Attached files
file | filename |
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8-K - FORM 8-K - APPLIED DNA SCIENCES INC | t68413_8k.htm |
EX-10.4 - EXHIBIT 10.4 - APPLIED DNA SCIENCES INC | ex10-4.htm |
EX-10.6 - EXHIBIT 10.6 - APPLIED DNA SCIENCES INC | ex10-6.htm |
EX-10.9 - EXHIBIT 10.9 - APPLIED DNA SCIENCES INC | ex10-9.htm |
EX-10.5 - EXHIBIT 10.5 - APPLIED DNA SCIENCES INC | ex10-5.htm |
EX-10.1 - EXHIBIT 10.1 - APPLIED DNA SCIENCES INC | ex10-1.htm |
EX-10.8 - EXHIBIT 10.8 - APPLIED DNA SCIENCES INC | ex10-8.htm |
EX-10.7 - EXHIBIT 10.7 - APPLIED DNA SCIENCES INC | ex10-7.htm |
EX-10.3 - EXHIBIT 10.3 - APPLIED DNA SCIENCES INC | ex10-3.htm |
EX-10.12 - EXHIBIT 10.12 - APPLIED DNA SCIENCES INC | ex10-12.htm |
EX-10.11 - EXHIBIT 10.11 - APPLIED DNA SCIENCES INC | ex10-11.htm |
EX-10.13 - EXHIBIT 10.13 - APPLIED DNA SCIENCES INC | ex10-13.htm |
EX-10.10 - EXHIBIT 10.10 - APPLIED DNA SCIENCES INC | ex10-10.htm |
Exhibit
10.2
[FORM
OF SENIOR SECURED CONVERTIBLE NOTE]
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A
GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH
A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES. ANY TRANSFEREE OF THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF
THIS NOTE, INCLUDING SECTIONS 3(c)(iii) AND 19(a) HEREOF. THE
PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND, ACCORDINGLY, THE SECURITIES
ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE
FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.
Applied
DNA Sciences, Inc.
Senior
Secured Convertible Note
Issuance
Date: July 15, 2010
|
Original
Principal Amount: U.S. $___________
|
FOR
VALUE RECEIVED, Applied DNA Sciences, Inc., an Delaware corporation (the
“Company”),
hereby promises to pay to [___________________] or registered assigns (“Holder”)
the amount set out above as the Original Principal Amount (as reduced pursuant
to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”)
when due, whether upon the Maturity Date (as defined below), acceleration,
redemption or otherwise (in each case in accordance with the terms hereof) and
to pay interest (“Interest”)
on any outstanding Principal at the applicable Interest Rate from the date set
out above as the Issuance Date (the “Issuance
Date”)
until the same becomes due and payable, whether upon an Interest Date (as
defined below), the Maturity Date, acceleration, redemption, conversion or
otherwise (in each case in accordance with the terms hereof). This
Senior Secured Convertible Note (including all Senior Secured Convertible Notes
issued in exchange, transfer or replacement hereof, this “Note”)
is one of an issue of Senior Secured Convertible Notes issued pursuant to the
Securities Purchase Agreement on the Closing Date (collectively, the “Notes”
and such other Senior Secured Convertible Notes, the “Other
Notes”). Certain
capitalized terms used herein are defined in Section 29.
(1) PAYMENTS
OF PRINCIPAL. Subject to the conversion of the Principal and
accrued and unpaid Interest and Late Charges (as defined below) into Conversion
Shares pursuant to Section 8 hereof, on the Maturity Date, the Company shall pay
to the Holder an amount in cash representing all outstanding Principal, accrued
and unpaid Interest and accrued and unpaid Late Charges, if any, on such
Principal and Interest. The “Maturity
Date”
shall be July 15, 2011. Other than as specifically permitted by this
Note, the Company may not prepay any portion of the outstanding Principal,
accrued and unpaid Interest or accrued and unpaid Late Charges on Principal and
Interest, if any.
(2) INTEREST;
INTEREST RATE. (a) Interest on this Note shall
commence accruing on the Issuance Date and shall be computed on the basis of a
360-day year comprised of twelve thirty day months and shall be payable in
arrears on the earlier of the Maturity Date or the Conversion Date during the
period beginning on the Issuance Date and ending on, and including, the Maturity
Date or the Conversion Date, as the case may be (the “Interest
Date”). Subject
to the conversion of the accrued and unpaid Interest into Conversion Shares
pursuant to Section 8 hereof, Interest shall be payable on the Interest Date to
the record holder of this Note on the Interest Date, in
cash.
(b)
From
and after the occurrence and during the continuance of an Event of Default, the
Interest Rate shall be increased to 15% per annum, or the maximum rate
permissible by law, whichever is less. In the event that such Event
of Default is subsequently cured, the adjustment referred to in the preceding
sentence shall cease to be effective as of the date of such cure; provided
that the Interest as calculated and unpaid at such increased rate during
the continuance of such Event of Default shall continue to apply to the extent
relating to the days after the occurrence of such Event of Default through and
including the date of cure of such Event of Default.
