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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS
TABLE OF CONTENTS
As filed with the Securities and Exchange Commission on March 30, 2020
Registration No. 333-236526
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BIOPHARMX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
2834
(Primary Standard Industrial Classification Code Number)
59-3843182
(IRS Employer Identification No.)
900 E. Hamilton Ave., Suite 100
Campbell, California 95008
(650) 889-5020
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Steven M. Bosacki
Chief Executive Officer
BioPharmX Corporation
900 E. Hamilton Ave., Suite 100
Campbell, California 95008
(650) 889-5020
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
Copies to: | ||
Philip B. Schwartz, Esq. Andrew E. Schwartz, Esq. Akerman LLP Las Olas Centre II, Suite 1600 350 East Las Olas Boulevard Fort Lauderdale, Florida 33301 (954) 463-2700 |
Steven M. Skolnick, Esq. Alan Wovsaniker, Esq. Lowenstein Sandler LLP One Lowenstein Drive Roseland, New Jersey 07068 (973) 597-2500 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective and upon completion of the Merger described in the enclosed joint proxy statement/prospectus.
If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý |
Smaller reporting company ý Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. o
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction.
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) | o | |||
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) |
o |
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered |
Amount to be Registered(1)(2) |
Proposed Maximum Offering Price per Unit |
Proposed Maximum Aggregate Offering Price(3) |
Amount of Registration Fee |
||||
---|---|---|---|---|---|---|---|---|
Common Stock, par value $0.001 per share |
167,080,902 | N/A | $0.00 | $0.00 | ||||
Series A Preferred Stock, par value $0.001 per share |
2,500 | N/A | $0.00 | $0.00 | ||||
Common Stock issuable upon the conversion of Series A Preferred Stock, par value $0.001 per share |
2,500,000 | N/A | $0.00 | $0.00 | ||||
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The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this proxy statement/prospectus/information statement is not complete and may be changed. BioPharmX Corporation may not sell its securities pursuant to the proposed transactions until the Registration Statement filed with the Securities and Exchange Commission is effective. This proxy statement/prospectus/information statement is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED MARCH 30, 2020
PROPOSED MERGER
YOUR VOTE IS VERY IMPORTANT
To the stockholders of BioPharmX Corporation and the members of Timber Pharmaceuticals LLC:
BioPharmX Corporation ("BioPharmX") and Timber Pharmaceuticals LLC ("Timber") have entered into an Agreement and Plan of Merger and Reorganization, dated January 28, 2020, as amended by that certain Amendment No. 1 to Agreement and Plan of Merger and Reorganization ("Amendment No. 1") dated as of March 24, 2020 (collectively, the "Merger Agreement") pursuant to which BITI Merger Sub, Inc., a wholly-owned subsidiary of BioPharmX ("Merger Sub") will merge with and into Timber, with Timber surviving as a wholly-owned subsidiary of BioPharmX (the "Merger"). BioPharmX and Timber believe the Merger is in the best interest of both companies and their equity holders.
At the effective time of the Merger (the "Effective Time"), Timber's common members (including holders of Value Appreciation Rights ("VARs") of Timber) and investors providing the $20 million of financing that is a condition precedent of the Merger (the "Timber Funding") will be entitled to receive approximately 129,046,419 shares of BioPharmX's common stock, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in the attached proxy statement/prospectus/information statement. At the Effective Time, BioPharmX's stockholders will continue to own and hold their existing shares of BioPharmX's common stock, and all outstanding and unexercised options to purchase shares of BioPharmX's common stock and outstanding and unexercised warrants to purchase shares of BioPharmX's common stock will remain in effect pursuant to their terms, except that the holders of certain warrants will have the right to exchange their warrants for common stock of BioPharmX.
In connection with the Timber Funding on March 27, 2020, Timber and BioPharmX entered into a securities purchase agreement (the "Securities Purchase Agreement"), with certain accredited investors (the "Investors") pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to the Merger and BioPharmX agreed to issue to the Investors warrants to purchase shares of BioPharmX common stock on the tenth trading day following the consummation of the Merger (the "Investor Warrants") in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) approximately $5 million credit with respect to certain senior secured notes (the "Notes") issued in connection with a bridge loan from the Investors to Timber in an aggregate amount of $3.75 million (the "Timber Bridge Loan") and (y) approximately $20 million in cash from the Investors (the "Purchase Price"). In summary, immediately after the Merger, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment provisions in the Investor Warrants sold in the Timber Funding (see the section titled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), Timber's common members (including holders of VARs and investors providing the Timber Funding) will own in the aggregate (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX, with BioPharmX's stockholders as of immediately prior to the Effective Time owning approximately 11.5% of the outstanding capital stock of BioPharmX, subject to adjustment as set forth in this proxy statement/prospectus/information statement. The formula used to determine the shares to be issued to Timber common unitholders in the Merger excludes BioPharmX's outstanding stock options and warrants which are out-of-the-money and not exchangeable for common stock of BioPharmX pursuant to a fundamental transaction and other adjustments.
Each preferred membership unit of Timber will be converted into shares of a newly created class of BioPharmX convertible preferred stock. BioPharmX will assume outstanding and unexercised VARs of Timber, and in connection with the Merger they will become denoted in (and payable in) shares of BioPharmX's common stock (instead of Timber common units).
In connection with the Merger Agreement, BioPharmX and Timber entered into a Credit Agreement, dated as of January 28, 2020 (the "Credit Agreement"), pursuant to which Timber has agreed to make a bridge loan to BioPharmX (the "Bridge Loan") in an aggregate amount of $2.25 million ($2.5 million less $250,000 of original issue discount ("OID")). Pursuant to the terms of the Credit Agreement, the Bridge Loan has been and will be made to BioPharmX in three tranches: (i) a $625,000 initial advance ($700,000 less $75,000 of OID), which was made on the closing date of the Credit Agreement; (ii) $625,000 ($700,000 less $75,000 of OID) which was made on February 28, 2020; and (iii) $1,000,000 ($1,100,000 less $100,000 of OID) which will be made upon the closing of the Merger. The Bridge Loan will bear interest at a rate of 12% per annum and is repayable upon the earlier of maturity thereof, the termination (without completion) of the Merger or upon a liquidity event, as defined in the Credit Agreement. BioPharmX has also issued to Timber a promissory note setting forth the terms of repayment (the "Bridge Note"). The Bridge Loan, among other things, allows BioPharmX to not further dilute its current stockholders while seeking approval of the Merger.
The Bridge Loan is secured by a lien on all of BioPharmX's assets. Further, in connection with the Bridge Loan, on January 28, 2020 BioPharmX issued to Timber a warrant to purchase approximately 2.3 million shares of common stock at a nominal exercise price (the "Timber Bridge Warrant"). The Timber Bridge Warrant was exercised on a cashless basis on February 10, 2020 for a total amount of 2,200,328 shares of BioPharmX common stock.
Shares of BioPharmX's common stock are currently listed on the NYSE American market ("NYSE American") under the symbol "BPMX". On March 24, 2020, BioPharmX received a letter from the NYSE American stating that the NYSE American is beginning delisting procedures against BioPharmX. BioPharmX intends to appeal the decision. Prior to the consummation of the Merger, BioPharmX intends to file an initial listing application with the NYSE American for the combined company. After completion of the Merger, and pending approval of Proposal No. 3 herein, BioPharmX will be renamed Timber Pharmaceuticals, Inc., and expects to trade on the NYSE American under the symbol "TMBR". On March , 2020, the last trading day before the date of this proxy statement/prospectus/information statement, the closing sale price of BioPharmX's common stock on the NYSE American was $ per share.
In order to meet NYSE American Listing Requirements, as described in more detail in the attached proxy statement/prospectus/information statement, NYSE American will require BioPharmX to have, among other things, a $2.00 per share minimum bid price and a $50 million market capitalization upon the closing of the Merger. Therefore, a reverse stock split of BioPharmX's common stock may be required prior to or concurrent with the consummation of the Merger and all shares (both those issued to Timber and those held by BioPharmX stockholders prior to the Effective Time) will be subject to adjustment.
BioPharmX is holding a special meeting of its stockholders (the "BioPharmX special meeting") in order to obtain the stockholder approvals necessary to complete the Merger and related matters. The BioPharmX special meeting will be held at 10:00 a.m., Eastern Time, on April 30, 2020, unless postponed or adjourned to a later date. The special meeting will be held at the law offices of Akerman LLP at Three Brickell City Centre, 98 Southeast Seventh Street, Suite 1100, Miami, Florida 33131. Alternatively, due to the emerging public health impact of coronavirus disease 2019 (COVID-19), we are planning for the possibility that the BioPharmX special meeting may need to be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance, and details on how to participate in the webcast will be set forth in a press release issued by BioPharmX and available on our website at www.biopharmx.com.
At the BioPharmX special meeting, BioPharmX will ask its stockholders to, among other things:
After careful consideration, BioPharmX's board of directors (the "BioPharmX Board") has (i) determined that the Merger and all related transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of BioPharmX and its stockholders, (ii) approved and declared advisable the Merger Agreement, the Plan Proposal, the Financing Proposal and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its stockholders vote to approve the issuance of BioPharmX common stock pursuant to the Merger Agreement. The BioPharmX Board recommends that BioPharmX's stockholders vote "FOR" Proposal Nos. 1, 2, 3, 4, 5 and 6.
After careful consideration, Timber's board of managers (the "Timber Board") has (i) determined that the Merger and all related transactions contemplated by the Merger Agreement are fair to, advisable and in the best interests of Timber and its members, (ii) approved and declared advisable the Merger Agreement, the Financing Proposal and the transactions contemplated therein and (iii) determined to recommend, upon the terms and subject to the conditions set forth in the Merger Agreement, that its members vote to adopt the Merger Agreement and approve the transactions contemplated thereby. The members of Timber, on the date of the BioPharmX special meeting or immediately beforehand, will execute a written consent approving the Merger, the Financing Proposal and the transactions contemplated by the Merger Agreement (collectively, the "Required Timber Member Approval").
More information about BioPharmX, Timber and the proposed transaction is contained in this proxy statement/prospectus/information statement. BioPharmX and Timber urge you to read the accompanying proxy statement/prospectus/information statement carefully and in its entirety. IN PARTICULAR, YOU SHOULD CAREFULLY CONSIDER THE MATTERS DISCUSSED UNDER "RISK FACTORS" BEGINNING ON PAGE 24.
BioPharmX and Timber are excited about the opportunities that the Merger brings to both the equity holders of BioPharmX and Timber and thank you for your consideration and continued support.
Steven M. Bosacki | John Koconis | |
Chief Executive Officer | Chief Executive Officer | |
BioPharmX Corporation | Timber Pharmaceuticals LLC |
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this proxy statement/prospectus/information statement. Any representation to the contrary is a criminal offense.
The accompanying proxy statement/prospectus/information statement is dated , 2020, and is first being mailed to BioPharmX's stockholders and Timber's members on or about , 2020.
BIOPHARMX CORPORATION
900 E. Hamilton Ave., Suite 100
Campbell, California 95008
(650) 889-5020
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on April 30, 2020
Dear Stockholders of BioPharmX:
On behalf of the board of directors (the "Board") of BioPharmX Corporation, a Delaware corporation ("BioPharmX") we are pleased to deliver this proxy statement/prospectus/information statement for the 2020 special meeting of stockholders of BioPharmX and for the proposed merger between BioPharmX and Timber Pharmaceuticals LLC, a Delaware limited liability company ("Timber") pursuant to which BITI Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of BioPharmX ("Merger Sub") will merge with and into Timber, with Timber surviving as a wholly-owned subsidiary of BioPharmX (the "Merger").
The special meeting of stockholders of BioPharmX will be held on April 30, 2020, at 10:00 a.m. Eastern Time, unless postponed or adjourned to a later date. The special meeting will be held at the law offices of Akerman LLP at Three Brickell City Centre, 98 Southeast Seventh Street, Suite 1100, Miami, Florida 33131. Alternatively, due to the emerging public health impact of coronavirus disease 2019 (COVID-19), we are planning for the possibility that the BioPharmX special meeting may need to be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance, and details on how to participate in the webcast will be set forth in a press release issued by BioPharmX and available on our website at www.biopharmx.com.
The BioPharmX special meeting will be held for the following purposes:
The BioPharmX Board has fixed March 23, 2020 as the record date for the determination of stockholders entitled to vote at the BioPharmX special meeting and any adjournment or postponement thereof. Only holders of record of BioPharmX common stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting. At the close of business on the record date, BioPharmX had 18,278,219 shares of common stock outstanding and entitled to vote. A complete list of such stockholders entitled to vote at the BioPharmX special meeting will be available for examination at the BioPharmX offices in Campbell, California, during normal business hours for a period of ten (10) days prior to the special meeting.
Your vote is important. The affirmative vote of the holders of a majority of BioPharmX's outstanding common stock is required for the approval of Proposal Nos. 1, 2 and 3. The affirmative vote of the holders of a majority of the shares of BioPharmX's common stock entitled to vote and present at the BioPharmX special meeting is required for approval of Proposal Nos. 4, 5 and 6. Each of Proposal Nos. 1, 2 and 5 are conditional upon each other. Therefore, the Merger cannot be consummated without the approval of all three proposals.
Proposal No. 3 is conditioned upon the consummation of the Merger. If the Merger is not completed or the stockholders do not approve Proposal No. 3, BioPharmX will not change its name to "Timber Pharmaceuticals, Inc." Proposal Nos. 1, 2 and 5 are not conditioned on Proposal No. 3 being approved.
Even if you plan to attend the BioPharmX special meeting in person, BioPharmX requests that you sign and return the enclosed proxy to ensure that your shares will be represented at the BioPharmX special meeting if you are unable to attend.
THE BIOPHARMX BOARD HAS DETERMINED AND BELIEVES THAT EACH OF THE PROPOSALS OUTLINED ABOVE IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, BIOPHARMX AND ITS STOCKHOLDERS AND HAS APPROVED EACH SUCH APPROVAL. THE BIOPHARMX BOARD RECOMMENDS THAT BIOPHARMX'S STOCKHOLDERS VOTE "FOR" EACH SUCH PROPOSAL.
By
order of the BioPharmX Board,
Steven M. Bosacki
Chief Executive Officer
Campbell, California
, 2020
REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus/information statement incorporates important business and financial information about BioPharmX that is not included in or delivered with this document. You may obtain this information without charge upon your written or oral request by contacting the Corporate Secretary of BioPharmX Corporation, 900 E. Hamilton Ave., Suite 100, Campbell, California 95008, or by calling (650) 889-5020.
To ensure timely delivery of these documents, any request should be made no later than , 2020 to receive them before the special meeting.
For additional details about where you can find information about BioPharmX, please see the section entitled "Where You Can Find More Information" in this proxy statement/prospectus/information statement.
ABOUT THIS PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
This proxy statement/prospectus/information statement, which forms part of a registration statement on Form S-4 filed with the Securities and Exchange Commission (the "SEC") by BioPharmX (File No. 333-236526), constitutes a prospectus of BioPharmX under Section 5 of the Securities Act of 1933, as amended, or the Securities Act, with respect to the shares of BioPharmX common stock, par value $0.001, of BioPharmX Corporation to be issued pursuant to the Merger Agreement. This document also constitutes a notice of meeting and a proxy statement under Section 14(a) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to the BioPharmX special meeting, at which BioPharmX stockholders will be asked to consider and vote on, among other matters, a proposal to approve the issuance of shares of BioPharmX common stock pursuant to the Merger Agreement.
No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus/information statement. This proxy statement/prospectus/information statement is dated , 2020. The information contained in this proxy statement/prospectus/information statement is accurate only as of that date or, in the case of information in a document incorporated by reference, as of the date of such document, unless the information specifically indicates that another date applies.
This proxy statement/prospectus/information statement does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction in which or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.
The information concerning BioPharmX contained in this proxy statement/prospectus/information statement or incorporated by reference has been provided by BioPharmX, and the information concerning Timber contained in this proxy statement/prospectus/information statement has been provided by Timber.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Except where specifically noted, the following information and all other information contained in this proxy statement/prospectus/information statement does not give effect to the proposed reverse stock split as described in Proposal No. 2 beginning on page 158 in this proxy statement/prospectus/information statement (the "BioPharmX Reverse Stock Split").
The following section provides answers to frequently asked questions about the Merger. This section, however, provides only summary information. For a more complete response to these questions and for additional information, please refer to the cross-referenced section.
At the effective time of the Merger (the "Effective Time"), Timber's common members (including holders of Value Appreciation Rights ("VARs") of Timber and investors providing the $20 million of financing that is a condition precedent of the Merger (the "Timber Funding")) will be entitled to receive approximately 129,046,419 shares of BioPharmX's common stock, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
At the Effective Time, BioPharmX's stockholders will continue to own and hold their existing shares of BioPharmX's common stock, and all outstanding and unexercised options to purchase shares of BioPharmX's common stock and outstanding and unexercised warrants to purchase shares of BioPharmX's common stock will remain in effect pursuant to their terms, except that the holders of certain warrants will have the right to exchange their warrants for common stock of BioPharmX.
In connection with the Timber Funding, on March 27, 2020, Timber and BioPharmX entered into a securities purchase agreement (the "Securities Purchase Agreement"), with certain accredited investors (the "Investors") pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to the Merger and BioPharmX agreed to issue to the Investors warrants to purchase shares of BioPharmX common stock on the tenth trading day following the consummation of the Merger (the "Investor Warrants") in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) approximately $5 million credit with respect to certain senior secured notes (the "Notes") issued in connection with a bridge loan from the Investors to Timber in an aggregate amount of $3.75 million (the "Timber Bridge Loan") and (y) approximately $20 million in cash from the Investors) (the "Purchase Price"). In summary, immediately after the Merger, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment provisions in the Investor Warrants sold in the Timber Funding (see the section titled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), Timber's common members (including holders of VARs and investors providing the Timber Funding) will own in the aggregate (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX, with BioPharmX's stockholders as of immediately prior to the Effective Time owning approximately 11.5% of the outstanding capital stock of BioPharmX, subject to adjustment as set forth in this proxy statement/prospectus/information statement. The formula used to determine the shares of common stock to
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be issued to Timber unitholders in the Merger excludes BioPharmX's outstanding stock options and warrants which are out-of-the-money and not exchangeable for common stock of BioPharmX pursuant to a fundamental transaction and other adjustments.
Each preferred membership unit of Timber will be converted into shares of a newly created class of BioPharmX convertible preferred stock which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding (instead of Timber common units). Further, BioPharmX will assume outstanding and unexercised VARs of Timber, and in connection with the Merger they will become denoted in (and payable in) shares of BioPharmX common stock. After the completion of the Merger, BioPharmX will change its corporate name to "Timber Pharmaceuticals, Inc." as required by the Merger Agreement, pending approval of Proposal No. 3 herein (the "BioPharmX Name Change").
In such case, BioPharmX would be required to pay all its debts and contractual obligations, including the Bridge Loan, and set aside certain reserves for potential future claims. In the event the stockholders do not approve the Merger, the outstanding balance of the Bridge Loan is required to be repaid upon the completion of certain events and transactions or July 28, 2020, whichever comes first. The Bridge Loan is secured by a lien on all of BioPharmX's assets, and if BioPharmX is unable repay the Bridge Loan, the ownership of the secured assets held as collateral could be transferred to Timber. Further, there can be no assurances as to the amount or timing of available cash left to distribute to stockholders after paying the debts and other obligations of BioPharmX and setting aside funds for reserves.
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Proposal Nos. 4, 5 and 6 require the affirmative vote of the holders of a majority of the shares of BioPharmX's common stock entitled to vote and present, in person or represented by proxy, at the BioPharmX special meeting. Proposal Nos. 1, 2 and 3, the approval of the amendments of the certificate of incorporation of BioPharmX to affect the BioPharmX Reverse Stock Split and the BioPharmX Name Change each require the affirmative vote of a majority of BioPharmX's outstanding common stock having voting rights on the record date for the BioPharmX special meeting. Each of Proposal Nos. 1, 2 and 5 are conditioned on each other. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 5. Proposal No. 3 is conditioned upon the consummation of the Merger. If the Merger is not completed or the stockholders do not approve Proposal No. 3, BioPharmX will not change its name to "Timber Pharmaceuticals, Inc."
The adoption and approval of the Merger Agreement, the Financing Proposal and the transactions contemplated thereby requires the written consent of the holders of a majority of the units of Timber.
In addition to the requirements of obtaining the shareholder and unitholder approvals described above and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement must be satisfied or waived. For a more complete description of the closing conditions under the Merger Agreement, we urge you to read the section entitled "The Merger AgreementConditions to the Completion of the Merger" in this proxy statement/prospectus/information statement.
At the Effective Time, each preferred unit of Timber outstanding immediately prior to the Effective Time will be converted into a new class of convertible preferred stock of BioPharmX which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding.
For a more complete description of what Timber's members will receive in the Merger, see the sections entitled "The Merger AgreementMerger Consideration" in this proxy statement/prospectus/information statement.
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If you are a stockholder of BioPharmX, you may provide your proxy instructions in one of three different ways. First, you may mail your signed proxy card in the enclosed return envelope. Second, you may vote in person at the BioPharmX special meeting, as described below. Third, you may vote through the internet or via telephonein order to do so, please follow the instructions shown on your proxy card. Please provide your proxy instructions only once, unless you are revoking a previously delivered proxy instruction, and as soon as possible so that your shares can be voted at the BioPharmX special meeting.
If you are a member of Timber, you may execute and deliver your written consent to Timber in accordance with the instructions provided by Timber.
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not expected to have discretionary authority to vote for any of the proposals. To make sure your vote is counted, you should instruct your broker to vote your shares, following the procedures provided by your broker.
BioPharmX
Corporation
900 E. Hamilton Ave., Suite 100
Campbell, CA 95008
(650) 889-5020
If you are a member of Timber and would like additional copies, without charge, of this proxy statement/prospectus/information statement or if you have questions about the Merger, including the procedures for voting your units, you should contact:
PCG
Advisory, Inc.
150 East 58th Street 20th Floor
New York, NY 10022
(646) 762-4518
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This summary highlights selected information from this proxy statement/prospectus/information statement and may not contain all of the information that is important to you. To better understand the Merger, the proposals being considered at the BioPharmX special meeting and Timber's actions that are a subject of the written consent, you should read this entire proxy statement/prospectus/information statement carefully, including the Merger Agreement attached as Annex A. For more information, please see the section entitled "Where you can Find More Information" in this proxy statement/prospectus/information statement.
BioPharmX Corporation
900 E. Hamilton Ave., Suite 100
Campbell, California 95008
(650) 889-5020
Steven M. Bosacki, Chief Executive Officer
BioPharmX is a specialty pharmaceutical company focused on the dermatology market. BioPharmX's focus is to develop products that treat chronic dermatologic conditions that are not being adequately addressed or those where current therapies and approaches are suboptimal.
BioPharmX's strategy is to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for U.S. Food and Drug Administration ("FDA")-approved or well characterized active pharmaceutical ingredients ("APIs"). BioPharmX aims to reduce the time, cost, and risk profile typically associated with new product development by utilizing active ingredients with demonstrated safety profiles and taking advantage of the expedited regulatory pathways, such as Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (the "FDCA").
BioPharmX deploys a market-driven approach to identify the limitations of current treatment options and work to develop products that may address these limitations in areas of efficacy, safety, and/or patient experience.
Timber Pharmaceuticals LLC
50 Tice Boulevard, Suite A26
Woodcliff Lake, NJ 07677
(973) 314-9570
John Koconis, Chief Executive Officer
Timber was founded in 2019 to develop treatments for unmet needs in medical dermatology. Timber has a particular focus on rare diseases or conditions of the skin for which there are no current treatments. Rare skin diseases are among the most neglected therapeutic areas in the pharmaceutical industry. Over 450 different rare skin diseases have been identified, and yet there have been less than 20 FDA Approvals for eight different rare dermatological conditions since the Orphan Drug Act was passed in 1983.
Timber is initially targeting multiple indications in rare/orphan dermatology with no approved treatments. Timber's investigational therapies have proven mechanisms-of-action and well-established chemistry, manufacturing and control ("CMC") and safety profiles.
Merger Sub is a wholly-owned subsidiary of BioPharmX, and was formed solely for the purposes of carrying out the Merger.
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At the Effective Time, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment provisions in the Investor Warrants sold in the Timber Funding (see the section titled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), Timber's common members (including holders of VARs of Timber and investors providing the Timber Funding) will be entitled to receive approximately 129,046,419 shares of BioPharmX's common stock, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
At the Effective Time, BioPharmX's stockholders will continue to own and hold their existing shares of BioPharmX's common stock, and all outstanding and unexercised options to purchase shares of BioPharmX's common stock and outstanding and unexercised warrants to purchase shares of BioPharmX's common stock will remain in effect pursuant to their terms, except that the holders of certain warrants will have the right to exchange their warrants for common stock of BioPharmX.
In connection with the Timber Funding, on March 27, 2020, Timber and BioPharmX entered into the Securities Purchase Agreement with the Investors pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to the Merger and BioPharmX agreed to issue to the Investors warrants to purchase shares of BioPharmX common stock on the tenth trading day following the consummation of the Merger (the "Investor Warrants") in the Timber Funding.
In summary, immediately after the Merger, Timber's common members (including holders of VARs and investors providing the Timber Funding) will own in the aggregate (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX, with BioPharmX's stockholders as of immediately prior to the Effective Time owning approximately 11.5% of the outstanding capital stock of BioPharmX, subject to adjustment as set forth in this proxy statement/prospectus/information statement. The formula used to determine the shares to be issued to Timber common unitholders in the Merger excludes BioPharmX's outstanding stock options and warrants which are out-of-the-money and not exchangeable for common stock of BioPharmX pursuant to a fundamental transaction and other adjustments.
Each preferred membership unit of Timber will be converted into shares of a newly created class of BioPharmX convertible preferred stock which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding (instead of Timber common units). BioPharmX will also assume outstanding and unexercised VARs of Timber, and, in connection with the Merger, they will become denoted in (and payable in) shares of BioPharmX common stock. After the completion of the Merger, BioPharmX will change its corporate name to "Timber Pharmaceuticals, Inc." as required by the Merger Agreement and subject to approval of Proposal No. 3.
BioPharmX and Timber believe that the Merger will produce a clinical-stage biopharmaceutical company with a robust pipeline of products targeting orphan and chronic dermatologic conditions. Timber's investigational therapies have proven mechanisms-of-action and well-established CMC and safety profiles. Timber is initially focused on developing non-systemic treatments for rare dermatologic diseases including congenital ichthyosis ("CI"), tuberous sclerosis complex ("TSC"), and localized scleroderma ("LS"), in addition to the BioPharmX programs for inflammatory lesions of acne vulgaris
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and papulopustular rosacea. BioPharmX and Timber believe that the combined company will have the following characteristics found in successful biotech companies:
The BioPharmX Board and Timber Board also considered other reasons for the Merger, as described herein. For example, the BioPharmX Board considered, among other things:
In addition, the Timber Board approved the Merger based upon a number of factors, including:
Opinion of the BioPharmX Financial Advisor
On January 22, 2020, Cassel Salpeter rendered its oral opinion to the BioPharmX Board (which was confirmed in writing by delivery of Cassel Salpeter's written opinion dated such date), as to the fairness from a financial point of view, to BioPharmX of the consideration to be issued by BioPharmX in the Merger pursuant to the Merger Agreement.
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The summary of Cassel Salpeter's opinion in this proxy/registration statement is qualified in its entirety by reference to the full text of the written opinion, which is included as Annex E to this proxy/registration statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion. However, neither Cassel Salpeter's written opinion nor the summary of its opinion and the related analyses set forth in this proxy/registration statement are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the proposed Merger or otherwise.
Material U.S. Federal Income Tax Consequences of the Merger
BioPharmX and Timber believe that the Merger will qualify as a transfer of property to a "controlled corporation" for purposes of Section 351(a) of the Code. Accordingly, a U.S. Holder (as defined below) of units of Timber is not expected to recognize any gain or loss for U.S. federal income tax purposes on the exchange of units of Timber for shares of BioPharmX common stock in the Merger, except with respect to cash received by a U.S. Holder of Timber units in lieu of a fractional share of BioPharmX common stock.
Please review the information in the section entitled "The MergerMaterial U.S. Federal Income Tax Consequences of the Merger" for a more complete description of the material U.S. federal income tax consequences of the Merger to U.S. Holders of Timber units. The tax consequences to you of the Merger will depend on your particular facts and circumstances. Please consult your tax advisors as to the specific tax consequences to you of the Merger.
Material U.S. Federal Income Tax Consequences of the BioPharmX Reverse Stock Split
The BioPharmX Reverse Stock Split should constitute a "recapitalization" for U.S. federal income tax purposes. As a result, a BioPharmX U.S. Holder (as defined below) should generally not recognize gain or loss upon the BioPharmX Reverse Stock Split, except with respect to cash received in lieu of a fractional share of BioPharmX common stock, as discussed below. A BioPharmX U.S. Holder's aggregate tax basis in the shares of the BioPharmX common stock received pursuant to the BioPharmX Reverse Stock Split should equal the aggregate tax basis of the shares of the BioPharmX common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of BioPharmX common stock) and such BioPharmX U.S. Holder's holding period in the shares of BioPharmX's common stock received should include the holding period in the shares of the BioPharmX common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of BioPharmX common stock surrendered to the shares of BioPharmX common stock received pursuant to the BioPharmX Reverse Stock Split. Holders of shares of BioPharmX common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
Overview of the Merger Agreement
At the Effective Time, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment provisions in the Investor Warrants sold in the Timber Funding (see the section titled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), Timber's common members (including holders of VARs of Timber and investors providing the Timber Funding) will be entitled to receive approximately 129,046,419 shares of BioPharmX's common stock, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined
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pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
Accordingly, by way of example only and assuming there are still 18,278,219 shares of BioPharmX stock outstanding, BioPharmX would issue an aggregate of approximately 124,694,957 shares of BioPharmX common stock to the holders of Timber common units and reserve approximately 4,351,462 shares of BioPharmX common stock for potential payment to holders of Timber VARs, such numbers reflecting the relative valuations of BioPharmX and Timber in accordance with the Merger Agreement, assuming the other assumptions set forth above remain the same.
The above example also assumes that (i) Timber has secured the Timber Funding prior to the closing, (ii) the investors who provide the Timber Funding will also participate in the issuance of BioPharmX common stock to the Timber common unit holders pursuant to the Merger Agreement, (iii) 330,016 shares of BioPharmX common stock are issued to Locust Walk Partners LLC ("Locust Walk") to satisfy the success fee due at closing under the terms of its engagement, and (iv) 653,380 shares of BioPharmX common stock are issuable to certain warrant holders on terms comparable to the Exchange Agreement (as defined below).
The Merger Agreement does not include a price-based termination right and there will be no adjustments to the total shares of BioPharmX's common stock that Timber's securityholders will be entitled to receive for changes in the market price of BioPharmX's common stock. Accordingly, the market value of the shares of BioPharmX's common stock issued pursuant to the Merger will depend on the market value of the shares of BioPharmX's common stock at the time the Merger closes and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.
At the Effective Time, each preferred unit of Timber outstanding immediately prior to the Effective Time will be converted into a new class of convertible preferred stock of BioPharmX which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding.
Immediately after the Merger, Timber's members (including holders of VARs and any investors providing the Timber Funding) as of immediately prior to the Effective Time will own (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX and BioPharmX's stockholders as of immediately prior to the Effective Time will own approximately 11.5% of the outstanding capital stock of BioPharmX, subject to adjustment as set forth in this proxy statement/prospectus/information statement.
Treatment of BioPharmX's Stock Options and Warrants
Each BioPharmX warrant outstanding immediately prior to the Effective Time will be retained, with certain warrants having the right to be exercised for stock consideration based on the Black-Scholes value and other terms of that specific warrant. Each BioPharmX stock option outstanding immediately prior to the Effective Time will remain in full force and effect. All outstanding BioPharmX warrants and options will be adjusted for the BioPharmX Reverse Stock Split. The terms governing these warrants and options will otherwise remain in full force and effect following the closing of the Merger.
On January 28, 2020, BioPharmX entered into an Exchange Agreement (the "Exchange Agreement") with several affiliates of an institutional investor, which is one of the Investors, ("Holders"). In the Exchange Agreement, the Holders and BioPharmX have agreed that Holders, which owned warrants to purchase approximately 2.3 million shares of BioPharmX common stock (the "Investor Exchange Warrants"), would exchange the Investor Exchange Warrants for an aggregate of 850,000 shares of BioPharmX common stock (the "Exchange"). The Investor Exchange Warrants exchanged in the Exchange contained language that would have allowed the Holder to convert the Investor Exchange
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Warrants into shares of BioPharmX common stock at the time of the consummation of the Merger based on the Black-Scholes value of the Investor Exchange Warrants at the time of the consummation of the Merger. The Exchange was effected on February 3, 2020 in a transaction exempt from registration under Section 3(a)(9) of the Securities Act of 1933.
Timber's VARs shall become denoted in (and payable in) shares of BioPharmX's common stock (instead of Timber common membership units).
Conditions to the Completion of the Merger
To consummate the Merger, BioPharmX's stockholders must approve Proposal Nos. 1, 2 and 5. In addition, Timber's members must adopt and approve the Merger Agreement, the Financing Proposal and the transactions contemplated thereby.
In addition to obtaining such stockholder and unitholder approvals and appropriate regulatory approvals, each of the other closing conditions set forth in the Merger Agreement, as described in the section entitled "The Merger AgreementConditions to the Completion of the Merger" in this proxy statement/prospectus/information statement must be satisfied or waived.
Each of BioPharmX and Timber has agreed that during the period commencing on the date of the Merger Agreement and ending on the earlier of the consummation of the Merger or the termination of the Merger Agreement, each of BioPharmX and Timber and their respective subsidiaries will not, nor shall it or any of their subsidiaries authorize any of its representatives, to:
An "acquisition inquiry" means, with respect to any party, an inquiry, indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by Timber, on the one hand, or BioPharmX, on the other hand, to the other party) that would reasonably be expected to lead to an acquisition proposal.
An "acquisition proposal" means, with respect to any party, any offer or proposal, whether written or oral (other than an offer or proposal made or submitted by or on behalf of Timber or any of its affiliates, on the one hand, or by or on behalf of BioPharmX or any of its affiliates, on the other hand, to the other party) contemplating or relating to any acquisition transaction with such party.
An "acquisition transaction" means any transaction or series of related transactions involving
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However, before obtaining the applicable approval from the BioPharmX Board or the Timber Board, as applicable, either party may furnish non-public information regarding it and its respective subsidiaries (as applicable), and enter into discussions or negotiations with, any person in response to a bona fide written acquisition proposal by such person which the BioPharmX Board or the Timber Board, as applicable determines in good faith, after consultation with its outside financial advisors and outside legal counsel, constitutes, or is reasonably likely to result in, a superior offer if:
A "superior offer" is an unsolicited bona fide written acquisition proposal (with all references to 20% in the definition of acquisition transaction being treated as references to greater than 50% for these purposes that (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) the Merger Agreement, and (b) is on terms and conditions that the BioPharmX Board or the Timber Board, as applicable, determines in good faith, based on such matters that it deems relevant (including the likelihood of consummation thereof), as well as any written offer by the other party to the Merger Agreement to amend the terms of the Merger Agreement, and following consultation with its outside legal counsel and outside financial advisors, if any, are more favorable, from a financial point of view, to BioPharmX's stockholders and Timber's unitholders, as applicable, than the terms of the transaction contemplated by the Merger Agreement.
Termination of the Merger Agreement
The Merger Agreement contains certain termination rights for both BioPharmX and Timber. In connection with the termination of the Merger Agreement under specified circumstances, BioPharmX
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and Timber may be required to pay the other party a termination fee. The parties' termination rights are based on certain situations including:
In connection with the Merger and the Merger Agreement, each of the directors and officers of BioPharmX has signed a Stockholder Support Agreement, made and entered into as of January 28, 2020, among BioPharmX, Timber, and each such director and officer ("Support Agreement"). Pursuant to the Support Agreement, each director and officer has agreed that he or she will not, until the termination date of the Merger Agreement, sell or transfer any shares of common stock of BioPharmX he or she owns or may acquire prior to the termination of the Merger Agreement. Each such director and officer has further agreed that he or she will vote all shares of BioPharmX common stock beneficially owned, and any new shares of BioPharmX common stock he or she may acquire, in favor of the transactions contemplated by the Merger Agreement.
Management Following the Merger
Effective as of the closing of the Merger, BioPharmX's executive officers are expected to include John Koconis as Chief Executive Officer, Joseph Lucchese as Chief Financial Officer, Michael Derby as Executive Chairman, Zachary Rome as President and Secretary, and Amir Tavakkol as Chief Scientific Officer.
Securities Purchase Agreement
On March 27, 2020, Timber, BioPharmX and the Investors entered into the Securities Purchase Agreement, pursuant to which, among other things, the Investors agreed to invest a total of approximately $25 million (which amount is comprised of (x) approximately $5 million credit with respect to the Notes issued in connection with the Timber Bridge Loan and (y) approximately $20 million in cash from the Investors). In return, based on an agreed upon pre-money valuation (of the combined company) of $100 million, Timber will issue the Investors an amount of Timber units (the "Timber Initial Units") exchangeable in the Merger for 20.0% of the post-closing company fully-diluted, which percentage is calculated assuming the return and cancellation of all of the Converted Additional Shares (as defined below) from escrow. In addition, (i) Timber will deposit the same number of shares (the "Timber Additional Units" and together with the Timber Initial Units the
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"Timber Funding Units") of Timber units into escrow with an escrow agent for the benefit of the Investors, to be exchanged for BioPharmX common stock at the Effective Time, and to be delivered, in whole or in part, based on the formula set forth in the paragraph that follows, out of escrow to the Investors if 85% of the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on NYSE American during the first ten trading days immediately following the closing date of the Timber Funding (which will be the same date as the Merger) (the "Closing Date") is lower than the effective price per share paid by the Investors for the Converted Initial Shares (as defined below), and (ii) on the tenth trading day following the Closing Date (the "Warrant Closing Date"), BioPharmX will issue to the Investors (x) Series A warrants to purchase shares of BioPharmX common stock, as further described below (the "Series A Warrants") and (y) Series B warrants to purchase shares of BioPharmX common stock, as further described below (the "Series B Warrants", together with the Series A Warrants, the "Investor Warrants" and, together with the Timber Funding Shares, the "Purchased Securities").
As a result of the Merger, at the Effective Time, each Timber Initial Unit will automatically be converted into the right to receive a number of shares of BioPharmX common stock equal to the exchange ratio (the "Converted Initial Shares"). Further, at the Effective Time, each Timber Additional Unit placed into escrow with the escrow agent will automatically be converted into the right to receive a number of shares of BioPharmX common stock equal to the exchange ratio (the "Converted Additional Shares"). The number of Converted Additional Shares deliverable out of escrow to each Investor will be determined on the Warrant Closing Date by subtracting (i) the number of Converted Initial Shares issued to the Investor from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor by (b) 85% of the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on NYSE American during the first ten trading days immediately following the Closing Date, subject to the Floor Price (as defined below). Any Converted Additional Shares not deliverable to the Investors as of the Warrant Closing Date based on the foregoing formula will be returned to BioPharmX as treasury shares and cancelled. The lower of (x) the effective initial purchase price per Converted Initial Share and (y) the number obtained by the formula in clause (b) above, subject to the Floor Price, is called the "Final Purchase Price."
Series A Warrants
The Series A Warrants will be issued on the Warrant Closing Date, will have an initial exercise price per share equal to 125% of the Final Purchase Price, will be immediately exercisable and will have a term of five years from the date of issuance. The Series A Warrants issued to each Investor will initially be exercisable for an amount of BioPharmX common stock equal to 75% of the sum of (i) the number of Converted Initial Shares issued to the Investor, (ii) the number of Converted Additional Shares delivered or deliverable to the Investor as of the Warrant Closing Date and (iii) the number of shares, if any, underlying the Series B Warrants held by the Investor as of the Warrant Closing Date. The Series A Warrants will have full ratchet anti-dilution price protection with respect to future issuances of securities at a price below the exercise price of the Series A Warrants through the second anniversary of the issuance (and then weighted average anti-dilution thereafter) and a Black Scholes provision for fundamental transactions.
Series B Warrants
The Series B Warrants will be issued to each Investor on the Warrant Closing Date, and each Investor's Series B Warrants will have an exercise price per share of $0.001, will be immediately exercisable and will expire on the day following the later to occur of (i) the Reservation Date (as defined below), and (ii) the date on which the Investor's Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. Each
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Investor's Series B Warrants will be initially exercisable for an amount of BioPharmX common stock equal to the number (if positive) obtained by subtracting (i) the sum of (a) the number of Converted Initial Shares issued to the Investor and (b) the number of Converted Additional Shares delivered or deliverable to the Investor as of the Warrant Closing Date, from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor by (b) 85% of the average of the five lowest volume-weighted average trading prices of a share of BioPharmX common stock on NYSE American during the first ten trading days immediately following the Warrant Closing Date, subject to the Floor Price. The "Reservation Date" means the forty-fifth (45th) trading day immediately following the second anniversary of the Warrant Closing Date.
Additionally, every ninth trading day up to and including the 45th trading day (each, a "Reset Date") following (i) the 15th trading day immediately following the Warrant Closing Date and (ii) every 15th trading day thereafter (each such date provided in the foregoing clauses (i) and (ii), an "End Reset Measuring Date") (except if on such date (1) the holder cannot freely sell any Registrable Securities (as defined below) pursuant to a resale registration statement and (2) the holder cannot sell any Registrable Securities without restriction or limitation pursuant to Rule 144 of the Securities Act ("Rule 144"), and provided that no date following the occurrence of a Satisfaction Event (as defined below) will be deemed an End Reset Measuring Date, and provided further that no such date will be deemed an End Reset Measuring Date if an End Reset Measuring Date has previously occurred and either (1) if the holder was able to then freely sell any Registrable Securities pursuant to a resale registration statement in accordance with such prior End Reset Measuring Date, such ability continued uninterrupted through and including the applicable date of determination or (2) if the holder was able to freely sell any Registrable Securities without restriction or limitation pursuant to Rule 144 in accordance with such prior End Reset Measuring Date, such ability continued uninterrupted through and including the applicable date of determination) (such 45 trading day period, the "Reset Period" and each such 45th trading day after (i) or (ii), the "End Reset Date"):
"Satisfaction Event" means (1) all Registrable Securities are able to be freely sold without any restriction or limitation by the holder at all times during the 45 trading day period beginning on, and including, any End Reset Measuring Date either (a) pursuant to a resale registration statement or (b) pursuant to Rule 144; or (2) the Reservation Date has occurred.
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Examples of the dilution scenarios are contained in "Risk FactorsBioPharmX and Timber security holders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger and the Timber Funding" beginning on page 25.
In connection with the Timber Funding, BioPharmX entered into a Registration Rights Agreement with the Investors (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, BioPharmX is required to file an initial resale registration statement with respect to shares of BioPharmX common stock held by or issuable to the Investors pursuant to the Investor Warrants and Bridge Warrants (the "Registrable Securities"), within 15 trading days after the Closing Date. Additionally, BioPharmX is required to file additional resale registration statements with respect to the Registrable Securities within 15 days of each End Reset Date, to the extent that such Registrable Securities are not already registered for resale on a prior registration statement. BioPharmX will be required to use its commercially reasonable efforts to maintain the effectiveness of these registration statements until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by the applicable registration statement(s) without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) or (ii) the date on which the Investors have sold all of the Registrable Securities covered by the applicable registration statement(s).
In connection with the Timber Funding, BioPharmX and Timber will enter into lock-up agreements (the "Financing Lock-Up Agreements") with each officer, director or other person that will be subject to Section 16 of the Exchange Act, with respect to BioPharmX immediately following the consummation of the Merger (the "Financing Lock-Up Parties"), pursuant to which each of the Financing Lock-Up Parties will agree that until the date that is 90 calendar days after the Trigger Date (as defined in the section entitled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), subject to certain customary exceptions, such Financing Lock-Up Party will not and will cause its affiliates not to (A) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase, make any short sale or otherwise dispose of or agree to dispose of, directly or indirectly, any shares of BioPharmX common stock or common stock equivalents, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to any shares of BioPharmX common stock or common stock equivalents owned directly by the Financing Lock-Up Parties (including holding as a custodian) or with respect to which the undersigned has beneficial ownership within the rules and regulations of the Securities and Exchange Commission (collectively, the "Subject Shares"), or (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Subject Shares, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of shares of BioPharmX common stock or other securities, in cash or otherwise, (C) make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of BioPharmX common stock or common stock equivalents or (D) publicly disclose the intention to do any of the foregoing.
Pursuant to that certain engagement letter between Chardan Capital Markets ("Chardan") and Timber, Timber will pay to Chardan $2.5 million in cash promptly following the Effective Time.
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Interests of Certain Directors, Officers and Affiliates of BioPharmX and Timber
In considering the recommendation of the BioPharmX Board with respect to the issuance of common stock of BioPharmX pursuant to the Merger Agreement and the other matters to be acted upon by BioPharmX's stockholders at the BioPharmX special meeting, BioPharmX's stockholders should be aware that certain members of the BioPharmX Board and executive officers of BioPharmX have interests in the Merger that may be different from, or in addition to, interests they have as BioPharmX's stockholders.
As of March 23, 2020, BioPharmX's directors and executive officers beneficially owned less than 1% of the outstanding shares of common stock of BioPharmX. As of March 23, 2020, BioPharmX's directors and officers beneficially owned, in the aggregate, 444,164 options and warrants to purchase BioPharmX's common stock.
The compensation arrangements with BioPharmX's officers and directors are discussed in greater detail in the section entitled "The MergerInterests of BioPharmX's Directors and Executive Officers in the Merger" in this proxy statement/prospectus/information statement.
In considering the recommendation of the Timber Board with respect to approving the Merger and related transactions by written consent, Timber's members should be aware that managers and employees of Timber are expected to become directors, employees and/or executive officers of BioPharmX after the closing of the Merger.
As of March 23, 2020, Timber's managers and executive officers beneficially owned 1.3% of the outstanding units of Timber, all of which will be converted into shares of common stock of BioPharmX in connection with the closing of the Merger and the managers and executive officers will own less than 1% of the outstanding common stock of BioPharmX following the Merger.
The compensation arrangements with Timber's officers and directors are discussed in greater detail in the section entitled "The MergerInterests of Timber Managers and Officers in the Merger" in this proxy statement/prospectus/ information statement.
Both BioPharmX and Timber are subject to various risks associated with their businesses and their respective assets. In addition, the Merger poses a number of risks to each company and its respective stockholders and members, including that the Merger may not be completed. These risks and others are discussed in greater detail under the section entitled "Risk Factors" in this proxy statement/prospectus/information statement. BioPharmX and Timber encourage you to read and consider all of these risks carefully.
In the United States, BioPharmX must comply with applicable federal and state securities laws and the rules and regulations of the NYSE American market ("NYSE American") in connection with the issuance of shares of BioPharmX's common stock and the filing of this proxy statement/prospectus/information statement with the SEC.
The approval by NYSE American of (i) the continued listing of the BioPharmX common stock on the NSYE American market following the Effective Time and (ii) the listing of the shares of BioPharmX common stock being issued in connection with the Merger on NYSE American at or prior to the Effective Time are conditions to the closing of the Merger. Timber has agreed to cooperate with BioPharmX to furnish to BioPharmX all information concerning Timber and its unitholders that may
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be required or reasonably requested in connection with NYSE American. If such approvals are obtained, BioPharmX anticipates that the combined company's common stock will be listed on NYSE American under the trading symbol "TMBR" following the closing of the Merger.
On March 24, 2020, BioPharmX received a letter from the NYSE American stating that the NYSE American is beginning delisting proceedings against BioPharmX. BioPharmX intends to appeal the decision.
BioPharmX and Timber may be subject to potential future litigation. For example, on March 16, 2020, Michael Derby, Timber's Chairman of the Board, received a letter from counsel for his former employer alleging that Mr. Derby breached his fiduciary duties to his former employee and certain terms of his contracts with his former employer, including allegations that he has inappropriately competed and usurped his former employer's corporate opportunities in the field of orphan dermatology with respect to the products being developed by Timber. For information regarding this threatened claim, see "Risk FactorsLitigation may require BioPharmX or Timber to incur significant costs or suffer management distraction, and may delay or enjoin the Merger or affect the combined company's business" beginning on page 27. Further, on March 4, 2020, BioPharmX received a letter from a law firm alleging that the disclosure in this proxy statement/prospectus was inadequate, which BioPharmX disputes. There can be no assurance that such matters will not result in future litigation against BioPharmX or Timber prior the completion of the Merger or against the combined company following the Merger.
Anticipated Accounting Treatment
The Merger will be recorded by BioPharmX using the reverse asset acquisition method of accounting. For accounting purposes, Timber is considered to be acquiring BioPharmX in the Merger.
Holders of BioPharmX's common stock are not entitled to appraisal rights in connection with the Merger. Members of Timber are not entitled to appraisal rights in connection with the Merger under Delaware law. For more information about such rights, see the section entitled "The MergerAppraisal Rights" in this proxy statement/prospectus/information statement.
Comparison of Equity Holder Rights
BioPharmX is incorporated and Timber is organized under the laws of the state of Delaware. Following the Merger, stockholders of BioPharmX, including former members of Timber, will be governed by the Delaware General Corporation Law ("DGCL"). If the Merger is completed, Timber's members will become stockholders of BioPharmX, and their rights will be governed by the DGCL, BioPharmX's certificate of incorporation, as amended (as set forth herein), and the bylaws of BioPharmX. The rights of BioPharmX's stockholders as contained in such charter documents may differ from the rights of Timber's members under Timber's certificate of formation and limited liability company agreement, as amended, as more fully described in the section entitled "Comparison of Rights of Holders of BioPharmX stock and Timber securities" in this proxy statement/prospectus/information statement.
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SELECTED HISTORICAL AND UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL DATA
The following tables present summary historical financial data for BioPharmX and Timber, summary unaudited pro forma condensed financial data for BioPharmX and Timber, and comparative historical and unaudited pro forma per share data for BioPharmX and Timber.
Selected Historical Financial Data of BioPharmX
The selected financial data as of January 31, 2020 and 2019 and for the years ended January 31, 2020 and 2019 are derived from the BioPharmX audited consolidated financial statements prepared using accounting principles generally accepted in the United States ("U.S. GAAP") which are included in this proxy statement/prospectus/information statement. The financial data should be read in conjunction with "BioPharmX Management's Discussion and Analysis of Financial Condition and Results of Operations" and BioPharmX's consolidated financial statements and related notes appearing elsewhere in this proxy statement/prospectus/information statement. BioPharmX's historical results are not necessarily indicative of results to be expected in any future period (all numbers are in thousands, except for share and per share data).
|
Year Ended January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019(1) | |||||
Revenues, net |
$ | | $ | 57 | |||
Costs of goods sold |
| 83 | |||||
| | | | | | | |
Gross margin |
| (26 | ) | ||||
| | | | | | | |
Operating expenses: |
|||||||
Research and development |
4,690 | 9,079 | |||||
Sales and marketing |
714 | 2,157 | |||||
General and administrative |
4,282 | 5,244 | |||||
| | | | | | | |
Total operating expenses |
9,686 | 16,480 | |||||
| | | | | | | |
Loss from operations |
(9,686 | ) | (16,506 | ) | |||
Change in fair value of warrant liability |
291 | 28 | |||||
Other expense, net |
(290 | ) | (778 | ) | |||
| | | | | | | |
Loss before provision for income taxes |
(9,685 | ) | (17,256 | ) | |||
Provision for income taxes |
2 | 2 | |||||
| | | | | | | |
Net loss and comprehensive loss |
$ | (9,687 | ) | $ | (17,258 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic and diluted net loss per share |
$ | (0.75 | ) | $ | (2.23 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Shares used in computing basic and diluted net loss per share |
12,921,000 | 7,727,000 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Balance Sheet Data (in thousands) |
|||||||
Current assets: |
$ | 986 | $ | 3,385 | |||
Property and equipment, net and other assets |
$ | 1,144 | $ | 269 | |||
Total assets |
$ | 2,130 | $ | 3,654 | |||
Total liabilities |
$ | 2,469 | $ | 2,356 | |||
Total stockholders' equity (deficit) |
$ | (339 | ) | $ | 1,298 |
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Selected Historical Consolidated Financial Data of Timber
The selected consolidated financial data as of December 31, 2019 and for the period from February 26, 2019 (inception) to December 31, 2019 are derived from Timber's audited consolidated financial statements prepared using U.S. GAAP, which are included in this proxy statement/prospectus/information statement. These historical results are not necessarily indicative of results to be expected in any future period. The selected consolidated financial data should be read in conjunction with Timber's consolidated financial statements and the related notes to those statements included in this proxy statement/prospectus/financial statement and "Timber Management's Discussion and Analysis of Financial Condition and Results of Operations."
(in thousands) |
For the Period from February 26, 2019 (Inception) through December 31, 2019 |
|||
---|---|---|---|---|
Grant revenues |
$ | 271 | ||
| | | | |
Operating costs and expenses |
||||
Research and development |
$ | 1,749 | ||
Research and developmentlicense acquired |
1,070 | |||
Selling, general and administrative |
489 | |||
| | | | |
Total operating expenses |
3,308 | |||
| | | | |
Loss from operations |
(3,037 | ) | ||
| | | | |
Other expense |
||||
Loss on foreign currency exchange |
| |||
| | | | |
Total other expense |
| |||
| | | | |
Net loss |
$ | (3,037 | ) | |
| | | | |
| | | | |
| | | | |
(in thousands) |
December 31, 2019 |
|||
---|---|---|---|---|
ASSETS |
||||
Current assets |
||||
Cash |
$ | 57 | ||
Prepaid expenses |
33 | |||
| | | | |
Total current assets |
90 | |||
| | | | |
Total assets |
$ | 90 | ||
| | | | |
| | | | |
| | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
Current liabilities |
||||
Accounts payable |
$ | 501 | ||
Accrued expenses |
215 | |||
License payable |
750 | |||
| | | | |
Total current liabilities |
1,466 | |||
| | | | |
Total liabilities |
1,466 | |||
| | | | |
Commitments and contingencies |
||||
Members' deficit |
||||
Members equity |
1,699 | |||
Accumulated deficit |
(3,075 | ) | ||
| | | | |
Total members' deficit |
(1,376 | ) | ||
| | | | |
Total liabilities and members' deficit |
$ | 90 | ||
| | | | |
| | | | |
| | | | |
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Selected Unaudited Pro Forma Condensed Financial Data of BioPharmX and Timber
To consummate the Merger, BioPharmX's stockholders must approve the proposed Reverse Stock Split. Per the terms of the Merger Agreement, at the closing of the Merger, each outstanding Timber common units will be converted into the right to receive shares of BioPharmX common stock (after giving effect to a reverse stock split of common stock). These unaudited pro forma condensed combined financial statements have been retroactively restated to reflect the impact of the proposed Reverse Stock Split, at an estimated ratio of 1-for-25.
The following selected unaudited pro forma condensed combined financial data was prepared using the reverse asset acquisition method of accounting under U.S. GAAP. For accounting purposes, Timber was determined to be the accounting acquirer based upon the terms of the Merger and other factors including (i) Timber unitholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for BioPharmX common stock are expected to own approximately 88.5% of BioPharmX immediately following the effective time of the Merger, (ii) Timber will hold all the board seats of the combined company and (iii) Timber's management will hold all key positions in the management of the combined company.
The BioPharmX and Timber combined balance sheet data assume that the Merger took place on December 31, 2019 and combines the BioPharmX historical balance sheet as of January 31, 2020 and the Timber historical balance sheet as of December 31, 2019. The BioPharmX and Timber unaudited pro forma condensed combined statements of operations data assume that the Merger took place as of February 26, 2019 and combines the historical results of operations for BioPharmX for the year ended January 31, 2020 and Timber for the period from February 26, 2019 (inception) to December 31, 2019.
The selected unaudited pro forma condensed combined financial data are presented for illustrative purposes only and are not necessarily indicative of the combined financial position or results of operations of future periods or the results that actually would have been realized had the entities been a single entity during these periods. The selected unaudited pro forma condensed combined financial data as of and for the period from February 26, 2019 (inception) to December 31, 2019 are derived from the unaudited pro forma condensed combined financial information and should be read in conjunction with that information. For more information, please see the section entitled "Unaudited Pro Forms Condensed Combined Financial Information" in this proxy statement/prospectus/information statement.
The unaudited pro forma condensed combined financial information assumes that, at the Effective Time, each unit of Timber will be converted into the right to receive shares of BioPharmX's common stock such that, immediately following the Effective Time, BioPharmX's stockholders as of immediately prior to the Effective Time are expected to own approximately 11.5% of the outstanding common stock of BioPharmX, and Timber's members (including holders of VARs and any investors providing the Timber Funding) as of immediately prior to the Effective Time are expected to own (or have the right to receive) approximately 88.5% of the outstanding common stock of BioPharmX.
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The selected unaudited pro forma condensed combined financial data include the proceeds of the Timber Funding, the receipt of which is a condition to the closing of the Merger.
in thousands, except share and per share data
|
Pro Forma | |||
---|---|---|---|---|
Selected Unaudited Pro Forma Condensed Combined Statement of OperationsPeriod Ended December 31, 2019 |
||||
Grant revenue |
$ |
271 |
||
Loss from operations |
(12,723 | ) | ||
Other expense |
1 | |||
Net loss |
$ | (12,724 | ) | |
Earnings per share from continuing operations |
$ | (2.82 | ) | |
Weighted average shares outstandingbasic and diluted |
4,516,912 | |||
Selected Unaudited Pro Forma Condensed Combined Statement of Financial Position as of December 31, 2019 |
||||
Total current assets |
$ |
22,326 |
||
Total assets |
23,470 | |||
Total current liabilities |
5,316 | |||
Total liabilities |
6,101 | |||
Total stockholders' equity |
$ | 17,369 |
Comparative Historical and Unaudited Pro Forma Share Data
The information below reflects the historical net loss and book value of BioPharmX's common stock and the historical net loss and book value per share of BioPharmX common stock and the historical net loss and book value per unit of Timber membership units in comparison with the unaudited pro forma net loss and book value per share after giving effect to the proposed Merger of BioPharmX and Timber on a pro forma basis. The unaudited pro forma net loss and book value per share have been retroactively restated to reflect the impact of the proposed Reverse Stock Split, at an estimated ratio of 1-for-25.
The tables below should be read in conjunction with the audited consolidated financial statements of BioPharmX included in this proxy statement/prospectus/information statement and the related notes and the audited consolidated financial statements of Timber included in this proxy statement/prospectus/information statement and the related notes and the unaudited pro forma condensed combined financial information and notes related to such financial information included elsewhere in this proxy statement/prospectus/information statement.
|
Period Ended December 31, 2019 |
|||
---|---|---|---|---|
BioPharmX Historical Per Share Data(1) |
||||
Net loss per share, basic and diluted |
$ | (18.74 | ) | |
Book value per share |
$ | (0.56 | ) | |
Timber Historical Per Unit Data |
||||
Net loss per unit, basic and diluted |
N/A | |||
Book value per unit |
N/A | |||
Combined Organization Per Share Data |
||||
Net loss per share, basic and diluted |
$ | (2.82 | ) | |
Book value per share |
$ | 3.85 |
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The combined organization will be faced with a market environment that cannot be predicted and that involves significant risks, many of which will be beyond its control. In addition to the other information contained in this proxy statement/prospectus/information statement, you should carefully consider the material risks described below before deciding how to vote your shares of stock. In addition, you should read and consider the risks associated with BioPharmX's business because these risks may also affect the combined organizationthese risks can be found under the heading "Risk FactorsRisks Related to BioPharmX" in this proxy statement/prospectus/information statement. You should also read and consider the other information in this proxy statement/prospectus/information statement. Please see the section entitled "Where You Can Find More Information" in this proxy statement/prospectus/information statement.
The formula determining the number of shares to be issued in the Merger Agreement is not adjustable based on the market price of BioPharmX's common stock, so the Merger consideration at the closing of the Merger may have a greater or lesser value than at the time the Merger Agreement was signed.
The Merger Agreement has set the formula for determining the number of shares to be issued to Timber, and the formula is based on the outstanding membership ownership of Timber and the outstanding common stock of BioPharmX, in each case immediately prior to the closing of the Merger described under the heading "The MergerMerger Consideration". Applying the formula in the Merger Agreement, the former Timber security holders (including holders of VARs and any investors providing the Timber Funding) immediately before the Merger are expected to own (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX immediately following the Merger, and the stockholders of BioPharmX immediately before the Merger are expected to own approximately 11.5% of the outstanding capital stock of BioPharmX immediately following the Merger, subject to certain adjustments.
Any changes in the market price of BioPharmX's common stock before the completion of the Merger will not affect the number of shares of BioPharmX's common stock issuable to Timber's members pursuant to the Merger Agreement. Therefore, if before the completion of the Merger the market price of BioPharmX's common stock declines from the market price on the date of the Merger Agreement, then Timber's members could receive Merger consideration with substantially lower value than the value of such Merger consideration on the date of the Merger Agreement. Similarly, if before the completion of the Merger the market price of BioPharmX's common stock increases from the market price of BioPharmX's common stock on the date of the Merger Agreement, then Timber's members could receive Merger consideration with substantially greater value then the value of such Merger consideration on the date of the Merger Agreement. The Merger Agreement does not include a price-based termination right. Because the formula does not adjust as a result of changes in the market price of BioPharmX's common stock, for each one percentage point change in the market price of BioPharmX's common stock, there is a corresponding one percentage point rise or decline, respectively, in the value of the total Merger consideration payable to Timber's members pursuant to the Merger Agreement.
The post-merger holdings of current BioPharmX stockholders may be diluted
Under the Merger Agreement, the amount of securities to be issued to Timber's members may be adjusted under certain circumstances. There may be an adjustment if BioPharmX exceeds the budget agreed to between BioPharmX and Timber between the date of the Merger Agreement and the closing of the Merger.
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BioPharmX and Timber securityholders may not realize a benefit from the Merger commensurate with the ownership dilution they will experience in connection with the Merger and the Timber Funding.
If the combined company is unable to realize the full strategic and financial benefits currently anticipated from the Merger, BioPharmX and Timber securityholders will have experienced substantial dilution of their ownership interests in their respective companies, including as a result of the Timber Funding, without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent the combined company is able to realize only part of the strategic and financial benefits currently anticipated from the Merger and the Timber Funding.
For illustrative purposes, what follows are three potential scenarios of the dilution that stockholders in the combined company may face as a result of the Timber Funding as of the Warrant Closing Date, assuming different market prices of the BioPharmX common stock on the NYSE American. The maximum amount of shares of BioPharmX common stock that could be issuable upon the exercise of the Investor Warrants is the same amount whether determined on the Warrant Closing Date or on any Reset Date, due to the application of the Floor Price on all such dates.
Using 17,061,287, the number of securities of BioPharmX outstanding or assumed to be outstanding as of February 29, 2020, the number of Converted Initial Shares to be issued to the Investors at the Effective Time in exchange for the Timber Initial Units would be 24,693,169, resulting in an effective price per share (based on the aggregate Purchase Price) of approximately $1.0124. In addition, 24,693,169 Converted Additional Shares would be issued to the escrow agent at such time in exchange for the Timber Additional Units. Further, the Floor Price would be $0.0675 per share.
If on the Warrant Closing Date the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on the NYSE American during the first ten trading days immediately following the Closing Date is equal to $1.191 (85% of which is $1.0124) or more, then no Converted Additional Shares would be deliverable to the Investors from escrow, all of the outstanding Converted Additional Shares held by the escrow agent on such date would be returned to and cancelled by the combined company, the Series A Warrants would be exercisable for 18,519,877 shares with an exercise price of $1.2655 per share and the Series B Warrants would be exercisable for zero shares, with both warrants subject to Resets on subsequent Reset Dates. In such case, the pre-merger holders of BioPharmX common stock and other equity securities of BioPharmX would own 14.05% of the fully-diluted combined company equity securities (not including the Series A Warrants or the Bridge Warrants), the pre-merger holders of Timber units and holders of Timber VARs (not including the Investors) would own 65.61% of such amount, and the Investors would own 20.34% of such amount. Taking into account the shares of BioPharmX common stock underlying the Series A Warrants and the Bridge Warrants, such percentages would be 11.78%, 54.99% and 33.23%, respectively.
If on the Warrant Closing Date the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on the NYSE American during the first ten trading days immediately following the Closing Date is equal to $0.75 (85% of which is $0.6375), then 14,522,517 Converted Additional Shares would be deliverable to the Investors from escrow, 10,170,651 of the remaining Converted Additional Shares in escrow on such date would be returned to and cancelled by the combined company, the Series A Warrants would be exercisable for 29,411,765 shares with an exercise price of $0.7969 per share and the Series B Warrants would be exercisable for zero shares, with both warrants subject to Resets on subsequent Reset Dates. In such case, the pre-merger holders
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of BioPharmX common stock and other equity securities of BioPharmX would own 12.55% of the fully-diluted combined company equity securities (not including the Series A Warrants or the Bridge Warrants), the pre-merger holders of Timber units and holders of Timber VARs (not including the Investors) would own 58.60% of such amount, the Investors would own 28.85% of such amount. Taking into account the shares of BioPharmX common stock underlying the Series A Warrants and the Bridge Warrants, such percentages would be 9.85%, 46.00% and 44.15%, respectively.
If on the Warrant Closing Date the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on the NYSE American during the first ten trading days immediately following the Closing Date is equal to $0.0675 (85% of which is $0.057, the estimated Floor Price) or lower, then all (24,693,169) of the Converted Additional Shares would be deliverable to the Investors from escrow, no Converted Additional Shares would be returned to and cancelled by the combined company, the Series A Warrants would be exercisable for 277,798,150 shares with an exercise price of $0.0844 per share and the Series B Warrants would be exercisable for 321,011,195 shares with an exercise price of $0.001 per share, this being the maximum amount issuable under such warrants, and therefore no increases upon subsequent Resets while the Floor Price still applies. In such case, the pre-merger holders of BioPharmX common stock and other equity securities of BioPharmX would own 3.65% of the fully-diluted combined company equity securities (not including the Series A Warrants or the Bridge Warrants), the pre-merger holders of Timber units and holders of Timber VARs (not including the Investors) would own 17.05% of such amount, the Investors would own 79.30% of such amount. Taking into account the shares of BioPharmX common stock underlying the Series A Warrants and the Bridge Warrants, such percentages would be 2.08%, 9.73% and 88.19%, respectively.
Failure to complete the Merger could significantly harm the market price of BioPharmX's common stock and negatively affect the future business and operations of both companies.
Each of BioPharmX and Timber will have incurred significant legal, financial, advisory, accounting, audit and other general operating expenses, which must be paid whether or not the Merger is completed. Further, if the Merger is not completed, it could significantly harm the market price of BioPharmX's common stock and raise serious doubt as to its ability to continue as an entity. In addition, if the Merger Agreement is terminated and the BioPharmX Board or the Timber Board determines to seek another business combination, there can be no assurance that either BioPharmX or Timber will be able to find a partner and close an alternative transaction on terms that are as favorable or more favorable than the terms set forth in the Merger Agreement.
The consummation of the transactions contemplated by the Merger Agreement is dependent upon BioPharmX and Timber obtaining all relevant and necessary approvals.
A condition to consummation of the Merger is that BioPharmX and Timber obtain certain approvals from third parties, including approval from NYSE to maintain the listing of the BioPharmX common stock on the NYSE American following the Merger and to list the shares of BioPharmX common stock being issued in the Merger. The listing of BioPharmX common stock on the NYSE American is subject to compliance with NYSE listing standards, including the requirement to have a market capitalization in excess of $50 million. There is no guarantee that BioPharmX will meet the $50 million market capitalization requirement or that it will be able to maintain compliance with all NYSE listing standards.
In addition, the stockholders of BioPharmX must approve the issuance of BioPharmX common stock pursuant to the Merger Agreement and the Financing Proposal. The Timber members must adopt the Merger Agreement and approve the Merger to be consummated pursuant thereto as well as the Financing Proposal. There can be no assurance that BioPharmX will be able to obtain all such relevant
26
consents and approvals on a timely basis or at all. Each of BioPharmX and Timber has incurred, and expects to continue to incur, significant costs and expenses in connection with the Merger. Any failure to obtain, or delay in obtaining, the necessary consents or approvals would prevent BioPharmX and Timber from being able to consummate, or delay the consummation of, the transactions contemplated by the Merger Agreement, which could materially adversely affect the business, financial condition and results of operations of BioPharmX and Timber, and, correspondingly, the combined company if the Merger is consummated. There is no guarantee that such approvals will be obtained or that such conditions will be satisfied.
Some BioPharmX officers and directors and officers and managers of Timber have interests in the Merger that are different from the stockholders of BioPharmX and members of Timber and that may influence them to support or approve the Merger without regard to the interests of the stockholders of BioPharmX or the members of Timber.
Certain officers and directors of BioPharmX and officers and managers of Timber participate in arrangements that provide them with interests in the Merger that are different from the interests of the stockholders of BioPharmX and members of Timber including, among others, the continued service as an officer or director of the combined organization, severance benefits, the acceleration of stock option vesting, continued indemnification and the potential ability to sell an increased number of shares of common stock of the combined organization in accordance with Rule 144 under the Securities Act of 1933, as amended. These interests, among others, may influence the officers and directors of BioPharmX and the officers and managers of Timber to support or approve the Merger. For more information concerning the interests of BioPharmX and Timber's respective officers, managers and directors, see the sections entitled "The MergerInterests of BioPharmX Directors and Executive Officers in the Merger" and "The MergerInterests of Timber Managers and Officers in the Merger."
Litigation may require BioPharmX or Timber to incur significant costs and suffer management distraction, and may delay or enjoin the Merger or affect the combined company's business.
BioPharmX and Timber may be subject to demands or litigation, whether or not the Merger is consummated. Such actions may create uncertainty relating to the Merger, delay or enjoin the Merger, or affect the combined company's business.
For instance, on March 4, 2020, BioPharmX received a letter from a law firm alleging that the disclosure in this proxy statement/prospectus/information statement was inadequate, which BioPharmX disputes.
Also, for instance, on March 16, 2019, Michael Derby, Timber's Chairman of the Board, received a letter, dated March 13, 2019 from counsel for Castle Creek Biosciences, LLC and Castle Creek Biosciences, Inc. (collectively, "Castle") alleging that Mr. Derby breached his fiduciary duties to Castle and certain terms of his contracts with Castle, including allegations that he has inappropriately competed and usurped Castle's corporate opportunities in the field of orphan dermatology with respect to the products being developed by Timber. The letter demands that Mr. Derby cease and desist from competing with Castle in the orphan dermatology field and threatens potential legal action if he does not.
Mr. Derby was formerly the Co-Founder and Chief Executive Officer of Castle until January 11, 2019 and served as a director of Castle until September 2019.
Mr. Derby denies the allegations in the March 13 letter and intends to vigorously defend against these charges if a legal action is brought against him or against Timber. At this time, Timber cannot predict whether Castle will commence litigation against Mr. Derby nor the effects of such litigation, nor whether Timber will become a party to such litigation. However, if Mr. Derby's services are lost to Timber or if Timber becomes a party to any litigation or if there were any adverse rulings with respect
27
to Timber's development programs, it could have a material adverse effect on Timber, its business, financial condition and results of operations.
The Timber Funding condition may not be satisfied.
One of the conditions to the obligations of BioPharmX under the Merger Agreement is that on or immediately prior to the closing of the Merger, Timber consummate the Timber Funding whereby Timber receives gross proceeds of no less than twenty million dollars ($20,000,000). No assurance can be given that all of the conditions to the consummation of the Timber Funding condition will be satisfied, or that Timber will be able to satisfy the Timber Funding condition. If the Timber Funding is not consummated, and if BioPharmX is not otherwise willing to waive the Timber Funding condition, the parties will not be able to consummate the Merger.
The market price of BioPharmX's common stock following the Merger may decline as a result of the Merger.
The market price of BioPharmX's common stock, after taking into account the reverse stock split, may decline as a result of the Merger for a number of reasons including if:
BioPharmX and Timber securityholders will have a reduced ownership and voting interest in, and will exercise less influence over the management of, the combined organization following the closing of the Merger as compared to their current ownership and voting interest in the respective companies.
After the completion of the Merger, the current securityholders of BioPharmX and Timber will own a smaller percentage of the combined organization than their ownership in the respective companies prior to the Merger. Immediately after the Merger, it is currently estimated that Timber securityholders (including holders of VARs and any investors providing the Timber Funding) will own (or have the right to receive) approximately 88.5% of the common stock of the combined organization and BioPharmX securityholders, whose shares of BioPharmX will remain outstanding after the Merger, will own approximately 11.5% of the combined organization. Consequently, securityholders of BioPharmX and Timber will be able to exercise less influence over the management and policies of the combined organization following the closing of the Merger than they currently exercise over the management and policies of their respective companies.
The combined company may need to raise additional capital by issuing securities or debt or thorough licensing or other arrangements, which may cause dilution to the combined company's stockholders or restrict the combined company's operations or impact its proprietary rights.
The combined company may be required to raise additional funds sooner than currently planned. If either BioPharmX or Timber hold less cash at the time of the closing of the Merger than the parties currently expect, or if short term cash flow at the time of the merger is more negative than currently anticipated, the combined company will need to raise additional capital sooner than expected. Additional financing may not be available to the combined company when needed or it may not be available on favorable terms. To the extent that the combined company raises additional capital by issuing equity securities, such an issuance may cause significant dilution to the combined company's stockholders' ownership and the terms of any new equity securities may have preferences over the
28
combined company's common stock. Any debt financing the combined company enters into may include covenants that restrict its operations. These restrictive covenants may include limitations on additional borrowing and specific restrictions on the use of the combined company's assets, as well as prohibitions on its ability to create liens, pay dividends, redeem its stock or make investments. In addition, if the combined company raises additional funds through licensing, partnering or other strategic arrangements, it may be necessary to relinquish rights to some of the combined company's technologies or product candidates and proprietary rights, or grant licenses on terms that are not favorable to the combined company.
