Item 1.01 Entry into a Material Definitive Agreement
Private Placement
On July 16, 2019, Applied DNA Sciences,
Inc. (the “
Company
”) entered into a Securities Purchase Agreement (the “
Purchase Agreement
”)
with the purchaser named therein, (the “
Purchaser
”), pursuant to which the Company issued and sold to the Purchaser
an aggregate of $1.5 million in principal amount of secured convertible notes (the “
July 2019 Notes
”) bearing
interest at a rate of 6% per annum (the “
Private Placement
”). Until October 13, 2019, the Purchaser has the
right to purchase on the same terms as the July 16, 2019 sale up to an additional $500,000 in principal amount of the July 2019
Notes, and up to an additional $1 million in principal amount of the July 2019 Notes if approved by the Company. In addition, the
Purchaser was granted a right to participate in certain future financing transactions of the Company (each a “
Subsequent
Financing
”) until July 16, 2020 equal to the amount required for the Purchaser to maintain its pro rata ownership of
the Company as if the July 2019 Notes had been fully converted into Common Stock (as defined below). Until October 13, 2019, the
Purchaser shall have the right to participate in full for the first $1 million of such Subsequent Financing.
After giving effect to the amendments discussed
below, the July 2019 Notes are substantially similar to the Company’s convertible notes issued on August 2018 (the “
August
2018 Notes
”) and November 29, 2018 (the “
November 2018 Notes
” and together with the August 2018 Notes
and the July 2019 Notes, the “
Company Notes
”). The July 2019 Notes are secured on a
pari passu
basis
with the same Company assets as the August 2018 Notes and November 2018 Notes. The July 2019 Notes are convertible, in whole or
in part, at any time, at the option of the Purchaser, into shares of the Company’s Common Stock, $0.001 par value per share
(“
Common Stock
”), in an amount determined by dividing the principal amount of the July 2019 Notes, together
with any and all accrued and unpaid interest, by the conversion price of $0.54 (the “
Conversion Price
”).
The July 2019 Notes bear interest at the
rate of 6% per annum, payable semi-annually in cash or in-kind, at the Company’s option, and are due and payable in full
on November 28, 2021. Until the principal and accrued but unpaid interest under the July 2019 Notes is paid in full, or converted
into Common Stock pursuant to their terms, the Company’s obligations under the July 2019 Notes will be secured. Such security
will include a lien on substantially all assets of the Company and the assets of APDN (B.V.I.) Inc., the Company’s wholly-owned
subsidiary (“
APDN BVI
”), in favor of Delaware Trust Company, as Collateral Agent (the “
Collateral Agent
”)
for the purchasers pursuant to security agreements dated as of October 19, 2018, as amended (the “
Security Agreements
”).
It is anticipated that the Company will amend the Security Agreements within the next 30 days to, among other things, (i) join
the Purchaser as a party thereto, (ii) amend the provisions relating to instructions to the Collateral Agent and (iii) exclude
20% of the Company’s equity interest in LineaRX, Inc., a wholly-owned subsidiary of the Company from the assets securing
the Company Notes.
On or before September 30, 2019, the Company
shall have the right to prepay all or a portion of the July 2019 Notes. If the Company exercises such option, the Purchaser has
the option to (i) convert all or any part of the July 2019 Notes into shares of Common Stock at the Conversion Price or (ii) redeem
the July 2019 Notes at a redemption price equal to the outstanding principal balance plus accrued interest of the July 2019 Notes
and be issued warrants equal in amount to 40% of the shares of Common Stock that the Purchaser would have received had it elected
to convert its July 2019 Note into shares of Common Stock. Such warrants, if any, would have an exercise price equal to 105% of
the Conversion Price. Further, the Company has the right to require the Purchaser to convert all or any part of their Notes into
shares of the Company’s Common Stock at the Conversion Price if the price of the Common Stock remains at a closing price
of $3.50 or more for a period of twenty consecutive trading days.
Upon any Change in Control (as defined
in the July 2019 Notes), the Purchaser has the right to require the Company to redeem the July 2019 Notes, in whole or in part,
at a redemption price equal to such July 2019 Notes outstanding principal balance plus accrued interest.
