (“Grantee”).

W I T N E S S E T H

WHEREAS, pursuant to the terms of a certain Security Agreement of even date herewith between Grantor and Grantee (as the same may be amended or otherwise modified from time to time, the “Security Agreement”), Grantor has granted to Grantee, as agent for the Buyers (as defined in the Security Agreement) a security interest in substantially all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Trademarks (as defined in the Security Agreement), and all products and proceeds thereof, to secure the payment of the Obligations (as defined in the Security Agreement).

NOW, THEREFORE, for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows:

1.Incorporation of Security Agreement.  The Credit Agreement and Security Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto.  All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the SecurityAgreement.

2.Grant and Reaffirmation of Grant of Security Interests.  To secure the payment and performance of the Obligations, Grantor hereby grants to Grantee, and hereby reaffirms its prior grant pursuant to the Security Agreement of, a continuing security interest in Grantor’s entire right, title and interest in and to the following (all of the following items or types of property being herein collectively referred to as the “T rademark Collateral”), whether now owned or existing or hereafter created, acquired or arising: (i) each Trademark listed on Schedule 1 annexed hereto, together with any reissues, continuations or extensions thereof, and all of the goodwill of the business connected with the use of, and symbolized by, each Trademark; and (ii) all products and proceeds of the forgoing, including without limitation, any claim by Grantor against third parties for past, present or future (a) infringement or dilution of any Trademark, or (b) injury to the goodwill associated with any Trademark.

SIGNATURE PAGE TO TRADEMARK SECURITY AGREEMENT

IN WITNESS WHEREOF, Grantor has duly executed this Agreement as of the date first written above.

APPLIED DNA SCIENCES, INC.
By:	/s/ Dr. James A. Hayward
Name: Dr. James A. Hayward
Title:   President and Chief Executive Officer
Accepted and Agreed as of the date first above written:
ETICO CAPITAL, LLC, as Collateral Agent
By:	/s/ Scott A. Weisman
Name: Scott A. Weisman
Title:   Managing Director

2

SCHEDULE 1

TRADEMARK REGISTRATIONS

Trademark Description	U.S. Registration/Application No.	Date Registered/Applied For
APPLIED DNA	3489209	8/19/08
AZSURE	3698729	10/20/09
BIOMATERIAL GENOTYPING	77/771522	6/30/08
PIMATYPING	77/488647	6/2/08
PIMATYPING	77/728499	5/4/09
FIBERTYPING	77/488531	6/2/08
FIBERTYPING	77/728511	5/4/09
SIGNATURE	3482366	8/5/08

3

EX-10.7

Exhibit 10.7

TRADEMARK SECURITY AGREEMENT

SECURITY AGREEMENT (the “Agreement”) made as of this 15th day of July 2010 by APDN (B.V.I.), INC. (“Grantor”), in favor of ETICO CAPITAL, LLC, as Agent (“Grantee”).

W I T N E S S E T H

WHEREAS, pursuant to the terms of a certain Security Agreement of even date herewith between Grantor and Grantee (as the same may be amended or otherwise modified from time to time, the “Security Agreement”), Grantor has granted to Grantee, as agent for the Buyers (as defined in the Security Agreement) a security interest in substantially all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Trademarks (as defined in the Security Agreement), and all products and proceeds thereof, to secure the payment of the Obligations (as defined in the Security Agreement).

NOW, THEREFORE, for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows:

1.Incorporation of Security Agreement.  The Credit Agreement and Security Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto.  All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the SecurityAgreement.

2.Grant and Reaffirmation of Grant of Security Interests.  To secure the payment and performance of the Obligations, Grantor hereby grants to Grantee, and hereby reaffirms its prior grant pursuant to the Security Agreement of, a continuing security interest in Grantor’s entire right, title and interest in and to the following (all of the following items or types of property being h erein collectively referred to as the “Trademark Collateral”), whether now owned or existing or hereafter created, acquired or arising: (i) each Trademark listed on Schedule 1 annexed hereto, together with any reissues, continuations or extensions thereof, and all of the goodwill of the business connected with the use of, and symbolized by, each Trademark; and (ii) all products and proceeds of the forgoing, including without limitation, any claim by Grantor against third parties for past, present or future (a) infringement or dilution of any Trademark, or (b) injury to the goodwill associated with any Trademark.

SIGNATURE PAGE TO TRADEMARK SECURITY AGREEMENT

IN WITNESS WHEREOF, Grantor has duly executed this Agreement as of the date first written above.

APDN (B.V.I.), INC.
By:	/s/ Dr. James A. Hayward
Name:  Dr. James A. Hayward
Title:   President and Chief Executive Officer
Accepted and Agreed as of the date first above written:
ETICO CAPITAL, LLC, as Collateral Agent

By:	/s/ Scott A. Weisman
Name:  Scott A. Weisman
Title:    Managing Director

2

SCHEDULE 1

TRADEMARK REGISTRATIONS

Trademark Description	U.S. Registration/Application No.	Date Registered/Applied For
SIGNATURE	3482366	8/19/08

3

EX-10.8

Exhibit 10.8

TRADEMARK SECURITY AGREEMENT

SECURITY AGREEMENT (the “Agreement”) made as of this 15th day of July 2010 APDN (B.V.I.) INC., a corporation organized under the laws of the British Virgin Islands and successor in interest by merger to RIXFLEX HOLDINGS LIMITED, a corporation organized under the laws of the British Virgin Islands (“Grantor”), in favor of ETICO CAPITAL, LLC, as Agent (“Grantee”).

W I T N E S S E T H

WHEREAS, pursuant to the terms of a certain Security Agreement of even date herewith between Grantor and Grantee (as the same may be amended or otherwise modified from time to time, the “Security Agreement”), Grantor has granted to Grantee, as agent for the Buyers (as defined in the Security Agreement) a security interest in substantially all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Trademarks (as defined in the Security Agreement), and all products and proceeds thereof, to secure the payment of the Obligations (as defined in the Security Agreement).

NOW, THEREFORE, for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows:

1.Incorporation of Security Agreement.  The Credit Agreement and Security Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto.  All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the SecurityAgreement.

2.Grant and Reaffirmation of Grant of Security Interests.  To secure the payment and performance of the Obligations, Grantor hereby grants to Grantee, and hereby reaffirms its prior grant pursuant to the Security Agreement of, a continuing security interest in Grantor’s entire right, title and interest in and to the following (all of the following items or types of property being herein collectively referred to as the “T rademark Collateral”), whether now owned or existing or hereafter created, acquired or arising: (i) each Trademark listed on Schedule 1 annexed hereto, together with any reissues, continuations or extensions thereof, and all of the goodwill of the business connected with the use of, and symbolized by, each Trademark; and (ii) all products and proceeds of the forgoing, including without limitation, any claim by Grantor against third parties for past, present or future (a) infringement or dilution of any Trademark, or (b) injury to the goodwill associated with any Trademark.

SIGNATURE PAGE TO TRADEMARK SECURITY AGREEMENT

IN WITNESS WHEREOF, Grantor has duly executed this Agreement as of the date first written above.

APDN (B.V.I.) INC., successor in interest by merger     to Rixflex Holdings Limited
By:	/s/ Dr. James A. Hayward
Name:  Dr. James A. Hayward
Title:  President and Chief Executive Officer

Accepted and Agreed as of the date first above written:
ETICO CAPITAL, LLC, as Collateral Agent
By:	/s/ Scott A. Weisman
Name:  Scott A. Weisman
Title:  Managing Director

2

SCHEDULE 1

TRADEMARK REGISTRATIONS

Trademark Description	U.S. Registration/Application No.	Date Registered/Applied For
BIOWELL	3155578	10/17/06

3

EX-10.9

Exhibit 10.9

PATENT SECURITY AGREEMENT

PATENT SECURITY AGREEMENT (the “Agreement”) made as of this 15th day of July 2010 by APDN (B.V.I.) INC., a corporation organized under the laws of the British Virgin Islands (“Grantor”), in favor of ETICO CAPITAL, LLC, as Agent (“Grantee”).

W I T N E S S E T H

WHEREAS, Grantor and Grantee are parties to a certain Security Agreement of even date herewith between Grantor and Grantee (as the same may be amended or otherwise modified from time to time, the “Security Agreement”), pursuant to which Grantor has granted to Grantee, as agent for the Buyers (as defined in the Security Agreement), a security interest in substantially all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Patents (as defined in the Security Agreement), and all products and proceeds thereof, to secure the payment of the Obligations (as defined in the Security Agreement).

NOW, THEREFORE, for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows:

1.      Incorporation of Security Agreement.  The Security Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto. All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the Security Agreement.

