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) OF REGULATION S PROMULGATED UNDER THE
SECURITIES ACT, IS PROHIBITED EXCEPT (1) IN ACCORDANCE WITH THE PROVISIONS OF
REGULATION S AS PROMULGATED UNDER THE SECURITIES ACT; (2) PURSUANT TO
REGISTRATION UNDER THE SECURITIES ACT; OR (3) PURSUANT TO AN AVAILABLE EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT.
This note is one of a series of notes (the "Serial Notes") issued in the
aggregate principal amount of $1,500,000.00.
APPLIED DNA SCIENCES, INC.
March 8, 2006 $__________
10% SECURED CONVERTIBLE PROMISSORY NOTE
Applied DNA Sciences, Inc., a Nevada corporation (the "Company"), for value
received, hereby promises to pay to _________________ or registered assigns (the
"Holder") on September 7, 2007, the "Maturity Date"), , the principal sum of
_____ THOUSAND DOLLARS ($______) in such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts, and to pay interest on the outstanding principal sum
hereof at the rate of ten percent (10%) per annum. Any principal payment or
interest payment on the unpaid principal amount of this Note not paid when due,
whether at the Maturity Date, by acceleration or otherwise, shall bear interest
at twelve percent (12%) or the maximum rate permissible by law, whichever is
less. Payment of Principal and accrued interest, if any, shall be payable on the
Maturity Date in like coin or currency 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.
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This Note is secured by all the assets of the Company including but not
limited to patents, licenses, equipment, fixtures, inventory and accounts
receivable, for the benefit of the Holder pursuant to a Security Agreement set
forth in Section 4(f) hereof ("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 of the State of Nevada including, without limitation, powers
with respect to the enforceability and collectibility of all amounts due
hereunder. Reference to the Uniform Commercial Code of the State of Nevada 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 may not be sold, transferred, pledged,
hypothecated or otherwise disposed of except (1) IN ACCORDANCE WITH THE
PROVISIONS OF REGULATION S AS PROMULGATED UNDER THE SECURITIES ACT; (2) PURSUANT
TO REGISTRATION UNDER THE SECURITIES ACT; OR (3) PURSUANT TO AN AVAILABLE
EXEMPTION
2. Prepayment; Holders' Premaking Rights; 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." Notwithstanding the foregoing right of payment, upon
receipt of the three day notice, the Holder shall have the conversion rights set
forth under Section 3(b) hereof, regardless of when said three day notice is
given.
(b) The Holder shall have the right, but not the obligation from the
commencement of the fifteenth (15th) month from the date hereof until the
Maturity Date to request payment of accrued interest and principal hereunder in
full payment of this Note prior to the automatic conversion provided in Section
3(a) hereof.
(c) 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.
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3. Conversion of Note
(a) This Note shall automatically convert into shares of Common Stock of
the Company at the Maturity Date.. The conversion rate shall be calculated at a
twenty (20%) percent discount from the average closing bid price for the ten
(10) trading days prior to conversion, and the entirety of the debt (consisting
of principal and accrued interest) shall be applied to purchase of Common Stock
at such price.
(b) The Holder shall have the right from time to time, and at any time on
or prior to the first anniversary of the date hereof, to convert all or any part
of the entirety of the debt then outstanding under this Note into fully paid and
non-assessable shares of Common Stock, as such Common Stock exists on the issue
date, or any shares of capital stock or other securities of the Company into
which such Common Stock shall hereafter be changed or reclassified at a
conversion price equal to $.50 per share;
4. Covenants of Company
The Company covenants and agrees that, so long as any principal of, or
interest on, this Note shall remain unpaid, unless the Holder shall otherwise
consent in writing, it will comply with the following terms:
(a) Reporting Requirements. The Company will furnish to the Holder:
(i) as soon as possible, and in any event within ten (10) days after
obtaining knowledge of the occurrence of (A) an Event of Default, as hereinafter
defined, (B) an event which, with the giving of notice or the lapse of time or
both, would constitute an Event of Default, or (C) a material adverse change in
the condition or operations, financial or otherwise, of the Company, taken as
whole, the written statement of the Chief Executive Officer or the Chief
Financial Officer of the Company, setting forth the details of such Event of
Default, event or material adverse change and the action which the Company
proposes to take with respect thereto;
(ii) promptly after the sending or filing thereof, copies of all
financial statements, reports, certificates of its Chief Executive Officer,
Chief Financial Officer or accountants and other information which the Company
or any subsidiary sends to any holders (other than the Notes) of its securities;
(iii) promptly after the commencement thereof, notice of each action,
suit or proceeding before any court or other governmental authority or other
regulatory body or any arbitrator as to which there is a reasonable possibility
of a determination that would (A) materially impact the ability of the Company
or any subsidiary to conduct its business, (B) materially and adversely affect
the business, operations or financial condition of the Company taken as a whole,
or (C) impair the validity or enforceability of the Notes or the ability of the
Company to perform its obligations under the Notes;
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(iv) promptly upon request, such other information concerning the
condition or operations, financial or otherwise, of the Company as the Holder
from time to time may reasonably request.
