Document:

Exhibit 10.4

 

SECURITY AGREEMENT

 

This SECURITY AGREEMENT (“Agreement”), is made effective as of August 17, 2016 (this “Agreement”), by and among BioPharmX Corporation, a Delaware corporation (the “Company”), each of the persons executing a copy of this Agreement, and their respective successors and assigns (each an “Investor” and, collectively, the “Investors”), and RTW Master Fund, LTD as collateral agent for the Investors (in such capacity, the “Collateral Agent”).

 

1.                                      Purpose.  This Agreement is granted by the Company in favor of the Collateral Agent for the benefit of the Investors under (i) that certain Subscription Agreement, effective as of the date hereof, by and among the Company and the Investors (the “Purchase Agreement”), and (ii) the secured convertible promissory notes issued to Investors by the Company under the Purchase Agreement (as may be amended, restated, modified or replaced from time to time, the “Notes”).  The Company has agreed to secure all Liabilities (as hereinafter defined) of the Company to Investors in accordance with the terms and conditions of this Agreement.

 

2.                                      Defined Terms.  Capitalized terms not defined in this Agreement have the meaning set forth under the Purchase Agreement, and the following terms as well as all uncapitalized terms which are defined in the Uniform Commercial Code as the same may, from time to time, be in effect in the State of California (as amended, revised or replaced, the “UCC”) have the meaning set forth therein:  Accounts, Chattel Paper, Commercial Tort Claims, Deposit Accounts, Documents, Electronic Chattel Paper, Equipment, Fixtures, General Intangibles, Goods, Instruments, Inventory, Investment Property, Letter-of-Credit Rights, Payment Intangibles, Proceeds, Securities Account Supporting Obligations, and Tangible Chattel Paper.  In addition, the following terms have the meanings specified below:

 

“Copyright Collateral” means all copyrights of the Company, registered or unregistered and whether published or unpublished, now or hereafter in force throughout the world including all of the Company’s rights, titles and interests in and to all copyrights registered in the United States Copyright Office or anywhere else in the world, and registrations and recordings thereof and all applications for registration thereof, whether pending or in preparation, all copyright licenses, the right to sue for past, present and future infringements of any of the foregoing, all rights corresponding thereto, all extensions and renewals of any thereof and all proceeds of the foregoing, including licenses, royalties, income, payments, claims, damages and Proceeds of suit, which are owned or licensed by the Company.

 

“Intellectual Property” means, collectively, the Copyright Collateral, the Patent Collateral, the Trademark Collateral, and the Trade Secrets Collateral.

 

“Patent Collateral” means (a) all inventions and discoveries, whether patentable or not, all letters patent and applications for letters patent, and any patent applications in preparation for filing, (b) all reissues, divisions, continuations, continuations in part, extensions, renewals and reexaminations of any of the items described in clause (a),

 

 

(c) all patent licenses, and other agreements providing the Company with the right to use any items of the type referred to in clauses (a) and (b) above, and (d) all proceeds of, and rights associated with, the foregoing (including licenses, royalties income, payments, claims, damages and proceeds of infringement suits), the right to sue third parties for past, present or future infringements of any patent or patent application, and for breach or enforcement of any patent license.

 

“Trademark Collateral” means (a) (i) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, certification marks, collective marks, logos and other source or business identifiers, and all goodwill of the business associated therewith, now existing or hereafter adopted or acquired by the Company, whether currently in use or not, all registrations and recordings thereof and all applications in connection therewith, whether pending or in preparation for filing, including further registrations, recordings and applications in the United States Patent and Trademark Office or in any office or agency of the United States of America, or any State thereof or any other country or political subdivision thereof or otherwise, and all common law rights relating to the foregoing, and (ii) the right to obtain all reissues, extensions or renewals of the foregoing (the subject matter of clause (a) is collectively referred to as the “Trademark”), (b) all trademark licenses for the grant by or to the Company of any right to use any trademark, (c) all of the goodwill of the business connected with the use of, and symbolized by the items described in, clause (a), and to the extent applicable clause (b), (d) the right to sue third parties for past, present and future infringements of any Trademark Collateral described in clause (a) and, to the extent applicable, clause (b), and (e)  all Proceeds of, and rights associated with, the foregoing, including any claim by the Company against third parties for past, present or future infringement or dilution of any Trademark, Trademark registration, or Trademark license, or for any injury to the goodwill associated with the use of any such Trademark or for breach or enforcement of any Trademark license and all rights corresponding thereto throughout the world.

 

“Trade Secrets Collateral” means all common law and statutory trade secrets and all other confidential, proprietary or useful information and all know how obtained by or used in or contemplated at any time for use in the business of the Company, (all of the foregoing being collectively called a “Trade Secret”), including all documents and things embodying, incorporating or referring in any way to such Trade Secret, all Trade Secret licenses, and including the right to sue for and to enjoin and to collect damages for the actual or threatened misappropriation of any Trade Secret and for the breach or enforcement of any such Trade Secret license.

 

3.                                      Grant of Security Interest.  The Company hereby grants to Collateral Agent, for the ratable benefit of the Investors, a continuing security interest in and continuing lien on the “Collateral” described in Section 4 below to secure the prompt and complete payment of all outstanding amounts due under the Notes plus all interest, costs, expenses, and reasonable attorneys’ fees, which may be made or incurred by the Collateral Agent and/or Investors in the disbursement, administration, and collection of such amounts, and in the protection, maintenance, and liquidation of the Collateral (collectively, “Liabilities”).  This Agreement shall be and become effective when, and

 

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continue in effect, as long as any Liabilities of the Company to Investors are outstanding and unpaid, and except as expressly permitted herein, the Company will not sell, assign, transfer, pledge or otherwise dispose of or encumber any Collateral to any third party while this Agreement is in effect without the prior written consent of the Collateral Agent and Investors holding Notes representing at least a majority of the unpaid principal under all outstanding Notes (the “Required Holders”).

 

4.                                      Collateral.  The “Collateral” covered by this Agreement is all of the Company’s right, title and interest in, to and under all assets of the Company, real and personal, tangible and intangible, which it now owns or shall hereafter acquire or create, immediately upon the acquisition or creation thereof, and includes, but is not limited to, the following:

 

(1)                                 all Accounts;

 

(2)                                 all Chattel Paper (whether Tangible Chattel Paper or Electronic Chattel Paper);

 

(3)                                 all Commercial Tort Claims;

 

(4)                                 all Deposit Accounts other than payroll, withholding tax and other fiduciary Deposit Accounts;

 

(5)                                 all Documents;

 

(6)                                 all General Intangibles;

 

(7)                                 all Goods (including, without limitation, all Inventory, Equipment and Fixtures);

 

(8)                                 all Instruments;

 

(9)                                 all Investment Property;

 

(10)                          all Letter-of-Credit Rights (whether or not the letter of credit is evidenced by a writing;

 

(11)                          all Intellectual Property; and

 

(12)                          all Supporting Obligations.

 

5.                                      Purchase Money Liens.  Any Equipment or Fixtures acquired pursuant to this section and subject to a purchase money lien shall not be a part of the Collateral so long as the liens created hereunder are specifically prohibited by the terms of such purchase money lien; provided that this exclusion shall only apply to the specific Equipment and/or Fixtures acquired with the proceeds of such purchase money lien.