2.      Grant and Reaffirmation of Grant of Security Interests.  To secure the payment and performance of the Obligations, Grantor hereby grants to Grantee, for its benefit and the benefit of the Buyers, and hereby reaffirms its prior grant pursuant to the SecurityAgreementof, a continuing security interest in Grantor’s entire right, title and interest i n and to the following (all of the following items or types of property being herein collectively referred to as the “Patent Collateral”), whether now owned or existing and hereafter created, acquired or arising: (i) each Patent and application for Patent listed on Schedule 1 annexed hereto, together with any reissues, continuations or extensions thereof; and (ii) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future infringement of any Patent.

SIGNATURE PAGE TO PATENT SECURITY AGREEMENT

IN WITNESS WHEREOF, Grantor has duly executed this Agreement as of the date first written above.

APDN (B.V.I.) INC.
By:	/s/ Dr. James A. Hayward
Name:  Dr. James A. Hayward
Title:   President and Chief Executive Officer
Accepted and Agreed as of the date first above written:
ETICO CAPITAL, LLC, as Collateral Agent

By:	/s/ Scott A. Weisman
Name:  Scott A. Weisman
Title:  Managing Director

2

SCHEDULE 1

PATENTS

Patent Description U.S. Patent No.

A Method of Marking Solid or Liquid Substances with Nucleic Acid for Anti-Counterfeiting and Authentication 7115301

PATENT APPLICATIONS

Patent Application Description U.S. Patent Application No.

Method for Mixing Nucleic Acid in Water Insoluble Media and Application Thereof	10/645,602
System and Method for Marking Textiles with Nucleic Acids	10/825,968
System and Method for Authenticating Multiple Components Associated with a Particular Good	11/437,265
System and Method for Secure Document Printing and Detection	11/954,044
System and Method for Authenticating Tablets	11/954,055
System and Method for Authenticating Sports Identification Goods	11/954,051
Optical Reporter Compositions	11/954,030
Methods for Covalent Linking of Optical Reporters	11/954,009
Method for Authenticating Articles with Optical Reporters	11/954,038

3

PATENT APPLICATIONS (continued)

Methods for Genetic Analysis of Textiles made of Gossypium Barbadense and Gossypium Hirsutum Cotton	12/269,737
Methods for Genotyping Mature Cotton Fibers and Textiles	12/269,757
Incorporating Water Soluble Security Markers into Cyanoacrylate Solutions	12/465,450

4

EX-10.10

Exhibit 10.10

PATENT SECURITY AGREEMENT

PATENT SECURITY AGREEMENT (the “Agreement”) made as of this 15th day of July 2010 by APDN (B.V.I.) INC., a corporation organized under the laws of the British Virgin Islands and successor in interest by merger to RIXFLEX HOLDINGS LIMITED, a corporation organized under the laws of the British Virgin Islands (“Grantor”), in favor of ETICO CAPITAL, LLC, as Agent (“Grantee”).

W I T N E S S E T H

WHEREAS, Grantor and Grantee are parties to a certain Security Agreement of even date herewith between Grantor and Grantee (as the same may be amended or otherwise modified from time to time, the “Security Agreement”), pursuant to which Grantor has granted to Grantee, as agent for the Buyers (as defined in the Security Agreement), a security interest in substantially all of the assets of Grantor including all right, title and interest of Grantor in, to and under all now owned and hereafter acquired Patents (as defined in the Security Agreement), and all products and proceeds thereof, to secure the payment of the Obligations (as defined in the Security Agreement).

NOW, THEREFORE, for other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, Grantor agrees as follows:

1.Incorporation of Security Agreement.  The Security Agreement and the terms and provisions thereof are hereby incorporated herein in their entirety by this reference thereto. All terms capitalized but not otherwise defined herein shall have the same meanings herein as in the Security Agreement.

2.Grant and Reaffirmation of Grant of Security Interests.  To secure the payment and performance of the Obligations, Grantor hereby grants to Grantee, for its benefit and the benefit of the Buyers, and hereby reaffirms its prior grant pursuant to the SecurityAgreementof, a continuing security interest in Grantor’s e ntire right, title and interest in and to the following (all of the following items or types of property being herein collectively referred to as the “Patent Collateral”), whether now owned or existing and hereafter created, acquired or arising: (i) each Patent and application for Patent listed on Schedule 1 annexed hereto, together with any reissues, continuations or extensions thereof; and (ii) all products and proceeds of the foregoing, including, without limitation, any claim by Grantor against third parties for past, present or future infringement of any Patent.

SIGNATURE PAGE TO PATENT SECURITY AGREEMENT

IN WITNESS WHEREOF, Grantor has duly executed this Agreement as of the date first written above.

APDN (B.V.I.) INC., successor in interest by merger     to Rixflex Holdings Limited
By:	/s/ Dr. James A. Hayward
Name:  Dr. James A. Hayward
Title:  President and Chief Executive Officer
Accepted and Agreed as of the date first above written:
ETICO CAPITAL, LLC, as Collateral Agent
By:	/s/ Scott A. Weisman
Name: Scott A. Weisman
Title:  Managing Director

2

SCHEDULE 1

PATENT APPLICATIONS

Patent Application Description	U.S. Patent Application No.	Date Published
Method for Mixing Nucleic Acid in Water Insoluble Media and Application Thereof	10/645,602	3/25/04
Novel Nucleic Acid Based Stganography System and Application Thereof	10/909,431	3/17/05

3

EX-10.11

Exhibit 10.11

SECURITY AGREEMENT

THIS SECURITY AGREEMENT (this “Agreement”) is made and entered into as of July 15, 2010 by APDN (B.V.I.) INC., a company organized under the laws of the British Virgin Islands (the “Debtor”) for the benefit of the individuals or entities listed on Schedule I hereto (the “Lenders”).

RECITALS:

A.           Applied DNA Sciences, Inc., a Delaware corporation (“Parent”), is indebted to the Lenders as evidenced by certain secured convertible promissory notes issued to the Lenders on January 29, 2009, February 27, 2009, March 30, 2009, June 22, 2009, June 30, 2009, August 21, 2009, September 30, 2009, October 14, 2009, January 7, 2010 and June 4, 2010 (the “Promissory Notes”).

B.            In order to secure its obligations under the Promissory Notes, the Parent has granted a security interest in all of the assets of the Parent to the Lenders.

C.            The Parent agreed that, in connection with the issuance of any debt in addition to the Promissory Notes, the Parent would grant a pari passu security interest to the Lenders in any collateral provided as security for such additional debt.

D.            In order to secure the obligations of the Parent under the Promissory Notes, the Debtor, a wholly-owned subsidiary of the Parent, agreed to grant to the Lenders a security interest in the Collateral (as hereinafter defined).

NOW, THEREFORE, for and in consideration of the recitals made above and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the Debtor agrees as follows:

1.             Definitions

1.1           All terms used in this Agreement and the recitals hereto which are defined in Articles 8 or 9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the “Code”), and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

1.2           As used in this Agreement, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

“Copyright Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Debtor as licensee or licensor and providing for the grant of any right to use or sell any works covered by any copyright (including, without limitation, all Copyright Licenses set forth in Schedule II hereto).

“Copyrights” means all domestic and foreign copyrights, whether registered or not, including, without limitation, all copyright rights throughout the universe (whether now or hereafter arising) in any and all media (whether now or hereafter developed), in and to all original works of authorship fixed in any tangible medium of expression, acquired or used by the Debtor (including, without limitation, all copyrights described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Copyright Office or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

“Intellectual Property” means the Copyrights, Trademarks and Patents.

“Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.

“Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights).

“Patent Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Debtor as licensee or licensor and providing for the grant of any right to manufacture, use or sell any invention covered by any Patent (including, without limitation, all Patent Licenses set forth in Schedule II hereto).

“Patents” means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and other general intangibles of like nature, now existing or hereafter acquired (including, without limitation, all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how and formulae described in Schedule II hereto), all applications, registrations and recordings thereof (includin g, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

“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.

“Trademark Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Debtor as licensor or licensee and providing for the grant of any right concerning any Trademark, together with any goodwill connected with and symbolized by any such trademark licenses, contracts or agreements and the right to prepare for sale or lease and sell or lease any and all Inventory now or hereafter owned by the Debtor and now or hereafter covered by such licenses (including, without limitation, all Trademark Licenses described in Schedule II hereto).

-2-

“Trademarks” means all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers and all general intangibles of like nature, now or hereafter owned, adopted, acquired or used by the Debtor (including, without limitation, all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers described in Schedule II hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof), and all reissues, extensions or renewals thereof, together with all goodwill of the business symbolized by such marks and all customer lists, formulae and other Records of the Debtor relating to the distribution of products and services in connection with which any of such marks are used.