Certain provisions of the Merger Agreement may discourage third parties from submitting alternative takeover proposals, including proposals that may be superior to the arrangements contemplated by the Merger Agreement.
The terms of the Merger Agreement prohibit BioPharmX from soliciting alternative takeover proposals or cooperating with persons making unsolicited takeover proposals, except in limited circumstances where the board of directors determines in good faith that an unsolicited alternative takeover proposal is or is reasonably likely to lead to a superior takeover proposal and that failure to cooperate with the proponent of that proposal would reasonably be likely to be inconsistent with the board's fiduciary duties.
Because the lack of a public market for Timber's securities makes it difficult to evaluate the value of such securities, the members of Timber may receive shares of BioPharmX's common stock in the Merger that have a value that is less than, or greater than, the fair market value of Timber's securities.
The outstanding securities of Timber are privately held and not traded in any public market. The lack of a public market makes it extremely difficult to determine the fair market value of Timber. Because the percentage of BioPharmX's common stock to be issued to Timber's members was determined based on negotiations between the parties, it is possible that the value of BioPharmX's common stock to be received by Timber's members will be less than the fair market value of Timber, or BioPharmX may pay more than the aggregate fair market value for Timber.
If the conditions to the Merger are not met, the Merger will not occur.
Even if the Merger is approved by the securityholders of BioPharmX and Timber, specified conditions must be satisfied or waived to complete the Merger. These conditions are set forth in the Merger Agreement and in the section entitled "The Merger AgreementConditions to the Completion of the Merger" in this proxy statement/prospectus/information statement. BioPharmX cannot assure you that all of the conditions will be satisfied or waived. If the conditions are not satisfied or waived, the Merger will not occur or will be delayed, and BioPharmX and Timber may each lose some or all of the intended benefits of the Merger.
The ownership of the combined company common stock is expected to be highly concentrated, which may prevent you and other stockholders from influencing significant corporate decisions and may result in conflicts of interest that could cause the combined company stock price to decline.
Executive officers and directors of the combined company and their affiliates are expected to beneficially own or control approximately 1.65% of the outstanding shares of the combined company common stock following the closing of the Merger. Accordingly, these executive officers, directors and their affiliates, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of the combined company assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of the combined company, even if such a change of control would benefit the other stockholders of the combined company. The
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significant concentration of stock ownership may adversely affect the trading price of the combined company's common stock due to investors' perception that conflicts of interest may exist or arise.
The historical unaudited pro forma condensed combined financial information may not be representative of our results after the Merger.
The historical unaudited pro forma condensed combined financial information included elsewhere in this proxy statement/prospectus/information statement has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the Merger been completed as of the date indicated, nor is it indicative of future operating results or financial position.
Risks Related to BioPharmX's Financial Position, Need for Additional Capital and Risks Related to the Merger
There is no assurance that the Merger will be completed in a timely manner or at all. If the Merger is not consummated, BioPharmX's business could suffer materially and BioPharmX's stock price could decline.
The closing of the Merger is subject to the satisfaction or waiver of a number of closing conditions, as described above, including the required approvals by BioPharmX and Timber securityholders and other customary closing conditions. If the conditions are not satisfied or waived, the Merger may be materially delayed or abandoned. If the Merger is not consummated, BioPharmX's ongoing business may be adversely affected and, without realizing any of the benefits of having consummated the Merger, BioPharmX will be subject to a number of risks, including the following:
If the Merger is not consummated, these risks may materialize and may adversely affect its business, financial condition and the market price of BioPharmX common stock.
If the Merger is not completed, BioPharmX may be unsuccessful in completing an alternative transaction on terms that are as favorable as the terms of the Merger with Timber, or at all, and BioPharmX may otherwise be unable to continue to operate its business. The BioPharmX Board may decide to pursue a dissolution and liquidation of BioPharmX. In such an event, the amount of cash available for distribution to its stockholders will depend heavily on the timing of such liquidation as well as the amount of cash that will need to be reserved for commitments and contingent liabilities.
While BioPharmX has entered into the Merger Agreement with Timber, the closing of the Merger may be delayed or may not occur at all and there can be no assurance that the Merger will deliver the
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anticipated benefits BioPharmX expects or enhance stockholder value. If BioPharmX is unable to consummate the Merger, the BioPharmX Board may elect to pursue an alternative strategy, one of which may be a strategic transaction similar to the Merger. Attempting to complete an alternative transaction like the Merger will be costly and time consuming, and BioPharmX can make no assurances that such an alternative transaction would occur at all. Alternatively, the BioPharmX Board may elect to continue its operations by starting a Phase 3 clinical trial for BPX-01 or BPX-04, which would require that BioPharmX obtain additional funding, which it does not currently believe could be completed on a timely basis, or the BioPharmX Board could instead decide to pursue a dissolution and liquidation of BioPharmX. In such an event, the amount of cash available for distribution to BioPharmX's stockholders will depend heavily on the timing of such decision, as with the passage of time the amount of cash available for distribution will be reduced as BioPharmX continues to fund its operations. In addition, if the BioPharmX Board were to approve and recommend, and BioPharmX's stockholders were to approve, a dissolution and liquidation of BioPharmX's company, BioPharmX would be required under Delaware corporate law to pay BioPharmX's outstanding obligations, including its $2.5 million secured Bridge Loan, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to BioPharmX's stockholders. BioPharmX's commitments and contingent liabilities may include severance obligations, regulatory, clinical and preclinical obligations, lease obligations and fees and expenses related to the Merger, dissolution or liquidation. As a result of this requirement, a portion of BioPharmX's assets would need to be reserved pending the resolution of such obligations. In addition, BioPharmX may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, the BioPharmX Board, in consultation with its advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of BioPharmX common stock could lose all or a significant portion of their investment in the event of a liquidation or dissolution of BioPharmX.
The issuance of shares of BioPharmX common stock to Timber securityholders in the Merger will significantly dilute the voting power of BioPharmX's current stockholders.
If the Merger is completed, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment provisions in the Investor Warrants sold in the Timber Funding (see the section titled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), each outstanding Timber common unit will be converted into the right to receive a number of shares of BioPharmX common stock equal to the exchange ratio. Immediately following the Merger, the former Timber securityholders (including holders of VARs and any investors providing the Timber Funding) immediately before the Merger are expected to own (or have the right to receive) approximately 88.5% of the BioPharmX common stock, and BioPharmX's securityholders immediately before the Merger are expected to own, or hold rights to acquire, approximately 11.5% of the BioPharmX common stock. The issuance of shares of BioPharmX common stock to Timber securityholders in the Merger will significantly reduce the relative voting power of each share of BioPharmX common stock held by BioPharmX's current stockholders. Consequently, BioPharmX's stockholders as a group will have significantly less influence over the management and policies of the combined company after the Merger than prior to the Merger.
BioPharmX has experienced losses since inception and anticipate that it will continue to incur losses, which makes it difficult to assess its future prospects and financial results.
BioPharmX is a specialty pharmaceutical company with a limited operating history. Pharmaceutical product development is a highly speculative and costly undertaking and involves a substantial degree of uncertainty. BioPharmX has never been profitable and, as of January 31, 2020, it had an accumulated deficit of $88.2 million and incurred net losses of $9.7 million and $17.3 million for the years ended January 31, 2020 and 2019, respectively.
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If the Merger and the transactions related thereto are not consummated, including the Timber Funding, BioPharmX will likely be required to wind-down and dissolve as BioPharmX would be required to pay all its debts and contractual obligations, including the Bridge Loan, and set aside certain reserves for potential future claims. While BioPharmX will also attempt to consummate a financing to allow it to continue as a going concern, based on its recent strategic process, BioPharmX does not believe that it would be able to consummate a financing on reasonable terms sufficient to obtain such additional financial resources.
If the Merger and the transactions related thereto are not completed including the Timber Funding, and BioPharmX is unable to raise sufficient additional funds for the development of its product candidates, whether through potential partnering or other strategic arrangements or otherwise, which it does not believe it would be able to do on reasonable terms, BioPharmX will likely determine to cease operations, wind-down and dissolve (whether in or out of a bankruptcy or court proceeding to do so).
If BioPharmX is unable to repay the Bridge Loan, the ownership of the secured assets held as collateral for the Bridge Loan could be transferred to Timber.
In connection with the Merger Agreement, BioPharmX and Timber entered into a Credit Agreement, dated as of January 28, 2020 (the "Credit Agreement"), pursuant to which Timber has agreed to make a bridge loan (the "Bridge Loan") to BioPharmX in an aggregate amount of $2.5 million, of which $700,000 is currently outstanding. The Bridge Loan is secured by a lien on all of BioPharmX's assets, and if BioPharmX is unable repay the Bridge Loan, the ownership of the secured assets held as collateral could be transferred to Timber.
If BioPharmX does not successfully complete the Merger and the transactions related thereto, including the Timber Funding, BioPharmX will need substantial additional funding, and will likely be unable to raise the capital necessary to complete a Phase 3 clinical trial, which would likely cause it to wind down and dissolve.
BioPharmX incurred a net loss of $9.7 million and $17.3 million for the years ended January 31, 2020 and 2019, respectively. As of January 31, 2020, it had cash and cash equivalents of $0.7 million and significant liabilities and obligations. If the Merger is not completed, based on BioPharmX's current operating plan, BioPharmX is expected to fund operations only for a relatively short period of time.
BioPharmX presented comprehensive BPX-01 Phase 2b clinical data for the treatment of inflammatory lesions of acne and received positive FDA feedback regarding its BPX-01 Phase 3 clinical trial plans. BioPharmX has completed a Phase 2b clinical trial for BPX-04 for the treatment of papulopustular rosacea. The development of its business will require substantial additional capital in the future to fund its ongoing operations and satisfy its obligations and liabilities. BioPharmX has historically relied upon both private and public sales of equity or debt securities to fund its operations. BioPharmX does not believe it can raise the significant capital required to continue operations, and it could be required to seek bankruptcy protection or other alternatives that would likely result in its stockholders losing some or all of their investment.
Risks Related to BioPharmX's Historical Business
Future discovery and preclinical development collaborations are important to BioPharmX. If BioPharmX is unable to enter into or maintain these collaborations, or if these collaborations are not successful, its business could be adversely affected.
For some of the BioPharmX product candidates, BioPharmX may decide to collaborate with pharmaceutical and biotechnology companies for development of products in the future. It may seek to enter into enter into a strategic collaboration to fund the continued development of BPX-01 or BPX-04. BioPharmX faces significant competition in seeking appropriate collaborators. Its ability to reach a definitive agreement for any collaboration will depend, among other things, upon its assessment
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of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. It may not succeed in its efforts to establish a development collaboration or other alternative arrangements for BPX-01 or BPX-04 because third parties may not view these product candidates as having the requisite potential to demonstrate safety and efficacy or profitability. If BioPharmX is unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, it may have to curtail the development of a product candidate, reduce or delay its development program on one or more of its other development programs, delay its potential development schedule or reduce the scope of research activities, or decrease its expenditures and undertake discovery or preclinical development activities at its own expense. If it fails to enter into collaborations and does not have sufficient funds or expertise to undertake the necessary development activities, it may not be able to further develop its product candidates or continue to develop its product candidates and its business may be materially and adversely affected.
Future collaborations it may enter into may involve the following risks:
Additionally, subject to its contractual obligations to BioPharmX, if a collaborator is involved in a business combination, the collaborator might deemphasize or terminate the development of any of its
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product candidates. If one of BioPharmX's collaborators terminates its agreement with BioPharmX, BioPharmX may find it more difficult to attract new collaborators and its perception in the business and financial communities could be adversely affected.
If BioPharmX is unable to maintain its collaborations, development of its product candidates could be delayed, and it may need additional resources to develop them. All of the risks relating to product development, regulatory approval and commercialization described in this prospectus also apply to the activities of its collaborators.
BioPharmX has deemed there to be substantial doubt about its ability to continue as a going concern, and in order to fund its operations and execute its business plan it will require additional financing.
Since inception, BioPharmX has experienced recurring operating losses and negative cash flows and it expects to continue to generate operating losses and consume significant cash resources for the foreseeable future. Without additional financing, these conditions raise substantial doubt about its ability to continue as a going concern, meaning that it may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. As a result, its independent registered public accounting firm included an explanatory paragraph in their report on its consolidated financial statements for the years ended January 31, 2020 and 2019 with respect to this uncertainty. Such an opinion may materially and adversely affect the price per share of its common stock and/or otherwise limit its ability to raise additional funds through the issuance of debt or equity securities or otherwise. Further, the perception that it may be unable to continue as a going concern may impede its ability to raise additional funds or operate its business due to concerns regarding its ability to discharge its contractual obligations.
BioPharmX has prepared its condensed consolidated financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Its consolidated financial statements for the years ended January 31, 2020 and 2019 do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. Without additional funds, however, it may be unable to continue as a viable entity, in which case its stockholders may lose all or some of their investment in BioPharmX.
The terms of certain of BioPharmX's prior registered direct offerings may materially and adversely impact its ability to obtain additional financing in the future.
BioPharmX is subject to certain restrictions and obligations in connection with its registered direct offerings, or RDOs, that were consummated in September 2016, April 2017, July 2017, November 2017 and November 2018, which may materially and adversely affect its ability to obtain additional financing in the future. These restrictions and obligations include:
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BioPharmX has also made various representations and warranties to the RDO investors in connection with the RDO Transaction Documents, including those related to solvency, no integrated offerings, maintenance of its stock exchange listing, internal controls, and absence of liens, among others. In the event any of its representations or warranties in the RDO Transaction Documents are determined to be inaccurate, or if BioPharmX is deemed to have otherwise violated any provisions of the RDO Transaction Documents, it may be found to be in breach of the RDO Transaction Documents. This in turn may result in litigation against BioPharmX, which could be costly and time-consuming, divert management's attention and resources, damage its reputation and otherwise harm its business, results of operations and financial condition.
BioPharmX's business is dependent on the successful development, regulatory approval and commercialization of its product candidates, in particular BPX-01 and BPX-04.
BioPharmX's portfolio of product candidates includes two clinical-stage drug product candidates, BPX-01, a topical antibiotic for the treatment of inflammatory lesions of acne vulgaris, and BPX-04, a topical antibiotic for the treatment of papulopustular rosacea. The success of its business, including its ability to finance BioPharmX, form strategic partnerships and generate revenues in the future, will primarily depend on the successful development, regulatory approval and commercialization of these product candidates. In the future, it may become dependent on one or more of its early-stage product candidates or any of its product candidates that it may in-license, acquire or develop. The clinical and commercial success of its product candidates will depend on a number of factors, including the following:
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If BioPharmX is unable to achieve any of the above factors, many of which are beyond its control, in a timely manner or at all, it could experience significant delays or fail to obtain regulatory approvals or commercialize its product candidates. Even if it obtains the necessary regulatory approvals, it may never successfully commercialize any of its product candidates. Accordingly, it may not generate revenue through the sale of its product candidates or any future product candidates sufficient to continue operations.
BioPharmX has a limited operating history and has yet to obtain regulatory approvals for any of its product candidates, which makes it difficult to evaluate its future prospects and viability.
BioPharmX's operations to date have been primarily limited to researching and developing its product candidates and undertaking preclinical studies and clinical trials of its product candidates. BioPharmX has also not yet obtained regulatory approvals for any of its product candidates. Consequently, the ability to accurately assess and predict its future operating results or business prospects is more limited than if it had a longer operating history or FDA-approved products on the market. In November 2018, BioPharmX divested its VI2OLET dietary supplement, which was its only source of revenue to date.
BioPharmX has experienced significant turnover in its senior management, and if it fails to attract and retain management and other key personnel, it may be unable to continue to develop successfully or commercialize its product candidates or otherwise implement its business plan.
BioPharmX's ability to compete in the highly-competitive pharmaceutical industry depends upon its ability to attract and retain highly-qualified managerial, scientific, medical, sales and marketing and other personnel. BioPharmX is highly dependent on its management, including: its Chief Executive Officer and Principal Financial Officer, Steven Bosacki, and its Chief Accounting Officer, Joyce Goto. It does not maintain "key man" insurance policies on the lives of these individuals or the lives of any of its other employees. The loss of the services of any of these individuals, along with other key executives or employees, could impede, delay or prevent the successful development of its product pipeline, completion of its planned clinical trials, commercialization of its product candidates or in-licensing or acquisition of new assets and could negatively impact its ability to successfully implement its business plan. If it loses the services of any of these individuals, it might not be able to find suitable
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replacements on a timely basis or at all, and its business could be harmed as a result. In order to retain valuable employees at BioPharmX, in addition to salary and cash incentives, it provides stock options that vest over time. The value to employees of stock options that vest over time will be significantly affected by movements in its stock price that are beyond its control and may at any time be insufficient to counteract offers from other companies.
In addition, this past year, BioPharmX experienced significant turnover in its senior management ranks, including the departure of its former President, Anja Krammer in October 2018, the departure of former Executive Vice President and Chief Financial Officer, Greg Kitchener, in October 2018 and the departure of Kin Chan, Executive Vice President of Research and Technology in July 2019. In September 2018, it appointed David S. Tierney, MD, to serve as President and Chief Executive Officer, in October 2018, it appointed Joyce Goto, Vice President and Controller, to serve as its Principal Accounting Officer, and in July 2019, it appointed Steven Bosacki to serve as Chief Operating Officer. In January 2020, Dr. Tierney resigned and Mr. Bosacki was named as Chief Executive Officer and Principal Financial Officer. This lack of management continuity could adversely affect its ability to successfully manage its clinical trials and execute its growth strategy, as well as result in operational and administrative inefficiencies and added costs and may make recruiting for future management positions more difficult.
BioPharmX might not be able to attract or retain qualified management and other key personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in Campbell, California where it is headquartered. It could have difficulty attracting experienced personnel to BioPharmX and may be required to expend significant financial resources in its employee recruitment and retention efforts. Many of the other pharmaceutical companies with whom it competes for qualified personnel have greater and other resources, different risk profiles and longer histories in its industry than it does. They may also provide more diverse opportunities and better chances for career advancement. If BioPharmX is not able to attract and retain the necessary personnel to accomplish its business objectives, it may experience constraints that will harm its ability to implement its business strategy and achieve its business objectives.
In addition, BioPharmX has scientific and clinical advisors who assist us in formulating its development and clinical strategies. These advisors are not its employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, its advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with it.
BioPharmX's ability to utilize its net operating loss, or NOL, carryforwards and research and development income tax credit carryforwards may be limited.
BioPharmX has significant NOL carryforwards available to reduce future taxable income, if any, for federal and California state income tax purposes. If not utilized, both the federal and California state NOL carryforwards will begin expiring in 2030. Under Section 382 of the Internal Revenue Code of 1986, as amended, or Code, if a corporation undergoes an "ownership change," generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation's ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. It believes that, with the transactions that have occurred over the past three years, it may have triggered an "ownership change" limitation. BioPharmX has not conducted a formal NOL carryforward analysis. It may also experience ownership changes in the future as a result of subsequent shifts in its stock ownership. As a result, if it earns net taxable income, its ability to use its pre-change NOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOL carryforwards is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
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Risks Related to Development and Commercialization of BioPharmX Product Candidates and Regulatory Approval and Other Legal Compliance Matters
BioPharmX may be unable to obtain regulatory approval for its clinical-stage product candidates or other early-stage product candidates under applicable regulatory requirements. The FDA and foreign regulatory bodies have substantial discretion in the approval process, including the ability to delay, limit or deny approval of product candidates. The delay, limitation or denial of any regulatory approval would adversely impact commercialization, its potential to generate revenue, its business and its operating results.
BioPharmX is not permitted to market any of its current product candidates in the United States until it receives approval of a New Drug Application ("NDA") from the FDA. BioPharmX is also not permitted to market any of its current product candidates in any foreign countries until it receives the requisite approval from the applicable regulatory authorities of such countries. Failure to obtain such regulatory approvals will delay or prevent us from commercializing any of its current or future product candidates.
To gain approval to market a new drug, it must provide the FDA and/or foreign regulatory authorities with, among other things, extensive preclinical and clinical data that adequately demonstrates the safety and efficacy of the drug in its intended indication and information to demonstrate the adequacy of the manufacturing methods to assure the drug's identity, strength, quality and purity. The development and approval of new drug product candidates involves a long, expensive and uncertain process, and delay or failure can occur at any stage. A number of companies in the pharmaceutical and biopharmaceutical industries have suffered significant setbacks in clinical trials, including in Phase 3 clinical development, even after promising results in earlier preclinical studies or clinical trials. These setbacks have been caused by, among other things, observations during clinical trials regarding safety or efficacy, such as previously unreported adverse events. Success in preclinical testing and early clinical trials does not ensure success in later clinical trials, and the results of clinical trials by other parties may not be indicative of the results in trials it may conduct. Further, different results may be achieved depending upon which analysis population is used to analyze results. Regardless of the outcome of any Phase 2 trials, its Phase 3 trials, if commenced, may not be successful. For example, BioPharmX reported that findings on a secondary endpoint in its Phase 2b clinical trial of BPX-01, the reduction in Investigator's Global Assessment, or IGA, which was defined as the proportion of subjects with at least a two-grade reduction in IGA to clear "0" or almost clear "1", were not statistically significant. While the BPX-01 2% arm demonstrated a clear numerical trend compared to vehicle, the BPX-01 1% arm showed a smaller separation from vehicle. While this trial was not powered to demonstrate statistical significance for IGA and, therefore, IGA was not expected to be statistically significant, there is no guarantee that its Phase 3 trial, if commenced, will produce statistically significant results on IGA, which will serve as a co-primary endpoint with inflammatory lesion reduction despite its plans to adequately power the Phase 3 study to achieve this endpoint. In addition, topline results of a clinical trial do not necessarily predict final results. For example, the topline results of the Phase 2b clinical study of BPX-01 1% and 2% reported that both concentrations statistically significantly reduced inflammatory lesions, the primary endpoint. The information reflected its preliminary review of the topline primary efficacy results based solely upon information available to it at that time. Since topline reporting, adjustments for multiple comparisons were made, resulting in a change to the p-value for the 1% and 2% concentrations, rendering the results of the 1% concentration no longer statistically significant. It is always a risk that further review of results may change the conclusions drawn from the preliminary review to less positive results than it anticipated.
In the case of its topical product candidates, BPX-01 and BPX-04, BioPharmX is seeking to deliver sufficient concentrations of the API through the skin barrier to the targeted dermal tissue to achieve the intended therapeutic effect. The topical route of administration may involve new dosage forms, which can be difficult to develop and manufacture and may raise novel regulatory issues and result in development or review delays. For example, the antibiotic delivered in BPX-01 and BPX-04 is difficult
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to stabilize and prone to epimerization in most formulations and delivery systems and, as such, presents great challenges for transepidermal delivery. BioPharmX believes potential competitors have attempted to resolve these problems by stabilizing the antibiotic in certain lipophilic formulation, but the solutions either failed to adequately deliver the antibiotic or required overly high concentration (i.e., dosage) for clinical efficacy. As a result, safety and efficacy of BPX-01 and BPX-04 may be difficult to establish.
The FDA and foreign regulatory bodies have substantial discretion in the drug approval process, including the ability to delay, limit or deny approval of product candidates for many reasons. The FDA or the applicable foreign regulatory body may:
Any delay, limitation or denial of any regulatory approval would adversely impact commercialization, its potential to generate revenue, its business and its operating results.
Delays or difficulties in the enrollment of patients in clinical trials may result in additional costs and delays in BioPharmX's ability to generate significant revenues, and may delay or prevent its receipt of any regulatory approvals necessary to commercialize its planned and future products.
BioPharmX may not be able to initiate or continue clinical trials for its product candidates if it is unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In addition, some of its competitors have completed clinical trial and product registration for product candidates that treat
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the same indications as its product candidates, and patients who are otherwise eligible for its clinical trials may instead enroll in clinical trials of its competitors' product candidates.
Patient enrollment is affected by other factors including:
BioPharmX's inability to enroll a sufficient number of patients for its clinical trials would result in significant delays, could require it to abandon one or more clinical trials altogether and could delay or prevent its receipt of necessary regulatory approvals. Enrollment delays in its clinical trials may result in increased development costs for its product candidates, which would cause the value of BioPharmX to decline and impede its ability to obtain additional financing.
BioPharmX intends to pursue Section 505(b)(2) regulatory approval filings with the FDA for at least one of its product candidates. If the FDA concludes that certain of its product candidates fail to satisfy the requirements under Section 505(b)(2), or if the requirements for such product candidates under Section 505(b)(2) are not as it expects, the approval pathway for such product candidates may take significantly longer, cost substantially more and entail greater complications and risks than anticipated and, in either case, may not be successful. In addition, if under certain circumstances, exclusivity of competitors would delay approval of its product candidates, then it may pursue approval through the Section 505(b)(1) regulatory pathway, which may require us to conduct additional preclinical or clinical trials or obtain a right to reference the preclinical or clinical data of others.
BioPharmX is currently developing two product candidates, BPX-01 and BPX-04, for which it intends to seek FDA approval through the Section 505(b)(2) regulatory pathway, and may decide to seek FDA approval for other early-phase products through the Section 505(b)(2) regulatory pathway in the future. A Section 505(b)(2) NDA is a special type of NDA that enables the applicant to rely, in part, on the FDA's findings of safety and efficacy of an existing previously approved product, or published literature, in support of its application. Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Such filings involve significant filing costs, including filing fees.
BPX-01 and BPX-04 are a topical formulations of minocycline (Solodyn), a previously approved oral antibiotic. Reliance on safety findings made by the FDA in approving Solodyn, the antibiotic it will reference in its NDA, could expedite the development program for its product candidates by decreasing the amount of preclinical or clinical data that it would need to generate in order to obtain FDA approval. BPX-01's and BPX-04's route of administration and dosage form, however, differ from Solodyn's and, as a result, the FDA may not permit BioPharmX to use this approach to regulatory approval. If the FDA does not allow BioPharmX to pursue the Section 505(b)(2) regulatory pathway as anticipated, or if the Section 505(b)(2) regulatory pathway fails to significantly decrease the amount of testing it must conduct, it may need to conduct additional preclinical or clinical trials, provide additional data and information and meet additional standards to obtain regulatory approval. In such case, the time and financial resources required to obtain FDA approval for BPX-01 and BPX-04, or any other product candidate for which it seeks approval pursuant to the Section 505(b)(2) regulatory
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pathway in the future, and complications and risks associated with these product candidates, likely would increase substantially. Moreover, BioPharmX's inability to pursue the Section 505(b)(2) regulatory pathway could prevent it from introducing its product candidates into the market prior to its competitors, which could harm its competitive position and prospects. Further, even if the FDA allows BioPharmX to pursue the Section 505(b)(2) regulatory pathway, it cannot guarantee that it would ultimately lead to faster product development, and its product candidates may not receive the requisite approvals for commercialization.
In addition, notwithstanding the approval of a number of products by the FDA under Section 505(b)(2) over the last few years, certain competitors and others have objected to the FDA's interpretation of Section 505(b)(2). If the FDA's interpretation of Section 505(b)(2) is successfully challenged, the FDA may be required to change its Section 505(b)(2) policies and practices, which could delay or even prevent the FDA from approving any NDA that it submits under Section 505(b)(2).
Furthermore, the pharmaceutical industry is highly competitive, and Section 505(b)(2) NDAs are subject to special requirements designed to protect the patent rights of sponsors of previously approved drugs referenced in a Section 505(b)(2) NDA. As part of any NDA it would submit to the FDA, it would be required to make certifications to all patents listed in the Orange Book for Solodyn, the listed drug it intends to reference in its NDA. There are currently six patents listed in the Orange Book for Solodyn. If it makes a Paragraph IV certification to any of the patents listed in the Orange Book, those patent certifications may give rise to patent litigation and mandatory delays in approval of its NDA for up to 30 months depending on the outcome of any litigation. It is not uncommon for a manufacturer of an approved referenced product to file a citizen petition with the FDA seeking to delay approval of, or impose additional approval requirements for, pending competing products. If successful, such petitions can significantly delay, or even prevent, the approval of the new product. However, even if the FDA ultimately denies such a petition, the FDA may substantially delay approval while it considers and responds to the petition.
Furthermore, award of three-year exclusivity by FDA to a competitor with a Section 505(b)(2) NDA could delay approval of a product candidate of it submitted pursuant to Section 505(b)(2) of the FDC Act if the FDA were to determine that the products have overlapping conditions of approval, even if its Section 505(b)(2) NDA does not rely on the competing Section 505(b)(2) NDA. Alternatively, it may pursue approval through the Section 505(b)(1) regulatory pathway, which may require BioPharmX to conduct additional preclinical or clinical trials or obtain a right to reference the preclinical or clinical data of others. These alternatives may increase the time and/or financial resources required to obtain approval.
BioPharmX has limited experience in the conduct of clinical trials and has never obtained approval of any product candidates and may be unable to do so successfully.
As a company, BioPharmX has limited experience in conducting clinical trials or progressing a product candidate through to regulatory approval. In part because of this lack of experience, its clinical trials may require more time and incur greater costs than it anticipates. It cannot be certain that planned clinical trials will begin or conclude on time, if at all. Large-scale trials would require significant additional financial and management resources, and reliance on third-party clinical investigators, contract research organizations ("CROs") and/or consultants. Any performance failure on the part of such third parties could delay clinical development or delay or prevent it from obtaining regulatory approval or commercializing its current or future product candidates, depriving it of potential product revenue and resulting in additional losses.
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BioPharmX may choose not to continue developing or commercializing any of its product candidates at any time during development or after approval, which would reduce or eliminate its potential return on investment for those product candidates.
At any time, it may decide to discontinue the development or commercialization of any of its products or product candidates for a variety of reasons, including the appearance of new technologies that render its product obsolete, competition from a competing product or changes in or failure to comply with applicable regulatory requirements. If it terminates a program in which BioPharmX has invested significant resources, it will not receive any return on its investment, and it will have missed the opportunity to allocate those resources to potentially more productive uses.
Risks Related to BioPharmX's Intellectual Property
BioPharmX may not be able to obtain or enforce patent rights or other intellectual property rights that cover its product candidates and technologies that are of sufficient breadth to prevent third parties from competing against us.
BioPharmX's success with respect to its product candidates and technologies will depend in part upon its ability to obtain and maintain patent protection in both the United States and other countries, to preserve and protect its trade secrets and to prevent third parties from infringing upon its proprietary rights. Its ability to protect any of its product candidates from unauthorized or infringing use by third parties depends in substantial part upon its ability to obtain and maintain valid and enforceable patents.
BioPharmX's patent portfolio includes patent applications in the United States and other countries. Any patents that it could obtain may be narrow in scope and thus more easily circumvented by competitors. Further, in countries where it does not have granted patents, third parties may be able to make, use or sell products identical to or substantially similar to, its product candidates. Additionally, restrictive regulations governing the precise labeling of ingredients and percentages for supplements, the large number of manufacturers that produce products with many active ingredients in common and the rapid change and frequent reformulation of products may make patent protection impractical.
The patent application process, also known as patent prosecution, is expensive and time-consuming, and it and any future licensors and licensees may not be able to prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that it, or any future licensors or licensees, will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them. Therefore, these and any of its patent applications may not be prosecuted and enforced in a manner consistent with the best interests of its business. It is possible that defects of form in the preparation or filing of its patent applications may exist, or may arise in the future, such as with respect to proper priority claims, inventorship, claim scope or patent term adjustments. If any future licensors or licensees are not fully cooperative or disagree with it as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised and it might not be able to prevent third parties from making, using and selling competing products. If there are material defects in the form or preparation of its patent applications, such applications may be invalid and unenforceable. Moreover, its competitors may independently develop equivalent knowledge, methods and know-how. Any of these outcomes could impair its ability to prevent competition from third parties, which may have an adverse impact on its business, financial condition and operating results.
Due to legal standards relating to patentability, validity, enforceability and claim scope of patents covering pharmaceutical inventions, its ability to obtain, maintain and enforce patents is uncertain and involves complex legal and factual questions. Accordingly, rights under any patents it might obtain or license may not cover its product candidates, or may not provide it with sufficient protection for its product candidates to afford a commercial advantage against competitive products or processes,
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including those from branded and generic pharmaceutical companies. In addition, BioPharmX cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to it. Even if patents issue, it cannot guarantee that the claims of these patents will be held valid or enforceable by a court of law or will provide it with any significant protection against competitive products or otherwise be commercially valuable to it.
Competitors in the fields of dermatologic therapeutics have created a substantial amount of prior art, including scientific publications, patents and patent applications. Its ability to obtain and maintain valid and enforceable patents depends on whether the differences between its technology and the prior art allow its technology to be patentable over the prior art. Although it believes that its technology includes certain inventions that are unique and not duplicative of any prior art, it does not currently own or license issued patents covering all of the recent developments in its technology and BioPharmX is unsure of the extent to which it will obtain adequate patent protection, if any. Even if the patents do successfully issue, third parties may design around or challenge the validity, enforceability or scope of such issued patents or any other issued patents it owns or license, which may result in such patents being narrowed, invalidated or held unenforceable. In particular, due to the extensive prior art relating to antibiotics for topical acne and topical rosacea and because BPX-01 and BPX-04 represent forms of such therapies, respectively, the patent protection available for BPX-01 and BPX-04 may not prevent competitors from developing and commercializing similar products or products that otherwise target similar indications. If the breadth or strength of protection provided by the patents BioPharmX holds or pursues with respect to its product candidates is challenged, companies may be dissuaded from collaborating with it to develop such products, or threaten its ability to advance and commercialize, its product candidates.
The degree of future protection of its proprietary rights is uncertain. Patent protection may be unavailable or severely limited in some cases and may not adequately protect its rights or permit us to gain or keep its competitive advantage. For example:
Patents have a limited lifespan. In the United States, the natural expiration of a patent is generally 20 years after it is filed. While various extensions may be available, the life of a patent, and the protection it affords, is limited. Without patent protection for its product candidates, however, it may be open to competition from generic versions of its product candidates. Further, the extensive period of time between patent filing and regulatory approval for a product candidate limits the time during which it can market a product candidate under patent protection, which may affect the profitability of its early-stage product candidates, in particular.
Proprietary trade secrets and unpatented know-how are also very important to its business. Although BioPharmX has taken steps to protect its trade secrets and unpatented know-how by entering into confidentiality agreements with third parties, and intellectual property protection agreements with certain employees, consultants and advisors, third parties may still obtain this information or it may be unable to protect its rights. It also has limited control over the protection of trade secrets used by its
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suppliers, manufacturers and other third parties. There can be no assurance that binding agreements will not be breached, that it would have adequate remedies for any breach or that its trade secrets and unpatented know-how will not otherwise become known or independently discovered by its competitors. If trade secrets are independently discovered, it would not be able to prevent their use. Further, enforcing a claim that a third-party illegally obtained and is using its trade secrets or unpatented know-how is expensive and time-consuming, and the outcome is unpredictable.
Changes in patent law or patent jurisprudence could diminish the value of patents in general, thereby impairing its ability to protect its product candidates.
The United States has recently enacted and is currently implementing wide-ranging patent reform legislation. Further, recent United States Supreme Court rulings have either narrowed the scope of patent protection available in certain circumstances or weakened the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to its ability to obtain patents in the future, this combination of events has created uncertainty with respect to the scope and value of patents, once obtained.
For its U.S. patent applications containing a priority claim after March 16, 2013, there is a greater level of uncertainty in the patent law. In September 2011, the Leahy-Smith America Invents Act, also known as the America Invents Act, or AIA, was signed into law. The AIA includes a number of significant changes to U.S. patent law, including provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. The United States Patent and Trademark Office (the "USPTO") is currently developing regulations and procedures to govern administration of the AIA, and many of the substantive changes to patent law associated with the AIA. It is not clear what other, if any, impact(s) the AIA will have on the operation of its business. Moreover, the AIA and its implementation could increase the uncertainties and costs surrounding the prosecution of its patent applications and the enforcement or defense of its issued patents, all of which could have an adverse effect on its business. One important change introduced by the AIA is that, as of March 16, 2013, the United States transitioned to a "first-to-file" system for deciding which party should be granted a patent when two or more patent applications are filed by different parties claiming the same invention. A third-party who files a patent application with the USPTO after such date but prior to us may therefore be awarded a patent covering an invention of it even if it was the first to invent. This "first-inventor-to-file" system will require us both to remain cognizant, going forward, of the timing between invention and filing of a patent application.
Among some of the other changes introduced by the AIA are those that (i) limit where a patentee may file a patent infringement suit and (ii) provide opportunities for third parties to challenge any issued patent in the USPTO. Such changes apply to all of its U.S. patents, even those issued prior to March 16, 2013. Because of a lower evidentiary standard in USPTO proceedings, as compared to the evidentiary standard applied in U.S. federal courts, necessary to invalidate a patent claim, a third-party could potentially present evidence in a USPTO proceeding sufficient for the USPTO to find a claim invalid, notwithstanding that the same evidence would be insufficient to invalidate a claim first presented in a district court action. Accordingly, a third-party may attempt opportunistically to use USPTO procedures to invalidate its patent claims.
Depending on decisions by the United States Congress, the U.S. federal courts, the USPTO or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change in unpredictable ways that may weaken its and its licensors' abilities to obtain new patents or to enforce existing patents it and its licensors or partners may obtain in the future.
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If BioPharmX is unable to protect its trademarks from infringement, its business prospects may be harmed.
BioPharmX has applied for trademark protection for, and registered, trademarks in the United States, the European Union and China. Although it takes steps to monitor the possible infringement or misuse of its trademarks, it is possible that third parties may infringe, dilute or otherwise violate its trademark rights. Any unauthorized use of its trademarks could harm its reputation or commercial interests. In addition, its enforcement against third-party infringers or violators may be unduly expensive and time-consuming, and any remedy obtained may constitute insufficient redress relative to the damages it may suffer.
BioPharmX may not be able to protect its intellectual property rights throughout the world.
Filing, prosecuting and defending patents on its product candidates in all countries throughout the world would be prohibitively expensive. The requirements for patentability may differ in certain countries, particularly developing countries. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as laws in the United States. Consequently, it may not be able to prevent third parties from practicing its inventions in all countries outside the United States. Competitors may use its technologies in jurisdictions where BioPharmX has not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where BioPharmX has patent protection insufficient to guard against such infringement. These products may compete with its products, and its patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals. In such instances, it may be unable to enjoin or otherwise prevent infringement of its patents or marketing of competing products in violation of its proprietary rights, generally. Proceedings to enforce its patent rights in foreign jurisdictions could (i) result in substantial costs and divert its efforts and attention from other aspects of its business, (ii) put its patents at risk of being invalidated or interpreted narrowly and its patent applications at risk of not issuing and (iii) provoke third parties to assert claims against it. BioPharmX may not prevail in any lawsuits that it initiates and the damages or other remedies awarded, if any, may not be commercially meaningful. In addition, certain countries in Europe and certain developing countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In those countries, it may be unable to seek adequate remedies to address infringement and/or material diminishment of the value of its patents, which could limit its potential revenue opportunities in such jurisdictions. Accordingly, its efforts to establish or enforce its intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from its intellectual property. Finally, its ability to protect and enforce its intellectual property rights may be adversely affected by unforeseen changes in foreign intellectual property laws.
If BioPharmX is sued for infringing intellectual property rights of third parties, it will be costly and time-consuming and an unfavorable outcome in that litigation could have a material adverse effect on its business.
BioPharmX's commercial success depends upon its ability to develop, manufacture, market and sell its product candidates and use its proprietary technologies without infringing the proprietary rights of third parties. It cannot guarantee that marketing and selling such candidates and using such technologies will not infringe existing or future patents. Numerous U.S. and foreign issued patents and pending patent applications owned by third parties exist in the fields relating to its product candidates. As the biotechnology and pharmaceutical industries expand and more patents issue, the risk increases that others may assert that its product candidates, technologies or methods of delivery or use infringe their patent rights. Moreover, it is not always clear to industry participants, including BioPharmX, which
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patents cover various drugs, devices, drug delivery systems or their methods of use, and which of these patents may be valid and enforceable. Thus, due to the large number of patents issued and patent applications filed in its fields, third parties may allege they have patent rights encompassing its product candidates, technologies or methods.
In addition, its product candidates or proprietary technologies may infringe patents owned by third parties or third parties may allege such infringement. Because (i) some patent applications in the U.S. may be maintained in secrecy until the patents are issued, (ii) patent applications in the United States and many foreign jurisdictions are typically not published until 18 months after filing and (iii) publications in the scientific literature often lag behind actual discoveries, it cannot be certain that others have not filed patent applications for technology covered by its own and in-licensed issued patents or its pending applications. Its competitors may have filed, and may in the future file, patent applications covering its product candidates or technology similar to it. Any such patent application may have priority over its own and in-licensed patent applications or patents, which could further require it to obtain rights to issued patents covering such technologies. If another party has filed a U.S. patent application on inventions similar to those owned or in-licensed to it, it or, in the case of in-licensed technology, the licensor may have to participate, in the U.S., in an interference proceeding to determine priority of invention.
BioPharmX may be exposed to, or threatened with, future litigation by third parties having patent or other intellectual property rights alleging that its product candidates or proprietary technologies infringe such third parties' intellectual property rights, including litigation resulting from filing under Paragraph IV of the Hatch-Waxman Act. Such lawsuits can be costly and could adversely affect its operating results and divert the attention of managerial and technical personnel, even if it does not infringe such patents or the patents asserted against it are later invalidated. A court may, however, decide that BioPharmX is infringing the third-party's patents and order it to cease the activities covered by the patents. In addition, there is a risk that a court will order it to pay to such third-party damages for having violated the other party's patents.
As a result of patent infringement claims, or to avoid potential claims, it may choose or be required to seek licenses from third parties. These licenses may not be available on commercially acceptable terms, or at all. Even if BioPharmX is able to obtain a license, the license would likely obligate it to pay license fees or royalties or both, and the rights granted to it might be nonexclusive, which could result in its competitors gaining access to the same intellectual property, or such rights might be restrictive and limit its present and future activities. Ultimately, it or a licensee could be prevented from commercializing a product or forced to cease some aspect of its business operations, if, as a result of actual or threatened patent infringement claims, BioPharmX is unable to enter into licenses on acceptable terms.
In addition to possible infringement claims against BioPharmX, it may become a party to other patent litigation and other proceedings, including interference, derivation, re-examination or other post-grant proceedings declared or granted by the USPTO, and similar proceedings in foreign countries, regarding intellectual property rights with respect to its current or future products.
There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and pharmaceutical industries, generally. To date, no litigation asserting infringement claims has ever been brought against BioPharmX. If a third party claims that it infringes its intellectual property rights, it may face a number of issues, including:
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Some of its competitors may be able to sustain the costs of complex patent litigation more effectively than it can because they have substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could harm its ability to raise additional funds or otherwise adversely affect its business, financial condition, operating results and prospects.
Because it may rely on certain third-party licensors and partners in the future, and if any such licensors or partners are sued for infringing a third-party's intellectual property rights, its business, financial condition, operating results and prospects could suffer in the same manner as if BioPharmX is sued directly.
BioPharmX may become involved in lawsuits to protect or enforce its patents or other intellectual property, which could be expensive and time-consuming.
Competitors may infringe its intellectual property, including its patent applications or the patents of its licensors. As a result, BioPharmX may be required to file infringement claims to stop third-party infringement or unauthorized use. Such proceedings and/or litigation can be expensiveparticularly for a company of its sizeand time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of it is not valid or is unenforceable, or may refuse to enjoin the other party from using the technology at issue on the grounds that its patent claims do not cover its technology or that the factors necessary to grant an injunction are not satisfied. An adverse determination in such case could put one or more of its patents at risk of being invalidated, interpreted narrowly or amended such that they fail to cover or otherwise protect its product candidates. Moreover, such adverse determinations could subject its patent applications to the risk that they will not issue, or issue with limited and potentially inadequate scope to cover its product candidates.
Interference, derivation or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to its patent applications or those of its licensors or potential partners. Litigation or USPTO proceedings brought by BioPharmX may fail or may be invoked against it by third parties. Even if BioPharmX is successful, domestic or foreign litigation, or USPTO or foreign patent office proceedings may result in substantial costs and distraction to its management. It may not be able, alone or with its licensors or potential partners, to prevent misappropriation of its proprietary rights, particularly in countries where the laws may not protect such rights as fully as in the United States.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that it may, intentionally or incidentally, disclose some of its confidential results of hearings, motions or other interim proceedings or developments or public access to related documents. If investors perceive these results to be negative, the market price for its common stock could be significantly harmed.
Risks Related to BioPharmX's Common Stock
The NYSE American began the delisting process for BioPharmX's common stock on March 24, 2020, which could affect its market price and liquidity.
BioPharmX's common stock currently trades on the NYSE American. The NYSE American imposes various quantitative and qualitative requirements to maintain listing, including minimum stockholders'
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equity requirements and market price of its common stock. The continued listing standards for a NYSE American issuer are as follows:
On September 24, 2018, BioPharmX received a deficiency notice by the NYSE American that it was not in compliance with the stockholders' equity requirements set forth in the NYSE American Company Guide. The deficiency notice was based on its reported stockholders' equity of $4.3 million as of July 31, 2018 and net losses in its five most recent fiscal years ended January 31, 2018. On September 19, 2019, BioPharmX received notification from the NYSE American that provided an extension until March 24, 2020 to regain compliance with certain NYSE American continued listing requirements. Since BioPharmX was unable to regain compliance by March 24, 2020, the NYSE American has transmitted a letter to BioPharmX providing that the NYSE American intends to begin delisting proceedings against BioPharmX, which BioPharmX intends to appeal. As of January 31, 2020, its stockholders' deficit was $0.3 million.
Additionally, the declining market price of its common stock previously resulted in a 30-day average price of its common stock falling below $0.20, in violation of the share price requirements set forth in the NYSE American Company Guide. Following its 1-for-25 reverse stock split effected on April 25, 2019, it received notification from the NYSE American on April 30, 2019, that it had regained compliance with the applicable standard. However, there can be no assurance that its share price will not fall below $0.20 in the future, and if BioPharmX is unable to maintain a minimum market price of its common stock, it may fall out of compliance with the listing standards again.
Additionally, if at any time its common stock trades below $0.06 per share, it will be automatically delisted from the NYSE American. If BioPharmX is unable to satisfy the continued listing requirements of the NYSE American, its common stock will be subject to delisting. If its common stock loses its status on the NYSE American, it believes that its shares of common stock would likely be eligible to be quoted on the inter-dealer electronic quotation and trading system operated by Pink OTC Markets, Inc., commonly referred to as the Pink Sheets and now known as the OTCQB market. BioPharmX's common stock may also be quoted on the Over-the-Counter Bulletin Board, an electronic quotation service maintained by the Financial Industry Regulatory Authority, Inc. These markets are generally not considered to be as efficient as, and not as broad as, the NYSE American. In the event of any delisting, it could be more difficult to buy or sell its common stock and obtain accurate quotations, and the price of its stock could suffer a material decline. Delisting may also impair its ability to raise capital.
The stock price of its common stock may continue to be volatile or may decline.
BioPharmX's stock price is likely to remain volatile. The market price of its common stock may continue to fluctuate significantly in response to numerous factors, many of which are beyond its control, including:
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In addition, the stock markets, and in particular the NYSE American, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many pharmaceutical companies. Stock prices of many pharmaceutical companies have fluctuated in a manner unrelated or disproportionate to the operating performance of those companies. In the past, stockholders of pharmaceutical companies have instituted securities class action litigation following periods of market volatility. If it becomes involved in securities litigation, it could incur substantial costs and its resources and the attention of management could be diverted from its business.
BioPharmX has identified material weaknesses in its internal control over financial reporting since inception and, while it continues to work on remedying the situation, it has not yet been able to do so. If it fails to maintain an effective system of internal control over financial reporting, it may not be able to accurately report its financial results or prevent fraud. As a result, stockholders could lose confidence in its financial and other public reporting, which would harm its business and the trading price of its common stock.
Effective internal control over financial reporting is necessary for BioPharmX to provide reliable financial reports and, together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause it to fail to meet its reporting obligations. Ineffective internal control could also cause investors to lose confidence in its reported financial information, which could have a negative effect on the trading price of its common stock.
BioPharmX has identified material weaknesses in its internal control over financial reporting since its inception as a company. As defined in Regulation 12b-2 under the Exchange Act, a "material weakness" is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of its annual or interim consolidated financial statements will not be prevented or detected on a timely basis. Specifically, it determined that it had the following material weaknesses in its internal control over financial reporting: (i) inadequate segregation of duties; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC guidelines.
As of the date of this prospectus, BioPharmX has not remediated these material weaknesses. BioPharmX is continuing to adopt and implement written policies and procedures for accounting and financial reporting. It plans to hire additional qualified personnel to address inadequate segregation of duties, although the timing of such hires is largely dependent on its securing additional financing to cover such costs. The implementation of these initiatives may not fully address any material weakness or other deficiencies that it may have in its internal control over financial reporting.
Even if it develops effective internal control over financial reporting, such controls may become inadequate due to changes in conditions or the degree of compliance with such policies or procedures may deteriorate, which could result in the discovery of additional material weaknesses and deficiencies. In any event, the process of determining whether its existing internal control over financial reporting is compliant with Section 404 of the Sarbanes-Oxley Act, or Section 404, and sufficiently effective requires the investment of substantial time and resources, including by its Chief Executive Officer and other members of its senior management. As a result, this process may divert internal resources and take a significant amount of time and effort to complete. In addition, it cannot predict the outcome of this process and whether it will need to implement remedial actions in order to establish effective controls
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over financial reporting. The determination of whether or not its internal controls are sufficient and any remedial actions required could result in it incurring additional costs that it did not anticipate, including the hiring of outside consultants. It may also fail to timely complete its evaluation, testing and any remediation required to comply with Section 404.
BioPharmX is required, pursuant to Section 404, to furnish a report by management on, among other things, the effectiveness of its internal control over financial reporting. However, for as long as BioPharmX is a "smaller reporting company," its independent registered public accounting firm will not be required to attest to the effectiveness of its internal control over financial reporting pursuant to Section 404. While it could be a smaller reporting company for an indefinite amount of time, and thus relieved of the above-mentioned attestation requirement, an independent assessment of the effectiveness of its internal control over financial reporting could detect problems that its management's assessment might not. Such undetected material weaknesses in its internal control over financial reporting could lead to financial statement restatements and require it to incur the expense of remediation.
BioPharmX will continue to incur significant costs as a result of and devote substantial management time to operating as a public company listed on the NYSE American.
As a public company listed on the NYSE American, BioPharmX incurred and will continue to incur significant legal, accounting and other expenses. For example, BioPharmX is subject to the rules and regulations required by the NYSE American, including changes in corporate governance practices and minimum listing requirements. These requirements have increased its legal and financial compliance costs and have and will continue to render some activities more time-consuming and costly. In addition, its management and other personnel have diverted and will continue to divert attention from operational and other business matters to devote substantial time to these listing requirements and failure to meet these requirements could lead to an adverse effect on the listing of its common stock on the NYSE American.
If securities or industry analysts do not continue to publish research or publish inaccurate or unfavorable research about BioPharmX's business, its stock price and trading volume could decline.
The trading market for its common stock depends in part upon the research and reports that securities or industry analysts publish about us or its business. If one or more of the analysts who cover us downgrades its stock or publishes inaccurate or unfavorable research about its business, its stock price would likely decline. If one or more of these analysts ceases coverage or fails to publish reports on us regularly, demand for its stock could decrease, which could cause its stock price and trading volume to decline.
Future sales and issuances of its common stock or rights to purchase common stock could result in substantial dilution to the percentage ownership of its stockholders.
BioPharmX expects that significant additional capital will be needed in the future to continue its planned operations. To raise capital, it may sell common stock or other securities convertible into or exchanged for its common stock in one or more transactions, and in a manner it determines from time to time and at prices that may not be the same as the price per share paid by other investors, and dilution to its stockholders could result. The price per share at which it sells additional shares of its common stock, or securities convertible or exchangeable into common stock, in future transactions may be higher or lower than the price per share paid by other investors. New investors could also receive rights, preferences and privileges senior to those of existing holders of its common stock. In addition, in the event of stock dividends, stock splits, reorganizations or similar events affecting its common stock, it may be required to proportionally adjust the conversion price, exercise price or number of shares issuable upon exercise of its outstanding warrants.
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In addition, common stock with an aggregate offering price of up to $8.5 million (of which $4.6 million is available) may be issued and sold pursuant to an "at-the-market" offering of its common stock pursuant to a sales agreement between us and JonesTrading Institutional Services LLC ("JonesTrading"). Subject to certain limitations in the sales agreement and compliance with applicable law, BioPharmX has the discretion to deliver a placement notice to JonesTrading at any time throughout the term of the sales agreement, which has a term equal to the term of the registration statement on Form S-3 unless otherwise terminated earlier by BioPharmX or JonesTrading pursuant to the terms of the sales agreement. The number of shares that are sold by JonesTrading after delivering a placement notice will fluctuate based on the market price of its common stock during the sales period and limits it sets with JonesTrading. Because the price per share of each share sold will fluctuate based on the market price of its common stock during the sales period, it is not possible at this stage to predict the number of shares that will be ultimately issued. Issuances of such shares pursuant to the sales agreement will have a dilutive effect on its existing stockholders. Further, if it sells common stock, preferred stock, convertible securities and other equity securities in other transactions pursuant to its shelf registration statement on Form S-3, existing investors may be materially diluted by such subsequent sales and new investors could gain rights superior to its existing stockholders.
BioPharmX may issue debt or debt securities convertible into equity securities, any of which may be senior to its common stock as to distributions and in liquidation, which could negatively affect the value of its common stock.
In the future, BioPharmX may attempt to increase its capital resources by entering into debt or debt-like financing that is unsecured or secured by up to all of its assets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred stock, hybrid securities, or securities convertible into or exchangeable for equity securities. In the event of its liquidation, its lenders and holders of its debt and securities would receive distributions of its available assets before distributions to the holders of its common stock. Because its decision to incur debt and issue securities in future financings may be influenced by market conditions and other factors beyond its control, it cannot predict or estimate the amount, timing or nature of its future offerings or debt financings. Further, market conditions could require us to accept less favorable terms for the issuance of its securities in the future.
Delaware law and provisions in its certificate of incorporation and bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the trading price of its common stock.
The anti-takeover provisions of the DGCL may discourage, delay or prevent a change of control by prohibiting it from engaging in a business combination with stockholders owning in excess of 15% of its outstanding voting stock for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to its existing stockholders. In addition, its certificate of incorporation and bylaws contain provisions that may make the acquisition of BioPharmX more difficult, including the provisions that:
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These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of its choosing and cause BioPharmX to take certain actions you desire.
BioPharmX is a "smaller reporting company" and, as a result of the reduced disclosure and governance requirements applicable to smaller reporting companies, its common stock may be less attractive to investors.
BioPharmX is a "smaller reporting company," meaning that BioPharmX is not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a "smaller reporting company," and have either: (i) a public float of less than $250 million or (ii) annual revenues of less than $100 million during the most recently completed fiscal year and (A) no public float or (B) a public float of less than $700 million. As a "smaller reporting company," BioPharmX is subject to lesser disclosure obligations in its SEC filings compared to other issuers, including being able to provide simplified executive compensation disclosures in its filings and only being required to provide two years of audited consolidated financial statements in its annual reports. In addition, because its public float is less than $75 million, BioPharmX is a "non-accelerated filer" under Rule 12b-2 of the Exchange Act and are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial reporting. Until such time as it ceases to be a "smaller reporting company" or a "non-accelerated filer," as applicable, such decreased disclosure in its SEC filings may make it harder for investors to analyze its operating results and financial prospects.
BioPharmX has never paid cash dividends on its capital stock, and it does not anticipate paying any cash dividends in the foreseeable future.
BioPharmX has never paid cash dividends on its capital stock. It currently intends to retain any future earnings to finance the operation and expansion of its business, and it does not expect to declare or pay any cash dividends in the foreseeable future. Consequently, stockholders must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Risks Related to Timber's Business, Financial Position and Capital Requirements
Timber has a limited operating history and has never generated any product revenue.
Timber is a clinical-stage biopharmaceutical company with a limited operating history. Timber was formed in February 2019, and since inception, it has incurred significant net losses. As of December 31, 2019, Timber had an accumulated deficit of approximately $3.1 million. Since inception, Timber has financed its operations with $1.4 million through capital contributions.
Timber's ability to generate product revenue and become profitable depends upon its ability to successfully complete the development of, and obtain the necessary regulatory approvals for, its product candidates in development, including TMB-001, TMB-002 and TMB-003. Timber has never been profitable, has no products approved for commercial sale, and has not generated any product revenue.
Even if Timber receives regulatory approval for any of its product candidates, it does not know when or if such product candidate will generate product revenue. Timber's ability to generate product revenue depends on a number of factors, including, but not limited to, its ability to:
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Because of the numerous risks and uncertainties associated with product development, Timber is unable to predict the timing or amount of increased expenses, or when or if, it will be able to achieve or maintain profitability. Timber's expenses could increase beyond expectations if it is required by the FDA or comparable non-U.S. regulatory authorities to perform studies or clinical trials in addition to those that it currently anticipates. Even if any of Timber's product candidates is approved for commercial sale, Timber anticipates incurring significant costs associated with their commercial launch. If Timber cannot successfully execute any one of the foregoing, its business may not succeed and your investment will be negatively impacted.
Timber expects to incur significant losses for the foreseeable future and may never achieve or maintain profitability. Timber's independent registered public accounting firm has expressed substantial doubt about its ability to continue as a going concern.
Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to gain regulatory approval or fail to become commercially viable. Timber has never generated any product revenue, and it cannot estimate with precision the extent of its future losses. Timber does not currently have any products that are available for commercial sale and it may never generate product revenue or achieve profitability. Timber's net loss was approximately $3.0 million for the period from February 26, 2019 (inception) to December 31, 2019. As of December 31, 2019, Timber had an accumulated deficit of approximately $3.1 million.
Timber expects to continue to incur substantial and increasing losses through the commercialization of any of its product candidates, if approved. None of Timber's product candidates have been approved for marketing anywhere in the world, and it may never receive such approval. As a result, Timber is uncertain when or if it will achieve profitability and, if so, whether it will be able to sustain it. Timber's ability to generate product revenue and achieve profitability is dependent on its ability to complete the development of its product candidates, obtain necessary regulatory approvals for such product candidates, and manufacture and successfully market its product candidates alone or in collaboration with others. There can be no assurance that Timber will be profitable even if it successfully commercializes any of its product candidates. If Timber does successfully obtain regulatory approval to market any of its product candidates, its revenue will be dependent upon, in part and among other things, the size of the markets in the territories for which it gains regulatory approval, the number of competitors in such markets, the accepted price for any such product candidate and whether it owns
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the commercial rights for those territories. If the indication approved by regulatory authorities is narrower than Timber expects, or the treatment population is narrowed by competition, physician choice or treatment guidelines, it may not generate significant revenue from sales of any of our product candidates, even if approved. Even if Timber does achieve profitability, it may not be able to sustain or increase profitability on a quarterly or annual basis. Failure to become and remain profitable may adversely impact the market price of the common stock and its ability to raise capital and continue operations.
Timber expects that its research and development expenses in connection with its development programs for its various product candidates will continue to be significant. In addition, as Timber prepares for and if it obtains regulatory approval for any of its product candidates, it expects to incur increased sales, marketing and manufacturing expenses. As a result, Timber expects to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. These losses have harmed and will continue to harm Timber's results of operations, financial position and working capital.
Timber's independent registered public accounting firm has issued a going concern opinion on its consolidated financial statements as of December 31, 2019, expressing substantial doubt that Timber can continue as an ongoing business due to insufficient capital for us to fund its operations. Timber's consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Timber's Chairman of the Board has received a cease and desist letter from counsel for his prior employer.
On March 16, 2020, Michael Derby, Timber's Chairman of the Board, received a letter, dated March 13, 2020 from counsel for Castle Creek Biosciences, LLC and Castle Creek Biosciences, Inc. (collectively, "Castle") alleging that Mr. Derby breached his fiduciary duties to Castle and certain terms of his contracts with Castle, including allegations that he has inappropriately competed and usurped Castle's corporate opportunities in the field of orphan dermatology with respect to the products being developed by Timber. The letter demands that Mr. Derby cease and desist from competing with Castle in the orphan dermatology field and threatens potential legal action if he does not.
Mr. Derby was formerly the Co-Founder and Chief Executive Officer of Castle until January 11, 2019 and served as a director of Castle until September 2019.
Mr. Derby denies the allegations in the March 13 letter and intends to vigorously defend against these charges if a legal action is brought against him or against Timber. At this time, Timber cannot predict whether Castle will commence litigation against Mr. Derby nor the effects of such litigation, nor whether Timber will become a party to such litigation. However, if Mr. Derby's services are lost to Timber or if Timber becomes a party to any litigation or if there were any adverse rulings with respect to Timber's development programs, it could have a material adverse effect on Timber, its business, financial condition and results of operations.
Timber's business is heavily dependent on the successful development, regulatory approval and commercialization of its product candidates.
Timber currently has no products that are approved for commercial sale and may never be able to develop marketable products. Timber expects that a substantial portion of its efforts and expenditures will be devoted to the continued clinical evaluation of its lead product candidates TMB-001, TMB-002 and TMB-003 and the commercialization of such product candidates following regulatory approval, if received, as well as the continued clinical and preclinical evaluation of any of its other product candidates. Accordingly, Timber's business currently depends heavily on the successful completion of its clinical trials for its product candidates and subsequent regulatory approval and commercialization of such product candidates.
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Timber cannot be certain that any of its product candidates will receive regulatory approval, or be successfully commercialized even if it receive regulatory approval. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of products are, and will remain, subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries that each have differing regulations. Timber is not permitted to market any of its product candidates in the United States until it receives approval of a NDA or in any foreign country until it receives the requisite approvals from the appropriate authorities in such countries for marketing authorization. In addition, Timber has not yet demonstrated its ability to complete later-stage or pivotal clinical trials for any of its product candidates.
Timber has not submitted an NDA for any of its product candidates to the FDA or any comparable application to any other regulatory authority. Obtaining approval of an NDA or similar regulatory approval is an extensive, lengthy, expensive and inherently uncertain process, and the FDA or other foreign regulatory authorities may delay, limit or deny approval of any of Timber's product candidates for many reasons, including:
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Even if Timber does receive regulatory approval to market any product candidate, any such approval may be subject to limitations on the indicated uses or patient populations for which it may market the product. Accordingly, even if Timber is able to obtain the requisite financing to continue to fund its development programs, it cannot assure you that any of its product candidates will be successfully developed or commercialized.
In addition, because each of Timber's product candidates targets one or more indications in the medical dermatology field, if any of Timber's product candidates encounter safety or efficacy problems, developmental delays, regulatory issues, supply issues, or other problems, its development plans for the affected product candidate and some or all of its other product candidates could be significantly harmed, which would harm its business. Further, competitors who are developing products in the dermatology field or that target the same indications as Timber with products that have a similar mechanism of action may experience problems with its products that could identify problems that would potentially harm Timber's business.
Clinical studies required for Timber's product candidates are expensive and time-consuming, and their outcome is uncertain.
In order to obtain FDA approval to market a new pharmaceutical product, Timber must demonstrate proof of safety and efficacy in humans. To meet these requirements, Timber must conduct "adequate and well controlled" clinical studies. Conducting clinical studies is a lengthy, time-consuming, and expensive process. The length of time may vary substantially according to the type, complexity, novelty, and intended use of the product candidate, and often can be several years or more per study. Delays associated with products for which Timber is directly conducting clinical studies may cause them to incur additional operating expenses. The commencement and rate of completion of clinical studies may be delayed by many factors, including, for example: inability to manufacture sufficient quantities of stable and qualified materials under cGMP, for use in clinical studies; slower than expected rates of patient recruitment; failure to recruit a sufficient number of patients; modification of clinical study protocols; changes in regulatory requirements for clinical studies; the lack of effectiveness during clinical studies; the emergence of unforeseen safety issues; delays, suspension, or termination of the clinical studies due to the institutional review board ("IRB") responsible for overseeing the study at a particular study site; and government or regulatory delays or "clinical holds" requiring suspension or termination of the studies.
The results from early clinical studies are not necessarily predictive of results obtained in later clinical studies. Accordingly, even if Timber obtains positive results from early clinical studies, it may not be able to confirm the results in future clinical studies. Clinical studies may not demonstrate sufficient safety and effectiveness to obtain the requisite regulatory approvals for product candidates.
In some cases, Timber's product candidates may be expected to be used in combination with approved therapies that may have significant adverse event profiles. During the course of treatment, these patients could suffer adverse medical events or die for reasons that may or may not be related to Timber's product candidates. Timber cannot ensure that safety issues will not arise with respect to its product candidates in clinical development.
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The failure of clinical studies to demonstrate safety and effectiveness for the desired indications could harm the development of that product candidate and other product candidates. This failure could cause Timber to abandon a product candidate and could delay development of other product candidates. Any delay in, or termination of, Timber's clinical studies would delay the filing of its NDAs with the FDA and, ultimately, Timber's ability to commercialize its product candidates and generate product revenues. Any change in, or termination of, Timber's clinical studies could materially harm its business, financial condition, and results of operations.
Timber is subject to extensive and costly government regulation.
Product candidates employing Timber's technology are subject to extensive and rigorous domestic government regulation including regulation by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the United States Department of Health and Human Services, the United States Department of Justice, state and local governments, and their respective foreign equivalents. The FDA regulates the research, development, preclinical and nonclinical testing and clinical studies, manufacture, safety, effectiveness, record-keeping, reporting, labeling, storage, approval, advertising, promotion, sale, distribution, import, and export of biopharmaceutical products. The FDA regulates small molecule chemical entities as drugs, subject to an NDA under the FDCA. The FDA applies the same standards for biologics, requiring an investigational new drug ("IND") application, followed by a Biologic License Application, or BLA, prior to licensure. Other products, such as vaccines, are also regulated under the Public Health Service Act. FDA has conflated the standards for approval of NDAs and BLAs so that it requires the same types of information on safety, effectiveness, and CMCs. If products employing our technologies are marketed abroad, they will also be subject to extensive regulation by foreign governments, whether or not they have obtained FDA approval for a given product and its uses. Such foreign regulation may be equally or more demanding than corresponding United States regulation.
Government regulation substantially increases the cost and risk of researching, developing, manufacturing, and selling Timber's products. The regulatory review and approval process, which includes preclinical and nonclinical testing and clinical studies of each product candidate, is lengthy, expensive, and uncertain. Timber or its collaborators must obtain and maintain regulatory authorization to conduct clinical studies. Timber or its collaborators must obtain regulatory approval for each product it intends to market, and the manufacturing facilities used for the products must be inspected and meet legal requirements. Securing regulatory approval requires the submission of extensive preclinical, nonclinical and clinical data and other supporting information for each proposed therapeutic indication in order to establish the product's safety and efficacy, and in the case of biologics also potency and purity, for each intended use. The development and approval process takes many years, requires substantial resources, and may never lead to the approval of a product.
Even if Timber is able to obtain regulatory approval for a particular product, the approval may limit the indicated medical uses for the product, may otherwise limit their ability to promote, sell, and distribute the product, may require that it conduct costly post-marketing surveillance, and/or may require that it conduct ongoing post-marketing studies. Material changes to an approved product, such as, for example, manufacturing changes or revised labeling, may require further regulatory review and approval. Once obtained, any approvals may be withdrawn, including, for example, if there is a later discovery of previously unknown problems with the product, such as a previously unknown safety issue.
If Timber, its collaborators, or its contract manufacturing organizations ("CMOs") fail to comply with applicable regulatory requirements at any stage during the regulatory process, such noncompliance could result in, among other things delays in the approval of applications or supplements to approved applications; refusal of a regulatory authority, including the FDA, to review pending market approval applications or supplements to approved applications; warning letters; fines; import and/or export restrictions; product recalls or seizures; injunctions; total or partial suspension of production; civil penalties; withdrawals of previously approved marketing applications or licenses; recommendations by the FDA or other regulatory authorities against governmental contracts; and/or criminal prosecutions.
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Timber does not have, and may never obtain, the regulatory approvals it needs to market its product candidates.
Following completion of clinical studies, the results are evaluated and, depending on the outcome, submitted to the FDA in the form of an NDA or BLA in order to obtain FDA approval of the product and authorization to commence commercial marketing. In responding to an NDA, the FDA may require additional testing or information, may require that the product labeling be modified, may impose post-approval study and other commitments or reporting requirements or other restrictions on product distribution, or may deny the application. The FDA has established performance goals for review of NDAs or BLAs: six months for priority applications and ten months for standard applications. However, the FDA is not required to complete its review within these time periods. The timing of final FDA review and action varies greatly but can take years in some cases and may involve the input of an FDA advisory committee of outside experts. Product sales in the United States may commence only when an NDA or BLA is approved.
It is possible that none of Timber's product candidates will be approved for marketing. Failure to obtain regulatory approvals, or delays in obtaining regulatory approvals, may adversely affect the successful commercialization of any drugs or biologics that Timber or its partners develop, may impose additional costs on Timber or its collaborators, may diminish any competitive advantages that Timber or its partners may attain, and/or may adversely affect Timber's receipt of revenues or royalties.
If Timber is unable to file for approval of TMB-001 or TMB-002 under Section 505(b)(2) of the FDCA or if Timber is required to generate additional data related to safety and efficacy in order to obtain approval under Section 505(b)(2), Timber may be unable to meet its anticipated development and commercialization timelines.
Timber's current plans for filing NDAs for its product candidates include efforts to minimize the data it will be required to generate in order to obtain marketing approval for its product candidates and therefore reduce the development time. Timber has had held pre-IND meetings with the FDA to discuss, among other things, the regulatory pathways for TMB-001 and TMB-002. The timelines for filing and review of Timber's NDAs for TMB-001 and TMB-002 are based on its plan to submit such NDAs under Section 505(b)(2) of the FDCA, which would enable Timber to rely in part on data in the public domain or elsewhere. Timber has not yet filed an NDA under Section 505(b)(2) for any of its product candidates. Depending on the data that may be required by the FDA for approval, some of the data may be related to products already approved by the FDA. If the data relied upon is related to products already approved by the FDA and covered by third-party patents, Timber would be required to certify that it does not infringe the listed patents or that such patents are invalid or unenforceable. As a result of the certification, the third-party would have 45 days from notification of our certification to initiate an action against Timber.
In the event that an action is brought in response to such a certification, the approval of Timber's NDA could be subject to a stay of up to 30 months or more while it defends against such a suit. Approval of Timber's product candidates under Section 505(b)(2) may therefore be delayed until patent exclusivity expires or until it successfully challenges the applicability of those patents to such product candidates. Alternatively, Timber may elect to generate sufficient additional clinical data so that it no longer relies on data which triggers a potential stay of the approval of its product candidates. Even if no exclusivity periods apply to Timber's applications under Section 505(b)(2), the FDA has broad discretion to require Timber to generate additional data on the safety and efficacy of its product candidates to supplement third-party data on which it may be permitted to rely. In either event, Timber could be required, before obtaining marketing approval for any of its product candidates, to conduct substantial new research and development activities beyond those it currently plans to engage in order to obtain approval of its product candidates. Such additional new research and development activities would be costly and time consuming.
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Timber may not be able to realize a shortened development timeline for its product candidates, and the FDA may not approve an NDA based on its review of the submitted data. If products containing isotretinoin or rapamycin are withdrawn from the market by the FDA for any safety reason, Timber may not be able to reference such products to support a 505(b)(2) NDA for TMB-001 or TMB-002, respectively, and it may need to fulfill the more extensive requirements of Section 505(b)(1). If Timber is required to generate additional data to support approval, it may be unable to meet its anticipated development and commercialization timelines, may be unable to generate the additional data at a reasonable cost, or at all, and may be unable to obtain marketing approval of its lead product candidate.
Any fast track designation or grant of priority review status by the FDA may not actually lead to a faster development or regulatory review or approval process, nor will it assure FDA approval of our product candidates. Additionally, our product candidates may treat indications that do not qualify for priority review vouchers.
Timber may seek fast track designation for its product candidates or priority review of applications for approval of its product candidates for certain indications. If a drug is intended for the treatment of a serious or life-threatening condition and the drug demonstrates the potential to address unmet medical needs for this condition, the drug sponsor may apply for FDA fast track designation. If a product candidate offers major advances in treatment, the FDA may designate it eligible for priority review. The FDA has broad discretion whether or not to grant these designations, so even if Timber believes a particular product candidate is eligible for these designations, it cannot assure you that the FDA would decide to grant them. Even if Timber does receive fast track designation or priority review, it may not experience a faster development process, review or approval compared to conventional FDA procedures. The FDA may withdraw fast track designation if it believes that the designation is no longer supported by data from Timber's clinical development program.
Timber may seek rare pediatric disease designation for TMB-003 for the treatment of moderate to severe localized scleroderma; however, an NDA for TMB-003, if approved, may not meet the eligibility criteria for a priority review voucher.
Timber may seek rare pediatric disease designation for TMB-003 for the treatment of localized scleroderma. Designation of a drug as a drug for a rare pediatric disease does not guarantee that an NDA for such drug will meet the eligibility criteria for a rare pediatric disease priority review voucher at the time the application is approved. Under the FDCA, Timber will need to request a rare pediatric disease priority review voucher in its NDA for TMB-003. The FDA may determine that an NDA for TMB-003, if approved, does not meet the eligibility criteria for a priority review voucher, including for the following reasons:
The authority for the FDA to award rare pediatric disease priority review vouchers for drugs that have received rare pediatric disease designation prior to September 30, 2020 currently expires on
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September 30, 2022. If a NDA for TMB-003 is not be approved prior to September 30, 2022, regardless of whether it meets the criteria for a rare pediatric disease priority review voucher, it will not be eligible for a priority review voucher. However, it is also possible the authority for FDA to award rare pediatric disease priority review vouchers will be further extended through Federal lawmaking.