 

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6.                                      Perfection of Security Interest.  The Company shall execute and deliver to the Collateral Agent, at any time or times after the Company’s execution of this Agreement (and pay the cost of filing or recording same in all public offices deemed necessary by Collateral Agent), all financing statements, assignments, certificates of title, applications for vehicle titles, affidavits, reports, notices, schedules of Accounts, designations of inventory, letters of authority and all other documents that Collateral Agent may reasonably request, in form satisfactory to the Collateral Agent, to perfect and maintain the Collateral Agent’s perfected security interests in the Collateral.  The Company further agrees, from time to time as requested by the Collateral Agent, to execute and deliver to the Collateral Agent any Patent Security Agreements, Trademark Security Agreements or any other documents necessary or advisable to perfect the Collateral Agent’s security interest in any Intellectual Property, and further authorizes Collateral Agent, its agents, attorneys, and representatives upon notice to Company, to file such agreements or documents, and amendments thereto, at the Company’s expense, in the office of the appropriate governmental agency.  In addition, the Company irrevocably authorizes Collateral Agent, its agents, attorneys, and representatives, to file financing statements, and amendments thereto, at the Company’s expense, necessary to establish and maintain Collateral Agent’s perfected security interest in the Collateral.  Any such financing statement to be filed may describe the assets and property to be encumbered hereby in a generic description such as “all assets of the debtor,” or words of similar effect.  In order to fully consummate all of the transactions contemplated hereunder, the Company shall make appropriate entries on its books and records disclosing Collateral Agent’s security interests in the Collateral.

 

7.                                      Covenants Concerning the Company’s Legal Status.  The Company covenants with the Collateral Agent and Investors as follows: (a) without providing at least ten (10) days prior written notice to the Collateral Agent, the Company will not change its name or organizational identification number if it has one; (b) if the Company does not have an organizational identification number and later obtains one, the Company shall forthwith notify the Collateral Agent of such organizational identification number; and (c) the Company will not change its type of organization, jurisdiction of organization or other legal structure.  The Company agrees that all documents, instruments and agreements demanded by Collateral Agent and/or Investors in response to any of the changes described in this Section shall be prepared, filed and recorded at the Company’s expense.

 

8.                                      Information.  The Company shall permit Collateral Agent or its agents upon reasonable request to have access to and to inspect all the Collateral and from time to time verify Accounts and chattel paper, inspect, check, make copies of or extracts from the books, records and files of the Company upon written notice, and the Company will make same available at any time for such purposes.  In addition, the Company shall promptly supply Collateral Agent and/or Investors with financial and such other information concerning its affairs and assets as Collateral Agent may reasonably request from time to time.

 

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9.                                      Event of Default.

 

9.1                               An “Event of Default” shall exist as and when provided under the Notes.

 

9.2                               Upon the occurrence of an Event of Default, the Notes and all other Liabilities may (notwithstanding any provisions thereof) at the option of the Collateral Agent, upon notice, be declared, and thereupon immediately shall become due and payable, and the Collateral Agent may exercise from time to time any rights and remedies, including the right to immediate possession of the Collateral, available to the Collateral Agent and/or Investors under the UCC or otherwise applicable law. The Company agrees, in case of an Event of Default, to assemble, at its expense, all the Collateral at a convenient place acceptable to the Collateral Agent and to pay all costs of Collateral Agent and Investors of collection of the Notes and all other Liabilities, and enforcement of rights hereunder, including attorneys’ fees and legal expenses, participation in bankruptcy proceedings, expense of locating the Collateral and expenses of any repairs to any realty or other property to which any of the Collateral may be affixed or be a part.  If any notification of intended disposition of any of the Collateral is required by law, such notification, if mailed, shall be deemed reasonably and properly given if sent at least seven (7) business days before such disposition, postage prepaid, addressed to the undersigned either at the address shown below, or at any other address of the undersigned appearing on the records of the Collateral Agent.  Notwithstanding the foregoing, the Collateral Agent shall not be obligated to declare the Notes and other Liabilities due or, having done so, to take any action authorized hereunder or by law with respect to the Collateral.  If the Collateral Agent fails to take any action pursuant to this Section 13.2 within sixty (60) days of being notified in writing of an Event of Default, any Investor may, at its option, exercise the rights granted to the Collateral Agent under this Section 13.2 or by law (the “Substitute Collateral Agent”). Provided, however, that any amounts realized from the sale of Collateral or otherwise hereunder shall first be distributed to reimburse the costs and expenses, including but not limited to legal expenses and commissions, of the Collateral Agent and the Substitute Collateral Agent in enforcing the rights hereunder and, second, to all Investors pro-rata based upon the amount owed to each Investor pursuant to the Notes or other Obligations held by the Investor.  Except as provided in the immediately preceding sentence with respect to proceeds of sale, the Collateral Agent and any Investor exercising rights pursuant to this Section 13.2 shall not be liable to the Company or other Investors for any action taken or not taken with respect to the Collateral other than willful misconduct.

 

10.                               Collateral Agent.

 

10.1                        Appointment, Duties. Each Investor hereby appoints and authorizes the Collateral Agent to take such action as the Collateral Agent on its behalf and to exercise such powers under this Agreement, the Notes and the Purchase Agreement (collectively, the “Transaction Documents”) as are delegated to the Collateral Agent by the terms hereof and thereof, together with such other powers as are incidental thereto or as the Collateral Agent and the Investors may agree.  The Collateral Agent will have no duties, responsibilities, obligations or liabilities other than those expressly set forth in this Agreement and the other Transaction Documents, and no additional duties, responsibilities, obligations or liabilities will be inferred from the

 

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provisions of this Agreement or the Transaction Documents or imposed on the Collateral Agent.  As to actions that the Collateral Agent is not expressly required to take pursuant to the provisions of this Agreement or the other Transaction Documents (including enforcement or collection of the Notes), the Collateral Agent will not exercise any discretion or take any action, but will be required to act or to refrain from acting (and will be fully protected in so acting or refraining from acting) solely upon the written instructions of the Required Holders, and such instructions will be binding upon all of the Investors, provided that the Collateral Agent will in no event be required to take any action which exposes the Collateral Agent to personal liability for which it is not indemnified hereunder, or which is contrary to the Transaction Documents or law or with respect to which the Collateral Agent does not receive adequate instructions from the Required Holders.  The Collateral Agent has no duties or relationship of trust or agency with or to the Company or any of its Affiliates.

 

10.2                        Exercise of Rights and Remedies.

 

(a)                                 The Collateral Agent shall administer the Collateral in the manner contemplated by this Agreement and the other Transaction Documents, and exercise, but, only upon the written instruction of, and on behalf of, the Required Holders in accordance with this Agreement, such rights and remedies with respect to the Collateral as are granted to it under this Agreement and applicable law.

 

(b)                                 Upon the request of the Collateral Agent or any other Investor, each Investor will provide the Collateral Agent and each other Investor notice of the amount of outstanding Liabilities owed by the Company to such Investor under the Transaction Documents.  In addition, each Investor shall provide the Collateral Agent any other information that the Collateral Agent may reasonably request in connection with the Collateral Agent’s duties and responsibilities hereunder.

 

(c)                                  The Collateral Agent shall take any and all actions and shall exercise such rights, remedies and options which it may have under this Agreement and the other Transaction Documents as and to the extent directed from time to time by the Required Holders, including realization and foreclosure on all or any portion of the Collateral.

 

(d)                                 In the Event of Default, the proceeds of any sale, disposition or other realization or foreclosure by the Collateral Agent upon the Collateral or any portion thereof pursuant to this Agreement shall be governed by this Section 14.2(d).  Any non-cash proceeds resulting from any such sale, disposition or other realization or foreclosure shall, unless otherwise directed by the Required Holders, be held by the Collateral Agent for the benefit of the Investors until later sold or otherwise converted into cash at the written direction of the Required Holders, at which time the Collateral Agent shall apply such cash in accordance with this Section 14.2(d).  The Collateral Agent shall distribute any cash proceeds net of expenses resulting from any sale, disposition or other realization or foreclosure of the Collateral to the Investors, promptly after receipt thereof, on a pro rata basis in accordance with the respective outstanding amounts of the Liabilities owed to each.

 

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(e)                                  The Investors and the Collateral Agent hereby agree that if, at any time during the term of this Agreement, any Investor or the Collateral Agent receives any payment or distribution of assets of the Company of any kind or character, including monies or cash proceeds resulting from liquidation of the Collateral, other than in accordance with the terms of this Agreement, such Investor or the Collateral Agent shall hold such payment or distribution in trust for the benefit of the Investors and shall immediately remit such payment or distribution to the Collateral Agent for application or distribution, as the case may be, in accordance with the terms of this Agreement.