2.             Grant of Security Interest.  As security for the prompt payment and satisfaction all obligations of the Parent and Debtor at any time owing to the Lenders under the Promissory Notes, the Debtor hereby grants to the Lenders a continuing security interest in all of the personal property of the Debtor, wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (collectively, the “Collateral”), including, without limitation, the following:

a)	all Accounts;
b)	all Chattel Paper (whether tangible or electronic);
c)	the Commercial Tort Claims specified on Schedule III hereto;
d)	all Deposit Accounts, all cash and other property from time to time deposited therein and the monies and property in the possession or under the control of the Lenders or any affiliate, representative, agent or correspondent of the Lenders;
e)	all Documents;
f)	all Equipment;
g)	all Fixtures;
h)	all General Intangibles (including, without limitation, all Payment Intangibles);
i)	all Goods

-3-

j)	all Instruments (including, without limitation, Promissory Notes and each certificated Security);
k)	all Inventory;
l)	all Investment Property;
m)	all Copyrights, Patents and Trademarks, and all Licenses;
n)	all Letter-of-Credit Rights;
o)	all Supporting Obligations;
p)	all other tangible and intangible personal property of the Debtor (whether or not subject to the Code), including, without limitation, all bank and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of the Debtor described in the preceding clauses of this Section 2 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter held by the Debtor in respect of any of the items listed above), and all books, correspondence, files and other Records, including, without limitation, all tapes, desks, cards, Software, data and computer programs in the possession or under the control of the Debto r or any other Person from time to time acting for the Debtor to the extent of the Debtor’s rights therein, that at any time evidence or contain information relating to any of the property described in the preceding clauses of this Section 2 or are otherwise necessary or helpful in the collection or realization thereof; and
q)	all Proceeds, including all cash Proceeds and non-cash Proceeds, and products of any and all of the foregoing Collateral;

in each case howsoever the Debtor’s interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

3.            Termination of Security Interest.  Upon the automatic conversion (or earlier payment) of the Promissory Notes, all of the Debtor’s obligations will be discharged, including the termination of the Lenders’ security interest in the Collateral.

4.            Other Issuances of Debt.  The Parent and Debtor may issue debt in addition to the Promissory Notes (including the convertible promissory notes issued pursuant to the Securities Purchase Agreement, dated as of even date herewith, by and among the Parent and the investors listed on the Schedule of Buyers attached thereto) that may be secured by a security interest in the Collateral, which would be pari passu to the security interest granted to the Lenders.

*     *     *

-4-

[Remainder of page intentionally left blank; signature page follows]

-5-

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Security Agreement as of the day and year first above written.

APDN (B.V.I.) INC.

By:

Name:  Dr. James A. Hayward

Title:  President and Chief Executive Officer

-6-

Schedule I

-7-

Schedule II

The following are owned by the Grantor:

PATENTS
Patents Issued
Patent Name	Patent No	Assignee of Record	Date Issued	Jurisdiction
Nucleic Acid as Marker for Product Anticounterfeiting and Identification	(570982/196181) 89108443	APDN (B.V.I.) Inc.	1/11/2004 – 3/16/2020 3/17/2000	Taiwan
Method of using ribonucleic acid as marker for product anti-counterfeit labeling	CN1324955 00107580.2	APDN (B.V.I.) Inc.	2/2/2005	China
EppenLocker (A Leakage Prevention Apparatus of Microcentrifuge)	529633 203050	APDN Inc.	4/21/2003- 3/9/2012 3/10/2000	Taiwan
Multiple Tube Structure for Multiple PCR in a Closed Container	519130 205554	APDN Inc.	1/21/2003- 6/19/2012 6/20/2000	Taiwan
A Device for Multiple Polymerase Chain Reactions In  a Closed Container and a Method of Using Thereof	231311	APDN  Inc.	4/21/2005- 6/12/2020 6/12/2000	Taiwan
A Method of marking solid or liquid substances with nucleic acid for anti-counterfeiting and authentication	7115301 (10/748,412)	APDN (B.V.I.) Inc.	10/3/2006	United States
A novel nucleic acid based steganography system and applications thereof	MY 135976-A	APDN (B.V.I.) Inc.	7/31/2008	Malaysia
	KR 20050025256 679484 (61387/2004)	APDN (B.V.I.) Inc.	3/14/2005 8/3/2005	Korea
Method for Mixing Ribonucleic Acid in Water Insoluble Media and Application Thereof	JP2004159502 3930794	Rixflex Holding Limited*	6/10/2004 8/31/2002	Japan
Method for Mixing Ribonucleic Acid in Water Insoluble Media and Application Thereof	EP1394544	APDN (B.V.I.) Inc.	3/3/2004	EU
Method of dissolving nucleic acid in water insoluble medium and its application	CN100349315C 03155949.2	APDN (B.V.I.) Inc.	11/7/2007 (8/27/2003)	China
A Nucleic Acid Based Steganography System and Application thereof	EP1568783	APDN (B.V.I.) Inc.	8/31/2005	EU
A Nucleic Acid Based Steganography System and Application Thereof	DE 602004007474.8	APDN (B.V.I.) Inc	4/24/2008	Germany
System and Method for authenticating multiple components associated with a particular product	WO2006127558 A2	APDN	11/30/2006	EU

-8-

Patents Pending
Patent Name	Publication No	Filed in Name of	Date Published	Jurisdiction
Method for Mixing Nucleic Acid in Water Insoluble Media and Application Thereof	20040058374 (10/645,602)	Rixflex Holdings Limited*	3/25/2004	United States
Novel nucleic acid based steganography system and application thereof	20050059059 (10/909,431)	Rixflex Holdings Limited*	3/17/2005	United States
Cryptic method of secret information carried in DNA molecule and it deencryption method	200506064 (921221490)	APDN (B.V.I.) Inc.	8/6/2003	Taiwan
A novel nucleic acid based steganography system and applications thereof	1-2004-00742	APDN (B.V.I.) Inc.	8/4/2004	Vietnam
A novel nucleic acid based steganography system and applications thereof	092819	APDN (B.V.I.)  Inc. pending	8/4/2004	Thailand
A Method for encrypting and decrypting specific message by using nucleic acid molecules	JP2005055900 2004-225987	Rixflex Holdings Limited*	3/3/2005	Japan
	P-00200400374	APDN (B.V.I.) Inc	8/4/2004	Indonesia
Methods and Systems for the Generation of Plurality of Security Markers and the Detection Thereof	12/690,799	APDN (B.V.I.) Inc.	None	United States

Published Patent Applications
Patent Name	Patent Appl. No	Assignee of Record	Publication Date	Jurisdiction
System and Method for Marking Textiles with Nucleic Acids	publication # 20050112610 (10/825,968)	APDN (B.V.I.) Inc.	5/26/2005	United States
System and Method for Authenticating Multiple Components Associated with a Particular Good	20070048761 (11/437,265)	APDN (B.V.I.) Inc.	3/1/2007	United States

-9-

System and Method for Secure Document Printing and Detection	20090042191 (11/954,044)	APDN (B.V.I.) Inc.	2/12/2009	United States
System and Method for Authenticating Tablets	20090075261 (11/954,055)	APDN (B.V.I.) Inc.	3/19/2009	United States
System and Method for Authenticating Sports Identification Goods	20080293052 (11/954,051)	APDN (B.V.I.) Inc.	11/27/2008	United States
Optical Reporter Compositions	20080299667 (11/954,030)	APDN (B.V.I.) Inc.	12/4/2008	United States
Methods for Covalent Linking of Optical Reporters	20080312427 (11/954,009)	APDN (B.V.I.) Inc.	12/12/2008	United States
Method for Authenticating Articles with Optical Reporters	20080299559 (11/954,038)	APDN (B.V.I.) Inc.	12/4/2008	United States
Methods for Genetic Analysis of Textiles made of Gossypium Barbadense and Gossypium Hirsutum Cotton	Published by WIPO WO 2010/056642 12/269,737	APDN (B.V.I.) Inc.	05/20/2010.	United States
Methods for Genetic Analysis of Textiles made of Gossypium Barbadense and Gossypium Hirsutum  Cotton	Published by WIPO WO 2010/056642 PCT/US09/63814	APDN (B.V.I.) Inc.	05/20/2010	WIPO
Methods for Genotyping Mature Cotton Fibers and Textiles	Published by WIPO WO 2010/056645 12/269,757	APDN (B.V.I.) Inc.	Published by WIPO 05/20/2010.	United States
Methods for Genotyping Mature Cotton Fibers and Textiles	Published by WIPO WO 2010/056645 PCT/US09/63818	APDN (B.V.I.) Inc.	05/20/2010	WIPO
Incorporating Water Soluble Security Markers into Cyanoacrylate Solutions	20090286250 (12/465,450)	APDN (B.V.I.) Inc.	11/19/2009	United States