Even if Timber is able to commercialize any product candidate that it may develop, the product may become subject to unfavorable pricing regulations, third-party payor reimbursement practices or healthcare reform initiatives that could harm Timber's business.
The commercial success of Timber's current or future product candidates will depend substantially, both domestically and abroad, on the extent to which the costs of its product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities (such as Medicare and Medicaid), private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only to limited levels, Timber may not be able to successfully commercialize its products. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow Timber to establish and maintain pricing sufficient to realize a meaningful return on its investment.
There is significant uncertainty related to third-party payor coverage and reimbursement of newly approved drugs. Marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some non-U.S. markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, Timber might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact the revenues it is able to generate from the sale of the product in that country. Adverse pricing limitations may hinder Timber's ability to recoup its investment in one or more product candidates, even if its product candidates obtain marketing approval.
Timber's ability to commercialize its product candidates will depend in part on the extent to which coverage and reimbursement for these products and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused on cost containment, both in the United States and elsewhere. Government authorities and third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications, which could affect our ability to sell our product candidates profitably. These payors may not view our products, if any, as cost-effective, and coverage and reimbursement may not be available to our customers, or may not be sufficient to allow our products, if any, to be marketed on a competitive basis. Cost-control initiatives could cause us to decrease the price we might establish for products, which could result in lower than anticipated product revenues. If the prices for our products, if any, decrease or if governmental and other third-party payors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer.
There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the indications for which the drug is approved by the FDA or comparable non-U.S. regulatory authorities. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Reimbursement rates may vary, by way of example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also be based on
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reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for other services.
In addition, increasingly, third-party payors are requiring higher levels of evidence of the benefits and clinical outcomes of new technologies and are challenging the prices charged. We cannot be sure that coverage will be available for any product candidate that Timber may commercialize and, if available, that the reimbursement rates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there are changes to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. An inability to promptly obtain coverage and adequate payment rates from both government-funded and private payors for any of our product candidates for which we obtain marketing approval could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.
Timber will require substantial additional capital to fund its operations, and if it fails to obtain necessary financing, it may not be able to complete the development and commercialization of any of its product candidates.
Timber expects to spend substantial capital to complete the development of, seek regulatory approvals for and commercialize our lead product candidates TMB-001 and TMB-002 as well as any of its other product candidates. Timber will require additional capital to complete the development and potential commercialization of its product candidates. Because the length of time and activities associated with successful development of Timber's product candidates are highly uncertain, Timber is unable to estimate with certainty the actual funds we will require for development and any approved marketing and commercialization activities. Timber's future funding requirements, both near-and long-term, will depend on many factors, including, but not limited to:
Timber believes that its existing cash, inclusive of the Timber Funding, will be sufficient for them to fund its operating expenses and capital expenditure requirements into at least the fourth quarter of calendar year 2021. This estimate is based on assumptions that may prove to be wrong, and Timber could use its available capital resources sooner than it currently expects. Timber cannot be certain that additional capital will be available on acceptable terms, or at all. If Timber is unable to raise additional capital in sufficient amounts or on terms acceptable to Timber, it may have to significantly delay, scale
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back or discontinue the development or commercialization of any product candidate, or potentially discontinue operations altogether. In addition, attempting to secure additional capital may divert the time and attention of Timber's management from day-to-day activities and harm its product candidate development efforts. Because of the numerous risks and uncertainties associated with the development and potential commercialization of its product candidates, Timber is unable to estimate the amounts of increased capital outlays, operating expenditures and capital requirements associated with its current product development programs.
Raising additional funds by issuing equity securities may cause dilution to existing equity holders, raising additional funds through debt financings may involve restrictive covenants, and raising funds through lending and licensing arrangements may restrict our operations or require Timber to relinquish proprietary rights.
Timber expects that significant additional capital will be needed in the future to continue its planned operations. Until such time, if ever, that Timber can generate substantial product revenue, it expects to finance its cash needs through a combination of equity offerings, debt financings, strategic alliances and license and development agreements or other collaborations. To the extent that Timber raises additional capital by issuing equity securities, existing equity ownership may experience substantial dilution, and the securities may include preferred shares with liquidation or other preferences that could harm the rights of a common equity holders.
If Timber raises additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may not be favorable to them. If Timber is unable to raise additional funds when needed, it may be required to delay, limit, reduce or terminate its product development or future commercialization efforts, or grant rights to develop and market product candidates that we would otherwise develop and market themselves.
Timber relies on its license agreement and acquisition agreements to provide rights to certain intellectual property relating to certain of its product candidates. Any termination or loss of significant rights under any such agreements would adversely impact Timber's development or commercialization of such product candidates.
Timber has licensed certain intellectual property relating to certain of its product candidates from AFT Pharmaceuticals Limited, or AFT, through a license agreement. Timber has acquired the rights to certain intellectual property relating to certain of its product candidates from Patagonia Pharmaceuticals LLC, or Patagonia, through two acquisition agreements. If, for any reason, Timber's license agreement or acquisition agreements are terminated or it otherwise loses those rights, it would harm its business. Timber's license agreement imposes on them obligations relating to exclusivity, territorial rights, development, commercialization, funding, payment, diligence, sublicensing, insurance, intellectual property protection and other matters. Timber's acquisition agreements imposes on them obligations and restrictions relating to development, non-competition, intellectual property protection, payment and royalties. If Timber breaches any material obligations, or uses the intellectual property licensed to or acquired by them in an unauthorized manner, it may be required to pay damages to its collaborators and such collaborators may have the right to terminate the applicable licenses or rights, as applicable, which would result in Timber being unable to develop, manufacture and sell one or more of its product candidates, if approved. In addition, under the license agreement, the licensor has the first right to file, prosecute (including any post-grant proceeding) and maintain all licensed patents, and Timber may not have any control over such actions unless such licensor elects not to exercise its rights.
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Timber's license agreement and acquisition agreements, some with related parties, obligate them to make certain milestone payments.
Timber is obligated to pay certain milestone payments to AFT and Patagonia pursuant to their license agreement and acquisition agreements. AFT is entitled to up to $25.5 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-002. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-001, with the first being initiation of a Phase 3 pivotal trial, as agreed with the FDA. Patagonia is also entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA.
Because certain of the milestone payments payable by Timber to AFT and Patagonia are due upon certain events related to the development and regulatory approval of its product candidates, Timber may be required to make such payments prior to the time at which it is able to generate revenue, if any, from sales any of its product candidates, if approved. There can be no assurance that Timber will have the funds necessary to make such payments, or be able to raise such funds when needed, on terms acceptable to Timber, or at all. Furthermore, if Timber is forced to raise additional funds, it may be required to delay, limit, reduce or terminate its product development or future commercialization efforts, or grant rights to develop and market product candidates that it would otherwise develop and market themselves. If Timber is unable to raise additional funds or maintain sufficient liquidity to make its payment obligations if and when they become due, it may be in material breach of its license and acquisition agreements and its counterparties may seek legal action or remedies against Timber, which would harm its business, financial condition, results of operations and prospects.
If Timber is not successful in attracting and retaining highly qualified personnel, it may not be able to successfully implement its business strategy.
Timber's ability to compete in the highly competitive pharmaceuticals industry depends in large part upon its ability to attract highly qualified managerial, scientific and medical personnel. In order to induce valuable employees to remain with Timber, it intends to provide employees with stock options that vest over time. The value to employees of stock options that vest over time will be significantly affected by movements in the price of the common stock that it will not be able to control and may at any time be insufficient to counteract more lucrative offers from other companies.
Timber's management team has expertise in many different aspects of drug development and commercialization. However, Timber will need to hire additional personnel as it further develops its drug candidates. Competition for skilled personnel in the pharmaceutical industry is intense and competition for experienced scientists may limit Timber's ability to hire and retain highly qualified personnel on acceptable terms. Despite Timber's efforts to retain valuable employees, members of its management, scientific and medical teams may terminate their employment with Timber on short notice. Timber's success also depends on its ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
Other pharmaceutical companies with which Timber competes for qualified personnel have greater financial and other resources, different risk profiles, and a longer history in the industry than Timber does. Other pharmaceutical companies also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what Timber has to offer. If Timber is unable to continue to attract and retain high-quality personnel, the rate and success at which Timber can develop and commercialize product candidates would be limited.
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Timber will need to grow the size of its organization, and it may experience difficulties in managing this growth.
As of December 31, 2019, Timber had 3 employees. As Timber's development and commercialization plans and strategies develop, including as a result of the Merger, it will need to expand the size of its employee base for managerial, operational, sales, marketing, financial and other resources, even outside of BioPharmX's existing employee base. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, Timber's management may have to divert a disproportionate amount of its attention away from its day-to-day activities, including the additional requirements on management as a public company, and devote a substantial amount of time to managing these growth activities. Timber's future financial performance and our ability to commercialize its drug candidates and its ability to compete effectively will depend, in part, on its ability to effectively manage its future growth.
Timber or its affiliates' employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors or potential collaborators may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could harm Timber's results of operations.
Timber is exposed to the risk that its or its affiliates' employees and contractors, including any prospective or current principal investigators, CROs, consultants, commercial collaborators, service providers and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA or other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies; manufacturing and the FDA's cGMP, standards; federal, state and foreign healthcare fraud and abuse laws and data privacy; or laws that require the true, complete and accurate reporting of financial information or data. In particular, sales, marketing and other business arrangements in the healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing, bribery, corruption, antitrust violations and other abusive practices. These laws may restrict or prohibit a wide range of business activities, including research, manufacturing, distribution, pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve the improper use or misrepresentation of information obtained in the course of clinical trials, creating fraudulent data in our nonclinical studies or clinical trials or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to Timber's reputation. It is not always possible to identify and deter employee or third-party misconduct, and the precautions Timber takes to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting them from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. Additionally, Timber is subject to the risk that a person, including any person who may have engaged in any fraud or misconduct, or government agency could allege such fraud or other misconduct, even if none occurred. Furthermore, Timber relies on its CROs and clinical trial sites to adequately report data from its ongoing clinical trials. For example, any failure by such parties to adequately report safety signals to Timber in a timely manner from any such trials may also affect the approvability of Timber's product candidates or cause delays and disruptions for the approval of any of Timber's product candidates, if at all. If Timber or its affiliates' employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers or other vendors are alleged or found to be in violation of any such regulatory standards or requirements, or become subject to a corporate integrity agreement or similar agreement and curtailment of our operations, it could have a significant impact on Timber's business and financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, suspension or delay in
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Timber's clinical trials, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, FDA debarment, contractual damages, reputational harm, diminished profits and future earnings, and additional reporting requirements and oversight, any of which could harm Timber's ability to operate its business and its results of operations.
Timber may not be successful in its efforts to identify and acquire or in-license additional product candidates, or to enter into collaborations or strategic alliances for the development and commercialization of any such future product candidates.
Timber may seek to identify and acquire or in-license novel product candidates in the medical dermatology field. The process by which Timber identifies product candidates may fail to yield product candidates for clinical development for a number of reasons, including those discussed in these risk factors and also:
Timber may choose to focus its efforts and resources on a potential product candidate that ultimately proves to be unsuccessful. Timber also cannot be certain that, following an acquisition or in-licensing transaction, it will achieve the revenue or specific net income that justifies such transaction. Further, time and resources spent identifying, acquiring and developing potential product candidates may distract management's attention from Timber's primary business or other development programs. If Timber is unable to identify and acquire suitable product candidates for clinical development, this would adversely impact Timber's business strategy, its financial position and share price.
In the future, aside from the Merger, Timber may also decide to collaborate with other pharmaceutical companies for the development and potential commercialization of our product candidates in the United States or other countries or territories of the world. Timber will face significant competition in seeking appropriate collaborators. Timber may not be successful in its efforts to establish a strategic partnership or other alternative arrangements for its product candidates because such product candidates may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view Timber's product candidates as having the requisite potential to demonstrate safety and efficacy. If and when Timber collaborates with a third party for development and commercialization of a product candidate, it can expect to relinquish some or all of the control over the future success of that product candidate to the third party. Timber's ability to reach a definitive agreement for a collaboration will depend, among other things, upon its assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors.
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International expansion of our business exposes Timber to business, legal, regulatory, political, operational, financial and economic risks associated with conducting business outside of the United States.
Part of Timber's business strategy involves potential expansion internationally with third-party collaborators to seek regulatory approval for its product candidates outside the United States. Doing business internationally involves a number of risks, including but not limited to:
Any of these risks, if encountered, could significantly harm Timber's future international expansion and operations and, consequently, negatively impact its financial condition, results of operations and cash flows.
Timber's business and operations would suffer in the event of system failures, cyber-attacks or a deficiency in our cyber-security.
Timber's computer systems, as well as those of various third parties on which it relies, may sustain damage from computer viruses, unauthorized access, data breaches, phishing attacks, cybercriminals, natural disasters (including hurricanes and earthquakes), terrorism, war and telecommunication and electrical failures. Timber relies on its third-party providers to implement effective security measures and identify and correct for any such failures, deficiencies or breaches. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in Timber's operations, it could result in a material disruption of its drug development programs. For example, the loss of nonclinical or clinical trial data from completed, ongoing or planned trials could result in delays in our regulatory approval efforts and significantly increase Timber's costs to recover or reproduce the data. To the extent that any disruption or security breach were to result in a loss of or damage to Timber's data or applications, or inappropriate disclosure of personal, confidential or proprietary information, it could incur liability and the further development of any product candidate could be delayed.
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If product liability lawsuits are brought against Timber, it may incur substantial liabilities and may be required to limit commercialization of its drug candidates.
Timber faces a potential risk of product liability as a result of the clinical testing of it drug candidates and will face an even greater risk if it commercializes its drug candidates. For example, Timber may be sued if any product it develops or any materials that it uses in its products allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If Timber cannot successfully defend itself against product liability claims, it may incur substantial liabilities or be required to limit commercialization of its drug candidates. Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
Timber's inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products it develops. Timber intends to obtain product liability insurance covering its clinical trials. Although Timber will maintain such insurance, any claim that may be brought against it could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by its insurance or that is in excess of the limits of its insurance coverage. Timber's insurance policies also have various exclusions, and it may be subject to a product liability claim for which it has no coverage. Timber may have to pay any amounts awarded by a court or negotiated in a settlement that exceed its coverage limitations or that are not covered by its insurance, and it may not have, or be able to obtain, sufficient capital to pay such amounts.
Timber may acquire businesses, assets or products, or form strategic alliances, in the future, and it may not realize the benefits of such acquisitions.
Timber may acquire additional businesses, assets or products, form strategic alliances or create joint ventures with third parties that it believes will complement or augment its existing business. If Timber acquires businesses with promising markets or technologies, it may not be able to realize the benefit of acquiring such businesses if it is unable to successfully integrate them with its existing operations and company culture. Timber may encounter numerous difficulties in developing, manufacturing and marketing any new delay or prevent it from realizing its expected benefits or enhancing its business. Timber cannot assure you that, following any such acquisition, it will achieve the expected synergies to justify the transaction.
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Risks Related to the Combined Company
For purposes of this section, "Timber" refers to the organization that will exist following the completion of the Merger. These are risk factors that pertain to both BioPharmX and Timber as they exist today.
Risks Related to Development, Regulatory Approval and Commercialization
If Timber's studies fail to demonstrate safety and efficacy to the satisfaction of the FDA and comparable non-U.S. regulators, it may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.
Timber is not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Comparable non-U.S. regulatory authorities impose similar restrictions. Timber may never receive such approvals. Timber must complete extensive preclinical development and clinical studies to demonstrate the safety and efficacy of its product candidates in humans before it will be able to obtain these approvals.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. Timber has not previously submitted an NDA to the FDA or similar drug approval filings to comparable non-U.S. regulatory authorities for any product candidates.
Any inability to successfully complete preclinical and clinical development could result in additional costs to Timber and impair its ability to generate revenues from product sales, regulatory and commercialization milestones and royalties. In addition, if (1) Timber is required to conduct additional clinical studies or other testing of its product candidates beyond the studies and testing that we contemplate, (2) it is unable to successfully complete clinical studies of its product candidates or other testing, (3) the results of these studies or tests are unfavorable, uncertain or are only modestly favorable, or (4) there are unacceptable safety concerns associated with its product candidates, Timber, in addition to incurring additional costs, may:
If Timber experiences any of a number of possible unforeseen events in connection with clinical studies of its product candidates, potential marketing approval or commercialization of its product candidates could be delayed or prevented.
Timber may experience numerous unforeseen events during, or as a result of, clinical studies that could delay or prevent marketing approval of its product candidates, including:
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Product development costs for Timber will increase if it experiences delays in testing or pursuing marketing approvals and it may be required to obtain additional funds to complete clinical studies and prepare for possible commercialization of our product candidates. Timber do not know whether any preclinical tests or clinical studies will begin as planned, will need to be restructured or will be
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completed on schedule, or at all. Significant preclinical or clinical study delays also could shorten any periods during which Timber may have the exclusive right to commercialize its product candidates or allow its competitors to bring products to market before it does and may impair its ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that cause, or lead to, clinical study delays may ultimately lead to the denial of marketing approval of Timber's product candidates.
Business or economic disruptions or global health concerns could seriously harm Timber's development efforts and increase its costs and expenses.
Broad-based business or economic disruptions could adversely affect Timber's ongoing or planned research and development activities. For example, in December 2019 an outbreak of a novel strain of coronavirus originated in Wuhan, China and has since spread to a number of other countries, including the United States. To date, this outbreak has already resulted in extended shutdowns of certain businesses in the United States and around the world. Global health concerns, such as coronavirus, could result sourcing difficulties for the active ingredients in our products, delays in clinical trials and instability in the countries in which it or the third parties with whom it engages operate. Timber cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if it or any of the third parties with whom it engages, including the suppliers, clinical trial sites, regulators and other third parties with whom it conducts business, were to experience shutdowns or other business disruptions, Timber's ability to conduct its business in the manner and on the timelines presently planned could be materially and negatively impacted. It is also possible that global health concerns such as this one could disproportionately impact the hospitals and clinical sites in which Timber conducts any of its clinical trials, which could have a material adverse effect on its business and its results of operation and financial condition.
Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside Timber's control.
Timber may encounter delays or difficulties in enrolling, or be unable to enroll, a sufficient number of patients to complete any of its clinical trials on its current timelines, or at all, and even once enrolled it may be unable to retain a sufficient number of patients to complete any of its trials. Enrollment in Timber's clinical trials may be slower than it anticipates, leading to delays in its development timelines. For example, Timber may face difficulty enrolling or maintaining a sufficient number of patients in its clinical trials due to the existing alternative treatments approved for the treatment of any of its targeted indications, such as topical corticosteroids or topical steroid-free therapies for atopic dermatitis or psoriasis, as patients may decline to enroll or decide to withdraw from its clinical trials due to the risk of receiving placebo. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, Timber's ability to recruit clinical trial investigators with the appropriate competencies and experience, the existing body of safety and efficacy data with respect to the study drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of patients to clinical sites, the eligibility criteria for the trial and the proportion of patients screened that meets those criteria, its ability to obtain and maintain patient consents, and its ability to successfully complete prerequisite studies before enrolling certain patient populations.
Furthermore, any negative results or new safety signals Timber may report in clinical trials of its product candidates may make it difficult or impossible to recruit and retain patients in other clinical trials. Similarly, negative results reported by Timber's competitors about their drug candidates may negatively affect patient recruitment in its clinical trials. Also, marketing authorization of competitors in this same class of drugs may impair Timber's ability to enroll patients into our clinical trials, delaying or potentially preventing it from completing recruitment of one or more of its trials.
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Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on Timber's ability to develop TMB-001 or any of its other product candidates (or any of BioPharmX's current product candidates) or could render further development impossible. In addition, Timber expects to rely on CROs and clinical trial sites to ensure proper and timely conduct of its future clinical trials, and, while it intends to enter into agreements governing their services, it will be limited in its ability to compel their actual performance.
Timber faces significant competition from other biotechnology and pharmaceutical companies targeting medical dermatological indications, and its operating results will suffer if it fails to compete effectively.
The markets for dermatological therapies are competitive and are characterized by significant technological development and new product introduction. For example, there are several large and small pharmaceutical companies focused on delivering therapeutics for our targeted inflammatory and medical dermatological indications. Timber anticipates that, if it obtains regulatory approval of its product candidates, it will face significant competition from other approved therapies or drugs that become available in the future for the treatment of its target indications. If approved, Timber's product candidates may also compete with unregulated, unapproved and off-label treatments. Even if another branded or generic product or an over-the-counter, or OTC, product is less effective than Timber's product candidates, a less effective branded, generic or OTC product may be more quickly adopted by physicians and patients than its competing product candidates based upon cost or convenience. Certain of Timber's product candidates, if approved, will present novel therapeutic approaches for the approved indications and will have to compete with existing therapies, some of which are widely known and accepted by physicians and patients. To compete successfully in this market, Timber will have to demonstrate that the relative cost, safety and efficacy of its approved products, if any, provide an attractive alternative to existing and other new therapies to gain a share of some patients' discretionary budgets and for physicians' attention within their clinical practices. Some of the companies that offer competing products also have a broad range of other product offerings, large direct sales forces and long-term customer relationships with Timber's target physicians, which could inhibit its market penetration efforts. Such competition could lead to reduced market share for Timber's product candidates and contribute to downward pressure on the pricing of its product candidates, which could harm its business, financial condition, operating results and prospects.
Timber is aware of several companies that are working to develop drugs that would compete against its product candidates, such as Mayne Pharma Group Limited, which is developing trifarotene for lamellar ichthyosis, Krystal Biotech, Inc., which is developing KB105 for transglutaminase-1 deficient autosomal recessive congenital ichthyosis, and Nobelpharma Co., Ltd. and Aucta Pharmaceuticals, Inc., which are developing topical rapamycin for facial angiofibromas in tuberous sclerosis complex.
Many of Timber's existing or potential competitors have substantially greater financial, technical and human resources than it does and significantly greater experience in the discovery and development of product candidates, as well as in obtaining regulatory approvals of those product candidates in the United States and in foreign countries. Many of Timber's current and potential future competitors also have significantly more experience commercializing drugs that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a smaller number of our competitors. Competition may reduce the number and types of patients available to Timber to participate in clinical trials, because some patients who might have opted to enroll in its trials may instead opt to enroll in a trial being conducted by one of its competitors.
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Due to less stringent regulatory requirements in certain foreign countries, there are many more dermatological products and procedures available for use in those international markets than are approved for use in the United States. In certain international markets, there are also fewer limitations on the claims that Timber's competitors can make about the effectiveness of their products and the manner in which they can market their products. As a result, Timber expects to face more competition in these markets than in the United States.
Timber's ability to compete successfully will depend largely on its ability to:
The availability of Timber's competitors' products could limit the demand and the price it is able to charge for any product candidate it develops. The inability to compete with existing or subsequently introduced drugs or OTC treatments would have an adverse impact on Timber's business, financial condition and prospects.
If the market opportunities for Timber's product candidates are smaller than it believes they are, its revenues may be adversely affected and its business may suffer. Because the target patient populations of its product candidates are small, Timber must be able to successfully identify patients and capture a significant market share to achieve and maintain profitability.
Timber focuses its research and product development on treatments for orphan dermatology indications. Its projections of both the number of people who have failed other therapies or have limited medical options, are based on estimates. These estimates may prove to be incorrect and new studies may change the estimated incidence or prevalence. The number of patients in the United States and elsewhere may turn out to be lower than expected or may not be otherwise amenable to treatment with its products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect its results of operations and its business. Additionally, because Timber's target patient populations are small, it will be required to capture a significant market share to achieve and maintain profitability.
Timber may be required to suspend or discontinue clinical studies due to unexpected side effects or other safety risks that could preclude approval of its products.
Timber's clinical studies may be suspended at any time for a number of reasons. For example, it may voluntarily suspend or terminate our clinical studies if at any time it believes that they present an unacceptable risk to the clinical study patients. In addition, the FDA or other regulatory agencies may order the temporary or permanent discontinuation of Timber's clinical studies at any time if they
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believe that the clinical studies are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical study patients.
Administering any product candidate to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical studies of Timber's product candidates and could result in the FDA or other regulatory authorities denying further development or approval of its product candidates for any or all targeted indications. Ultimately, some or all of Timber's product candidates may prove to be unsafe for human use. Moreover, Timber could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects or even death as a result of participating in our clinical studies.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable. Even if Timber obtains approval for a product candidate in one country or jurisdiction, it may never obtain approval for or commercialize it in any other jurisdiction, which would limit its ability to realize our full market potential.
Prior to obtaining approval to commercialize any of Timber's product candidates in any jurisdiction, it or its collaborators must demonstrate with substantial evidence from well controlled clinical trials, and to the satisfaction of the FDA or comparable foreign regulatory agencies, that such product candidates are safe and effective for their intended uses. Results from nonclinical studies and clinical trials can be interpreted in different ways. Even if Timber believes the nonclinical or clinical data for a product candidate are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. In order to market any products in any particular jurisdiction, Timber must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA does not ensure approval by regulatory authorities in any other country or jurisdiction outside the United States. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product testing and validation, as well as additional administrative review periods. Seeking regulatory approval could result in difficulties and costs for us and require additional nonclinical studies or clinical trials, which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of Timber's products in those countries. Timber does not have any product candidates approved for sale in any jurisdiction, including in international markets, and it does not have experience in obtaining regulatory approval. If Timber fails to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, its target market will be reduced and our ability to realize the full market potential of any product it develops will be unrealized.
Any product candidate for which Timber obtains marketing approval, along with the manufacturing processes, qualification testing, post-approval clinical data, labeling and promotional activities for such product, will be subject to continual and additional requirements of the FDA and other regulatory authorities.
These requirements include submissions of safety and other post-marketing information, reports, registration and listing requirements, good manufacturing practices, or GMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents, and recordkeeping. Even if marketing approval of Timber's product candidates is granted, the approval may be subject to limitations on the indicated uses for which the product may be marketed or to conditions of approval, or contain requirements for costly post-marketing testing and surveillance to monitor the safety or efficacy of the product. The FDA closely regulates the post-approval marketing and promotion of pharmaceutical products to ensure such products are marketed only for the approved indications and in accordance with the provisions of the approved labeling.
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In addition, later discovery of previously unknown problems with our products, manufacturing processes, or failure to comply with regulatory requirements, may lead to various adverse results, including:
If any of Timber's product candidates receive marketing approval and it, or others, later discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, its ability to market such drug could be compromised.
Clinical studies of Timber's product candidates are conducted in carefully defined subsets of patients who have agreed to enter into clinical studies. Consequently, it is possible that its clinical studies may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. If, following approval of any of Timber's product candidates, it, or others, discover that the drug is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
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Any of these events could have a material and adverse effect on Timber's operations and business and could adversely impact the price of the common stock.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If Timber is found or alleged to have improperly promoted off-label uses, it may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, as our product candidates would be, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product's approved labeling. If Timber is found to have promoted such off-label uses, it may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If Timber cannot successfully manage the promotion of its product candidates, if approved, it could become subject to significant liability, which would harm our business and financial condition.
If Timber obtains approval to commercialize any of its products outside of the United States, a variety of risks associated with international operations could harm its business.
If any of Timber's product candidates is approved for commercialization outside of the United States, it expects that it will be subject to additional risks related to entering into international business relationships, including:
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Recently enacted and future legislation may increase the difficulty and cost for Timber to obtain marketing approval of and commercialize our drug candidates and affect the prices it may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval for our drug candidates, restrict or regulate post-approval activities and affect our ability to profitably sell our drug candidates. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We do not know whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our drug candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
In the United States, under the Medicare Modernization Act ("MMA"), Medicare Part D provides coverage to the elderly and disabled for outpatient prescription drugs by approving and subsidizing prescription drug plans offered by private insurers. The MMA also authorizes Medicare Part D prescription drug plans to use formularies where they can limit the number of drugs that will be covered in any therapeutic class. The Part D plans use their formulary leverage to negotiate rebates and other price concessions from drug manufacturers. Also under the MMA, Medicare Part B provides coverage to the elderly and disabled for physician-administered drugs on the basis of the drug's average sales price, a price that is calculated according to regulatory requirements and that the manufacturer reports to Medicare quarterly.
Both Congress and the Centers for Medicare & Medicaid Services ("CMS"), the agency that administers the Medicare program, from time to time consider legislation, regulations, or other initiatives to reduce drug costs under Medicare Parts B and D. For example, under the 2010 Affordable Care Act (the "ACA"), drug manufacturers are required to provide a significant discount on prescriptions for branded drugs filled while the beneficiary is in the Medicare Part D coverage gap, also known as the "donut hole." There have been legislative proposals to repeal the 'non-interference" provision of the MMA to allow CMS to leverage the Medicare market share to negotiate larger Part D rebates. Further cost reduction efforts could decrease the coverage and price that we receive for our drug candidates and could seriously harm our business. Private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates, and any reduction in reimbursement under the Medicare program may result in a similar reduction in payments from private payors.
The ACA is intended to broaden access to health insurance and reduce or constrain the growth of healthcare spending. Further, the ACA imposes a significant annual fee on companies that manufacture or import branded prescription drug products. It also increased the amount of the rebates drug manufacturers must pay to state Medicaid programs, required that Medicaid rebates be paid on managed Medicaid utilization, and increased the additional rebate on "line extensions" (such as extended release formulations) of solid oral dosage forms of branded products. The law also contains substantial provisions affecting fraud and abuse compliance and transparency, which may require us to modify our business practices with healthcare practitioners, and incur substantial costs to ensure compliance.
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The President and the majority party in the Senate of the U.S. Congress have indicated their desire to repeal the ACA. It is unclear whether, when and how that repeal will be effectuated and what the effect on the healthcare sector will be. In addition to the potential repeal of the ACA, there are indications that the Medicaid program may be restructured, which could lead to revisions in Medicaid coverage for prescription drugs. While we are unable to predict what legislation, if any, may potentially be enacted, to the extent that future changes affect how our product candidates could be paid for and/or reimbursed by the government and private payers, our business could be adversely affected.
In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. Several states have adopted or are considering adopting laws that require pharmaceutical companies to provide notice prior to raising prices and to justify price increases. We expect that additional healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, and in turn could significantly reduce the projected value of certain development projects and reduce its profitability.
Risks Related to Timber's Dependence on Third Parties
Timber relies, and expects to continue to rely, on third parties to conduct its clinical studies, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completion of such studies.
Timber currently relies on CROs to conduct its clinical studies. Timber expects to continue to rely on third parties, such as CROs, clinical data management organizations, medical institutions and clinical investigators, to conduct its clinical studies. Timber's agreements with these third parties generally allow the third-party to terminate the agreement at any time. If Timber is required to enter into alternative arrangements because of any such termination the introduction of its product candidates to market could be delayed.
Timber's reliance on these third parties for research and development activities will reduce its control over these activities but will not relieve us of its responsibilities. For example, Timber designs its clinical studies and will remain responsible for ensuring that each of its clinical studies are conducted in accordance with the general investigational plan and protocols for the study. Moreover, the FDA requires Timber to comply with cGCPs for conducting, recording and reporting the results of clinical studies to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of study participants are protected. Timber's reliance on third parties that it does not control does not relieve it of these responsibilities and requirements. Timber also is required to register ongoing clinical studies and post the results of completed clinical studies on a government-sponsored database, Clinicaltrials.gov, within specified timeframes. Failure to do so can result in fines, adverse publicity and civil and criminal sanctions.
Furthermore, these third parties may also have relationships with other entities, some of which may be Timber's competitors. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our clinical studies in accordance with regulatory requirements or Timber's stated protocols, it will not be able to obtain, or may be delayed in obtaining, marketing approvals for its product candidates and will not be able to, or may be delayed in its efforts to, successfully commercialize its product candidates.
Timber also expects to rely on other third parties to store and distribute drug supplies for its clinical studies. Any performance failure on the part of our distributors could delay clinical development or marketing approval of our product candidates or commercialization of its products, producing additional losses and depriving it of potential product revenue.
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Timber may seek to enter into collaborations with third parties for the development and commercialization of its product candidates. If it fails to enter into such collaborations, or such collaborations are not successful, it may not be able to capitalize on the market potential of its product candidates.
Timber may seek third-party collaborators for development and commercialization of its product candidates. Timber's likely collaborators for any marketing, distribution, development, licensing or broader collaboration arrangements include large and mid-size pharmaceutical companies, regional and national pharmaceutical companies, non-profit organizations, government agencies, and biotechnology companies. Timber is currently party to a limited number of such arrangements and have limited control over the amount and timing of resources that our collaborators dedicate to the development or commercialization of our product candidates. Timber's ability to generate revenues from these arrangements will depend on its collaborators' abilities to successfully perform the functions assigned to them in these arrangements.
Collaborations involving its product candidates currently pose, and will continue to pose, the following risks to it:
Collaboration agreements may not lead to development or commercialization of Timber's product candidates in the most efficient manner or at all. If a collaborator of Timber's were to be involved in a business combination, the continued pursuit and emphasis on its product development or commercialization program could be delayed, diminished or terminated.
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If Timber is not able to establish collaborations, it may have to alter its development and commercialization plans.
Timber's drug development programs and the potential commercialization of its product candidates will require substantial additional cash to fund expenses. Timber may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of its product candidates.
Timber faces significant competition in seeking appropriate collaborators. Whether it reaches a definitive agreement for a collaboration will depend, among other things, upon its assessment of the collaborator's resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator's evaluation of a number of factors. Those factors may include the design or results of preclinical studies or clinical studies, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidates, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to its ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with us for our product candidates. Timber may also be restricted under future license agreements from entering into agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
Timber may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If Timber is unable to do so, it may have to curtail the development of its product candidates, reduce or delay its development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase its expenditures and undertake development or commercialization activities at its own expense. If Timber elects to increase its expenditures to fund development or commercialization activities on its own, it may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If Timber does not have sufficient funds, it may not be able to further develop its product candidates or bring it to market and generate product revenue.
Risks Relating to Timber's Intellectual Property
It is difficult and costly to protect Timber's intellectual property rights, and it cannot ensure the protection of these rights.
Timber's commercial success will depend, in part, on obtaining and maintaining additional patent protection for our technologies, products and processes, successfully defending these patents against third-party challenges and successfully enforcing these patents against third party competitors. The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal, scientific and factual questions for which important legal principles remain unresolved. Changes in either the patent laws or in interpretations of patent laws may diminish the value of our intellectual property. Accordingly, Timber cannot predict the breadth of claims that may be allowable in its pending applications or, the enforceability of its existing and future patents.
The degree of Timber's current and future protection for our proprietary rights is uncertain, because legal means afford only limited protection and may not adequately protect its rights, permit it to gain or keep our competitive advantage, or provide us with any competitive advantage at all. For example, others have filed, and in the future are likely to file, patent applications covering products and technologies, such as trifarotene and KB105 as described above, that are similar or competitive to
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Timber's product candidates, or important to its business. Timber cannot be certain that any patents or patent application owned by a third party will not have priority over patents and patent applications filed by it, or that it will not be involved in interference, opposition or invalidity proceedings before United States or foreign patent offices.
Timber also relies on trade secrets to protect technology, especially in cases when it believes patent protection is not appropriate or obtainable. However, trade secrets are difficult to protect. While Timber requires employees, academic collaborators, consultants and other contractors to enter into confidentiality agreements, it may not be able to adequately protect its trade secrets or other proprietary or licensed information. Typically, research collaborators and scientific advisors have rights to publish data and information in which Timber may have rights. If Timber cannot maintain the confidentiality of its proprietary technology and other confidential information, its ability to receive patent protection and its ability to protect valuable information owned by us may be imperiled. Enforcing a claim that a third-party entity illegally obtained and is using any of Timber's trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts are sometimes less willing to protect trade secrets than patents. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
If Timber fails to maintain or obtain additional patent protection or trade secret protection for its technologies, third parties could use its proprietary information, which could impair its ability to compete in the market and adversely affect our ability to generate revenues and attain profitability.
If Timber fails to obtain or maintain patent protection or trade secret protection for its technologies, third parties could use its proprietary information, which could impair its ability to compete in the market and adversely affect its ability to generate revenues and attain profitability.
Timber may also develop trademarks to distinguish its products from the products of its competitors. Timber cannot guarantee that any trademark applications filed by it or its business partners will be approved. Third parties may also oppose such trademark applications, or otherwise challenge Timber's use of the trademarks. In the event that the trademarks Timber uses are successfully challenged, it could be forced to rebrand its products, which could result in loss of brand recognition, and could require it to devote resources to advertising and marketing new brands. Further, Timber cannot provide assurance that competitors will not infringe the trademarks it uses, or that we will have adequate resources to enforce these trademarks.
Timber has in-licensed and acquired portions of its intellectual property, and if it fails to comply with its obligations under these arrangements, it could lose such intellectual property rights or owe damages to the licensor and/or seller of such intellectual property.
Timber is a party to a license agreement with AFT pursuant to which it licensed certain exclusive and co-exclusive rights to develop, manufacture and market drug candidates from AFT in certain territories. Timber has also entered into two acquisition agreements with Patagonia pursuant to which it acquired rights to certain intellectual property worldwide. These agreements are important to Timber's business, and it may enter into additional license and acquisition agreements in the future. Certain of Timber's in-licensed and acquired intellectual property covers, or may cover, other potential developmental candidates. Timber's existing license agreement and acquisition agreements impose, and it expects that future agreements will impose, various milestone payment, royalty and other obligations on it. If there is any conflict, dispute, disagreement or issue of non-performance between Timber and its collaborators regarding its rights or obligations under such agreements, including any such conflict, dispute or disagreement arising from our failure to satisfy payment obligations under any such agreement, it may owe damages, its collaborators may have a right to terminate the affected license or rights, and its ability to utilize the affected intellectual property in its product discovery and development efforts and
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its ability to enter into collaboration or marketing agreements for an affected product candidate may be adversely affected.
Timber's product candidates may infringe the intellectual property rights of others, which could increase its costs and delay or prevent its development and commercialization efforts.
Timber's success depends in part on avoiding infringement of the proprietary technologies of others. The pharmaceutical industry has been characterized by frequent litigation regarding patent and other intellectual property rights. Identification of third party patent rights that may be relevant to Timber's proprietary technology is difficult because patent searching is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning of patent claims. Additionally, because patent applications are maintained in secrecy until the application is published, Timber may be unaware of third-party patents that may be infringed by commercialization of our product candidates. There may be certain issued patents and patent applications claiming subject matter that Timber may be required to license in order to research, develop or commercialize its product candidates, and it do not know if such patents and patent applications would be available to license on commercially reasonable terms, or at all. Any claims of patent infringement asserted by third parties would be time-consuming and may:
Although no third party has asserted a claim of infringement against Timber, others may hold proprietary rights that could prevent its product candidates from being marketed. Any patent-related legal action against Timber claiming damages and seeking to enjoin commercial activities relating to its product candidates or its processes could subject it to potential liability for damages and require it to obtain a license to continue to manufacture or market our product candidates. Timber cannot predict whether it would prevail in any such actions or that any license required under any of these patents would be made available on commercially acceptable terms, if at all. In addition, Timber cannot be sure that it could redesign any of its product candidates or processes to avoid infringement, if necessary. Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses, could prevent Timber from developing and commercializing any of its product candidates, which could harm its business, financial condition and operating results.
A number of companies have conducted research on dermatological therapies which resulted in the filing of many patent applications related to this research. If Timber were to challenge the validity of these or any issued United States patent in court, it would need to overcome a statutory presumption of validity that attaches to every issued United States patent. This means that, in order to prevail, Timber would have to present clear and convincing evidence as to the invalidity of the patent's claims.
If Timber were to challenge the validity of these or any issued United States patent in an administrative trial before the Patent Trial and Appeal Board in the USPTO, it would have to prove that the claims are unpatentable by a preponderance of the evidence. There is no assurance that a jury and/or court would find in Timber's favor on questions of infringement, validity or enforceability.
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Timber may be subject to claims that we have wrongfully hired an employee from a competitor or that it or its employees have wrongfully used or disclosed alleged confidential information or trade secrets of their former employers.
As is commonplace in its industry, Timber employs individuals who were previously employed at other pharmaceutical companies, including its competitors or potential competitors. Although no claims against Timber are currently pending, it may be subject in the future to claims that our employees or prospective employees are subject to a continuing obligation to their former employers (such as non-competition or non-solicitation obligations) or claims that its employees or it has inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. Even if Timber is successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Timber may be subject to claims challenging the inventorship of its patents and other intellectual property.
Although Timber is not aware of any asserted third-party claims challenging inventorship on its patents or ownership of its intellectual property, it may in the future be subject to claims that former employees, strategic partners, commercial counterparties or other third parties associated with it or one of its predecessors in ownership of its product candidates have an interest in its patents or other intellectual property as an inventor or co-inventor. While it is its policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to it, it cannot fully control the enforcement of these policies by third parties with which we contract, nor can it be certain that assignment agreements between it and its employees, between it and its counterparties, or between its counterparties and their employees or between its predecessors of ownership and their employees and counterparties, will effectively protect its interests as to any party who conceives or develops intellectual property that it regard as its own. Among other issues, the assignment of intellectual property rights may not be self-executing, the assignment agreements may be breached, or Timber may have disputes arise from conflicting obligations of consultants or others who are involved in developing its product candidates. As Timber approaches potential commercialization of our product candidates, it is more closely analyzing all facts that it believes might be used to assert an inventorship claim against it. Determinations like these involve complex sets of fact and applications of sometimes-unsettled patent law, resulting in inherent uncertainties regarding ownership rights. Determining the history of development of certain of Timber's intellectual property is made more difficult by the fact that certain of its intellectual property was developed by other companies for other indications before being acquired by it. Consequently, Timber cannot be sure that it has all of the documentary records relevant to such an analysis.
If claims challenging inventorship are made against Timber, it may need to resort to litigation to resolve those claims. If it fails in defending against any such claims, in addition to paying monetary damages, Timber may lose valuable intellectual property rights, such as exclusive ownership of valuable intellectual property rights or the right to assert those rights against third-parties marketing competing products. Even if Timber is successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Timber may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms.
A third party may hold intellectual property, including patent rights, that are important or necessary to the development of Timber's product candidates. It may be necessary for Timber to use the patented or proprietary technology of third parties to commercialize its drug candidates, in which case it would be required to obtain a license from these third parties on commercially reasonable terms. Such a license
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may not be available, or it may not be available on commercially reasonable terms, in which case Timber's business would be harmed.
The risks described elsewhere pertaining to Timber's intellectual property rights also apply to the intellectual property rights that it in-licenses, and any failure by it or its licensors to obtain, maintain, defend and enforce these rights could harm its business. In some cases Timber may not have control over the prosecution, maintenance or enforcement of the patents that it licenses, and may not have sufficient ability to provide input into the patent prosecution, maintenance and defense process with respect to such patents, and its licensors may fail to take the steps that it believes are necessary or desirable in order to obtain, maintain, defend and enforce the licensed patents.
Changes in U.S. patent law or the patent law of other countries or jurisdictions could diminish the value of patents in general, thereby impairing Timber's ability to protect its products.
The United States has recently enacted and implemented wide-ranging patent reform legislation. In addition, patent reform legislation may pass in the future that could lead to additional uncertainties and increased costs surrounding the prosecution, enforcement and defense of our patents and pending patent applications. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to Timber's ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the United States Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future. Similarly, changes in patent law and regulations in other countries or jurisdictions or changes in the governmental bodies that enforce them or changes in how the relevant governmental authority enforces patent laws or regulations may weaken our ability to obtain new patents or to enforce patents that we have licensed or that we may obtain in the future. We cannot predict future changes in the interpretation of patent laws or changes to patent laws that might be enacted into law by United States and foreign legislative bodies. Those changes may materially affect our patents or patent applications and our ability to obtain additional patent protection in the future. The United States federal government retains certain rights in inventions produced with its financial assistance under the Bayh-Dole Act. The federal government retains a "nonexclusive, nontransferable, irrevocable, paid-up license" for its own benefit. The Bayh-Dole Act also provides federal agencies with "march-in rights." March-in rights allow the government, in specified circumstances, to require the contractor or successors in title to the patent to grant a "nonexclusive, partially exclusive, or exclusive license" to a "responsible applicant or applicants." If the patent owner refuses to do so, the government may grant the license itself.
Timber's intellectual property agreements with third parties may be subject to disagreements over contract interpretation, which could narrow the scope of its rights to the relevant intellectual property or technology.
Certain provisions in Timber's intellectual property agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect the scope of Timber's rights to the relevant intellectual property or technology, or affect financial or other obligations under the relevant agreement, either of which could harm our business, financial condition, results of operations and prospects.
Timber may not be able to obtain or maintain orphan drug designation or exclusivity for its product candidates.
Timber has obtained orphan drug designation for TMB-001 and TMB-002, it is seeking orphan drug designation for TMB-003 and may seek additional orphan drug designation for other product
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candidates. Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the European Medicines Agency ("EMA") from approving another marketing application for the same indication for that drug during that time period. For a product that obtains orphan drug designation on the basis of a plausible hypothesis that it is clinically superior to the same drug that is already approved for the same indication, in order to obtain orphan drug exclusivity upon approval, clinical superiority of such product to this same drug that is already approved for the same orphan indication must be demonstrated. The exclusivity period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Timber cannot assure you that the application for orphan drug designation of TMB-003, or any future application with respect to any other product candidate, will be granted. If Timber is unable to obtain orphan drug designation in the United States, it will not be eligible to obtain the period of market exclusivity that could result from orphan drug designation or be afforded the financial incentives associated with orphan drug designation. Even if Timber obtains orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.
There are risks to Timber's Intellectual Property based on its international business operations.
There are risks to technology and intellectual property that may result from Timber's conducting business outside the United States, particularly in jurisdictions that do not have comparable levels of protection of corporate proprietary information and assets such as intellectual property, trademarks, trade secrets, know-how and customer information and records. For instance, Timber may be exposed to material risks of theft of proprietary technology and other intellectual property, including technical data, business processes, data sets or other sensitive information. While these risks are common to many companies, conducting business in certain foreign jurisdictions, housing technology, data and intellectual property abroad, or licensing technology to joint ventures with foreign partners may have more significant exposure. The risk can be by direct intrusion wherein technology and intellectual property is stolen or compromised through direct intrusion including cyber intrusions and physical theft through corporate espionage, including with the assistance of insiders. In addition, Timber's technology and intellectual property may be subject to theft or compromise via more indirect routes. For example, Timber's products or components may be reverse engineered by joint venture partners or other parties, which could result in Timber's patents being infringed or its know-how or trade secrets stolen.
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This proxy statement/prospectus/information statement, the documents incorporated herein by reference and other written reports and oral statements made from time to time by BioPharmX or Timber may contain so-called "forward-looking statements," all of which are subject to risks and uncertainties. One can identify these forward-looking statements by their use of words such as "expect," "plan," "will," "may," "anticipate," "believe," "estimate," "should," "intend," "forecast," "project" the negative or plural of these words, and other comparable terminology. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address either company's growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from either company's forward-looking statements. These factors include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward-looking statement can be guaranteed, and actual future results may vary materially. BioPharmX and Timber do not assume the obligation to update any forward-looking statement. Consequently, the reader should not consider any such list to be a complete list of all potential risks or uncertainties.
For a discussion of the factors that may cause BioPharmX, Timber or the combined organization's actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied in such forward-looking statements, or for a discussion of risk associated with the ability of BioPharmX and Timber to complete the Merger and the effect of the Merger on the business of BioPharmX, Timber and the combined organization, see the section "Risk Factors" beginning on page 24.
These forward-looking statements include, but are not limited to, statements concerning the following:
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You should not rely upon forward-looking statements as predictions of future events. Neither BioPharmX nor Timber can assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur.
In addition, statements that "BioPharmX believes", "Timber believes" and similar statements reflect the beliefs and opinions on the relevant subject of BioPharmX, Timber or the combined company, as applicable. These statements are based upon information available as of the date of this proxy statement/prospectus/information statement, and while BioPharmX, Timber or the combined company, as applicable, believes such information forms a reasonable basis for such statements, such information may be limited or incomplete, and such statements should not be read to indicate that BioPharmX, Timber or the combined company has conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
If any of these risks or uncertainties materialize or any of these assumptions prove incorrect, the results of BioPharmX, Timber or the combined organization could differ materially from the forward-looking statements. All forward-looking statements in this proxy statement/prospectus/information statement are current only as of the date on which the statements were made. BioPharmX and Timber do not undertake any obligation to publicly update any forward-looking statement to reflect or circumstances after the date on which any statement is made or to reflect the occurrence of unanticipated events.
THE SPECIAL MEETING OF BIOPHARMX'S STOCKHOLDERS
The BioPharmX special meeting will be held at 10:00 a.m., Eastern Time, on April 30, 2020, unless postponed or adjourned to a later date. The special meeting will be held at the law offices of Akerman LLP at Three Brickell City Centre, 98 Southeast Seventh Street, Suite 1100, Miami, Florida 33131. Alternatively, due to the emerging public health impact of coronavirus disease 2019 (COVID-19), we are planning for the possibility that the BioPharmX special meeting may need to be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance, and details on how to participate in the webcast will be set forth in a press release issued by BioPharmX and available on our website at www.biopharmx.com. This proxy statement/prospectus/information statement is first being furnished to BioPhamX's stockholder on or about , 2020.
Purpose of the BioPharmX Special Meeting
The purpose of the BioPharmX special meeting is:
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Recommendation of the BioPharmX Board
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Only holders of record of BioPharmX's common stock at the close of business on the record date, March 23, 2020, are entitled to notice of, and to vote at, the BioPharmX special meeting. There were approximately 38 registered record holders of BioPharmX's common stock at the close of business on the record date. At the close of business on the record date, 18,278,219 shares of BioPharmX's common stock were issued and outstanding. Each share of BioPharmX's common stock entitles the holders thereof to one vote on each matter submitted for stockholder approval.
Voting and Revocation of Proxies
The proxy accompanying this proxy statement/prospectus/information statement is solicited on behalf of the BioPharmX Board for use at the BioPharmX special meeting.
If you are a stockholder of record of BioPharmX as of the record date referred to above, you may vote in person at the BioPharmX special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the BioPharmX special meeting, BioPharmX urges you to vote by proxy to ensure your vote is counted. You may still attend the BioPharmX special meeting and vote in person if you have already voted by proxy. As a stockholder of record you may vote in any of the following ways:
If your shares of BioPharmX's common stock are held by your broker as your nominee, that is, in "street name", the enclosed voting instruction card is sent by the institution that holds your shares. Please follow the instructions included on that proxy card regarding how to instruct your broker to vote your shares of BioPharmX's common stock.
If you do not give instructions to your broker, your broker can vote your shares of BioPharmX's common stock with respect to "discretionary" items but not with respect to "non-discretionary" items. Discretionary items are proposals considered routine under certain rules, applicable to brokers on which your broker may vote shares held in "street name" in the absence of your voting instructions. On non-discretionary or non-routine items for which you do not give your broker instructions, your shares of BioPharmX's common stock will be treated as broker non-votes. It is anticipated that all proposals will be non-discretionary items. Under the rules and interpretations of the NYSE, "non-routine" matters are matters that may substantially affect the rights or privileges of stockholders, such as mergers, stockholder proposals, elections of directors (even if not contested), executive compensation (including any advisory stockholder votes on executive compensation and on the frequency of stockholder votes on executive compensation), and certain corporate governance proposals, even if management-supported.
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For any BioPharmX Proposal that is considered a "routine" matter, your broker or nominee may vote your shares in its discretion either for or against the proposal even in the absence of your instruction. Broker non-votes occur when a beneficial owner of shares held in street name does not give instructions to the broker or nominee holding the shares as to how to vote on matters deemed "non-routine." Broker non-votes will not be considered to be shares "entitled to vote" at the meeting and will not be counted as having been voted on the applicable proposal.
BioPharmX believes that only Proposal No. 2 regarding the reverse stock split and Proposal No. 6 regarding the potential adjournment of the special meeting will be considered "routine" matters and all of the other BioPharmX Proposals will be considered "non-routine" matters. Therefore, if you are a beneficial owner and want to ensure that shares you beneficially own are voted in favor or against any or all of the BioPharmX Proposals, the only way you can do so is to give your broker or nominee specific instructions as to how the shares are to be voted.
All properly executed proxies that are not revoked will be voted at the BioPharmX special meeting and at any adjournments or postponements of the BioPharmX special meeting in accordance with the instructions contained in the proxy. If a holder of BioPharmX's common stock executes and returns a proxy and does not specify otherwise, the shares represented by that proxy will be voted "FOR" Proposal No. 1 to approve the issuance of shares of BioPharmX's common stock to Timber's common members pursuant to the Merger Agreement; "FOR" Proposal No. 2 to approve an amendment to the certificate of incorporation of BioPharmX effecting the BioPharmX Reverse Stock Split; "FOR" Proposal No. 3 to approve an amendment to the certificate of incorporation of BioPharmX to effect the BioPharmX Name Change; "FOR" Proposal No. 4 to approve the Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan; "FOR" Proposal No. 5 to approve the issuance of BioPharmX common stock upon the exercise of the Investor Warrants and Bridge Warrants and additional common stock following the closing of the Timber Funding; and "FOR" Proposal No. 6 to approve the adjournment of the BioPharmX special meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2 or 5 in accordance with the recommendation of the BioPharmX Board.
BioPharmX's stockholders of record may change their vote at any time before their proxy is voted at the BioPharmX special meeting in one of four ways. First, a stockholder of record of BioPharmX may send a written notice to the Secretary of BioPharmX stating that the stockholder would like to revoke their proxy. Second, a stockholder of record of BioPharmX can submit new proxy instructions on a new proxy card. Third, a stockholder of record of BioPharmX can vote again through the internet or via telephone. Fourth, a stockholder of record of BioPharmX may attend the BioPharmX special meeting and vote in person. Attendance alone will not revoke a proxy. If a stockholder of BioPharmX of record or a stockholder who owns shares of BioPharmX's common stock in "street name" has instructed a broker to vote its shares of BioPharmX's common stock, the stockholder must follow directions received from its broker to change those instructions.
The presence, in person or represented by proxy, at the BioPharmX special meeting of the holders of a majority of the shares of BioPharmX's common stock outstanding and entitled to vote at the BioPharmX special meeting is necessary to constitute a quorum at the meeting. Abstentions and broker non-votes will be counted toward a quorum. Approval of Proposal No. 4, 5 and 6 requires the affirmative vote of a majority of the shares of BioPharmX's common stock entitled to vote and present in person or represented by proxy at the BioPharmX special meeting. Approval of Proposal Nos. 1, 2 and 3 requires the affirmative vote of holders of a majority of BioPharmX's outstanding common stock having voting rights on the record date for the BioPharmX special meeting.
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Votes will be counted by the inspector of election appointed for the BioPharmX special meeting, who will separately count "FOR" and "AGAINST" votes, abstentions and broker non-votes. Abstentions will be counted towards the vote total and will have the same effect as "AGAINST" votes. Broker non-votes will also have the same effect as "AGAINST" votes for Proposal Nos. 1, 2 and 3. For Proposal Nos. 4, 5 and 6, broker non-votes will have no effect and will not be counted towards the vote total but will be used to determine whether a quorum is present at the BioPharmX special meeting.
Each of Proposal Nos. 1, 2 and 5 are conditioned upon each other. Therefore, the Merger cannot be consummated without the approval of Proposal Nos. 1, 2 and 5. Proposal No. 3 is conditioned upon the consummation of the Merger. If the Merger is not completed or the stockholders do not approve Proposal No. 3, BioPharmX will not change its name to "Timber Pharmaceuticals, Inc.".
Timber is the owner of 2,200,328 shares of the common stock of BioPharmX. Timber will vote its shares of BioPharmX in favor of all proposals to come before the special meeting.
Several affiliates of an institutional investor are the owners of an aggregate of 850,000 shares of common stock of BioPharmX pursuant to the Exchange Agreement and have agreed, pursuant thereto, to vote their shares at the special meeting as recommended by the BioPharmX Board with respect to the approval of the transactions contemplated by the Merger Agreement.
Directors, employees, officers and agents of BioPharmX may solicit proxies from BioPharmX's stockholders by mail or by other methods. BioPharmX will bear the costs of printing and filing this proxy statement/prospectus/information statement and proxy card. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries who are record holders of BioPharmX's common stock for the forwarding of solicitation materials to the beneficial owners of BioPharmX's common stock. BioPharmX will reimburse these brokers, custodians, nominees and fiduciaries for the reasonable out-of-pocket expenses they incur in connection with the forwarding of solicitation materials. BioPharmX has retained Alliance Advisors LLC as proxy solicitor with respect to the BioPharmX special meeting.
As of the date of this proxy statement/prospectus/information statement, the BioPharmX Board does not know of any business to be presented at the BioPharmX special meeting other than as set forth in the notice accompanying this proxy statement/prospectus/information statement. If any other matters should properly come before the BioPharmX special meeting, it is intended that the shares represented by proxies will be voted with respect to such matters in accordance with the judgment of the persons voting the proxies.
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This section and the section entitled "The Merger Agreement" in this proxy statement/prospectus/information statement describe the material aspects of the Merger, including the Merger Agreement. While BioPharmX and Timber believe that this description covers the material terms of the Merger and the Merger Agreement, it may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus/information statement for a more complete understanding of the Merger and the Merger Agreement, including the Merger Agreement attached as Annex A and the other documents to which you are referred herein. See the section "Where You Can Find More Information" in this proxy statement/prospectus/information statement.
Historical Background for BioPharmX
The following is a summary of material events, meetings and discussions that are relevant to the BioPharmX Board's decision to approve the Merger Agreement and recommend the Merger to BioPharmX stockholders.
On September 12, 2018, BioPharmX announced the appointment of David S. Tierney, M.D. as its chief executive officer. Following Dr. Tierney's hiring, the company initiated a strategic review of its business. Following a thorough strategy and pipeline review, the company streamlined its pipeline strategy to focus exclusively on development candidates utilizing the HyantX delivery system and discontinued non-core commercial and development programs. At various times prior to Dr. Tierney joining BioPharmX, and having been ongoing and dating back to 2016, the company had held strategic partnering discussions, executed confidentiality agreements and facilitated various levels of due diligence with entities described herein as Companies A through Z. Additional entities engaged following Dr. Tierney joining BioPharmX will be described herein as Companies AA through SS.
On September 14, 2018, the BioPharmX business development team conducted an introductory call with a senior business development executive from Company AA.
On September 21, 2018, the BioPharmX business development team conducted a conference call with a senior business development executive of Company U in follow up to the in-person meeting on August 21, 2018.
On October 2, 2018, the BioPharmX business development team conducted a call with senior business development executives from Company G.
On October 3, 2018, the BioPharmX business development team conducted a follow up conference call with Company U.
On October 11, 2018, BioPharmX initiated its Phase 2b clinical trial of BPX-04 for the treatment of papulopustular rosacea.
On October 15, 2018, BioPharmX management signed a confidential disclosure agreement with Company AA to discuss their interest in the BPX-01 and BPX-04 development assets.
On October 16, 2018, the BioPharmX business development team conducted a follow up call with a senior business development executive from Company AA.
On October 16, 2018, BioPharmX CEO, Dr. David Tierney, met with the chief executive officer of Company U near Company U's headquarters to work through remaining due diligence questions.
On October 29, 2018, BioPharmX management received an indication of interest to license BPX-01 from Company AA outlining background information on Company AA and the potential structure of a transaction. However, no terms were defined.
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On October 30, 2018, the BioPharmX business development team conducted a follow up due diligence conference call with Company U to address addition due diligence questions with a senior business development executive.
On November 5, 2018, the BioPharmX business development team conducted an additional follow up due diligence conference call with Company U's R&D and Commercial organizations to address the addition due diligence questions discussed on October 30, 2018.
On November 14, 2018, the BioPharmX business development team conducted conference calls with Company H and Company U.
On November 30, 2018, BioPharmX management conducted a conference call with Company AA to discuss the scope and timing of a due diligence process.
On December 3, 2018, the BioPharmX business development team conducted a conference call with Company U.
On December 10, 2018, BioPharmX granted data room access to Company AA to conduct more comprehensive due diligence on the BPX-01 and BPX-04 development assets.
On January 2, 2019, the BioPharmX business development team received a list of due diligence questions from Company AA following a thorough review of the provided data room.
During the week of January 6, 2019, BioPharmX management conducted meetings at the J.P. Morgan Healthcare Conference in San Francisco with Company C, Company G, Company K, Company M, Company R, Company U, Company Z and Company AA to discuss their interest in partnering.
On January 16, 2019, the BioPharmX business development team received a second list of due diligence questions from Company AA following their continued review of the provided data room.
On January 16, 2019, the BioPharmX business development team conducted a conference call with Company N.
On January 31, 2019, BioPharmX management signed an updated CDA with Company G to discuss their ongoing interest in the BPX-01 and BPX-04 development assets.
On February 7, 2019, BioPharmX management provided a written response to the due diligence questions as received from Company AA on January 2, 2019.
On February 11, 2019, the BioPharmX business development team conducted a conference call with Company AA to discuss their feedback following initial due diligence.
On February 22, 2019, the BioPharmX business development team conducted a follow up conference call with Company AA to discuss their ongoing interest.
From February 28, 2019 to March 2, 2010, BioPharmX management conducted meetings at the American Academy of Dermatology Annual Meeting in Washington D.C. with Company H, Company N, Company W, Company Z, Company AA and Company BB to discuss their interest in a strategic partnership.
On March 14, 2019, BioPharmX management received a non-binding term sheet to license BPX-01 from Company AA, subject to the satisfactory completion of due diligence. Proposed terms were as follows:
One time only payments at the following key milestones:
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One time only payments at the following sales milestones:
ROYALTY ON NET SALES: 6% (until entry of new topical Minocycline brand or generic in the Territory)
On March 20, 2019, the BioPharmX business development team conducted an in-person meeting at the DCAT Conference in New York, NY with Company U to discuss their ongoing interest.
On March 29, 2019, BioPharmX management conducted a conference call with Company AA to discuss their letter of intent as well as additional due diligence requests to progress Company AA's evaluation.
On April 8, 2019, the BioPharmX business development team conducted a follow up conference call with the chief executive officer and the leadership team of Company H to discuss their ongoing interest.
On April 9, 2019, the BioPharmX business development team conducted a follow up conference call with Company N to discuss their ongoing interest.
On April 11, 2019, BioPharmX management signed an updated CDA with Company N to discuss their ongoing interest in the BPX-01 and BPX-04 development assets.
On April 15, 2019, BioPharmX management signed an updated CDA with Company H to discuss their ongoing interest in the BPX-01 and BPX-04 development assets.
On April 18, 2019, BioPharmX management conducted a conference call with Company AA to discuss next steps in the ongoing negotiations and due diligence process.
On April 26. 2019, BioPharmX provided a counter to the non-binding term sheet provided by Company AA on March 14, 2019.
On April 29, 2019, BioPharmX management conducted a conference call and later granted data room access to Company H to conduct more comprehensive due diligence on the BPX-01 and BPX-04 development assets.
On May 9, 2019, BioPharmX management was notified that Company H's board of directors had mandated a focus on commercial assets.
On May 13, 2019, following a discussion on the counter to the non-binding term sheet, Company AA was provided with additional data room access to facilitate their ongoing due diligence.
On May 14, 2019, additional due diligence materials were provided to Company U to address outstanding questions on BPX-01 in the interest of advancing their ongoing partnering interest toward a written offer.
On May 14, 2019, BioPharmX management conducted an introductory conference call with Company CC.
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On May 21, 2019, the BioPharmX business development team conducted a follow up conference call with Company N to discuss their ongoing interest.
On May 23, 2019, the BioPharmX business development team conducted a follow up conference call with a senior executive of Company U to discuss their ongoing interest.
On May 28, 2019, the BioPharmX business development team received a list of due diligence questions from Company AA following a thorough review of the additional materials provided in the data room.
On June 2, 2019, BioPharmX management signed a CDA with Company CC to discuss their interest in the BPX-01 and BPX-04 development assets.
On June 3, 2019, BioPharmX management conducted an in-person meeting at the BIO International Convention in Philadelphia, PA with Company AA.
On June 4, 2019, BioPharmX management conducted a conference call with Company CC to answer certain due diligence questions.
On June 6, 2019, BioPharmX management conducted a due diligence conference call with Company AA to address the questions received on May 28, 2019.
On June 14, 2019, BioPharmX management conducted a follow up due diligence conference call with Company AA to address additional questions that were raised following the June 6, 2019 due diligence call.
On June 14, 2019, a managing director of Chardan Capital Markets, LLC ("Chardan") on behalf of Timber Pharmaceuticals, LLC ("Timber"), contacted BioPharmX management via an unsolicited email expressing interest via a non-binding indication of interest outlining a potential merger transaction citing that the public markets may be failing to appropriately reflect the value of BioPharmX.
On June 18, 2019, BioPharmX management signed a CDA with Timber to discuss their interest in a potential merger transaction.
On June 25, 2019, BioPharmX announced positive results from its Phase 2b clinical trial of BPX-04, a novel topical gel formulation of fully solubilized minocycline for the treatment of moderate-to-severe papulopustular rosacea. The randomized, double-blind, vehicle-controlled Phase 2b trial enrolled 206 subjects aged 18 years and above with moderate-to-severe papulopustular rosacea across 11 sites in the United States. The study evaluated the safety and efficacy of once daily application of BPX-04, a 1% minocycline gel, versus a vehicle control over a 12-week treatment period. The study was designed to demonstrate a statistically significant mean change in the number of facial inflammatory lesions from baseline to week 12. The secondary endpoint was the proportion of subjects with a two-grade improvement to clear or almost clear on the IGA scale from baseline to week 12. BPX-04, a 1% minocycline gel, successfully met both the primary and secondary endpoints of the trial in demonstrating a statistically significant mean change in the number of facial inflammatory lesions and a two-grade improvement to clear or almost clear on the IGA scale from baseline to week 12. BPX-04 appeared to be generally well-tolerated. The most commonly reported adverse events across both treatment groups were upper respiratory tract infection (5.3%), gastroenteritis (2.4%) and headache (2.4%) with the majority of these adverse events determined to be not treatment-related. There were no serious treatment-related adverse events.
On June 26, 2019, BioPharmX management conducted a conference call with the chief executive officer and his leadership team of Company U to discuss the additional due diligence materials provided on May 14, 2019, to provide an overview of the Phase 2b clinical trial results of BPX-04 and to discuss their ongoing interest.
On June 26, 2019, BioPharmX management conducted an introductory conference call with the chief executive of Company FF.
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On June 27, 2019, BioPharmX management conducted a conference call with Company AA to provide an overview of the Phase 2b clinical trial results of BPX-04 and discuss their ongoing interest and due diligence efforts.
On June 27, 2019, BioPharmX management conducted a conference call with Company W to provide an overview of the Phase 2b clinical trial results of BPX-04 and discuss their ongoing interest.
Following the June 25, 2019 reporting of positive topline results from its Phase 2b trial of BPX-04 for the treatment of Papulopustular Rosacea, the BioPharmX share price declined by 38.5% in the subsequent 5 trading days. Given the reduced market capitalization and the anticipated dilution associated with raising the proceeds necessary to advance BPX-04 toward the necessary Phase 3 clinical trial, the BioPharmX Board and BioPharmX management evaluated long- and short-term strategic options, including capital formation or other investment transactions, potential strategic alliances, prospects for mergers and acquisitions, strategic acquisitions and divestitures and other business combinations, as well as its continued operations as an independent company, each with a view toward enhancing stockholder value.
On July 1, 2019, at the request of Chardan, BioPharmX management conducted a conference call with Timber management to introduce Timber and their technology as well as discuss the proposed merger transaction.
On July 2, 2019, BioPharmX management conducted a due diligence call with Company U to answer outstanding questions.
On July 9, 2019, BioPharmX management conducted a conference call with Company C to provide an overview of the Phase 2b clinical trial results of BPX-04 and discuss their ongoing interest.
On July 9, 2019, BioPharmX management conducted a conference call with Company N to provide an overview of the Phase 2b clinical trial results of BPX-04 and discuss their ongoing interest.
On July 9, 2019, BioPharmX management conducted an introductory conference call with a senior executive at Company EE.
On July 10, 2019, BioPharmX management signed a CDA with Company EE to discuss their interest in a potential merger transaction.
On July 11, 2019, Company W declined to continue partnering discussions due to their focus on commercial assets.
On July 12, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA.
On July 16, 2019, Company K informed BioPharmX that they would be passing on the opportunity to focus their business development efforts on commercial assets.
On July 17, 2019, BioPharmX management conducted an introductory conference call with management team of Company EE.
On July 17, 2019, BioPharmX management conducted a call with a senior business development executive from Company G whereby it was communicated that they have strategically committed to acquiring commercial assets in dermatology before investing in a development pipeline.
On July 17, 2019, BioPharmX management conducted a call with a senior business development executive from Company L.
On July 23, 2019, at the request of BioPharmX, BioPharmX management visited Timber's headquarters for an in-person management presentation during which management of Timber and BioPharmX discussed the proposed merger transaction.
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Following the in-person management meeting with Timber on July 23, 2019, an updated, more detailed, non-binding offer was presented to BioPharmX management via email outlining their proposal to merge the two companies.
On July 25, 2019, BioPharmX management conducted a call with a senior executive from Company BB.
On July 27, 2019, Company CC informed BioPharmX that they would be passing on the opportunity.
On July 31, 2019, BioPharmX management conducted a conference call with the chief executive officer and his leadership team at Company U whereby it was stated that Company U was preparing an offer.
On July 31, 2019, BioPharmX management was informed that Company EE did not receive support from their Board to proceed with negotiations around a potential merger transaction.
On August 1, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA.
On August 4, 2019, BioPharmX management signed a CDA with Company FF to discuss their interest in a potential merger transaction.
On August 5, 2019, BioPharmX management received and answered a series of due diligence questions from Company AA.
On August 6, 2019, BioPharmX management conducted a conference call with the chief executive of Company FF and their leadership team to discuss their interest in a potential merger transaction and provide more detailed overview of their business.
On August 6, 2019, the BioPharmX Board met to discuss a variety of topics including the non-binding offer from Timber, an evaluation of strategic options and the potential value of engaging an outside strategic and/or financial advisor(s).
On August 9, 2019, BioPharmX management conducted an introductory conference call with the chief executive officer of Company GG.
On August 12, 2019, BioPharmX management conducted a conference call with the chief executive of Company R to revisit their interest.
On August 13, 2019, BioPharmX management signed a CDA with Company GG to discuss their interest in the BPX-01 and BPX-04 development assets.
On August 15, 2019, BioPharmX management conducted a conference call with Chardan to inform them, as well as their client Timber Pharmaceuticals, of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
On August 15, 2019, BioPharmX management conducted an introductory conference call with Company HH to learn more about their business model.
On August 16, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA.
On August 18, 2019, the BioPharmX management and BioPharmX Board formalized the engagement of Locust Walk Partners LLC ("Locust Walk"), a global life science transaction firm focused on biopharmaceutical and medical technology companies, to initiate a formal strategic process and provide transaction advisory services.
On August 21, 2019, BioPharmX management conducted a follow up conference call with the chief executive officer of Company GG and his broader team to inform them of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
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On August 21, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA to inform them of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
On August 21, 2019, BioPharmX management conducted a conference call with Company C to inform them of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
On August 21, 2019, BioPharmX management conducted an introductory conference call with a senior business development executive with Company II.
On August 22, 2019, BioPharmX management conducted a conference call with Company R to inform them of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
On August 23, 2019, BioPharmX management conducted a due diligence conference call with Company AA to address additional due diligence questions.
On August 23, 2019, BioPharmX management conducted a conference call with a senior executive from Company BB to inform them of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
On August 26, 2019, BioPharmX management conducted a call with a senior business development executive from Company L to inform them of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
Between August 27, 2019 and October 1, 2019, Locust Walk initiated outreach to 49 strategic partners to evaluate potential strategic alliances, prospects for mergers and acquisitions, strategic acquisitions and divestitures and other business combinations. In addition to Company A through II participating in the sell-side process, Company JJ, Company KK, Company LL, Company MM, Company NN, Company OO, Company PP, Company QQ, Company RR and Company SS all were responsive to the Locust Walk outreach and engaged by expressing various levels of interest.
On August 27, 2019, Locust Walk received an email from the chief executive officer of Company U suggesting that they intended on participating in the process.
On August 28, 2019, Company GG was granted data room access to conduct due diligence on the BPX-01 and BPX-04 development assets.
On August 28, 2019, Locust Walk received an email from a senior executive of Company N suggesting that they intended on participating in the process.
On August 28, 2019, Company D informed Locust Walk that they would not be putting forth an offer.
On August 30, 2019, BioPharmX management conducted a conference call with the chief executive officer and his leadership team of Company U to discuss progress and obstacles in preparing the offer discussed on July 31, 2019.
On September 2, 2019, Company CC informed Locust Walk that they would not be putting forth an offer.
On September 2, 2019, Locust Walk received an email from Company MM that they would move expeditiously to meet the process timeline. Following this communication, Company MM became unresponsive.
On September 3, 2019, Locust Walk conducted a conference call with a senior executive from Company BB whereby he expressed interest in evaluating the BPX-01 and BPX-04 development assets.
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On September 3, 2019, Company Y informed Locust Walk that they would not be putting forth an offer.
On September 4, 2019, Locust Walk received a request from Company H to reinstate their data room access for continued due diligence as their strategy had shifted to evaluate late-stage development assets.
On September 4, 2019, Locust Walk conducted a conference call with Company R management and their primary investor.
On September 6, 2019, Locust Walk conducted a conference call with Company G to discuss their interest and to outline the structured process and its associated timelines.