 

10.3                        Rights of Collateral Agent.

 

(a)                                 The Collateral Agent may delegate any of its responsibilities or duties under this Agreement or the Transaction Documents to one or more agents or attorneys and the Collateral Agent shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder.

 

(b)                                 None of the Collateral Agent, its agents, its attorneys or any of their respective Affiliates will be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or the Transaction Documents, except that each will be liable for its own gross negligence, willful misconduct or a material breach of the Collateral Agent’s obligations under this Agreement.  Without limiting the generality of the foregoing, the Collateral Agent:  (i) may treat the payee of any Note as the holder thereof until the Collateral Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Collateral Agent; (ii) may consult with legal counsel of its selection, independent public accountants and other experts selected by it and will not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (iii) makes no representation or warranty to any Investor and will not be responsible to any Investor for any statements, representations or warranties made in or in connection with the Transaction Documents; (iv) will not, except to the extent directed and indemnified by the Required Holders, have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of the Transaction Documents or to inspect the Collateral or the books and records or any other properties of the Company; (v) will not be responsible to any Investor for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of any Transaction Document or any other document or instrument furnished pursuant thereto, or for the failure of any Person (other than the Collateral Agent) to perform its obligations under any Transaction Document; and (vi) will incur no liability under or in respect of this Agreement or any other Transaction Document or otherwise by acting upon any notice, consent, waiver, certificate or other writing or instrument (including facsimiles, telexes, telegrams and cables) believed by it to be genuine and signed or sent by the proper Person or Persons.

 

(c)                                  The Collateral Agent will not be deemed to have knowledge or notice of any Default or Event of Default unless and until it has received written notice from the Company or an Investor referring to the Notes and this Agreement, describing the Default or Event of Default and stating that such notice is a “notice of default.”

 

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(d)                                 In the event not otherwise paid by the Company pursuant to Section 15 of this Agreement, each Investor agrees to pay the Collateral Agent, upon demand, its pro-rata share of the Collateral Agent’s documented out-of-pocket expenses, including the fees and expenses of its counsel (and any local counsel) and of any experts and agents in connection with (i) the administration of this Agreement and the other Transaction Documents, (ii) the custody or preservation of, or the sale of, collection from or other realization upon, any of the Collateral, (iii) the exercise or enforcement (whether through negotiations, legal proceedings or otherwise) of any of the rights of the Collateral Agent or the Investors hereunder or under the other Transaction Documents or (vi) the failure by the Company to perform or observe any of the provisions hereof or of any of the other Transaction Documents.  In the event the Investors have made payments pursuant to this Section 14.3(d), any corresponding amounts subsequently paid by the Company to the Collateral Agent pursuant to Section 15 shall be returned to the Investors on a pro-rata basis.  The agreements in this Section 14.3(d) shall survive the later of (i) payment and satisfaction in full of the Liabilities, (ii) the resignation or removal of the Collateral Agent, and (iii) the termination of this Agreement.

 

(e)                                  No provision of this Agreement shall require the Collateral Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

 

(f)                                   The Collateral Agent shall be provided executed or true and correct copies of each amendment, notice, waiver, consent or certificate made or delivered with respect to this Agreement or any of the other Transaction Documents sufficiently far in advance of the Collateral Agent being required to take action under this Agreement or any other Transaction Document or in respect of any such notice, waiver, consent or other certificate delivered in connection therewith so as to allow the Collateral Agent to take any such action.

 

10.4                        No Reliance. Each Investor acknowledges that neither the Collateral Agent nor any of its Affiliates has made any representations or warranties with respect to the Company or any other matter, and agrees that no review or other action by the Collateral Agent or any of its Affiliates will be deemed to constitute any such representation or warranty.  Each Investor acknowledges that it has, independently and without reliance upon the Collateral Agent or any other Investor, and based on the documentation and information referred to in the Purchase Agreement and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and the other Transaction Documents to which it is party.  Each Investor also acknowledges and agrees that it will, independently and without reliance upon the Collateral Agent or any other Investor, and based on such documents and information as it will deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Transaction Documents.  The Collateral Agent will provide to any Investor any information or documents concerning or relating to the Company or any other Person or matter that may come into the Collateral Agent’s possession.

 

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10.5                        Indemnification, Bankruptcy.

 

(a)                                 Each Investor, by its consent hereto, hereby agrees to indemnify the Collateral Agent, in its capacity as such, its officers, directors, shareholders, controlling persons, employees, agents and servants (each “Indemnified Party”) from and against any and all claims, damages, losses, liabilities, obligations, penalties, actions, causes of action, judgments, suits, costs, expenses or disbursements (including, without limitation, reasonable attorneys’ and consultants’ fees and expenses) (collectively “Damages”) of any kind or nature whatsoever which may at any time be imposed on, incurred by or asserted against any Indemnified Party (or which may be claimed against any Indemnified Party by any Person) by reason of, in connection with or in any way relating to or arising out of, (i) any Transaction Document, (ii) any action taken or omitted by the Collateral Agent in compliance with the provisions of this Agreement and the other Transaction Documents or (iii) any claim based on any misstatement, inaccuracy or omission in any oral or written information provided by the Collateral Agent or any of its representatives in connection with this Agreement, the Collateral, the Notes or the other Transaction Documents, provided that each Investor will not be liable to any Indemnified Party for any portion of such claims, liabilities, obligations, losses, damages, penalties, judgments, costs, expenses or disbursements resulting from such Indemnified Party’s gross negligence or willful misconduct as determined in a final, non-appealable judgment by a court of competent jurisdiction.

 

(b)                                 Nothing contained herein shall limit or restrict the independent right of any Investor to initiate an action or actions in any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar proceeding in its individual capacity and to appear or be heard on any matter before the bankruptcy or other applicable court in any such proceeding, including, without limitation, with respect to any question concerning post-petition financing arrangements.  The Collateral Agent is not entitled to initiate such actions on behalf of any Investor or to appear and be heard on any matter before the bankruptcy or other applicable court in any such proceeding as the representative of any Investor.  The Collateral Agent is not authorized in any such proceeding to enter into any agreement for, or give any authorization or consent with respect to, the post-petition usage of the Collateral, unless such agreement, authorization or consent has been approved in writing by the Required Holders.  This Agreement shall survive the commencement of any such bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar proceeding.

 

10.6                        Resignation and Removal of the Collateral Agent.  The Collateral Agent may resign at any time by giving at least sixty (60) days’ prior written notice thereof to the Investors and the Company and may be removed at any time by the Required Holders, with any such resignation or removal to become effective only upon the appointment of a successor Collateral Agent under this Section 14.6.  Upon any such resignation or removal, (i) the Required Holders will have the right to appoint a successor Collateral Agent, and (ii) unless a Default or Event of Default shall have occurred and be continuing, the Company shall have the right to approve such appointed successor Collateral Agent, such approval not to be unreasonably withheld.  If no successor

 

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Collateral Agent will have been so appointed by the Required Holders and will have accepted its appointment within forty-five (45) days after the resignation or removal of the retiring Collateral Agent, the retiring Collateral Agent or the Required Holders may, at the expense of the Company, petition a court of competent jurisdiction for the appointment of a successor Collateral Agent.  Upon the acceptance of its appointment as Collateral Agent, the successor Collateral Agent will thereupon succeed to and be vested with all the rights, powers, privileges and duties of the retiring Collateral Agent, and the retiring Collateral Agent will be discharged from its duties and obligations under this Agreement.  After any retiring Collateral Agent’s resignation or removal, the provisions of this Agreement will inure to its benefit as to any actions taken or omitted to be taken by it while it was Collateral Agent.