(b) Taxes. The Company has filed or will file all federal, state and
local tax returns required to be filed or sent or has obtained extensions
thereof. Except as otherwise disclosed, the Company has timely paid or made
provision for all taxes shown as due and payable on its tax returns required to
be filed prior to the date hereof and all assessments received by the Company
and will timely pay all taxes that will be shown as due and payable on its tax
returns required to be filed after the date hereof, except to the extent that
the Company shall be contesting such taxes and assessments in good faith by
appropriate proceedings.
(c) Compliance with Laws. The Company will comply, in all material
respects with all applicable laws, rules, regulations and orders, except to the
extent that noncompliance would not have a material adverse effect upon the
business, operations or financial condition of the Company taken as a whole.
(d) Keeping of Records and Books of Account. The Company will keep
adequate records and books of account, with complete entries made in accordance
with generally accepted accounting principles, reflecting all of its financial
and other business transactions.
(e) Negative Covenants. The Company covenants and agrees that while this
Note is outstanding it will not directly or indirectly:
(i) Sell, transfer or dispose of, any of its assets other than in the
ordinary course of its business and for fair value; or
(ii) Repay out of the proceeds of this Note any indebtedness for
borrowed funds or any related party obligations except for Notes heretofore
issued to persons to investors through offerings in which Vertical Capital
Partners, Inc acted as placement agent.
(f) Security Agreement. The Company hereby grants to the holders of the
Serial Notes a security interest in all of the assets of the Company including,
but not limited to, patents, trademarks, equipment, fixtures, inventory and
accounts receivable with all of the rights and powers of a secured party under
the Uniform Commercial Code of the State of Nevada. Except with respect to prior
Notes of the Company sold through offerings in which Vertical Capital Partners,
Inc. acted as placement agent and which the Company intends to repay with the
proceeds of these Notes, the Company represents and warrants that it has not
granted any other party a security interest in any of its (or its subsidiaries)
patents, licenses, equipment, fixtures, inventory or accounts receivable.
Subject to the rights of the Company set forth at the end of this paragraph, the
Company certifies under penalty of perjury that the security interest in the
collateral is not pledged and the Holder will assume a senior security position
on such collateral. The Company reserves the right to issue up to $11,500,000 of
additional debt secured by a security interest in the assets of the Company
which is pari passu with the security interest of the holder of this Note
granted herein.
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(g) Registration Under the Securities Act of 1933. The Company will prepare
and file a registration statement with the Securities and Exchange Commission
covering the Common Stock of the Company underlying the Serial Notes within
thirty (30) days of the effective date of the Company's pending registration
statement on Form SB-2 (SEC File 333-122848) being declared effective by the
SEC, and it agrees to use its reasonable best efforts to have the registration
statement declared effective by the SEC by no later than one hundred and eighty
(180) days after filing. If the Company fails to file a registration statement
with the SEC on or before the time frame described, the Holder will be entitled
to liquidated damages in the amount of 2% per month for each month the Company
is delinquent in filing the registration statement.
5. Events of Default and Remedies
(a) Any one or more of the following events which shall have occurred and
be continuing shall constitute an event of default (Event of Default):
(i) 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 the Notes, 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 shall fail to perform or observe any affirmative
covenant contained in Section 4 of this Note or any of the Notes and such
Default, if capable of being remedied, shall not have been remedied ten (10)
days after written notice thereof shall have been given by the Holder; or
(iv) 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)(iv); or
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(v) 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 substantial part
of its property) shall occur; or
(vi) One or more final judgments, arbitration awards or orders for the
payment of money in excess of $250,000 in the aggregate shall be rendered
against the Company, which judgment remains unsatisfied for thirty (30) days
after the date of such entry.
(vii) Delisting of the Common Stock from the principal market or
exchange on which the Common Stock is listed for trading; 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.
(viii) 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.
(ix) 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
for ten (10) days after the Company shall have been notified thereof in writing
by the Holder;
(x) The failure by the Company to prepare and file a registration
statement with the Securities and Exchange Commission covering the Common Stock
within thirty (30) days of the effective date of the Company's pending
registration statement on Form SB-2 (SEC File 333-122848) being declared
effective by the SEC, or to use its reasonable best efforts to have the
registration statement declared effective by the SEC by no later than one
hundred and eighty (180) days after filing.
(xi) 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 12% per
annum or such amount as shall be allowed by law (the "Default Interest Rate").
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.
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(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 proceeding 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.
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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., Stoney Brook,
N.Y. 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.
8
(g) 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
Holder 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 upon Payor, in any
suit, action or proceeding. FURTHER, THE HOLDER AND THECOMPANY HEREBY WAIVE
TRIAL BY JURY IN ANY ACTION TO ENFORCE THIS NOTE AND IN CONNECTION WITH ANY
DEFENSE, COUNTERCLAIM OR CROSSCLAIM 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.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered this Note as
of the day and year first above written.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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APPLIED DNA SCIENCES, INC
By /s/James Hayward
--------------------------
Name: James Hayward
Title:CEO