On September 9, 2019, BioPharmX issued a press release reporting fiscal second quarter 2020 financial results and providing a corporate update, including the engagement of Locust Walk and initiation of a strategic process.
On September 9, 2019, BioPharmX management signed a CDA and granted data room access to Company BB to conduct more comprehensive due diligence on the BPX-01 and BPX-04 development assets.
On September 9, 2019, Dr. Tierney received an email from a financial advisor of Company OO suggesting an interest in going public via a merger.
On September 9, 2019, Locust Walk conducted a conference call with Company KK to discuss their interest and to outline the structured process and its associated timelines.
On September 10, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA.
On September 10, 2019, Locust Walk conducted an introductory conference call with the financial advisor of Company OO.
On September 10, 2019, BioPharmX management signed a CDA with Company OO to discuss their interest in a reverse merger transaction.
On September 10, 2019, BioPharmX management conducted a conference call with Company II to inform them of the company's plan to engage a transaction advisory firm and to outline the structured process and its associated timelines.
On September 11, 2019, BioPharmX management signed an updated CDA with Company R to discuss their interest in the BPX-01 and BPX-04 development assets.
On September 11, 2019, Locust Walk conducted a conference call with a senior business development executive from Company AA.
On September 11, 2019, Company A informed Locust Walk that they would not be putting forth an offer.
On September 11, 2019, Company M informed Locust Walk that they would not be putting forth an offer.
On September 12, 2019, data room access was granted to Company R to conduct further due diligence on the BPX-01 and BPX-04 development assets.
On September 12, 2019, data room access was granted to Company OO and their financial advisors to conduct certain financial and legal due diligence. A data room was not yet ready for BioPharmX to complete the requested due diligence on Company OO.
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On September 12, 2019, Company N informed Locust Walk that they would not be putting forth an offer.
On September 14, 2019, BioPharmX management signed an updated CDA with Company K and, at the request of Company K, provided data room access to facilitate their ongoing due diligence on the BPX-01 and BPX-04 development assets.
On September 16, 2019, Company C informed Locust Walk that they would not be putting forth an offer.
On September 16, 2019, Locust Walk conducted a conference call with the president of Company W to discuss their interest and to outline the structured process and its associated timelines.
On September 16, 2019, Locust Walk conducted a conference call with Company NN whereby an interest in participating in the process was expressed.
On September 17, 2019, Company LL informed Locust Walk that they would not be putting forth an offer.
On September 18, 2019, additional due diligence materials were made available to Company AA upon request.
On September 19, 2019, BioPharmX management conducted a conference call with the chief executive officer of Company OO, following which additional due diligence materials were made available.
On September 20, 2019, Locust Walk conducted an introductory conference call with Company PP.
On September 20, 2019, Locust Walk conducted a conference call with a senior executive from Company Q.
On September 20, 2019, Company JJ informed Locust Walk that they would not be putting forth an offer.
On September 21, 2019, BioPharmX management received and answered additional due diligence questions from Company OO.
On September 24, 2019, Company II informed Locust Walk that they would not be putting forth an offer.
On September 24, 2019, Company KK informed Locust Walk that they would not be putting forth an offer.
On September 24, 2019, Company NN informed Locust Walk that they would not be putting forth an offer.
On September 24, 2019, Locust Walk conducted an introductory conference call with Company RR.
On September 25, 2019, a senior executive of Company GG informed BioPharmX that they would not be submitting a bid for the topical minocycline assets.
On September 26, 2019, Dr. Tierney met with the chief executive officer of Company OO in Chicago to further evaluate their socialized interest in a reverse merger.
On September 26, 2019, BioPharmX management signed a CDA and granted data room access to Company PP to conduct more comprehensive due diligence on the BPX-01 and BPX-04 development assets.
On September 26, 2019, Company S informed Locust Walk that they would not be putting forth an offer.
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On September 27, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA.
On September 30, 2019, BioPharmX management conducted additional conference calls with Company OO to evaluate Company OO as a reverse merger candidate.
On October 1, 2019, a non-binding term sheet was received from Timber Pharmaceuticals outlining a proposed business combination as well as providing the necessary bridge capital to pursue the closing of the outlined transaction.
On October 1, 2019, Locust Walk provided Company RR with additional information on the opportunity.
On October 2, 2019, the BioPharmX business development team received a list of due diligence questions from Company H following their thorough review of the data room.
On October 2, 2019, BioPharmX management conducted an introductory call with the Company QQ management team.
On October 2, 2019, a member of the BioPharmX Board conducted a conference call with Company OO's chief executive officer to learn more about their operating business and readiness for pursuing a reverse merger transaction.
On October 2, 2019, Company U informed BioPharmX management that they would not be putting forth an offer.
On October 2, 2019, Company RR confirmed to Locust Walk that there was interest in evaluating a reverse merger transaction pending confirmation from its chief financial officer.
On October 2, 2019, BioPharmX management conducted a conference call with the chief executive officer and leadership team from Company Q to discuss their interest and potential strategic fit.
On October 2, 2019, Company W informed BioPharmX management that they would not be putting forth an offer as they are focused on commercial assets.
On October 3, 2019, BioPharmX management signed a CDA with Company QQ to discuss their interest in a strategic business combination.
On October 3, 2019, BioPharmX management provided Company H with a written response to due diligence questions received on October 2, 2019.
On October 4, 2019, BioPharmX management conducted a due diligence conference call with Company AA to address additional due diligence questions introduced on the September 27.
On October 4, 2019, data room access was granted to Company QQ to conduct certain financial, legal and technical due diligence.
On October 7, 2019, the BioPharmX Board met to discuss a variety of topics including the updated non-binding offer from Timber.
On October 7, 2019, Locust Walk contacted Company RR to determine their interest in evaluating the opportunity further.
On October 8, 2019, BioPharmX management conducted a due diligence call with Company QQ to review the BioPharmX technology.
On October 10, 2019, a non-binding term sheet was received from Company OO outlining a proposed reverse merger transaction, however key deal terms were omitted and the detail was insufficient to properly evaluate their interest. Locust Walk informed their financial advisor that additional information would be needed.
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On October 10, 2019, Company BB informed Locust Walk that they would not be putting forth an offer.
On October 11, 2019, additional due diligence materials were made available to Company AA upon request.
On October 15, 2019, Timber Pharmaceuticals granted data room access to BioPharmX management and Locust Walk to conduct due diligence.
On October 15, 2019, a revised non-binding term sheet was received from Company OO. Locust Walk informed Company OO's financial advisor that additional detailed due diligence documentation and greater clarity around envisioned merger terms would need to be provided to properly evaluate their interest.
On October 16, 2019, a non-binding term sheet was received from Company QQ outlining a proposed reverse merger transaction whereby Company QQ would own 90% of the combined entity while existing BioPharmX shareholders would own 10% on a fully diluted basis whereby all outstanding warrants and options of BioPharmX would be considered in the 10% ownership. The non-binding term sheet was contingent on an equity financing of up to $20 million, however Company QQ had not yet commenced discussions with investors to secure such financing. The non-binding term sheet did not include bridge capital or a bridge loan to fund certain transaction related expenses necessary to seek shareholder approval for the contemplated transaction.
On October 16, 2019, Company H informed Locust Walk that they would not be putting forth an offer.
On October 17, 2019, the investment banker for Company SS contacted BioPharmX management to discuss their client's interest in a reverse merger transaction.
On October 17, 2019, Company R informed Locust Walk that they would not be putting forth an offer.
On October 19, 2019, data room access was granted to BioPharmX management and Locust Walk to further evaluate the Company QQ business.
On October 20, 2019, Company PP informed Locust Walk that they would not be putting forth an offer.
On October 21, 2019, the investment banker for Company SS provided BioPharmX management with background materials on Company SS and BioPharmX management introduced their banker to the Locust Walk process.
On October 22, 2019, BioPharmX management presented Timber with a list of due diligence questions following a thorough review of the provided data room.
On October 23, 2019, BioPharmX management, Locust Walk, Timber and Chardan conducted a due diligence conference call, including a review of the list of due diligence questions provided the day prior.
On October 25, 2019, a non-binding term sheet was received from Company SS outlining a proposed reverse merger transaction whereby Company SS would own 95.5% of the combined entity while existing BioPharmX shareholders would own 4.5% on a fully diluted basis whereby all outstanding warrants and options of BioPharmX would be considered in the 4.5% ownership. The pro-rata equity split offered was on a pre-money basis whereby a financing completed at Closing would dilute both Company SS and BioPharmX shareholder proportionally. The non-binding offer also included a contingent value right ("CVR") whereby pre-merger BioPharmX shareholders would be entitled to proceeds from the sale of BioPharmX intellectual property if sold within nine months of Closing. The non-binding term sheet did not include bridge capital or a bridge loan to fund certain transaction related expenses necessary to seek shareholder approval for the contemplated transaction.
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On October 29, 2019, BioPharmX management presented Company QQ with a list of due diligence questions following a thorough review of the provided data room.
On October 30, 2019, the BioPharmX Board met to discuss a variety of topics including the updated non-binding offer from Timber as well as a summary of due diligence findings.
On October 30, 2019, BioPharmX management contacted Company U to confirm their decision to pass on the opportunity.
On November 1, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA.
On November 1, 2019, Dr. Tierney and the chief executive officer of Company OO exchanged emails in which Dr. Tierney indicated that Company OO's proposed terms of a transaction and assurances regarding its ability to timely consummate a transaction were not sufficient to enable the BioPharmX Board to consider engaging in a proposed transaction with Company OO. Dr. Tierney indicated that if Company OO were able to address key concerns outlined in the due diligence request, including but not limited to the lack of clarity on relative valuations, the lack of available bridge financing and the lack of clarity regarding Company OO's business model and financial position, he would bring a proposal to the BioPharmX Board for consideration.
On November 3, 2019, BioPharmX management submitted a counter proposal to the term sheet provided by Timber on October 1, 2019.
On November 3, 2019, BioPharmX provided a counter to the non-binding term sheet provided by Company SS on October 25, 2019.
On November 5, 2019, Locust Walk conducted a conference call with Chardan to review the counter proposal.
On November 6, 2019, a revised counter proposal was submitted to Timber by BioPharmX management to reflect the discussion between Locust Walk and Chardan on November 5, 2019.
On November 6, 2019, BioPharmX management, Locust Walk, and Company QQ conducted a due diligence conference call, including a review of the list of due diligence questions provided on October 29, 2019 and a discussion on the non-binding term sheet dated October 16.
On November 6, 2019, BioPharmX management conducted a conference call with Company SS management to discuss outstanding issues in pursuing a reverse merger transaction.
On November 7, 2019, Company AA informed BioPharmX management that they would not be putting forth an offer and were no longer willing to honor the terms of the non-binding term sheet received on March 14, 2019.
On November 7, 2019, BioPharmX management provided Timber with the details of its Real Estate Lease.
On November 8, 2019, BioPharmX management provided Timber with detail on its projected operating expenses to further negotiate the bridge capital that would be required to pursue the closing of the outlined transaction.
On November 8, 2019, BioPharmX management contacted Company K to confirm their decision to pass on the opportunity.
On November 8, 2019, BioPharmX management signed a CDA with Company SS to continue to discuss their interest in a reverse merger transaction.
On November 8, 2019, a revised term sheet was received from Company SS whereby Company SS would own 92.5% of the combined entity while existing BioPharmX shareholders would own 7.5% on a
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fully diluted basis whereby all outstanding warrants and options of BioPharmX would be considered in the 7.5% ownership. The pro-rata equity split offered was on a pre-money basis whereby a financing completed at Closing would dilute both Company SS and BioPharmX shareholder proportionally. The revised non-binding offer also eliminated the CVR provision. The revised non-binding term sheet still did not include bridge capital or a bridge loan to fund certain transaction related expenses necessary to seek shareholder approval for the contemplated transaction.
On November 11, 2019, a revised non-binding term sheet was received from Timber management.
On November 11, 2019, the BioPharmX Board met to discuss a variety of topics including the updated non-binding offer from Timber.
On November 11, 2019, BioPharmX management conducted a conference call with a senior executive of Company R whereby their decision to pass on the opportunity was confirmed.
On November 12, 2019, BioPharmX management conducted a conference call with a senior business development executive from Company AA whereby it was explained that there has been a shift in corporate strategy that impacts their willingness to consummate a partnership.
On November 12, 2019, Locust Walk delivered a verbal counteroffer to Chardan in the interest of further negotiating the terms of the contemplated merger transaction with Timber.
On November 12, 2019, BioPharmX management conducted a call with a senior executive from Company BB.
On November 12, 2019, BioPharmX management received a list of due diligence questions from Company G with answers provided the same day.
On November 12, 2019, BioPharmX management conducted a conference call with the chief executive office of Company SS whereby it was confirmed that they were not prepared to extend bridge financing to BioPharmX. The two parties agreed to stay in touch however a transaction seemed unlikely.
On November 13, 2019, BioPharmX management received a revised non-binding term sheet from Timber.
On November 14, 2019, BioPharmX management and Fenwick & West LLP conducted a due diligence call with Timber management, Lowenstein Sandler LLP ("Lowenstein") and Chardan.
On November 14, 2019, BioPharmX management and Fenwick & West LLP conducted a due diligence call with Timber management, KPMG, Lowenstein, and Chardan.
On November 14, 2019, BioPharmX management conducted a follow up conference call with Company G whereby it was suggested that an offer was prepared pending internal approvals.
On November 15, 2019, Company QQ declined to proceed in the process due to their inability to extend bridge financing to BioPharmX.
On November 18, 2019, a counteroffer reflecting agreed upon terms was submitted to Timber management.
On November 19, 2019, details on BioPharmX capitalization table were provided to Timber.
On November 20, 2019, a draft term sheet was received from Timber.
On November 21, 2019, Dr. Tierney conducted a call with Mr. Derby to negotiate final deal points.
On November 22, 2019, a revised term sheet containing terms agreed upon during the November 21, 2019 call was signed by Dr. Tierney.
On November 25, 2019, a fully executed term sheet was received from Mr. Derby on behalf of Timber.
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On December 3, 2019, BioPharmX management conducted a follow up conference call with Company G whereby it was explained that an internal disagreement on strategy had delayed their ability to put forth the offer socialized on November 14.
On December 6, 2019, Company BB confirmed their decision to decline to proceed with further evaluation of the BPX-01 and BPX-04 development assets in order to focus on their internal development programs.
On December 10, 2019, BioPharmX management conducted a conference call with a senior executive of Company W whereby their decision to pass on the opportunity was confirmed.
On December 17, 2019, BioPharmX management conducted a conference call with a senior executive of Company U whereby their decision to pass on the opportunity was confirmed.
On December 20, 2019, BioPharmX management conducted a conference call with a senior executive of Company AA whereby their decision to pass on the opportunity was confirmed.
Between November 26, 2019 and January 9, 2020, BioPharmX management, Timber management and representatives of Locust Walk, Chardan, Akerman LLP and Lowenstein held regular conference calls to discuss and negotiate a final draft Original Merger Agreement, Bridge Note Agreement and closing conditions of a potential business combination transaction.
On January 3, 2020, BioPharmX management and Akerman LLP conducted a conference call with Timber management and Lowenstein to work through outstanding issues in negotiating the Merger Agreement.
On January 4, 2020, the BioPharmX Board met to discuss the current status of negotiations with Timber and proposed next steps.
On January 4, 2020, Dr. Tierney conducted a conference call with Mr. Derby to address the outstanding issues remaining after the January 3, 2020 call.
On January 10, 2020, Company C confirmed that they would not be submitted an offer due to a change in corporate strategy.
Between January 11, 2020 and January 27, 2020, negotiations continued on the Merger Agreement with representatives from BioPharmX and Timber as well as their respective counsel.
On January 22, 2020, the BioPharmX Board met to consider the proposed Merger Agreement, the Bridge Loan and related matters. As part of the meeting, counsel for BioPharmX advised the Board regarding the terms of the Merger Agreement, the Bridge Loan and related matters including advising the Board as to the Board's fiduciary duties in considering the proposed Merger Agreement, Bridge Loan and related matters. The Board also requested and received a presentation from Cassel Salpeter, including its analysis with respect to the proposed Merger, Timber and related matters. Thereafter, at the request of the Board, Cassel Salpeter reviewed and discussed its financial analyses with respect to Timber and the proposed Merger. Thereafter, at the request of the Board, on January 22, 2020, Cassel Salpeter rendered its written opinion to the Board that, as of such date, the Merger Consideration to be issued by BioPharmX in the Merger pursuant to the Merger Agreement was fair, from a financial point of view, to BioPharmX.
During that meeting, the Board members discussed the proposed Merger and related matters with BioPharmX's management, counsel and with representatives of Cassel Salpeter and discussed the reasons, both positive and negative, for considering the Merger. Thereafter, based on such full discussion, the Board unanimously approved the Merger Agreement, the Merger, the Bridge Loan and related matters.
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Subsequent to the rendering of its opinion to the Board on January 22, 2020, BioPharmX informed Cassel Salpeter that the number of shares of BioPharmX common stock to be issued in the Merger had been increased and accordingly, BioPharmX's best currently available estimate of the effective number of shares of BioPharmX common stock to be issued in the Merger pursuant to the Agreement after taking into account the potential adjustments to the Timber Percentage and the potential effects of the anti-dilution and other rights being issued in the Merger was from 125,613,000 to 525,289,000, rather than 114,759,000 to 479,900,000 (the "Updated Estimated Merger Consideration Range"). At BioPharmX's request, Cassel Salpeter confirmed to the Board on January 26, 2020 that, had the Estimated Merger Consideration Range been the Updated Estimated Merger Consideration Range at the time Cassel Salpeter rendered its opinion to the Board, Cassel Salpeter believed it would still have been able to render its opinion to the Board to the effect that, as of January 22, 2020 and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion, the Merger Consideration to be issued by BioPharmX in the Merger pursuant to the Agreement was fair, from a financial point of view, to BioPharmX.
On January 28, 2020, BioPharmX and Timber entered into the Merger Agreement, which was subsequently announced later that same day.
Historical Background for Timber
Timber is a clinical-stage medical dermatology company with a focus on rare, orphan designated disorders. It has a medical dermatology pipeline with mid- and early-stage candidates in clinical development. Timber's pipeline targets rare dermatologic disorders where there is a high unmet need and no FDA approved treatments.
The Timber Board and management evaluated Timber's long- and short- term strategic options as well as Timber's ability to finance development of its products.
On June 14, 2019, the Timber Board and management formalized the engagement of Chardan Capital Markets, LLC ("Chardan"), a global investment bank, to initiate a formal strategic process and serve as Timber's exclusive placement agent.
On June 14, 2019, a representative of Chardan, on behalf of Timber, reached out to the executive management of BioPharmX via email to make an introduction and submit an Indication of Interest ("IOI") to merge with BioPharmX through a reverse merger transaction. The IOI included the terms and structure of a merger between Timber and BioPharmX. The same day BioPharmX expressed their interest in the idea of a reverse merger and requested more information about Timber Pharmaceuticals. Chardan informed Timber of the initiated discussions with BioPharmX and requested a confidential disclosure agreement from BioPharmX to execute.
On June 18, 2019, a confidentiality agreement was executed between BioPharmX and Timber. Timber delivered company materials that described their operations in further detail.
On July 3, 2019, BioPharmX executive management emailed a representative of Chardan to discuss the IOI further and suggested scheduling an in-person meeting with Timber executive management.
On July 23, 2019, BioPharmX and Timber executive management met at Timber's corporate office to make formal introductions, review Timber's company materials and discuss the submitted IOI further. After the meeting concluded, Timber submitted a non-binding term sheet (the "Merger Term Sheet") that included a pre-merger valuation amount for each company and more detail regarding how a reverse merger transaction would be structured.
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On August 15, 2019, executive management of BioPharmX responded to the Merger Term Sheet. BioPharmX expressed their concerns surrounding certain components of the Term Sheet. These concerns included the relative merger valuation, exclusivity clause and sources of financing.
During August conversations, BioPharmX executive management informed Chardan representatives that BioPharmX would likely need interim financing to consummate the merger. In late August, BioPharmX executive management also shared that they intended to hire a financial advisor.
On September 3, 2019, the Timber executive management team was introduced to representatives of Locust Walk who shared that their firm has been hired to advise BioPharmX in a transaction mandate. The same day Timber executive management introduced representatives of Chardan to the representatives of Locust Walk to facilitate discussions.
On September 6, 2019, representatives of Chardan and Locust Walk held a call to discuss the Merger Term Sheet on behalf of Timber and BioPharmX, respectively. During the call, a representative of Locust Walk further discussed the details of BioPharmX's need for a bridge loan to consummate the merger and would share further details surrounding the amount and structure of the loan in the coming days.
On September 11, 2019, representatives of Locust Walk shared that BioPharmX required $4,400,000 in a bridge loan to finance ongoing operations and transaction costs. Representatives of Chardan shared BioPharmX's bridge loan requirement with Timber executive management.
On September 12, 2019, on Timber's behalf, a representative of Chardan emailed a representative of Locust Walk that Timber is capable of funding $3,500,000 in a bridge loan. The same day a representative of Locust Walk shared that the deadline to submit a best and final offer is October 1, 2019.
On September 27, 2019, a representative of Locust Walk reached out to a representative of Chardan to address any remaining questions. The same day Chardan confirmed that a best and final offer would be submitted by October 1st.
On October 1, 2019, on behalf of Timber, representatives of Chardan submitted a revised non-binding Merger Term Sheet and a non-binding bridge financing term sheet (the "Bridge Financing Term Sheet") that included a proposal for BioPharmX to issue a senior secured six month bridge note and warrants for $3,500,000 (the "Bridge Financing").
On October 23, 2019, Timber executive management, BioPharmX executive management, representatives of Locust Walk, and representatives of Chardan held a conference call to discuss the terms of the Merger Term Sheet and Bridge Financing Term Sheet, the necessary steps to execute such non-binding term sheets, and the timeline of a reverse merger transaction.
On November 3, 2019, representatives of Locust Walk delivered a counter-proposal to the non-binding Merger Term Sheet Chardan submitted on October 1, 2019. The revised agreement included a closing condition, whereby, Timber is required to complete a financing of no less than $20,000,000 no later than immediately preceding the closing of the proposed transactions.
On November 4, 2019, representatives of Chardan held a call with representatives of Locust Walk to discuss the counter-proposal that Locust Walk representatives delivered on November 3, 2019.
On November 7, 2019, Locust Walk submitted a revised counter-proposal to the non-binding Merger Agreement based on the discussion held November 4th. The revised counter-proposal proposed that Timber would receive a number of Warrants equal to 12.9% of the issued and outstanding common stock of BioPharmX through the Bridge Financing. The same day representatives of Chardan held a call with representatives of Locust Walk to discuss the revised counter-proposal and delivered the document to Timber executive management.
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On November 11, 2019, on behalf of Timber, representatives of Chardan delivered revised, non-binding Merger Term Sheet and Bridge Financing Term Sheet documents. Subject to various assumptions, the proposal included an anticipated pro-forma post-closing equity ownership of 90% for the Timber stockholders and 10% for BioPharmX stockholders. Additionally, the pro-forma post-closing equity ownership amounts would be adjusted for each interval of $100,000 of excess cash at close. Each $100,000 interval would decrease Timber's percentage by 0.1%. The revised Bridge Financing Term Sheet proposed BioPharmX would issue a senior secured six month bridge note and warrants for $2,250,000.
On November 12, 2019, Timber executive management, representatives of Chardan, and representatives of Locust Walk held a conference call to discuss the revised, non-binding Merger Term Sheet and Bridge Financing Term Sheet delivered November 11, 2019.
On November 13, 2019, representatives of Chardan delivered another non-binding Merger Term Sheet to reflect the discussions held on November 12, 2019. Subject to various assumptions, the proposal included an anticipated pro-forma post-closing equity ownership of 87% for the Timber stockholders and 13% for BioPharmX stockholders. The same day, representatives of Locust Walk and Chardan held a conference call to discuss the non-binding Merger Term Sheet.
On November 18, 2019, on behalf of BioPharmX, a representative of Locust Walk delivered another non-binding Merger Term Sheet to a representative of Chardan. Subject to various assumptions, the proposal included an anticipated pro-forma, post-closing equity ownership of 88.5% for the Timber stockholders and 11.5% for BioPharmX stockholders, provided that out-of-the-money options and warrants shall be excluded from the fully diluted basis.
On November 20, 2019, Timber executive management executed the Merger Term Sheet and Bridge Financing Term Sheet. The same day, representatives of Chardan delivered the partially executed term sheets to Locust Walk for full execution.
On November 22, 2019, BioPharmX signed the partially executed non-binding term sheets. Representatives of Locust Walk delivered the fully-executed versions of the term sheets to Timber.
Beginning November 22, 2019, Timber, BioPharmX and their respective advisers conducted mutual due diligence in a variety of areas, including finance, legal, tax and operations. In addition, beginning November 22, 2019, and throughout the months of November, December, and January, Timber executive management, BioPharmX executive management, representatives of Chardan, representatives of Locust Walk, Lowenstein, Timber's outside legal counsel, KPMG International Cooperative (KPMG), Timber's accountant, and Akerman LLP, BioPharmX's outside legal counsel held several calls to discuss a variety of financial and legal matters regarding a reverse merger transaction, including the Merger Agreement, the Bridge Financing, financing matters and closing conditions.
On January 28, 2020, the Merger Agreement was signed and a joint press release was issued that day, announcing their entry into the Merger Agreement.
BioPharmX and Timber believe that the Merger will produce a clinical-stage biopharmaceutical company with a robust pipeline of product candidates targeting orphan and chronic dermatologic conditions. Timber's investigational therapies have proven mechanisms-of-action and well-established CMC and safety profiles. Timber is initially focused on developing non-systemic treatments for rare dermatologic diseases including CI, TSC, and localized scleroderma, in addition to the BioPharmX programs for inflammatory lesions of acne vulgaris and papulopustular rosacea. BioPharmX and
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Timber believe that the combined company will have the following characteristics found in successful biotech companies:
BioPharmX Reasons for the Merger
At a special meeting held on January 22, 2020, among other things, the BioPharmX Board unanimously (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, advisable and in the best interests of BioPharmX and its stockholders (ii) approved and declared advisable the Merger Agreement and the Merger, including the issuance of shares of BioPharmX common stock to Timber unitholders pursuant to the terms of the Merger Agreement, and (iii) determined to recommend, upon the terms and conditions set forth in the Merger Agreement, that the stockholders of BioPharmX vote to approve the amendment of BioPharmX's certificate of incorporation to effect the BioPharmX Reverse Stock Split, the Merger Agreement, and the change of the company's name to Timber Pharmaceuticals, Inc.
In the course of its evaluation of the Merger Agreement and the Merger, the BioPharmX Board held numerous meetings, consulted with BioPharmX senior management, BioPharmX's outside legal counsel and BioPharmX's financial advisors, and reviewed and assessed a significant amount of information, and considered a number of factors, including the following:
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capital for the immediate future as well as access to the public market to raise additional funds in the future;
The BioPharmX Board also considered the recent results of operations and financial conditions of BioPharmX, including:
The BioPharmX Board also reviewed the terms of the Merger Agreement and associated transactions, including:
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The BioPharmX Board also considered a variety of risks and other countervailing factors relating to the Merger, including:
The foregoing information and factors considered by the BioPharmX Board are not intended to be exhaustive but are believed to include all of the material factors considered by the BioPharmX Board. In view of the wide variety of factors considered in connection with its evaluation of the Merger and the complexity of these matters, the BioPharmX Board did not find it useful, and did not attempt, to quantify, rank or assign relative weights to these factors. In considering the factors described above, individual members of the BioPharmX Board may have given weight to different factors. The BioPharmX Board conducted an overall analysis of the factors discussed above, including thorough discussions with, and questioning of, BioPharmX senior management and the legal and financial advisors of BioPharmX, and considered the factors overall to be favorable to, and to support, its determination.
In the course of reaching its decision to approve the Merger, the Timber Board consulted with its senior management, financial advisor and legal counsel, reviewed a significant amount of information and considered a number of factors, including, among others:
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The Timber Board also considered a number of uncertainties and risks in its deliberations concerning the Merger and the other transactions contemplated by the Merger Agreement, including the following:
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Opinion of the BioPharmX Financial Advisor
On January 22, 2020, Cassel Salpeter rendered its oral opinion to the BioPharmX Board (which was confirmed in writing by delivery of Cassel Salpeter's written opinion dated such date), as to the fairness from a financial point of view, to BioPharmX of the consideration to be issued by BioPharmX in the Merger pursuant to the Merger Agreement.
The summary of Cassel Salpeter's opinion in this proxy/registration statement is qualified in its entirety by reference to the full text of the written opinion, which is included as Annex E to this proxy/registration statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion. However, neither Cassel Salpeter's written opinion nor the summary of its opinion and the related analyses set forth in this proxy/registration statement are intended to be, and do not constitute, advice or a recommendation to any stockholder as to how such stockholder should act or vote with respect to any matter relating to the proposed Merger or otherwise.
The opinion was addressed to the board for the use and benefit of the members of the board (in their capacities as such) in connection with the board's evaluation of the Merger. Cassel Salpeter's opinion was just one of the several factors the board took into account in making its determination to approve the Merger, including those described elsewhere in this proxy/registration statement.
Cassel Salpeter's opinion only addressed whether, as of the date of the opinion, the Merger Consideration to be issued by BioPharmX in the Merger pursuant to the Agreement was fair, from a financial point of view, to BioPharmX. It did not address any other terms, aspects, or implications of the Merger or the Agreement, or any other agreement including, without limitation, (i) the Support Agreement, (ii) any term or aspect of the Merger that is not susceptible to financial analysis, (iii) the fairness of the Merger, or all or any portion of the Merger Consideration, to any security holders of BioPharmX, Timber or any other person or any creditors or other constituencies of BioPharmX, Timber or any other person, (iv) the appropriate capital structure of BioPharmX or whether BioPharmX should be issuing debt or equity securities or a combination of both, nor (v) the fairness of the amount or nature, or any other aspect, of any compensation or consideration payable to or received by any officers, directors, or employees of any parties to the Merger, or any class of such persons, relative to the Merger Consideration in the Merger or otherwise. Cassel Salpeter did not express any view or opinion as to what the value of shares of BioPharmX common stock or BioPharmX Preferred Stock actually would be when issued in the Merger or the prices at which shares of BioPharmX common stock or BioPharmX Preferred Stock may trade, be purchased or sold at any time.
Cassel Salpeter's opinion did not address the relative merits of the Merger as compared to any alternative transaction or business strategy that might have existed for BioPharmX, or the merits of the underlying decision by the board or BioPharmX to engage in or consummate the Merger. The financial and other terms of the Merger were determined pursuant to negotiations between the parties to the Agreement and were not determined by or pursuant to any recommendation from Cassel Salpeter. In addition, Cassel Salpeter was not authorized to, and did not, solicit indications of interest from third parties regarding a potential transaction involving BioPharmX.
Cassel Salpeter's analysis and opinion were necessarily based upon market, economic, and other conditions, as they existed on, and could be evaluated as of, the date of the opinion. Accordingly, although subsequent developments could arise that would otherwise affect its opinion, Cassel Salpeter did not assume any obligation to update, review, or reaffirm the opinion to the board or any other person or otherwise to comment on or consider events occurring or coming to Cassel Salpeter's attention after the date of the opinion.
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In arriving at its opinion, Cassel Salpeter made such reviews, analyses, and inquiries as Cassel Salpeter deemed necessary and appropriate under the circumstances. Among other things, Cassel Salpeter:
BioPharmX advised Cassel Salpeter that the Merger Consideration would constitute a percentage (the "Timber Percentage") of the number of shares of BioPharmX common stock outstanding immediately after giving effect to the Merger, which would be subject to adjustment as provided by the Agreement, as to which adjustment Cassel Salpeter expressed no view or opinion. In addition, BioPharmX advised Cassel Salpeter that certain financing sources or equity holders of Timber would receive certain anti-dilution or other rights that could increase the effective number of shares of BioPharmX common stock being issued in the Merger. Cassel Salpeter expressed no view or opinion with respect to the terms of such anti-dilution or other rights or their impact, if any, on the Merger Consideration. BioPharmX advised Cassel Salpeter that its best currently available estimate, which BioPharmX made in good faith and taking into account the potential adjustments to the Timber Percentage and the potential effects of the anti-dilution and other rights being issued in the Merger, of the effective number of shares of BioPharmX common stock being issued in the Merger pursuant to the Agreement was from 114,759,000 to 479,900,000 (the "Estimated Merger Consideration Range"). At BioPharmX's direction, Cassel Salpeter evaluated the Merger consideration to be issued in the Merger pursuant to the Agreement based on the Estimated Merger Consideration Range. In addition, BioPharmX advised Cassel Salpeter that long-term forecasts reflecting BioPharmX management's best currently available estimates and judgments with respect to the future financial performance of BioPharmX were not available and that BioPharmX's registered public accounting firm expressed substantial doubt about BioPharmX's ability to continue as a going concern. Accordingly, BioPharmX directed Cassel Salpeter to assume, for purposes of its analyses and opinion, that BioPharmX's liquidation value and recent trading prices of BioPharmX common stock provided a reasonable basis on which to evaluate shares of BioPharmX common stock, BioPharmX and the Merger Consideration. BioPharmX further advised Cassel Salpeter that the shares of BioPharmX Preferred Stock to be issued to holders of Company Preferred Equity in the Merger would not be convertible into shares of BioPharmX common stock, would not otherwise participate in or be entitled to receive dividends or other distributions made on account of the BioPharmX common stock and would entitle holders of BioPharmX Preferred Stock to receive only a return of the applicable liquidation preference and a preferred dividend.
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In arriving at its opinion, Cassel Salpeter, with BioPharmX's consent, relied upon and assumed, without independently verifying, the accuracy and completeness of all of the financial and other information that was supplied or otherwise made available to Cassel Salpeter or available from public sources, and Cassel Salpeter further relied upon the assurances of BioPharmX's and Timber's management that they were not aware of any facts or circumstances that would make any such information inaccurate or misleading. Cassel Salpeter also relied upon, without independent verification, the assessments of the management of BioPharmX and Timber as to Timber's existing and future technology, products, services and projects and the validity and marketability of, and risks associated with, such technology, products and services (including, without limitation, the development, testing and marketing of such technology, products and services; the receipt of all necessary governmental and other regulatory approvals for the development, testing and marketing thereof; and the life of all relevant patents and other intellectual and other property rights associated with such technology, products and services), and Cassel Salpeter assumed, at BioPharmX's direction, that there would be no developments with respect to any such matters that would adversely affect its analyses or opinion. Cassel Salpeter is not a legal, tax, accounting, environmental, or regulatory advisor, and Cassel Salpeter did not express any views or opinions as to any legal, tax, accounting, environmental, or regulatory matters relating to BioPharmX, Timber, the Merger, or otherwise. Cassel Salpeter understood and assumed that BioPharmX had obtained or would obtain such advice as it deemed necessary or appropriate from qualified legal, tax, accounting, environmental, regulatory, and other professionals.
Management of BioPharmX advised Cassel Salpeter that (i) BioPharmX's consolidated financial statements had been prepared assuming it would continue as a going concern, (ii) BioPharmX had experienced recurring operating losses and negative cash flows, (iii) BioPharmX expected to continue to generate operating losses and consume significant cash resources for the foreseeable future, (iv) there was substantial doubt about BioPharmX's ability to continue as a going concern, (v) there were no assurances that BioPharmX would be able to raise its revenues to a level that would support profitable operations and provide sufficient funds to pay its obligations, (vi) BioPharmX had been and currently was experiencing significant liquidity issues, and (vii) the inability of BioPharmX to continue as a going concern would likely result in a voluntary or involuntary bankruptcy, restructuring or liquidation of BioPharmX in which BioPharmX could receive less than the value at which its assets were carried on BioPharmX's consolidated financial statements, and stockholders of BioPharmX would likely receive little or no value for their investment in BioPharmX.
With BioPharmX's consent, Cassel Salpeter assumed that the Projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of Timber with respect to the future financial performance of Timber. Cassel Salpeter assumed, at BioPharmX's direction, that the Projections provided a reasonable basis upon which to analyze and evaluate Timber and form an opinion. Cassel Salpeter expressed no view with respect to the Projections or the assumptions on which they were based. Cassel Salpeter did not evaluate the solvency or creditworthiness of BioPharmX, Timber or any other party to the Merger, the fair value of BioPharmX, Timber or any of their respective assets or liabilities, or whether BioPharmX, Timber or any other party to the Merger is paying or receiving reasonably equivalent value in the Merger under any applicable foreign, state, or federal laws relating to bankruptcy, insolvency, fraudulent transfer, or similar matters, nor did Cassel Salpeter evaluate, in any way, the ability of BioPharmX, Timber or any other party to the Merger to pay its obligations when they come due. Cassel Salpeter did not physically inspect BioPharmX's or Timber's properties or facilities and did not make or obtain any evaluations or appraisals of BioPharmX's or Timber's assets or liabilities (including any contingent, derivative, or off-balance-sheet assets and liabilities). Cassel Salpeter did not attempt to confirm whether BioPharmX or Timber had good title to their respective assets. Cassel Salpeter's role in reviewing any information was limited solely to performing such reviews as Cassel Salpeter deemed necessary to support its own advice and analysis and was not on behalf of the board, BioPharmX, or any other party.
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Cassel Salpeter assumed, with BioPharmX's consent, that the Merger would be consummated in a manner that complies in all respects with applicable foreign, federal, state, and local laws, rules, and regulations and that, in the course of obtaining any regulatory or third party consents, approvals, or agreements in connection with the Merger, no delay, limitation, restriction, or condition would be imposed that would have an adverse effect on BioPharmX, Timber or the Merger. Cassel Salpeter also assumed, with BioPharmX's consent, that the final executed form of the Agreement would not differ in any material respect from the execution copy Cassel Salpeter reviewed and that the Merger would be consummated on the terms set forth in the Agreement, without waiver, modification, or amendment of any term, condition, or agreement thereof that would be material to its analyses or opinion. Without limitation to the foregoing, with BioPharmX's consent, Cassel Salpeter further assumed that any adjustments to the Merger Consideration in accordance with the Agreement or otherwise would not be material to its analysis or opinion. Cassel Salpeter also assumed that the representations and warranties of the parties to the Agreement contained therein were true and correct and that each such party would perform all of the covenants and agreements to be performed by it under the Agreement. Cassel Salpeter offered no opinion as to the contractual terms of the Agreement or the likelihood that the conditions to the consummation of the Merger set forth in the Agreement would be satisfied. BioPharmX also advised Cassel Salpeter, and Cassel Salpeter assumed, that for U.S. federal tax income purposes the Merger would constitute a transaction described in Section 351(a) of the Internal Revenue Code of 1986, as amended.
In connection with preparing its opinion, Cassel Salpeter performed a variety of financial analyses. The following is a summary of the material financial analyses performed by Cassel Salpeter in connection with the preparation of its opinion. It is not a complete description of all analyses underlying such opinion. The preparation of an opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. As a consequence, neither Cassel Salpeter's opinion nor the respective analyses underlying its opinion is readily susceptible to partial analysis or summary description. In arriving at its opinion, Cassel Salpeter assessed as a whole the results of all analyses undertaken by it with respect to the opinion. While it took into account the results of each analysis in reaching its overall conclusions, Cassel Salpeter did not make separate or quantifiable judgments regarding individual analyses and did not draw, in isolation, conclusions from or with regard to any individual analysis or factor. Therefore, Cassel Salpeter believes that the analyses underlying the opinion must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors underlying the opinion collectively, could create a misleading or incomplete view of the analyses performed by Cassel Salpeter in preparing the opinion.
The implied valuation reference ranges indicated by Cassel Salpeter's analyses are not necessarily indicative of actual values nor predictive of future results, which may be significantly more or less favorable than those suggested by such analyses. Much of the information used in, and accordingly the results of, Cassel Salpeter's analyses are inherently subject to substantial uncertainty.
The following summary of the material financial analyses performed by Cassel Salpeter in connection with the preparation of its opinion includes information presented in tabular format. The tables alone do not constitute a complete description of these analyses. Considering the data in the tables below without considering the full narrative description of the analyses, as well as the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial analyses Cassel Salpeter performed.
Share prices for the selected companies used in the selected companies analysis described below were as of January 21, 2020. Estimates of future financial performance for Timber were based on the Projections, and estimates of future financial performance for the selected companies listed below were based on publicly available research analyst estimates for those companies.
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Financial Analysis of BioPharmX
For purposes of its analysis of BioPharmX, Cassel Salpeter, with BioPharmX's agreement, evaluated BioPharmX based on BioPharmX's implied adjusted net asset value and recent trading prices of the shares of BioPharmX common stock.
Adjusted Net Asset Value. Cassel Salpeter reviewed BioPharmX management's estimates of BioPharmX's operating assets less operating liabilities and adjustments to those estimates prepared by or discussed with BioPharmX management. This analysis indicated an implied equity value reference range per share of BioPharmX common stock of $0.00 to $0.09.
Closing Stock Price. Cassel Salpeter also reviewed BioPharmX's three-month low and three-month volume-weighted average closing price per share of BioPharmX common stock. This review indicated an implied equity value reference range per share of BioPharmX common stock of $0.26 to $0.46 for BioPharmX.
Merger Consideration. Taking into account the Estimated Merger Consideration Range provided by BioPharmX of the effective number of shares of BioPharmX common stock being issued in the Merger pursuant to the Agreement of 114,748,000 to 479,900,000 and the implied equity value per share reference ranges indicated by its review of BioPharmX's adjusted net asset value and recent trading prices of BioPharmX common stock, Cassel Salpeter calculated an implied aggregate value of the Merger Consideration to be issued in the Merger of $41,000,000 to $53,000,000.
Risk-Adjusted Net Present Value Analysis. Cassel Salpeter performed a risk-adjusted net present value analysis of Timber by calculating the estimated net present value of the risk-adjusted free cash flows of Timber based on the Projections. In performing this analysis, Cassel Salpeter applied discount rates ranging from 30.00% to 35.00% and terminal growth rates ranging from (10.00%) to 0.00% based on its experience and professional judgment. This analysis indicated an implied aggregate equity value reference range of $55,200,000 to $92,600,000 for Timber, as compared to the implied aggregate value of the Merger Consideration to be issued in the Merger of $41,000,000 to $53,000,000.
Selected Companies Analysis. Cassel Salpeter considered certain financial and operating data for Timber and selected companies with publicly traded equity securities Cassel Salpeter deemed relevant. The financial and operating data reviewed included market value, total invested capital and estimated 2022 revenue. The selected companies with publicly traded equity securities and the resulting high, low, mean and median financial data were:
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(Dollars in Thousands) |
Market Value |
Total Invested Capital |
2022E Revenue |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
High |
$ | 948,027 | $ | 951,349 | $ | 213,525 | ||||
All Companies |
||||||||||
Mean |
207,127 | 230,578 | 79,831 | |||||||
Median |
96,219 | 130,789 | 43,877 | |||||||
Companies < $50,000 2022E Revenue or Not Available |
||||||||||
Mean |
85,523 | 94,498 | 14,395 | |||||||
Median |
41,889 | 51,619 | 15,777 | |||||||
Low |
11,455 | 11,455 | 4,184 |
The selected companies analysis indicated an implied aggregate equity value reference range of $39,800,000 to $60,400,000 for Timber, as compared to the implied aggregate value of the Merger Consideration to be issued in the Merger of $41,000,000 to $53,000,000.
None of the selected companies have characteristics identical to Timber. An analysis of selected publicly traded companies is not mathematical; rather it involves complex consideration and judgments concerning differences in financial and operating characteristics of the selected companies and other factors that could affect the public trading values of the companies reviewed.
Selected Transactions Analysis. Cassel Salpeter considered the financial terms of the following business transactions Cassel Salpeter deemed relevant. The financial data reviewed included transaction value. The selected transactions and the resulting high, low, mean and median financial data were:
Date | |
|
||||
---|---|---|---|---|---|---|
Announced | Closed | Target | Acquiror | |||
10-Jan-20 | Pending | Dermira, Inc. | Eli Lilly and Company | |||
10-Oct-19 |
10-Oct-19 |
Worldwide Rights to Rhofade Cream 1% |
EPI Health, LLC |
|||
12-Sep-19 |
13-Dec-19 |
Fibrocell Science, Inc. |
Castle Creek Pharmaceutical Holdings, Inc. |
|||
1-Apr-19 |
19-Jul-19 |
Biofrontera AG |
Maruho Deutschland GmbH |
|||
8-Mar-19 |
7-Jun-19 |
Edesa Biotech, Inc. |
Stellar Biotechnologies, Inc. |
|||
15-Oct-18 |
30-Nov-18 |
Worldwide Rights to Rhofade Cream 1% |
Aclaris Therapeutics |
|||
8-Aug-17 |
11-Aug-17 |
Krystal Biotech, Inc. |
Sun Pharmaceutical Industries Ltd |
|||
16-Dec-16 |
20-Jan-17 |
Ziarco Group Ltd |
Novartis AG |
|||
6-Dec-16 |
6-Dec-16 |
Creabilis SA |
Sienna Biopharmaceuticals |
|||
21-Apr-16 |
21-Apr-16 |
Topokine Therapeutics, Inc. |
Allergan PLC |
|||
7-Jan-16 |
6-Jan-16 |
Anterios, Inc. |
Allergan PLC |
|||
13-Apr-15 |
13-Apr-15 |
Innocutis Medical LLC |
Cipher Pharmaceuticals Inc. |
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(Dollars in Thousands) |
Total Value | Up Front Payment |
Contingent Payment |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
High |
$ | 1,056,930 | $ | 1,056,930 | $ | 387,500 | ||||
Mean |
262,979 | 202,614 | 70,636 | |||||||
Median |
110,500 | 64,000 | 3,000 | |||||||
Low |
43,997 | 35,000 | |
The selected transactions analysis indicated an implied aggregate equity value reference range of $62,500,000 to $82,500,000 for Timber, as compared to the implied aggregate value of the Merger Consideration to be issued in the Merger of $41,000,000 to $53,000,000.
None of the target companies or transactions in the selected transactions have characteristics identical to Timber or the proposed Merger. Accordingly, an analysis of selected business combinations is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the target companies in the selected transactions and other factors that could affect the respective acquisition values of the transactions reviewed.
Selected Initial Public Offerings Analysis. Cassel Salpeter considered the financial terms of the following initial public offerings ("IPOs") Cassel Salpeter deemed relevant. The financial data reviewed included gross offering amount, pre-money value and the gross offering amount relative to the post-offering equity value. The selected IPOs and the resulting high, low, mean and median financial data were:
Date | Company | |
---|---|---|
14-Jan-19 | Hoth Therapeutics, Inc. | |
14-Jun-18 |
Verrica Pharmaceuticals, Inc. |
|
23-May-18 |
Kiniksa Pharmaceuticals Ltd. |
|
31-Jan-18 |
Sol-Gel Technologies Ltd. |
|
24-Jan-18 |
Menlo Therapeutics, Inc. |
|
19-Sep-17 |
Krystal Biotech, Inc. |
|
26-Jul-17 |
Sienna Biopharmaceuticals, Inc. |
|
25-Jan-17 |
AnaptysBio, Inc. |
|
20-Sep-16 |
Novan, Inc. |
|
6-Oct-15 |
Aclaris Therapeutics, Inc. |
|
2-Oct-14 |
Dermira, Inc. |
|
24-Sep-14 |
Vitae Pharmaceuticals, Inc. |
|
17-Sep-14 |
Foamix Pharmaceuticals Ltd |
(Dollars in Thousands) |
Gross Offering Amount |
Pre-Money Value |
%Post Money Equity Value |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
High |
$ | 152,600 | $ | 299,196 | 57.5 | % | ||||
Mean |
71,423 | 148,895 | 32.8 | % | ||||||
Median |
65,000 | 140,821 | 31.2 | % | ||||||
Low |
7,000 | 34,909 | 13.5 | % |
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The selected IPOs analysis indicated an implied aggregate equity value reference range of $63,900,000 to $86,600,000 for Timber, as compared to the implied aggregate value of the Merger Consideration to be issued in the Merger of $41,000,000 to $53,000,000.
None of the companies in the selected IPOs have characteristics identical to Timber. Accordingly, an analysis of selected IPOs is not mathematical; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies in the selected IPOs and other factors that could affect the respective values of the companies and IPOs reviewed.
Other Matters Relating to Cassel Salpeter's Opinion
The Board selected Cassel Salpeter based on Cassel Salpeter's experience and reputation. As part of its investment banking business, Cassel Salpeter regularly is engaged in the evaluation of businesses and their securities in connection with mergers, acquisitions, corporate restructurings, private placements and other purposes. Cassel Salpeter is a recognized investment banking firm that has substantial experience in providing financial advice in connection with mergers, acquisitions, sales of companies, businesses and other assets and other transactions. Cassel Salpeter received a fee of $85,000 for rendering its opinion, no portion of which was contingent upon the completion of the Merger. In addition, BioPharmX agreed to reimburse Cassel Salpeter for certain expenses incurred by it in connection with its engagement and to indemnify Cassel Salpeter and its related parties for certain liabilities that may arise out of its engagement or the rendering of its opinion. In accordance with Cassel Salpeter's policies and procedures, a fairness committee of Cassel Salpeter was not required to, and did not, approve the issuance of Cassel Salpeter's opinion.
Subsequent to the rendering of its opinion to the board on January 22, 2020, BioPharmX informed Cassel Salpeter that the number of shares of BioPharmX common stock to be issued in the Merger had been increased and accordingly, BioPharmX's best currently available estimate of the effective number of shares of BioPharmX common stock to be issued in the Merger pursuant to the Agreement after taking into account the potential adjustments to the Timber Percentage and the potential effects of the anti-dilution and other rights being issued in the Merger was from 125,613,000 to 525,289,000, rather than 114,759,000 to 479,900,000 (the "Updated Estimated Merger Consideration Range"). At BioPharmX's request, Cassel Salpeter confirmed to the board on January 26, 2020 that, had the Estimated Merger Consideration Range been the Updated Estimated Merger Consideration Range at the time Cassel Salpeter rendered its opinion to the board, Cassel Salpeter believed it would still have been able to render its opinion to the board to the effect that, as of January 22, 2020 and based upon and subject to the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Cassel Salpeter in preparing its opinion, the Merger Consideration to be issued by BioPharmX in the Merger pursuant to the Agreement was fair, from a financial point of view, to BioPharmX.
Interests of BioPharmX Directors and Executive Officers in the Merger
In considering the recommendation of the BioPharmX Board with respect to issuing shares of BioPharmX common stock as contemplated by the Merger Agreement and the other matters to be acted upon by BioPharmX's stockholders at the BioPharmX special meeting, BioPharmX's stockholders should be aware that certain members of the BioPharmX Board and certain of BioPharmX's executive officers have interests in the Merger that may be different from, or in addition to, the interests of BioPharmX's stockholders. These interests may present them with actual or potential conflicts of interest, and those interests, to the extent material, are described below.
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Each of the members of the BioPharmX Board and the Timber Board was aware of these potential conflicts of interest and considered them, among other matters, in reaching their respective decisions to approve the Merger Agreement and the Merger and to recommend, as applicable, that BioPharmX's stockholders approve the proposals to be presented to BioPharmX's stockholders for consideration at the BioPharmX special meeting as contemplated by this proxy statement/prospectus/information statement and the approval by Timber's members immediately prior to the effectiveness of this proxy statement/prospectus/information statement.
As of March 23, 2020, BioPharmX's directors and named executive officers beneficially owned, in the aggregate, 2.5% of the shares of common stock of BioPharmX. The affirmative vote of the holders of a majority of the total outstanding shares of BioPharmX is required for approval of Proposal Nos. 1, 2, and 3. Approval of Proposal Nos. 4, 5 and 6 require the affirmative vote of the holders of a majority of the shares of BioPharmX's common stock entitled to vote and present in person or represented by proxy at the BioPharmX special meeting. Abstentions will have the same effect as votes "AGAINST" all proposals.
The table below sets forth information regarding the ownership of BioPharmX's common stock as of March 23, 2020.
|
Shares Beneficially Owned |
||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Shares of Common Stock |
% | |||||
Directors and Named Executive Officers: |
|||||||
Steven M. Bosacki(1) |
22,750 | * | |||||
David S. Tierney(2) |
227,334 | 1.2 | % | ||||
Michael Hubbard(3) |
77,975 | * | |||||
Stephen Morlock(4) |
103,231 | * | |||||
R. Todd Plott(5) |
42,930 | * | |||||
All named executive officers and directors as a group (5 persons)(6) |
444,164 | 2.5 | % |
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Effect of Merger on BioPharmX Options and Warrants
Except as set forth below, each warrant outstanding immediately prior to the Effective Time will be either retained or will be converted into the right to receive stock consideration based on the terms of that specific warrant. Each stock option outstanding immediately prior to the Effective Time will remain in full force and effect, as adjusted for the BioPharmX Reverse Stock Split. The terms governing these options will otherwise remain in full force and effect following the closing of the Merger.
On January 28, 2020, BioPharmX entered into an Exchange Agreement (the "Exchange Agreement") with several affiliates of an institutional investor ("Holders"). Pursuant to the Exchange Agreement, the Holder, which owned warrants to purchase approximately 2.3 million shares of BioPharmX common stock (the "Investor Exchange Warrants"), exchanged the Investor Warrants for an aggregate of 850,000 shares of BioPharmX common stock (the "Exchange"). The Investor Exchange Warrants exchanged in the Exchange contained language that would have allowed the Holder to convert the Investor Exchange Warrants into shares of BioPharmX common stock at the time of the consummation of the Merger based on the "Black-Scholes Value" of the Investor Exchange Warrants at the time of the consummation of the Merger. The Exchange was effected in a transaction exempt from registration under Section 3(a)(9) of the Securities Act of 1933.
BioPharmX has also agreed to allow other holders of its warrants to exchange their warrants on a similar basis.
The following table provides the total compensation for each person who served as a non-employee member of BioPharmX's board of directors during fiscal year 2020, including all compensation awarded to, earned by or paid to each person who served as a non-employee director for some portion or all of fiscal year 2020. Dr. Tierney, our former President and Chief Executive Officer received no compensation for his service as a member of BioPharmX's board of directors during fiscal year 2020, and is not included in this table.
Director Compensation Fiscal Year 2020
Name
|
Fees Earned or Paid in Cash ($) |
Option Awards ($)(1) |
Total ($) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Michael Hubbard |
113,500 | | 113,500 | |||||||
Stephen Morlock |
82,000 | | 82,000 | |||||||
R. Todd Plott, MD |
56,000 | | 56,000 | |||||||
Anja Krammer(2) |
5,914 | | 5,914 |
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Each person who served as a non-employee member of BioPharmX's board of directors during fiscal year 2020 held the following aggregate number of shares of BioPharmX's common stock subject to outstanding stock options as of March 23, 2020:
Name
|
Number of Securities Underlying Stock Options Held as of March 23, 2020 |
|||
---|---|---|---|---|
Michael Hubbard |
80,700 | |||
Stephen Morlock |
79,900 | |||
R. Todd Plott |
49,420 | |||
David S. Tierney |
656,001 |
Retainer Fees: BioPharmX provides a quarterly cash retainer fee to each of its non-employee directors for their services on the committees of its board of directors. Non-employee directors were compensated as follows:
Equity Awards. Each newly-elected or appointed non-employee director will be granted a stock option, as determined by the Compensation Committee, to purchase BioPharmX common stock. Each stock option will vest and become exercisable in equal monthly installments over two years from the vesting commencement date, subject to such non-employee director's continued service on the BioPharmX Board. The awards will have 10-year terms and will terminate three years following the date the director ceases to be a director or consultant of BioPharmX.
In addition, all non-employee directors will be granted an annual stock option, as determined by the Compensation Committee, to purchase BioPharmX common stock. Each stock option award will vest and become exercisable in equal monthly installments one year from the vesting commencement date, subject to such non-employee director's continued service on the BioPharmX Board. The awards will have 10-year terms and will terminate three years following the date the director ceases to be a director or consultant of BioPharmX.
BioPharmX has entered into employment offer letters with each of their named executive officers in connection with their commencement of employment with BioPharmX. These offers of employment were each subject to execution of BioPharmX's standard confidential information and invention assignment agreement.
On July 16, 2019, BioPharmX entered into an employment agreement with Steven M. Bosacki as Chief Operating Officer. On January 30, 2020, Mr. Bosacki was named Chief Executive Officer and Principal Financial Officer. The offer letter provides the following:
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Notwithstanding the forgoing, Mr. Bosacki has agreed to waive any change of control payments that would have been due to him pursuant to the Offer Letter upon the closing of the Merger.
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Interests of Timber Managers and Officers in the Merger
In considering the recommendation of the Timber Board with respect to voting to approve the Merger and related transactions, Timber members should be aware that certain members of the board of managers and officers of Timber have interests in the Merger that may be different from, or in addition to, interests they have as Timber members. All of Timber's managers and executive officers are expected to become directors and executive officers of the combined company upon the closing of the Merger.
As described in the section captioned "Related Party Transactions", Zachary Rome and Michael Derby serve as Partner and Managing Partner, respectively, of TardiMed Sciences LLC, an affiliate of Timber. Mr. Rome also currently serves as President of Patagonia, an affiliate of Timber.
Management Prior to and Following the Merger
As described elsewhere in this proxy statement/prospectus/information statement, including in the section captioned "Management Prior to and Following the Merger", certain of Timber's managers and officers are expected to become directors and officers of BioPharmX following the closing of the Merger. It is also the current intent of the parties that Gianluca Pirozzi, Michael Stocum, Edward Sitar and Linda Broenniman will be named to the BioPharmX Board as independent directors.
Under the Merger Agreement, from the Effective Time through the sixth anniversary of the date on which the Effective Time occurs, each of BioPharmX and the surviving entity shall indemnify and hold harmless each person who is now, or has at any time prior to the date hereof, or who becomes prior to the Effective Time, a director, manager, officer, fiduciary or agent of BioPharmX or Timber against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys' fees and disbursements incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that such party is or was a director, manager, officer, fiduciary or agent of BioPharmX or Timber, whether asserted or claimed prior to, at or after the Effective Time, in each case, to the fullest extent permitted by applicable law. Each such party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of BioPharmX and the surviving entity, jointly and severally, upon receipt by BioPharmX or the surviving entity from such party of a request therefor; provided that any such person to whom expenses are advanced provides an undertaking to BioPharmX, to the extent then required by the DGCL, to repay such advances if it is ultimately determined that such party is not entitled to indemnification.
Under the Merger Agreement, the provisions of BioPharmX's certificate of incorporation and bylaws with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of BioPharmX shall not be amended, modified or repealed for a period of six years from the Effective Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers or directors of BioPharmX. The certificate of incorporation and bylaws of the surviving entity shall contain, and BioPharmX shall cause the certificate of incorporation and bylaws of the surviving entity to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers as those presently set forth in the certificate of incorporation and bylaws of BioPharmX.
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The Merger Agreement provides that at the Effective Time, Merger Sub will be merged with and into Timber. Upon the consummation of the Merger, Timber will continue as the surviving entity and will be a wholly-owned subsidiary of BioPharmX.
After completion of the Merger, assuming Proposal No. 3 is approved by BioPharmX's stockholders at the BioPharmX special meeting, BioPharmX will be renamed "Timber Pharmaceuticals, Inc." and expects to trade on the NYSE American under the symbol "TMBR".
At the Effective Time, each preferred unit of Timber outstanding immediately prior to the Effective Time will be converted into a new class of convertible preferred stock of BioPharmX which shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding, except for conversion rights.
At the Effective Time, Timber's common members (including holders of VARs of Timber and investors providing the Timber Funding) will be entitled to receive approximately 129,046,419 shares of BioPharmX's common stock, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
Immediately after the Merger, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment provisions in the Investor Warrants sold in the Timber Funding (see the section titled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), it is expected that Timber's existing securityholders (including holders of VARs and any investors providing the Timber Funding) will own (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX with BioPharmX's existing stockholders owning approximately 11.5% of the outstanding capital stock of BioPharmX, subject to certain adjustments.
The Merger Agreement does not contain a price-based termination right, and there will be no adjustment to the total number of shares of BioPharmX's common stock that Timber's securityholders will be entitled to receive for changes in the market price of BioPharmX's common stock. Accordingly, the market value of shares of BioPharmX's common stock issued pursuant to the Merger will depend on the market value of the shares of BioPharmX's common stock at the time the Merger closes, and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.
No fractional shares of BioPharmX's common stock will be issuable to Timber's securityholders pursuant to the Merger. Instead, each securityholder of Timber who would otherwise be entitled to receive a fraction of a share of BioPharmX's common stock, after aggregating all fractional shares of BioPharmX's common stock issuable to such holder shall, in lieu of such fraction of a share and upon delivery by such holder of a stock registration form in accordance with the Merger Agreement and any accompanying documents as required therein, shall be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by the volume weighted average closing price of a share of BioPharmX's common stock on the NYSE American for the five consecutive trading days ending five trading days immediately prior to the date upon which the Merger becomes effective.
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Unless the Merger Agreement is earlier terminated under its terms and subject to the satisfaction of the other closing conditions described in the Merger Agreement, the Merger shall be consummated as promptly as practicable, but in no event later than the second business day following the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in the Merger Agreement, other than those conditions which by their nature are to be satisfied at closing, or at such other time, date, and place as BioPharmX and Timber may mutually agree.
At the closing, BioPharmX and Timber shall cause the Merger to be consummated by executing and filing with the Secretary of State of the State of Delaware a certificate of Merger with respect to the Merger, satisfying the applicable requirements of Delaware law and in a form reasonably acceptable to BioPharmX and Timber. The Merger will become effective at the time of filing of such Certificate of Merger or at such later time as may be specified therein with the consent of BioPharmX and Timber. Neither BioPharmX nor Timber can predict the exact timing of the consummation of the Merger.
In the United States, BioPharmX must comply with applicable federal and state securities laws and the rules and regulations of the NYSE American market in connection with the issuance of shares of BioPharmX's common stock and the filing of this proxy statement/prospectus/information statement with the SEC.
BioPharmX and Timber intend the Merger to qualify as a transfer of property to a "controlled corporation" for purposes under Section 351(a) of the Code. For a description of certain of the considerations regarding U.S. federal tax consequences of the Merger, see the section entitled "The MergerMaterial U.S. Federal Income Tax Consequences of the Merger" below.
Material U.S. Federal Income Tax Consequences of the Merger
The following discussion is a summary of the material U.S. federal income tax consequences of the Merger to U.S. Holders (as defined below) who exchange their Timber securities for BioPharmX common stock in the Merger, but does not purport to be a complete analysis of all potential tax effects. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS, in each case as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a U.S. holder. Neither BioPharmX nor Timber has sought or intends to seek any ruling from the IRS regarding the matters described below. There can be no assurance that the IRS or a court will not take a position regarding the tax consequences of the Merger contrary to that described below. This discussion assumes that the Merger will be consummated in accordance with the Merger Agreement and as described in this proxy statement/prospectus/information statement.
This discussion is limited to U.S. Holders that hold Timber securities as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment) and receive common stock of BioPharmX in the Merger. This discussion does not address all U.S. federal income tax consequences relevant to a U.S. Holder's particular circumstances, including the impact of the alternative minimum tax or the Medicare contribution tax on net investment income. In addition, it
127
does not address consequences relevant to U.S. Holders subject to special rules, including, without limitation:
If an entity treated as a partnership for U.S. federal income tax purposes holds Timber securities, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding Timber securities and the partners in such partnership should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES OF THE MERGER ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
For purposes of this discussion, a U.S. Holder is a beneficial owner of Timber securities that, for U.S. federal income tax purposes, is or is treated as:
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U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of Timber securities
The Merger should qualify as a transfer of property to a "controlled corporation" under Section 351(a) of the Code for U.S. federal income tax purposes. Accordingly, when U.S. Holders receive BioPharmX common stock in exchange for units of Timber pursuant to the Merger:
It is expected that holders of Timber units will be in "control" (within the meaning of Section 368(c) of the Code) of BioPharmX immediately after the Merger such that the Merger, taken together with the other transactions contemplated thereby, should qualify as a transfer of property to a "controlled corporation" under Section 351(a) of the Code for U.S. federal income tax purposes. "Control" for purposes of Section 351 of the Code is defined as the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock of the corporation. The holders of Timber units should receive "control" of BioPharmX pursuant to the Merger, taking into account all shares of BioPharmX stock issued to persons pursuant to the Merger Agreement. However, if the holders of Timber units who receive control of BioPharmX pursuant to the Merger take steps that would cause such holders to lose "control" of Holdings immediately after the Merger within the meaning of Section 368(c) of the Code as interpreted by applicable case law and IRS guidance, such as a previously negotiated sale to a third party under certain circumstances, the transaction would not satisfy the requirements of Section 351 of the Code. In that case, the exchange of Timber units for BioPharmX common stock would be a taxable transaction and any gain or loss realized by a holder would be recognized.
Neither BioPharmX nor Timber intends to request any ruling from the IRS as for the U.S. federal income tax consequences of the Merger and the transactions contemplated thereby. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those described herein. In addition, if any of the representations or assumptions described herein is inconsistent with the actual facts, the U.S. federal income tax consequences of the Merger could be adversely affected.
U.S. holders of Timber units who receive BioPharmX common stock and, upon consummation of the Merger, own BioPharmX common stock representing at least 5% of the total combined voting power or value of the total outstanding BioPharmX common stock are required to attach to their tax returns for the year in which the Merger is consummated, and maintain a permanent record of, a complete statement of all the facts relating to the exchange of stock in connection with the Merger containing
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the information listed in Treasury Regulations section 1.351-3. The facts to be disclosed by a U.S. Holder include the aggregate fair market value of, and the U.S. holder's basis in, the Timber units exchanged pursuant to the Merger and the transactions contemplated thereby.
BioPharmX's common stock currently is listed on the NYSE American market under the symbol "BPMX". BioPharmX has agreed to use its commercially reasonable efforts, (a) to the extent required by the rules and regulations of the NYSE American market, to prepare and submit to the NYSE American market a notification for the listing of the shares of BioPharmX common stock to be issued in connection with the Merger, and to cause such shares to be approved for listing (subject to official notice of issuance) and (b) to the extent required by the NYSE American Market rules, to file an initial listing application for the BioPharmX common stock on the NYSE American market and to cause the listing application to be conditionally approved prior to the Effective Time.
Both BioPharmX and Timber have agreed to use commercially reasonable efforts to coordinate with respect to compliance with NYSE American rules and regulations. BioPharmX has agreed to pay all fees associated with the listing application. Timber has agreed to cooperate with BioPharmX as reasonably requested by BioPharmX with respect to the listing application and promptly furnish BioPharmX all information concerning Timber and its members that may be required or reasonably requested in connection with any action contemplated by the listing agreement.
Anticipated Accounting Treatment
The Merger will be recorded by BioPharmX as a reverse asset acquisition in accordance with U.S. GAAP. For accounting purposes, Timber is considered to be acquiring BioPharmX in this transaction. The transaction is expected to be accounted for as a reverse asset acquisition under existing U.S. GAAP, which are subject to change and interpretation. Under the reverse asset acquisition method of accounting, management of BioPharmX and Timber have made a preliminary estimated purchase price calculated as described in Note 2 to the Notes to the Unaudited Pro Forma Condensed Combined Financial Information. The net tangible and intangible assets acquired, and liabilities assumed in connection with the transaction are at their estimated acquisition date fair values. The reverse asset acquisition method of accounting is dependent on certain valuations and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. A final determination of these estimated fair values, which cannot be made prior to the completion of the transaction, will be based on the actual net tangible and intangible assets of BioPharmX that exist as of the completion of the transaction.
Under Delaware law, neither members of Timber nor stockholders of BioPharmX are entitled to statutory appraisal rights.
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The following is a summary of the material terms of the Merger Agreement. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus/information statement and is incorporated by reference into this proxy statement/prospectus/information statement. The Merger Agreement has been attached to this proxy statement/prospectus/information statement to provide you with information regarding its terms. It is not intended to provide any other factual information about BioPharmX, Timber or Merger Sub. The following description does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement. You should refer to the full text of the Merger Agreement for details of the Merger and the terms and conditions of the Merger Agreement.
The Merger Agreement contains representations and warranties that BioPharmX and Merger Sub, on the one hand, and Timber, on the other hand, have made to one another as of specific dates. These representations and warranties have been made for the benefit of the other parties to the Merger Agreement and may not be intended as statements of fact but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate. In addition, the assertions embodied in the representations and warranties are qualified by information in confidential disclosure schedules exchanged by the parties in connection with the signing of the Merger Agreement. While BioPharmX and Timber do not believe that these disclosure schedules contain information required to be publicly disclosed under applicable securities laws, other than information that has been already so disclosed, the disclosure schedules do contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the attached Merger Agreement. Accordingly, you should not rely on the representations and warranties as current characterizations of factual information about BioPharmX or Timber, because they were made as of specific dates, may be intended merely as risk allocation between BioPharmX, Merger Sub and Timber and are modified by the disclosure schedules.
On January 28, 2020, BioPharmX, Merger Sub and Timber entered into the Merger Agreement. Under the Merger Agreement, as modified in Amendment No. 1, dated March 24, 2020, at the Effective Time, Merger Sub will merge with and into Timber, with Timber surviving as a wholly-owned subsidiary of BioPharmX.
At the Effective Time, each preferred unit of Timber outstanding immediately prior to the Effective Time will be converted into a new class of convertible preferred stock of BioPharmX (the "BioPharmX Preferred Stock") which shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding except for conversion rights. Such terms are described in more detail below.
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At the Effective Time, Timber's common members (including holders of VARs of Timber and investors providing the Timber Funding) will be entitled to receive approximately 129,046,419 shares of BioPharmX's common stock, subject to adjustment. The number of shares to be issued in the Merger is an estimate only as of the date hereof and the final number of shares will be determined pursuant to a formula described in more detail in the Merger Agreement and in this proxy statement/prospectus/information statement.
The number of shares of BioPharmX common stock to be issued in the aggregate (the "Timber Allocation Number" or "TAN") is equal to (i) a number of shares such that the Timber Allocation Number divided by the sum of the Timber Allocation Number plus the "Parent Fully Diluted Number", or "PFDN", as defined below, would equal the "Timber Percentage", or "TP", as defined below, less (ii) 200,000 shares of BioPharmX common stock.
The "Parent Fully Diluted Number", or "PDFN" means the fully diluted number of shares of BioPharmX common stock, including all shares issued and outstanding, all shares issued or issuable pursuant to the Exchange Agreement, an amount of shares that would be issued (whether or not actually issued) pursuant to the exchange, prior to the Effective Time, of all of the warrants outstanding as of the date hereof (other than those held by the Holders) in each of the classes of warrants from which warrants held by the Holders will be exchanged pursuant to the Exchange Agreement, assuming the same ratio of shares per warrant as is used in the Exchange Agreement for the warrants of the Holders from the applicable class, and all shares reserved for issuance with respect to any other outstanding stock options, warrants, convertible notes or other convertible debt or equity securities, but not (a) awards under BioPharmX's 2016 Equity Incentive Plan, as amended in March 2017 and August 2018, and 2014 Equity Incentive Plan or warrants issued in connection with any financing that in either case are either (i) out-of-the-money or (ii) will be cancelled without liability to BioPharmX at or prior to the closing date or (b) the Timber Bridge Warrant.
"Parent Net Cash" means the amount, whether positive or negative, of BioPharmX's cash and cash equivalents after the closing determined in a manner consistent with the manner in which such items were determined in BioPharmX's operating budget from January 28, 2020 through the closing (as set forth in the disclosure schedules to the Merger Agreement, the "Budget"); provided, however, that (a) no amounts incurred by BioPharmX in excess of projected amounts included in the Budget line items for the printer and Broadridge/Mediant shall reduce Parent Net Cash and (b) no amounts included under the heading "Public Company Expenses" at the end of the Budget shall be included in determining Parent Net Cash, but (c) all other obligations and liabilities existing or incurred by Parent through consummation of the Merger and closing shall be included in reducing BioPharmX's cash and cash equivalents and determining Parent Net Cash.
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The "Timber Percentage", or "TP" is 88.5%; provided however, that (a) if the Parent Net Cash as of the anticipated closing date is higher than the amount projected for such date in the Budget, the Timber Percentage will be decreased by one-tenth of one percentage point (0.1%) for each full interval of $100,000 by which the Parent Net Cash exceeds the applicable amount set forth in the Budget; and (b) if the Parent Net Cash as of the anticipated closing date is lower than as set forth in the Budget for such date, the Timber Percentage will be increased by one-tenth of one percentage point (0.1%) for each full interval of $100,000 by which the Parent Net Cash is less than the applicable amount set forth in the Budget.
Accordingly, by way of example only and assuming there are still 18,278,219 shares of BioPharmX stock outstanding, BioPharmX would issue an aggregate of approximately 124,694,957 shares of BioPharmX common stock to the holders of Timber common units and reserve approximately 4,351,462 shares of BioPharmX common stock for potential payment to holders of Timber VARs, such numbers reflecting the relative valuations of BioPharmX and Timber in accordance with the Merger Agreement, assuming the other assumptions set forth above remain the same.
The above example also assumes that (i) Timber has secured the Timber Funding prior to the closing, (ii) the investors who provide the Timber Funding will also participate in the issuance of BioPharmX common stock to the Timber common unit holders pursuant to the Merger Agreement, (iii) 330,016 shares of BioPharmX common stock are issued to Locust Walk to satisfy the success fee due at closing under the terms of its engagement, and (iv) 653,380 shares of BioPharmX common stock are issuable to warrant holders on terms comparable to those in the Exchange Agreement.
The Merger Agreement does not include a price-based termination right and there will be no adjustments to the total shares of BioPharmX's common stock that Timber's securityholders will be entitled to receive for changes in the market price of BioPharmX's common stock. Accordingly, the market value of the shares of BioPharmX's common stock issued pursuant to the Merger will depend on the market value of the shares of BioPharmX's common stock at the time the Merger closes and could vary significantly from the market value on the date of this proxy statement/prospectus/information statement.