 

11.                               Expenses. The Company agrees to pay or promptly reimburse the Collateral Agent and any Investor for all charges, costs and expenses (including, without limitation, all costs and expenses of holding, preparing for sale and selling, collecting or otherwise realizing upon the Collateral and all attorneys’ fees, legal expenses and court costs) incurred by any Investor in connection with the exercise of its respective rights and remedies under this Agreement, including, without limitation, any charges, costs and expenses that may be incurred in any effort to enforce any of the provisions of this Agreement or any obligation of the Company in respect of the Collateral or in connection with (i) the preservation of the liens in favor of, or the rights of the Collateral Agent or any other Investor under this Agreement or (ii) any actual or attempted sale, lease, disposition, exchange, collection, compromise, settlement or other realization in respect of, or care of, the Collateral, including all such costs and expenses incurred in any bankruptcy, reorganization, workout or other similar proceeding.  All amounts for which the Company is liable pursuant to this Section 15 shall be due and payable by the Company to the Collateral Agent or the Investors upon demand.

 

12.                               General.  Time shall be deemed of the very essence of this Agreement.  Collateral Agent, Substitute Collateral Agent and/or Investors shall be deemed to have exercised reasonable care in the custody and preservation of any Collateral in their possession if they take such action for that purpose as the Company requests in writing, but failure of Collateral Agent, Substitute Collateral Agent or Investors to comply with any such request shall not of itself be deemed a failure to exercise reasonable care, and failure of Collateral Agent, Substitute Collateral Agent or Investors to preserve or protect any rights with respect to such Collateral against any prior parties or to do any act with respect to the preservation of such Collateral not so requested by the Company shall not be deemed a failure to exercise reasonable care in the custody and preservation of such Collateral.  Any delay on the part of Collateral Agent, Substitute Collateral Agent or Investors in exercising any power, privilege or right hereunder, or under any other instrument executed by the Company to Collateral Agent, Substitute Collateral Agent or Investors in connection herewith shall not operate as a waiver thereof, and no single or partial exercise thereof, or the exercise of any other power, privilege or right shall preclude other or further exercise thereof, or the exercise of any other power, privilege or right.  The waiver by Collateral Agent, Substitute Collateral Agent or Investors of any Event of Default by the Company shall not constitute a waiver of any subsequent Events of Default, but shall be restricted to the Event of Default so waived.  All rights, remedies

 

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and powers of Collateral Agent, Substitute Collateral Agent or Investors hereunder are irrevocable and cumulative, and not alternative or exclusive, and shall be in addition to all rights, remedies and powers given hereunder or in or by any other instruments or by the UCC, or any laws now existing or hereafter enacted.

 

This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of California without regard to the choice of law principles thereof.  Each of the parties hereto irrevocably submits to the exclusive jurisdiction of the courts of the State of California located in Santa Clara County and the United States District Court for the Northern District of California for the purpose of any suit, action, proceeding or judgment relating to or arising out of this Agreement and the transactions contemplated hereby.  Service of process in connection with any such suit, action or proceeding may be served on each party hereto anywhere in the world by the same methods as are specified for the giving of notices under this Agreement.  Each party hereto irrevocably waives any objection to the laying of venue of any such suit, action or proceeding brought in such courts and irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in an inconvenient forum.  EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN CONSULTED SPECIFICALLY AS TO THIS WAIVER.  Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.  The rights and privileges of Collateral Agent, Substitute Collateral Agent or Investors hereunder shall inure to the benefit of their successors and assigns and this Agreement shall be binding on all heirs, executors, administrators, assigns and successors of the Company.

 

Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient if given in accordance with the Purchase Agreement.

 

This Agreement constitutes the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior written and oral communications or understandings.  This Agreement may be amended or supplemented, and any provision or term hereof may be waived, by a writing signed on behalf of each of (i) the Company, (ii) the Collateral Agent and (iii) the Required Holders.  The Company acknowledges receipt of a true and complete copy of this Agreement.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.  A signature to this Agreement transmitted electronically shall have the same authority, effect and enforceability as an original signature.

 

[signature page follows]

 

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The parties have executed this Security Agreement as of the date first written above.

 

	
 
    	
THE COMPANY:
    
	
 
    	
 
    
	
 
    	
BIOPHARMX CORPORATION
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Anja Krammer
    
	
 
    	
Name:
    	
Anja Krammer
    
	
 
    	
Title:
    	
President
    

 

[signature page to Security Agreement]

 

 

	
 
    	
INVESTORS:
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
/s/ Roderick Wong
    
	
 
    	
Printed Name:
    	
Roderick Wong
    
	
 
    	
Title (if applicable):
    	
Managing Member
    
	
 
    	
Entity Name (if   applicable):
    	
 RTW Master Fund, LTD
    

 

[signature page to Security Agreement]

 

 

SCHEDULE 7Exhibit 10.5

 

SUBSCRIPTION AGREEMENT

 

BioPharmX Corporation

1098 Hamilton Court

Menlo Park, CA 94025

 

Ladies and Gentlemen:

 

The undersigned (the “Investor”) hereby confirms its agreement to the terms of this Subscription Agreement (“Agreement”) with BioPharmX Corporation, a Delaware corporation (the “Company”), as follows:

 

1.                                      The Company has authorized the sale and issuance to certain investors of up to $3,000,000.00 in aggregate principal of the Company’s Convertible Promissory Notes (the “Notes” and individually, the “Note”), which Notes, upon the occurrence of certain events, are convertible into shares (the “Conversion Shares”) of the Company’s common stock, par value $0.001 per share (the “Common Stock”) pursuant to the terms of each Note.  The Notes and the Conversion Shares or any other security of the Company into which Notes shall convert are collectively referred to as the “Securities”.

 

2.                                      Pursuant to this Agreement, the Company will sell to the Investor, and the Investor will purchase from the Company, upon the terms and conditions set forth herein, a Note in the form attached hereto as Exhibit A in the principal amount set forth on the last page of this Agreement (the “Signature Page”) for the Aggregate Purchase Price set forth on the Signature Page. The Company proposes to enter into substantially this same form of Subscription Agreement with certain other investors (the “Other Investors”) and expects to complete sales of Securities to them. The Investor and the Other Investors are hereinafter sometimes collectively referred to as the “Investors,” and this Agreement and the Subscription Agreements executed by the Other Investors are hereinafter sometimes collectively referred to as the “Agreements.”  The completion of the purchase and sale of the Notes (the “Closing”) shall occur after this Agreement has been signed by the Investor and the Company and the Company has received the Aggregate Purchase Price. Promptly after the Closing, the Company shall deliver to the Investor the Note purchased by the Investor as set forth on the Signature Page.  The Company may conduct more than one Closing, at its sole discretion, regardless of the amounts and timing of the Company’s receipt of Agreements from Other Investors.

 

3.                                      The offering and sale of the Securities (the “Offering”) are being made pursuant to an exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”), by virtue of Section 4(a)(2) of the Securities Act and the provisions of Regulation D (“Regulation D”) promulgated by the United States Securities and Exchange Commission (the “SEC”) thereunder, based, in part, upon the representations, warranties and agreements of the Investor contained in this Subscription Agreement and the Note(s) issues to the Investor pursuant hereto.

 

4.                                      The Company and the Investor agree that pursuant to this Agreement, the Investor will purchase from the Company and the Company will issue and sell to the Investor a Note in principal amount set forth on the signature page hereto for the Aggregate Purchase Price set forth on the signature page hereto. The Investor acknowledges that the Offering is not being underwritten, the Company has not engaged any placement agents (although it reserves the right to do so at its sole discretion) and that there no minimum offering amount that must be raised.  Investor acknowledges that the Company may, at its sole discretion, engage registered broker-dealers (“Placement Agents”) to offer and sell the Securities and may pay such Placement Agent a cash fee and issue warrants to purchase common stock of the Company to such Placement Agents.