-10-

The following are used by the Grantor:

TRADEMARKS
Registered	TM Reg #	Assignee of Record	Registered	Jurisdiction
APPLIED DNA	3489209	APDN	8/19/2008	United States
SIGNATURE	3482366	APDN	8/5/2008	United States
SIGNATURE	005419031	Apdn	10/26/2006	EU
SIGNATURE	1143760	APDN	10/27/2006	Australia
AZSURE	3698729	APDN	10/20/2009	United States
AZSURE	1022396	APDN	1109/2009	EU

Pending	TM Reg #	Assignee of Record	Filed	Jurisdiction
FIBERTYPING	77/488531	APDN	6/2/2008	United States
PIMATYPING	77/488647	APDN	6/2/2008	United States
BIOMATERIAL GENOTYPING	77/771522	APDN	6/30/2009	United States
FIBERTYPING	77/728499	APDN	05/04/2009	United States
PIMATYPING	77/728511	APDN	05/04/2009	United States

-11-

Schedule III

None.

EX-10.12

Exhibit 10.12

[FORM OF PURCHASE WARRANT]

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

APPLIED DNA SCIENCES, INC.

PURCHASE WARRANT

Warrant No. [___] Issue Date: July 15, 2010

THIS PURCHASE WARRANT certifies that, for value received, [_____________] (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the Issue Date and on or prior to the close of business on July 15, 2017 (the “Termination Date”) but not thereafter, to subscribe for and purchase from Applied DNA Sciences, Inc., a Delaware corporation (the “Company”), at the Exercise Price (as defined below) then in effect, either, at the option of the Holder: (a) Senior Secured Convertible Notes in substantially the form attached hereto as Exhibit A (the “Notes”), (b) such number of fully paid, validly issued and nonassessable shares of common stock, $0.001 par value per share (the “Common Stock”), of the Company which are not Subsequent Securities (as defined in the Notes) into which the Notes could have converted had the Holder elected to receive Notes in the principal amount of this Warrant that the Holder shall exercise on the applicable Exercise Date (as defined below), (c) in the event the applicable Exercise Date occurs after a closing of a Subsequent Financing (as defined in the Notes) and in the event the Holder elects to receive Subsequent Financing Securities upon exercise hereof, such number of fully paid, validly issued and nonassessable Subsequent Financing Securities into which the Notes could have converted had the Holder elected to receive Notes in the principal amount of this Warrant that the Holder shall exercise on the applicable Exercise Date, or (d) in the event the applicable Exercise Date occurs after a closing of a Qualified Financing (as defined in the Notes) and in the event the Holder elects to receive Qualified Financing Securities (as defined in the Notes) upon exercise hereof, such number of fully paid, validly issued and nonassessable Qualified Financing Securities into which the Notes could have converted had the Holder elected to receive Notes in the principal amount of this Warrant that the Holder shall exercise on the applicable Exercise Date.  As used herein “Underlying Securities” means, the principal amount of Notes, shares of Common Stock, Subsequent Financing Securities or Qualified Financing Securities, as the case may be, issuable upon exercise of this Warrant.

Section 1.               Exercise of Warrant.

(a)Process.  Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times on or after the Issue Date and on or before the Termination Date by delivery to the Company (the date of such delivery, the “Exercise Date”) of a duly executed facsimile copy of the Notice of Exercise attached hereto as Exhibit B (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company).  Notwithstanding anything herein to the contrary, the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased the entire Underlying Securities available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days (as defined below) of the date the final Notice of Exercise is delivered to the Company.  Partial exercises of this Warrant resulting in purchases of a portion of the Underlying Securities available hereunder shall have the effect of lowering the Underlying Securities purchasable hereunder by the Underlying Securities purchased.  The Holder and the Company shall maintain records showing the Underlying Securities purchased and the date of such purchases.  The Company shall deliver any objection to any Notice of Exercise within one (1) Trading Day of receipt of such notice.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error.  The Holder may provide this Warrant, or an affidavit of lost security, to the Company within a reasonable period after the delivery of any Notice of Exercise related to any partial exercise of this Warrant, and the Company, at its expense, will promptly and, in any event within three (3) Trading Days thereafter, issue and deliver to the Holder a new Warrant of like tenor, registered in the name of the Holder and exercisable, in the aggregate, for the remaining Underlying Securities available for purchase under this Warrant.  The Holder and any assignee, by acceptance of this Warrant, acknowledge and agree that, by reason of the provisions of this paragraph, following the purchase of a portion of the Underlying Securities hereunder, the Underlying Securities available for purchase hereunder at any given time may be less than the amount stated on the face hereof.  As used herein (i) “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), and (ii) “Principal Market” means the OTC Bulletin Board.

(b)Exercise Price.  For purposes of this Warrant, “Exercise Price” means:

(i)             In the event the Holder elects to receive Notes upon exercise hereof, up to [______] in principal amount of Notes;

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(ii)            In the event the Holder elects to receive shares of Common Stock that are not Subsequent Financing Securities, $0.04405 per share;

(iii)           In the event the Holder elects to receive Subsequent Financing Securities, 80% of the purchase price paid by the investors in the Subsequent Financing for the Subsequent Financing Securities; and

(iv)           In the event the Holder elects to receive Qualified Financing Securities, 80% of the purchase price paid by the investors in a Qualified Financing for the Qualified Financing Securities.

(c)           Cash Exercise.  This Warrant may be exercised in whole or in part at any time prior to the Termination Date, by delivery of the following to the Company:

(i)            A duly completed and executed Notice of Exercise in the form attached hereto as Exhibit B; and

(ii)           The aggregate purchase price for the Underlying Securities with respect to which this Warrant is being exercised, in lawful money of the United States, in one, or a combination, of the following methods: (1) cash, (2) certified check or bank draft payable to the order of the Company, or (3) by wire transfer of immediately available funds.

(d)           Cashless Exercise.

(i)            Cashless Exercise for Underlying Securities Classified as Debt.  If at any time prior to the Termination Date the Holder elects to exercise this Warrant for Underlying Securities that are classified as debt on the Company’s balance sheet, and on the Trading Day prior to the Exercise Date the closing price of the Common Stock is greater than the then applicable conversion price of such Underlying Securities, the Holder of this Warrant may elect to exercise this Warrant in whole or in part by means of a “cashless exercise.”  In the event of a “cashless exercise,” by delivery to the Company of a duly completed and executed Notice of Exercise in the form attached hereto, the Holder shall be entitled to receive, without payment of any consideration, an Underlying Security in the principal amount equal to the difference between (A) the face amount of the Warrant being exercised minus (B) the quotient of (1) the product of (x) the face amount of the Warrant being exercised and (y) the then conversion price of the Underlying Security, divided by (2) the volume weighted average closing price of the Common Stock for the five (5) consecutive Trading Day period ending on the Trading Day immediately preceding the date of such election.

(ii)           Cashless Exercise for Underlying Securities Classified as Equity.  If at any time prior to the Termination Date the Holder elects to exercise this Warrant for Underlying Securities that are classified as equity on the Company’s balance sheet, the Holder of this Warrant may elect to exercise this Warrant in whole or in part by means of a “cashless exercise” in which event the Company shall issue to the Holder the number of Underlying Securities determined as follows:

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	X = Y [(A-B)/A]
where:
	X = the number of Underlying Securities to be issued to the Holder.
	Y = the number of Underlying Securities with respect to which this Warrant is being exercised.
	A = the volume weighted average closing price of the Common Stock for the five (5) consecutive Trading Day period ending on the Trading Day immediately preceding the date of such election.
	B = the Exercise Price.

(e)Delivery of Underlying Securities; etc.

(i)            Upon exercise of this Warrant, the Company shall promptly (but in no event later than five (5) Trading Days after the Exercise Date) (the “Delivery Date”) issue and deliver (or cause to be issued and delivered) to the Holder the Underlying Securities issuable upon such exercise. The Holder, or any person permissibly designated by the Holder to receive the Underlying Securities, shall be deemed to have become the holder of record of such Underlying Securities as of the Exercise Date.

(ii)           To the extent permitted by law, the Company’s obligations to issue and deliver the Underlying Securities in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other person, and irrespective of any other circumstance that might otherwise limit such obligation of the Company to the Holder in connection with the issuance of Underlying Securities. Nothing herein shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver the Underlying Securities issuable upon exercise of this Warrant as required pursuant to the terms hereof.