The July 2019 Notes contain certain negative
covenants that restrict the Company, including prohibitions or limitations, among other things, on the incurrence of additional
indebtedness, subsidiary asset sales, intercompany loans, liens, amendments to the Company’s organization documents, dividends,
and redemptions without consent of the Required Holders (as defined in the 2019 Notes).
The July 2019 Notes contain certain events
of default that are customarily included in financings of this nature. If an event of default occurs, the Purchaser (by an affirmative
vote of the holders of the Company Notes representing at least 30% of the aggregate principal amount of the Company Notes then
outstanding) may require the Company to redeem the July 2019 Notes, in whole or in part, at a redemption price equal to the greater
of (i) their outstanding principal balance, plus all accrued and unpaid interest, divided by the Conversion Price, multiplied by
the volume-weighted average price (VWAP) on the date the redemption price is either (x) demanded or otherwise due or (y) paid in
full, whichever has a higher VWAP, or (ii) 130% of the outstanding principal, plus all accrued and unpaid interest (the “
EOD
Redemption Price
”).
The Company also entered into a registration
rights agreement, dated as of the date of the Purchase Agreement (the “
July 2019 RRA
”), with the Purchaser,
pursuant to which the Company has agreed to prepare and file a registration statement with the Securities and Exchange Commission
(the “
SEC
”) to register under the Securities Act of 1933, as amended (the “
Securities Act
”)
resales from time to time of the Common Stock issued or issuable upon conversion or redemption of the July 2019 Notes. The Company
is required to file a registration statement within 60 days of receiving a demand registration request from holders of 70% of the
outstanding principal balance of the Company Notes, and to cause the registration statement to be declared effective within 45
days (or 90 days if the registration statement is reviewed by the SEC).
The Private Placement was completed in
reliance upon the exemption from registration provided for by Section 4(a)(2) of the Securities Act and by Rule 506 of Regulation
D promulgated under the Securities Act. The Purchaser represented to the Company in the Purchase Agreement that it is an “accredited
investor” as that term is defined in Rule 501 of Regulation D. This Current Report on Form 8-K shall not constitute an offer
to sell, the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer,
solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state.
Amendments related to the August 2018
Notes and the November 2018 Notes
In connection with the Private Placement
and on July 16, 2019, the Company entered into an Omnibus Amendment Agreement (the “
Omnibus Agreement
”) amending
each of (i) the Securities Purchase Agreement dated August 31, 2018 (the “
August SPA
”), (ii) the Securities
Purchase Agreement dated November 29, 2018 (the “
November SPA
” and together with the August SPA the “
2018
SPAs
”), (iii) the Registration Rights Agreement dated August 31, 2018 (“the
August RRA
”) and (iv)
the Registration Rights Agreement dated November 29, 2018 (the “
November RRA
” and together with the August Agreement,
the “
2018 RRAs
”). The 2018 SPAs were amended to, among other things, (i) increase the cap on the limitation
of the Company to issue additional secured convertible notes to $5.5 million and (ii) modify who can direct the actions of the
Collateral Agent. The 2018 RRAs were amended to, among other things, increase the required holders thereunder who can demand registration
from a majority to 70% of the outstanding principal balance of the Company Notes.
In addition, on July 16, 2019, the Company
entered into an Amendment to Secured Convertible Notes (the “
Existing Note Amendment
”) with the Required Holders
(as defined in the Company Notes) amending each of the August 2018 Notes and the November 2018 Notes, to, among other things, (i)
amend the Conversion Price to $0.54 from $2.50 (ii) amend the maturity date of the August 2018 Notes to November 28, 2021, (iii)
include prohibitions or limitations, among other things, on the incurrence of additional indebtedness, subsidiary asset sales,
intercompany loans and liens, amendments to the Company’s organization documents, dividends, and redemptions without consent
of the Required Holders and (iv) to require an affirmative vote of the holders of the Company Notes representing at least 30% of
the aggregate principal amount of the Company Notes then outstanding in order to trigger an Event of Default.
The respective descriptions of the Purchase
Agreement, July 2019 Notes, the July RRA, the Security Agreements, the Existing Note Amendment and the Omnibus Agreement, herein
are brief summaries only.