 

5.                                                  INSTRUCTIONS FOR INVESTING are as follows:

 

a.                                   Please review and execute the signature pages to this Subscription Agreement and e-mail a scanned copy of your signature pages for these items to Joyce Goto at:  jgoto@biopharmx.com

 

b.                                   You may also hand deliver your signed subscription documents to an officer of the Company, or mail printed and wet-ink signed versions of your subscription documents to: Attn: Joyce Goto, BioPharmX Corporation, 1098 Hamilton Court, Menlo Park, California 94025.

 

c.                                    Upon receipt of the completed and signed Subscription Agreement, the Company will inform you whether it has accepted this Agreement and within two business days of the Company’s notification of its acceptance of your subscription you should send payment of your subscription amount in full by wire transfer to the following account:

 

	
Wire   to:
    	
 
    	
Bank of America
    	
 
    	
A/C#:
    	
 
    	
 
    
	
 
    	
 
    	
315 Montgomery Street
    	
 
    	
ABA#:
    	
 
    	
026009593
    
	
 
    	
 
    	
San Francisco, CA 94104
    	
 
    	
SWIFT Code:
    	
 
    	
B0FAUS3N
    

 

 

NOTE: if the name of the Investor is different from the sender of the wire transfer, please inform the Company (via email to jgoto@biopharmx.com) to ensure that your funds are properly credited.

 

 

6                                         Please note that the Company may reject this subscription for any reason (regardless of whether any wire transfer relating to this subscription is sent to the Company), and the Company will promptly return your funds without interest, and without deduction of any expenses, if rejected. The Company will send to you a fully executed copy of this Agreement if your subscription is accepted. If you have any questions about completing the foregoing documents, please contact Joyce Goto at jgoto@biopharmx.com.

 

7.                                      The Investor represents that, except as set forth below, (a) it has had no position, office or other material relationship within the past three years with the Company or persons known to it to be affiliates of the Company, (b) it is not a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) or an Associated Person (as such term is defined under the FINRA’s NASD Membership and Registration Rules Section 1011) as of the Closing, and (c) neither the Investor nor any group of Investors (as identified in a public filing made with the SEC) of which the Investor is a part in connection with the Offering, acquired, or obtained the right to acquire, 20% or more of the Common Stock (or securities convertible into or exercisable for Common Stock) or the voting power of the Company on a post-transaction basis.

 

	
Please note any   exceptions to the statement above:
    	
 
    
	
(If no exceptions,   write “none.” If left blank, response will be deemed to be “none.”)
    

 

8.                                      By its signature and by taking possession of the Note, which the Investor hereby agrees to countersign in agreement and acknowledgement of all covenants, agreements, representations and warranties made therein, the Investor hereby represents that (i) it is an “accredited investor” as defined in applicable securities laws, it is purchasing the Securities as principal, it was not created or used solely to purchase or hold the Securities as an accredited investor, and will continue to be an “accredited investor” and the forgoing will describe it at the Closing and upon taking possession of the Note; and (ii) it is knowledgeable, sophisticated and experienced in making, and is qualified to make decisions with respect to, investments in securities presenting an investment decision like that involved in the purchase of the Securities, including investments in securities issued by the Company and investments in comparable companies.

 

YOU SHOULD NOT SIGN AND RETURN THIS STATEMENT IF ANY OF THE ABOVE INFORMATION DOES NOT ACCURATELY REFLECT YOUR FINANCIAL SITUATION, INVESTMENT EXPERIENCE, AND INVESTMENT OBJECTIVES. YOU AGREE TO NOTIFY THE COMPANY IN WRITING IF ANY OF THE ABOVE INFORMATION CHANGES.

 

9.                                               Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company and the Investor herein will survive the execution of this Agreement, the delivery to the Investor of the Notes being purchased and the payment therefor.

 

10.                                          All notices, requests, consents and other communications hereunder shall be given in accordance with the provisions set forth in the Note.

 

11.                                          This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company and the Investor.

 

12.                                          The headings of the various sections of this Agreement have been inserted for convenience of reference only and will not be deemed to be part of this Agreement.

 

13.                                          In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein will not in any way be affected or impaired thereby.

 

14.                                          This Agreement will be governed by, and construed in accordance with, the internal laws of the State of Delaware, without giving effect to the principles of conflicts of law that would require the application of the laws of any other jurisdiction.

 

15.                                          This Agreement may be executed in two or more counterparts, each of which will constitute an original, but all of which, when taken together, will constitute but one instrument, and will become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties.

 

[signature page follows]

 

 

Signature Page to Subscription Agreement

 

Principal Amount of Note: Five Hundred Thousand USD

 

Aggregate Purchase Price For the Securities: U.S. $500,000

 

Please confirm that the foregoing correctly sets forth the agreement between us and that you are an “accredited investor” as defined in applicable securities laws by signing in the space provided below for that purpose.

 

	
 
    	
Dated as of:   August 17, 2016
    
	
 
    	
 
    
	
 
    	
Xiao Dong Hua
    
	
 
    	
INVESTOR
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Xiao Dong Hua
    
	
 
    	
Print Name:
    	
Xiao Dong Hua
    
	
 
    	
Title:
    	
 
    
	
 
    	
Address:
    	
China, Jiangsu   Province, Wuxi City,
    
	
 
    	
 
    	
Nanchang District,   Langshi Future Home, No. 12, Room 802, 214000
    
	
 
    	
Telephone number:
    	
+8613706176139
    
	
 
    	
Email address:
    	
celtkoo_881650@hotmail.com
    

 

Agreed and Accepted

this 17 day of August 2016:

 

BIOPHARMX CORPORATION

 

	
By:
    	
/s/ Anja Krammer
    	
 
    
	
Name: 
    	
Anja Krammer
    	
 
    
	
Title: 
    	
President
    	
 
    

 

 

EXHIBIT A

 

TO

SUBSCRIPTION AGREEMENT

-FORM OF CONVERTIBLE PROMISSORY NOTE-

 

 

NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF APPLICABLE STATES.  THIS NOTE AND SUCH SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION UNDER SUCH LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.  INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.  THE ISSUER OF THIS NOTE AND ANY SECURITIES ISSUABLE UPON CONVERSION OF THIS NOTE MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

 

BIOPHARMX CORPORATION

 

FORM OF UNSECURED CONVERTIBLE PROMISSORY NOTE

 

	
Note No.: 2016-02
    	
 
    
	
$500,000
    	
Made as of   August   , 2016
    

 

Subject to the terms and conditions of this Note, for value received, BioPharmX Corporation, a Delaware corporation (the “Company”), with chief executive offices at 1098 Hamilton Court, Menlo Park, CA 94025, hereby promises to pay to the order of Xiao Dong Hua or registered assigns (“Holder”), the principal sum of five hundred thousand dollars ($500,000), or such lesser amount as shall then equal the outstanding principal amount hereunder, together with interest accrued on the unpaid principal amount at the Applicable Rate (as defined below).  Interest shall begin to accrue on the date of this Note and shall continue to accrue on the outstanding principal until the entire Balance is converted and shall be computed based on the actual number of days elapsed and on a year of 365 days.

 

This Note will be subordinated to any future secured indebtedness with banks, lessors or other financial or lending institutions. The following is a statement of the rights of Holder and the terms and conditions to which this Note is subject, and to which Holder, by the acceptance of this Note, agrees.

 

1.                                                 DEFINITION.  The following definitions shall apply for purposes of this Note.

 

“Actual Conversion Amount” means all (or if permitted by the terms of this Note, that lesser portion) of the Balance actually converted into Conversion Stock pursuant to Section 6.1, on an Actual Conversion Date, including, if accrued interest and expenses convert pursuant to the terms of this Note, interest and expenses accrued through such Actual Conversion Date and actually converted into Conversion Stock.

 

“Actual Conversion Date” means a date on which all (or if permitted by this Note, a lesser portion) of the Balance of this Note is converted pursuant to Section 6.1.

 

“Affiliate” has the meaning ascribed to it in Rule 144 promulgated under the Securities Act.

 

“Applicable Rate” means a rate equal to the lower of: (a) the Highest Lawful Rate; and (b) ten percent (10.00%) per annum.