(iii)If the Company fails to transmit to the Holder Underlying Securities pursuant to this Section 1(e) by the fifth Trading Day immediately following the Delivery Date, then the Holder will have the right to rescind such exercise.

(iv)Issuance of Underlying Securities shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Underlying Securities, all of which taxes and expenses shall be paid by the Company, and such Underlying Securities shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event Underlying Securities are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto as Exhibit C duly executed by the Holder.

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(f)Changes to Other Notes.

(i)             If, at any time while this Warrant is outstanding, the Company effects any transaction whereby the notes (the “Other Notes”) issued pursuant to that certain Securities Purchase Agreement, dated as of July 15, 2010, by and among the Company and the Buyers named therein are amended, modified or otherwise changed into or exchanged for other securities, then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the amount and kind of such amended, modified, changed or exchanged securities that the Holder would have been entitled to receive had the Holder exercised this Warrant for the Other Notes immediately prior to such event.

(ii)At any time while this Warrant is outstanding and none of the Other Notes are outstanding, the Holder shall have the right to receive an adjustment to the conversion price of the Notes issuable upon exercise of this Warrant that the holders of the Other Notes would have been entitled to receive if the Other Notes were outstanding.

(g)Notice to Allow Exercise by the Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock; (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock; (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, of any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company; then, in each case, the Company shall cause to be mailed to the Holder at its last address as it shall appear upon the Warrant Register (as defined below) of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.  Subject to applicable law, the Holder is entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice.  Notwithstanding the foregoing, the delivery of the notice described in this Section 1(g) is not intended to and shall not bestow upon the Holder any voting rights whatsoever with respect to the Warrant.

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Section 2.   Transfer of Warrant.

(a)Transferability.  Subject to compliance with any applicable federal or state securities laws, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto as Exhibit C duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer.  Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant in the name of the assignee or assignees and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled.  A Warrant, if properly assigned, may be exercised by a new holder for the purchase of Underlying Securities without having a new Warrant issued.

(b)New Warrant.  This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney.  Subject to compliance with Section 2(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the original Issue Date and shall be identical with this Warrant except as to the Underlying Securities issuable pursuant thereto.

(c)Warrant Register.  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 Holder hereof from time to time.  The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

Section 3.   Registration Rights

(a)Demand Registration.

(i)             If, at any time, the Company shall receive a written request from the Holder that the Company effect the registration under the Securities Act of 1933, as amended (the “Securities Act”), of shares of Common Stock issuable upon exercise hereof or issuable upon conversion of the Notes, Subsequent Financing Securities or Qualified Financing Securities (the “Registrable Securities”), then the Company will use its reasonable efforts to effect, as expeditiously as possible, the registration under the Securities Act of the Registrable Securities that the Company has been so requested to register by the Holder to the extent necessary to permit the disposition (in accordance with the intended methods thereof) of the Registrable Securities so to be registered; provided, that the Company shall not be obligated to effect more than one (1) Demand Registration pursuant to this Section 3(a).

(ii)The Company will be liable for and pay all expenses in connection with any Demand Registration.

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(b)Piggyback Registration.

(i)If the Company proposes to register any Common Stock under the Securities Act (other than a registration on Form S-8 or S-4, or any successor or similar forms, relating to Common Stock issuable upon exercise of employee stock options or in connection with any employee benefit or similar plan of the Company or in connection with a direct or indirect acquisition by the Company of another person), whether or not for sale for its own account, it will each such time give written notice at least ten (10) Trading Days prior to the anticipated filing date of the registration statement relating to such registration to the Holder, which notice shall set forth the Holder’s rights under this Section 3(b) and shall offer the Holder the opportunity to include in such registration statement the number of Registrable Securities as the Holder may request.  Upon the written request of the Holder made within ten (10) days after the receipt of notice from the Company (which request shall specify the number of Registrable Securities intended to be disposed of by the Holder), the Company will use its reasonable efforts to effect the registration under the Securities Act of all Registrable Securities that the Company has been so requested to register by the Holder; provided that if, at any time after giving written notice of its intention to register any securities pursuant to this Section 3(b) and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register such securities, the Company shall give written notice to the Holder and, thereupon, shall be relieved of its obligation to register any Registrable Securities in connection with such registration.  No registration effected under this Section 3(b) shall relieve the Company of its obligations to effect a Demand Registration to the extent required by Section 3(a).

(ii)The Company will be liable for and pay all expenses in connection with each registration of Registrable Securities pursuant to this Section 3(b).

(c)Registration Procedures.

(i)Whenever the Holder requests that any Registrable Securities be registered pursuant to Sections 3(a) or (b) hereof, the Company will as expeditiously as possible prepare and file with the Securities and Exchange Commission (the “SEC”) a registration statement on any form reasonably acceptable to the Holder for which the Company then qualifies or that counsel for the Company shall deem appropriate and which form shall be available for the sale of the Registrable Securities to be registered thereunder in accordance with the intended method of distribution thereof, and use its reasonable efforts to cause such filed registration statement to become and remain effective until the earlier of (A) the date as of which the Holder may sell all of the Registrable Securities covered by such registration statement without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under the Securities Act or (B) the date on which the Holder shall have sold all of the Registrable Securities covered by such registration statement (the “Registration Period”).  The Company shall ensure that each registration statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of prospectuses, in the light of the circumstances in which they were made) not misleading. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a registration statement and the prospectus used in connection with such registration statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep such registration statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement.

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(ii)The Company shall permit the Holder to review (A) a registration statement at least three (3) Trading Days prior to its filing with the SEC and (B) all amendments and supplements to all registration statements (except for Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q or any similar or successor reports) within a reasonable number of days prior to their filing with the SEC.  The Company shall furnish to the Holder whose Registrable Securities are included in a registration statement, without charge, (1) copies of any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any registration statement, (2) promptly after the same is prepared and filed with the SEC, one copy of any registration statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by the Holder, and all exhibits and (3) upon the effectiveness of any registration statement, such number of copies of the prospectus included in such registration statement and all amendments and supplements thereto as the Holder may reasonably request.

(iii)The Company shall use its reasonable efforts to (A) register and qualify, unless an exemption from registration and qualification applies, the resale by the Holder under such other securities or “blue sky” laws of all applicable jurisdictions in the United States, (B) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (C) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (D) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (1) make any change to its certificate of incorporation or bylaws, (2) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (3) subject itself to general taxation in any such jurisdiction, or (4) file a general consent to service of process in any such jurisdiction.  The Company shall promptly notify the Holder of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of notice of the initiation or threatening of any proceeding for such purpose.

(iv)The Company shall notify the Holder in writing of the happening of any event, as promptly as reasonably practicable after becoming aware of such event, as a result of which the prospectus included in a registration statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to the Holder as the Holder may reasonably request.  The Company shall also promptly notify the Holder in writing (A) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a registration statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to each the Holder by facsimile or e-mail on the same day of such effectiveness and by overnight mail), (B) of any request by the SEC for amendments or supplements to a registration statement or related prospectus or related information, and (C) of the Company’s reasonable determination that a post-effective amendment to a registration statement would be appropriate.

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(v)If the Holder is required under applicable securities laws to be described in the registration statement as an underwriter, at the reasonable request of the Holder, the Company shall furnish to the Holder, on the date of the effectiveness of the registration statement and thereafter from time to time on such dates as the Holder may reasonably request (A) a letter, dated as of such date, from the Company’s independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Holder, and (B) an opinion, dated as of such date, of counsel representing the Company for purposes of such registration statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Holder.

(vi)Upon the written request of the Holder in connection with the Holder’s due diligence requirements, if any, the Company shall make available for inspection by the Holder or agents retained by the Holder (collectively, the “Inspectors”), all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the “Records”), as shall be reasonably deemed necessary by each Inspector, and cause the Company’s officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to the Holder) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (A) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any registration statement or is otherwise required under the Securities Act, (B) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (C) the information in such Records has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement.  The Holder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential.  Nothing herein shall be deemed to limit the Holder’s ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.

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(vii)         The Company shall hold in confidence and not make any disclosure of information concerning the Holder provided to the Company unless (A) disclosure of such information is necessary to comply with federal or state securities laws, (B) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any registration statement, (C) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (D) such information has been made generally available to the public other than by disclosure in violation of this Warrant.  The Company agrees that it shall, upon learning that disclosure of such information concerning the Holder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to the Holder and allow the Holder, at the Holder’s expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.