(3) CONVERSION
OF NOTES. This Note shall be convertible into Conversion
Shares, on the terms and conditions set forth in this Section
3.
(a)
Conversion
Right. At any time or times on or after the Issuance Date, the
Holder shall be entitled to convert any portion of the outstanding and unpaid
Conversion Amount (as defined below) into fully paid and nonassessable
Conversion Shares in accordance with Section 3(c), at the Conversion Rate (as
defined below). The Company shall not issue any fraction of a
Conversion Share upon any conversion. If the issuance would result in
the issuance of a fraction of a Conversion Share, the Company shall round such
fraction of a Conversion Share up to the nearest whole share. The
Company shall pay any and all transfer, stamp and similar taxes that may be
payable with respect to the issuance and delivery of Conversion Shares upon
conversion of any Conversion Amount; provided
that the Company shall not be required to pay any tax that may be payable in
respect of the issuance and delivery of Conversion Shares to any Person other
than the Holder or with respect to any income tax due by the Holder with respect
to such Conversion Shares.
(b)
Conversion
Rate. The number of Conversion Shares issuable upon conversion
of any Conversion Amount pursuant to Section 3(a) shall be determined by
dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion
Rate”).
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(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
Issuance Date
and, for so long thereafter as any of the Notes are outstanding, the Company
shall take all action necessary to reserve and keep available out of its
authorized and unissued Common Stock or other securities issuable upon
conversion of the Notes, as the case may be, solely for the purpose of effecting
the conversion of the Notes, 120% of the number of shares of Common Stock or
other securities issuable upon conversion of the Notes, as the case may be, as
shall from time to time be necessary to effect the conversion of all of the
Notes then outstanding; provided
that at no time shall the number of shares of Common Stock or other securities
issuable upon conversion of the Notes, as the case may be, so reserved be less
than the number of shares required to be reserved by the previous sentence
(without regard to any limitations on conversions) (such applicable amount, the
“Required
Reserve Amount”). The initial number of shares of Common Stock
or other securities issuable upon conversion of the Notes, as the case may be,
reserved for conversions of the Notes and each increase in the number of shares
so reserved shall be allocated pro rata among the holders of the Notes based on
the principal amount of the Notes held by each holder at the Closing (as defined
in the Securities Purchase Agreement) or increase in the number of reserved
shares, as the case may be (the “Authorized
Share Allocation”). In the event that a holder shall sell or
otherwise transfer any of such holder’s Notes, each transferee shall be
allocated a pro rata portion of such holder’s Authorized Share
Allocation. Any shares of Common Stock or other securities issuable
upon conversion of the Notes, as the case may be, reserved and allocated to any
Person which ceases to hold any Notes shall be allocated to the remaining
holders of Notes, pro rata based on the principal amount of the Notes then held
by such holders.
(b) Insufficient
Authorized Shares. If at any time while any of the Notes
remain outstanding the Company does not have a sufficient number of authorized
and unreserved shares of Common Stock or other securities issuable upon
conversion of the Notes, as the case may be, to satisfy its obligation to
reserve for issuance upon conversion of the Notes at least a number of shares of
Common Stock or other securities issuable upon conversion of the Notes, as the
case may be, equal to the Required Reserve Amount (an “Authorized
Share Failure”), then the Company shall immediately take all action
necessary to increase the Company’s authorized shares of Common Stock or other
securities issuable upon conversion of the Notes, as the case may be, to an
amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Notes then outstanding. Without limiting the generality of
the foregoing sentence, as soon as reasonably practicable after the date of the
occurrence of an Authorized Share Failure, but in no event later than sixty days
after the occurrence of such Authorized Share Failure, the Company shall hold a
meeting of its stockholders for the approval of an increase in the number of
authorized shares of Common Stock or, if required by applicable law, other
securities issuable upon conversion of the Notes, as the case may
be. In connection with such meeting, the Company shall provide each
stockholder with a proxy statement and shall use its reasonable efforts to
solicit its stockholders’ approval of such increase in authorized shares of
Common Stock or, if required by applicable law, other securities issuable upon
conversion of the Note, as the case may be, and to cause its board of directors
of the Company to recommend to the stockholders that they approve such
proposal.
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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.
[Signature
Page Follows]
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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.
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By:
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||
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:
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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:
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||
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:
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Issue
to:
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Facsimile
Number:
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Authorization:
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By:
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Title:
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Dated:
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Account
Number:
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||
(if
electronic book entry transfer)
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Transaction
Code Number:
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||
(if
electronic book entry transfer)
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Installment
Amount to be reduced and amount
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|
of
reduction for each Installment Date:
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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
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By:
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Name: | |||
Title: |