 

“Balance” means, at the applicable time, the sum of all then outstanding principal of this Note, all then accrued but unpaid interest and all other amounts then accrued but unpaid under this Note.

 

“Business Day” means a weekday on which banks are open for general banking business in San Francisco, California.

 

“Company” shall include, in addition to the Company identified in the opening paragraph of this Note, any corporation or other entity which succeeds to the Company’s obligations under this Note, whether by permitted assignment, by merger or consolidation, operation of law or otherwise.

 

“Conversion Price” means $0.80.

 

“Conversion Stock” means Common Stock of the Company, $0.001 par value per share.  The number and character of shares of Conversion Stock are subject to adjustment as provided in this Note and the term “Conversion Stock” shall include the stock and other securities and property that are, on an Actual Conversion Date, receivable or issuable upon such conversion of this Note in accordance with its terms.

 

“Event of Default” has the meaning set forth in Section 5.

 

“Financing Document” means this Note, the Purchase Agreement, and any document entered into, executed or delivered under

 

 

or in connection with, or for the purpose of amending, this Note.

 

“Highest Lawful Rate” means the maximum non-usurious rate of interest, as in effect from time to time, which may be charged, contracted for, reserved, received or collected by Holder in connection with this Note under applicable law.

 

“Liquidation Event” means (a) any acquisition of the Company in any transaction or series of related transactions by means of merger, consolidation, reorganization, stock acquisition or otherwise in which outstanding shares of the Company are exchanged for securities or other consideration issued, or caused to be issued, by the acquiring entity or its subsidiary (other than a merger effected primarily for the purpose of changing the domicile of the Company) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Company, or (b) a sale or an irrevocable and exclusive license of all or substantially all of the assets or intellectual property of the Company to a third party.

 

“Lost Note Documentation” means documentation satisfactory to the Company with regard to a lost or stolen Note, including, if required by the Company, an affidavit of lost note and an indemnification agreement by Holder in favor of the Company with respect to such lost or stolen Note.

 

“Maturity Date” means the earlier of (a) the date that is six (6) months from the date of this Note or (b) the time at which the Balance of this Note is due and payable upon an Event of Default; provided , however that if the Event of Default is cured as permitted in this Note, then the Maturity Date shall not thereafter be deemed to have occurred with regard to such Event of Default under this clause (b).

 

“Note” means this Convertible Promissory Note.

 

“Person” means an individual, corporation, limited liability company, partnership, association, joint-stock company, trust, unincorporated organization, joint venture or other entity or any governmental authority.

 

“Public Offering” means any public offering of equity securities of and by the Company pursuant to an effective registration statement on Form S-1 or Form S-3 filed under the Securities Act.

 

“Public Offering Closing” means the closing of the Public Offering.

 

“Purchase Agreement” means the Subscription Agreement between the Holder and the Company pursuant to which the Holder agreed to purchase this Note.

 

“Registration Rights Agreement” means that certain registration rights agreement executed by and between the Company and the Holder on the date of this Note.

 

“Securities Act” means the Securities Act of 1933, as amended.

 

“Senior Indebtedness” means the principal of, accrued but unpaid interest on and other amounts with respect to, any and all future indebtedness of the Company, hereafter created or incurred in connection with secured indebtedness with banks, lessors or other financial or lending institutions.

 

2.                                                 PAYMENT AT MATURITY DATE; INTEREST.

 

2.1                               Payment at Maturity Date.  If this Note has not been previously converted (as provided in Section 6), then on the Maturity Date, all of the Balance then outstanding shall be due and payable to the Holder in whose name this Note is registered, and at such address as is registered, on the records of the Company.

 

2.2                               Payment of Interest.  Anything herein to the contrary notwithstanding, if during any period for which interest is computed hereunder, the amount of interest computed on the basis provided for in this Note, together with all fees, charges and other payments which are treated as interest under applicable law, as provided for herein or in any other document executed in connection herewith, would exceed the amount of such interest computed on the basis of the Highest Lawful Rate, then the Company shall not be obligated to pay, and Holder shall not be entitled to charge, collect, receive, reserve or take, interest in excess of the Highest Lawful Rate, and during any such period the interest payable hereunder shall be computed on the basis of the Highest Lawful Rate.

 

3.                                                 PREPAYMENT. The principal and accrued but unpaid interest, if any, of this Note may be prepaid in whole or in part without premium or penalty. To the extent any amount remains due and unpaid after any prepayment, thereafter, the Company shall have the right at any time and from time to time to prepay such amount due under this Note in whole or in part without premium or penalty.

 

4.                                                 [INTENTIONALLY LEFT BLANK].

 

5.                                                 EVENTS OF DEFAULT.  Each of the following events shall constitute an “Event of Default” hereunder:

 

 

(a)                                             The Company fails to make any payment when due under this Note on the applicable due date;

 

(b)                                             A receiver is appointed for any material part of the Company’s property, the Company makes a general assignment for the benefit of creditors, or the Company becomes a debtor or alleged debtor in a case under the U.S. Bankruptcy Code or becomes the subject of any other bankruptcy or similar proceeding for the general adjustment of its debts or for its liquidation;

 

(c)                                              The Company breaches any material obligation to Holder under this Note or under any other Financing Document and does not cure such breach within 20 days after written notice thereof has been given by or on behalf of Holder to the Company;

 

(d)                                             The Company is in default under any Senior Indebtedness and such default is not waived by the holder of such Senior Indebtedness or cured by the Company within the applicable grace period, if any, provided in the agreements evidencing such Senior Indebtedness; or

 

(e)                                              The Company’s Board of Directors or stockholders adopt a resolution for the liquidation, dissolution or winding up of the Company.

 

Upon the occurrence of any Event of Default, all accrued but unpaid expenses, accrued but unpaid interest, all principal and any other amounts outstanding under this Note shall (i) in the case of any Event of Default under Section 5(b), become immediately due and payable in full without further notice or demand by Holder and (ii) in the case of any Event of Default other than under Section 5(b), become immediately due and payable upon written notice by or on behalf of the Holder to the Company.

 

6.                                                 CONVERSION.

 

6.1                               Conversion at Public Offering, Maturity.  Subject to Section 6.3, on the earlier of (a) the Public Offering Closing, (b) the Maturity Date, or (c) a Liquidation Event, the entire Balance then outstanding shall be cancelled and converted into that number of shares of Conversion Stock obtained by dividing (i) the entire Balance by (ii) the Conversion Price.  Subject to Section 6.3, in the event of a Public Offering or a Liquidation Event, any conversion under this Section 6.1 shall be deemed to occur as of immediately prior to the Public Offering Closing or the closing of the Liquidation Event, as applicable, without regard to whether Holder has then delivered to the Company this Note (or the Lost Note Documentation where applicable).

 

6.2                               Termination of Rights.  Except for the right to obtain certificates representing the Conversion Stock under Section 7, all rights with respect to this Note shall terminate upon the effective conversion of the entire Balance of the Note as provided in Section 6.1.  Notwithstanding the foregoing, Holder agrees to surrender this Note to the Company (or Lost Note Documentation where applicable) as soon as practicable after conversion.  In any event, Holder shall not be entitled to receive any stock certificates representing the shares of Conversion Stock issuable upon conversion of this Note unless and until Holder has surrendered the original of this Note (or Lost Note Documentation where applicable).

 

6.3       Shareholder Approval.  Conversion of the Balance into shares of Conversion Stock as provided in Section 6.1 is subject to, and conditioned upon, the Company obtaining shareholder approval prior to any such conversion, if such approval is required by applicable law, including the rules and regulations of any market or exchange on which the Company’s securities are then listed or otherwise traded.  If shareholder approval is required, the conversion of the Balance into shares of Conversion Stock pursuant to Section 6.1 shall be deemed to occur as of immediately after such shareholder approval has been obtained.