(viii)        The Company shall use its reasonable efforts either to cause all of the Registrable Securities covered by a registration statement to be listed or quoted on each securities exchange, bulletin board or quotation system on which securities of the same class or series issued by the Company are then listed or quoted.

(ix)The Company shall cooperate with the Holder and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a registration statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Holder may reasonably request and registered in such names as the Holder may request.

(x)If requested by the Holder, the Company shall (A) as soon as reasonably practicable incorporate in a prospectus supplement or post-effective amendment such information as the Holder reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (B) as soon as reasonably practicable make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (C) as soon as reasonably practicable, supplement or make amendments to any registration statement if reasonably requested by the Holder.

(xi)           The Company shall use its reasonable efforts to cause the Registrable Securities to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.

(xii)          The Company shall otherwise use its reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.

(xiii)         Within two (2) Trading Days after a registration statement which covers Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holder) confirmation that such registration statement has been declared effective by the SEC.

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Section 4.  Miscellaneous.

(a)Loss, Theft, Destruction or Mutilation of Warrant.  The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and upon surrender and cancellation of such Warrant, if mutilated, the Company will make and deliver a new Warrant of like tenor and dated as of such cancellation, in lieu of such Warrant.

(b)Saturdays, Sundays, Holidays, etc.  If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then such action may be taken or such right may be exercised on the next succeeding Trading Day.

(c)Company Covenants.

(i)The Company covenants that during the period the Warrant is outstanding and exercisable, it will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide for, either (1) the exercise in full of any purchase rights under this Warrant, or (2) the conversion of the Notes, Subsequent Financing Securities or Qualified Financing Securities in full upon the exercise of any purchase rights under this Warrant.  The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged with the duty of executing Underlying Securities to execute and issue the necessary Underlying Securities upon the exercise of the purchase rights under this Warrant.  The Company will take all such reasonable action as may be necessary to assure that such Underlying Securities may be issued as provided herein without violation of any applicable law or regulation.  The Company covenants that all Underlying Securities which may be issued upon the exercise of the purchase rights represented by this Warrant will, upon exercise of the purchase rights represented by this Warrant, be duly authorized, validly issued and nonassessable and free from all taxes, liens and charges created by the Company in respect of the issue thereof (other than taxes in respect of any transfer occurring contemporaneously with such issue).

(ii)The Company shall not by any action, including, without limitation, amending its certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, 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 Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of the Holder as set forth in this Warrant against impairment.

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(d)Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be governed by and construed and enforced in accordance with 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 Warrant 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 to 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 Warrant.  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 WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.

(e)Restrictions.  The Holder acknowledges that the Underlying Securities acquired upon the exercise of this Warrant, if not registered, will have restrictions upon resale imposed by state and federal securities laws and shall bear a restrictive legend in substantially the following form:

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

(f)Notices.  Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Warrant 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 (1) Trading 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:

12

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

If to the Holder:

Etico Capital LP

The Chrysler Building

405 Lexington Avenue

New York, NY 10174

Telephone:      212-986-0090

Facsimile:         212-986-1148

Attention: Scott A. Weisman

(g)Limitation of Liability.  No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Underlying Securities, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the Exercise Price of any Underlying Security of the Company, whether such liability is asserted by the Company or by creditors of the Company.

(h)Remedies.  The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant.  The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

(i)Successors and Assigns.  Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of the Holder.  The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Underlying Securities.

(j)Amendment; Waiver.  No provision of this Warrant may be waived or amended other than by written instrument signed by the Company and the Holder and their successors and assigns.

(k)Severability.  Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

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(l)Headings.  The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,

SIGNATURE PAGE FOLLOWS]

14

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

APPLIED DNA SCIENCES, INC.
By:
	Name:
	Title:

EXHIBIT A

FORM OF NOTE

EXHIBIT B

NOTICE OF EXERCISE

TO:          Applied DNA Sciences, Inc.

1.             [  ] (Check if applicable)  The undersigned hereby elects to purchase [$________ in principal amount of Senior Secured Convertible Notes], [___________ shares of Common Stock, $0.001 par value per share, of the Company] [_____________ Subsequent Financing Securities of the Company] [____________ Qualified Financing Securities of the Company] pursuant to the terms of the attached Warrant, and tenders herewith payment of the exercise price related to such principal amount in full in lawful money of the United States.

Or

1.             [  ] (Check if applicable)  The undersigned hereby elects to purchase [Senior Secured Convertible Notes of the Company] [shares of Common Stock, $0.001 par value per share, of the Company] [Subsequent Financing Securities of the Company] [____________ Qualified Financing Securities of the Company] as a cashless exercise of $[_________] of the total Exercise Price of this Warrant.

2.             Please issue [a Note] [Common Stock] [Subsequent Financing Securities] [Qualified Financing Securities]  in the name of the undersigned or in such other name as is specified below:

The [Note] [Common Stock] [Subsequent Financing Securities]  [Qualified Financing Securities] Notes shall be delivered by physical delivery to:

3.             Accredited Investor.  The undersigned is an “accredited investor” as defined in Regulation D promulgated under the Securities Act of 1933, as amended.

[SIGNATURE OF HOLDER]

Name of Investing Entity: _____________________________________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: _______________________________________________________________________________

Name of Authorized Signatory: _________________________________________________________________________________________________

Title of Authorized Signatory: __________________________________________________________________________________________________

Date: _____________________________________________________________________________________________________________________

EXHIBIT C

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information.

Do not use this form to exercise the warrant.)

FOR VALUE RECEIVED, [____] all of or [_______] of the [principal amount of the Senior Secured Convertible Notes] [Common Stock] [Subsequent Financing Securities] [Qualified Financing Securities] issuable upon exercise of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

____________________________________________________________________ whose address is

_________________________________________________________________________________ ..

_________________________________________________________________________________

Dated: _______________ , ____          

Holder’s Signature: ________________________________

Holder’s Address:   ________________________________

________________________________

EX-10.13

Exhibit 10.13

THIS NOTE AND THE COMMON STOCK REFERENCED HEREIN HAVE NOT BEEN REGISTERED WITH OR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY AND ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).

THE SALE, ASSIGNMENT, CONVEYANCE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS NOTE OR THE UNDERLYING COMMON STOCK TO U.S. PERSONS, AS DEFINED IN RULE 902(k) PROMULGATED UNDER THE SECURITIES ACT, IS PROHIBITED EXCEPT (1) PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT.

APPLIED DNA SCIENCES, INC.

July 15, 2010 $225,000

10% SECURED CONVERTIBLE PROMISSORY NOTE

Applied DNA Sciences, Inc., a Delaware corporation (the “Company”), for value received, hereby promises to pay to James A. Hayward (the “Holder,” which term shall in every instance refer to any owner or holder of this Note) at  ______________________________________________, or at any other place that the Holder may designate in writing to the Company, on  January 31, 2012 (the “Maturity Date”), subject to Section 3 hereof, the principal sum of TWO HUNDRED TWENTY-FIVE THOUSAND AND NO/100 DOLLARS ($225,000.00) and to pay interest on the outstanding principal sum hereof at the rate of ten percent (10%) per annum.  Subject to the conversion of the principal and accrued and unpaid interest into shares of common stock of the Company, par value $0.001 per share (“Common Stock”), pursuant to Section 3 hereof, payment on account of principal and interest shall be due and payable on the Maturity Date to the Holder hereof at the address of the Holder on file with the Company or at such other place as the Holder shall have notified the Company in writing at least five (5) days before the Maturity Date, provided that any payment otherwise due on a Saturday, Sunday or legal bank holiday may be paid on the following business day.

This Note is secured by a security interest in all the assets of the Company as set forth in Section 4 hereof (the “Security Agreement”).  Reference herein to the Security Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both principal and interest hereon as provided herein.

The rights and remedies of the Holder hereunder are subject to the terms and conditions of the Security Agreement and the provisions of the Uniform Commercial Code as enacted in the State of Delaware including, without limitation, powers with respect to the enforceability and collectability of all amounts due hereunder.  Reference to the Uniform Commercial Code of the State of Delaware is made for a complete description of the rights, powers and obligations of the Holder.

1.Transfers of Note to Comply with the Securities Act

THE HOLDER AGREES THAT THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THE NOTE MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT (1) PURSUANT TO REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM.

2.Prepayment; Repayment Upon Consolidation or Merger

(a)The principal amount of this Note may be prepaid by the Company, in whole or in part, on three days prior written notice without premium or penalty, at any time.  Upon any prepayment of the entire principal amount of this Note, all accrued, but unpaid, interest shall be paid to the Holder on the date of prepayment.  The date upon which the Company prepays the principal plus all accrued and unpaid interest due on this Note shall be hereinafter referred to as the “prepayment date.”