No fractional shares of BioPharmX's common stock will be issuable to Timber's securityholders pursuant to the Merger. Instead, each securityholder of Timber who would otherwise be entitled to receive a fraction of a share of BioPharmX's common stock, after aggregating all fractional shares of BioPharmX's common stock issuable to such holder shall, in lieu of such fraction of a share and upon delivery by such holder of a stock registration form in accordance with the Merger Agreement and any accompanying documents as required therein, shall be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by the volume weighted average closing price of a share of BioPharmX's common stock on the NYSE American for the five consecutive trading days ending five trading days immediately prior to the date upon which the Merger becomes effective.
Promptly after the Effective Time, BioPharmX and Timber will cause the holders of Timber securities to deliver a completed and executed stock registration form. Upon delivery of such form to the exchange agent, the holder of such Timber securities shall be entitled to receive in exchange therefor a certificate or certificates or book-entry shares representing the Merger consideration that such holder has the right to receive pursuant to the Merger Agreement and cash in lieu of any fractional share of BioPharmX common stock.
Treatment of BioPharmX's Options and Warrants
Each BioPharmX stock option and warrant outstanding immediately prior to the Effective Time will remain in full force and effect. The number of shares of BioPharmX's common stock underlying such options and warrants and the exercise price for such options and warrants will be appropriately adjusted to reflect the BioPharmX Reverse Stock Split.
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Warrants to purchase shares of BioPharmX's common stock will either remain outstanding or become exchangeable for their Black-Scholes value according to their terms. As of March 23, 2020, warrants to purchase 1,277,737 shares of BioPharmX common stock will be exchangeable for 653,380 shares of BioPharmX common stock per the Exchange Agreement.
Timber's VARs shall become denoted in (and payable in) shares of BioPharmX's common stock (instead of Timber common membership units).
Directors and Officers of BioPharmX and Timber Following the Merger
Pursuant to the Merger Agreement, the directors and officers of BioPharmX, each to hold office in accordance with the certificate of incorporation and bylaws of BioPharmX, will be designated by Timber, and the managers and officers of the surviving limited liability company, each to hold office in accordance with the limited liability company agreement of the surviving entity, shall be the current managers and officers of Timber as set forth in the Merger Agreement, or such other persons as shall be mutually agreed upon by BioPharmX and Timber. It is the current intent of the parties that Gianluca Pirozzi, Michael Stocum, Edward Sitar and Linda Broenniman will be named to the BioPharmX Board as independent directors.
Amendment to the Certificate of Incorporation of BioPharmX
The certificate of incorporation of BioPharmX will be identical to the certificate of incorporation of BioPharmX immediately prior to the Effective Time, except as amended in accordance with Proposals No. 2 and 3 herein to effect the BioPharmX Reverse Stock Split and the BioPharmX Name Change, in each case, upon consummation of the Merger, each of which requires the affirmative vote of holders of shares representing a majority of all shares of BioPharmX's common stock outstanding on the record date for the BioPharmX special meeting.
Conditions to the Completion of the Merger
Each party's obligation to complete the Merger is subject to the satisfaction or waiver by each of the parties, at or prior to the Merger, of various conditions, which include the following:
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In addition, the obligations of BioPharmX and Merger Sub to effect the Merger and otherwise consummate the transactions to be contemplated thereby are subject to the satisfaction or the written waiver by BioPharmX, at or prior to the closing, of each of the following conditions:
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The obligations of Timber to effect the Merger and otherwise consummate the transactions to be contemplated thereby are subject to the satisfaction or the written waiver of Timber, at or prior to the closing, of each of the following conditions:
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Representations and Warranties
The Merger Agreement contains customary representations and warranties of BioPharmX and Timber for a transaction of this type relating to, among other things:
The representations and warranties are, in many respects, qualified by materiality and knowledge, and will not survive the Merger, but their accuracy forms the basis of one of the conditions to the obligations of BioPharmX and Timber to complete the Merger.
Each of BioPharmX and Timber has agreed that during the period commencing on the date of the Merger Agreement and ending on the earlier of the consummation of the Merger or the termination of the Merger Agreement, each of BioPharmX and Timber and their respective subsidiaries will not, nor shall it or any of their subsidiaries authorize any of its representatives, to:
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any action that could reasonably be expected to lead to an acquisition proposal or acquisition inquiry;
An "acquisition inquiry" means, with respect to any party, an inquiry, indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by Timber, on the one hand, or BioPharmX, on the other hand, to the other party) that would reasonably be expected to lead to an acquisition proposal.
An "acquisition proposal" means, with respect to any party, any offer or proposal, whether written or oral (other than an offer or proposal made or submitted by or on behalf of Timber or any of its affiliates, on the one hand, or by or on behalf of BioPharmX or any of its affiliates, on the other hand, to the other party) contemplating or relating to any acquisition transaction with such party.
An "acquisition transaction" means any transaction or series of related transactions involving:
However, before obtaining the applicable approval from the BioPharmX Board or the Timber Board, as applicable, either party may furnish non-public information regarding it and its respective subsidiaries (as applicable), and enter into discussions or negotiations with, any person in response to a bona fide written acquisition proposal by such person which the BioPharmX Board or the Timber Board, as applicable determines in good faith, after consultation with its outside financial advisors and outside legal counsel, constitutes, or is reasonably likely to result in, a superior offer if:
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provisions and no hire provisions) at least as favorable to such relevant party as those contained in the confidentiality agreement between BioPharmX or Timber; and
A "superior offer" is an unsolicited bona fide written acquisition proposal (with all references to 20% in the definition of acquisition transaction being treated as references to greater than 50% for these purposes that (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) the Merger Agreement, and (b) is on terms and conditions that the BioPharmX Board or the Timber Board, as applicable, determines in good faith, based on such matters that it deems relevant (including the likelihood of consummation thereof), as well as any written offer by the other party to the Merger Agreement to amend the terms of the Merger Agreement, and following consultation with its outside legal counsel and outside financial advisors, if any, are more favorable, from a financial point of view, to BioPharmX's stockholders and Timber's securityholders, as applicable, than the terms of the transaction contemplated by the Merger Agreement.
The Merger Agreement also provides that each party will promptly advise the other of the status and terms of, and keep the other party reasonably informed with respect to, any acquisition proposal or any inquiry, indication of interest or request for information that would reasonably be expected to lead to an acquisition proposal or any material change or proposed material change to that acquisition proposal or inquiry, indication of interest or request for information that would reasonably be expected to lead to an acquisition proposal.
BioPharmX is required to take all action necessary under applicable law to call and give notice of and hold the BioPharmX special meeting for the purposes of voting on the issuance of BioPharmX common stock pursuant to the Merger Agreement and other related transactions.
It is expected that on the date that BioPharmX holds the BioPharmX special meeting, the holders of membership interests in Timber sufficient to adopt and approve the Merger Agreement and the Merger as required by the Delaware Limited Liability Company Act ("DLLCA") and Timber's organizational documents will execute and deliver an action by written consent adopting the Merger Agreement.
If at any time prior to the approval of the Merger, either party receives a bona fide written superior offer, the BioPharmX Board or the Timber Board, as applicable, may make an adverse recommendation change if, but only if, following the receipt and on account of such superior offer, (i) the BioPharmX Board or the Timber Board, as applicable, determine in good faith, based on the advice of its outside legal counsel, that the failure to make an adverse recommendation change would be reasonably likely to be inconsistent with its fiduciary duties under applicable law, (ii) such party has, and has caused its financial advisors and legal counsel to, negotiate in good faith with the other party to make such adjustments to the terms and conditions of the Merger Agreement so that such acquisition proposal ceases to constitute a superior offer, and (ii) after such party shall have delivered to the other party a written offer to alter the terms and conditions of the Merger Agreement, the BioPharmX Board or the Timber Board, as applicable, shall have determined in good faith, based on the advice of its outside legal counsel, that the failure to withhold, amend, withdraw or modify their recommendation would reasonably be likely to be inconsistent with its fiduciary duties under applicable law, provided that such party receives written notice from the other party confirming that the applicable Board has determined to change its recommendation at least four business days in advance of such adverse recommendation change, which notice shall include written copies of any relevant proposed transaction agreements with any party making a potential superior offer. In the event of any
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material amendments to any superior offer, the party receiving such offer shall be required to provide the other party with notice of such material amendment and the notice period described above shall be extended, if applicable, to ensure that at least two business days remain in the notice period following such notification, during which the parties shall comply again with the requirements hereof and there shall not be an adverse recommendation change prior to the end of such extended notice period.
Covenants; Operation of Business Pending the Merger
BioPharmX has agreed that, except as disclosed in the disclosure schedules, as expressly permitted by the Merger Agreement, as required by applicable law or unless Timber shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the termination of the Merger Agreement and the Effective Time, BioPharmX will conduct its business and operations in (a) the ordinary course of business as it has been conducted in the month prior to the date of the Merger Agreement, (b) only in accordance with the budget set forth in the disclosure schedules, and (c) in compliance with all applicable laws and the requirements of all contracts that constitute material contracts.
Except as expressly provided by the Merger Agreement, as set forth in the disclosure schedule, as required by applicable law or with the prior written consent of Timber (which consent shall not be unreasonably withheld, delayed or conditioned), during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the termination of the Merger Agreement and the Effective Time, BioPharmX shall not:
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course of business consistent with past practice, (d) increase the severance or change of control benefits offered to any current or new employees, directors or consultants, or (e) hire any officer or employee;
Nothing contained in the Merger Agreement gives Timber, directly or indirectly, the right to control or direct the operations of BioPharmX prior to the Effective Time. Prior to the Effective Time, BioPharmX shall exercise, consistent with the terms and conditions of the Merger Agreement, complete unilateral control and supervision over its business operations.
Timber has agreed that, except as disclosed in the disclosure schedules, as expressly permitted by the Merger Agreement, as required by applicable law or unless BioPharmX shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the period commencing on the date of the Merger Agreement and continuing until the earlier to occur of the termination of the Merger Agreement and the Effective Time, Timber will conduct its business and operations in (a) the ordinary course of business as it has been conducted in the month prior to the date of the Merger Agreement, (b) only in accordance with the budget set forth in the disclosure schedules, and (c) in compliance with all applicable laws and the requirements of all contracts that constitute material contracts.
Except as expressly provided by the Merger Agreement, as set forth in the disclosure schedule, as required by applicable law or with the prior written consent of BioPharmX (which consent shall not be unreasonably withheld, delayed or conditioned), during the period commencing on the date of the
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Merger Agreement and continuing until the earlier to occur of the termination of the Merger Agreement and the Effective Time, Timber shall not:
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Nothing contained in the Merger Agreement gives BioPharmX, directly or indirectly, the right to control or direct the operations of Timber prior to the Effective Time. Prior to the Effective Time, Timber shall exercise, consistent with the terms and conditions of the Merger Agreement, complete unilateral control and supervision over its business operations.
BioPharmX and Timber agreed that, among other things:
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such party in connection with the transactions contemplated by the Merger Agreement; (b) shall use reasonable best efforts to obtain each consent (if any) reasonably required to be obtained (pursuant to any applicable law or contract, or otherwise) by such party in connection with the transactions contemplated by the Merger Agreement or for such contract to remain in full force and effect; (c) shall use commercially reasonable efforts lift any injunction prohibiting, or any other legal bar to, the transactions contemplated by the Merger Agreement; and (d) shall use commercially reasonable efforts to satisfy the conditions precedent to the consummation of the transactions contemplated by the Merger Agreement;
The Merger Agreement may be terminated at any time before the completion of the Merger, whether before or after the required securityholder approvals to complete the Merger have been obtained, as set forth below:
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SEC has not declared effective under the Securities Act the Registration Statement of which this proxy statement/prospectus/information statement is a part, by the date which is sixty (60) days prior to the End Date, then either party shall be entitled to extend the End Date for an additional sixty (60) days by written notice to the other party;
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BioPharmX must (i) pay to Timber a termination fee of the greater of (a) $1,250,000 or (b) the amount due to Timber under the Bridge Note and (i) repay and discharge all obligations under the Bridge Note if:
Timber must pay to BioPharmX a termination fee of the greater of (a) $1,250,000 or (b) the amount due to Timber under the Bridge Note less any amounts due it under the Bridge Note if:
The Merger Agreement can be amended with the approval of the BioPharmX Board, the Merger Sub board of directors and the Timber Board at any time (whether before or after the adoption and approval of the Merger Agreement by Timber's members or before or after obtaining the required vote of BioPharmX's stockholders); provided, however, that after any such approval of the Merger Agreement, no agreement shall be made which by law requires further approval of such stockholders without the further approval of such stockholders. The Merger Agreement may not be amended except by an instrument in writing signed on behalf of each of Timber, Merger Sub and BioPharmX.
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AGREEMENTS RELATED TO THE MERGER
Bridge Loan and Bridge Warrant
In connection with the Merger Agreement, BioPharmX and Timber entered into a Credit Agreement, dated as of January 28, 2020 (the "Credit Agreement"), pursuant to which Timber agreed to make a bridge loan to BioPharmX (the "Bridge Loan") in an aggregate amount of $2.25 million ($2.5 million less $250,000 of original issue discount ("OID")). Pursuant to the terms of the Credit Agreement, The Bridge Loan has been and will be made to BioPharmX in three tranches: (i) a $625,000 initial advance ($700,000 less $75,000 of OID) which was made on the closing date of the Credit Agreement; (ii) $625,000 ($700,000 less $75,000 of OID) which was made on February 28, 2020; and (iii) $1,000,000 ($1,100,000 less $100,000 of OID) which will be made upon the closing of the Merger. The Bridge Loan bears interest at a rate of 12% per annum and is repayable upon the earlier of maturity thereof, the termination (without completion) of the Merger or upon a liquidity event, as defined in the Credit Agreement. BioPharmX also issued to Timber a promissory note setting forth the terms of repayment (the "Bridge Note"). The Bridge Loan is secured by a lien on all of BioPharmX's assets. Further, in connection with the Bridge Loan, on January 28, 2020 BioPharmX issued to Timber a warrant to purchase approximately 2.3 million shares of common Stock at a nominal exercise price of $0.01 per share (the "Timber Bridge Warrant"). The Timber Bridge Warrant was exercised on a cashless basis on February 10, 2020 for a total amount of 2,200,328 shares of BioPharmX common stock.
In connection with the Merger and the Merger Agreement, each of the directors and officers of BioPharmX signed a Stockholder Support Agreement, made and entered into as of January 28, 2020, among BioPharmX, Timber, and each such director and officer ("Support Agreement"). Pursuant to the Support Agreement, each director and officer agreed that he or she will not, until the termination date of the Merger Agreement, sell or transfer any shares of BioPharmX common stock he or she owns or may acquire prior to the termination of the Merger Agreement. Each such director and officer has further agreed that he or she will vote all shares of BioPharmX common stock beneficially owned, and any new shares of BioPharmX common stock he or she may acquire, in favor of the Merger and the transactions contemplated by the Merger Agreement.
In connection with the Merger Agreement and the Credit Agreement, Timber entered into a securities purchase agreement, dated as of January 28, 2020 (the "SPA") with certain institutional investors (the "Buyers"), several of which are also parties to the Exchange Agreement described above, pursuant to which the Buyers have agreed to purchase, and Timber agreed to issue, senior secured promissory notes (the "Timber Bridge Notes") from Timber in the aggregate principal amount of $5 million, in exchange for an aggregate purchase price of $3.75 million, representing aggregate OID of $1.25 million (the "Timber Bridge Loan"). Pursuant to the terms of the SPA, the Buyers purchased the Timber Bridge Notes in three closings: (i) the first closing for $1,666,666.67 in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) on the closing date of the SPA; (ii) the second closing for $1,666,666.67 in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) on February 14, 2020; and (iii) the third closing for $1,666,666.66 in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) on March 13, 2020. The Timber Bridge Notes bear interest at a rate of 15% per annum (25% upon the occurrence of an event of default thereunder) and are repayable upon the earlier of (i) the closing of a fundamental transaction of Timber, (ii) the date on which Timber's equity is registered under the Securities Exchange Act of 1934, as amended or is exchanged for equity so registered (the "Public Company Date") or (iii) July 28, 2020. The Timber Bridge Notes are secured by a lien on all of Timber's assets.
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In addition, pursuant to the terms of the SPA, BioPharmX is obligated, within five trading days following the consummation of the first capital raising transaction by BioPharmX after the Merger, to issue to the Buyers warrants to purchase a total number of shares of common stock that equates to 100% of the US converted shares as if the Timber Bridge Notes were convertible at the lowest price any securities are sold, convertible or exercisable into in the Timber Funding or the next round of financing (the "Bridge Warrants").
Timber Funding Securities Purchase Agreement
On March 27, 2020, Timber, BioPharmX and the Investors entered into the Securities Purchase Agreement, pursuant to which, among other things, the Investors agreed to invest a total of approximately $25 million (which amount is comprised of (x) approximately $5 million credit with respect to the Notes issued in connection with the Timber Bridge Loan and (y) approximately $20 million in cash from the Investors) (the "Purchase Price"). In return, based on an agreed upon pre-money valuation (of the combined company) of $100 million, Timber will issue the Investors an amount of Timber common units (the "Timber Initial Units") exchangeable in the Merger for 20.0% of the post-closing company fully-diluted, which percentage is calculated assuming the return and cancellation of all of the Converted Additional Shares (as defined below) from escrow. In addition, (i) Timber will deposit the same number (the "Timber Additional Units" and together with the Timber Initial Units, the "Timber Funding Units") of Timber units into escrow with an escrow agent for the benefit of the Investors, to be exchanged for BioPharmX common stock at the Effective Time, and to be delivered, in whole or in part, based on the formula set forth in the paragraph that follows, out of escrow to the Investors if 85% of the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on NYSE American during the first ten trading days immediately following the closing date of the Timber Funding (which will be the same date as the Merger) (the "Closing Date") is lower than the effective price per share paid by the Investors for the Converted Initial Shares (as defined below), and (ii) on the tenth trading day following the Closing Date (the "Warrant Closing Date"), BioPharmX will issue to the Investors (x) Series A warrants to purchase shares of BioPharmX common stock, as further described below (the "Series A Warrants") and (y) Series B warrants to purchase shares of BioPharmX common stock, as further described below (the "Series B Warrants", together with the Series A Warrants, the "Investor Warrants" and, together with the Timber Funding Shares, the "Purchased Securities").
As a result of the Merger, at the Effective Time, each Timber Initial Unit will automatically be converted into the right to receive a number of shares of BioPharmX common stock equal to the exchange ratio (the "Converted Initial Shares"). Further, at the Effective Time, each Timber Additional Unit placed into escrow with the escrow agent will automatically be converted into the right to receive a number of shares of BioPharmX common stock equal to the exchange ratio (the "Converted Additional Shares"). The number of Converted Additional Shares deliverable out of escrow to each Investor will be determined on the Warrant Closing Date by subtracting (i) the number of Converted Initial Shares issued to the Investor from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor by (b) 85% of the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on NYSE American during the first ten trading days immediately following the Closing Date, subject to the Floor Price (as defined below). Any Converted Additional Shares not deliverable to the Investors as of the Warrant Closing Date based on the foregoing formula will be returned to BioPharmX as treasury shares and cancelled. The lower of (x) the effective initial purchase price per Converted Initial Share and (y) the number obtained by the formula in clause (b) above, subject to the Floor Price, is called the "Final Purchase Price."
Pursuant to the Securities Purchase Agreement, at any time during the period commencing from the six month anniversary of the closing date of the Timber Funding and ending at such time that all of the
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shares of BioPharmX common stock issued or issuable in the Timber Funding, if a registration statement is not available for the resale of such shares, may be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1), if BioPharmX (i) shall fail for any reason to satisfy the requirements of Rule 144(c)(1) under the Securities Act, including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) under the Securities Act or (ii) has ever been an issuer described in Rule 144(i)(1)(i) under the Securities Act or becomes such an issuer in the future, and BioPharmX shall fail to satisfy any condition set forth in Rule 144(i)(2) under the Securities Act (each, a "Public Information Failure"), then BioPharmX shall pay to each holder of Purchased Securities an amount in cash equal to 2.0% of such holder's pro rata portion of the Purchase Price on the day of such Public Information Failure and on every thirtieth day thereafter until the earlier of (i) the date such Public Information Failure is cured and (ii) such time that such Public Information Failure no longer prevents a holder of Purchased Securities from selling such Purchased Securities pursuant to Rule 144 under the Securities Act without any restrictions or limitations.
The Securities Purchase Agreement contains customary representations and warranties of Timber, BioPharmX and the Investors. Each Investor's obligation to purchase the Purchased Securities pursuant to the Securities Purchase Agreement is subject to the satisfaction or waiver of certain conditions, including:
Timber's obligation to sell the Timber Funding Shares and BioPharmX's obligation to issue the Series A Warrants and the Series B Warrants to each Investor pursuant to the Securities Purchase Agreement is subject to the satisfaction or waiver of certain conditions, including:
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The representations and warranties contained in the Securities Purchase Agreement will survive the closing of the Timber Funding.
The Securities Purchase Agreement restricts BioPharmX from filing a registration statement or any amendment or supplement thereto, causing any registration statement to be declared effective by the SEC, or granting any registration rights, in each case subject to certain limited exceptions, until the date that is 90 days after the earlier of (i) such time as all of the shares of BioPharmX common stock issued or issuable in the Timber Funding may be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1), (ii) the two year anniversary of the closing date of the Timber Funding, and (iii) the date that the first registration statement registering for resale all of the shares of BioPharmX common stock issued or issuable in the Timber Funding has been declared effective by the SEC; provided, that clause (iii) shall only apply if there are no shares held by the Investors left unregistered due to a limitation on the maximum number of shares of BioPharmX common stock permitted to be registered by the staff of the SEC pursuant to Rule 415 under the Securities Act (the earliest of (i), (ii) and (iii), the "Trigger Date").
Pursuant to the Securities Purchase Agreement, until the Trigger Date, subject to certain exceptions, neither Timber nor BioPharmX may (i) offer, sell, grant any option to purchase, or otherwise dispose of any of its or its subsidiaries' debt, equity or equity equivalent securities, including any debt, preferred stock or other instrument or security that is convertible into or exchangeable or exercisable for Timber units, BioPharmX common stock or equivalent securities, including any rights, warrants or options to subscribe for or purchase Timber units or BioPharmX common stock or convertible into or exchangeable or exercisable for Timber units or BioPharmX common stock at a price which varies or may vary with the market price of the Timber units or BioPharmX common stock, including by way of one or more reset(s) to any fixed price (any such offer, sale, grant, disposition or announcement being referred to as a "Subsequent Placement"), (ii) enter into, or effect a transaction under, any agreement, including, but not limited to, an equity line of credit or "at-the-market" offering, whereby Timber or BioPharmX may issue securities at a future determined price, or (iii) be party to any solicitations, negotiations or discussions with regard to the foregoing.
Additionally, for three years following the Closing Date, Timber, BioPharmX and each of their subsidiaries shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a transaction in which Timber, BioPharmX or any of their subsidiaries (i) issues or sells any stock or securities convertible into or exercisable or exchangeable for Timber units or BioPharmX common stock ("Convertible Securities") either (a) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the Timber common units or BioPharmX common stock at any time after the initial issuance of such Convertible Securities, or (b) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of Timber or BioPharmX or the market for Timber units or BioPharmX common stock, other than pursuant to a customary "weighted average" anti-dilution provision or (ii) enters into any agreement (including, without
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limitation, an equity line of credit or an "at-the-market" offering) whereby Timber, BioPharmX or any of their subsidiaries may sell securities at a future determined price (other than standard and customary "preemptive" or "participation" rights).
The Securities Purchase Agreement may be amended only by an instrument in writing signed by Timber, BioPharmX and the Required Holders (as defined below). No provision of the Securities Purchase Agreement may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. "Required Holders" means (I) prior to the Closing Date, the Investors entitled to purchase at the closing a majority of the aggregate amount of Purchased Securities issued and issuable under the Securities Purchase Agreement and under the Investor Warrants (without regard to any restriction or limitation on the exercise of the Investor Warrants or the delivery of the Converted Additional Shares contained therein) and shall include the Lead Investor (as defined in the Securities Purchase Agreement) and (II) on or after the Closing Date, holders of at least a majority of the aggregate amount of Purchased Securities issued and issuable under the Securities Purchase Agreement and under the Investor Warrants (without regard to any restriction or limitation on the exercise of the Investor Warrants or the delivery of the Converted Additional Shares contained therein) as of the applicable time of determination and shall include the Lead Investor so long as the Lead Investor or any of its affiliates holds any Purchased Securities.
Upon written notice by the non-breaching party, the Securities Purchase Agreement may be terminated and the sale and purchase of the Purchased Securities abandoned if the closing of the Timber Funding has not occurred on or before June 15, 2020 due to any party's failure to satisfy the conditions to closing.
The Series A Warrants will be issued on the Warrant Closing Date, will have an initial exercise price per share equal to 125% of the Final Purchase Price, will be immediately exercisable and will have a term of five years from the date of issuance. The Series A Warrants issued to each Investor will initially be exercisable for an amount of BioPharmX common stock equal to 75% of the sum of (i) the number of Converted Initial Shares issued to the Investor, (ii) the number of Converted Additional Shares delivered or deliverable to the Investor as of the Warrant Closing Date and (iii) the number of shares, if any, underlying the Series B Warrants held by the Investor as of the Warrant Closing Date.
The Series A Warrants will provide that, following the issuance of the Series A Warrants, if BioPharmX issues or sells, enters into a definitive, bind agreement pursuant to which BioPharmX is required to issue or sell or is deemed, pursuant to the provisions of the Series A Warrants, to have issued or sold, any shares of BioPharmX common stock for a price per share lower than the exercise price then in effect (a "Dilutive Issuance"), subject to certain limited exceptions, then the exercise price of the Series A Warrants shall be reduced to such lower price per share. In addition, the exercise price and the number of shares of BioPharmX common stock issuable upon exercise of the Series A Warrants will also be subject to adjustment in connection with stock splits, dividends or distributions or other similar transactions. Further, on each Reset Date (as defined below) the Series A Warrants will be adjusted downward (but not increased) such that the exercise price thereof becomes 125% of the Reset Price (as defined below), and the number of shares underlying the Series A Warrants will be increased (but not decreased) to the quotient of (a) (i) the exercise price in effect prior to the Reset (as defined below) multiplied by (ii) the number of shares underlying the Series A Warrants prior to the Reset divided by (b) the exercise price resulting from the Reset.
Pursuant to the Series A Warrants, BioPharmX will agree not to enter into, allow or be party to certain fundamental transactions, generally including any merger with or into another entity, sale of all or substantially all of BioPharmX's assets, tender offer or exchange offer, or reclassification of BioPharmX common stock (a "Fundamental Transaction") until the 45th trading day immediately following the
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earlier to occur of (x) the date a holder can sell all underlying securities pursuant to Rule 144 without restriction or limitation and without the requirement to be in compliance with Rule 144(c)(1) of the Securities Act and (y) one year after the Warrant Closing Date (the "Reservation Date"). Thereafter, upon any exercise of a Series A Warrant, the holder shall have the right to receive, for each warrant share that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Series A Warrant), the number of shares of common stock of the successor or acquiring corporation or of BioPharmX, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of BioPharmX common stock for which the Series A Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Series A Warrant). For purposes of any such exercise, the determination of the exercise price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of BioPharmX common stock in such Fundamental Transaction, and BioPharmX shall apportion the exercise price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of BioPharmX common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of the Series A Warrant following such Fundamental Transaction. BioPharmX shall cause any successor entity in a Fundamental Transaction in which BioPharmX is not the survivor (the "Successor Entity") to assume in writing all of the obligations of BioPharmX under the Series A Warrants, upon which the Series A Warrants shall become exercisable for shares of BioPharmX common stock, shares of the common stock of the successor entity or the consideration that would have been issuable to the holders had they exercised the Series A Warrants prior to such Fundamental Transaction, at the holders' election. Additionally, at the request of a holder delivered before the 90th day after the consummation of a Fundamental Transaction, BioPharmX or the successor entity must purchase such holder's warrant for the value calculated using the Black-Scholes option pricing model as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if the Fundamental Transaction is not publicly announced, the date the Fundamental Transaction is consummated.
The Series A Warrants will also contain a "cashless exercise" feature that allows the holders to exercise the Series A Warrants without making a cash payment in the event that there is no effective registration statement registering the shares issuable upon exercise of the Series A Warrants. The Series A Warrants will be subject to a blocker provision which restricts the exercise of the Series A Warrants if, as a result of such exercise, the holder, together with its affiliates and any other person whose beneficial ownership of BioPharmX common stock would be aggregated with the holder's for purposes of Section 13(d) of the Exchange Act would beneficially own in excess of 4.99% or 9.99% of the outstanding BioPharmX common stock (including the shares of BioPharmX common stock issuable upon such exercise), as such percentage ownership is determined in accordance with the terms of the Series A Warrants. If BioPharmX fails to issue to a holder of Series A Warrants the number of shares of BioPharmX common stock to which such holder is entitled upon such holder's exercise of the Series A Warrants, then BioPharmX shall be obligated to pay the holder on each day while such failure is continuing an amount equal to 1.5% of the market value of the undelivered shares determined using a trading price of BioPharmX common stock selected by the holder while the failure is continuing and if the holder purchases shares of BioPharmX common stock in connection with such failure ("Series A Buy-In Shares"), then BioPharmX must, at the holder's discretion, reimburse the holder for the cost of such Series A Buy-In Shares or deliver the owed shares and reimburse the holder for the difference between the price such holder paid for the Series A Buy-In Shares and the market price of such shares, measured at any time of the holder's choosing while the delivery failure was continuing.
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Further, the Series A Warrants will provide that, in the event that BioPharmX does not have sufficient authorized shares to deliver in satisfaction of an exercise of a Series A Warrant, then unless the holder elects to void such attempted exercise, the holder may require BioPharmX to pay an amount equal to the product of (i) the number of shares that BioPharmX is unable to deliver and (ii) the highest volume-weighted average price of a share of BioPharmX common stock as quoted on NYSE American during the period beginning on the date of such attempted exercise and ending on the date that BioPharmX makes the applicable payment.
The Series B Warrants will be issued to each Investor on the Warrant Closing Date, and each Investor's Series B Warrants will have an exercise price per share of $0.001, will be immediately exercisable and will expire on the day following the later to occur of (i) the Reservation Date, and (ii) the date on which the Investor's Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder. Each Investor's Series B Warrants will be initially exercisable for an amount of BioPharmX common stock equal to the number (if positive) obtained by subtracting (i) the sum of (a) the number of Converted Initial Shares issued to the Investor and (b) the number of Converted Additional Shares delivered or deliverable to the Investor as of the Warrant Closing Date, from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor by (b) 85% of the average of the three lowest volume weighted average trading prices of a share of BioPharmX common stock on NYSE American during the first ten trading days immediately following the Closing Date, subject to the Floor Price.
Additionally, every ninth trading day up to and including the 45th trading day (each, a "Reset Date") following (i) the 15th trading day immediately following the Warrant Closing Date and (ii) every 15th trading day thereafter (each such date provided in the foregoing clauses (i) and (ii), an "End Reset Measuring Date") (except if on such date (1) the holder cannot freely sell any Registrable Securities (as defined below) pursuant to a resale registration statement and (2) the holder cannot sell any Registrable Securities without restriction or limitation pursuant to Rule 144, and provided that no date following the occurrence of a Satisfaction Event (as defined below) will be deemed an End Reset Measuring Date, and provided further that no such date will be deemed an End Reset Measuring Date if an End Reset Measuring Date has previously occurred and either (1) if the holder was able to then freely sell any Registrable Securities pursuant to a resale registration statement in accordance with such prior End Reset Measuring Date, such ability continued uninterrupted through and including the applicable date of determination or (2) if the holder was able to freely sell any Registrable Securities without restriction or limitation pursuant to Rule 144 in accordance with such prior End Reset Measuring Date, such ability continued uninterrupted through and including the applicable date of determination) (such 45 trading day period, the "Reset Period" and each such 45th trading day after (i) or (ii), the "End Reset Date"), the number of shares issuable upon exercise of each Investor's Series B Warrants shall be increased (a "Reset") to the number (if positive) obtained by subtracting (i) the sum of (a) the number of Converted Initial Shares issued to the Investor and (b) the number of Converted Additional Shares delivered or deliverable to the Investor as of the Warrant Closing Date, from (ii) the quotient determined by dividing (a) the pro rata portion of the Purchase Price paid by the Investor, by (b) the greater of (x) the arithmetic average of the five lowest dollar volume-weighted average prices of a share of BioPharmX common stock on NYSE American during the applicable Reset Period immediately preceding the applicable Reset Date to date and (y) provided that the BioPharmX common stock is then traded on the NYSE American Capital Market, a floor price per share (the "Floor Price") calculated based on a pre-money valuation (of the combined company, assuming for this purpose the pre-money issuance of the Converted Initial Shares and Converted Additional Shares) of $10 million (such number resulting in this clause (b), the "Reset Price"). "Satisfaction Event" means (1) all Registrable Securities are able to be freely sold without any restriction or limitation by the holder at all times during the 45 trading day period beginning on, and
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including, any End Reset Measuring Date either (a) pursuant to a resale registration statement or (b) pursuant to Rule 144; or (2) the Reservation Date has occurred.
Pursuant to the Series B Warrants, BioPharmX will agree not to enter into, allow or be party to a Fundamental Transaction until the Reservation Date. Thereafter, upon any exercise of a Series B Warrant, the holder shall have the right to receive, for each warrant share that would have been issuable upon such exercise immediately prior to the occurrence of a Fundamental Transaction, at the option of the holder (without regard to any limitation on the exercise of the Series B Warrant), the number of shares of common stock of the successor or acquiring corporation or of BioPharmX, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of BioPharmX common stock for which the Series B Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of the Series B Warrant). For purposes of any such exercise, the determination of the exercise price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of BioPharmX common stock in such Fundamental Transaction, and BioPharmX shall apportion the exercise price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of BioPharmX common stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of the Series B Warrant following such Fundamental Transaction. BioPharmX shall cause any successor entity in a Fundamental Transaction in which BioPharmX is not the survivor (the "Successor Entity") to assume in writing all of the obligations of BioPharmX under the Series B Warrants, upon which the Series B Warrants shall become exercisable for shares of BioPharmX common stock, shares of the common stock of the successor entity or the consideration that would have been issuable to the holders had they exercised the Series B Warrants prior to such Fundamental Transaction, at the holders' election. The Series B Warrants will also contain a "cashless exercise" feature that allows the holders to exercise the Series B Warrants without making a cash payment. The Series B Warrants will be subject to a blocker provision which restricts the exercise of the Series B Warrants if, as a result of such exercise, the holder, together with its affiliates and any other person whose beneficial ownership of BioPharmX common stock would be aggregated with the holder's for purposes of Section 13(d) of the Exchange Act would beneficially own in excess of 4.99% or 9.99% of the outstanding BioPharmX common stock (including the shares of BioPharmX common stock issuable upon such exercise), as such percentage ownership is determined in accordance with the terms of the Series B Warrants.
If BioPharmX fails to issue to a holder of Series B Warrants the number of shares of BioPharmX common stock to which such holder is entitled upon such holder's exercise of the Series B Warrants, then BioPharmX shall be obligated to pay the holder on each day while such failure is continuing an amount equal to 1.5% of the market value of the undelivered shares determined using a trading price of BioPharmX common stock selected by the holder while the failure is continuing and if the holder purchases shares of BioPharmX common stock in connection with such failure ("Series B Buy-In Shares"), then BioPharmX must, at the holder's discretion, reimburse the holder for the cost of such Series B Buy-In Shares or deliver the owed shares and reimburse the holder for the difference between the price such holder paid for the Series B Buy-In Shares and the market price of such shares, measured at any time of the holder's choosing while the delivery failure was continuing.
Further, the Series B Warrants will provide that, in the event that BioPharmX does not have sufficient authorized shares to deliver in satisfaction of an exercise of a Series B Warrant, then unless the holder elects to void such attempted exercise, the holder may require BioPharmX to pay an amount equal to the product of (i) the number of shares that BioPharmX is unable to deliver and (ii) the highest volume-weighted average price of a share of BioPharmX common stock as quoted on NYSE American
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during the period beginning on the date of such attempted exercise and ending on the date that BioPharmX makes the applicable payment.
Examples of Dilution Scenarios
For illustrative purposes, what follows are three potential scenarios of the dilution that stockholders in the combined company may face as a result of the Timber Funding as of the Warrant Closing Date, assuming different market prices of the BioPharmX common stock on the NYSE American. The maximum amount of shares of BioPharmX common stock that could be issuable upon the exercise of the Investor Warrants is the same amount whether determined on the Warrant Closing Date or on any Reset Date, due to the application of the Floor Price on all such dates.
Using 17,061,287, the number of securities of BioPharmX outstanding or assumed to be outstanding as of February 27, 2020, the number of Converted Initial Shares to be issued to the Investors at the Effective Time in exchange for the Timber Initial Units would be 24,693,169, resulting in an effective price per share (based on the aggregate Purchase Price) of approximately $1.0124. In addition, 24,693,169 Converted Additional Shares would be issued to the escrow agent at such time in exchange for the Timber Additional Units. Further, the Floor Price would be $0.0675 per share.
If on the Warrant Closing Date the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on the NYSE American during the first ten trading days immediately following the Closing Date is equal to $1.191 (85% of which is $1.0124) or more, then no Converted Additional Shares would be deliverable to the Investors from escrow, all of the outstanding Converted Additional Shares held by the escrow agent on such date would be returned to and cancelled by the combined company, the Series A Warrants would be exercisable for 18,519,877 shares with an exercise price of $1.2655 per share and the Series B Warrants would be exercisable for zero shares, with both warrants subject to Resets on subsequent Reset Dates. In such case, the pre-merger holders of BioPharmX common stock and other equity securities of BioPharmX would own 14.05% of the fully-diluted combined company equity securities (not including the Series A Warrants or the Bridge Warrants), the pre-merger holders of Timber units and holders of Timber VARs (not including the Investors) would own 65.61% of such amount, and the Investors would own 20.34% of such amount. Taking into account the shares of BioPharmX common stock underlying the Series A Warrants and the Bridge Warrants, such percentages would be 11.78%, 54.99% and 33.23%, respectively.
If on the Warrant Closing Date the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on the NYSE American during the first ten trading days immediately following the Closing Date is equal to $0.75 (85% of which is $0.6375), then 14,522,517 Converted Additional Shares would be deliverable to the Investors from escrow, 10,170,651 of the remaining Converted Additional Shares in escrow on such date would be returned to and cancelled by the combined company, the Series A Warrants would be exercisable for 29,411,765 shares with an exercise price of $0.7969 per share and the Series B Warrants would be exercisable for zero shares, with both warrants subject to Resets on subsequent Reset Dates. In such case, the pre-merger holders of BioPharmX common stock and other equity securities of BioPharmX would own 12.55% of the fully-diluted combined company equity securities (not including the Series A Warrants or the Bridge Warrants), the pre-merger holders of Timber units and holders of Timber VARs (not including the Investors) would own 58.60% of such amount, the Investors would own 28.85% of such amount. Taking
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into account the shares of BioPharmX common stock underlying the Series A Warrants and the Bridge Warrants, such percentages would be 9.85%, 46.00% and 44.15%, respectively.
If on the Warrant Closing Date the average of the three lowest volume-weighted average trading prices of a share of BioPharmX common stock on the NYSE American during the first ten trading days immediately following the Closing Date is equal to $0.0675 (85% of which is $0.057, the estimated Floor Price) or lower, then all (24,693,169) of the Converted Additional Shares would be deliverable to the Investors from escrow, no Converted Additional Shares would be returned to and cancelled by the combined company, the Series A Warrants would be exercisable for 277,798,150 shares with an exercise price of $0.0844 per share and the Series B Warrants would be exercisable for 321,011,195 shares with an exercise price of $0.001 per share, this being the maximum amount issuable under such warrants, and therefore no increases upon subsequent Resets while the Floor Price still applies. In such case, the pre-merger holders of BioPharmX common stock and other equity securities of BioPharmX would own 3.65% of the fully-diluted combined company equity securities (not including the Series A Warrants or the Bridge Warrants), the pre-merger holders of Timber units and holders of Timber VARs (not including the Investors) would own 17.05% of such amount, the Investors would own 79.30% of such amount. Taking into account the shares of BioPharmX common stock underlying the Series A Warrants and the Bridge Warrants, such percentages would be 2.08%, 9.73% and 88.19%, respectively.
In connection with the Timber Funding, BioPharmX entered into a Registration Rights Agreement with the Investors (the "Registration Rights Agreement"). Pursuant to the Registration Rights Agreement, BioPharmX is required to file an initial resale registration statement with respect to shares of BioPharmX common stock held by or issuable to the Investors pursuant to the Investor Warrants and the Bridge Warrants (the "Registrable Securities"), within 15 trading days after the Closing Date. Additionally, BioPharmX is required to file additional resale registration statements with respect to the Registrable Securities within 15 days of each End Reset Date, to the extent that such Registrable Securities are not already registered for resale on a prior registration statement. BioPharmX will be required to use its commercially reasonable efforts to maintain the effectiveness of these registration statements until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by the applicable registration statement(s) without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) or (ii) the date on which the Investors have sold all of the Registrable Securities covered by the applicable registration statement(s).
If BioPharmX fails to file and obtain and maintain effectiveness of the resale registration statements required under the Registration Rights Agreement or fails, subject to limited grace periods, to maintain the effectiveness of the resale registration statements, then BioPharmX shall be obligated to pay to each affected holder of Registrable Securities an amount equal to (i) 2.0% of the aggregate Purchase Price of such Investor's Registrable Securities whether or not included in such registration statement on each of the day of such failure and (ii) 1.5% of the aggregate Purchase Price of such Investor's Registrable Securities whether or not included in such registration statement on every thirtieth day thereafter (pro-rated for periods of less than 30 days) until the date such failure is cured, provided that the aggregate of all such payments will not exceed 8.0% of the aggregate Purchase Price for the Investor's Registrable Securities. These registration rights granted under the Registration Rights Agreement are subject to certain conditions and limitations, including BioPharmX's right to delay or withdraw a registration statement under certain circumstances. The registration rights granted in the Registration Rights Agreement are subject to customary indemnification and contribution provisions.
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In connection with the Timber Funding, BioPharmX and Timber will enter into lock-up agreements (the "Financing Lock-Up Agreements") with each officer, director or other person that will be subject to Section 16 of the Exchange Act, with respect to BioPharmX immediately following the consummation of the Merger (the "Financing Lock-Up Parties"), pursuant to which each of the Financing Lock-Up Parties will agree that until the date that is 90 calendar days after the Trigger Date (as defined in the section entitled "Agreements Related to the MergerTimber Funding" in this proxy statement/prospectus/information statement), subject to certain customary exceptions, such Financing Lock-Up Party will not and will cause its affiliates not to (A) sell, offer to sell, contract or agree to sell, hypothecate, pledge, grant any option to purchase, make any short sale or otherwise dispose of or agree to dispose of, directly or indirectly, any shares of BioPharmX common stock or common stock equivalents, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act with respect to any shares of BioPharmX common stock or common stock equivalents owned directly by the Financing Lock-Up Parties (including holding as a custodian) or with respect to which the undersigned has beneficial ownership within the rules and regulations of the Securities and Exchange Commission (collectively, the "Subject Shares"), or (B) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any of the Subject Shares, whether any such transaction described in clause (A) or (B) above is to be settled by delivery of shares of BioPharmX common stock or other securities, in cash or otherwise, (C) make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of BioPharmX common stock or common stock equivalents or (D) publicly disclose the intention to do any of the foregoing.
Pursuant to that certain engagement letter between Chardan Capital Markets ("Chardan") and Timber, Timber will pay to Chardan $2.5 million in cash promptly following the Effective Time.
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MATTERS BEING SUBMITTED TO A VOTE OF BIOPHARMX'S STOCKHOLDERS
Proposal No. 1: Approval of the Issuance of Common Stock in the Merger
At the BioPharmX special meeting, BioPharmX's stockholders will be asked to approve the issuance of BioPharmX's common stock to Timber's securityholders pursuant to the Merger Agreement. Immediately following the Merger, it is expected that Timber's current securityholders (including holders of VARs and any investors providing the Timber Funding) will own (or have the right to receive) approximately 88.5% of the outstanding common stock of BioPharmX and current BioPharmX will own approximately 11.5% of the outstanding common stock of BioPharmX., subject to certain adjustments
The terms of, reasons for and other aspects of the Merger Agreement, the Merger, the issuance of BioPharmX's common stock pursuant to the Merger Agreement are described in detail in the other sections in this proxy statement/prospectus/information statement.
The affirmative vote of holders of a majority of the shares of BioPharmX's outstanding common stock entitled to vote is required to approve Proposal No. 1. Abstentions and broker non-votes will have the same effect as votes "AGAINST" this proposal.
THE BIOPHARMX BOARD RECOMMENDS THAT BIOPHARMX'S STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 1 TO APPROVE THE ISSUANCE OF BIOPHARMX'S COMMON STOCK PURSUANT TO THE MERGER AGREEMENT. EACH OF PROPOSAL NOS. 1, 2 AND 5 ARE CONDITIONED UPON EACH OTHER AND THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE MERGER.
Proposal No. 2: Approval of an Amendment to the Certificate of Incorporation Effecting the BioPharmX Reverse Stock Split
At the BioPharmX special meeting, BioPharmX's stockholders will be asked to approve an amendment to the certificate of incorporation of BioPharmX effecting the BioPharmX Reverse Stock Split. Upon the effectiveness of the amendment to the certificate of incorporation of BioPharmX effecting the BioPharmX Reverse Stock Split, or the split effective time, the issued shares of BioPharmX's common stock immediately prior to the split effective time will be reclassified into a smaller number of shares within a range of 1-for-5 to 1-for-25, with such specific ratio to be mutually agreed upon by BioPharmX and Timber prior to the split effective time.
If Proposal No. 2 is approved, the BioPharmX Reverse Stock Split would become effective with the closing of the Merger. The BioPharmX Board may affect only one reverse stock split in connection with this Proposal No. 2. The BioPharmX Board's decision will be based on a number of factors, including market conditions, existing and expected trading prices for BioPharmX's common stock and the listing requirements of the NYSE American market.
The form of the amendment to the certificate of incorporation of BioPharmX to effect the BioPharmX Reverse Stock Split, as more fully described below, will affect the BioPharmX Reverse Stock Split but will not change the number of authorized shares of common stock, or the par value of BioPharmX's common stock.
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NYSE American Listing Requirements
BioPharmX's common stock is quoted on the NYSE American market under the symbol "BPMX". BioPharmX intends to file an initial listing application with the NYSE American to seek listing on the NYSE American market upon the closing of the Merger.
According to NYSE American rules, an issuer must, in a case such as this, apply for initial inclusion following a transaction whereby the issuer combines with a non-NYSE American entity, resulting in a change of control of the issuer and potentially allowing the non-NYSE American entity to obtain a NYSE American listing. Accordingly, the listing standards of the NYSE American will require BioPharmX to have, among other things, a $2.00 per share minimum bid price and a $50 million market capitalization upon the closing of the Merger. Therefore, the BioPharmX Reverse Stock Split may be necessary in order to consummate the Merger.
One of the effects of the BioPharmX Reverse Stock Split will be to effectively increase the proportion of authorized shares which are unissued relative to those which are issued. This could result in BioPharmX's management being able to issue more shares without further stockholder approval. For example, before the BioPharmX Reverse Stock Split, BioPharmX's authorized but unissued shares immediately prior to the closing of the Merger would be approximately 426.1 million compared to shares issued of approximately 18.3 million. If BioPharmX effects the BioPharmX Reverse Stock Split using a 1-for-5 ratio, its authorized but unissued shares immediately prior to the closing of the Merger would be approximately 445.2 million compared to shares issued of approximately 3.7 million. If BioPharmX effects the BioPharmX Reverse Stock Split using a 1-for-25 ratio, its authorized but unissued shares immediately prior to the closing of the Merger would be approximately 449.0 million compared to shares issued of approximately 731,000. BioPharmX currently has no plans to issue shares, other than in connection with the Merger, and to satisfy obligations under warrants and stock options from time to time as such warrants and stock options are exercised. The BioPharmX Reverse Stock Split will not affect the number of authorized shares of BioPharmX's common stock which will continue to be authorized pursuant to the certificate of incorporation of BioPharmX.
Potential Increased Investor Interest
On March 26, 2020, BioPharmX's common stock closed at $0.27 per share. An investment in BioPharmX's common stock may not appeal to brokerage firms that are reluctant to recommend lower priced securities to their clients. Investors may also be dissuaded from purchasing lower priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. Moreover, the analysts at many brokerage firms do not monitor the trading activity or otherwise provide coverage of lower priced stocks. Also, the BioPharmX Board believes that most investment funds are reluctant to invest in lower priced stocks.
There are risks associated with the BioPharmX Reverse Stock Split, including that the BioPharmX Reverse Stock Split may not result in an increase in the per-share price of BioPharmX's common stock.
BioPharmX cannot predict whether the BioPharmX Reverse Stock Split will increase the market price for BioPharmX's common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:
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The market price of BioPharmX's common stock will also be based on the performance of BioPharmX and other factors, some of which are unrelated to the number of shares outstanding. If the BioPharmX Reverse Stock Split is effected and the market price of BioPharmX's common stock declines, the percentage decline as an absolute number and as a percentage of the overall market capitalization of BioPharmX may be greater than would occur in the absence of a reverse stock split. Furthermore, the liquidity of BioPharmX's common stock could be adversely affected by the reduced number of shares that would be outstanding after the BioPharmX Reverse Stock Split.
Principal Effects of the BioPharmX Reverse Stock Split
The amendment to the certificate of incorporation of BioPharmX effecting the BioPharmX Reverse Stock Split is set forth in Annex B to this proxy statement/prospectus/information statement.
The BioPharmX Reverse Stock Split will be affected simultaneously for all outstanding shares of BioPharmX's common stock. The BioPharmX Reverse Stock Split will affect all of BioPharmX's stockholders uniformly and will not affect any stockholder's percentage interest in BioPharmX, except to the extent that the BioPharmX Reverse Stock Split results in any of BioPharmX's stockholders owning a fractional share. Shares of BioPharmX's common stock issued pursuant to the BioPharmX Reverse Stock Split will remain fully paid and nonassessable. The BioPharmX Reverse Stock Split does not affect the total proportionate ownership of BioPharmX following the Merger. The BioPharmX Reverse Stock Split will not affect BioPharmX continuing to be subject to the periodic reporting requirements of the Exchange Act.
As an example, the following table illustrates the effects of a 1-for-5 to 1-for-25 reverse stock split (without giving effect to the treatment of fractional shares):
|
Shares Issued and Outstanding(1) |
Shares Authorized and Reserved for Issuance(1)(2) |
Shares Authorized and Unreserved for Issuance(1) |
Total Authorized(1) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
As of March 23, 2020 |
18,278,219 | 5,623,853 | 426,097,928 | 450,000,000 | |||||||||
1-for-5 Reverse Split |
3,655,644 | 1,124,771 | 445,219,585 | 450,000,000 | |||||||||
1-for-10 Reverse Split |
1,827,821 | 562,385 | 447,609,794 | 450,000,000 | |||||||||
1-for-15 Reverse Split |
1,218,547 | 374,923 | 448,406,530 | 450,000,000 | |||||||||
1-for-25 Reverse Split |
731,129 | 224,954 | 449,043,917 | 450,000,000 |
In addition, if the BioPharmX Reverse Stock Split is implemented, it will increase the number of BioPharmX stockholders who own "odd lots" of fewer than 100 shares of common stock. Brokerage commissions and other costs of transactions in odd lots are generally higher than the costs of transactions of more than 100 shares of common stock. Accordingly, the BioPharmX Reverse Stock
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Split may not achieve the desired results of increasing marketability and liquidity of BioPharmX common stock that have been described above.
After the effective date of the reverse stock split, BioPharmX common stock would have a new committee on uniform securities identification procedures, or CUSIP number, a number used to identify BioPharmX common stock.
BioPharmX common stock is currently registered under Section 12(b) of the Exchange Act, and BioPharmX is subject to the periodic reporting and other requirements of the Exchange Act. The proposed reverse stock split will not affect the registration of the common stock under the Exchange Act.
Procedure for Effecting the BioPharmX Reverse Stock Split and Exchange of Stock Certificates
If BioPharmX's stockholders approve the amendment to the certificate of incorporation of BioPharmX affecting the BioPharmX Reverse Stock Split, and if the BioPharmX Board still believes that a reverse stock split is in the best interests of BioPharmX and its stockholders, BioPharmX will file the amendment to the certificate of incorporation with the Secretary of State of the State of Delaware at such time as the BioPharmX Board has determined to be the appropriate split effective time. The BioPharmX Board may delay effecting the BioPharmX Reverse Stock Split without resoliciting stockholder approval. Beginning at the split effective time, each certificate representing pre-split shares will be deemed for all corporate purposes to evidence ownership of post-split shares.
As soon as practicable after the split effective time, BioPharmX's stockholders will be notified that the BioPharmX Reverse Stock Split has been affected. BioPharmX expects that the BioPharmX transfer agent will act as exchange agent for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent certificates representing pre-split shares held in certificated form in exchange for certificates representing post-split shares in accordance with the procedures set forth in a letter of transmittal sent by BioPharmX. In the event that the BioPharmX Name Change under Proposal No. 3 is approved by BioPharmX's stockholders, the certificates representing the post-split shares will also reflect the BioPharmX Name Change. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder's outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Any pre-split shares submitted for transfer, whether pursuant to a sale or other disposition, will automatically be exchanged for post-split shares. Stockholders should not destroy any stock certificate(s) and should not submit any certificate(s) unless and until requested to do so.
Stockholders who hold book entry shares will not need to take any action with regard to the BioPharmX Reverse Stock Split, if approved, and their shares will automatically be converted to reflect the BioPharmX Reverse Stock Split.
No fractional shares will be issued in connection with the BioPharmX Reverse Stock Split. Stockholders of record who otherwise would be entitled to receive fractional shares because they hold a number of pre-split shares not evenly divisible by the number of pre-split shares for which each post-split share is to be reclassified, will be entitled, upon surrender to the exchange agent of certificates representing such shares (if applicable), to a cash payment in lieu thereof of a price equal to the fraction to which the stockholder would otherwise be entitled multiplied by the closing price of the common stock on the NYSE American market on the date immediately preceding the split effective time. The ownership of a fractional interest will not give the holder thereof any voting, dividend, or other rights except to receive payment therefor as described herein.
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Stockholders should be aware of, under the escheat laws of the various jurisdictions where stockholders reside, where BioPharmX is domiciled, and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the effective date of the split may be required to be paid to the designated agent for each such jurisdiction, unless correspondence has been received by BioPharmX or the exchange agent concerning ownership of such funds within the time permitted in such jurisdiction. Thereafter, stockholders otherwise entitled to receive such funds will have to seek to obtain them directly from the state to which they were paid.
Potential Anti-Takeover Effect
Although the increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect, for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of the BioPharmX Board or contemplating a tender offer or other transaction for the combination of BioPharmX with another company (other than the Merger), the BioPharmX Reverse Stock Split proposal is not being proposed in response to any effort of which BioPharmX is aware to accumulate shares of BioPharmX's common stock or obtain control of BioPharmX, other than in connection with the Merger, nor is it part of a plan by management to recommend a series of similar amendments to the BioPharmX Board and stockholders. Other than the proposals being submitted to BioPharmX's stockholders for their consideration at the BioPharmX special meeting, the BioPharmX does not currently contemplate recommending the adoption of any other actions that could be construed to affect the ability of third parties to take over or change control of BioPharmX.
Material U.S. Federal Income Tax Consequences of the BioPharmX Reverse Stock Split
The following discussion is a summary of the material U.S. federal income tax consequences of the BioPharmX Reverse Stock Split to BioPharmX U.S. Holders (as defined above) but does not purport to be a complete analysis of all other potential income tax consequences that may be relevant to BioPharmX U.S. Holders. The effects of other U.S. federal tax laws, such as estate and gift tax laws, and any applicable state, local or non-U.S. tax laws are not discussed. This discussion is based on the Code, Treasury Regulations promulgated thereunder, judicial decisions, and published rulings and administrative pronouncements of the IRS, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a BioPharmX U.S. Holder. BioPharmX has not sought and does not intend to seek any rulings from the IRS regarding the matters discussed below. There can be no assurance the IRS or a court will not take a position contrary to that discussed below regarding the tax consequences of the BioPharmX Reverse Stock Split.
This discussion is limited to BioPharmX U.S. Holders that hold BioPharmX common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences that may be relevant to a BioPharmX U.S. Holder's particular circumstances, including the impact of the alternative minimum tax or the Medicare contribution tax on net investment income. In addition, it does not address consequences relevant to BioPharmX U.S. Holders subject to the special rules, including, without limitation:
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If an entity treated as a partnership for U.S. federal income tax purposes holds BioPharmX common stock, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships holding BioPharmX common stock and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
THIS DISCUSSION IS FOR INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO The APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO THEIR PARTICULAR SITUATION AS WELL AS ANY TAX CONSEQUENCES OF THE BIOPHARMX REVERSE STOCK SPLIT ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, OR NON-U.S. TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
The BioPharmX Reverse Stock Split should constitute a "recapitalization" for U.S. federal income tax purposes. As a result, a BioPharmX U.S. Holder should generally not recognize gain or loss upon the BioPharmX Reverse Stock Split, except with respect to cash received in lieu of a fractional share of BioPharmX common stock, as discussed below. A BioPharmX U.S. Holder's aggregate tax basis in the shares of the BioPharmX common stock received pursuant to the BioPharmX Reverse Stock Split should equal the aggregate tax basis of the shares of the BioPharmX common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of BioPharmX common stock) and such BioPharmX U.S. Holder's holding period in the shares of BioPharmX's common stock received should include the holding period in the shares of the BioPharmX common stock surrendered. Treasury Regulations provide detailed rules for allocating the tax basis and holding period of the shares of BioPharmX common stock surrendered to the shares of BioPharmX common stock received pursuant to the BioPharmX Reverse Stock Split. Holders of shares of BioPharmX common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
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A BioPharmX U.S. Holder that receives cash in lieu of a fractional share of BioPharmX common stock pursuant to the BioPharmX Reverse Stock Split should recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the BioPharmX U.S. Holder's tax basis in the shares of BioPharmX common stock surrendered that is allocated to each fractional share of common stock. Such capital gain or loss should be long-term capital gain or loss if the BioPharmX U.S. Holder's holding period for BioPharmX common stock surrendered exceeded one year at the effective time of the BioPharmX Reverse Stock Split.
Information Reporting and Backup Withholding
A BioPharmX U.S. Holder may be subject to information reporting and backup withholding when such holder receives cash in lieu of fractional shares of BioPharmX common stock in the BioPharmX Reverse Stock Split. Certain BioPharmX U.S. Holders are exempt from backup withholding, including corporations and certain tax-exempt organizations. A BioPharmX U.S. Holder will be subject to backup withholding if such holder is not exempt and:
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or credit against a BioPharmX U.S. Holder's U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. BioPharmX U.S. Holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the procedures for obtaining such an exemption.
Vote Required; Recommendation of the Board of Directors
The affirmative vote of a majority of the shares of BioPharmX's outstanding common stock having voting rights on the record date for the BioPharmX special meeting is required to approve the amendment to the certificate of incorporation of BioPharmX affecting the BioPharmX Reverse Stock Split. Abstentions and broker non-votes will have the same effect as votes "AGAINST" the proposal.
THE BIOPHARMX BOARD RECOMMENDS THAT BIOPHARMX'S STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 2 TO APPROVE THE AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF BIOPHARMX EFFECTING THE BIOPHARMX REVERSE STOCK SPLIT. EACH OF PROPOSAL NOS. 1, 2 AND 5 ARE CONDITIONED UPON EACH OTHER AND THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE MERGER.
Proposal No. 3: Approval of the BioPharmX Name Change
At the BioPharmX special meeting, BioPharmX's stockholders will be asked to approve the amendment to the certificate of incorporation of BioPharmX to affect the BioPharmX Name Change. The primary reason for the corporate name change is that it will allow for brand recognition of Timber's products and programs following the consummation of the Merger. BioPharmX's management believes that the current name will no longer accurately reflect the business of BioPharmX subsequent to the consummation of the Merger.
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The affirmative vote of holders of a majority of the shares of BioPharmX's outstanding common stock having voting rights on the record date for the BioPharmX special meeting is required to approve the amendment to the certificate of incorporation to reflect the BioPharmX Name Change. Abstentions and broker non-votes will have the same effect as votes "AGAINST" this proposal.
THE BIOPHARMX BOARD RECOMMENDS THAT BIOPHARMX'S STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 3 TO APPROVE THE BIOPHARMX NAME CHANGE. PROPOSAL NO. 3 IS CONDITIONED UPON THE APPROVAL OF EACH OF PROPOSAL NOS. 1, 2 and 5.
Proposal No. 4: Approval of Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan
At the BioPharmX special meeting, BioPharmX's stockholders will be asked to approve the Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan (the "2020 Plan"). The general purpose of the 2020 Plan is to provide a means whereby eligible employees, officers, nonemployee directors, consultants, advisors and other individual service providers may develop a sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to us, thereby advancing our interests and the interests of stockholders.
The BioPharmX's Board believes that the granting of stock options, restricted stock awards, unrestricted stock awards and similar kinds of equity-based compensation promotes continuity of management and increases incentive and personal interest in the welfare of the combined company by those who are primarily responsible for shaping and carrying out its long range plans and securing growth and financial success.
Description of the 2020 Omnibus Equity Incentive Plan
The following description of the principal terms of the 2020 Plan is a summary and is qualified in its entirety by the full text of the 2020 Plan, which is attached as Annex D hereto.
Administration. In general, the 2020 Plan will be administered by the Compensation Committee of the BioPharmX Board. The Compensation Committee will determine the persons to whom options to purchase shares of common stock, stock appreciation rights ("SARs"), restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, incentive bonus awards, other stock-based awards and other cash-based awards may be granted. The Compensation Committee may also establish rules and regulations for the administration of the 2020 Plan and amendments or modifications of outstanding awards. The Compensation Committee may delegate authority to the chief executive officer and/or other executive officers to grant options and other awards to employees (other than themselves), subject to applicable law and the 2020 Plan. No options, stock purchase rights or awards may be made under the 2020 Plan on or after March 22, 2030 (the "expiration date"), but the 2020 Plan will continue thereafter while previously granted options, SARs or other awards remain outstanding.
Eligibility. Persons eligible to receive options, SARs or other awards under the 2020 Plan are those employees, officers, directors, consultants, advisors and other individual service providers of our Company and our subsidiaries who, in the opinion of the Compensation Committee, are in a position to contribute to our success, or any person who is determined by the Compensation Committee to be a prospective employee, officer, director, consultant, advisor or other individual service provider of the Company or any subsidiary. As of March 1, 2020, Timber had 2 full-time employees and five executive officers. As awards under the 2020 Plan are within the discretion of the Compensation Committee, the Company cannot determine how many individuals in each of the categories described above will receive awards.
Shares Subject to the 2020 Plan. The aggregate number of shares of common stock available for issuance in connection with options and other awards granted under the 2020 Plan is 11,650,000 (before
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taking into account the Reverse Split; which number is approximately 10% of the shares of BioPharmX common stock expected to be outstanding as a result of the Merger).
The number of shares of common stock available for issuance under the 2020 Plan will automatically increase on January 1st of each year commencing with January 1, 2021 and on each January 1 thereafter until the expiration date, in an amount equal to four percent (4%) of the total number of shares of our common stock outstanding on December 31st of the preceding calendar year, unless the BioPharmX Board takes action prior thereto to provide that there will not be an increase in the share reserve for such year or that the increase in the share reserve for such year will be of a lesser number of shares of common stock than would otherwise occur.
"Incentive stock options", or ISOs, that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") may be granted under the 2020 Plan with respect to all of the 11,650,000 shares of common stock authorized for issuance under the 2020 Plan. None of the additional shares of common stock available for issuance pursuant to the previous paragraph may be subject to ISOs.
If any option or SAR granted under the 2020 Plan terminates without having been exercised in full or if any award is forfeited, or if shares of common stock are withheld to cover withholding taxes on options or other awards or applied to the payment of the exercise price of an option or purchase price of an award, the number of shares of common stock as to which such option or award was forfeited, withheld or paid, will be available for future grants under the 2020 Plan. Awards settled in cash will not count against the number of shares available for issuance under the 2020 Plan.
No non-employee director may receive awards in any calendar year having an accounting value in excess of $500,000 (inclusive of any cash awards to the non-employee director for such year that are not made pursuant to the 2020 Plan); provided that in the case of a new non-employee director, such amount is increased to $750,000 for the initial year of the non-employee director's term.
The number of shares authorized for issuance under the 2020 Plan and the foregoing share limitations are subject to customary adjustments for stock splits, stock dividends or similar transactions, including, for example, the Reverse Split.
Terms and Conditions of Options. Options granted under the 2020 Plan may be either ISOs or "nonstatutory stock options" that do not meet the requirements of Section 422 of the Code. The Compensation Committee will determine the exercise price of options granted under the 2020 Plan. The exercise price of stock options may not be less than the fair market value per share of our common stock on the date of grant (or 110% of fair market value in the case of ISOs granted to a ten-percent stockholder).
If on the date of grant the common stock is listed on a stock exchange or is quoted on the automated quotation system of the NYSE American, the fair market value will generally be the closing sale price on the date of grant (or the last trading day before the date of grant if no trades occurred on the date of grant). If no such prices are available, the fair market value will be determined in good faith by the Compensation Committee based on the reasonable application of a reasonable valuation method. On March 23, 2020 the closing sale price of a share of BioPharmX common stock on the NYSE American was $0.31.
No option may be exercisable for more than ten years (five years in the case of an ISO granted to a ten-percent stockholder) from the date of grant. Options granted under the 2020 Plan will be exercisable at such time or times as the Compensation Committee prescribes at the time of grant. No employee may receive ISOs that first become exercisable in any calendar year in an amount exceeding $100,000. The Compensation Committee may, in its discretion, permit a holder of an option to exercise the option before it has otherwise become exercisable, in which case the shares of our common stock
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issued to the recipient will continue to be subject to the vesting requirements that applied to the option before exercise.
Generally, the option price may be paid (a) in cash or by certified check, bank draft or money order, (b) through delivery of shares of our common stock having a fair market value equal to the purchase price, (c) by a full recourse, interest bearing promissory note having such terms as the Compensation Committee may permit, or (d) a combination of these methods. The Compensation Committee may permit other methods of payment, and is authorized to establish a cashless exercise program and to permit the exercise price (or tax withholding obligations) to be satisfied by reducing from the shares otherwise issuable upon exercise a number of shares having a fair market value equal to the exercise price.
No option may be transferred other than by will or by the laws of descent and distribution, and during a recipient's lifetime an option may be exercised only by the recipient. However, the Compensation Committee may permit the holder of an option, SAR or other award to transfer the option, right or other award to immediate family members or a family trust for estate planning purposes. The Compensation Committee will determine the extent to which a holder of a stock option may exercise the option following termination of service with us.
Stock Appreciation Rights. The Compensation Committee may grant SARs under the 2020 Plan. The Compensation Committee will determine the other terms applicable to SARs. The exercise price per share of a SAR will not be less than 100% of the fair market value of a share of our common stock on the date of grant, as determined by the Compensation Committee. The maximum term of any SAR granted under the 2020 Plan is ten years from the date of grant. Generally, each SAR will entitle a participant upon exercise to an amount equal to:
Payment may be made in shares of our common stock, in cash, or partly in common stock and partly in cash, all as determined by the Compensation Committee.
Restricted Stock and Restricted Stock Units. The Compensation Committee may award restricted common stock and/or restricted stock units under the 2020 Plan. Restricted stock awards consist of shares of stock that are transferred to a participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. Restricted stock units confer the right to receive shares of our common stock, cash, or a combination of shares and cash, at a future date upon or following the attainment of certain conditions specified by the Compensation Committee. The restrictions and conditions applicable to each award of restricted stock or restricted stock units may include performance-based conditions. Dividends with respect to restricted stock may be paid to the holder of the shares as and when dividends are paid to stockholders or at the time that the restricted stock vests, as determined by the Compensation Committee. Dividend equivalent amounts may be paid with respect to restricted stock units either when cash dividends are paid to stockholders or when the units vest. Unless the Compensation Committee determines otherwise, holders of restricted stock will have the right to vote the shares.
Performance Shares and Performance Units. The Compensation Committee may award performance shares and/or performance units under the 2020 Plan. Performance shares and performance units are awards, denominated in either shares or U.S. dollars, which are earned during a specified performance period subject to the attainment of performance criteria, as established by the Compensation Committee. The Compensation Committee will determine the restrictions and conditions applicable to each award of performance shares and performance units.
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Incentive Bonuses. The Compensation Committee may grant incentive bonus awards under the 2020 Plan from time to time. The terms of incentive bonus awards will be set forth in award agreements. Each award agreement will have such terms and conditions as the Compensation Committee determines, including performance goals and amount of payment based on achievement of such goals. Incentive bonus awards are payable in cash and/or shares of our common stock.
Other Stock-Based and Cash-Based Awards. The Compensation Committee may award other types of equity-based or cash-based awards under the 2020 Plan, including the grant or offer for sale of shares of our common stock that do not have vesting requirements and the right to receive one or more cash payments subject to satisfaction of such conditions as the Compensation Committee may impose.
Effect of Certain Corporate Transactions. The Compensation Committee may, at the time of the grant of an award provide for the effect of a change in control (as defined in the 2020 Plan) on any award, including (i) accelerating or extending the time periods for exercising, vesting in, or realizing gain from any award, (ii) eliminating or modifying the performance or other conditions of an award, or (iii) providing for the cash settlement of an award for an equivalent cash value, as determined by the Compensation Committee. The Compensation Committee may, in its discretion and without the need for the consent of any recipient of an award, also take one or more of the following actions contingent upon the occurrence of a change in control: (a) cause any or all outstanding options and SARs to become immediately exercisable, in whole or in part; (b) cause any other awards to become non-forfeitable, in whole or in part; (c) cancel any option or SAR in exchange for a substitute option; (d) cancel any award of restricted stock, restricted stock units, performance shares or performance units in exchange for a similar award of the capital stock of any successor corporation; (e) cancel or terminate any award for cash and/or other substitute consideration in exchange for an amount of cash and/or property equal to the amount, if any, that would have been attained upon the exercise of such award or realization of the participant's rights as of the date of the occurrence of the change in control, but if the change in control consideration with respect to any option or SAR does not exceed its exercise price, the option or SAR may be canceled without payment of any consideration; or (f) make such other modifications, adjustments or amendments to outstanding awards as the Compensation Committee deems necessary or appropriate.
Amendment, Termination. The BioPharmX Board may at any time amend the 2020 Plan for the purpose of satisfying the requirements of the Code, or other applicable law or regulation or for any other legal purpose, provided that, without the consent of our stockholders, the BioPharmX Board may not (a) increase the number of shares of common stock available under the 2020 Plan, (b) change the group of individuals eligible to receive options, SARs and/or other awards, or (c) extend the term of the 2020 Plan.
A "new plan benefits" table, as described in the SEC's proxy rules, is not provided because the grant of options and other awards under the 2020 Plan is discretionary, and we cannot determine now the specific number or type of options or awards to be granted in the future to any particular person or group.
U.S. Federal Income Tax Consequences
Following is a summary of the U.S. federal income tax consequences of option and other grants under the 2020 Plan. Optionees and recipients of other rights and awards granted under the 2020 Plan are advised to consult their personal tax advisors before exercising an option or SAR or disposing of any stock received pursuant to the exercise of an option or SAR or following the vesting and payment of any award. In addition, the following summary is based upon an analysis of the Code as currently in
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effect, existing laws, judicial decisions, administrative rulings, regulations and proposed regulations, all of which are subject to change and does not address state, local, foreign or other tax laws.
The Code treats incentive stock options and nonstatutory stock options differently. However, as to both types of options, no income will be recognized to the optionee at the time of the grant of the options under the 2020 Plan, nor will our Company be entitled to a tax deduction at that time.
Generally, upon exercise of a nonstatutory stock option (including an option intended to be an incentive stock option but which has not continued to so qualify at the time of exercise), an optionee will recognize ordinary income tax on the excess of the fair market value of the stock on the exercise date over the option price. Our Company will be entitled to a tax deduction in an amount equal to the ordinary income recognized by the optionee in the fiscal year which includes the end of the optionee's taxable year. We will be required to satisfy applicable withholding requirements in order to be entitled to a tax deduction. In general, if an optionee, in exercising a nonstatutory stock option, tenders shares of our common stock in partial or full payment of the option price, no gain or loss will be recognized on the tender. However, if the tendered shares were previously acquired upon the exercise of an incentive stock option and the tender is within two years from the date of grant or one year after the date of exercise of the incentive stock option, the tender will be a disqualifying disposition of the shares acquired upon exercise of the incentive stock option.
For incentive stock options, there is no taxable income to an optionee at the time of exercise. However, the excess of the fair market value of the stock on the date of exercise over the exercise price will be taken into account in determining whether the "alternative minimum tax" will apply for the year of exercise. If the shares acquired upon exercise are held until at least two years from the date of grant and more than one year from the date of exercise, any gain or loss upon the sale of such shares, if held as capital assets, will be long-term capital gain or loss (measured by the difference between the sales price of the stock and the exercise price). Under current federal income tax law, a long-term capital gain will be taxed at a rate which is less than the maximum rate of tax on ordinary income. If the two-year and one year holding period requirements are not met (a "disqualifying disposition"), an optionee will recognize ordinary income in the year of disposition in an amount equal to the lesser of (i) the fair market value of the stock on the date of exercise minus the exercise price or (ii) the amount realized on disposition minus the exercise price. The remainder of the gain will be treated as long-term capital gain, depending upon whether the stock has been held for more than a year. If an optionee makes a disqualifying disposition, our Company will be entitled to a tax deduction equal to the amount of ordinary income recognized by the optionee.