 

7.                                                 CERTIFICATES; NO FRACTIONAL SHARES.  Subject to Section 6.2, as soon as practicable after conversion of this Note pursuant to Section 6.1, the Company at its expense will cause to be issued in the name of Holder and to be delivered to Holder, a certificate or certificates for the number of shares of Conversion Stock to which Holder shall be entitled upon such conversion (bearing such legends as may be required by applicable state and federal securities laws in the opinion of legal counsel of the Company, by any lockup agreement, by the Company’s Certificate of Incorporation and Bylaws and by any agreement between the Company and Holder), together with any other securities and property to which Holder is entitled upon such conversion under the terms of this Note.  No fractional shares shall be issued upon conversion of this Note.  If upon any conversion of this Note a fraction of a share would otherwise be issued, then in lieu of such fractional share, the Company shall pay to Holder an amount in cash equal to such fraction of a share multiplied by the Conversion Price.

 

8.                                                 ADJUSTMENT PROVISIONS.  So long as any of the Balance of this Note remains outstanding and conversion under Sections 6.1 has not occurred, the number and character of shares of Conversion Stock issuable upon conversion of this Note upon an Actual Conversion Date and, to the extent set forth in this Section 8, the Conversion Price therefor, are each subject to adjustment upon each occurrence of an adjustment event described in Sections 8.1 through 8.4 occurring between the date this Note is issued and such Actual Conversion Date.

 

8.1                               Adjustment for Stock Splits and Stock Dividends.  The Conversion Price and the number of shares of Conversion Stock shall each be proportionally adjusted to reflect any stock dividend, stock split, reverse stock split or other similar event affecting the number of outstanding shares of Conversion Stock without the payment of consideration to the Company therefor

 

 

at any time before an Actual Conversion Date.

 

8.2                               Adjustment for Other Dividends and Distributions.  If the Company shall make or issue, or shall fix a record date for the determination of eligible holders of its capital stock entitled to receive, a dividend or other distribution payable with respect to the Conversion Stock that is payable in securities of the Company (other than issuances with respect to which adjustment is made under Sections 8.1 or 8.3), or in assets (other than cash dividends) (each, a “ Dividend Event “), and such dividend or other distribution is actually made, then, and in each such case, Holder, upon conversion of an Actual Conversion Amount at any time after such Dividend Event, shall receive, in addition to the Conversion Stock issuable upon such conversion of the Note, the securities or other assets that would have been issuable to Holder had Holder, immediately prior to such Dividend Event, converted such Actual Conversion Amount into Conversion Stock.

 

8.3                               Adjustment for Consolidation or Merger.  If the Company shall consolidate with or merge into one or more other corporations or other entities, and pursuant to such consolidation or merger, stock, other securities or other property is issued or paid to holders of Conversion Stock (each, a “Reorganization Event”), then, and in each such case, Holder, upon conversion of an Actual Conversion Amount after the consummation of such Reorganization Event, shall be entitled to receive (in lieu of the stock or other securities and property that Holder would have been entitled to receive under the terms of this Note upon such conversion but for such Reorganization Event), the stock or other securities or property that Holder would have been entitled to receive upon the consummation of such Reorganization Event if, immediately prior to such Reorganization Event, Holder had converted such Actual Conversion Amount into Conversion Stock, all subject to further adjustment as provided in this Note, and the successor corporation or other successor entity in such Reorganization Event shall duly execute and deliver to Holder a supplement to this Note acknowledging such corporation’s or other entity’s obligations under this Note; and in each such case, the terms of the Note shall be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note after the consummation of such Reorganization Event.

 

8.4                               Conversion of Stock.  In each case not otherwise covered in Section 8.3 where (a) all the outstanding Conversion Stock is converted, pursuant to the terms of the Company’s Certificate of Incorporation, into Common Stock or other securities or property, or (b) the Conversion Stock otherwise ceases to exist or to be authorized under the Company’s Certificate of Incorporation (each a “ Stock Event “), then Holder, upon conversion of this Note at any time after such Stock Event, shall receive, in lieu of the number of shares of Conversion Stock that would have been issuable upon conversion of this Note immediately prior to such Stock Event, the stock and other securities and property that Holder would have been entitled to receive upon the Stock Event, if immediately prior to such Stock Event, Holder had converted the Actual Conversion Amount into Conversion Stock.

 

8.5                               Notice of Adjustments.  The Company shall promptly give written notice of each adjustment of the Conversion Price or the number or type of shares of Conversion Stock or other securities or property issuable upon conversion of this Note that is required under this Section 8.  The notice shall describe the adjustment or readjustment and show in reasonable detail the facts on which the adjustment or readjustment is based.

 

8.6                               No Change Necessary.  The form of this Note may, but need not, be changed because of any adjustment in the Conversion Price or in the number or type of shares of Conversion Stock issuable upon its conversion.

 

8.7                               Reservation of Stock.  If the number of shares of Conversion Stock or other securities authorized and reserved for issuance upon conversion of this Note shall not be sufficient to effect the conversion of the Balance of this Note, then the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Conversion Stock or other securities issuable upon conversion of this Note as shall be sufficient for such purpose.

 

9.                                                 PROVISIONS RELATING TO STOCKHOLDERS RIGHTS.

 

9.1                               Rights as Investor; “Market Stand-Off” Agreement.  Upon conversion of the Balance in connection with the Public Offering, Holder shall be entitled to the rights and be subject to all other obligations of the investors in the Conversion Stock issued in the Public Offering.  Holder hereby agrees that Holder shall not, to the extent requested by the Company or an underwriter of securities of the Company, sell or otherwise transfer or dispose of any shares of stock or other securities of the Company then or thereafter owned by Holder (other than to donees or partners of Holder who agree to be similarly bound) for up to one hundred eighty (180) days, plus up to an additional 18 days to the extent necessary to comply with applicable regulatory requirements, following the effective date of a registration statement of the Company filed under the Securities Act; provided , however , that such agreement shall be applicable only to the first such registration statement of the Company after the date hereof which covers securities to be sold on its behalf to the public in an underwritten offering, but shall not apply to any securities sold pursuant to such registration statement.

 

For purposes of this Section 9.1, the term “Company” shall include any wholly-owned subsidiary of the Company into which the Company merges or consolidates.  In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the securities of the Company subject to this Section and to impose stop transfer instructions with respect to the securities of the Company held by Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.  Holder further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing within any reasonable timeframe so requested.

 

 

9.2                               No Voting or Other Rights.  This Note does not entitle Holder to any voting rights or other rights as a stockholder of the Company, unless and until (and only to the extent that) this Note is actually converted into shares of the Company’s capital stock in accordance with its terms.  In the absence of conversion of this Note into Conversion Stock, no provisions of this Note and no enumeration herein of the rights or privileges of Holder, shall cause Holder to be a stockholder of the Company for any purpose.

 

9.3                               Inspection Rights.  Holder shall also be entitled to standard inspection and visitation rights pursuant to Delaware law.

 

9.4                               Registration Rights. Upon conversion of the Balance into Conversion Stock pursuant to Section 6.1, Holder shall have no registration rights with respect to the Conversion Stock except as provided in the Registration Rights Agreement.

 

10.                                          REPRESENTATIONS AND WARRANTIES OF HOLDER.

 

In order to induce the Company to issue this Note to the original Holder, the original Holder has made representations and warranties to the Company as set forth in the Purchase Agreement and below.

 

10.1                                                Authorization.  This Note constitutes Holder’s valid and legally binding obligations, enforceable against Holder in accordance with its terms, except as may be limited by  (i) applicable bankruptcy, insolvency, reorganization or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and (ii) the effect of rules of law governing the availability of equitable remedies.  Holder represents and warrants to the Company that Holder has full power and authority to enter into this Note.

 

10.2                                                Purchase for Own Account.  The Note and the Conversion Stock issuable upon the conversion of the Note, (collectively, the “Securities”) will be acquired for investment for Holder’s own account, not as a nominee or agent, and not with a view to the public resale or distribution thereof within the meaning of the Securities Act, and Holder has no present intention of selling, granting any participation in, or otherwise distributing the same.