(b)This Note shall be paid in full, without premium, in the event the Company consolidates or merges with another corporation, unless (i) the Company shall be the surviving corporation in such consolidation or merger or (ii) the other corporation controls, is under common control with or is controlled by the Company immediately prior to the consolidation or merger whether or not the Company shall be the surviving corporation in such consolidation or merger, in which event this Note shall remain outstanding as an obligation of the consolidated or surviving corporation.

3.Conversion of Note

(a)This Note and any accrued and unpaid interest hereon shall automatically convert upon the earlier of (a) the Maturity Date or (b) the closing of a Qualified Financing into (i) in the case of the Maturity Date, fully paid and non-assessable shares of Common Stock of the Company, at a price of $0.038866151 per share, which is equal to 80% of the average volume weighted average price of the Common Stock for the ten trading days prior to June 4, 2010 (the “Automatic Conversion Price”) or (ii) in the case of a closing of a Qualified Financing, validly issued shares of Qualified Financing Securities at a conversion price equal to 80% of the purchase price paid by the investors in the Qualified Financing, subject to adjustment for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period (the “Automatic Conversion Price”).  For purposes of this Section 3(a), a “Qualified Financing” means 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.

(b)The Holder shall have the right at any time on or prior to the earlier of (a) the Maturity Date or (b) the closing of a Qualified Financing to convert all or any part of the entirety of the principal and accrued but unpaid interest then outstanding under this Note into that number of fully paid and non-assessable shares of Common Stock at a price equal to the greater of (i) 50% of the average volume weighted average price of the Common Stock for the ten trading days prior to the date the Company receives the written notice of conversion, rounded up to the nearest whole share, and (ii) the Automatic Conversion Price.

4.Security Agreement.

(a)In order to secure the obligations of the Company under this Note, the Company hereby grants a continuing security interest in all of the personal property of the Company and its wholly-owned subsidiary, APDN (B.V.I.) Inc., wherever located and whether now or hereafter existing and whether now owned or hereafter acquired, of every kind and description, tangible or intangible (collectively, the “Collateral”), including, without limitation, the following:

(i)all Accounts;

(ii)all Chattel Paper (whether tangible or electronic);

(iii)          Commercial Tort Claims specified on Exhibit A hereto;

(iv)          all Deposit Accounts, all cash and other property from time to time deposited therein and the monies and property in the possession or under the control of the Lenders or any affiliate, representative, agent or correspondent of the Lenders;

(v)all Documents;

(vi)          all Equipment;

(vii)         all Fixtures;

(viii)        all General Intangibles (including, without limitation, all Payment Intangibles);

(ix)           all Goods

(x)all Instruments (including, without limitation, Promissory Notes and each certificated Security);

(xi)all Inventory;

(xii)          all Investment Property;

(xiii)         all Copyrights, Patents and Trademarks, and all Licenses;

(xiv)        all Letter-of-Credit Rights;

(xv)         all Supporting Obligations;

(xvi)        all other tangible and intangible personal property of the Debtor (whether or not subject to the Code), including, without limitation, all bank and other accounts and all cash and all investments therein, all proceeds, products, offspring, accessions, rents, profits, income, benefits, substitutions and replacements of and to any of the property of the Debtor described in the preceding clauses of this Section 4 (including, without limitation, any proceeds of insurance thereon and all causes of action, claims and warranties now or hereafter held by the Debtor in respect of any of the items listed above), and all books, correspondence, files and other Records, including, without limitation, all tapes, desks, cards, Software, data and computer programs in the possession or under the control of the Debtor or any other Person from time to time acting for the Debtor to the extent of the Debtor’s rights therein, that at any time evidence or contain information relating to any of the property described in the preceding clauses of this Section 4 or are otherwise necessary or helpful in the collection or realization thereof; and

(xvii)       all Proceeds, including all cash Proceeds and non-cash Proceeds, and products of any and all of the foregoing Collateral;

in each case howsoever the Debtor’s interest therein may arise or appear (whether by ownership, security interest, claim or otherwise).

(b)This security interest is pari passu with the security interests granted to the holders of secured promissory notes of the Company previously issued by the Company aggregating $2,700,000 in principal amount that have not been converted pursuant to their terms as of the date hereof (the “Prior Notes”).  Upon the automatic conversion (or earlier payment) of the Prior Notes, all of the Company’s obligations will be discharged, including the termination of the noteholders’ security interest in the Company’s assets.  The Company may issue debt in addition to this Note that may be secured by a security interest in all of the Company ’s assets, which would be pari passu to the security interest granted to the holders of this Note and the Prior Notes.

(c)For purposes of this Section 4, all terms which are defined in Article 8 or 9 of the Uniform Commercial Code as in effect from time to time in the State of New York (the “Code”), and which are not otherwise defined herein shall have the same meanings herein as set forth therein.

(d)As used in this Section 4, the following terms shall have the respective meanings indicated below, such meanings to be applicable equally to both the singular and plural forms of such terms:

(i)“Copyright Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Debtor as licensee or licensor and providing for the grant of any right to use or sell any works covered by any copyright (including, without limitation, all Copyright Licenses set forth in Exhibit B hereto).

(ii)“Copyrights” means all domestic and foreign copyrights, whether registered or not, including, without limitation, all copyright rights throughout the universe (whether now or hereafter arising) in any and all media (whether now or hereafter developed), in and to all original works of authorship fixed in any tangible medium of expression, acquired or used by the Debtor (including, without limitation, all copyrights described in Exhibit B hereto), all applications, registrations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Copyright Office or in any similar office or agency of the Uni ted States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

(iii)          “Intellectual Property” means the Copyrights, Trademarks and Patents.

(iv)          “Licenses” means the Copyright Licenses, the Trademark Licenses and the Patent Licenses.

(v)           “Lien” means any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights).

(vi)          “Patent Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Debtor as licensee or licensor and providing for the grant of any right to manufacture, use or sell any invention covered by any Patent (including, without limitation, all Patent Licenses set forth in Exhibit B hereto).

(vii)         “Patents” means all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how, formulae, rights of publicity and other general intangibles of like nature, now existing or hereafter acquired (including, without limitation, all domestic and foreign letters patent, design patents, utility patents, industrial designs, inventions, trade secrets, ideas, concepts, methods, techniques, processes, proprietary information, technology, know-how and formulae described in Exhibit B hereto), all applications, registrations and recording s thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office, or in any similar office or agency of the United States or any other country or any political subdivision thereof), and all reissues, divisions, continuations, continuations in part and extensions or renewals thereof.

(viii)        “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.

(ix)           “Trademark Licenses” means all licenses, contracts or other agreements, whether written or oral, naming the Debtor as licensor or licensee and providing for the grant of any right concerning any Trademark, together with any goodwill connected with and symbolized by any such trademark licenses, contracts or agreements and the right to prepare for sale or lease and sell or lease any and all Inventory now or hereafter owned by the Debtor and now or hereafter covered by such licenses (including, without limitation, all Trademark Licenses described in Exhibit B hereto).

(x)           “Trademarks” means all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers and all general intangibles of like nature, now or hereafter owned, adopted, acquired or used by the Debtor (including, without limitation, all domestic and foreign trademarks, service marks, collective marks, certification marks, trade names, business names, d/b/a’s, Internet domain names, trade styles, designs, logos and other source or business identifiers described in Exhibit B hereto), all applications, registr ations and recordings thereof (including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state thereof or any other country or any political subdivision thereof), and all reissues, extensions or renewals thereof, together with all goodwill of the business symbolized by such marks and all customer lists, formulae and other Records of the Debtor relating to the distribution of products and services in connection with which any of such marks are used.