In general, if an optionee, in exercising an incentive stock option, tenders shares of common stock in partial or full payment of the option price, no gain or loss will be recognized on the tender. However, if the tendered shares were previously acquired upon the exercise of another incentive stock option and the tender is within two years from the date of grant or one year after the date of exercise of the other option, the tender will be a disqualifying disposition of the shares acquired upon exercise of the other option.
As noted above, the exercise of an incentive stock option could subject an optionee to the alternative minimum tax. The application of the alternative minimum tax to any particular optionee depends upon the particular facts and circumstances which exist with respect to the optionee in the year of exercise. However, as a general rule, the amount by which the fair market value of the common stock on the date of exercise of an option exceeds the exercise price of the option will constitute an item of "adjustment" for purposes of determining the alternative minimum taxable income on which the alternative tax may be imposed. As such, this item will enter into the tax base on which the alternative
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minimum tax is computed, and may therefore cause the alternative minimum tax to become applicable in any given year.
Treatment of Stock Appreciation Rights
Generally, the recipient of a SAR will not recognize any income upon grant of the SAR, nor will our Company be entitled to a deduction at that time. Upon exercise of a SAR, the holder will recognize ordinary income, and our Company generally will be entitled to a corresponding deduction, equal to the excess of fair market value of our common stock at that time over the exercise price.
Generally, absent an election to be taxed currently under Section 83(b) of the Code (a "Section 83(b) Election"), there will be no federal income tax consequences to either the recipient or our Company upon the grant of a restricted stock award or award of performance shares. At the expiration of the restriction period and the satisfaction of any other restrictions applicable to the restricted shares, the recipient will recognize ordinary income and our Company generally will be entitled to a corresponding deduction equal to the fair market value of the common stock at that time. If a Section 83(b) Election is made within 30 days after the date the restricted stock award is granted, the recipient will recognize an amount of ordinary income at the time of the receipt of the restricted shares, and our Company generally will be entitled to a corresponding deduction, equal to the fair market value (determined without regard to applicable restrictions) of the shares at such time, less any amount paid by the recipient for the shares. If a Section 83(b) Election is made, no additional income will be recognized by the recipient upon the lapse of restrictions on the shares (and prior to the sale of such shares), but, if the shares are subsequently forfeited, the recipient may not deduct the income that was recognized pursuant to the Section 83(b) Election at the time of the receipt of the shares.
The recipient of an unrestricted stock award, including a performance unit award, will recognize ordinary income, and our Company generally will be entitled to a corresponding deduction, equal to the fair market value of our common stock that is the subject of the award when the Award is made.
The recipient of a restricted stock unit generally will recognize ordinary income as and when the units vest and are settled. The amount of the income will be equal to the fair market value of the shares of our common stock issued at that time, and our Company will be entitled to a corresponding deduction. The recipient of a restricted stock unit will not be permitted to make a Section 83(b) Election with respect to such award.
Treatment of Incentive Bonus Awards and Other Stock or Cash Based Awards
Generally, the recipient of an incentive bonus or other stock or cash based award will not recognize any income upon grant of the award, nor will our Company be entitled to a deduction at that time. Upon payment with respect to such an award, the recipient will recognize ordinary income, and our Company generally will be entitled to a corresponding deduction, equal to the amount of cash paid and/or the fair market value of our common stock issued at that time.
Potential Limitation on Company Deductions
Section 162(m) of the Code generally disallows a tax deduction for compensation in excess of $1 million paid in a taxable year by a publicly held corporation to its chief executive officer and certain other "covered employees". The BioPharmX Board and the Compensation Committee intend to consider the potential impact of Section 162(m) on grants made under the 2020 Plan, but reserve the right to approve grants of options and other awards for an executive officer that exceed the deduction limit of Section 162(m).
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As and when appropriate, we shall have the right to require each optionee purchasing shares of common stock and each grantee receiving an award of shares of common stock under the 2020 Plan to pay any federal, state or local taxes required by law to be withheld.
The affirmative vote of holders of a majority of the shares of BioPharmX's outstanding common stock entitled to vote and present at the BioPharmX special meeting is required to approve the 2020 Plan. Abstentions and broker non-votes will have the same effect as votes "AGAINST" this proposal.
THE BIOPHARMX BOARD RECOMMENDS THAT BIOPHARMX'S STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 4 TO APPROVE THE TIMBER PHARMACEUTICALS, INC. 2020 OMNIBUS EQUITY INCENTIVE PLAN.
Proposal No. 5: Approval of the Issuance of BioPharmX Common Stock Upon Exercise of the Investor Warrants and Additional BioPharmX Common Stock Following Closing of Timber Funding
At the BioPharmX special meeting, BioPharmX's stockholders will be asked to the issuance of BioPharmX common stock to the Investors upon exercise of the Investor Warrants and the Bridge Warrants. The terms of, reasons for and other aspects of the Securities Purchase Agreement, the Timber Funding, the issuance of BioPharmX common stock upon exercise of the Investor Warrants and the potential additional shares of BioPharmX common stock that may be issued following the closing of the Timber Funding are described in detail in the sections of this proxy statement/prospectus/information statement entitled "Agreements Related to the Merger-Securities Purchase Agreement," "Agreements Related to the Merger-Series A Warrants," "Agreements Related to the Merger-Series B Warrants" and "Agreements Related to the Merger-Registration Rights Agreement."
The affirmative vote of holders of a majority of the shares of BioPharmX's outstanding common stock entitled to vote and present at having voting rights on the record date for the BioPharmX special meeting is required to approve the issuance of BioPharmX common stock to the Investors upon exercise of the Investor Warrants and the Bridge Warrants. Abstentions and broker non-votes will have the same effect as votes "AGAINST" this proposal.
THE BIOPHARMX BOARD RECOMMENDS THAT BIOPHARMX'S STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 5 TO APPROVE THE ISSUANCE OF BIOPHARMX COMMON STOCK UPON EXERCISE OF THE INVESTOR WARRANTS AND THE BRIDGE WARRANTS AND ADDITIONAL BIOPHARMX COMMON STOCK FOLLOWING CLOSING OF TIMBER FUNDING. EACH OF PROPOSAL NOS. 1, 2 AND 5 ARE CONDITIONED UPON ONE ANOTHER AND THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE MERGER.
Proposal No. 6: Approval of Possible Adjournment of the BioPharmX special meeting
If BioPharmX fails to receive a sufficient number of votes to approve Proposal Nos. 1, 2 or 5, BioPharmX may propose to adjourn the BioPharmX special meeting, for a period of not more than 30 days, for the purpose of soliciting additional proxies to approve Proposal Nos. 1, 2 or 5. BioPharmX does not currently intend to approve adjournment at the BioPharmX special meeting if there are sufficient votes to approve Proposal Nos. 1, 2 or 5. The affirmative vote of the holders of a majority of the shares of BioPharmX's common stock entitled to vote and present in person or represented by proxy at the BioPharmX special meeting is required to approve the adjournment of the BioPharmX special meeting for the purpose of soliciting additional proxies to approve Proposal Nos. 1, 2 or 5. Abstentions will have the same effect as votes "AGAINST" this proposal.
THE BIOPHARMX BOARD RECOMMENDS THAT BIOPHARMX'S STOCKHOLDERS VOTE "FOR" PROPOSAL NO. 6 TO ADJOURN THE BIOPHARMX SPECIAL MEETING, IF NECESSARY, TO SOLICIT ADDITIONAL PROXIES IF THERE ARE NOT SUFFICIENT VOTES IN FAVOR OF PROPOSAL NOS. 1, 2 OR 5. EACH OF PROPOSAL NOS. 1, 2 AND 5 ARE CONDITIONED UPON EACH OTHER AND THE APPROVAL OF EACH SUCH PROPOSAL IS REQUIRED TO CONSUMMATE THE MERGER.
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Unless the context indicates or suggests otherwise, reference to "we", "our", "us" and the "Company" in this section refers to the consolidated operations of BioPharmX Corporation.
We are a specialty pharmaceutical company focused on the dermatology market. Our focus is to develop products that treat dermatologic conditions that are not being adequately addressed or those where current therapies and approaches are suboptimal. Our strategy is to bring new products to market by improving delivery mechanisms and/or identifying alternative applications for U.S. Food and Drug Administration, or FDA, approved or well characterized active pharmaceutical ingredients, or APIs. Our goal is to reduce the time, cost and risks typically associated with new product development by utilizing APIs with demonstrated safety profiles and, when applicable, taking advantage of the regulatory approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDC Act. Section 505(b)(2) permits an applicant for a new product, such as a new or improved formulation or a new use of an approved product, to rely in part, on literature and/or on the FDA's findings of safety and/or effectiveness for a similar previously-approved product. Our approach is to identify the limitations of current treatment options and work to develop novel products using our proprietary HyantX topical drug delivery system.
Our current portfolio includes two clinical-stage product candidates: BPX-01 is a 2% minocycline gel for the treatment of inflammatory lesions of acne vulgaris and BPX-04 is a 1% minocycline gel for the treatment of papulopustular rosacea. We have presented a comprehensive overview of the positive clinical results from our Phase 2b trial of BPX-01 for the treatment of moderate-to-severe inflammatory lesions of acne vulgaris and received positive feedback from the FDA regarding our Phase 3 clinical trial plans. We also announced positive topline results from our Phase 2b trial of BPX-04 for the treatment of moderate-to-severe papulopustular rosacea. BPX-04 successfully met both the primary and secondary endpoints of the trial in demonstrating a statistically significant mean change in the number of facial inflammatory lesions and a two-grade improvement to clear or almost clear on the Investigator's Global Assessment ("IGA") scale from baseline to week 12. We have
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developed our product portfolio using our HyantX topical drug delivery system. The following chart presents a summary of our product candidates:
HyantX Topical Drug Delivery System
We have developed our product portfolio using our HyantX topical drug delivery system, which is an anhydrous, hydrophilic, non-oily, non-occlusive gel vehicle that allows for the stabilization and solubilization of APIs with the aim to improve bioavailability and therefore lower the required dose of the drug. The system is designed for rapid absorption of API into the skin rather than remaining on the surface as this may cause irritation, a common problem with oil-based ointments and suspensions. The delivery system is particularly suitable for APIs, or a combination of APIs, that undergo degradation by hydrolysis or oxidation. Our lead product candidates are minocycline formulations delivered topically using the HyantX system.
BPX-01 (minocycline) gel, 2%Acne
BPX-01 is a topical antibiotic gel for the treatment of inflammatory lesions of acne, which combines the most widely used oral antibiotic drug (minocycline) for the treatment of inflammatory lesions of acne vulgaris with a proprietary anhydrous hydrophilic topical delivery system, the HyantX delivery system, specifically designed to localize the delivery of the drug while minimizing systemic exposure and the resultant side effects. Our proprietary HyantX topical delivery system allows for a lower dosage of drug by improving the bioavailability with targeted delivery of fully solubilized minocycline. In addition to its bacteriostatic properties, the API, minocycline, also has anti-inflammatory properties, which may help to reduce the inflammation and redness commonly associated with acne.
We completed a Phase 2b randomized, double-blind, three-arm, vehicle-controlled, dose-finding study to assess the efficacy and safety of BPX-01 for the treatment of acne. The multi-center study evaluated two concentrations of BPX-01 (1% and 2% minocycline) and vehicle in 226 subjects, aged 9 to 40, with moderate-to-severe inflammatory, non-nodular acne. The study showed the 2% concentration was
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statistically superior in reducing the number of inflammatory lesions in patients with moderate-to-severe acne, compared to vehicle (58.5% reduction vs. 43.8%, respectively, at week 12, p=0.03).
Study Arm
|
Subjects | Mean Change in Inflammatory Lesions |
Percent Reduction in Inflammatory Lesions |
|||
---|---|---|---|---|---|---|
BPX-01 2% |
n=72 | 15.4 (p=0.0352) | 58.5% (p=0.0256) | |||
BPX-01 1% |
n=73 | 15.5 (p=0.0543) | 54.4% (p=0.0765) | |||
Vehicle |
n=74 | 11.2 | 43.8% |
This Phase 2b study also measured, as a secondary endpoint, improvement on a five-point investigator's global assessment, or IGA, scale. The observed difference between BPX-01 2% versus vehicle in achieving a two-grade improvement and an IGA score of 0 or 1 at week 12 using the Last-Observation-Carried-Forward method for study participants with missing data was 25.0% (18/72) vs. 17.6% (13/74) producing a chi-square p-value of 0.27 (without Bonferroni correction for pairwise comparison). As a Phase 2b clinical trial, the trial was not powered to measure statistical significance for the secondary endpoint, however, a clear numerical trend was observed in the BPX-01 2% arm compared to vehicle. IGA was included as a secondary endpoint in our Phase 2b study as this information is necessary to calculate sample size estimates to adequately power the Phase 3 studies for success. Since FDA guidance for the approval of topical prescription acne products recommends IGA as a co-primary endpoint along with a reduction in absolute lesion counts for Phase 3 trials to support a New Drug Application, or NDA, the planned Phase 3 studies will be powered to demonstrate statistical significance of IGA improvement with at least a two-grade improvement and a score of clear (0) or almost clear (1) for drug compared to vehicle as well as being powered to show a reduction in inflammatory lesion counts.
The safety results of the study showed that no subjects experienced serious treatment-related adverse side effects. As cutaneous tolerability of a topical therapy is a significant driver in patient compliance, we are encouraged that 97% of cutaneous tolerability signs or symptoms were "none" or "mild" at week 12.
Blood draws in this study showed that plasma minocycline levels following topical use were undetectable in all but a single subject, whose level42 ng/mLwas less than one-tenth of that measured after a single standard adult dosage of oral minocycline.
BPX-04 (minocycline) gel, 1%Rosacea
BPX-04 is a novel topical gel formulation of fully solubilized minocycline for the treatment of papulopustular rosacea. The product candidate leverages the HyantX topical delivery system, an anhydrous hydrophilic gel formulation, designed for rapid absorption of active pharmaceutical ingredients into the skin rather than remaining on the surface, a common problem with oil-based ointments and suspensions.
We completed a randomized, double-blind, vehicle-controlled Phase 2b trial, which enrolled 206 subjects aged 18 years and above with moderate-to-severe papulopustular rosacea across 11 sites in the United States. The study evaluated the safety and efficacy of once daily application of BPX-04, a 1% minocycline gel, versus a vehicle control over a 12-week treatment period.
The study was designed to demonstrate a statistically significant mean change in the number of facial inflammatory lesions from baseline to week 12. The secondary endpoint, the proportion of subjects with a two-grade improvement to clear or almost clear on the IGA scale from baseline to week 12, was included to collect sufficient data to design a Phase 3 program with co-primary efficacy endpoints, however, as is standard in a Phase 2 trial, the study was not designed to demonstrate statistical significance on the secondary endpoint.
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The mean inflammatory lesion count at baseline was 23.9 and 24.0 for the BPX-04 and vehicle treatment groups, respectively.
The proportion of subjects with an IGA score of 3 ("moderate") and 4 ("severe") at baseline was 92.7% and 7.3% for the BPX-04 treatment group, respectively, and 91.1% and 8.9% for the vehicle treatment group, respectively.
The below table details the primary and secondary efficacy results from the trial whereby BPX-04 demonstrated a statistically significant improvement from baseline. In addition to meeting the primary and secondary endpoints of the trial, BPX-04 demonstrated a statistically significant reduction in the number of facial inflammatory lesions at all time points (weeks 4, 8 and 12).
|
BPX-04 Gel (N=96) |
Vehicle (N=101) |
p-value | |||||||
---|---|---|---|---|---|---|---|---|---|---|
Primary endpoint*: |
||||||||||
Mean change in the number of facial inflammatory lesions from baseline to week 12 |
13.6 |
10.3 |
0.0040 |
|||||||
Secondary endpoint**: |
||||||||||
Proportion of subjects with a two-grade improvement in IGA to 0 ("clear") or 1 ("almost clear") from baseline to week 12 |
52.3 |
% |
32.3 |
% |
0.0180 |
Note: The ITT population was prospectively defined as all study patients randomized who received at least one dose of the study product and with at least one evaluation of primary and secondary endpoint measures post-baseline visit. There were 9 subjects randomized that did not meet the ITT criteria as there were no evaluation visits post-baseline.
BPX-04 appeared to be generally well-tolerated. The most commonly reported adverse events across both treatment groups were upper respiratory tract infection (5.3%), gastroenteritis (2.4%) and headache (2.4%) with the majority of these adverse events determined to be not treatment-related. There were no serious treatment-related adverse events.
On November 27, 2018, we entered into an agreement to divest the rights to our molecular iodine technology, or BPX-03, and our dietary supplement product, VI2OLET. Each of our prior collaboration, license, colocation and supply agreements related to VI2OLET were terminated or assigned to the purchaser. We do not expect to receive any royalty revenue in the near future.
Acne is a common inflammatory skin condition considered a chronic disease with accompanying negative aesthetic and social impact on patients. Propionibacterium acnes (P. acnes) are normal inhabitants on human skin and have been implicated in the pathogenesis of inflammatory lesions of acne vulgaris.
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In the United States alone, acne affects between 40 million and 50 million people each year according to the American Academy of Dermatology. According to SSR Health, a provider of health care focused investment research, branded acne prescription medication accounted for $4.2 billion in sales in the rolling twelve month period ending September 2017 ($2.0 billion topical and $2.2 billion oral). The leading manufacturers are Galderma S.A., Almirall S.A., Bausch Health Companies Inc., Teva Pharmaceutical Industries, Ltd., Sun Pharmaceutical Industries, Ltd., and Mayne Pharma Group Limited.
Rosacea is a chronic dermatologic condition characterized by redness, stinging and inflammatory lesions primarily on the face. It has four subtypes including erythematotelangiectatic rosacea, papulopustular rosacea, phymatous rosacea, and ocular rosacea. Symptoms include dilated blood vessels, redness, swelling, and acne-like papules and pustules on the face. Although the biology of rosacea remains unclear, it is thought to be an inflammatory disorder that involves immune responses and microorganisms.
Rosacea is estimated to affect more than 16 million people in the United States alone, according to the National Rosacea Society. The rosacea market is estimated to be greater than $1.0 billion in the United States according to Symphony Health Services. Branded prescription product revenue was $590.0 million in 2017 according to SSR Health, with more than 90% of this revenue being generated by three brands. The leading manufacturers are Galderma S.A. and LEO Pharma A/S.
We believe that the strengths and differentiating benefits of our HyantX topical delivery system and the expertise of our team in the areas of product development and commercialization for prescription products are the core elements driving our Company. The key elements of our competitive strengths include the following:
Technology and Intellectual Property
Our success, in large part, depends upon our ability to obtain and protect our proprietary products and platform technologies. Our goal is to develop an intellectual property portfolio that enables us to capitalize on the research and development that we have performed to date, particularly for each of the products in our development pipeline. We rely on a combination of patent, copyright, trademark and trade secret laws in the United States and other countries to protect our intellectual property.
We also rely on a combination of non-disclosure, confidentiality and other contractual restrictions to protect our technologies and intellectual property. We require our employees and consultants to execute confidentiality agreements in connection with their employment or consulting relationships with us. We also require them to agree to disclose and assign to us all inventions conceived in connection with the relationship.
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Patent protection is an important aspect of our product development process and we are actively developing intellectual property in-house. We have a total of six U.S. provisional and utility patent applications pending related to our topical compositions for dermatological conditions. We have seven issued U.S. patents. Four of these patents relate to a microparticle drug delivery technology. Two of these relate to BPX-01, BPX-04 and the HyantX topical delivery system. We also have one issued international patent and 18 pending international patent applications. Of the 18 pending international applications, 16 relate to BPX-01, BPX-04 and the HyantX topical delivery system and two relate to a microparticle drug delivery technology. These international patent applications resulted from development of our unique formulations, for example with minocycline, and were filed according to local laws of the Patent Cooperation Treaty. Generally, a patent application filed according to the Patent Cooperation Treaty enables us to apply for patent protection for the invention(s) described in the application in individual countries within a specified period after filing the application. Generally, patents issued in the United States are effective for 20 years from the earliest non-provisional filing date, if the application from which the patent issues was filed on or after June 8, 1995 (otherwise the term is the longer of 17 years from the issue date and 20 years from the earliest non-provisional filing date). The duration of patent terms for non-U.S. patents is typically 20 years from the earliest corresponding national or international filing date.
We have applied for trademark protection for several trademarks in the United States. The U.S. Patent and Trademark Office, or USPTO, has registered several of our trademarks: "BIOPHARMX," "HYANTX" and "SMARTER DRUG DELIVERY".
We have also applied for trademark protection in three markets outside the United States. In the European Union and China, we have a registered trademark for "BIOPHARMX".
A core competency is providing the link between concept and commercialization through focused, practical product development based on innovative research. We employ highly-qualified scientists and utilize consultants specializing in our various product development areas. Research and development expenses for the years ended January 31, 2020 and 2019 were $4.7 million and $9.1 million, respectively.
As a Campbell-based company, we are located in a region with many strong biotechnology and pharmaceutical companies, which have drawn a high caliber of scientists and scientific support staff to the region. While there is intense competition for this type of personnel, we believe our location enables us to expand our product development and consultant resources as our business grows. Our location also provides us with convenient access to local formulation resources and preclinical testing facilities.
Manufacturing, Supply and Production
We utilize contract manufacturers to produce our products for clinical development and commercial distribution. We have no plans to establish in-house manufacturing capabilities for large-scale production at this time.
We have a master service agreement in place with DPT Laboratories, Ltd., or DPT, and a development agreement in place with Contract Pharmaceuticals Limited, or CPL, to provide certain services in connection with the scale up and manufacturing of clinical supplies. DPT and CPL also provide drug development services including formulation development, clinical and commercial manufacturing
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satisfying the FDA's cGMPs, analytical methods development and stability testing. Additionally, we have master service agreements with Dow Development Laboratories, LLC and Tergus Pharma, LLC, to conduct formulation and analytical development and stability studies, among other services.
Marketing, Sales & Distribution
Our team has experience in the commercialization of prescription products across several different therapeutic areas.
While BPX-01 and BPX-04 continue through clinical development, we have commenced our go-to-market strategic planning for these products including, but not limited to, organizing a medical advisory board of dermatologists in the United States, educating physicians through publishing our preclinical and clinical results at several industry conferences and developing our market access and pricing strategy. Our commercialization plans will largely depend on whether we enter into a strategic partnership for one or both of the product candidates and the nature of such partnership.
Potential customers for our product candidates include pharmaceutical companies, physician's practices, dermatologists and general practitioners.
While the acne market has a number of competitive products, BPX-01 is being developed to combine the most successful oral antibiotic drug (minocycline) for the treatment of moderate to severe acne with a targeted topical antibiotic technology specifically designed to localize the delivery of the drug while minimizing systemic side effects. At the present time, there is no FDA-approved topical solution for this drug.
A number of approved prescription acne products currently exist in oral form such as isotretinoins, antibiotics, antimicrobials and oral contraceptives. These treatments are marketed by a number of large pharmaceutical and specialty pharmaceutical companies including, but not limited to: Almirall S.A., Bausch Health Companies Inc., Teva Pharmaceutical Industries, Ltd., Sun Pharmaceutical Industries, Ltd., and Mayne Pharma Group Limited. Additionally, there are several prescription acne products that exist in topical form such as antibiotics, antimicrobials, azelaic acids, retinoids, or some combination of the two. These topical solutions are marketed by companies such as Galderma S.A., Almirall S.A., Bausch Health Companies Inc., and Mayne Pharma Group Limited. In addition to prescription acne therapies discussed above, there are numerous over-the-counter, or OTC, products in the form of benzoyl peroxide and salicylic acid topical solutions available from various cosmetic and cosmeceutical companies such as Aveeno, Clean & Clear, Clearasil, Neutrogena and Proactiv.
Energy-based devices have also been widely used by dermatologists, such as intense pulsed light, or IPL, and a device called elos, by Syneron Medical Ltd. and Candela Corporation, that uses a combination of IPL and radiofrequency technologies. Combination drug-device treatments, such as fractional lasers and photodynamic therapy, or PDT, with blue light, such as BLU-U by Dusa Pharmaceuticals, have been used to treat acne.
While there historically has been no FDA-approved topical minocycline solution for acne or otherwise, on October 18, 2019, Foamix Pharmaceuticals Ltd. announced FDA approval of AMZEEQTM, a 4% topical minocycline foam.
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Unlike the acne market, the rosacea market has a relatively limited number of available therapies. The challenge with current topical treatments is that skin with rosacea is easily aggravated by too much drug or an irritating vehicle. BPX-04 is designed to deliver the active, minocycline, into the skin without further irritating the skin. While the cause of rosacea is unclear, there are various oral and topical medications to treat the condition, such as antibiotics, anti-parasitics, azelaic acid and alpha-A agonists. Current treatments are marketed by companies such as Aclaris Therapeutics, Inc., LEO Pharma A/S, and Galderma S.A. In addition to prescription rosacea therapies, devices such as IPL and the pulsed dye laser can be helpful in treating other rosacea symptoms, such as telangiectasia and vascular erythema.
While there is no FDA-approved topical minocycline solution for rosacea or otherwise, we are aware of two competitive products which have completed Phase 2 and Phase 3 clinical trials, respectively, with the competitive product having completed Phase 3 clinical trials having submitted an NDA for the treatment of papulopustular rosacea.
In the United States, foods, drugs, medical devices, cosmetics, tobacco products and radiation-emitting products are subject to extensive regulation by the FDA. The FDC Act and other federal and state statutes and regulations govern, among other things, the manufacture, distribution and sale of these products. These laws and regulations prescribe criminal and civil penalties that can be assessed, and violation of these laws and regulations can result in enforcement action by the FDA and other regulatory agencies.
Pharmaceutical products are subject to extensive regulation by the FDA. The FDC Act, and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical products. Failure to comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve pending NDAs, warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties and criminal prosecution.
Pharmaceutical product development for a new product or certain changes to an approved product in the United States typically involves preclinical laboratory and animal tests, the submission to the FDA of an investigational new drug, or IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval requirements typically takes many years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease.
Preclinical tests include laboratory evaluation of product chemistry, formulation and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements, including good laboratory practices. The results of preclinical testing are submitted to the FDA as part of an IND along with other information, including information about product chemistry, manufacturing and controls, and a proposed clinical trial protocol. Long term preclinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may continue after the IND is submitted.
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A 30-day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has neither commented on nor questioned the IND within this 30-day period, the clinical trial proposed in the IND may begin.
Clinical trials involve the administration of the IND to healthy volunteers or patients under the supervision of a qualified investigator. Clinical trials must be conducted: (i) in compliance with federal regulations; (ii) in compliance with good clinical practice, or GCP, an international standard meant to protect the rights and health of patients and to define the roles of clinical trial sponsors, administrators, and monitors; as well as (iii) under protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The study protocol and informed consent information for patients in clinical trials must also be submitted to an institutional review board, or IRB, for approval. An IRB may also require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB's requirements, or may impose other conditions.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, after the initial introduction of the drug into healthy human subjects or patients, the drug is tested to assess metabolism, pharmacokinetics, pharmacological actions, side effects associated with increasing doses, and, if possible, early evidence on effectiveness. Phase 2 usually involves trials in a limited patient population to determine the effectiveness of the drug for a particular indication, dosage tolerance, and optimum dosage, and to identify common adverse effects and safety risks. If a compound demonstrates evidence of effectiveness and an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to obtain the additional information about clinical efficacy and safety in a larger number of patients, typically at geographically dispersed clinical trial sites, to permit the FDA to evaluate the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In most cases the FDA requires two adequate and well-controlled Phase 3 clinical trials to demonstrate the efficacy of the drug. A single Phase 3 trial with other confirmatory evidence may be sufficient in instances where the study is a large multicenter trial demonstrating internal consistency and a statistically persuasive finding of a clinically meaningful effect on mortality, irreversible morbidity or prevention of a disease with a potentially serious outcome and confirmation of the result in a second trial would be practically or ethically impossible.
In addition, the manufacturer of an investigational drug in a Phase 2 or Phase 3 clinical trial for a serious or life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of the product may begin in the United States. The NDA must include the results of all preclinical, clinical and other testing and a compilation of data relating to the product's pharmacology, chemistry, manufacture and controls. The cost of preparing and submitting an NDA is substantial. The submission of most NDAs is additionally subject to a substantial application user fee, currently approximately $2,943,000 for fiscal year 2020. Under an approved NDA, the applicant is subject to an annual program fee, currently approximately $325,000 per prescription product for fiscal year 2020. These fees typically increase annually.
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The FDA has 60 days from its receipt of an NDA to determine whether the application will be filed based on the agency's threshold determination that it is sufficiently complete to permit substantive review. If the NDA submission is filed, the FDA reviews the NDA to determine, among other things, whether the proposed product is safe and effective for its intended use. The FDA has agreed to certain performance goals in the review of NDAs. Most such applications for standard review drug products are reviewed within ten to twelve months; most applications for priority review drugs are reviewed in six to eight months. Priority review can be applied to drugs that the FDA determines offer major advances in treatment, or provide a treatment where no adequate therapy exists. The review process for both standard and priority review may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission.
The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committeetypically a panel that includes clinicians and other expertsfor review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless compliance with cGMPs is satisfactory and the NDA contains data that provide substantial evidence that the drug is safe and effective in the indication studied.
After the FDA evaluates the NDA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA's satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy, or REMS, to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, and elements to assure safe use, or ETASU. ETASU can include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring and the use of patient registries. The requirement for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing and surveillance to monitor the drug's safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA supplement before the change can be implemented. An NDA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing NDA supplements as it does in reviewing NDAs.
Under the Pediatric Research Equity Act, or PREA, NDAs, or supplements to NDAs, must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the drug is safe and effective. The FDA may grant full or partial waivers, or deferrals, for
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submission of data. Unless otherwise required by regulation, PREA does not apply to any drug for an indication for which orphan designation has been granted, except a product with a new active ingredient that is a molecularly targeted cancer product intended for the treatment of an adult cancer and directed at a molecular target determined by FDA to be substantially relevant to the growth or progression of a pediatric cancer that is subject to an NDA submitted on or after August 18, 2020.
The Best Pharmaceuticals for Children Act, or BPCA, provides NDA holders a six-month extension of any exclusivitypatent or non-patentfor a drug if certain conditions are met. Conditions for exclusivity include the FDA's determination that information relating to the use of a new drug in the pediatric population may produce health benefits in that population, the FDA making a written request for pediatric studies, and the applicant agreeing to perform, and reporting on, the requested studies within the statutory timeframe. Applications under the BPCA are treated as priority applications, with all of the benefits that designation confers.
Disclosure of Clinical Trial Information
Sponsors of clinical trials of FDA-regulated products, including drugs, are required to register and disclose certain clinical trial information. Information related to the product, patient population, phase of investigation, study sites and investigators, and other aspects of the clinical trial is then made public as part of the registration. Sponsors are also obligated to discuss the results of their clinical trials after completion. Disclosure of the results of these trials can be delayed in certain circumstances for up to two years after the date of completion of the trial. Competitors may use this publicly available information to gain knowledge regarding the progress of development programs.
In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent with claims covering the applicant's product or method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by potential generic competitors in support of approval of an abbreviated new drug application, or ANDA. An ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths and dosage form as the listed drug and has been shown to be bioequivalent to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are not required to conduct, or submit results of, preclinical or clinical tests to prove the safety or effectiveness of their drug product. Drugs approved in this way are commonly referred to as "generic equivalents" to the listed drug, and can often be substituted by pharmacists under prescriptions written for the original listed drug.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the approved product in the FDA's Orange Book. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new product. The ANDA applicant may also elect to submit a section viii statement certifying that its proposed ANDA labeling does not contain (or carves out) any language regarding the patented method-of-use rather than certify to a listed method-of-use patent. If the applicant does not challenge the listed patents, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired.
A certification that the new product will not infringe the already approved product's listed patents, or that such patents are invalid, is called a Paragraph IV certification. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the
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Paragraph IV certification to the NDA and patent holders once the ANDA has been received by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days of the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA application also will not be approved until any applicable non-patent exclusivity listed in the Orange Book for the referenced product has expired.
Exclusivity provisions under the FDC Act also can delay the submission or the approval of certain applications. The FDC Act provides a five-year period of non-patent exclusivity within the United States to the first applicant to gain approval of an NDA for a new chemical entity, or NCE. A drug is entitled to NCE exclusivity if it contains a drug substance no active moiety of which has been previously approved by the FDA. During the exclusivity period, the FDA may not accept for review an ANDA or file a 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted after four years if it contains a Paragraph IV certification. The FDC Act also provides three years of market exclusivity for an NDA, including a 505(b)(2) NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example, for new indications, dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions for use associated with the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs for the original conditions of use, such as the originally approved indication. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA; however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all the non-clinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
After NDA approval, the owner of relevant drug patent may apply for up to a five year patent term extension. Only one patent may be extended for each regulatory review period, which is composed of two parts: a testing phase and an approval phase. The allowable patent term extension is calculated as half of the drug's testing phasethe time between the day the IND becomes effective and NDA submissionand all of the review phasethe time between NDA submission and approval up to a maximum of five years. The time can be shortened if the FDA determines that the applicant did not pursue approval with due diligence. The total patent term after the extension may not exceed 14 years and only one patent may be extended.
For patents that might expire during the application phase, the patent owner may request an interim patent extension. An interim patent extension increases the patent term by one year and may be renewed up to four times. For each interim patent extension granted, the post-approval patent extension is reduced by one year. The director of the USPTO must determine that approval of the drug covered by the patent for which a patent extension is being sought is likely. Interim patent extensions are not available for a drug for which an NDA has not been submitted.
Section 505(b)(2) New Drug Applications
Most drug products obtain FDA marketing approval pursuant to an NDA or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2), or 505(b)(2), NDA,
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which enables the applicant to rely, in part, on studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference or use, such as the FDA's findings of safety and/or effectiveness for a similar previously approved product, or published literature, in support of its application.
505(b)(2) NDAs often provide an alternate path to FDA approval for new or improved formulations or new uses of previously approved products. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by, or for, the applicant and for which the applicant has not obtained a right of reference. If the 505(b)(2) applicant can establish that reliance on the FDA's previous approval is scientifically appropriate, it may eliminate the need to conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate for all, or some, of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. Thus approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.
Once an NDA is approved, a product will be subject to certain post-approval requirements. For instance, the FDA closely regulates the post-approval marketing and promotion of drugs, including standards and regulations for direct-to-consumer advertising, off-label promotion, industry-sponsored scientific and educational activities and promotional activities involving the internet. Drugs may be marketed only for the approved indications and in accordance with the provisions of the approved labeling.
Adverse event reporting and submission of periodic reports are required following FDA approval of an NDA. The FDA also may require post-marketing testing, known as Phase 4 testing, REMS, and surveillance to monitor the effects of an approved product, or the FDA may place conditions on an approval that could restrict the distribution or use of the product. In addition, quality-control, drug manufacture, packaging and labeling procedures must continue to conform to cGMPs after approval. Drug manufacturers and certain of their subcontractors are required to register their establishments with the FDA and certain state agencies. Registration with the FDA subjects entities to periodic unannounced inspections by the FDA, during which the agency inspects manufacturing facilities to assess compliance with cGMPs. Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality-control to maintain compliance with cGMPs. Regulatory authorities may withdraw product approvals or request product recalls if a company fails to comply with regulatory standards, if it encounters problems following initial marketing or if previously unrecognized problems are subsequently discovered. In addition, prescription drug manufacturers in the United States must comply with applicable provisions of the Drug Supply Chain Security Act and provide and receive product tracing information, maintain appropriate licenses, ensure they only work with other properly licensed entities, and have procedures in place to identify and properly handle suspect and illegitimate products.
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Regulation Outside the United States
In order to market any product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial sales and distribution of drug products. Whether or not it obtains FDA approval for a product, BioPharmX would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.
Regulation and Marketing Authorization in the European Union
The process governing approval of medicinal products in the European Union, or E.U., follows essentially the same lines as in the United States and, likewise, generally involves satisfactorily completing each of the following:
Preclinical tests include laboratory evaluations of product chemistry, formulation and stability, as well as studies to evaluate toxicity in animal studies, in order to assess the potential safety and efficacy of the product. The conduct of the preclinical tests and formulation of the compounds for testing must comply with the relevant E.U. regulations and requirements. The results of the preclinical tests, together with relevant manufacturing information and analytical data, are submitted as part of the CTA.
Requirements for the conduct of clinical trials in the European Union including GCP are implemented in the Clinical Trials Directive 2001/20/EC and the GCP Directive 2005/28/EC. Pursuant to
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Directive 2001/20/EC and Directive 2005/28/EC, as amended, a system for the approval of clinical trials in the European Union has been implemented through national legislation of the member states. Under this system, approval must be obtained from the competent national authority of an E.U. member state in which a study is planned to be conducted, or in multiple member states if the clinical trial is to be conducted in a number of member states. To this end, a CTA is submitted, which must be supported by an investigational medicinal product dossier, or IMPD, and further supporting information prescribed by Directive 2001/20/EC and Directive 2005/28/EC and other applicable guidance documents. Furthermore, a clinical trial may only be started after a competent ethics committee has issued a favorable opinion on the clinical trial application in that country.
In April 2014, the E.U. legislators passed the new Clinical Trials Regulation, (EU) No 536/2014, which will replace the current Clinical Trials Directive 2001/20/EC. To ensure that the rules for clinical trials are identical throughout the E.U., the new E.U. clinical trials legislation was passed as a regulation that is directly applicable in all E.U. member states. All clinical trials performed in the European Union are required to be conducted in accordance with the Clinical Trials Directive 2001/20/EC until the new Clinical Trials Regulation (EU) No 536/2014 becomes applicable. According to the current plans of the EMA, the new Clinical Trials Regulation became applicable in 2019. The Clinical Trials Directive 2001/20/EC will, however, still apply three years from the date of entry into application of the Clinical Trials Regulation to (i) clinical trials applications submitted before the entry into application and (ii) clinical trials applications submitted within one year after the entry into application if the sponsor opts for old system.
The new Regulation (EU) No 536/2014 aims to simplify and streamline the approval of clinical trial in the E.U. The main characteristics of the regulation include:
Authorization to market a product in the member states of the European Union proceeds under one of four procedures: a centralized authorization procedure, a mutual recognition procedure, a decentralized procedure or a national procedure.
Centralized Authorization Procedure
The centralized procedure enables applicants to obtain a marketing authorization that is valid in all E.U. member states based on a single application. Certain medicinal products, including products developed by means of biotechnological processes, must undergo the centralized authorization procedure for marketing authorization, which, if granted by the European Commission, is automatically valid in all 28 E.U. member states. The EMA and the European Commission administer this centralized authorization procedure pursuant to Regulation (EC) No 726/2004.
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Pursuant to Regulation (EC) No 726/2004, this procedure is mandatory for:
cancer;
neurodegenerative disorder;
diabetes;
auto-immune
diseases and other immune dysfunctions; and
viral diseases;
The centralized authorization procedure is optional for other medicinal products if they contain a new active substance or if the applicant shows that the medicinal product concerned constitutes a significant therapeutic, scientific or technical innovation or that the granting of authorization is in the interest of patients in the European Union.
Under the centralized authorization procedure, the EMA's Committee for Human Medicinal Products, or CHMP, serves as the scientific committee that renders opinions about the safety, efficacy and quality of medicinal products for human use on behalf of the EMA. The CHMP is composed of experts nominated by each member state's national authority for medicinal products, with expert appointed to act as Rapporteur for the co-ordination of the evaluation with the possible assistance of a further member of the Committee acting as a Co-Rapporteur. After approval, the Rapporteur(s) continue to monitor the product throughout its life cycle. The CHMP has 210 days to adopt an opinion as to whether a marketing authorization should be granted. The process usually takes longer in case additional information is requested, which triggers clock-stops in the procedural timelines. The process is complex and involves extensive consultation with the regulatory authorities of member states and a number of experts. When an application is submitted for a marketing authorization in respect of a drug that is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation, the applicant may pursuant to Article 14(9) Regulation (EC) No 726/2004 request an accelerated assessment procedure. If the CHMP accepts such request, the time-limit of 210 days will be reduced to 150 days but it is possible that the CHMP can revert to the standard time-limit for the centralized procedure if it considers that it is no longer appropriate to conduct an accelerated assessment. Once the procedure is completed, a European Public Assessment Report, or EPAR, is produced. If the opinion is negative, information is given as to the grounds on which this conclusion was reached. After the adoption of the CHMP opinion, a decision on the MAA must be
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adopted by the European Commission, after consulting the E.U. member states, which in total can take more than 60 days.
In specific circumstances, E.U. legislation (Article 14(7) Regulation (EC) No 726/2004 and Regulation (EC) No 507/2006 on Conditional Marketing Authorizations for Medicinal Products for Human Use) enables applicants to obtain a conditional marketing authorization prior to obtaining the comprehensive clinical data required for an application for a full marketing authorization. Such conditional approvals may be granted for product candidates (including medicines designated as orphan medicinal products) if (1) the risk-benefit balance of the product candidate is positive, (2) it is likely that the applicant will be in a position to provide the required comprehensive clinical trial data, (3) the product fulfills unmet medical needs and (4) the benefit to public health of the immediate availability on the market of the medicinal product concerned outweighs the risk inherent in the fact that additional data are still required. A conditional marketing authorization may contain specific obligations to be fulfilled by the marketing authorization holder, including obligations with respect to the completion of ongoing or new studies, and with respect to the collection of pharmacovigilance data. Conditional marketing authorizations are valid for one year, and may be renewed annually, if the risk-benefit balance remains positive, and after an assessment of the need for additional or modified conditions and/or specific obligations. The timelines for the centralized procedure described above also apply with respect to the review by the CHMP of applications for a conditional marketing authorization.
Marketing Authorization under Exceptional Circumstances
Under Article 14(8) Regulation (EC) No 726/2004, products for which the applicant can demonstrate that comprehensive data (in line with the requirements laid down in Annex I of Directive 2001/83/EC, as amended) cannot be provided (due to specific reasons foreseen in the legislation) might be eligible for marketing authorization under exceptional circumstances. This type of authorization is reviewed annually to reassess the risk-benefit balance. The fulfillment of any specific procedures/obligations imposed as part of the marketing authorization under exceptional circumstances is aimed at the provision of information on the safe and effective use of the product and will normally not lead to the completion of a full dossier/approval.
Market Authorizations Granted by Authorities of E.U. Member States
In general, if the centralized procedure is not followed, there are three alternative procedures as prescribed in Directive 2001/83/EC:
A marketing authorization may be granted only to an applicant established in the European Union.
Prior to obtaining a marketing authorization in the European Union, applicants have to demonstrate compliance with all measures included in an EMA-approved Pediatric Investigation Plan, or PIP, covering all subsets of the pediatric population, unless the EMA has granted a product-specific waiver,
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a class waiver, or a deferral for one or more of the measures included in the PIP. The respective requirements for all marketing authorization procedures are set forth in Regulation (EC) No 1901/2006, which is referred to as the Pediatric Regulation. This requirement also applies when a company wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized. The Pediatric Committee of the EMA, or PDCO, may grant deferrals for some medicines, allowing a company to delay development of the medicine in children until there is enough information to demonstrate its effectiveness and safety in adults. The PDCO may also grant waivers when development of a medicine in children is not needed or is not appropriate, such as for diseases that only affect the elderly population.
Before a marketing authorization application can be filed, or an existing marketing authorization can be amended, the EMA determines that companies actually comply with the agreed studies and measures listed in each relevant PIP.
Periods of Authorization and Renewals
A marketing authorization is valid for five years in principle and the marketing authorization may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance by the EMA or by the competent authority of the authorizing member state. To this end, the marketing authorization holder must provide the EMA or the competent authority with a consolidated version of the file in respect of quality, safety and efficacy, including all variations introduced since the marketing authorization was granted, at least six months before the marketing authorization ceases to be valid. Once renewed, the marketing authorization is valid for an unlimited period, unless the European Commission or the competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal. Any authorization which is not followed by the actual placing of the drug on the E.U. market (in case of centralized procedure) or on the market of the authorizing member state within three years after authorization ceases to be valid (the so-called sunset clause).
E.U. legislation also provides for a system of regulatory data and market exclusivity. According to Article 14(11) of Regulation (EC) No 726/2004, as amended, and Article 10(1) of Directive 2001/83/EC, as amended, upon receiving marketing authorization, new chemical entities approved on the basis of complete independent data package benefit from eight years of data exclusivity and an additional two years of market exclusivity. Data exclusivity prevents regulatory authorities in the E.U. from referencing the innovator's data to assess a generic (abbreviated) application. During the additional two-year period of market exclusivity, a generic marketing authorization can be submitted, and the innovator's data may be referenced, but no generic medicinal product can be marketed until the expiration of the market exclusivity. The overall ten-year period will be extended to a maximum of 11 years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. Even if a compound is considered to be a new chemical entity and the innovator is able to gain the period of data exclusivity, another company nevertheless could also market another version of the drug if such company obtained marketing authorization based on an MAA with a complete independent data package of pharmaceutical test, preclinical tests and clinical trials. However, products designated as orphan medicinal products enjoy, upon receiving marketing authorization, a period of ten years of orphan market exclusivity. Depending upon the timing and duration of the E.U. marketing authorization process, products may be eligible for up to five years' supplementary protection certificates, or SPCs, pursuant to Regulation (EC) No 469/2009. Such SPCs extend the rights under the basic patent for the drug.
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Regulatory Requirements After a Marketing Authorization has been Obtained
If we obtain authorization for a medicinal product in the E.U., we will be required to comply with a range of requirements applicable to the manufacturing, marketing, promotion and sale of medicinal products:
Pharmacovigilance and other requirements
We will, for example, have to comply with the E.U.'s stringent pharmacovigilance or safety reporting rules, pursuant to which post-authorization studies and additional monitoring obligations can be imposed. Other requirements relate, for example, to the manufacturing of products and APIs in accordance with good manufacturing practice standards. E.U. regulators may conduct inspections to verify our compliance with applicable requirements, and we will have to continue to expend time, money and effort to remain compliant. Non-compliance with E.U. requirements regarding safety monitoring or pharmacovigilance, and with requirements related to the development of products for the pediatric population, can also result in significant financial penalties in the E.U. Similarly, failure to comply with the E.U.'s requirements regarding the protection of individual personal data can also lead to significant penalties and sanctions. Individual E.U. member states may also impose various sanctions and penalties if we do not comply with locally applicable requirements.
The manufacturing of authorized drugs, for which a separate manufacturer's license is mandatory, must be conducted in strict compliance with the EMA's Good Manufacturing Practices, or GMP, requirements and comparable requirements of other regulatory bodies in the E.U., which mandate the methods, facilities and controls used in manufacturing, processing and packing of drugs to assure their safety and identity. The EMA enforces its current GMP requirements through mandatory registration of facilities and inspections of those facilities. The EMA may have a coordinating role for these inspections while the responsibility for carrying them out rests with the member states competent authority under whose responsibility the manufacturer falls. Failure to comply with these requirements could interrupt supply and result in delays, unanticipated costs and lost revenues, and could subject the applicant to potential legal or regulatory action, including but not limited to warning letters, suspension of manufacturing, seizure of product, injunctive action or possible civil and criminal penalties.
The marketing and promotion of authorized drugs, including industry-sponsored continuing medical education and advertising directed toward the prescribers of drugs and/or the general public, are strictly regulated in the European Union under Directive 2001/83/EC. The applicable regulations aim to ensure that information provided by holders of marketing authorizations regarding their products is truthful, balanced and accurately reflects the safety and efficacy claims authorized by the EMA or by the competent authority of the authorizing member state. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potential civil and criminal penalties.
In order to compensate the patentee for delays in obtaining a marketing authorization for a patented product, a supplementary certificate, or SPC, may be granted extending the exclusivity period for that specific product by up to five years. Applications for SPCs must be made to the relevant patent office in each E.U. member state and the granted certificates are valid only in the member state of grant. An application has to be made by the patent owner within six months of the first marketing authorization being granted in the European Union (assuming the patent in question has not expired, lapsed or been
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revoked) or within six months of the grant of the patent (if the marketing authorization is granted first). In the context of SPCs, the term "product" means the active ingredient or combination of active ingredients for a medicinal product and the term "patent" means a patent protecting such a product or a new manufacturing process or application for it. The duration of an SPC is calculated as the difference between the patent's filing date and the date of the first marketing authorization, minus five years, subject to a maximum term of five years.
A six month pediatric extension of an SPC may be obtained where the patentee has carried out an agreed pediatric investigation plan, the authorized product information includes information on the results of the studies and the product is authorized in all member states of the European Union.
Brexit and the Regulatory Framework in the United Kingdom
On June 23, 2016, the electorate in the United Kingdom, or U.K. voted in favor of leaving the E.U., which is commonly referred to as "Brexit." Thereafter, on March 29, 2017, the country formally notified the E.U. of its intention to withdraw pursuant to Article 50 of the Lisbon Treaty. The U.K. left the E.U. effective at 11 p.m. Greenwich Mean Time on January 31, 2020. This began a transition period that is set to end on December 31, 2020, during with the U.K. and the E.U. will negotiate their future relationship. Since the regulatory framework for pharmaceutical products in the U.K. covering quality, safety and efficacy of pharmaceutical products, clinical trials, marketing authorization, commercial sales and distribution of pharmaceutical products is derived from E.U. directives and regulations, Brexit could materially impact the future regulatory regime which applies to products and the approval of product candidates in the U.K. It remains to be seen how, if at all, Brexit will impact regulatory requirements for product candidates and products in the U.K.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs in the United States such as Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor's decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on investment in product development.
In the E.U., pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of our drug candidate to currently available therapies (so called health technology assessment) in order to obtain reimbursement or pricing approval. For example, the E.U. provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. E.U. member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect
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controls on the profitability of BioPharmX placing the drug product on the market. Other member states allow companies to fix their own prices for drug products, but monitor and control prescription volumes and issue guidance to physicians to limit prescriptions. The downward pressure on health care costs in general has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various E.U. member states, and parallel distribution (arbitrage between low-priced and high-priced member states), can further reduce prices. Any country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements.
Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such restrictions under applicable federal and state healthcare laws and regulations, include the following:
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An increasing number of states have enacted legislation requiring pharmaceutical and biotechnology companies to file periodic reports of expenses relating to the marketing and promotion of drug products and gifts and payments to individual healthcare practitioners in these states; to make periodic public disclosures on sales, marketing, pricing, clinical trials and other activities; to report information pertaining to and justifying price increases; or to register their sales representatives. Other states prohibit various marketing-related activities, such as the provision of certain kinds of gifts or meals; price gouging; or pharmacies and other healthcare entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing. In addition, states such as California, Connecticut, Nevada, and Massachusetts require pharmaceutical companies to implement compliance programs and/or marketing codes. State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, further complicating compliance efforts.
Environmental, Health and Safety Matters
The manufacturing facilities of the third-parties that develop our product candidates are subject to extensive environmental, health and safety laws and regulations in a number of jurisdictions, governing, among other things: the use, storage, registration, handling, emission and disposal of chemicals, waste materials and sewage; chemicals, air, water and ground contamination; and air emissions and the cleanup of contaminated sites, including any contamination that results from spills due to our failure to properly dispose of chemicals, waste materials and sewage.
These laws, regulations and permits could potentially require the expenditure by us of significant amounts for compliance or remediation. If the third-party manufacturers fail to comply with such laws, regulations or permits, we may be subject to fines and other civil, administrative or criminal sanctions, including the revocation of permits and licenses necessary to continue our business activities. In addition, we may be required to pay damages or civil judgments in respect of third-party claims, including those relating to personal injury (including exposure to hazardous substances we use, store, handle, transport, manufacture or dispose of), property damage or contribution claims. Some environmental, health and safety laws allow for strict, joint and several liability for remediation costs, regardless of comparative fault. We may be identified as a responsible party under such laws. Such developments could have a material adverse effect on our business, financial condition and results of operations.
In addition, laws and regulations relating to environmental, health and safety matters are often subject to change. In the event of any changes or new laws or regulations, we could be subject to new compliance measures or to penalties for activities that were previously permitted.
As of January 31, 2020, we had 3 employees, all of whom were full time located in the United States. We also retain independent contractors to support our organization. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We have not experienced any work stoppages and we consider our relations with our employees to be good.
We lease a 11,793 square foot office and laboratory space at 115 Nicholson Lane, San Jose, California 95134. This lease expires in December 2023. On February 17, 2020, we executed a sublease agreement covering the entire space for the remaining term of the lease.
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We also lease an approximately 100 square foot office at 900 E. Hamilton Ave., Suite 100, Campbell, California 95008. This is a month-to-month lease.
We may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, we may receive letters alleging infringement of patents or other intellectual property rights. We are not a party to any material legal proceedings, nor are we aware of any pending or threatened litigation that we believe is likely to have a material adverse effect on our business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.
In connection with the Timber Funding on March 27, 2020, Timber and BioPharmX entered into the Securities Purchase Agreement with the Investors pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to the Merger and BioPharmX agreed to issue the Investor Warrants to the Investors on the tenth trading day following the consummation of the Merger in the Timber Funding.
We file periodic reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be obtained, free of charge, by visiting the SEC's website at www.sec.gov that contains all of the reports, proxy and information statements, and other information that we electronically file or furnish to the SEC.
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Unless the context indicates or suggests otherwise, reference to "we", "our", "us", and "Timber" in this section refers to Timber Pharmaceuticals LLC.
Timber is a clinical-stage medical dermatology company with a focus on rare, orphan designated disorders. We believe we have a robust medical dermatology pipeline with mid- and early-stage candidates in clinical development. Our pipeline targets rare dermatologic disorders where there is a high unmet need and no FDA approved treatments.
We are currently developing three product candidates to treat several rare and high unmet need dermatologic indications. The current state of our development pipeline is illustrated below:
FAsFacial Angiofibromas
TSCTuberous Sclerosis
We are developing TMB-001 a topical ointment formulation (0.05% and 0.1%) of isotretinoin, utilizing Timber's proprietary IPEG delivery system, for the treatment of Congenital Ichthyosis ("CI"), in subjects as young as nine years of age.
CI is a rare disorder of keratinization (a scaling condition) that affects approximately 80,000 people in the U.S. and more than 1.5 million globally, according to a 2012 research letter from the American Medical Association.
There are currently no FDA approved treatments for CI; however, oral isotretinoin is commonly used off label. Isotretinoin was first approved in the United States by the FDA as ACCUTANE® and was formulated as an oral product to treat severe recalcitrant nodular acne. No topical forms of isotretinoin
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have ever been approved in the US. Although oral isotretinoin is used off label for patients with CI, common and potentially serious systemic side effects limit its utility as a chronic treatment. We believe a topical isotretinoin could potentially provide benefit to patients with CI without the systemic side effects. These systemic side effects of oral isotretinoin can include teratogenicity, pancreatitis, elevations of serum triglycerides, psychiatric disorders, and skeletal hyperostosis, among others. In 2018, the TMB-001 program, formerly known as PAT-001, was the recipient of the Orphan Products Clinical Trials Grant from the FDA and awarded $1.5 million in non-dilutive funding to support the Phase 2a and 2b trials of TMB-001 for the treatment of this severe dermatologic disorder. In March 2020, the FDA awarded us the second tranche of the grant in the amount of $500,000.
In a proof of concept Phase 2 clinical trial, TMB-001 was found to be well tolerated and demonstrated evidence of an efficacy signal supported by improvement in the Investigator's Global Assessment ("IGA") scale and CI signs/symptoms at the end of Parts 1 and 2 of the Phase 2 trial. A favorable efficacy signal was further supported in Part 2 of the study where an overall IGA improvement was observable in about half of the subjects initially treated with vehicle after receiving 4 weeks of treatment with TMB-001 ointment.
Given the positive outcome from the Phase 2a study, a Phase 2b dose ranging study for TMB-001 was commenced in the fourth quarter of 2019.
In parallel with the development of TMB-001, we are developing TMB-002, a topical rapamycin (0.5% and 1.0%) cream for the treatment of Facial Angiofibromas ("FAs") associated with Tuberous Sclerosis Complex ("TSC"). TSC is a rare, genetic, multi-system disorder that causes tumors to form in many different organs, primarily in the brain, eyes, heart, kidney, skin and lungs. According to the Tuberous Sclerosis Alliance, one in 6,000 babies are born with TSC and nearly one million people are estimated to have TSC globally (approximately 50,000 in the U.S.). Common symptoms of TSC include skin lesions, cerebral pathology, seizures, renal pathology and retinal hamartomas. We believe there is a need for a simple, non-invasive treatment option of FAs. Pharmacologic treatment options include oral rapamycin (also known as sirolimus) for the treatment of renal and neurological manifestations of TSC and has been a treatment option for FAs as well, although the systemic side effects of oral rapamycin have limited its utility in the treatment of FAs.
TMB-002's proprietary lipid crystalline cream base protects molecules that are readily oxidized, such as rapamycin, and has favorable cosmetic properties, natural antimicrobial effects and releases the active ingredient into the skin by melting at skin temperature (33-34°C).
Preclinical studies of TMB-002 have demonstrated a positive toxicity profile. We have initiated a large Phase 2b dose response study, evaluating the dose-dependent efficacy of TMB-002 in the treatment of FAs associated with TSC compared with vehicle.
The product in its earliest stage in our pipeline is locally applied sitaxsentan, a highly selective endothelin-A (ET-A) receptor antagonist being developed as a local agent for the treatment of Localized Scleroderma (LS).
Scleroderma is a chronic connective tissue disease that is generally classified as one of the autoimmune rheumatic diseases. There are two major classifications of scleroderma: Localized Scleroderma and Systemic Sclerosis. While both types of scleroderma will have cutaneous symptoms, systemic sclerosis will affect other organ systems too. Localized Scleroderma manifests as an excess production of collagen resulting in a thickening of the skin and connective tissue affecting approximately 90,000 people in the U.S. and an estimated two million globally, according to the Scleroderma Foundation.
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One of the most commonly visible symptoms of the disease is hardening of the skin and symptoms can vary from patient-to-patient, ranging from very mild to very severe and can affect mobility, impair growth of limbs, and cause severe disfigurement. The severity will depend on which part, or parts, of the body is affected and to what extent. If not treated timely and properly, a mild case can become more serious. Localized scleroderma is more common in children and can be considered a pediatric condition. Currently, there are no approved treatments for the cutaneous symptoms of either type of scleroderma.
Sitaxsentan is a highly selective ET-A receptor antagonist that was originally developed as an oral tablet for treating Pulmonary Arterial Hypertension ("PAH"). Sitaxsentan gained regulatory approval in Europe, Canada, and Australia but was voluntarily withdrawn from the market within five years based on emerging safety concerns, particularly those associated with liver toxicity. Consequently, sitaxsentan never gained FDA approval in the U.S. We expect such safety concerns can be greatly mitigated through our approach and formulation efforts of pursuing TMB-003 as a localized treatment.
In a series of preclinical studies, sitaxsentan was shown to significantly reduce fibroblast migration, induce apoptosis, and reduce the amount of collagen produced in TGF-b1 induced human dermal fibroblasts. Further, sitaxsentan was shown to be significantly better than bosentan, a non-selective endothelin receptor antagonist, in all of the above measures. These results suggest that TMB-003 may have the potential to effectively treat LS.
Our goal is to develop and commercialize innovative therapies for a variety of orphan/rare medical dermatologic indications. We intend to focus on addressing significant unmet medical needs with the goal of improving patients' lives. To execute our strategy, we plan to:
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We believe our focus on the topical or local delivery of safe and effective active ingredients via our formulations will have advantages over the systemic application of the same drugs by avoiding safety concerns commonly associated with oral medications. Further, we are highly selective in our choice of products focusing on those with a proven mechanism of action ("MoA") and established proof of concept, ideally in humans.
Topical Isotretinoin (TMB-001)
We are developing a treatment for Congenital Ichthyosis with our product TMB-001, a topical isotretinoin ointment.
CI is a large, heterogeneous family of inherited skin disorders of cornification resulting from an abnormality of skin keratinization. The main features of the disorder are scaling and often thickening of the skin. There are currently no products approved in the United States for the treatment of CI and management of the disease is a life-long endeavor that focuses on managing symptoms (i.e., emollients with or without keratolytic agents) and reducing scaling and/or skin lubrication with both systemic and topical treatments. The severity of ichthyosis can vary enormously, from the mildest, most common, types such as ichthyosis vulgaris (generally not included as one of the subtypes of "Congenital Ichthyosis" and may be mistaken for normal dry skin) up to life-threatening conditions such as harlequin-type ichthyosis. The incidence of X-linked recessive ichthyosis ("XRI") is a rare disorder that affects approximately one in 2,000 to one in 6,000 males. Rarer forms of ichthyosis, such as Lamellar, occur in 1 per 100,000 - 200,000 people, or in some instances, even fewer cases per a population.
There are more than 20 different types of CI which can range in their severity, appearance, genetic cause, and mode of inheritance. X-linked ichthyosis is clinically characterized by widespread, dark brown, thickened scaling of the skin, and generalized dryness. The diagnosis can be confirmed using a genetic test for the gene encoding steroid sulfatase ("STS"). ARCI-LI is also clinically characterized by a widespread, thickened scaling of the skin that can cover almost all of the body and be very severe. The skin barrier is very severely disturbed as a result of a genetic mutation in an ability to produce important components of the skin. The diagnosis is most commonly confirmed using a genetic test for the gene encoding transglutaminase type 1 ("TGM1").
First-line therapy includes hydration and lubrication accomplished by creams and ointments containing low concentrations of salt, urea, or glycerol, which increase the water-binding capacity of the skin. The addition of keratolytic agents may be helpful to reduce scaling. Because most patients require life-long treatment with daily applications of emollients all over the body, they are potential mega consumers of such products (estimated lifetime consumption of approximately one ton of cream). Systemic retinoid treatment is reserved for those patients refractory to topical agents because of long-term adverse effects, including birth defects. The presentation and severity of symptoms can differ greatly by patient and by the form of ichthyosis, but generally include skin inflammation and fragility, pruritus, fissuring and cracking of thickened skin, ectropion, anhidrosis, and in some severe cases, an increased susceptibility to infection.
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Isotretinoin was first approved in the United States by the FDA and was formulated as an oral product, ACCUTANE® (isotretinoin) capsules, to treat severe recalcitrant nodular acne. Oral isotretinoin is used for the off-label treatment of ichthyoses and other skin disorders associated with the hyperkeratinization. There has never been a topical formulation of isotretinoin, in combination or otherwise, that has been approved by the FDA. Since the approval of ACCUTANE®, various topical formulations of isotretinoin have been studied:
Isotretinoin is a naturally occurring retinoid, meaning it is an endogenous derivative of vitamin A, and has several pharmacological mechanisms of action that result in:
Treatment of ichthyoses with oral isotretinoin has demonstrated significant efficacy. However, systemic toxicities associated with oral retinoids are major concerns to patients and prescribing physicians. Administration requires vigilance and increased diligence in the commercial setting. While common mucocutaneous side effects can be managed by modifying patient's oral retinoid dosing schedule, one of the most severe adverse effects is teratogenicity. Teratogenicity is a manifestation of developmental toxicity, representing a particular case of embryo/fetotoxicity, by the induction or the increase of the frequency of structural disorders in the progeny. Therefore, developing and commercializing a targeted, efficacious topical isotretinoin, as an alternative treatment option for patients suffering from ichthyoses is ideal. Additionally, a topical formulation would provide hydration and lubrication to the diseased skin, attributes that are highly desirable and cannot be afforded by systemic orally administered retinoids. Topical formulations of isotretinoin have been studied in a variety of indications including ichthyosis and other disorders of keratinization. However, no topical formulation of isotretinoin has ever been approved in the U.S., and oral formulations of isotretinoin are not approved in the U.S. for the treatment of ichthyoses.
TMB-001 leverages Timber's proprietary IPEG delivery system. This technology was developed to topically deliver active pharmaceutical ingredients for which a precise cutaneous distribution is essential. The IPEG platform utilizes specific ratios of different molecular weight polyethylene glycols to target specific dermal delivery profiles. TMB-001 was designed to maximize delivery of isotretinoin into the pathologic layers of skin while minimizing any systemic absorption.
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In 2018, the TMB-001 program was a recipient of the FDA Orphan Products Clinical Trials Grant. This program is sponsored by FDA and intended for clinical studies evaluating the safety and effectiveness of products that could either result in, or substantially contribute to, the FDA approval of products targeted to the treatment of rare diseases. The grant will provide $1.5 million in non-dilutive funding to support the Phase 2a and Phase 2b studies. In March 2020, the FDA awarded us the second tranche of the grant in the amount of $500,000 for a total grant award of $0.8 million as of March 27, 2020.
Completed Phase 2a Multicenter, POC Study
The pilot Phase 2a multicenter, proof-of-concept study of topically applied 0.1% and 0.2% isotretinoin ointment, or TMB-001, in 19 subjects 12 years and older with CI of either the ARCI-LI or XRI subtypes was completed in 2018. Eligible subjects had two comparable Treatment Areas defined per the study protocol. Each Treatment Area had to be comparable in size, with a minimum of 150 cm2 of disease affected skin with an identical IGA score of either 3 (moderate) or 4 (severe) at Baseline. Each Treatment Area had to be contained within a discrete anatomical unit as defined in the protocol and could not exceed 6% body surface area (BSA). In Part 1 of the study, one Treatment Area (e.g., right side) was randomly designated to be treated with one active test article (i.e., TMB-001, 0.1%, or 0.2%) and the other Treatment Area (e.g., left side) was assigned the vehicle test article. Treatments were applied twice daily for 8 weeks to all disease-affected skin in the respective Treatment Areas. After completion of Part 1, subjects received an additional 4 weeks of double-blind treatment using the active drug product they were randomized to at baseline (TMB-001 0.1% or 0.2%) on both Treatment Areas. The subjects had the option to participate in the pharmacokinetic (PK) portion of the study. A total of 19 subjects were enrolled at 5 study sites. Subjects were randomized (1:1) to one of two Treatment Groups:
Of the 19 subjects enrolled, 10 were randomized at baseline to the TMB-001, 0.1% Treatment Group, and 9 were randomized to TMB-001, 0.2%. In total, 12 subjects (12/19, 63.2%) completed the study and 7 subjects (7/19, 36.8%) discontinued early. Subjects who did not complete the study discontinued due to an adverse event, lost to follow-up, or withdrawal by the subject
The primary objective of the Phase 2a study was to assess the safety and tolerability of topical TMB-001. Safety was assessed based on the incidence (severity and causality) of any local and systemic adverse events (AEs); number of subjects with presence (and severity) of each individual local skin reaction (LSR): stinging/burning, pain, and pruritus, collected at each time point for each Treatment Area; vital signs at Days 29, 57, and 84; and clinical laboratory tests (hematology, chemistry, and urinalysis) at Days 29, 57, and 84. 28 treatment-emergent adverse events ("TEAEs") were reported in 14 (out of 19) subjects (seven out of ten for TMB-001 0.1% and 7/9 for TMB-001 0.2%). The most common TEAEs were in the General disorders and Administration Site Conditions System Organ Class (four out of ten for TMB-001 0.1% and three out of nine for TMB-001 0.2%), namely application site pruritus, application site irritation, and application site dermatitis. The majority of TEAEs were mild and deemed not related to test article in both groups. Of the 8 subjects with TEAEs that were possibly, probably, or definitely related to treatment (e.g., application site rash, application site irritation, dermatitis contact, application site dermatitis, application site pruritus, application site folliculitis, application site pain), all had interruptions or withdrawal of the study drug. Overall, the majority of burning/stinging, pain, and pruritus local skin reactions ("LSRs") was mild or moderate for both Treatment Areas in the 0.1% and 0.2% groups with somewhat greater directional severity in the 0.2% group. In Part 1 for both treatment groups, there was a modest increase over time in LSRs in the Treatment Area that received Active compared with the Treatment Area that received vehicle, particularly for pruritus. In Part 2, subjects who continued to apply active test article did not generally
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have increased LSRs, however, there was a modest increase in the proportion of subjects that received vehicle in Part 1 who reported pruritus at Day 84 in both treatment groups. Reports of severe LSRs were low, but slightly higher in the areas that were treated with Active for 12 weeks. Pruritus was the most commonly reported LSR at Baseline and post-Baseline visits. In the 0.2% group, one subject had a serious adverse event ("SAE"), namely severe mental status change and 2 TEAEs (moderate gastroenteritis norovirus and moderate Clostridium difficile colitis) that led to study discontinuation, but recovered/resolved by end of study and the adverse events were all deemed not related to test article. There were no clinically significant changes from Baseline in laboratory test results and vital signs to end of study ("EOS") laboratory test results and vital signs, save for the one subject who discontinued due to an SAE (deemed unrelated to test article; mental status change due to acute encephalopathy, most likely secondary to the side effects of multiple medications with sedative side effects) and had an increase in blood triglycerides that were deemed clinically significant at the end of the study.
The secondary objective of the study was to explore evidence of a potential efficacy signal of the active test article compared to vehicle and to explore the plasma levels of isotretinoin and tretinoin from topically applied TMB-001 with comparison to background systemic retinoid levels pre- and post-treatment. Efficacy endpoints were assessed using the IGA scale where the overall severity was assessed using a 5-point IGA scale where 0 was clear, 1 was almost clear, 2 was mild, 3 was moderate, and 4 was severe and individual clinical signs and symptoms where the overall severity of erythema, scaling, fissuring, and papulation/lichenification was graded using a 5-point scale where 0 was clear, 1 was almost clear, 2 was mild, 3 was moderate, and 4 was severe.
The below graph represents the primary measures of the change in IGA and scaling relative to baseline at Day 57 for the 0.1% concentration.
A favorable efficacy signal was further supported in Part 2 of the study where overall IGA and scaling improvement was observable in about half of the subjects initially treated with vehicle after receiving 4 weeks of treatment with TMB-001 Ointment. For the majority of subjects in both treatment groups, the active arms maintained the same IGA score at Day 84 as was observed at Day 57.
Plasma concentrations of isotretinoin and tretinoin indicated that systemic exposure was minimal within the four hours following initial application. Trough concentrations measured on Days 8, 29, 57 and 84 approximately 12 hours following the preceding dose indicated that systemic concentrations of isotretinoin and tretinoin were within range of the endogenous levels measured at Baseline prior to the first application.
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Dermal pharmacokinetic/toxicokinetic ("PK/TK") and dermal toxicity studies for TMB-001 have been completed. The initial preclinical studies were completed with a slightly different formulation, PATP03 AN. However, following these studies, the formulation was modified and formulation PATPO3 ANR was selected for further clinical development. The permeability potential of these 2 formulations of TMB-001 Ointment, 0.2% (PATPO3 AN [prior formulation] and PATPO3 ANR [clinical formulation]) was assessed in an in vitro Franz cell assay using skin from a single volunteer and showed no significant differences in many parameters. To date, all nonclinical studies have been conducted using the PATPO3 AN formulation. The differences between PATPO3 AN and PATP03 ANR are minor and, predominantly, include the removal of ethanol and water and an adjustment of average PEG molecular weight in the clinical formulation. These changes do not represent a safety concern as the safety of high molecular weight PEGs, including those used in the clinical formulation, is well established. A series of nonclinical studies have been conducted using TMB-001 Ointment with concentrations ranging from 0.025% to 0.2% to support later stages of development (e.g., Phase 3 clinical studies) and an eventual New Drug Application. Information on all aspects of the pharmacological activity of isotretinoin is available in published literature. The PK of isotretinoin following systemic administration have been well characterized. Absorption tends to be fairly rapid with high distribution to the liver. Transplacental distribution of isotretinoin has been established in all nonclinical species.
The repeat-dose toxicity and local tolerance of TMB-001 Ointment have been evaluated in minipigs, bovine cornea, guinea pigs, and rabbits using formulation PATPO3 AN. Topical application of the formulated product (ranging from 0.05% to 0.2%) in minipigs for 90 days produced changes at the site of application only including irritation and microscopic alterations. The severity increased with increasing concentration. These types of dermal changes are consistent with those observed in patients administered a topical formulation of isotretinoin. TMB-001 Ointment did not produce serious eye damage, sensitization in guinea pigs, or phototoxicity in rabbits. As noted previously, the formulation used in the toxicity studies (PATPO3 AN) is different than the one selected for clinical development (PATPO3 ANR). The toxicity profile of isotretinoin administered via oral or other systemic routes of dosing is well characterized. Of particular concern from a safety perspective is its teratogenicity. It is important to differentiate the toxicity of isotretinoin observed following systemic (oral) dosing with that noted following topical administration. The pre-clinical data demonstrates that the low exposures to isotretinoin achieved with TMB-001 Ointment correlate with no adverse systemic effects. In comparison, the toxicity reported in the literature following oral administration, including teratogenicity, is associated with markedly higher exposures. Overall, there are no new or unique toxicities observed in animals treated with TMB-001 Ointment, 0.2%. The observations are consistent with the effects of isotretinoin.
Timber initiated a Phase 2b randomized, parallel, double-blind, vehicle-controlled study in December 2019. The purpose of this study is to investigate the efficacy and safety of two concentrations of topically applied TMB-001 in subjects nine years of age and older. Patients will have clinical diagnosis of CI and a genetic confirmation of either ARCI-LI (e.g., transglutaminase 1-deficient) or RXLI (e.g., deletion of steroid sulfatase gene) subtypes of CI. Patients will have, at baseline, an affected body surface area between a minimum of 10% and maximum of 90% that will be treated.