 

10.3                                                No Solicitation.  At no time was Holder presented with or solicited by any publicly issued or circulated newspaper, mail, radio, television or other form of general advertising or solicitation in connection with the offer, sale and purchase of the Securities.

 

10.4                                                Disclosure of Information.  Holder has received or has had full access to all the information Holder considers necessary or appropriate to make an informed investment decision with respect to the Securities.  Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder had access.

 

10.5                                                Investment Experience.  Holder understands that the purchase of the Securities involves substantial risk.  Holder (i) has experience as an investor in securities of companies in the development stage and acknowledges that such Investor is able to fend for itself, can bear the economic risk of Holder’s investment in the Securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of this investment in the Securities and protecting Holder’s own interests in connection with this investment in the Securities or (ii) has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

 

10.6                                                Accredited Investor Status.  Holder is familiar with the definition of, and qualifies as, an “accredited investor” within the meaning of Regulation D promulgated under the Securities Act.

 

10.7                                                Restricted Securities.  Holder understands that the Securities are characterized as “restricted securities” under the Securities Act and Rule 144 promulgated thereunder (“Rule 144”) since they are being acquired from the Company in a transaction not involving a public offering, and that under the Securities Act and applicable regulations thereunder the Securities may be resold without registration under the Securities Act only in certain limited circumstances.  Holder further understands that the Company is under no obligation to register the Securities, and the Company has no present plans to do so.  Furthermore, Holder is familiar with Rule 144, as presently in effect, and understands the limitations imposed thereby and by the Securities Act on resale of the Securities without such registration.  Holder understands that, whether or not the Securities may be resold in the future without registration under the Securities Act, no assurances can be made that a public market will exist for the Securities.

 

10.8                                                Further Limitations on Disposition.  Without in any way limiting the representations set forth above, Holder further agrees not to make any disposition of all or any portion of the Securities unless and until:

 

(a)                                 there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such effective registration statement; or

 

(b)                                 Holder shall have notified the Company of the proposed disposition and shall have furnished the

 

 

Company with a statement of the circumstances surrounding the proposed disposition and, at the expense of Holder or its transferee, with an opinion of counsel reasonably satisfactory in form and substance to the Company that such disposition will not require registration of such Securities under the Securities Act.

 

Notwithstanding the provisions of paragraphs (a) and (b) of this Section 10.8, no such registration statement or opinion of counsel shall be required for any transfer:  (i) of any Securities in compliance with Rule 144 or Rule 144A promulgated under the Securities Act when the Company is promptly provided evidence of such compliance; (ii) of any Securities by a Holder that is a partnership or a corporation to (A) a partner of such partnership or stockholder of such corporation, (B) an affiliate of such partnership or corporation, (C) a retired partner of such partnership who retires after the date hereof, (D) the estate of any deceased partner of such partnership or deceased stockholder of such corporation; or (iii) by gift, will or intestate succession by any Holder to his or her spouse or lineal descendants or ancestors or any trust for any of the foregoing;  provided  that in each of the foregoing cases the transferee agrees in writing to be subject to the terms of this Section 10.8 to the same extent as if the transferee had been an original Holder hereunder.

 

10.9                                                Legends.  Holder understands and agrees that the certificates evidencing the Securities will bear legends substantially similar to those set forth below in addition to any other legend that may be required by applicable law, the Company’s Certificate of Incorporation or Bylaws, Section 9.2 above or any other agreement between the Company and Holder:

 

(a)                  THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF APPLICABLE STATES.  THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION UNDER SUCH LAWS OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT.  INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.  THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ALL APPLICABLE STATE SECURITIES LAWS.

 

(b)                  Any legend pursuant to a lock up agreement, required by the laws of the State of California, including any legend required by the California Department of Corporations or any other state securities laws.

 

The legend set forth in (a) above shall be removed by the Company from any certificate evidencing the Securities upon delivery to the Company of an opinion of counsel, reasonably satisfactory in form and substance to the Company, that either (i) a registration statement under the Securities Act is at that time in effect with respect to the legended security or (ii) such security can be freely transferred in a public sale (other than pursuant to Rule 144, Rule 144A or Rule 145 promulgated under the Securities Act) without such a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued the Securities.

 

10.10                                         Disqualification.  Holder represents that neither Holder, nor any person or entity with whom Holder shares beneficial ownership of the Company securities, is subject to any Disqualification Event (as defined in Rule 506(d)(1)(i) through (viii) under the Securities Act), except for Disqualification Events covered by Rule 506(d)(2)(ii) or (iii) or (d)(3) under the Securities Act and disclosed reasonably in advance of the date hereof in writing in reasonable detail to the Company.

 

11.                                          GENERAL PROVISIONS.

 

11.1                                                Waivers.  The Company and all endorsers of this Note hereby waive notice, presentment, protest and notice of dishonor.

 

11.2                                                Attorneys’ Fees.  In the event any party is required to engage the services of an attorney for the purpose of enforcing this Note, or any provision thereof, the prevailing party shall be entitled to recover its reasonable expenses and costs in enforcing this Note, including attorneys’ fees.

 

11.3                                                Transfer.  Neither this Note nor any rights hereunder may be assigned, conveyed or transferred, in whole or in part, without the Company’s prior written consent, which the Company may withhold in its sole discretion.  Subject to the foregoing, the rights and obligations of the Company and Holder under this Note shall be binding upon and benefit their respective permitted successors, assigns, heirs, administrators and transferees.

 

11.4                                                Governing Law.  This Note shall be governed by and construed under the internal laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within the State of Delaware, without reference to principles of conflict of laws or choice of laws.

 

11.5                                                Headings.  The headings and captions used in this Note are used only for convenience and are not to be considered in construing or interpreting this Note.  All references in this Note to sections and exhibits shall, unless otherwise provided, refer to sections hereof and exhibits attached hereto, all of which exhibits are incorporated herein by this reference.

 

11.6                                                Notices.  Unless otherwise provided herein, any notice required or permitted under this Note shall be given in

 

 

writing and shall be deemed effectively given (a) at the time of personal delivery, if delivery is in person; (b) one (1) Business Day after deposit with an express overnight courier for United States deliveries, or three (3) Business Days after deposit with an international express overnight air courier for deliveries outside of the United States, in each case with proof of delivery from the courier requested; or (c) four (4) Business Days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries, when addressed to the party to be notified at the address indicated below, or at such other address as any party hereto may designate for itself to receive notices by giving ten (10) days’ advance written notice to all other parties in accordance with the provisions of this Section.  For purposes of this Section 11.6, a “business day” means a weekday on which banks are open for general banking business in San Francisco, California.

 

COMPANY ADDRESS

BioPharmX Corporation

1098 Hamilton Court

Menlo Park, California 94025

 

HOLDER ADDRESS

Xiao Dong Hua

China, Jiangsu Province, Wuxi City,
 Nanchang District, Langshi Future Home, No. 12, Room 802, 214000

 

11.7                                                Amendments and Waivers.  Any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Holder.  Any amendment or waiver effected in accordance with this Section 11.7 shall be binding upon Holder, each future holder of the Note, and the Company.

 

11.8                                                Severability.  If one or more provisions of this Note are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Note to the extent they are held to be unenforceable and the remainder of the Note shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.

 

[Signature page follows]

 

 

IN WITNESS WHEREOF, the Company has caused this Convertible Promissory Note to be signed in its name as of the date first written above.

 

	
 
    	
THE   COMPANY
    
	
 
    	
 
    	
 
    
	
 
    	
BioPharmX   Corporation
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
AGREED AND   ACKNOWLEDGED:
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
HOLDER
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Xiao   Dong Hua
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
Xiao Dong Hua
    	
 
    	
 
    

 

 

[SIGNATURE PAGE TO CONVERTIBLE PROMISSORY NOTE OF BIOPHARMX CORPORATION]

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