5.Events of Default and Remedies

(a)Any one or more of the following events (each an “Event of Default”) which shall have occurred and be continuing shall constitute an event of default:

(i)A default in the payment of the principal or accrued interest on this Note or upon any other indebtedness of the Company after the date hereof that is greater than $100,000, as and when the same shall become due, whether by default or otherwise, which default shall have continued for a period of five (5) business days; or

(ii)Any representation or warranty made by the Company or any officer of the Company in this Note, or in any agreement, report, certificate or other document delivered to the Holder pursuant to the Notes shall have been incorrect in any material respect when made which shall not have been remedied ten (10) days after written notice thereof shall have been given by the Holder; or

(iii)          The Company or any subsidiary (A) shall institute any proceeding or voluntary case seeking to adjudicate it bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of any order for relief or the appointment of a receiver, trustee, custodian or other similar official for such the Company or any subsidiary or for any substantial part of its property, or shall consent to the commencement against it of such a proceeding or case, or shall file an answer in any such case or proceeding commenced against it consenting to or acquiescing in the commencement of such case or proceeding, or shall consent to or acquiesce in the appointment of such a receiver, trustee, custodian or similar official; (B) shall be unable to pay its debts as such debts become due, or shall admit in writing its inability to apply its debts generally; (C) shall make a general assignment for the benefit of creditors; or (D) shall take any action to authorize or effect any of the actions set forth above in this subsection 5(a)(iii); or

(iv)          Any proceeding shall be instituted against the Company seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation, winding up, reorganization, arrangement, adjustment, protection, relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for the Company or for any substantial part of its property, and either such proceeding shall not have been dismissed or shall not have been stayed for a period of sixty (60) days or any of the actions sought in such proceeding (including, without limitation, the entry of any order for relief against it or the appointment of a receiver, trustee, custodian or other similar official for it or for any sub stantial part of its property) shall occur; or

(v)One or more final judgments, arbitration awards or orders for the payment of money in excess of $1,000,000 in the aggregate shall be rendered against the Company, which judgment remains unsatisfied for thirty (30) days after the date of such entry.

(vi)          Delisting of the Common Stock from the principal market or exchange on which the Common Stock is listed for trading; the Company’s failure to comply with the conditions for listing; or notification that the Company is not in compliance with the conditions for such continued listing.

(vii)         The issuance of an SEC stop trade order or an order suspending trading of the Common Stock from the principal market or exchange on which the Common Stock is listed for trading for longer than five (5) trading days.

(viii)        The failure by the Company to issue shares of Common Stock to the Holder upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, or the failure to transfer or cause its transfer agent to transfer (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or the failure to remove any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, and any such failure shall continue uncured f or ten (10) days after the Company shall have been notified thereof in writing by the Holder;

(ix)Except as permitted herein, the Company shall encumber or hypothecate the collateral subject to the Security Agreement to any party;

(b)In the event of and immediately upon the occurrence of an Event of Default, the Note shall become immediately due and payable without any action by the Holder and the Note shall bear interest until paid at the rate of ten percent (10%) per annum. If an Event of Default occurs and is continuing, Holder may pursue any available remedy to collect the payment of all amounts due under the Note or to enforce the performance of any provision of the Note. No waiver of any default under the Note shall be construed as a waiver of any subsequent default, and the failure to exercise any right or remedy thereunder shall not waive the right to exercise such right or remedy thereafter.

(c)The Company covenants that in case the principal of, and accrued interest on, the Note becomes due and payable by declaration or otherwise, then the Company will pay in cash to the Holder of this Note, the whole amount that then shall have become due and payable on this Note for principal or interest, as the case may be, and in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including reasonable fees and disbursements of the Holder’s legal counsel. In case the Company shall fail forthwith to pay such amount, the Holder may commence an action or proceeding at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or procee ding to judgment or final decree against Company or other obligor upon this Note, wherever situated, the monies adjudicated or decreed to be payable.

(d)The Company agrees that it shall give notice to the Holder at its registered address by facsimile, confirmed by certified mail, of the occurrence of any Event of Default within ten (10) days after such Event of Default shall have occurred.

6.Unconditional Obligation; Fees, Waivers, Other

(a)The obligations to make the payments provided for in this Note are absolute and unconditional and not subject to any defense, set-off, counterclaim, rescission, recoupment or adjustment whatsoever.

(b)If, following the occurrence of an Event of Default, Holder shall seek to enforce the collection of any amount of principal of and/or interest on this Note, there shall be immediately due and payable from the Company, in addition to the then unpaid principal of, and accrued unpaid interest on, this Note, all costs and expenses incurred by Holder in connection therewith, including, without limitation, reasonable attorneys’ fees and disbursements.

(c)No forbearance, indulgence, delay or failure to exercise any right or remedy with respect to this Note shall operate as a waiver or as an acquiescence in any default, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy.

(d)This Note may not be modified or discharged (other than by payment or conversion) except by a writing duly executed by the Company and Holder.

(e)Holder hereby expressly waives demand and presentment for payment, notice of nonpayment, notice of dishonor, protest, notice of protest, bringing of suit, and diligence in taking any action to collect amounts called for hereunder, and shall be directly and primarily liable for the payment of all sums owing and to be owing hereon, regardless of and without any notice, diligence, act or omission with respect to the collection of any amount called for hereunder or in connection with any right, lien, interest or property at any and all times which the Company had or is existing as security for any amount called for hereunder.

7.Miscellaneous

(a)The headings of the various paragraphs of this Note are for convenience of reference only and shall in no way modify any of the terms or provisions of this Note.

(b)This Note has been issued by the Company pursuant to authorization of the Board of Directors of the Company.

All notices required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given when personally delivered or sent by registered or certified mail (return receipt requested, postage prepaid), facsimile transmission or overnight courier to the Holder at the address in the records of the Company, to the Company at 25 Health Sciences Dr., Stony Brook, New York 11790 or at such other address as the intended recipient shall have hereafter given to the other party hereto pursuant to the provisions of this Note.

(c)The Company may consider and treat the entity in whose name this Note shall be registered as the absolute owner thereof for all purposes whatsoever (whether or not this Note shall be overdue) and the Company shall not be affected by any notice to the contrary. Subject to the limitations herein stated, the registered owner of this Note shall have the right to transfer this Note by assignment, and the transferee thereof shall, upon his registration as owner of this Note, become vested with all the powers and rights of the transferor. Registration of any new owners shall take place upon presentation of this Note to the Company at its principal offices, together with a duly authenticated assignment. In case of transfer by operation of law, the transferee agrees to notify the Company of such transfer and of his address, and to submit appropriate evidence regarding the transfer so that this Note may be registered in the name of the transferee. This Note is transferable only on the books of the Company by the holder hereof, in person or by attorney, on the surrender hereof, duly endorsed. Communications sent to any registered owner shall be effective as against all holders or transferees of the Note not registered at the time of sending the communication.

(d)Payments of principal and interest shall be made as specified above to the registered owner of this Note. No interest shall be due on this Note for such period of time that may elapse between the maturity of this Note and its presentation for payment.

(e)The Holder shall not, by virtue, hereof, be entitled to any rights of a shareholder in the Company, whether at law or in equity, and the rights of the Holder are limited to those expressed in this Note.

(f)Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and (in the case of loss, theft or destruction) of reasonably satisfactory indemnification, and upon surrender and cancellation of this Note, if mutilated, the Company shall execute and deliver a new Note of like tenor and date.

(g)Except as otherwise provided herein, this Note shall be construed and enforced in accordance with the laws of the State of New York, without giving effect to the conflicts of law principles thereof or the actual domiciles of the parties. The Company and the Holder hereby consent to the jurisdiction of the Courts of the State of New York and the United States District Courts situated therein in connection with any action concerning the provisions of this Note instituted by the Holder against the Company.

(h)The Company and the Holder(i) agree that any legal suit, action or proceeding arising out of or relating to this Note shall be instituted exclusively in the New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York, (ii) waive any objection which the Holder or the Company may have now or hereafter based upon forum non conveniens or to the venue of any such suit, action or proceeding, and (iii) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York and the United States District Court for the Southern District of New York in any such suit, action or proceeding. The Hol der and the Company further agree to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the New York State Supreme Court, County of New York or in the United States District Court for the Southern District of New York and agree that service of process upon the Company, mailed by certified mail to the Company’s address, will be deemed in every respect effective service of process, in any suit, action or proceeding. FURTHER, THE HOLDER AND THE COMPANY HEREBY WAIVE TRIAL BY JURY IN ANY ACTION TO ENFORCE THIS NOTE AND IN CONNECTION WITH ANY DEFENSE, COUNTERCLAIM OR CROSS CLAIM ASSERTED IN ANY SUCH ACTION.

(i)No recourse shall be had for the payment of the principal or interest of this Note against any incorporator or any past, present or future stockholder officer, director, agent or attorney of the Company, or of any successor corporation, either directly or through the Company or any successor corporation, otherwise, all such liability of the incorporators, stockholders, officers, directors, attorneys and agents being waived, released and surrendered by the Holder hereof by the acceptance of this Note.

(j)This Note shall bind the Company and its successors and assigns.

THIS SPACE INTENTIONALLY LEFT BLANK; SIGNATURE PAGE FOLLOWS

IN WITNESS WHEREOF, the undersigned has duly executed and delivered this 10% Secured Convertible Promissory Note as of the day and year first above written.

APPLIED DNA SCIENCES, INC.
By:	/s/ Kurt H. Jensen
Name: Kurt H. Jensen
Title: Chief Financial Officer