The study plans to enroll 45 eligible patients that will be randomized (1 : 1 : 1) to one of three treatment groups; (1) TMB-001, 0.1%, bid,(2) TMB-001, 0.05%, bid or (3) a vehicle control ointment, bid. Approximately 10 study centers in the U.S. and Australia are expected to participate in this global study. The duration of treatment will be 12 weeks. Each subject will participate in the study for up to 24 weeks (including up to a 90-day Screening period).
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In order to generate high quality data that will allow the appropriate Phase 3 dose selection in the ongoing Phase 2b dose ranging study, Timber is working with leading experts in the field. Timber plans to analyze the primary endpoint using a validated tool called the Visual Index of Ichthyosis Severity ("VIIS") that has been shared with the FDA. Common tools used to measure CI severity have either not been validated or if validated have used a very limited number of subjects and few expert graders.
However, the VIIS is a tool validated and published by Yale researchers for scaling and erythema. It provides detailed written descriptions for both features based on the level of severity, visual standards for 4 body sites (upper back, upper arm, lower leg/shin, and dorsal foot) in CI patients, with two distinct standards that account for different types of scale. Based on the high concordance between expert graders for the scaling score during the VIIS validation process, the primary efficacy endpoint for the proposed Phase 2b study is the change in VIIS scaling score relative to Baseline. The proportion of subjects with treatment success (VIIS-50) is defined as a 50% or greater decrease in the VIIS scaling score relative to baseline at the end of study calculated in patients that have a baseline score of 3 or higher. These patients represent moderate to severe disease phenotype.
Given the FDA's historical interest in IGA, and in agreement with FDA, Timber will also use IGA as key secondary endpoint to determine overall diseases severity at baseline, throughout the study and at the end of study visit. IGA scores, dichotomized to "treatment success" or "treatment failure" where "treatment success" is defined as at least a 2-grade decrease in severity score relative to baseline at the end of study. The key characteristics of the study that Timber designed includes measuring the efficacy of TMB-001 on two scales, the VIIS and the IGA. The VIIS will assess improvements in well-defined, affected areas to allow unambiguous dose selection for the pivotal Phase 3 trial(s) and the IGA will provide a broader perspective of the disease severity and therapeutic response. The VIIS areas are included in IGA assessment so that concordance between the two end points will result in further validation of VIIS to be used uniquely in Phase 3 with the added knowledge of its fidelity and reproducibility, if successful.
Another key aspect of the Phase 2b study is that emollients and keratolytics are not allowed in the VIIS area, or any other area where the subject is applying the study drug. This can be accomplished because TMB-001 has demonstrated good skin occlusion, hydration and lubrication so that patients will not find the need to use other emollients in the treated areas during the study. This is important as the use of these agents can confound the results.
In addition, Timber intends to generate some additional preliminary data to assess the impact of TMB-001 treatment on quality of life of CI patients and generate preliminary data to support clinical meaningfulness of TMB-001 in the lives of CI patients. To that end, an age appropriate Dermatology Quality of Life Index ("DLQI"), which is a dermatology-specific Quality of Life instrument will be used. Itch is a prominent feature in CI patients, so additionally pruritus will be assessed with a self-administered Patient Reported Outcome questionnaire using the I-NRS at various visits.
Initial Market Research and Reimbursement Analysis
A Market Research company was engaged to provide a summary of research findings and a high-level reimbursement/pricing opinion for PAT-001 (now called TMB-001).
The project team reviewed information and insights provided by Patagonia. Additionally, the team conducted research using published information from public payors, government agencies and commercial payor policies. The final step was to conduct two qualitative telephone interviews with specialty pharmacy representatives to discuss PAT-001 metrics as they relate to their existing orphan programs or knowledge around the orphan drug process. The first interview was conducted with an industry veteran who has held various national leadership positions in sales, distribution, and market access for biotech/pharmaceutical products.1 The second interview conducted was with an Executive
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Director of Operations & Corporate Compliance for a specialty pharmacy that supports patients living with complex disease states by focusing on innovative and emerging technologies.
Summary of Findings:
Topical Rapamycin (TMB-002 / Pascomer®)
We are developing a treatment for Facial Angiofibromas with our product TMB-002, a topical rapamycin cream.
Tuberous Sclerosis Complex with Facial Angiofibromas
TSC is a rare autosomal dominant inherited neurocutaneous disorder that causes tumors to form in many different organs, usually observed in the brain, eyes, heart, kidney, skin and lungs. According to the Tuberous Sclerosis Alliance, one in 6,000 babies are born with TSC and it is estimated that nearly one million people are currently living with TSC globally (40,000 50,000 in the U.S.). Common symptoms include skin lesions, cerebral pathology, seizures, renal pathology and retinal hamartomas. Cutaneous findings are the most common and readily visible manifestation of TSC. More than 90% of patients with TSC have one or more skin lesions, which usually develop early in life. Facial angiofibromas,(FA) one form of cutaneous manifestation, are the most visually apparent TSC-associated, often starting to appear within the first 2-5 years of life and ultimately occurring in approximately 75% of patients. TSC is caused by mutations on two genes TSC1 and TSC2. Only one of the genes needs to be affected for TSC to be present. The TSC1/2 genes encode the proteins hamartin and tuberin, respectively. These two proteins create a complex that regulates the mammalian target of rapamycin ("mTOR"). mTOR is a key modulator in multiple processes including the cellular cycle, cellular growth, proliferation and migration. Mutations in the TSC1 and TSC2 genes result in dysregulation of mTOR, leading to abnormal growth and proliferation via mTOR's downstream effectors.
FAs are a serious dermatologic manifestation prevalent in patients diagnosed with TSC. The incidence of FAs increases markedly with age, is higher in patients with a TSC2 mutation, and may be more common in male TSC patients than female. FAs present as a facial vesicopapular rash with pink or bright red papules formed across the medial region of the cheeks and nasolabial folds, with benign growths that are difficult to treat, often bleed and can be disfiguring. In some cases, FAs may extend to the lateral cheeks, forehead and eyelids. Spontaneous and uncontrolled bleeding is frequent, and infections are common when the lesions are present around the eyes, nose and mouth. Due to progressive growth, over time FAs can impair vision and breathing and have psychological consequences (emotional, social and self-image disorders).
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Typically, FAs do not improve spontaneously and are frequently treated for disfigurement with invasive treatment options, making it critical that healthcare providers intervene early. Currently, vascular lasers, ablative lasers, and physically destructive techniques, such as shave excision and electrodessication are the treatment options patients may receive. Pharmacologic treatment options include oral rapamycin (sirolimus) for the treatment of renal and neurological manifestations of TSC, which has also been used for the treatment of FAs in TSC as well. Sometimes topical formulations of rapamycin are compounded from the oral agent, which often results in issues of stability and quality (i.e. poor stability, a lack of content uniformity and variable efficacy). In the United States, there are 64 TSC Centers of Excellence identified by the Tuberous Sclerosis Alliance (Patient Advocacy Group for TSC) that meet their 11 Core Standards and 9 out of the 14 Gold Standards across a variety of criteria. This may allow for a focused effort when looking to drive awareness
Rapamycin is a macrolide antibiotic compound from Streptomyces hygroscopicus. Currently manufactured as an oral tablet or solution (e.g. Rapamune®), the drug is indicated for the prophylaxis of organ rejection in patients aged ³ 13 years receiving renal transplants (maintenance immunotherapy) and for the treatment of patients with lymphangioleiomyomatosis (LAM), a rare, cystic lung disease (Pfizer, 2018). The only commercially approved topical rapamycin product for the same indications as we are seeking for TMB-002 is available in Japan and was approved in 2018 based on trials conducted, exclusively, in Japanese patients. Rapamycin inhibits the highly conserved protein kinase target of rapamycin (TOR) by forming a complex with the immunophilin, FK506 binding protein-12 ("FKBP-12") which then binds directly to mammalian TOR complex 1 ("mTORC1"), a key regulatory kinase. Rapamycin inhibits the activity of mTORC1 towards certain substrates, thereby inhibiting the dysregulated growth and differentiation observed in FAs. Since the first report of using rapamycin topically for the treatment of FAs was published in 2008, a number of studies have been conducted using compounded topical rapamycin of various concentrations and formulations, including 11 clinical studies (with 379 subjects) and 20 individual case reports (with 35 subjects). All these published studies and individual case reports (414 subjects in total) support the clinical efficacy and the good tolerability of topical rapamycin in the treatment of facial angiofibromas.
The rationale for developing a topical rapamycin in a condition like FAs in TSC is that topical application of rapamycin will minimize the systemic absorption risks compared to the oral product and will provide effective treatment to the affected area. From the published studies and case reports, including 11 studies and 20 case reports, (414 subjects in total), topical application of rapamycin demonstrates a positive efficacy and tolerability profile for the treatment of FAs associated with TSC. Topical rapamycin application is expected to have lower toxicity than oral rapamycin and is expected to provide effective treatment of FAs associated with TSC. TMB-002 is formulated in a proprietary lipid crystalline vehicle. It has demonstrated room temperature stability at the 0.5%, 1.0% and 5.0% concentrations This safety and efficacy of TMB-002 in the 0.5% and 1% concentrations is being further investigated in the ongoing Phase 2b dose ranging clinical trial of TMB-002.
Currently a robust Phase 2b dose-ranging study evaluating the safety and efficacy of 0.5% and 1.0% TMB-002 (Pascomer®) in FAs associated with TSC is currently underway. This Phase 2 multi-center, double-blind, placebo-controlled, randomized, parallel-group, is focused on a dose-response comparison of the efficacy and safety of TMB-002 in male and female patients aged between six years and 65 years.
The study is recruiting 120 subjects across approximately 20 sites globally and is expected to release data in the first half of 2021.
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Eligible patients will be diagnosed with TSC based on the clinical diagnostic criteria of International Tuberous Sclerosis Complex Consensus Conference 2012 and presenting visible facial angiofibroma, with a FA severity score of 2 or 3 on the IGA.
The efficacy and safety assessments will be made at clinical visits, at baseline, through 26 weeks, and at 4 weeks after the last dose of study drug. The primary endpoint of the study will be the percentage of patients obtaining successful treatment based on Investigator blinded assessment using the IGA scale after 26 weeks of treatment. The study also includes some relevant secondary endpoints such as: time from the first dose to IGA success; change in IGA from baseline; change in the Facial Angiofibroma Severity Index (FASI) from baseline; percentage improvement in FA, as assessed by the participant or parent/caregiver; percentage improvement in FA, as assessed by the clinician and change in FA on a 5-point scale, as assessed by the participant or parent/caregiver.
The time-to-treatment success will be determined using Kaplan-Meier analyses and compared between each dose group and vehicle. Also, the secondary endpoints will assess change from baseline in IGA after 26 weeks of treatment and change from baseline in FA severity index (FASI) after 26 weeks of treatment.
To understand the patients' or caregiver's perception of a therapeutic response, a patient or parent/caregiver's improvement rating assessment from the first visit after the 26 weeks treatment will be determined.
The study is expected to generate high quality data to permit appropriate dose selection for Phase 3.
Since this product development program started, Timber's partner, AFT, has sponsored two in vitro studies and two animal studies. The results of these studies indicate that topical rapamycin cream has an efficient skin absorption and penetrability profile and does not result in irritation upon ocular contact nor is classified as "a contact sensitizer". The long-term toxicity pre-clinical study found that rapamycin creams at concentrations of 0.1%, 1%, and 5% were well tolerated in minipigs and the no-observed-adverse-effect-level ("NOAEL") was 5%. Mean blood concentrations generally increased with daily application, with increasing cream concentrations but the increases were not consistently dose proportional. The lower strength topical rapamycin formulations (1.0% and 0.5%) are being investigated in the ongoing Phase 2b clinical trial.
Due to the absence of an FDA approved topical rapamycin, the molecule is currently being compounded. Pharmacy compounding involves the preparation of customized medications that are not commercially available for individual patients with specialized medical needs. The regulatory oversight of pharmacy compounding is significantly less rigorous than that required for Food and Drug Administration (FDA)-approved drugs; as such, compounded drugs may pose additional risks to patients. FDA-approved drugs are made and tested in accordance with good manufacturing practice regulations (GMPs), which are federal statutes that govern the production and testing of pharmaceutical products. In contrast, compounded drugs are exempt from GMPs, and testing to assess product quality is inconsistent. Unlike FDA-approved drugs, pharmacy-compounded products are not clinically evaluated for safety or efficacy. There are numerous studies that have demonstrated that compounded formulations can suffer from issues related to quality, potency and content uniformity. The cost of compounded rapamycin can also prove prohibitive for some patients.
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There are at least two additional topical rapamycin products in development:
Nobelpharma has a topical rapamycin formulation that is approved solely in Japan at a lower strength (0.2%). This product has 12 months of stability at refrigerated conditions and would potentially require significant additional clinical work in Western populations to gain approval in U.S. and Europe.
Aucta Pharma is running a smaller Phase 2 study with a topical rapamycin product. Management believes that TMB-002 is further along in the development process.
Initial Market Research and Reimbursement analysis
A Market research company was engaged to conduct payor research examining US, UK and German Payor reactions to, and assessment of, a potential target product profile for TMB-002 (Pascomer®) for the treatment of FAs in TSC. The research also included a review of payor's price expectations. There were 10 US Pharmacy directors and 4 EU payor/payor advisors recruited.
Key Findings from the US included:
The study also investigated the cost to compound 1% topical rapamycin based on the market conditions at the time of the study (2018) and concluded that "assuming minimal compounding labor and vehicle cost, a year's supply of compounded topical rapamycin could cost greater than $52,000"
Locally Applied Sitaxsentan (TMB-003)
We are developing a treatment for Localized Scleroderma with our product TMB-003, locally applied sitaxsentan.
Scleroderma is a chronic connective tissue disease that is generally classified as one of the autoimmune rheumatic diseases. There are two major classifications of scleroderma: Localized Scleroderma and Systemic Sclerosis. While both types of scleroderma will have cutaneous symptoms, systemic sclerosis will affect other organ systems too. Localized Scleroderma manifests as an excess production of collagen resulting in a thickening of the skin and connective tissue affecting approximately 90,000 people in the United States and an estimated two million globally according to the Scleroderma Foundation. One of the most commonly visible symptoms of the disease is hardening of the skin and symptoms can vary from patient-to-patient, ranging from very mild to very severe. The severity will depend on which part, or parts, of the body is affected and to what extent. If not treated timely and properly, a mild case can become more serious. Localized scleroderma is more common in children and can be considered a pediatric condition. Currently, there are no approved treatments for the cutaneous symptoms of either type of scleroderma.
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In-Vitro, Pre-Clinical Studies
Investigative studies of the effects of endothelin receptor selectivity on cutaneous fibrosis and pigmentation were completed in January 2018. Sitaxsentan is a highly selective (6,500:1) endothelin-A ("ET-A") receptor antagonist developed for systemic use but never as a topical agent. Bosentan is a dual endothelin-A / endothelin-B ("ET-B" and together with ET-A, "ET-A/ ET-B") receptor antagonist developed and available for systemic use but not as a topical agent. In a series of studies, male and female normal human dermal fibroblasts ("HDFs") were induced with TGF-b1 to simulate scleroderma like phenotypes. In a 2D Scratch Assay, cells were treated for 24 to 48 hours with increasing concentrations of either Vehicle ("VC"), Sitaxsentan (SIT), or Bosentan ("BOS") in the presence of 50ng/mL of TGF-b1(p<0.05) to vehicle control (p<0.05) between experimental groups. Changes in collagen levels were measured by AlphaLISA for hPIP (Human Procollagen Type 1 C-peptide) after male HDFs were treated for 48 hours with increasing concentrations of either VC, SIT, or BOS in the presence of 50ng/mL of TGF-b1. Viability, cytotoxicity, and apoptosis were measured in male HDFs after they were treated for 48 hours with increasing concentrations of either VC, SIT, or BOS in the presence of 50ng/mL of TGF-b1. Changes in melanin content were measured after primary normal human adult melanocytes were treated for 24 hours with either 30 or 100 µM of VC, SIT, and BOS.
The endothelins, ET-1, ET-2 and ET-3, are a group of peptides that act on two distinct receptor subtypes, ET-A and ET-B. Of these three peptides, ET-1 has been the most studied. ET-1 stimulates cardiac contraction and the growth of cardiac muscle cells, regulates the release of substances that affect the blood vessels, stimulates smooth muscle cell division, and may control inflammatory responses by stimulating the production of pro-inflammatory cytokines.
Sitaxsentan was found to have a significant effect on several important mechanisms of cutaneous fibrosis including its ability to reduce fibroblast migration, induce apoptosis, and reduce the amount of collagen produced. Further, sitaxsentan outperformed Bosentan in several important mechanisms of cutaneous fibrosis. This is notable in the reduction of the amount of collagen produced in induced cells which can be compared back to un-induced controls. This suggests an inhibition in the development of a pro-fibrotic phenotype. Furthermore, enhanced apoptosis in a pro-fibrotic environment is likely beneficial, as resistance to apoptosis has been reported to be a characteristic of scleroderma fibroblasts. The results suggest that both drugs increase apoptosis compared to the control, whereby Sitaxsentan is more effective than Bosentan in stimulating apoptosis and the clearance of fibrosis-inducing cells. In both scratch assays, Sitaxsentan was superior to Bosentan in preventing closure of the scratch, suggesting that hypermotility and proliferation, characteristic of scleroderma fibroblasts, could be reduced. Sitaxsentan was also found to decrease the production of melanin, suggesting that it could be useful in treating hyperpigmentation. The effect of Sitaxsentan in in these studies suggest it could be a useful agent in addressing conditions of cutaneous fibrosis and hyperpigmentation through a selective targeting of the Endothelin-A receptors
Intellectual Property and Market Protection
Our commercial success depends in part on our ability to obtain and maintain proprietary protection for product candidates and any of our future product candidates, novel discoveries, product development technologies and know-how; to operate without infringing on the proprietary rights of others; and to prevent others from infringing our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, filing or in-licensing U.S. and foreign patents and patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of our business. We also rely on trademarks, trade secrets, know-how, continuing technological innovation, orphan drug exclusivity and potential in-licensing opportunities to develop and maintain our proprietary position.
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As of December 2019, we own or have licensed rights to at least 12 patent applications, including at least 4 U.S. patent applications, and at least 9 international patent applications. All of our current patent applications related to our product candidates currently in development are projected to expire between 2031 and 2038, subject to any PTE that might be available in a particular jurisdiction. For more information, please see the sections entitled "Timber Management's Discussion and Analysis of Financial Condition and Results of OperationsAsset Purchase Agreements with Patagonia Pharmaceuticals LLC ("Patagonia")" and "Timber Management's Discussion and Analysis of Financial Condition and Results of OperationsAcquisition of License from AFT Pharmaceuticals Limited ("AFT")"
While we seek broad coverage under our existing patent applications, there is always a risk that an alteration to the products or processes may provide sufficient basis for a competitor to avoid infringing our patent claims. In addition, patents, if granted, expire and we cannot provide any assurance that any patents will be issued from our pending or any future applications or that any potentially issued patents will adequately protect our products or product candidates.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained. Generally, patents issued for regularly filed applications in the United States are granted a term of 20 years from the earliest effective non-provisional filing date. In addition, in certain instances, a patent term can be extended to recapture a period due to delay by the USPTO in issuing the patent as well as a portion of the term effectively lost as a result of the FDA regulatory review period. However, as to the FDA component, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years following FDA approval. The duration of foreign patents varies in accordance with provisions of applicable local law, but typically is also 20 years from the earliest effective non-provisional filing date. However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country, and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
Our commercial success will also depend in part on not infringing upon the proprietary rights of third parties. It is uncertain whether the issuance of any third-party patent would require us to alter our development or commercial strategies for our products or processes, or to obtain licenses or cease certain activities. Our breach of any license agreements or failure to obtain a license to proprietary rights that we may require to develop or commercialize our future products may have an adverse impact on us. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference or derivation
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proceedings in the USPTO to determine priority of invention. For more information, please see "Risk FactorsRisks Related to Our Intellectual Property."
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local levels, and in other countries, extensively regulate, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, import and export of pharmaceutical products, such as those we are developing. We, along with third-party contractors, will be required to navigate the various preclinical, clinical and marketing approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies or seek approval of our product candidates. The processes for obtaining regulatory approvals in the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations, require the expenditure of substantial time and financial resources.
United States Government Regulations
In the United States, the FDA regulates drugs under the FDCA and its implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the drug development process, approval process or after approval, may subject an applicant to a variety of administrative or judicial sanctions, such as the FDA's refusal to approve pending new drug applications, or NDAs, withdrawal of an approval, imposition of a clinical hold, issuance of warning or untitled letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves:
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Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. An IND sponsor must submit the results of the nonclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue even after the IND is submitted. An IND automatically becomes effective and a clinical trial proposed in the IND may begin 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent in writing for their participation in any clinical trial. Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must continue to oversee the clinical trial while it is being conducted. Information about certain clinical trials must be submitted within specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their ClinicalTrials.gov website.
Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined. In Phase 1, the drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an initial indication of its effectiveness. In Phase 2, the drug typically is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage. In Phase 3, the drug is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the safety and efficacy of the product for approval, to establish the overall risk-benefit profile of the product and to provide adequate information for the labeling of the product.
In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor's agreement to conduct additional clinical trials after NDA approval. In other cases, a sponsor may voluntarily conduct additional clinical trials post approval to gain more information about the drug. Such post approval trials are typically referred to as Phase 4 clinical trials.
Progress reports detailing the results of the clinical trials must be submitted, at least annually, to the FDA, and more frequently if serious adverse events occur. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB's requirements, or if the drug has been associated with unexpected serious harm to patients.
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Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biologic product intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United States and for which there is no reasonable expectation that the cost of developing and making the product available in the United States for this type of disease or condition will be recovered from sales of the product in the United States. After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the product is entitled to orphan drug exclusivity, which means that the FDA may not approve any other applications to market the same drug for the same indication for seven years from the date of such approval, except in limited circumstances, such as a showing of clinical superiority to the product with orphan exclusivity by means of greater effectiveness, greater safety, by providing a major contribution to patient care or in instances of drug supply issues. Competitors, however, may receive approval of either a different product for the same indication or the same product for a different indication that could be used "off-label" by physicians in the orphan indication, even though the competitor's product is not approved in the orphan indication. Orphan drug exclusivity also could block the approval of one of our products for seven years if a competitor obtains approval before we do of the same product, as defined by the FDA, for the same indication we are seeking, or if our product candidate is determined to be contained within the scope of the competitor's product for the same indication or disease. If one of our products designated as an orphan drug receives marketing approval for an indication broader than that which is designated, it may not be entitled to orphan drug exclusivity. Orphan drug status in the European Union has similar, but not identical, requirements and benefits.
The FDA has various programs, including fast track designation, breakthrough therapy designation, accelerated approval and priority review, which are intended to expedite or simplify the process for the development and FDA review of drugs that are intended for the treatment of serious or life-threatening diseases or conditions and demonstrate the potential to address unmet medical needs. The purpose of these programs is to provide important new drugs to patients earlier than under standard FDA review procedures.
To be eligible for a fast track designation, the FDA must determine, based on the request of a sponsor, that a product is intended to treat a serious or life-threatening disease or condition and demonstrates the potential to address an unmet medical need by providing a therapy where none exists or a therapy that may be potentially superior to existing therapy based on efficacy or safety factors. Fast track designation provides opportunities for more frequent interactions with the FDA review team to
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expedite development and review of the product. The FDA may also review sections of the approval application for a fast track product on a rolling basis before the complete application is submitted, if the sponsor and the FDA agree on a schedule for the submission of the application sections, and the sponsor pays any required user fees upon submission of the first section of the approval application.
In addition, under the provisions FDASIA, passed in July 2012, a sponsor can request designation of a product candidate as a "breakthrough therapy." A breakthrough therapy is defined as a drug or biologic that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or biologic may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs or biologics designated as breakthrough therapies are also eligible for accelerated approval. The FDA must take certain actions with respect to breakthrough therapies, such as holding timely meetings with and providing advice to the product sponsor, intended to expedite the development and review of an application for approval of a breakthrough therapy.
Products studied for their safety and effectiveness in treating serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may be eligible for accelerated approval and may be approved on the basis of adequate and well-controlled clinical trials establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than an irreversible effect on morbidity or mortality, or IMM, that is reasonably likely to predict an effect on IMM or other clinical benefit, taking into account the severity, rarity or prevalence of the condition and the availability or lack of alternative treatments. As a condition of approval, the FDA may require a sponsor of a product receiving accelerated approval to perform post-marketing trials to verify and describe the predicted effect on IMM or other clinical endpoint, and the product may be subject to expedited withdrawal procedures.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened. Furthermore, fast track designation, breakthrough therapy designation, accelerated approval and priority review do not change the standards for approval and may not ultimately expedite the development or approval process.
Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, together with detailed information relating to the product's chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA is subject to a substantial application user fee. Under the Prescription Drug User Fee Act, or PDUFA, guidelines that are currently in effect, the FDA has a goal of ten months from the date of "filing" of a standard NDA for a new molecular entity to review and act on the submission. This review typically takes twelve months from the date the NDA is submitted to the FDA because the FDA has sixty days from receipt to make a decision as to whether the application has been accepted for filing.
In addition, under the Pediatric Research Equity Act of 2003 as amended and reauthored, certain NDAs or supplements to an NDA must contain data that are adequate to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.
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The FDA also may require submission of a risk evaluation and mitigation strategy, or REMS, plan to ensure that the benefits of the drug outweigh its risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and/or elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools.
The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to determine whether they are sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured, processed, packaged or held meets standards designed to assure the product's continued safety, quality and purity.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical trial sites to assure compliance with GCP requirements.
The testing and approval process for an NDA requires substantial time, effort and financial resources, and each may take several years to complete. Data obtained from preclinical and clinical testing are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA may not grant approval of an NDA on a timely basis, or at all.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases, a complete response letter. A complete response letter generally contains a statement of specific conditions that must be met in order to secure final approval of the NDA and may require additional clinical or preclinical testing in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA's satisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
Even if the FDA approves a product, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies, including Phase 4 clinical trials, be conducted to further assess a drug's safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution and use restrictions or other risk management mechanisms under a REMS, which can materially affect the potential market and profitability of the product. The FDA may prevent or limit further marketing of a product based on the results of post-marketing studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes, and additional labeling claims, are subject to further testing requirements and FDA review and approval.
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Manufacturing of any product candidate is subject to extensive regulations that impose various procedural and documentation requirements, which govern recordkeeping, manufacturing processes and controls, personnel, quality control and quality assurance, among others. We currently have no plans to establish a manufacturing capability, but rather plan to continue to rely on third-party cGMP-compliant manufacturers for future clinical trials and commercialization of any approved product. We expect that all of our contract manufacturing organizations will manufacture our product candidates under cGMP conditions. cGMPs are a regulatory standard for the production of pharmaceuticals to be used in humans.
Our leadership team has a track record of successful new product commercialization including the development, approval and commercial launch of dermatology products. If approved, we intend to commercialize TMB-001 and TMB-002 or any other product candidate that we successfully develop by building a highly specialized sales force and managed care and access organization. We plan to focus on dermatologists and to pursue collaboration opportunities with third parties in select sales channels and geographies and maximize the global potential of our portfolio.
As of December 31, 2019, Timber had 3 employees, all located in our principal location.
Our principal locations is at 50 Tice Blvd, Suite A26, Woodcliff Lake, NJ 07677. We intend to add new facilities or expand our existing facilities as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such expansion of our operations.
We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have an adverse effect on our business, operating results or financial condition.
In connection with the Timber Funding, on March 27, 2020, Timber and BioPharmX entered into the Securities Purchase Agreement with the Investors pursuant to which, among other things, Timber agreed to issue to the Investors shares of Timber units immediately prior to the Merger and BioPharmX agreed to issue the Investor Warrants to the Investors on the tenth trading day following the consummation of the Merger in the Timber Funding.
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BIOPHARMX MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with BioPharmX's financial statements and related notes included elsewhere in this proxy statement/prospectus/information statement. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. BioPharmX's actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set out under "Risk Factors" and elsewhere in this proxy statement/prospectus/information statement. See "Special Note Regarding Forward-Looking Statements" elsewhere in this proxy statement/prospectus/information statement.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to help the reader understand our results of operations and financial condition. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated audited financial statements and the accompanying notes to the consolidated financial statements and other disclosures included in this Registration Statement on Form S-4. Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and are presented in U.S. dollars. Unless context indicates or suggests otherwise, "we", "our", "us", and the "Company" in this section refers to the consolidated operations of BioPharmX Corporation.
We are a specialty pharmaceutical company focused on the dermatology market. Our focus is to develop products that treat dermatologic conditions that are not being adequately addressed or those where current therapies and approaches are suboptimal. Our strategy is to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for FDA-approved or well characterized active pharmaceutical ingredients, or APIs. We aim to reduce the time, cost and risks typically associated with new product development by utilizing APIs with demonstrated safety profiles and, when applicable, taking advantage of the regulatory approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act. Section 505(b)(2) permits an applicant for a new product, such as a new or improved formulation or a new use of an approved product, to rely in part on literature and/or the FDA's findings of safety and/or effectiveness for a similar previously-approved product. Our approach is to identify the limitations of current treatment options and work to develop novel products using our proprietary HyantXTM topical drug delivery system.
Year ended January 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2020
|
2019 | Change | % | |||||||||
|
|
($ in thousands) |
|
||||||||||
|
$ | | $ | 57 | $ | (57 | ) | (100 | )% |
Revenue was related to VI2OLET, our iodine dietary supplement. We recognized revenue when control was transferred to the customer, which was typically upon shipment, net of reserves for product returns, pricing discounts or other concessions. In November 2018, we divested the rights to develop, manufacture, market and sell the VI2OLET product, therefore we did not recognize revenues in fiscal year 2020 and do not expect to recognize revenues in the future from this product.
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Year ended January 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2020
|
2019 | Change | % | |||||||||
|
|
($ in thousands) |
|
||||||||||
|
$ | | $ | 83 | $ | (83 | ) | (100 | )% |
Cost of goods sold included direct costs related to the sale of VI2OLET, our iodine dietary supplement, and write-downs of excess and obsolete inventories. Following the divestiture of VI2OLET, we did not incur any costs of goods sold and do not expect to incur cost of good sold in the future related to this product.
Research and Development Expenses
Year ended January 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2020
|
2019 | Change | % | |||||||||
|
|
($ in thousands) |
|
||||||||||
|
$ | 4,690 | $ | 9,079 | $ | (4,389 | ) | (48 | )% |
Research and development expenses primarily include headcount-related costs, stock-based compensation and both internal and external research and development expenses. Research and development expenses are expensed as incurred.
Research and development expenses decreased $4.4 million for the year ended January 31, 2020 compared to the prior year primarily due to decreased headcount-related, clinical trial, product development and stock-based compensation expenses.
Year ended January 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2020
|
2019 | Change | % | |||||||||
|
|
($ in thousands) |
|
||||||||||
|
$ | 714 | $ | 2,157 | $ | (1,443 | ) | (67 | )% |
Sales and marketing expenses primarily include headcount-related costs, stock-based compensation and the market development related to our products candidates. Sales and marketing expenses are expensed as incurred.
Sales and marketing expenses decreased $1.4 million for the year ended January 31, 2020 compared to the prior year primarily due to decreased headcount-related and stock-based compensation expenses.
General and Administrative Expenses
Year ended January 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2020
|
2019 | Change | % | |||||||||
|
|
($ in thousands) |
|
||||||||||
|
$ | 4,282 | $ | 5,244 | $ | (962 | ) | (18 | )% |
General and administrative expenses primarily include headcount-related costs, stock-based compensation and costs of our executive, finance and other administrative functions.
General and administrative expenses decreased $1.0 million for the year ended January 31, 2020 compared to the prior year primarily due decreased headcount-related, consulting and stock-based compensation expenses.
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Change in Fair Value of Warrant Liability
Year ended January 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2020
|
2019 | Change | % | |||||||||
|
|
($ in thousands) |
|
||||||||||
|
$ | 291 | $ | 28 | $ | 263 | nm |
The change in fair value of warrant and stock liabilities for the year ended January 31, 2020 primarily resulted from an exchange agreement with holders of certain warrants, such that warrants to purchase approximately 2.3 million shares of common stock were to be exchanged for 850,000 shares of common stock. The change in fair value of warrant and stock liabilities for the year ended January 31, 2019 primarily reflects the fair value re-measurement of certain warrants granted in fiscal year 2017 that are accounted for as derivative liabilities.
Year ended January 31, | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2020
|
2019 | Change | % | |||||||||
|
|
($ in thousands) |
|
||||||||||
|
$ | (290 | ) | $ | (778 | ) | $ | (488 | ) | nm |
Other income and expenses, net, decreased $0.5 million for the year ended January 31, 2020 compared to the prior year primarily due to expenses recorded for the incremental fair value related to the modification of warrants. Expenses related to the modification of warrants were approximately $308,000 and $874,000 for the years ended January 31, 2020 and 2019, respectively.
Liquidity and Capital Resources
A summary of the sources and uses of cash and cash equivalents is as follows (in thousands):
|
Year ended January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Net cash used in operating activities |
$ | (10,107 | ) | $ | (14,992 | ) | |
Net cash used in investing activities |
(30 | ) | (43 | ) | |||
Net cash provided by financing activities |
7,795 | 10,528 | |||||
| | | | | | | |
Net decrease in cash and cash equivalents |
$ | (2,342 | ) | $ | (4,507 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The following table summarizes total current assets, liabilities and working capital deficit (in thousands):
|
As of January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Current assets |
$ | 986 | $ | 3,385 | |||
Current liabilities |
1,684 | 2,297 | |||||
| | | | | | | |
Working capital |
$ | (698 | ) | $ | 1,088 | ||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Historically, we have financed our operations primarily through the sale of debt and equity securities. The accompanying consolidated financial statements for the year ended January 31, 2020 have been prepared assuming that we will continue as a going concern, meaning we will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As of January 31, 2020, we had cash and cash equivalents of $0.7 million and working capital deficit of $0.7 million. We raised $7.8 million and $10.5 million from financing activities in the
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years ended January 31, 2020 and 2019, respectively. We will require significant additional financing in the future. If the Merger is not consummated, we will likely be required to wind-down and dissolve as a company and would be required to pay all our debts and contractual obligations and set aside certain reserves for potential future claims. While we will also attempt to consummate a financing to allow us to continue as a going concern, based on our recent strategic process, we do not believe that we will be able to consummate a financing on reasonable terms sufficient to obtain such additional financial resources. These factors raise substantial doubt about our ability to continue as a going concern.
Our primary capital requirements are to fund working capital, including the transaction costs related to the Merger.
Net cash used for operating activities for the year ended January 31, 2020 was $10.1 million, which primarily resulted from a net loss of $9.7 million and changes in operating assets and liabilities of $1.3 million, partially offset by non-cash expenses of $0.9 million. Changes in operating assets and liabilities was primarily attributable to timing of payments to vendors and lower operating expenses.
Net cash used for operating activities for the year ended January 31, 2019 was $15.0 million, which primarily resulted from a net loss of $17.3 million and changes in operating assets and liabilities of $0.7 million, partially offset by non-cash expenses of $3.0 million. Changes in operating assets and liabilities was primarily attributable to timing of payments to vendors.
Net cash used for investing activities for the years ended January 31, 2020 and 2019 was approximately $30,000 and $43,000, respectively, resulting from the purchase of property and equipment.
Net cash provided by financing activities for the year ended January 31, 2020 was $7.8 million, which was primarily due to the $7.2 million of net proceeds from the issuance of common stock and $0.6 million from the Bridge Loan.
Net cash provided by financing activities for the year ended January 31, 2019 was $10.5 million, which was primarily from the exercise of warrants to purchase common stock.
The accompanying consolidated financial statements have been prepared assuming we will continue as a going concern, meaning we will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. As of January 31, 2020, we had cash and cash equivalents of $0.7 million and working capital deficit of $0.7 million.
We have incurred recurring losses and negative cash flows from operations since inception and have funded our operating losses through the sale of common stock in public and private offerings and the issuance of notes, Series A convertible preferred stock and warrants. We incurred a net loss of $9.7 million and $17.3 million for the years ended January 31, 2020 and 2019, respectively, and had an accumulated deficit of $88.2 million as of January 31, 2020.
We have a limited operating history and our prospects are subject to risks, expenses and uncertainties frequently encountered by companies in our industry. If the Merger is not consummated, we will likely be required to wind-down and dissolve as a company and would be required to pay all our debts and contractual obligations and set aside certain reserves for potential future claims. While we will also attempt to consummate a financing to allow us to continue as a going concern, based on our recent strategic process, we do not believe that we will be able to consummate a financing on reasonable terms sufficient to obtain such additional financial resources. These factors raise substantial doubt about our ability to continue as a going concern.
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Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, Leases, and in July 2018, ASU No. 2018-11, Targeted Improvements, which requires entities to recognize assets and liabilities for leases with lease terms greater than twelve months. We adopted this standard as of February 1, 2019, and our leases are classified as operating leases and will continue to be classified as operating leases under the new accounting method. Adoption of the new standard resulted in the recording of an operating lease right-to-use asset of $1.2 million, which represents the present value of the remaining lease payments as of the date of adoption discounted using an incremental borrowing rate of 15%, and an operating lease liability of $1.3 million. The adoption did not have an impact on our consolidated statements of operations and comprehensive loss or cash flows.
In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Effective February 1, 2019, we adopted ASU No. 2018-07, and the adoption did have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement, which amended certain disclosure requirements over Level 1, Level 2 and Level 3 fair value measurements. The amendment is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. We are currently evaluating the impact of adopting this amendment, but does not anticipate it will have a material impact on our disclosures.
We have reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the consolidated financial statements as a result of future adoption.
Our consolidated financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States, or GAAP. GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our consolidated financial statements.
Our significant accounting policies are summarized in Note 1 of our audited consolidated financial statements included elsewhere in this report. While all of these significant accounting policies impact our financial condition and results of operations, we view the warrant liability, common stock liability and stock-based compensation policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.
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We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
We account for certain of our warrants as derivative liabilities based on provisions relating to cash settlement options. We recorded a liability for the fair value of the warrants at the time of issuance, and at each reporting date the warrant is revalued to the instrument's fair value. The fair value of the warrant is estimated using the Black-Scholes pricing model. This liability is subject to fair value re-measurement until the warrants are exercised or expired, and any change in fair value is recognized as other income or expense in our consolidated statements of operations and comprehensive loss.
In January 2020, we entered into an exchange agreement with certain warrant holders, in which approximately 2.3 million shares of common stock underlying the warrants would be exchanged for 850,000 shares of common stock. As of January 31, 2020, the stock liability included the value of common stock to be issued in the exchange. The value of these shares was approximately $383,000 as of January 31, 2020 and is included in accrued expenses and other on the consolidated balance sheet.
We recognize stock-based compensation for equity awards on a straight-line basis over their vesting periods, based on the grant date fair value. We estimate the fair value of stock options granted using the Black-Scholes pricing model. This model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. Equity instruments issued to non-employees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings, or other relationships with unconsolidated entities or other persons, also known as "special purpose entities."
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TIMBER MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of Timber's financial condition and results of operations together with its consolidated financial statements and the related notes and other financial information included elsewhere in this proxy statement/prospectus/information statement. Some of the information contained in this discussion and analysis or set forth elsewhere in this proxy statement/prospectus/information statement, including information with respect to Timber's plans and strategy for its business, includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section of this proxy statement/prospectus/proxy statement for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Timber is a clinical-stage biopharmaceutical company focused on the development and commercialization of treatments for orphan dermatologic diseases. Timber's lead programs are TMB- 001, TMB- 002 and TMB- 003.
TMB-001, a proprietary topical formulation of isotretinoin is currently being evaluated in a Phase 2b clinical trial for the treatment of moderate to severe subtypes of congenital ichthyosis ("CI"), a group of rare genetic keratinization disorders that lead to dry, thickened, and scaling skin. A prior Phase 1/2 study involving 19 patients with CI demonstrated safety and preliminary efficacy of TMB-001, as well as minimal systemic absorption. In 2018, the FDA awarded $1.5 million to support clinical trials evaluating TMB-001 through its Orphan Products Grant program. In March 2020, the FDA awarded us the second tranche of the grant in the amount of $500,000.
TMB-002, a proprietary topical formulation of rapamycin is currently being evaluated in a Phase 2b clinical trial for the treatment of facial angiofibromas ("FAs") in tuberous sclerosis complex ("TSC"), a multisystem genetic disorder resulting in the growth of hamartomas in multiple organs. TSC results from dysregulation in the mTOR pathway, and as a topical mTOR inhibitor, TMB-002 may address FAs in TSC without the systemic absorption of an oral agent.
TMB-003, a proprietary formulation of sitaxsentan, a new chemical entity in the U.S., which is a selective endothelin-A receptor antagonist, is currently in preclinical development as a locally applied formulation for the treatment of localized scleroderma, a rare autoimmune connective tissue disorder ("CTD") that leads to inflammation and thickening of the skin.
On January 28, 2020 Timber entered into the Merger Agreement with BioPharmX and Merger Sub. Pursuant to the Merger Agreement, Merger Sub will be merged with and into Timber, with Timber continuing as a wholly-owned subsidiary of BioPharmX and the surviving entity of the Merger. As a condition to the closing of the Merger, Timber has agreed to secure not less than $20 million of financing for the combined company.
In connection with the Merger Agreement, on January 28, 2020, Timber entered into a Credit Agreement with BioPharmX pursuant to which Timber agreed to make a bridge loan to BioPharmX (the "Bridge Loan") in an aggregate amount of $2.25 million (the "Credit Agreement"). The Bridge Loan will bear interest at a rate of 12% per annum and is repayable upon the earlier of maturity thereof, the termination (without completion) of the Merger or upon a liquidity event, as defined in the Credit Agreement. BioPharmX has also issued to Timber a promissory note setting forth the terms of repayment. The Bridge Loan is secured by a lien on all of BioPharmX's assets. Further, in connection with the Bridge Loan, on January 28, 2020 BioPharmX issued to Timber a warrant to purchase approximately 2.3 million shares of Common Stock at a nominal exercise price (the "Timber Bridge
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Warrant"). The Timber Bridge Warrant was exercised on a cashless basis on February 10, 2020 for a total amount of 2,200,328 shares of BioPharmX.
In connection with the Merger Agreement and the Credit Agreement, Timber entered into a securities purchase agreement, dated as of January 28, 2020 (the "SPA") with certain institutional investors (the "Buyers"), pursuant to which the Buyers have agreed to purchase, and Timber has agreed to issue, senior secured promissory notes (the "Timber Bridge Notes") from Timber in the aggregate principal amount of $5 million, in exchange for an aggregate purchase price of $3.75 million, representing aggregate OID of $1.25 million. The Timber Bridge Notes bear interest at a rate of 15% per annum (25% upon the occurrence of an event of default thereunder) and are repayable upon the earlier of (i) the closing of a fundamental transaction of Timber, (ii) the date on which Timber's equity is registered under the Securities Exchange Act of 1934, as amended or is exchanged for equity so registered (the "Public Company Date") or (iii) July 28, 2020. The Timber Bridge Notes are secured by a lien on all of Timber's assets.
Timber has a limited operating history as it was formed on February 26, 2019. Since inception, Timber's operations have focused on establishing its intellectual property portfolio, including acquiring rights to the proprietary formulations of isotretinoin, rapamycin and sitaxsentan, as described above, organizing and staffing the company, business planning, raising capital, and conducting clinical trials. Prior to issuing the Timber Bridge Notes described above, Timber funded its operations primarily through member contributions. From inception through December 31, 2019, members contributed an aggregate of $1.4 million.
Since inception, Timber has incurred significant operating losses. For the period from February 26, 2019 (inception) to December 31, 2019, Timber's net loss was $3.0 million. As of December 31, 2019, Timber had an accumulated deficit of $3.1 million. Timber expects to continue to incur significant expenses and operating losses for the foreseeable future. Timber anticipates that its expenses will increase significantly in connection with its ongoing activities, as it continues to develop the pipeline of programs.
Asset Purchase Agreements with Patagonia Pharmaceuticals LLC ("Patagonia")
On February 28, 2019, Timber acquired the intellectual property rights for a topical formulation of isotretinoin for the treatment of CI and identified as TMB-001, formerly PAT-001 including the IPEGTM brand, from Patagonia (the "TMB-001 Acquisition").
Under the terms of the TMB-001 Acquisition, Timber paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of the TMB-001 Acquisition, with the first being $4.0 million from the initiation of a Phase 3 pivotal trial, as agreed with the FDA. In addition, Patagonia is entitled to net sales royalties ranging from low single digits to mid-double digits for the program licensed. Timber is responsible for all development activities under the license. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
On June 26, 2019 Timber acquired the intellectual property rights for a locally administered formulation of sitaxsentan for the treatment of cutaneous fibrosis and/or pigmentation disorders, and identified as TMB-003, formerly PAT-S03, from Patagonia (the "TMB-003 Acquisition").
Upon closing of the TMB-003 Acquisition, Timber paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of the TMB-003 License, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales royalties ranging from low to mid-single digits for the program licensed. Timber is responsible
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for all development activities under the license. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
Acquisition of License from AFT Pharmaceuticals Limited ("AFT")
On July 5, 2019, Timber entered into a license agreement with AFT Pharmaceuticals Limited ("AFT") which provides it with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize the Pascomer® product in the United States, Canada and Mexico and (2) a co-exclusive license to develop the Pascomer® product in this territory. Concurrently, Timber granted to AFT an exclusive license to commercialize the Pascomer® product outside of its territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of its territory (the "AFT License Agreement").
The AFT License Agreement also provides for the formation of a joint steering committee to oversee, coordinate and review recommendations and approve decisions in respect of the matters the development and commercialized of the Pascomer® product. The committee will be comprised of four members, and both the Company and AFT shall each have the right to appoint two members. Timber shall have final decision making authority on all matters relating to the commercialization of the Pascomer® product in its territory and on all matters related to the development (and regulatory approval) of the Pascomer® product, with certain exceptions.
The development of the Pascomer® product shall be conducted pursuant to a written development plan, written by AFT and approved by the joint steering committee. AFT shall perform clinical trials of the Pascomer® product in Timber's territory and shall perform all CMC (chemistry, manufacturing and controls) and related activities to support regulatory approval. Timber is responsible for all expenses incurred by AFT during the term of the AFT License Agreement and shall equally share all costs and expenses with AFT, incurred by AFT for development and marketing work performed in furtherance of regulatory approval and commercialization worldwide, outside of Timber's territory.
Upon closing of the AFT License Agreement, Timber was obligated to reimburse AFT for previously spent development costs, subject to certain limitations and was obligated to pay a one-time, irrevocable and non-creditable upfront payment to AFT, payable in scheduled installments. AFT is entitled to up to $25.5 million of cash milestone payments relating to certain regulatory and commercial achievements of the AFT License. In addition, AFT is entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
Components of results of operations
The following table sets forth Timber's selected statement of operations data for the period from February 26, 2019 (inception) through December 31, 2019:
|
For the Period from February 26, 2019 (Inception) through December 31, 2019 |
|||
---|---|---|---|---|
Grant revenues |
$ | 270,538 | ||
Operating costs and expenses |
||||
Research and development |
1,748,887 | |||
Research and developmentlicense acquired |
1,070,000 | |||
Selling, general and administrative |
488,799 | |||
Other expense |
||||
Loss on foreign currency exchange |
130 | |||
Net loss |
$ |
3,037,278 |
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During the period from February 26, 2019 (inception) through December 31, 2019, Timber recognized grant revenue of $0.3 million, which was received from the FDA's Orphan Products Grant program to support its Phase 2a and Phase 2b clinical trials evaluating TMB-001. In 2018, the TMB-001 program, formerly known as PAT-001, was the recipient of the Clinical Trials Grant from the FDA and awarded $1.5 million (of which Timber received $0.3 million as of December 31, 2019).
Research and development expense
Research and development expenses were $1.7 million for the period from February 26, 2019 (inception) though December 31, 2019, and were primarily attributable to costs incurred in connection with Timber's research activities and include costs associated with clinical trials, consultants, clinical trial materials, regulatory filings, facilities, laboratory expenses and other supplies.
Research and development costs are expensed as incurred. Costs for certain activities, such as preclinical studies and clinical trials, are generally recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to it by Timber's vendors and collaborators.
Certain research and development expenses have been allocated by TardiMed. These expenses are primarily comprised of TardiMed personnel and related expenses. Timber considers the allocation methodologies used to allocate expenses as reasonable and appropriate based on historical TardiMed expenses attributable to Timber and its operations. From February 26, 2019 to December 31, 2019, $0.1 million was allocated to research and development expenses.
Research and development expense- license acquired
Research and development expense- license acquired was $1.1 million for the period from February 26, 2019 (inception) through December 31, 2019, and was attributable to the upfront payments made to AFT and Patagonia in connection with Timber's license agreements.
General and administrative expense
General and administrative expenses were $0.5 million for the period from February 26, 2019 (inception) through December 31, 2019 and were primarily attributable to professional fees for accounting and legal services, employee and general business-related expenses.
Certain General and administrative expenses have been allocated by TardiMed. These expenses are primarily comprised of TardiMed personnel and related expenses, rent and other office expenses. Timber considers the allocation methodologies used to allocate expenses as reasonable and appropriate based on historical TardiMed expenses attributable to Timber and its operations. From February 26, 2019 to December 31, 2019, $0.1 million was allocated to general and administrative expenses.
Other expense was nominal from February 26, 2019 (inception) through December 31, 2019.
Liquidity and capital resources
Since inception, Timber has not generated revenue from product sales and has incurred net losses and negative cash flows from its operations. From inception through December 31, 2019, Timber has funded its operations through member contributions. Timber raised an aggregate of $1.4 million from member contributions from inception through December 31, 2019.
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As of December 31, 2019, Timber had approximately $57,000 in cash.
The following table shows a summary of Timber's cash flows for the period from February 26, 2019 (inception) through December 31, 2019:
|
For the Period from February 26, 2019 (Inception) through December 31, 2019 |
|||
---|---|---|---|---|
Net cash used in operating activities |
$ | (1,022,927 | ) | |
Net cash used in investing activities |
(320,000 | ) | ||
Net cash provided by financing activities |
1,400,000 | |||
| | | | |
Net increase in cash |
$ | 57,073 | ||
| | | | |
| | | | |
| | | | |
Operating activities used $1.0 million of cash during the period from February 26, 2019 (inception) through December 31, 2019, resulting from a net loss of approximately $3.0 million, partially reduced by research and development- licenses acquired and expensed of $1.1 million and partially reduced by changes in operating assets and liabilities of approximately $0.7 million.
Investing activities used $0.3 million of cash during the period from February 26, 2019 (inception) through December 31, 2019, primarily for the cash payments made pursuant to the AFT and Patagonia license agreements.
Financing activities provided $1.4 million of cash during the period from February 26, 2019 (inception) through December 31, 2019 from member contributions.
Timber expects its expenses to increase in connection with its ongoing activities, particularly as Timber continues the research and development of its pipeline of programs. Furthermore, following the completion of the Merger, Timber expects to incur additional costs as a public company. Accordingly, Timber will need to obtain additional funding. If Timber are unable to raise capital or otherwisec obtain funding when needed or on attractive terms, Timber could be forced to delay, reduce or eliminate its research and development programs or future commercialization efforts.
In connection with the Merger Agreement and the Credit Agreement, Timber entered the SPA with certain Buyers, pursuant to which the Buyers have agreed to purchase, and Timber has agreed to issue, senior secured promissory notes (the "Timber Bridge Notes") from Timber in the aggregate principal amount of $5 million, in exchange for an aggregate purchase price of $3.75 million, representing aggregate OID of $1.25 million. The Timber Bridge Notes bear interest at a rate of 15% per annum (25% upon the occurrence of an event of default thereunder) and are repayable upon the earlier of (i) the closing of a fundamental transaction of Timber, (ii) the date on which Timber's equity is registered under the Securities Exchange Act of 1934, as amended or is exchanged for equity so registered (the "Public Company Date") or (iii) July 28, 2020. The Timber Bridge Notes are secured by a lien on all of Timber's assets.
Timber has entered into the Securities Purchase Agreement with the Investors pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to
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the Merger and BioPharmX agreed to issue to the Investors warrants to purchase shares of BioPharmX common stock on the tenth trading day following the consummation of the Merger (the "Investor Warrants") in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to certain senior secured notes (the "Notes") issued in connection with a bridge loan from the investors to Timber in an aggregate amount of $3.75 million (the "Timber Bridge Loan") and (y) $20 million in cash from the Investors) (the "Purchase Price"). The value of the shares to be received by the investors are be subject to certain protections post-closing pursuant to a short term escrow arrangement and a medium term Series B warrant to be issued by BioPharmX shortly after closing, which would be dilutive to the post-Closing securityholders. BioPharmX is also required to issue to the Investors a five-year Series A warrant with 75% warrant coverage. If the Timber Funding is consummated, Timber believes this will allow it to continue operations through the fourth quarter of 2021.
Timber's consolidated financial statements appearing elsewhere in this prospectus have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty. Timber anticipates incurring additional losses for the foreseeable future and may never become profitable. Timber will need substantial additional financing to fund its operations and to develop and commercialize its drug candidate. These factors raise substantial doubt about Timber's ability to continue as a going concern.
Timber will seek to obtain additional capital through the sale of debt or equity financings or other arrangements such as, collaborations, strategic alliances and licensing arrangements to fund operations; however, there can be no assurance that Timber will be able to raise needed capital under acceptable terms, if at all. The sale of additional equity may dilute existing members capital and newly issued members units may contain senior rights and preferences compared to currently outstanding shares of common and preferred members units. Debt securities issued or other debt financing incurred may contain covenants and limit Timber's ability to pay dividends or make other distributions to stockholders. If Timber is unable to obtain such additional financing, future operations would need to be scaled back or discontinued.
Contractual obligations and commitments
The commitment amounts in the table below are associated with contracts that are enforceable and legally binding and that specify all significant terms, including fixed or minimum services to be used, fixed, minimum or variable price provisions, and the approximate timing of the actions under the contracts. The table does not include obligations under agreements that Timber can cancel without a significant penalty.
The following table summarizes Timber's commitments to settle contractual obligations at December 31, 2019:
Contractual obligations
|
Total | Less than 1 year |
1 to 3 years | 4 to 5 years | After 5 years | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Purchase obligations(1)(2) |
$ | 2,627,505 | $ | 2,627,505 | $ | | $ | | $ | | ||||||
| | | | | | | | | | | | | | | | |
Total contractual obligations |
$ | 2,627,505 | $ | 2,627,505 | $ | | $ | | $ | | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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Off-balance sheet arrangements
Timber does not have any relationships with unconsolidated entities or financial partnerships, including entities sometimes referred to as structured finance or special purpose entities that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Timber does not engage in off-balance sheet financing arrangements. In addition, Timber does not engage in trading activities involving non-exchange traded contracts. Timber therefore believe that Timber is not materially exposed to any financing, liquidity, market or credit risk that could arise if it had engaged in these relationships.
Critical accounting policies and significant judgments and estimates
Timber's management's discussion and analysis of its financial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires Timber to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the balance sheet and the reported amounts of expenses during the reporting period. In accordance with U.S. GAAP, Timber evaluates its estimates and judgments on an ongoing basis. The most significant estimates relate to the valuation of equity-based awards and valuation of member units. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, Timber's future results of operations will be affected.
Timber defines its critical accounting policies as those accounting principles that require it to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on its financial condition and results of operations, as well as the specific manner in which it applies those principles. While Timber's significant accounting policies are more fully described in Note 2 to its consolidated financial statements appearing elsewhere in this proxy statement/prospectus/information statement, Timber believes the following are the critical accounting policies used in the preparation of its consolidated financial statements that require significant estimates and judgments:
Fair value of Value Appreciation Rights ("VARs")
In order to determine the fair value of Timber's VARs the Timber Board considered, among other things, contemporaneous valuations of the common and preferred member units. Given the absence of a public trading market of the VARs, the Timber Board has exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of VARs, including:
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In estimating the fair market value of Timber's VARs, the Timber Board first determined the equity value of its business using accepted valuation methods.
Recent accounting pronouncements
See Note 2 to Timber's consolidated financial statements beginning on page F-30 of this proxy statement/prospectus/information statement for a description of recent accounting pronouncements applicable to its consolidated financial statements.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
BioPharmX is a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and is not required to provide the information required by this item.
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MANAGEMENT PRIOR TO AND FOLLOWING THE MERGER
Named Executive Officers and Directors of BioPharmX Prior to the Merger
Steven M. Bosacki, age 62, has served as BioPharmX's Chief Executive Officer and Principal Financial Officer since January 2020. Prior to that, Mr. Bosacki had served as BioPharmX's Chief Operating Officer since July 2019. Mr. Bosacki has also served as a Member with On Target Consulting LLC, a pharmaceutical consulting company, with David S. Tierney, M.D., BioPharmX's Chief Executive Officer, since October 2018. Prior to joining BioPharmX, Mr. Bosacki served as a Member with Fairway Pharmaceuticals, LLC, a pharmaceutical and medical device consulting company, from July 2017 to October 2018. From May 2016 to June 2017, Mr. Bosacki served as an Executive Director at Mission Pharmacal Company, a pharmaceutical company. From August 2013 to May 2016, Mr. Bosacki was President and Chief Executive Officer of Lautus Pharmaceuticals, LLC, a pharmaceutical company focused on dermatology and aesthetics markets. From April 2008, Mr. Bosacki served as Senior Vice President and General Counsel of Oceana Therapeutics, Inc., a specialty pharmaceutical company through its sale to Salix Pharmaceuticals, Ltd. in December 2011. Prior to Oceana Therapeutics, Mr. Bosacki served as Senior Vice President and General Counsel for Esprit Pharma, Inc., a pharmaceutical company, which was acquired by Allergan, Inc., a pharmaceutical company, in 2007. Earlier in his career, Mr. Bosacki served in a variety of management positions at Cardinal Health, Inc., a healthcare services company. Mr. Bosacki holds a law degree from the University of Detroit School of Law, and a law degree, a Master of Business Administration and a Bachelor of Commerce degree from the University of Windsor in Canada.
Michael Hubbard, age 68, has served as the Chairman of the Board since May 2016 and has served as a director since January 2015. Mr. Hubbard served as a senior audit partner at Deloitte & Touche LLP from August 2007 until retiring in June 2014 and also at PricewaterhouseCoopers LLP from September 1986 to July 2007. In these roles, he served private and publicly-held clients across the life sciences, waste management, construction, and technology sectors, advising domestic and international issuer companies on complex transactions, including nineteen initial public offerings and numerous follow-on equity and debt offerings. Mr. Hubbard holds a BA degree in Business Administration with a concentration in Accounting and an MBA degree from Washington State University. He is a licensed certified public accountant in the states of Washington (retired) and California (retired) and is a certified practitioner of international financial reporting standards.
David S. Tierney, MD, age 57, has served as a director since September 2018. Prior to his resignation on January 30, 2020, Dr. Tierney served as our President and Chief Executive Officer. Dr. Tierney was the President, Chief Executive Officer and director of Icon Biosciences, Inc., a privately held ophthalmic drug delivery company, from January 2014 to March 2018. From January 2013 to March 2014, he was a venture partner at Signet Healthcare Partners, a New York City based life science private equity fund. He served as President and Chief Operating Officer of Oceana Therapeutics, Inc., a specialty therapeutic company he co-founded in 2008 and was later acquired by Salix Pharmaceuticals, Ltd. in December 2011. Dr. Tierney served as the President, Chief Executive Officer and director of Valera Pharmaceuticals, Inc., a specialty pharmaceutical company, between August 2000 and April 2007, when Valera completed a merger with Indevus Pharmaceuticals, Inc. Dr. Tierney serves on the board of directors of Catalyst Pharmaceuticals, Inc., Kempharm, Inc., and Bimeda. Dr. Tierney received his medical degree from the Royal College of Surgeons in Dublin, Ireland and was subsequently trained in internal medicine.
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Stephen Morlock, age 66, has served as a director since March 2015. Mr. Morlock served as Executive Vice President and Chief Financial Officer at Otis Spunkmeyer, Inc. from May 1994 until his retirement in June 2004. He also served as Controller at Otis Spunkmeyer, Inc. from August 1992 to April 1994. Prior to that, he held various management positions in accounting, financial planning and internal audit at Westinghouse Electric Supply Company from November 1977 to July 1992. Since his retirement in June 2004, Mr. Morlock has not been active in any business activities. Mr. Morlock holds a BS degree in Accounting from San Diego State University.
R. Todd Plott, MD, age 58, has served as a director since February 2019. Dr. Plott currently serves as Chief Medical Officer for Epiphany Dermatology, P.A., a private practice dermatology group based in Austin, Texas, where he has held various positions since November 2017. Prior to Epiphany Dermatology's acquisition of his practice, Dr. Plott served as the owner of Dermatology Alliance-Keller, P.A., a private practice, from April 2011 to November 2017. Prior to building his own private practice, Dr. Plott served as Chief Medical Officer at Revance Therapeutics, Inc., a biotechnology company, from December 2007 to January 2009, and as Vice President of Clinical and Regulatory Affairs at Medicis Pharmaceutical Company, a medical-cosmetic dermatology pharmaceutical company, from September 2001 to December 2007. Dr. Plott has been appointed to the FDA Dermatologic and Ophthalmic Drug Advisory Committee. Dr. Plott holds a BS degree from South Nazarene University and a MD degree from the University of Texas Medical Branch, Galveston, Texas.
Resignation of Current Executive Officers of BioPharmX
Pursuant to the Merger Agreement, all of the current executive officers of BioPharmX will resign immediately prior to the completion of the Merger.
Executive Officers and Directors of the Combined Organization Following the Merger
Pursuant to the Merger Agreement, prior to the Effective Time, it is expected that the Timber Board will set the size of the board of directors at 7 and appoint the current board of managers of Timber, John Koconis, Michael Derby and Zachary Rome, to the BioPharmX Board. It is the current intent of the parties that Gianluca Pirozzi, Michael Stocum and Linda Broenniman will be named to the BioPharmX Board as independent directors, Edward Sitar. Collectively the reconstituted board is expected to satisfy the requisite independence requirements for the combined company's board of directors, as well as the sophistication and independence requirements for the required committees pursuant to NYSE listing requirements.
The following table lists the names and positions of the individuals currently identified to serve as executive officers and directors of the combined company upon the completion of the Merger:
Name
|
Age | Combined Company Position(s) | Current Position(s) | ||||
---|---|---|---|---|---|---|---|
John Koconis | 50 | Chief Executive Officer and Director | Chief Executive Officer of Timber | ||||
Zachary Rome | 36 | President, Director and Secretary | President and Secretary of Timber | ||||
Michael Derby | 46 | Executive Chairman of the Board of Directors | Executive Chairman of Timber Board | ||||
Joseph Lucchese | 53 | Chief Financial Officer | Chief Financial Officer of Timber | ||||
Amir Tavakkol, Ph.D. | 65 | Chief Scientific Officer | Chief Scientific Officer of Timber | ||||
Michael Stocum | 54 | Director | |||||
Edward Sitar | 59 | Director | |||||
Linda Broenniman | 63 | Director | |||||
Gianluca Pirozzi | 43 | Director |
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John Koconis, 50, has served as Timber's Chief Executive Officer since June 2019 and has served on Timber's board of managers since July 2019. From July 2016 to January 2019 Mr. Koconis served as Executive Vice President and Chief Commercial Officer at Castle Creek Pharmaceuticals LLC, a biopharmaceutical company. Prior to that, Mr. Koconis served as Global Lead for Dermatology & Respiratory at Sanofi Genzyme, a biotechnology company, from January 2016 to July 2016. Mr. Koconis served as President and Chief Executive Officer of LEO Pharma Inc., a specialty pharmaceutical company, from 2009 to 2014. Mr. Koconis received a Bachelor of Science in Biology from Loyola University Chicago and an MBA from the Quinlan School of Business at Loyola University Chicago. Mr. Koconis' healthcare industry and executive business experience qualifies him to serve on the BioPharmX Board.
Zachary Rome, 36, has served as Timber's President and has served on Timber's board of managers since February 2019. Since January 2020, Mr. Rome has served as Timber's Secretary and has been a Partner at TardiMed Sciences LLC, a life sciences company creation firm and an affiliate of Timber, where he has co-founded and/or played an operating role in several life science startup companies. Mr. Rome served as a Principal at TardiMed from March 2019 to December 2019. Since August 2017, Mr. Rome has served as President of Patagonia Pharmaceuticals LLC, a specialty pharmaceutical company and an affiliate of Timber. Prior to that, Mr. Rome served as Patagonia Pharmaceuticals LLC's Executive Vice President from August 2015 to August 2017 and its Vice President, Business Development from December 2013 to April 2015. Mr. Rome received a Bachelor of Science in Marine Science and Biology from the University of Miami and a Master of Science for Teachers in Adolescent Science Biology from Pace University. Mr. Rome's scientific knowledge, industry and executive business experience qualifies him to serve on the BioPharmX Board.
Michael Derby, 46, has served as the Executive Chairman of Timber's board of managers since February 2019. Since January 2019, Mr. Derby has served as Managing Partner of TardiMed Sciences LLC, an affiliate of Timber. From August 2015 to January 2019, Mr. Derby served as Co-Founder and Chief Executive Officer of Castle Creek Pharmaceuticals LLC. Prior to that, Mr. Derby served in executive roles at Marathon Pharmaceuticals LLC, a biopharmaceutical company, and was previously the Founder and Chief Executive Officer of Norphan Pharmaceuticals LLC, a specialty pharmaceutical company. Earlier in his career, Mr. Derby worked as a venture capitalist and served in commercial roles at Merck & Co., Inc. (NYSE: MRK). Mr. Derby received a Bachelor of Science in Biomedical Engineering from Johns Hopkins University, a Master of Science in Neuroscience from the University of Rochester, and a Master of Business Administration in Finance from New York University's Stern School of Business. Mr. Derby's financial, healthcare industry and executive business experience qualifies him to serve on the BioPharmX Board.
Joseph Lucchese, 53, has served as the Chief Financial Officer of Timber since January 2020. Mr. Lucchese has also served as a Partner at TardiMed Sciences since January 2020. Prior to joining TardiMed, he was a founding member and Managing Director of Oncology Partners LLC, a boutique financial advisory firm serving development stage biotechnology companies and investors, from July 2015 to February 2020. Mr. Lucchese also served as the Managing Director of The ASR Group, a division of Oncology Partners which focuses on value maximization of biotechnology assets via M&A or licensing transactions, from January 2019 to February 2020. Prior to founding Oncology Partners LLC, Mr. Lucchese was a Managing Partner of Foundation Ventures, an investment banking firm servicing
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early stage life sciences companies, from January 2003 to October 2014. Mr. Lucchese also served as President and Chief Financial Officer of Chess Therapeutics, LLC, an oncology focused biotechnology company, from December 2016 to February 2020. Mr. Lucchese currently serves on the board of directors of Chess Therapeutics, LLC, since December 2016, and Garuda Bio, LLC, an oncology focused biotechnology company, since September 2017. Mr. Lucchese has a Bachelor of Science in Finance from Fordham University.
Amir Tavakkol, Ph.D., 65, serves as Timber's Chief Scientific Officer in his capacity as consultant. Dr. Tavakkol has served as the Chief Scientific Officer of Timber since March 2019. Prior to joining Timber, Dr. Tavakkol worked at Castle Creek Pharmaceuticals, LLC as the Chief Development Officer from October 2017 to September 2018. Prior to Castle Creek Pharmaceuticals LLC, Dr. Tavakkol was the Chief Development Officer at Viamet Pharmaceuticals, Inc., a pharmaceutical company focused on antifungal drugs, from July 2014 to October 2017. Previously, from December 2011 to July 2014, Dr. Tavakkol was the Senior Vice President and Head of Clinical Development & Operations at Topica Pharmaceuticals, Inc., a clinical stage research company. Dr. Tavakkol holds a Ph.D. in Bacteriology & Virology from University of Manchester, United Kingdom, and has a Postgraduate Diploma in Infectious Disease from the University of Manchester, United Kingdom. He spent a year of internship in Infectious Diseases at PHLS, Leeds Seacroft Hospital, United Kingdom, holds a Bachelor of Science in Medical Technology and is a Certified Project Manager with Six Sigma training.
Gianluca Pirozzi, 43, is expected to serve on the BioPharmX Board as of the Effective Time. Since October 2019, Dr. Pirozzi has served as SVP, Clinical Development Head, Hematology, Nephrology and Translational Services, at Alexion Pharmaceuticals (NASDAQ:ALXN), a global biopharmaceutical company. Prior to that, Dr. Pirozzi served as Head of Development, Rare Diseases at Sanofi (NASDAQ:SNY), a global biopharmaceutical company from July 2018 to September 2019. Dr. Pirozzi has also served on the board of directors of Imbria Pharmaceuticals, a biotechnology company, since September 2018 and has been a scientific advisor of SMS Research Foundation since December 2015. Dr. Pirozzi holds an MD from Università Campus Bio-Medico di Roma and a PhD in Immunology from Sapienza Università di Roma and completed a Post-Doc in Immunology at the Pasteur Institute in Paris, France. Dr. Pirozzi's industry experience qualifies him to serve on the BioPharmX Board.
Michael Stocum, 54, is expected to serve on the BioPharmX Board as of the Effective Time. Since June 2004, Mr. Stocum has served as the President and Founder of Personalized Medicine Partners, LLC, a consulting company. Mr. Stocum also served as the Chief Executive Officer of Inivata Limited, a cancer genomics company, from July 2014 to May 2018. Mr. Stocum received a dual Bachelor of Science degree in Biochemistry and Microbiology from North Carolina State University, with a minor in Genetics and a Master's degree in Biotech Management. Mr. Stocum's industry and executive business experience qualifies him to serve on the BioPharmX Board.
Linda Broenniman, 63, is expected to serve on the BioPharmX Board as of the Effective Time. Ms. Broenniman has served as President/CFO of RadiateBuzz, Inc., a technology start-up, since 2016. Prior to that, Ms. Broenniman served as Chief Financial Officer of Expression Pathology, Inc. d/b/a OncoPlex Diagnostics, Inc., a biotechnology company from 2005 to 2016 and as Chief Financial Officer of XFI Corporation, a customer relationship management company, from 2003 to 2016. Ms. Broenniman has leadership experience in a number of different industries, including biotech,
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health care technology, computer/IT services, and sales performance software. Ms. Broenniman received an MBA degree from Carnegie Mellon University and a Bachelor of Arts from Swarthmore College. Ms. Broenniman's operating and executive business experience qualifies her to serve on the BioPharmX Board.
Edward J. Sitar, 59, is expected to serve on the BioPharmX Board as of the Effective Time. Since July 2019, Mr. Sitar has served as the Chief Financial Officer of Innovate Biopharmaceuticals Inc. (NASDAQ: INNT), a clinical stage biotechnology company. Prior to that, he served as Acting Chief Financial Officer of CareDox, Inc., a technology company, from February 2019 to June 2019 and as the Chief Financial Officer of Ammon Analytical Laboratory, a company focused on specialty testing for the drug treatment community, from April 2017 to November 2018. Previously, he served as the Chief Financial Officer of Cancer Genetics, Inc. (NASDAQ: CGIX), a company focused on precision medicine for oncology, from March 2014 until February 2017. Prior to his service at Cancer Genetics, he served from January 2013 to December 2013 as the Chief Financial Officer-New Business of Healthagen, an Aetna company offering health products and services, and served as Chief Financial Officer of ActiveHealth Management from August 2010 to December 2012. From April 2001 to May 2010, he served as Executive Vice President and Chief Financial Officer of Cadent Holdings, Inc., a privately held company that provided three-dimensional digital scanning services for dentists and orthodontists. From August 1998 to April 2001, Mr. Sitar served as Chief Financial Officer and Treasurer of MIM Corporation, now BioScrip, Inc., a publicly traded specialty pharmaceutical and pharmacy benefit management service provider. From May 1996 to August 1998, Mr. Sitar was the Vice President of Finance for Vital Signs, Inc., a publicly traded manufacturer and distributor of single use medical products. From June 1993 to April 1996, Mr. Sitar was the Controller of Zenith. From 1982 through July 1993, he was with Coopers & Lybrand, a public accounting firm. He holds a B.S. in accounting from the University of Scranton and is licensed as a Certified Public Accountant in New Jersey. Mr. Sitar's public company and industry experience qualify him to serve on the BioPharmX Board.
As required under the NYSE American listing standards, a majority of the members of a listed company's board of directors must qualify as "independent", as affirmatively determined by the board of directors. The BioPharmX Board has determined that after the completion of the Merger, a majority of the combined company's directors are expected to be independent within the meaning of the applicable listing standards.
Committees of the Board of Directors Prior to and Following the Merger
The BioPharmX Board currently has three standing committees: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee. The charters for each committee are available on BioPharmX's website (biopharmx.investorroom.com) under "Investors" at "Corporate Governance". The anticipated membership prior to and after the Merger of each committee are shown below. Information about the duties and responsibilities of each committee are provided below. After the Merger, each of these committees are expected to retain these duties.
The Audit Committee is directly responsible for, among other things:
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Currently, BioPharmX's Audit Committee is comprised of Mr. Hubbard and Mr. Stephen Morlock. Mr. Hubbard is the chairman of the Audit Committee. The composition of the Audit Committee meets the requirements for independence under the current NYSE American and SEC rules and regulations. Each member of the Audit Committee is financially literate. In addition, the BioPharmX Board has determined that Mr. Hubbard is an "audit committee financial expert" as defined in Item 407(d)(5)(ii) of Regulation S-K promulgated under the Securities Act. This designation does not impose on him any duties, obligations or liabilities that are greater than are generally imposed on members of the Audit Committee and the BioPharmX Board.
Timber is in the process of identifying which of the individuals that will serve as independent directors of the combined company following the Merger will serve on the Audit Committee as appropriate and as designated by the post-Merger board of directors.
The Compensation Committee is responsible for, among other things:
Currently, BioPharmX's Compensation Committee is comprised of Mr. Hubbard, Mr. Morlock and Dr. Plott. Mr. Morlock is the chairman of the Compensation Committee. Each member of the Compensation Committee is a non-employee director, as defined by Rule 16b-3 promulgated under the Exchange Act.
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Timber is in the process of identifying which of the individuals that will serve as independent directors of the combined company following the Merger will serve on the Compensation Committee as appropriate and as designated by the post-Merger board of directors.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for, among other things:
Currently, the BioPharmX Nominating and Corporate Governance Committee is comprised of Mr. Hubbard, Mr. Morlock and Dr. Plott. Mr. Morlock is the chairman of our Nominating and Corporate Governance Committee. Each member of the Nominating and Corporate Governance Committee meets the requirements for independence under the current NYSE American rules.
Timber is in the process of identifying which of the individuals that will serve as independent directors of the combined company following the Merger will serve on the Nominating and Corporate Governance Committee as appropriate and as designated by the post-Merger board of directors.
Compensation Committee Membership, Interlocks and Insider Participation
The members of BioPharmX's Compensation Committee during fiscal year 2019 were Mr. Hubbard and Mr. Morlock. No member of the BioPharmX Compensation Committee in fiscal year 2019 was at any time during fiscal year 2019 or at any other time an officer or employee of BioPharmX Corporation or any of its subsidiaries, and none had or have any relationships with BioPharmX Corporation that are required to be disclosed under Item 404 of Regulation S-K. None of BioPharmX's executive officers has served as a member of the BioPharmX Board, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on the BioPharmX Board or Compensation Committee during fiscal year 2019.
Timber is in the process of identifying which of the individuals that will serve as independent directors of the combined company following the Merger will serve on the Compensation Committee. Each member of the Compensation Committee is expected to be a "non-employee" director within the meaning of Rule 16b-3 of the rules promulgated under the Exchange Act, and independent within the meaning of the independent director guidelines of the NYSE American and the SEC. None of the proposed executive officers of the combined organization serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers who is proposed to
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serve on the combined organization's board of directors or Compensation Committee following the Merger.
Compensation Committee Matters
Scope of Authority. The BioPharmX Compensation Committee acts on behalf of the BioPharmX Board to establish the compensation of executive officers of BioPharmX and provides oversight of BioPharmX's compensation philosophy. The BioPharmX Compensation Committee also acts as the oversight committee with respect to BioPharmX's benefit plans, stock plans and bonus plans covering executive officers and other senior management. In overseeing those plans, the BioPharmX Compensation Committee has the sole authority for the day-to-day administration and interpretation of the plans. The BioPharmX Compensation Committee retains the authority for establishing all matters with respect to the compensation of the BioPharmX executive officers, although the BioPharmX Compensation Committee may recommend to the full BioPharmX Board that it take action with respect to such compensation matters. Under its charter, the BioPharmX Compensation Committee has the authority, in its sole discretion, to retain (or obtain the advice of) any compensation consultant, legal counsel or other adviser to assist it in the performance of its duties. The BioPharmX Compensation Committee also has the direct responsibility for the appointment, compensation and oversight of the work of any advisers retained or engaged by the BioPharmX Compensation Committee. Finally, the BioPharmX Compensation Committee has the sole authority to approve the reasonable fees and the other terms and conditions of the engagement of any such advisor, including authority to terminate the engagement. BioPharmX must provide for appropriate funding, as determined by the BioPharmX Compensation Committee, for the payment of reasonable compensation to any such adviser retained by the BioPharmX Compensation Committee.
Director Compensation. The BioPharmX Board sets non-employee directors' compensation at the recommendations of both the Nominating and Corporate Governance Committee and the BioPharmX Compensation Committee. The BioPharmX Compensation Committee and the BioPharmX Board believe that: director compensation should fairly compensate directors for work required in a company of BioPharmX's size and scope; the compensation should align directors' interests with the long-term interest of stockholders; and the structure of the compensation should be simple, transparent and easy for stockholders to understand. BioPharmX's non-employee director compensation program has typically consisted of a combination of a cash retainer and initial and annual stock option grants, with the number of shares subject to the annual stock option grant based on providing eligible directors aggregate equity grants in line with the 50th percentile of the equity granted to non-employee directors of BioPharmX's peers.
Compensation Committee Charter. The BioPharmX Compensation Committee reviews its charter on an annual basis and, if necessary, recommends changes to the BioPharmX Board for its approval. A copy of the BioPharmX Compensation Committee's charter can be found on BioPharmX's corporate website at https://biopharmx.investorroom.com/corporate-governance.
Nominating and Corporate Governance Committee Matters
Candidates for nomination to the Board of Directors are selected by the Board of Directors based on the recommendation of the Nominating and Corporate Governance Committee in accordance with the Nominating and Corporate Governance Committee's charter, the certificate of incorporation and bylaws. In recommending candidates for nomination, the Nominating and Corporate Governance Committee considers candidates recommended by directors, officers, employees, stockholders and others, using the same criteria to all candidates. Evaluations of candidates generally involve, among other things, a review of background materials, internal discussions and interviews with selected candidates as appropriate and, in addition, the Nominating and Corporate Governance Committee may engage consultants or third-party search firms to assist in identifying and evaluating potential nominees.
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The goal of the Nominating and Corporate Governance Committee is to ensure that the Board of Directors possesses a evaluate variety of perspectives and skills derived from high-quality business and professional experience. The Nominating and Corporate Governance Committee seeks to achieve a balance of knowledge, experience and capability on the Board of Directors. To this end, the Nominating and Corporate Governance Committee seeks nominees on the basis of, among other things, independence, integrity, diversity, skills, financial and other expertise, breadth of experience, knowledge about BioPharmX's business or industry and willingness and ability to devote adequate time and effort to Board of Directors responsibilities in the context of the existing composition, other areas that are expected to contribute to the Board of Directors' overall effectiveness and needs of the Board of Directors and its committees. Although the Nominating and Corporate Governance Committee uses these and other criteria to evaluate potential nominees, there is no stated minimum criteria for nominees. In addition, while the Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity, it values members who represent diverse viewpoints. The Nominating and Corporate Governance Committee does not use different standards to evaluate nominees depending on whether they are proposed by directors and management or by stockholders. When appropriate, it may retain executive recruitment firms to assist it in identifying suitable candidates. After its evaluation of potential nominees, the Nominating and Corporate Governance Committee submits its chosen nominees to the Board of Directors for approval.
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BIOPHARMX EXECUTIVE COMPENSATION
The following table presents summary information regarding the total compensation awarded to, earned by or paid to each of the named executive officers for services rendered in all capacities during fiscal years 2020 and 2019. Mr. Bosacki is the only executive officer of BioPharmX as of January 31, 2020.
Name and Principal Position
|
Fiscal Year |
Salary ($) |
Bonus ($) |
Option Awards ($)(1) |
All Other Compensation ($)(4) |
Total ($) |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
David S. Tierney, MD |
2020 | 450,774 | | 158,953 | | 609,727 | |||||||||||||
Former Chief Executive Officer, Former |
2019 | 168,750 | | 957,723 | | 1,126,473 | |||||||||||||
President and Director(2) |
|||||||||||||||||||
Steven M. Bosacki |
2020 |
163,094 |
|
21,777 |
|
184,871 |
|||||||||||||
Chief Executive Officer |
2019 | | | | | | |||||||||||||
Anja Krammer |
2019 |
248,803 |
|
102,671 |
238,875 |
590,349 |
|||||||||||||
Former President and Director(3) |
|||||||||||||||||||
Kin F. Chan, Ph.D. |
2020 |
167,761 |
|
34,043 |
10,000 |
211,804 |
|||||||||||||
Former Executive Vice President of |
2019 | 270,000 | | | | 270,000 | |||||||||||||
Research and Technology(5) |
|||||||||||||||||||
Greg Kitchener |
2019 |
173,769 |
|
|
|
173,769 |
|||||||||||||
Former Executive Vice President and |
|||||||||||||||||||
Chief Financial Officer(6) |
Narrative Disclosure to Summary Compensation Table
Employment Arrangements with Our Named Executive Officers
BioPharmX have entered into employment offer letters with each of the named executive officers in connection with his commencement of employment. These offers of employment were each subject to execution of BioPharmX's standard confidential information and invention assignment agreement.
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Steven M. Bosacki's Employment Agreement
On July 16, 2019, BioPharmX entered into an employment agreement with Steven M. Bosacki as Chief Operating Officer. On January 30, 2020, Mr. Bosacki was named Chief Executive Officer and Principal Financial Officer. The offer letter provides the following:
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months of Mr. Bosacki's then current base salary, (3) payment of COBRA premiums (provided Mr. Bosacki timely elect COBRA coverage) for continued health coverage until the earlier of (a) eighteen months and (b) the date that Mr. Bosacki is covered under the health plan of another and (4) full acceleration of all outstanding equity awards.
Notwithstanding the forgoing, Mr. Bosacki has agreed to waive any change of control payments that would have been due to him pursuant to the Offer Letter upon closing of the Merger.
The following table includes information as of January 31, 2020 for outstanding equity awards held by BioPharmX's named executive officer:
|
Option Awards | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name
|
Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
|||||||||||
Steven M. Bosacki |
15,167 | 75,833 | (1) | | 0.44 | 7/16/2029 |
Equity Compensation Plan Information
The following table includes information as of January 31, 2020 for BioPharmX's equity compensation plans:
Plan Category
|
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Equity compensation plans approved by security holders |
1,234,492 | $ | 4.02 | 1,737,986 | (1) | |||||
Equity compensation plans not approved by security holders(2) |
6,667 | $ | 4.75 | |
The Compensation of BioPharmX's directors is set forth above under the caption "The MergerDirector Compensation"
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The following table summarizes the compensation information for the year ended December 31, 2019 for Timber's chief executive officer, our two most highly compensated executive officers other than our chief executive officer who were serving as executive officers as of the end of 2019 and up to two additional individuals for whom disclosure would have been provided but for the fact that the individual was not serving as an executive officer as of December 31, 2019. The persons listed in the following table are referred to herein as the "named executive officers". No named executive officers received compensation in 2018 as Timber was formed on February 26, 2019.
Name and Principal Position
|
Year | Salary ($) |
Bonus ($) |
All Other Compensation ($)(1) |
Total ($) |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
John Koconis, |
2019 | $ | 100,000 | $ | 50,000 | $ | 150,343 | $ | 300,343 | |||||||
Chief Executive Officer |
||||||||||||||||
Amir Tavakkol, |
2019 |
$ |
93,750 |
$ |
27,083 |
$ |
66,870 |
$ |
148,121 |
|||||||
Chief Scientific Officer |
||||||||||||||||
Zachary Rome(2), |
2019 |
$ |
93,750 |
$ |
33,750 |
$ |
67,669 |
$ |
195,169 |
|||||||
President and Secretary |
Narrative Disclosure to Summary Compensation Table
Agreements with our Named Executive Officers
Timber extended an offer letter agreement to Mr. Koconis on June 20, 2019 in connection with his position as Chief Executive Officer. Mr. Koconis is entitled to, among other things, (i) an annual gross base salary of $200,000 (which annual base salary will be increased to $350,000 immediately after the Effective Time and to $400,000 upon the commercialization of Timber's first product); and (ii) eligibility for a bonus up to 50% of his base salary. The offer constitutes an at-will employment agreement.
Timber entered into a consulting services agreement (the "Consulting Agreement") with AT Consulting LLC, in which Dr. Tavakkol is the sole member, on January 8, 2020 in connection with Dr. Tavakkol's position as Chief Scientific Officer. Under the Consulting Agreement, Dr. Tavakkol agreed to serve as a consultant on product development, pre-clinical development, clinical development and regulatory matters with respect to Timber's products. The Consulting Agreement provides for Dr. Tavakkol to perform approximately ten hours of service per week, on average, and be compensated $300 per hour, subject to certain adjustments. The Consulting Agreement is for a term of one year unless terminated for a breach by either party.
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The following table summarizes, for each of the named executive officers and managers, the number of units underlying outstanding VARs held as of December 31, 2019.
|
Number of Units Underlying Unexercised VARs |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Expiration Date |
|||||||||
Name
|
Exercisable | Unexercisable | ||||||||
John Koconis (Chief Executive Officer) |
0 | 333 | 7/1/2029 | |||||||
Michael Derby (Executive Chairman) |
| | | |||||||
Zachary Rome (President and Secretary) |
0 | 210 | 3/1/2029 | |||||||
Amir Tavakkol, Ph.D. (Chief Scientific Officer) |
13 | 111 | 3/1/2029 |
Certain of the named executive officers were granted value appreciation right awards in 2019 under the terms of an individual award agreement and the TardiMed Sciences, LLC 2019 Equity Incentive Plan. Generally, the VARs entitle a participant upon exercise to an amount (in cash or Timber common units, as determined by the committee responsible for administering the plan) equal to the product of (i) the excess of (A) the fair market value on the exercise date of one Timber common unit over (B) the exercise price per unit times (ii) the number of units being exercised under the VAR. The VARs vest in time-based increments based on continued service and vest in full upon a change in control that meets the plan definition. Exercise of vested VARs occurs automatically and only upon the first to occur of a change in control that meets the plan definition, the participant's death or disability or the participant's separation from service due to a termination without cause by Timber. The VARs expire if not exercised within 10 years of grant.
None of our named executive officers is covered by a pension plan or other similar benefit plan that provides for payments by Timber or other benefits from Timber at, following, or in connection with retirement.
Nonqualified Deferred Compensation
None of our named executive officers is covered by a nonqualified defined contribution or other nonqualified deferred compensation plan.
Timber currently pays no cash compensation to its managers in respect of their service on the board. All of Timber's managers are entitled to reimbursement of expenses incurred in connection with their service. Timber did not award options or pay any other compensation to the Timber Board for services as managers rendered.
Timber plans to adopt compensation policies for service on the board comparable to peer companies following consummation of the Merger.
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RELATED PARTY TRANSACTIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF TIMBER
Timber was formed on February 26, 2019. The following is a summary of transactions since inception and all currently proposed transactions, to which Timber has been a participant, in which:
Acquisition of Intellectual Property Rights from Patagonia Pharmaceuticals LLC ("Patagonia")
On February 28, 2019, Timber acquired the intellectual property rights to a topical formulation of isotretinoin for the treatment of CI and identified as TMB-001, formerly PAT-001, from Patagonia (the "TMB-001 Acquisition").
Upon closing of the TMB-001 Acquisition, Timber paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-001, with the first being $4.0 million from the initiation of a Phase 3 pivotal trial, as agreed with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid-double digits. Timber is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
On June 26, 2019, Timber acquired the intellectual property rights to a locally administered formulation of sitaxsentan for the treatment of cutaneous fibrosis and/or pigmentation disorders, and identified as TMB-003, formerly PAT-S03, from Patagonia (the "TMB-003 Acquisition").
Upon closing of the TMB-003 Acquisition, Timber paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits. Timber is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
Management Services Agreement with TardiMed Sciences LLC
On January 1, 2020, Timber entered into a management services agreement with TardiMed Science LLC, or TardiMed, a 90% unitholder in Timber (the "Management Services Agreement"). One of the members of Timber's board of managers, Michael Derby, is the Managing Partner of TardiMed and two of Timber's officers, Zachary Rome and Joseph Lucchese, are Partners of TardiMed. Pursuant to the Management Services Agreement, TardiMed is entitled to a quarterly management fee of $180,000 in exchange for certain services, including advisory and management services, provided to Timber in connection with the development registration, financing and commercialization of Timber's pharmaceutical products. In addition, TardiMed is entitled to be reimbursed by Timber for any expenses incurred in connection with providing such services. The initial term of the Management Services Agreement expires on January 1, 2023 and is renewable annually thereafter as mutually agreed upon by Timber and TardiMed. As of February 14, 2020, Timber has paid to TardiMed $90,000 in fees pursuant to the Management Services Agreement.
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Under the term of the Timber Funding agreements, Timber has agreed to terminate the Management Services Agreement as of the Closing Date. It is anticipated that at such time Mr. Derby, Mr. Rome and Mr. Lucchese will be hired directly by Timber on terms to be negotiated with the independent Compensation Committee of the Board of Directors.
Pursuant to Timber's Amended and Restated Limited Liability Company Agreement, TardiMed, one of Timbers 5% holders, has committed $2.5 million of capital to Timber in exchange for Preferred Units of Timber at a purchase price of $1.00 per Preferred Unit for working capital purposes, or other business purposes, in each case only when and as approved by Timber's board of managers. As of March 31, 2020, TardiMed is expected to hold 1,661,559 Preferred Units, representing $1,586,493 of contributions by TardiMed plus accrued dividends. TardiMed is entitled to an 8% cumulative annual dividend, which accrues and compounds annually. The Preferred Units are non-voting and non-convertible. In the event of a winding up of Timber, the holders of such Preferred Units will be entitled to receive, in preference to the holders of Timber's Units, their unpaid dividends and any unreturned capital with respect to such holders' Preferred Units. In the event that there is a sale of Timber, structured as a merger, consolidation, sale of the all of the units of Timber or other change of control transaction, at the option of the Holder, each holder of Preferred Units can elect to receive consideration that such holder would have received if such consideration had been distributed in a complete liquidation of the Timber.
Under the Merger Agreement, at the Effective Time, each preferred membership unit of Timber will be converted into shares of a newly created class of BioPharmX Preferred Stock which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the Preferred Units of Timber currently outstanding.
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The unaudited pro forma condensed combined financial information gives effect to the Reverse Stock Split described in Proposal No. 2 in this proxy statement/prospectus/information statement at an assumed ratio of 1-for-25.
The following unaudited pro forma condensed combined financial information was prepared under generally accepted accounting principles in the United States ("U.S. GAAP"), and gives effect to the transaction between BioPharmX, Merger Sub and Timber, expected to be accounted for as a reverse asset acquisition under U.S. GAAP (the "Merger"). In addition, the pro forma condensed combined financial information gives effect to the securities purchase agreement, dated as of January 28, 2020 (the "SPA") with certain institutional investors (the "Buyers"), pursuant to which the Buyers have agreed to purchase, and Timber agreed to issue, senior secured promissory notes (the "Timber Bridge Notes") from Timber in the aggregate principal amount of $5 million, in exchange for an aggregate purchase price of $3.75 million, representing aggregate OID of $1.25 million. Pursuant to the terms of the SPA, the Buyers will purchase the Timber Bridge Notes in three closings. The Timber Bridge Notes bear interest at a rate of 15% per annum (25% upon the occurrence of an event of default thereunder) and are repayable upon the earlier of certain events and transactions as defined in the SPA or July 28, 2020. The Timber Bridge Notes are secured by a lien on all of Timber's assets. Further, pursuant to the SPA, Timber agreed that it will cause BioPharmX to issue to each Buyer warrants to purchase a number of shares of BioPharmX common stock, within five trading days immediately following the consummation of the first capital raising transaction by Timber occurring on or following the date on which Timber's equity is registered under the Securities Exchange Act of 1934, as amended, or is exchanged for equity so registered, equal to (i) the aggregate principal amount of all of the Buyer's Timber Bridge Notes upon their issuance, divided by (ii) the lowest price at which new equity is invested in the first capital raising transaction by Timber. The warrants will have a five year term and the exercise price will be equal to the lowest price at which new equity is invested in the first financing immediately after the close of the Merger.
The pro forma condensed combined financial information also gives effect to the Securities Purchase Agreement, dated as of March 27, 2020, Timber and BioPharmX entered into with certain accredited investors (the "Investors"). One of the conditions to the obligations of BioPharmX under the Merger Agreement is that on or immediately prior to the closing of the Merger, Timber consummate a financing whereby Timber receives gross proceeds of no less than twenty million dollars ($20,000,000). Pursuant to the Securities Purchase Agreement, among other things, Timber agreed to issue to the Investors shares of Timber units immediately prior to the Merger, exchangeable in the Merger for 20.0% of the post-closing company fully diluted, subject to certain adjustments. In addition, Timber will deposit the same number of shares of Timber units into escrow with an escrow agent for the benefit of the Investors, to be exchanged for BioPharmX common stock at the close of the Merger, and to be delivered, in whole or in part, out of escrow to the Investors based on the trading price of BioPharmX common stock following the closing of the Securities Purchase Agreement. BioPharmX also agreed to issue the Series A and B Investor Warrants to the Investors on the tenth trading day following the consummation of the Merger in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to the Notes issued in connection with the Timber Bridge Notes and (y) $20 million in cash from the Investors), (the "Timber Funding"). The Series A Warrants will have a 5-year term and an exercise price equal to 125% of the final purchase price, subject to adjustment for anti-dilution events. The Series A Warrants will initially be exercisable for an amount of BioPharmX common stock equal to 75% of such amount of Timber common units issued to the Investors, subject to certain adjustments. The Series B Warrants will have an exercise price per share of $0.001, will be immediately exercisable and shall be issued for a number of shares of BioPharmX common stock based upon the final purchase price adjusted for trading prices of BioPharmX common stock following the warrant closing date. The
246
number of BioPharmX common stock issuable pursuant to the Series B Warrants is also subject to adjustment based on specified reset price."
The Merger is expected to be accounted for as a reverse asset acquisition under U.S. GAAP. Timber was determined to be the accounting acquirer based upon the terms of the Merger and other factors including: (i) Timber stockholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for Timber common stock are expected to own approximately 88.5% of BioPharmX immediately following the effective time of the Merger, (ii) Timber will hold all the board seats of the combined company and (iii) Timbers' management will hold all key positions in the management of the combined company.
The following unaudited pro forma condensed combined financial statements are based on Timber's historical financial statements and BioPharmX's historical financial statements, as adjusted, to give effect to the transactions. The unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2019 is comprised of Timber's audited consolidated statement of operations for the period from February 26, 2019 (inception) to December 31, 2019, BioPharmX's audited consolidated statement of operations for the year ended January 31, 2020 and gives effect to these transactions as if they had occurred on February 26, 2019. The unaudited pro forma condensed combined balance sheet as of December 31, 2019 is comprised of Timber's audited consolidated balance sheet as of December 31, 2019, BioPharmX's audited consolidated balance sheet as of January 31, 2020 and gives effect to these transactions as if they had occurred on December 31, 2019. Subsequent to the Merger, BioPharmX will change its year end to December 31.
BioPharmX's assets and liabilities will be measured and recognized at their relative fair values allocation as of the transaction date with any value associated with IPR&D being expensed as there is no alternative future use, and combined with the assets, liabilities and results of operations of Timber after the consummation of the Merger.
The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes. The accounting for the transaction as an asset acquisition is dependent upon the valuation of the IPR&D, which has yet to be completed. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes available and additional analyses are performed and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final accounting, expected to be completed after the closing of the transaction, will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and the combined organization's future results of operations and financial position. In addition, differences between the preliminary and final amounts will likely occur as a result of the changes in the fair value of BioPharmX common stock, and other changes in BioPharmX's assets and liabilities.
The unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of the two companies. The unaudited pro forma condensed combined financial information is preliminary and has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had BioPharmX and Timber been a combined organization during the specified periods. The actual results reported in periods following the transaction may differ significantly from those reflected in the pro forma condensed combined financial information presented herein for a number of reasons, including, but not limited to, differences between the assumptions used to prepare this pro forma condensed combined financial information.
247
The assumptions and estimates underlying the unaudited adjustments to the pro forma condensed combined financial statements are described in the accompanying notes, which should be read together with the pro forma condensed combined financial statements.
To consummate the Merger, BioPharmX's stockholders must approve the proposed Reverse Stock Split. Per the terms of the Merger Agreement, at the closing of the Merger, each outstanding Timber common units will be converted into the right to receive shares of BioPharmX common stock (subject to the payment of cash in lieu of fractional shares and after giving effect to a reverse stock split of common stock). These unaudited pro forma condensed combined financial statements have been retroactively restated to reflect the impact of the proposed Reverse Stock Split, at an estimated ratio of 1-for-25.
The unaudited pro forma condensed combined financial statements should be read together with BioPharmX's historical consolidated financial statements, which are included in BioPharmX's latest Annual Report for the year ended January 31, 2020 on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 23, 2020 and Timber's consolidated financial statements included herein.
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Unaudited Pro Forma Condensed Combined Balance Sheet as of December 31, 2019
(in thousands, except share and per share amounts)
|
Timber(1) | BioPharmX(2) | Pro Forma Adjustments |
Note 3 | Pro Forma Combined |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
ASSETS |
|||||||||||||||
Current assets |
|||||||||||||||
Cash and cash equivalents |
$ | 57 | $ | 727 | $ | 3,750 | (e) | $ | 22,034 | ||||||
|
17,500 | (f) | |||||||||||||
Prepaid expense and other current assets |
33 | 259 | | 292 | |||||||||||
| | | | | | | | | | | | | | | |
Total current assets |
90 | 986 | 21,250 | 22,326 | |||||||||||
Property and equipment |
| 93 | | 93 | |||||||||||
Other long-term assets |
| 1,051 | | 1,051 | |||||||||||
| | | | | | | | | | | | | | | |
Total assets |
$ | 90 | $ | 2,130 | $ | 21,250 | $ | 23,470 | |||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||||||||||||||
Current liabilities |
|||||||||||||||
Accounts payable |
$ | 501 | $ | 564 | $ | | $ | 1,065 | |||||||
Accrued expenses |
215 | 942 | 1,100 | (c) | 3,323 | ||||||||||
|
1,066 | (d) | |||||||||||||
License payable |
750 | | | 750 | |||||||||||
Short-term bridge notes payable |
| 178 | 99 | (e) | 178 | ||||||||||
|
4,901 | (e) | |||||||||||||
|
(5,000 | ) | (e) | ||||||||||||
| | | | | | | | | | | | | | | |
Total current liabilities |
1,466 | 1,684 | 2,166 | 5,316 | |||||||||||
Other long-term liabilities |
| 785 | | 785 | |||||||||||
| | | | | | | | | | | | | | | |
Total liabilities |
1,466 | 2,469 | 2,166 | 6,101 | |||||||||||
Stockholders' equity (deficit) |
|||||||||||||||
Members' equity |
1,699 | | (1,699 | ) | (a) | | |||||||||
Preferred stock |
| | 2 | (a) | 2 | ||||||||||
Common Stock, $0.001 par value |
| 15 | 4 | (a) | 5 | ||||||||||
|
(15 | ) | (b) | ||||||||||||
|
1 | (c) | |||||||||||||
Additional paid-in capital |
| 87,867 | 1,693 | (a) | 32,201 | ||||||||||
|
(87,867 | ) | (b) | ||||||||||||
|
4,357 | (c) | |||||||||||||
|
3,651 | (e) | |||||||||||||
|
5,000 | (e) | |||||||||||||
|
17,500 | (f) | |||||||||||||
Accumulated deficit |
(3,075 | ) | (88,221 | ) | 88,221 | (b) | (14,839 | ) | |||||||
|
(5,797 | ) | (c) | ||||||||||||
|
(1,066 | ) | (d) | ||||||||||||
|
(4,901 | ) | (e) | ||||||||||||
| | | | | | | | | | | | | | | |
Total stockholders' equity (deficit) |
(1,376 | ) | (339 | ) | 19,084 | 17,369 | |||||||||
| | | | | | | | | | | | | | | |
Total liabilities and stockholders' equity (deficit) |
$ | 90 | $ | 2,130 | $ | 21,250 | $ | 23,470 | |||||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
See accompanying notes to the unaudited pro forma condensed combined financial statements
249
Unaudited Pro Forma Condensed Combined Statement of OperationsTwelve Months Ended December 31, 2019
(in thousands, except share and per share amounts)
|
Timber(1) | BioPharmX(2) | Pro Forma Adjustments |
Note 3 | Pro Forma Combined |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenue |
$ | 271 | $ | | $ | | $ | 271 | |||||||
Cost of goods sold |
| | | | |||||||||||
| | | | | | | | | | | | | | | |
Gross margin |
271 | | | 271 | |||||||||||
Operating expenses |
|||||||||||||||
Research and development |
1,749 | 4,690 | | 6,439 | |||||||||||
Research and developmentlicense acquired |
1,070 | | | 1,070 | |||||||||||
Selling, general and administrative |
489 | 4,996 | | 5,485 | |||||||||||
| | | | | | | | | | | | | | | |
Total operating expenses |
3,308 | 9,686 | | 12,994 | |||||||||||
Loss from operations |
(3,037 | ) | (9,686 | ) | | (12,723 | ) | ||||||||
Change in fair value of warrant liability |
| 291 | 291 | ||||||||||||
Other expense, net |
| (290 | ) | | (290 | ) | |||||||||
| | | | | | | | | | | | | | | |
Total other expense |
| 1 | | 1 | |||||||||||
| | | | | | | | | | | | | | | |
Net loss before income taxes |
$ | (3,037 | ) | $ | (9,685 | ) | $ | | $ | (12,722 | ) | ||||
Provision for income taxes |
| 2 | | 2 | |||||||||||
| | | | | | | | | | | | | | | |
Net loss and comprehensive loss |
$ | (3,037 | ) | $ | (9,687 | ) | $ | | $ | (12,724 | ) | ||||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Net loss per share: |
|||||||||||||||
Basic and diluted |
(18.74 | ) | (2.82 | ) | |||||||||||
Weighted average number of shares |
516,840 | 4,000,072 | (g) | 4,516,912 |
See accompanying notes to the unaudited pro forma condensed combined financial statements
250
Notes to the Unaudited Pro Forma Condensed Combined Financial Information
Note 1Description of Transaction and Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of SEC Regulation S-X and presents the pro forma financial position and results of operations of the combined companies based upon the historical data of BioPharmX and Timber.
For the purposes of the unaudited pro forma condensed combined financial information, the accounting policies of BioPharmX and Timber are aligned with no differences. Accordingly, no effect has been provided for the pro forma adjustments described in Note 3, "Pro forma adjustments."
On January 28, 2020, BioPharmX and Timber, entered into the Merger Agreement, pursuant to which, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into Timber, with Timber continuing as a wholly-owned subsidiary of BioPharmX and the surviving corporation of the Merger. The Merger is intended to be a tax-deferred transaction as described in section 351(a) of the Internal Revenue Code of 1986, as amended.
Subject to the terms and conditions of the Merger Agreement, at the closing of the Merger, each outstanding preferred membership unit of Timber will be converted into the right to receive a number of shares of a class of newly issued BioPharmX preferred stock which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding. Each outstanding Timber common unit together with the Timber VARs outstanding immediately prior to the Merger shall be automatically converted into the right to receive a number of shares of BioPharmX stock and/or rights to receive BioPharmX common stock equal in aggregate to the Timber Allocation Number, such that, immediately following the Effective Time, and after giving effect to the pre-merger financing, preexisting BioPharmX stockholders are expected to own approximately 11.5% of the outstanding capital stock of BioPharmX on a fully diluted basis, and preexisting Timber securityholders (including holders of VARs and investors providing the Timber Funding) are expected to own approximately 88.5% of the outstanding capital stock of BioPharmX on a fully diluted basis, subject to adjustments for net cash held by BioPharmX at the time of closing the Merger.
Consummation of the Merger is subject to certain closing conditions, including, among other things, approval by the stockholders of BioPharmX and members of Timber. In accordance with the terms of the Merger Agreement, certain executive officers and directors of BioPharmX (solely in their respective capacities as BioPharmX stockholders) have entered into support agreements. The support agreements include covenants with respect to the voting of shares of BioPharmX's capital stock in favor of adoption and approving the transactions contemplated by the Merger Agreement and against any competing acquisition proposals.
The Merger Agreement contains certain termination rights for both BioPharmX and Timber, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of the greater of $1,250,000 or the amount due to Timber under the bridge financing agreement between BioPharmX and Timber. Upon termination of the Merger Agreement under specified circumstances, the termination fee is also adjusted for obligations outstanding under the bridge financing agreement between BioPharmX and Timber.
In connection with the Merger Agreement, BioPharmX and Timber entered into a Credit Agreement, dated as of January 28, 2020 (the "Credit Agreement"), pursuant to which Timber has agreed to make
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a bridge loan to BioPharmX (the "Bridge Loan") in an aggregate amount of $2.25 million ($2.5 million less $250,000 of OID). Pursuant to the terms of the Credit Agreement, the Bridge Loan has been and will be made to BioPharmX in three tranches: (i) a $625,000 initial advance ($700,000 less $75,000 of "OID"), which was made on the closing date of the Credit Agreement; (ii) $625,000 ($700,000 less $75,000 of OID), which was made on February 28, 2020; and (iii) $1,000,000 ($1,100,000 less $100,000 of OID), which will be made upon the closing of the Merger. The Bridge Loan will bear interest at a rate of 12% per annum and is repayable upon the earlier of maturity thereof, the termination (without completion) of the Merger or upon a liquidity event, as defined in the Credit Agreement. BioPharmX has also issued to Timber a promissory note setting forth the terms of repayment.
The Bridge Loan is secured by a lien on all of BioPharmX's assets. Further, in connection with the Bridge Loan, on January 28, 2020 BioPharmX issued to Timber a warrant to purchase approximately 2.3 million shares of Common Stock at a nominal exercise price (the "Bridge Warrant"). The Bridge Warrant is exercisable commencing on its issuance and expires 30 months thereafter.
The Bridge Loan pursuant to the Credit Agreement between BioPharmX and Timber is not reflected as an adjustment in the unaudited pro forma condensed combined financial statements as the transaction would be eliminated on a pro forma combined basis.
In connection with the Timber Funding on March 27, 2020, Timber and BioPharmX entered into the Securities Purchase Agreement with the Investors pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to the Merger and BioPharmX agreed to issue the Investor Warrants to the Investors on the tenth trading day following the consummation of the Merger in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to the Notes issued in connection with the Timber Bridge Loan and (y) $20 million in cash from the Investors).
The unaudited pro forma condensed combined financial statements were prepared in accordance with the regulations of the SEC Regulation S-X. The unaudited pro forma condensed combined balance sheet as of December 31, 2019 is presented as if the Merger had been completed on December 31, 2019 and is comprised of Timber's consolidated audited balance sheet as of December 31, 2019 together with BioPharmX's audited consolidated balance sheet as of January 31, 2020. The unaudited pro forma condensed combined statement of operations for the twelve months ended December 31, 2019 has been derived from the application of pro forma adjustment to Timber's audited statement of operations for the period from February 26, 2019 (inception) to December 31, 2019, together with BioPharmX's audited consolidated statement of operations for the year ended January 31, 2020 and assumes that the Merger occurred on February 26, 2019.
For accounting purposes, Timber is considered to be the acquiring company and the Merger will be accounted for as an asset acquisition by Timber. BioPharmX's assets and liabilities will be measured and recognized at their relative fair value allocation as of the transaction date with any value associated with IPR&D being expensed as there is no alternative future use, and combined with the assets, liabilities and results of operations of Timber after the consummation of the Merger. The reported consolidated financial condition and results of operations of Timber after completion of the Merger will reflect these fair values.
The historical financial statements of BioPharmX and Timber, which are provided elsewhere in this registration statement, have been adjusted to give pro forma effect to events that are (i) directly
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attributable to the Merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results.
To the extent there are significant changes to the business following completion of the Merger, the assumptions and estimates set forth in the unaudited pro forma condensed combined financial statements could change significantly. Accordingly, the pro forma adjustments are subject to further adjustments as additional information becomes available and as additional analyses are conducted following the completion of the Merger. There can be no assurances that these additional analyses will not result in material changes to the estimates of fair value.
Note 2Preliminary Fair value of the Assets Acquired and the Liabilities Assumed
The accompanying unaudited pro forma condensed combined financial statements reflect an estimated reverse asset acquisition price of approximately $5.5 million. Given that the estimated purchase price is variable depending upon BioPharmX's stock price, management performed a sensitivity analysis over the change in purchase consideration based on +/ 10% volatility in BioPharmX' stock price. An increase or decrease in BioPharmX's stock price by 10% would increase or decrease the purchase consideration by approximately $0.4 million. Under certain circumstances further described in the Merger Agreement, the ownership percentages may be adjusted upward or downward based on the net cash level and the settlement or discharge of certain obligations of BioPharmX at the closing of the Merger.
The total estimated purchase price is summarized as follows (in thousands, except share and per share amounts):
Estimated number of shares of the combined company to be owned by BioPharmX stockholders(i) |
622,316 | |||
Multiplied by the fair value per share of BioPharmX common stock(ii) |
$ | 7.00 | ||
| | | | |
Total |
4,358 | |||
Estimated transaction costs |
1,100 | |||
| | | | |
Total estimated purchase price |
$ | 5,458 | ||
| | | | |
| | | | |
| | | | |
The following is the preliminary estimate of the fair value of the assets acquired and the liabilities to be assumed by Timber in the Merger (in thousands):
|
Dr (Cr.) | |||
---|---|---|---|---|
Cash and cash equivalents |
$ | 727 | ||
Other net working capital acquired |
(1,066 | ) | ||
In-process research and development(iii) |
5,797 | |||
| | | | |
Total estimated purchase price |
$ | 5,458 | ||
| | | | |
| | | | |
| | | | |
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The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
|
Members' equity |
Preferred Shares |
Common Shares |
Additional Paid-in Capital |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Issuance of 4,000,072 common shares |
$ | | $ | | $ | 4 | $ | (4 | ) | ||||
Issuance of 1,661,559 preferred shares |
| 2 | | (2 | ) | ||||||||
Adjustments due to conversion of Timber's member equity to BioPharmX common and preferred shares |
(1,699 | ) | | | 1,699 | ||||||||
| | | | | | | | | | | | | |
|
$ | (1,699 | ) | $ | 2 | $ | 4 | $ | 1,693 | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Common Stock, $0.001 par value |
$ | (15 | ) | |
Additional paid-in capital |
(87,867 | ) | ||
Accumulated deficit |
88,221 |
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|
Accrued Expenses |
Common Shares |
Additional Paid-in Capital |
Accumulated Deficit |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Estimated fair value of BioPharmX common stock to be retained by BioPharmX stockholders |
$ | | $ | 1 | $ | 4,357 | $ | | |||||
In-process research and development |
| | | (5,797 | ) | ||||||||
Estimated Timber transaction costs |
1,100 | | | | |||||||||
| | | | | | | | | | | | | |
|
$ | 1,100 | $ | 1 | $ | 4,357 | $ | (5,797 | ) | ||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Net cash proceeds |
$ | 3,750 | ||
Fair value of warrant |
(3,651 | ) | ||
| | | | |
Pro forma bridge notes payable |
$ | 99 | ||
| | | | |
| | | | |
| | | | |
The Timber Bridge Notes shall be converted in connection with the Merger and Securities Purchase Agreement. This resulted in an increase in amortization of non-cash interest expense of $4.9 million and a reclassification of $5.0 million of short-term bridge note payable to additional paid in capital.
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Warrants will have an exercise price per share of $0.001, will be immediately exercisable and shall be issued for a number of shares of BioPharmX common stock based upon the final purchase price adjusted for trading prices of BioPharmX common stock following the warrant closing date. The number of shares of BioPharmX common stock issuable pursuant to the Series B Warrants is also subject to adjustment based on specified reset price. Timber has preliminarily determined that the exercise features of certain of these Series A and Series B Warrants are indexed to Timber's own stock and is therefore afforded equity treatment.
Historical BioPharmX Basic and diluted weighted average number of shares |
516,840 | |||
Shares issued to Timber |
3,012,345 | |||
Shares issued to Timber in connection with the Securities Purchase Agreement |
987,727 | |||
| | | | |
Pro formaBasic and diluted weighted average number of shares |
4,516,912 | |||
| | | | |
| | | | |
| | | | |
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DESCRIPTION OF BIOPHARMX'S CAPITAL STOCK
The following description of BioPharmX's capital stock is not complete and may not contain all the information you should consider before investing in BioPharmX capital stock. This description is summarized from, and qualified in its entirety by reference to, BioPharmX's certificate of incorporation, which has been filed with the SEC. See "Where You Can Find More Information." The following information does not give effect to the BioPharmX Reverse Stock Split described in Proposal No. 2 in this proxy statement/prospectus/information statement.
BioPharmX is authorized to issue 460,000,000 shares of all classes of capital stock, of which 450,000,000 shares is common stock, $0.001 par value per share, and 10,000,000 shares are undesignated preferred stock, $0.001 par value per share. As of March 23, 2020, BioPharmX had 18,278,219 outstanding shares of common stock and no outstanding shares of preferred stock.
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of BioPharmX common stock are entitled to receive dividends out of funds legally available if the board of directors, in its discretion, determines to issue dividends and then only at the times and in the amounts that our board of directors may determine.
Holders of BioPharmX common stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. BioPharmX has not provided for cumulative voting for any matter in its certificate of incorporation. Accordingly, pursuant to the certificate of incorporation, holders of a majority of the shares of our common stock will be able to elect all of BioPharmX's directors.
No Preemptive or Similar Rights
BioPharmX common stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon liquidation, dissolution or winding-up, the assets legally available for distribution to BioPharmX stockholders would be distributable ratably among the holders of the common stock and any participating preferred stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock.
As of March 23, 2020, BioPharmX had outstanding options to purchase an aggregate of 1,206,286 shares of common stock, with a weighted-average exercise price of $3.98 per share.
As of March 23, 2020, BioPharmX had outstanding warrants to purchase an aggregate 2,644,708 shares of common stock, with a weighted-average exercise price of $7.98 per share.
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In connection with BioPharmX's August 2016 private placement offering and issuance of convertible notes, the holders of common stock underlying such convertible notes (the "2016 Shares") were entitled to rights with respect to the registration of such 2016 Shares under the Exchange Act. In connection with BioPharmX's September 2016 public offering of warrants, or the 2016 Warrants, to Roth Capital Partners and certain designees of Rodman & Renshaw, a unit of H.C. Wainwright & Co., LLC, the holders of common stock underlying such warrants were entitled to rights with respect to the registration of such shares under the Securities Act. In January 2017, BioPharmX issued additional warrants, or the 2017 Warrants, to Rodman & Renshaw pursuant to a letter agreement. In September 2016, a shelf registration statement with respect to the 2016 Shares was filed and declared effective by the SEC. In August 2017, a shelf registration statement with respect to the 2017 Warrants was filed and declared effective by the SEC.
We are required to use commercially reasonable efforts to cause such registration statements to remain continuously effective for a period that will terminate upon the earlier of (i) the date on which all such common stock has been disposed of pursuant to such registration statement, or (ii) the date on which all such common stock is sold in a transaction that is exempt from registration pursuant to Rule 144 or a transaction in which such selling stockholders' rights under the registration rights agreement are not assigned; provided, however, that such requirement shall not apply during any period in which all the shares of common stock then outstanding and held by selling stockholders may be sold under Rule 144 without restriction, including volume limitations or manner of sale restrictions.
As of March 23, 2020, no shares of BioPharmX preferred stock are issued and outstanding and no such shares were subject to outstanding options or other rights to purchase or acquire. However, shares of preferred stock may be issued in one or more series from time to time by our board of directors, and the board of directors is expressly authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each series of preferred stock. Subject to the determination of our board of directors, any shares of our preferred stock that may be issued in the future would generally have preferences over our common stock with respect to the payment of dividends and the distribution of assets in the event of our liquidation, dissolution or winding up.
Anti-Takeover Effect of Unissued Shares of Capital Stock
Common Stock. Shares of BioPharmX's authorized and unissued common stock are available for future issuance without additional stockholder approval. While these additional shares are not designed to deter or prevent a change of control, under some circumstances BioPharmX could use the additional shares to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control by, for example, issuing those shares in private placements to purchasers who might side with our board of directors in opposing a hostile takeover bid.
Preferred Stock. BioPharmX's certificate of incorporation grants our board of directors the authority, without any further vote or action by its stockholders, to issue preferred stock in one or more series and to fix the number of shares constituting any such series and the preferences, limitations and relative rights, including dividend rights, dividend rate, voting rights, terms of redemption, redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series. The existence of authorized but unissued preferred stock could reduce BioPharmX's attractiveness as a target for an unsolicited takeover bid since it could, for example, issue shares of preferred stock to parties who might oppose such a takeover bid or shares that contain terms the potential acquirer may find unattractive. This may have the effect of delaying or preventing a change in control, may
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discourage bids for the common stock at a premium over the market price of the common stock, and may adversely affect the market price of, and the voting and other rights of the holders of, common stock.
The provisions of Delaware law, BioPharmX's certificate of incorporation and its bylaws could have the effect of delaying, deferring or discouraging another person from acquiring control of our company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with our board of directors. BioPharmX believes that the benefits of increased protection of our potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire BioPharmX because negotiation of these proposals could result in an improvement of their terms.
BioPharmX is subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:
Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation's outstanding voting stock. BioPharmX expects the existence of this provision to have an anti-takeover effect with respect to transactions its board of directors does not approve in advance. BioPharmX also anticipates that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Certificate of Incorporation and Bylaw Provisions
BioPharmX's certificate of incorporation and its bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of BioPharmX, including the following:
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board of directors by filling vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management.
The transfer agent and registrar for BioPharmX common stock is Computershare Trust Company, N.A.
BioPharmX common stock is listed on the NYSE American market under the trading symbol "BPMX".
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COMPARISON OF RIGHTS OF HOLDERS OF
BIOPHARMX COMMON STOCK AND TIMBER SECURITIES
BioPharmX is incorporated under the laws of the state of Delaware and Timber is formed as a limited liability company under the laws of the state of Delaware and, accordingly, the rights of the securityholders of each are currently governed by the DGCL and DLLCA, respectively. If the Merger is completed, Timber's securityholders will become stockholders of BioPharmX and their rights will be governed by the DGCL, the Bylaws of BioPharmX and, assuming Proposal Nos. 2 and 3 are approved by BioPharmX's stockholders at the special meeting, the certificate of incorporation of BioPharmX as amended by the amendments thereto attached to this proxy statement/prospectus/information statement as Annex B and Annex C.
The table below summarizes the material differences between the current rights of Timber's securityholders under Timber's certificate of formation and limited liability company agreement, as amended ("LLCA"), and the rights of BioPharmX's stockholders, post-Merger, under BioPharmX's certificate of incorporation and bylaws, each as amended, as applicable, and in effect immediately following the Merger.
While BioPharmX and Timber believe that the summary tables cover the material differences between the rights of their respective securityholders prior to the Merger and the rights of BioPharmX's stockholders following the Merger, these summary tables may not contain all of the information that is important to you. These summaries are not intended to be a complete discussion of the respective rights of BioPharmX's and Timber's securityholders and are qualified in their entirety by reference to the DGCL, the DLLCA, and the various documents of BioPharmX and Timber that are referred to in the summaries. You should carefully read the entire proxy statement/prospectus/information statement for a more complete understanding of the differences between being a securityholder of BioPharmX or Timber before the Merger and being a stockholder of BioPharmX after the Merger. BioPharmX has filed copies of its current certificate of incorporation and bylaws with the SEC and will send copies of the documents referred to in this proxy statement/prospectus/information statement to you upon your request. Timber will also send copies of its documents referred to in this proxy statement/prospectus/information statement to you upon your request. See the section entitled "Where You Can Find More Information" in this proxy statement/prospectus/information statement.
Current Timber Rights Versus Post-Merger BioPharmX Rights
Provision
|
Timber (Pre-Merger) | BioPharmX (Post-Merger) | ||
---|---|---|---|---|
Authorized Capital Stock |
The LLCA authorizes the Timber Board to issue additional units or other interests in Timber in such amounts and in exchange for such consideration as may be determined by the Timber Board. The LLCA authorizes the issuance of common units and non-voting, non-convertible preferred units. |
The certificate of incorporation of BioPharmX authorizes the issuance of up to 450,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share. |
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Provision
|
Timber (Pre-Merger) | BioPharmX (Post-Merger) | ||
---|---|---|---|---|
Number of Managers/Directors |
The LLCA provides that the number of managers on the Timber Board (each, a "Manager") shall be set forth from time by a majority of the outstanding common units, but in no case less than one (1) Manager. Patagonia shall have the right to appoint one Manager on the Board for a period of three (3). Until March 20, 2022, Patagonia shall have the right to appoint one Manager |
The Bylaws of BioPharmX currently constitute that the number of directors shall be set forth from time to time by action of the stockholders or of the directors, or, if the number is not fixed, the number shall be two (2). |
||
|
Timber currently has three (3) Managers. |
|||
Member/Stockholder Nominations and Proposals |
The LLCA does not provide for member nominations or proposals. |
BioPharmX stockholders may make nominations to the Board of Directors or proposals to be included in BioPharmX's proxy statement as set forth in the DGCL. |
||
Removal of Directors |
The LLCA provides that managers shall serve until their resignation, death or removal or the appointment of their successors. Neither the LLCA nor the DLLCA provide for the removal of a Manager. |
BioPharmX directors shall serve until the next annual meeting, resignation or removal. Except as may otherwise be provided by the DGCL, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares entitled to vote at an election of directors. |
||
Special Meetings of Members/Stockholders |
The LLCA provides that a meeting of the members of Timber (each, a "Member" and collectively, the "Members") shall be called by the Timber Board or Members holding at least a majority of the aggregate the common units then outstanding. |
A special meeting of stockholders shall be held at a date and at a time fixed by the directors. |
||
Cumulative Voting |
The LLCA does not have a provision granting cumulative voting rights in the election of its managers. |
The certificate of incorporation of BioPharmX does not have a provision granting cumulative voting rights in the election of its directors. |
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Provision
|
Timber (Pre-Merger) | BioPharmX (Post-Merger) | ||
---|---|---|---|---|
Vacancies |
Vacancies may be filled by the affirmative consent of the Members who have the right to elect such manager pursuant to the terms of the LLCA. |
Any vacancies in the Board of Directors, including unfilled vacancies resulting from the removal of directors for cause or without cause, may be filled by the move of a majority of the remaining directors then in office, although less than a quorum, or by the sole remaining director. |
||
Voting Securities |
Under the LLCA, each holder of the common units shall be entitled one vote for each common unit held thereby. Under the LLCA, the holders of the preferred units are not entitled to vote on any matters. |
Under the certificate of incorporation and bylaws of BioPharmX, each outstanding share of common stock shall entitle the holder thereof to one vote in person or by proxy on each matter properly submitted to the stockholders at a meeting of the stockholders. |
||
Members/Stockholders Agreement; Voting Agreement |
Timber does not have any member agreements with any of its Members in place. |
BioPharmX does not have a stockholders agreement with any of its stockholders in place. |
||
Drag Along/Tag Along Sales |
Pursuant to the LLCA, the Timber Board shall not approve a sale of Timber without the prior written consent of Patagonia. Upon approval by Patagonia, if the Timber Board proceeds with the sale then each common unit holder shall raise no objections against such sale. |
BioPharmX does not have drag along or tag along terms in place. |
||
Securityholder Action by Written Consent |
According to the LLCA, actions by the Members entitled to vote or consent may be taken by vote of the Members entitled to vote or consent at a meeting or by written consent (without a meeting and without a vote) so long as such consent is signed by the Members having not less than the minimum number of units that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present (whether in person, by electronic means or by proxy) and voted. Prompt notice of the action so taken without a meeting shall be given to those Members entitled to vote or consent who have not consented in writing. |
Subject to Section 228 of the DGCL, action required by the DGCL to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action by less than a unanimous written consent shall be given to those stockholders who have not consented in writing. |
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Provision
|
Timber (Pre-Merger) | BioPharmX (Post-Merger) | ||
---|---|---|---|---|
Notice of Member/Stockholder Meeting |
According to the LCCA, actions by the members may be taken at a meeting called by the Timber Board or Members holding at least a majority of the aggregate the common units then outstanding on at least five (5) days' prior written notice to the other members entitled to vote, which notice shall state the purpose or purposes for which such meeting is being called. |
Written notice of all meetings shall be given, stating the time, place, date, and hour of the meeting and stating the place within the city or other municipality or community at which the list of stockholders of the corporation may be examined. The notice of an annual meeting shall state that the meeting is called for the election of directors and for the transaction of other business which may properly come before the meeting and shall (if any other action which could be taken at a special meeting is to be taken at such annual meeting) state the purpose or purposes. The notice of a special meeting shall in all instances state the purpose or purposes for which the meeting is called. The notice of any meeting shall also include, or be accompanied by, any additional statements, information, or documents prescribed by DGCL. Except as otherwise provided by the DGCL, a copy of the notice of any meeting shall be given, personally or by mail, not less than ten days nor more than sixty days before the date of the meeting, unless the lapse of the prescribed period of time shall have been waived, and directed to each stockholder at his record address or at such other address which he may have furnished by request in writing to the Secretary of the corporation. Notice by mail shall be deemed to be given when deposited, with postage thereon prepaid, in the United States Mail. If a meeting is adjourned to another time, not more than thirty days hence, and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the directors, after adjournment, fix a new record date for the adjourned meeting. Notice need not be given to any stockholder who submits a written waiver of notice signed by him before or after the time stated |
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Provision
|
Timber (Pre-Merger) | BioPharmX (Post-Merger) | ||
---|---|---|---|---|
|
therein. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, not the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice. |
|||
Conversion Rights and Protective Provisions |
The LLCA does not provide for conversion rights. Subject to certain limitations, Members have a preemptive right, to the extent set forth in the LLCA, to purchase a pro rata share of new units issued by Timber. |
The certificate of incorporation of BioPharmX does not provide that holders of BioPharmX stock shall have preemptive, conversion or other protective rights. |
||
Right of First Refusal |
Timber does not have a right of first refusal in place. |
BioPharmX does not have a right of first refusal in place. |
||
Right of Co-Sale |
Timber does not have a right of co-sale in place. |
BioPharmX does not have a right of co-sale in place. |
||
Pro Rata Rights |
Timber does not have a pro rata rights provision in place. |
BioPharmX does not have a pro rata rights provision in place. |
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Provision
|
Timber (Pre-Merger) | BioPharmX (Post-Merger) | ||
---|---|---|---|---|
Indemnification of Officers and Directors and Advancement of Expenses; Limitation on Personal Liability |
||||
Indemnification |
Pursuant to the LLCA, Timber shall indemnify and hold harmless any person (each an "Indemnified Person") to the fullest extent permitted under the DLLCA, against all expenses, liabilities and losses (including attorneys' fees, judgments, fines, excise taxes or penalties) reasonably incurred or suffered by such person (or one or more of such person's affiliates) by reason of the fact that such person is or was a Manager; provided that no Indemnified Person shall be indemnified for any expenses, liabilities and losses suffered that are attributable to such Indemnified Person's or its affiliates' gross negligence, bad faith, willful misconduct or knowing violation of law. Expenses, including attorneys' fees and expenses, incurred by any such Indemnified Person in defending a proceeding shall be paid by Timber in advance of the final disposition of such proceeding, including any appeal therefrom, upon receipt of an undertaking by or on behalf of such Indemnified Person to repay such amount if it shall ultimately be determined that such Indemnified Person is not entitled to be indemnified by Timber. |
No director shall be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty by such director as a director. Notwithstanding the foregoing sentence, a director shall be liable to the extent provided by applicable law, (i) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit. If the DGCL hereafter is amended to authorize the further elimination or limitation of the liability of directors, then the liability of a director of the Corporation, in addition to the limitation on personal liability provided herein, shall be limited to the fullest extent permitted by the amended DGCL. No amendment to or repeal of the article of the certificate of incorporation setting forth such indemnification provisions shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for or with respect to any acts or omissions of such director occurring prior to such amendment. |
||
|
BioPharmX shall also indemnify, to the fullest extent permitted by Section 145 of the DGCL, as amended from time to time, each person that such section grants a corporation the power to indemnify. |
266
Provision
|
Timber (Pre-Merger) | BioPharmX (Post-Merger) | ||
---|---|---|---|---|
Advancement of Expenses |
Timber shall indemnify and advance expenses to any officer of Timber, and, at the direction of the Timber Board, may indemnify and advance expenses to any employee or agent of Timber to the same extent and subject to the same conditions under which it is obligated to indemnify, and advance expenses to, an Indemnified Person. |
There is no provision in the BioPharmX certificate of incorporation or bylaws regarding the advancement of expenses. |
||
Distribution Rights/Dividends |
||||
Declaration and Payment of Distributions/Dividends |
Pursuant to the terms contains in the LLCA, the Timber Board shall cause, to the extent funds of Timber are available, quarterly tax distributions to the holders of common and preferred units. Any further distributions are at the sole discretion of the Timber Board. Holders of preferred units are entitled to an eight percent (8%) cumulative annual return. |
The Board of Directors has the right to declare dividends as provided under the DGCL. No holder of any shares of stock of any class shall be entitled to, as a matter of right, to subscribe for or purchase or receive any part of any new or additional issue of shares of stock of any class, or of securities convertible into shares of stock or any class, whether now or hereafter authorized or whether issued for money, for consideration other than money, or by way of dividends. |
||
Amendments to Organizational Documents |
||||
General Provisions |
The LLCA may be amended with the written consent of the Members holding a majority of the common units; provided, however, an amendment or modification that would (a) affect Patagonia in a manner materially and disproportionally adverse to any other Member or member in existence immediately prior to such amendment or modification; or (b) adversely affect the rights specifically granted to Patagonia, in each case, shall require the prior written consent of Patagonia. |
The certificate of incorporation of BioPharmX may be amended in any manner otherwise permitted by law. The Board of Directors shall have the power to adopt, amend, or repeal the by-laws. |
267
PRINCIPAL STOCKHOLDERS OF BIOPHARMX
The following table sets forth certain information with respect to the beneficial ownership of BioPharmX common stock as of March 23, 2020 by:
Percentage ownership of BioPharmX common stock is based on 18,278,219 shares of common stock outstanding as of March 23 2020, which amount excludes the Timber Funding Shares. BioPharmX has determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to BioPharmX's securities. Unless otherwise indicated below, the persons and entities named in the table below have sole voting and investment power with respect to all shares that they beneficially owned, subject to community property laws where applicable. BioPharmX has deemed shares of its common stock subject to options and warrants that are currently exercisable or exercisable within 60 days of March 23, 2020 to be outstanding and to be beneficially owned by the person holding the option and warrant for the purpose of computing the percentage ownership of that person but have not treated them as outstanding for the purpose of computing the percentage ownership of any other person.
Unless otherwise indicated, the address of each of the individuals and entities named below is c/o BioPharmX Corporation, 900 E. Hamilton Ave., Suite 100, Campbell, California 95008
|
Shares Beneficially Owned | ||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Shares of Common Stock |
% | |||||
Directors and Named Executive Officers: |
|||||||
Steven M. Bosacki(1) |
22,750 | * | |||||
David S. Tierney(2) |
227,334 | 1.2 | % | ||||
Michael Hubbard(3) |
77,975 | * | |||||
Stephen Morlock(4) |
103,231 | * | |||||
R. Todd Plott(5) |
42,930 | * | |||||
All executive officers and directors as a group (5 persons)(6) |
444,164 | 2.5 | % | ||||
5% or Greater Stockholders |
|||||||
Timber Pharmaceuticals LLC(7) |
2,200,328 | 12.0 | % |
268
PRINCIPAL SECURITYHOLDERS OF TIMBER
The following table sets forth information with respect to the beneficial ownership of Timber common units as of December 31, 2019 by:
The percentage of common units beneficially owned is based on 10,000 membership interests outstanding as of December 31, 2019.
Beneficial ownership is determined according to the rules of the SEC and generally means that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power of that security, including options that are exercisable within 60 days of December 31, 2019. Except as indicated by the footnotes below, Timber believes, based on the information furnished to it, that the persons named in the table below have sole voting and investment power with respect to all shares of common stock shown that they beneficially own, subject to community property laws where applicable. The information does not necessarily indicate beneficial ownership for any other purpose, including for purposes of Section 13(d) and 13(g) of the Securities Act.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o 50 Tice Boulevard, Suite A26, Woodcliff Lake, NJ 07677.
|
Beneficial Ownership |
||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Units | % | |||||
Greater than 5% Unit Holders: |
|||||||
TardiMed Sciences LLC(1) |
9,000 | 90 | % | ||||
Patagonia Pharmaceuticals LLC(2) |
1,000 | 10 | % | ||||
Current Executive Officers and Managers: |
|||||||
John Koconis(3) |
| | |||||
Zachary Rome(4) |
| | |||||
Michael Derby |
| | |||||
Joseph Lucchese |
| | |||||
Amir Tavakkol(5) |
| | |||||
All current executive officers and managers as a group (5 persons) |
| |
269
PRINCIPAL STOCKHOLDERS OF THE COMBINED ORGANIZATION
The following information gives effect to the BioPharmX Reverse Stock Split described in BioPharmX Proposal No. 2 at an assumed rate of 1-for-25.
The following table and the related notes present certain information with respect to the beneficial ownership of the common stock of the combined company upon consummation of the Merger, assuming the Merger and the Timber Funding closed on April 30, 2020, by:
Unless otherwise indicated in the footnotes to this table, Timber and BioPharmX believe that each of the persons named in this table have sole voting and investment power with respect to the shares indicated as being beneficially owned.
The following table assumes that the closing of the Merger occurred on April 30, 2020. Immediately after the Merger and the conversion of Timber securities, assuming a 1-for-25 reverse stock split is BioPharmX will have 5,644,114 shares of common stock outstanding, with former BioPharmX stockholders owning 656,316 shares and former Timber securityholders (including the Investors in the Timber Funding) owning 4,987,798 shares. Shares of BioPharmX's common stock that may be acquired by an individual or group within 60 days of April 30, 2020, pursuant to the exercise of options or warrants, are deemed to be outstanding for purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for purposes of computing the percentage ownership of BioPharmX common stock of any other person shown in the table.
|
Shares Beneficially Owned | ||||||
---|---|---|---|---|---|---|---|
Name of Beneficial Owner
|
Shares of Common Stock |
Percentage (%) | |||||
Directors and Named Executive Officers: |
|||||||
John Koconis(1) |
| | |||||
Zachary Rome(2) |
62,591 | 1.10 | % | ||||
Michael Derby |
| | |||||
Joseph Lucchese |
| | |||||
Amir Tavakkol, Ph.D.(3) |
15,499 | * | |||||
Gianluca Pirozzi |
| | |||||
Michael Stocum |
| | |||||
Linda Broenniman |
| | |||||
Edward Sitar |
| | |||||
All executive officers and directors as a group (8 persons)(4) |
78,090 | 1.36 | % | ||||
5% or Greater Stockholders |
|||||||
TardiMed Sciences LLC(5) |
2,682,409 | 47.53 | % | ||||
Patagonia Pharmaceuticals LLC(6) |
298,045 | 5.28 | % | ||||
Empery Asset Management L.P.(7) |
468,599 | 8.30 | % | ||||
Altium Growth Fund, LP(8) |
434,599 | 7.70 | % |
270
271
Akerman LLP will pass on the validity of BioPharmX's common stock offered by this proxy statement/prospectus/information statement. Lowenstein Sandler LLP will pass on the validity of certain matters by Timber. The material U.S. federal income tax consequences of the Merger will be passed upon by Akerman LLP and Lowenstein Sandler LLP.
The consolidated financial statements of BioPharmX included in this proxy statement/prospectus/information statement of BioPharmX, which is referred to and made a part of this Registration Statement, have been so included in reliance on the report (which contains an explanatory paragraph relating to BioPharmX's ability to continue as a going concern as described in Note 2 to the consolidated financial statement) of BPM LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
The consolidated financial statements of Timber Pharmaceuticals LLC as of December 31, 2019, and for the period from February 26, 2019 (inception) through December 31, 2019, have been included herein in reliance upon the report of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The audit report covering the December 31, 2019 consolidated financial statements contains an explanatory paragraph that states that Timber's loss from operations and net capital deficiency raise substantial doubt about the entity's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of that uncertainty.
WHERE YOU CAN FIND MORE INFORMATION
BioPharmX is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and is required to file annual, quarterly and other reports, proxy statements and other information with the SEC. The SEC maintains an Internet site (www.sec.gov) that contains reports, proxy and information statements, and various other information about BioPharmX. You may also inspect the documents described herein at BioPharmX's headquarters, 900 E. Hamilton Ave., Suite 100, Campbell, California 95008, during normal business hours.
Information about BioPharmX is also available at its website at www.biopharmx.com. However, the information on the website is not a part of this prospectus and is not incorporated by reference into this prospectus.
Information about Timber is available on its website at www.timberpharma.com. However, the information on the website is not a part of this prospectus and is not incorporated by reference into this prospectus.
272
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires BioPharmX's directors, executive officers and any persons who own more than 10% of its common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by SEC regulation to furnish BioPharmX with copies of all Section 16(a) forms that they file. Based solely upon the review of the copies of such forms provided to BioPharmX and written representations from our named executive officers and directors with respect to fiscal year 2020, BioPharmX believes that all Section 16(a) filing requirements during fiscal year 2020 were complied with.
BioPharmX will mail without charge, upon written request, a copy of its Annual Report on Form 10-K for the year ended January 31, 2020, including the financial statements and list of exhibits, and any exhibit specifically requested. Requests should be sent to:
Investor Relations
BioPharmX Corporation
900 E. Hamilton Ave., Suite 100
Campbell, California 95008
The Annual Report is also available on the Investor Relations section of BioPharmX's website, which is located at http://biopharmx.investorroom.com/overview.
"Householding"Stockholders Sharing the Same Last Name and Address
The SEC has adopted rules that permit companies and intermediaries (such as brokers) to implement a delivery procedure called "householding." Under this procedure, multiple stockholders who reside at the same address may receive a single copy of our annual report and proxy materials unless the affected stockholder has provided contrary instructions. This procedure reduces printing costs and postage fees and helps protect the environment as well.
With regard to this special meeting of stockholders, a number of brokers with account holders who are BioPharmX Corporation stockholders will be "householding" our annual report and proxy materials. A single set of annual report and other proxy materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be "householding" communications to your address, "householding" will continue until you are notified otherwise or until you revoke your consent. Stockholders may revoke their consent at any time by contacting Computershare Trust Company, N.A. by email through their website at www.computershare.com/contactus or by phone at (877) 373-6374.
Upon written or oral request, BioPharmX will promptly deliver a separate copy of the annual report and other proxy materials to any stockholder at a shared address to which a single copy of any of those documents was delivered. To receive a separate copy of the annual report and other proxy materials, you may write or call the Investor Relations department at BioPharmX Corporation, 900 E. Hamilton Ave., Suite 100, Campbell, California 95008, Attn: Investor Relations, telephone number (650) 889-5020.
Any stockholders who share the same address and currently receive multiple copies of BioPharmX's annual report and other proxy materials who wish to receive only one copy in the future can contact their bank, broker or other holder of record to request information about householding or the Investor Relations department at the address or telephone number listed above.
273
Any stockholder wishing to communicate with the Board of Directors may write to the Board of Directors at BioPharmX Corporation, 900 E. Hamilton Ave., Suite 100, Campbell, California 95008. The Corporate Secretary will forward these letters and emails directly to our Board of Directors. Stockholders may indicate in their letters and email messages if their communication is intended to be provided to certain director(s) only. BioPharmX reserves the right not to forward to the Board of Directors any abusive, threatening or otherwise inappropriate materials.
274
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
BioPharmX Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of BioPharmX Corporation and its subsidiary (the "Company") as of January 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders' equity (deficit), and cash flows for each of the two years in the period ended January 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that BioPharmX Corporation and its subsidiary will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company's recurring losses from operations, available cash and accumulated deficit raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Change in Accounting Principal
As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for leases in 2020 due to the adoption of the new lease standard.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2014.
/s/ BPM LLP
San Jose, California
March 27, 2020
F-2
BIOPHARMX CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
|
January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Assets |
|||||||
Current assets: |
|||||||
Cash and cash equivalents |
$ | 727 | $ | 3,069 | |||
Prepaid expenses and other |
259 | 316 | |||||
| | | | | | | |
Total current assets |
986 | 3,385 | |||||
Property and equipment, net |
93 |
148 |
|||||
Operating lease right-of-use asset, net |
936 | | |||||
Other |
115 | 121 | |||||
| | | | | | | |
Total assets |
$ | 2,130 | $ | 3,654 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Liabilities and Stockholders' Equity (Deficit) |
|||||||
Current liabilities: |
|||||||
Accounts payable |
$ | 564 | $ | 1,363 | |||
Accrued expenses and other |
942 | 934 | |||||
Note payable, net of discount and issuance costs of $522 |
178 | | |||||
| | | | | | | |
Total current liabilities |
1,684 | 2,297 | |||||
Long-term liabilities: |
|||||||
Non-current operating lease liability |
761 | | |||||
Other |
24 | 59 | |||||
| | | | | | | |
Total liabilities |
2,469 | 2,356 | |||||
| | | | | | | |
Commitments and contingencies (Note 5) |
|||||||
Stockholders' equity (deficit): |
|||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; none issued and outstanding as of January 31, 2020 and 2019 |
| | |||||
Common stock, $0.001 par value; 450,000,000 shares authorized; 15,227,891 and 8,732,612 shares issued and outstanding as of January 31, 2020 and 2019, respectively |
15 | 9 | |||||
Additional paid-in capital |
87,867 | 79,823 | |||||
Accumulated deficit |
(88,221 | ) | (78,534 | ) | |||
| | | | | | | |
Total stockholders' equity (deficit) |
(339 | ) | 1,298 | ||||
| | | | | | | |
Total liabilities and stockholders' equity (deficit) |
$ | 2,130 | $ | 3,654 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Note: Share amounts as of January 31, 2019 have been adjusted to reflect the impact of a 1-for-25 reverse stock split effected in April 2019 as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
F-3
BIOPHARMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
|
Year ended January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Revenues, net |
$ | | $ | 57 | |||
Cost of goods sold |
| 83 | |||||
| | | | | | | |
Gross margin |
| (26 | ) | ||||
| | | | | | | |
Operating expenses: |
|||||||
Research and development |
4,690 | 9,079 | |||||
Sales and marketing |
714 | 2,157 | |||||
General and administrative |
4,282 | 5,244 | |||||
| | | | | | | |
Total operating expenses |
9,686 | 16,480 | |||||
| | | | | | | |
Loss from operations |
(9,686 | ) | (16,506 | ) | |||
Change in fair value of warrant and stock liabilities |
291 |
28 |
|||||
Other income (expense), net |
(290 | ) | (778 | ) | |||
| | | | | | | |
Loss before provision for income taxes |
(9,685 | ) | (17,256 | ) | |||
Provision for income taxes |
2 | 2 | |||||
| | | | | | | |
Net loss and comprehensive loss |
$ | (9,687 | ) | $ | (17,258 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Basic and diluted net loss per share |
$ | (0.75 | ) | $ | (2.23 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Shares used in computing basic and diluted net loss per share |
12,921,000 | 7,727,000 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Note: Share and per share amounts for the year ended January 31, 2019 have been adjusted to reflect the impact of a 1-for-25 reverse stock split effected in April 2019 as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
BIOPHARMX CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
|
Common Stock | |
|
Total Stockholders' Equity (Deficit) |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Additional Paid-in Capital |
Accumulated Deficit |
||||||||||||||
|
Shares | Amount | ||||||||||||||
Balance as of February 1, 2018 |
6,402,500 | $ | 6 | $ | 66,344 | $ | (61,278 | ) | $ | 5,072 | ||||||
Cumulative-effect adjustment from adoption of new accounting pronouncement |
| | | 2 | 2 | |||||||||||
Issuance of common stock due to exercise of options |
5,602 | 1 | 1 | | 2 | |||||||||||
Issuance of common stock due to exercise of warrants |
2,324,510 | 2 | 10,543 | | 10,545 | |||||||||||
Stock-based compensation expense |
| | 2,061 | | 2,061 | |||||||||||
Fair value of modification of warrants |
874 | | 874 | |||||||||||||
Net loss |
| | | (17,258 | ) | (17,258 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Balance as of January 31, 2019 |
8,732,612 | 9 | 79,823 | (78,534 | ) | 1,298 | ||||||||||
Issuance of common stock due to exercise of options |
1,667 | | 4 | | 4 | |||||||||||
Issuance of common stock, net of issuance costs of $0.6 million |
6,493,612 | 6 | 7,194 | | 7,200 | |||||||||||
Fair value of common stock liability reclassed to accrued expenses and other |
(663 | ) | (663 | ) | ||||||||||||
Fair value of modification of warrants |
308 | 308 | ||||||||||||||
Fair value of warrant issued with note payable |
460 | 460 | ||||||||||||||
Stock-based compensation expense |
741 | 741 | ||||||||||||||
Net loss |
(9,687 | ) | (9,687 | ) | ||||||||||||
| | | | | | | | | | | | | | | | |
Balance as of January 31, 2020 |
15,227,891 | $ | 15 | $ | 87,867 | $ | (88,221 | ) | $ | (339 | ) | |||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Note: Share amounts as of January 31, 2019 and February 1, 2018 have been adjusted to reflect the impact of a 1-for-25 reverse stock split effected in April 2019 as discussed in Note 1.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
BIOPHARMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
Year ended January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Cash flows from operating activities: |
|||||||
Net loss |
$ | (9,687 | ) | $ | (17,258 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
|||||||
Stock-based compensation expense |
741 | 2,061 | |||||
Fair value of modification of warrants |
308 | 874 | |||||
Depreciation expense |
61 | 62 | |||||
Amortization of note discount |
13 | | |||||
Change in fair value of warrant and stock liabilities |
(291 | ) | (28 | ) | |||
Impairment loss on property and equipment |
78 | | |||||
Other non-cash expense |
| 3 | |||||
Changes in assets and liabilities: |
|||||||
Prepaid expenses and other assets |
63 | (32 | ) | ||||
Accounts payable |
(799 | ) | (13 | ) | |||
Accrued expenses and other liabilities |
(594 | ) | (661 | ) | |||
| | | | | | | |
Net cash used in operating activities |
(10,107 | ) | (14,992 | ) | |||
| | | | | | | |
Cash flows from investing activities: |
|||||||
Purchases of property and equipment |
(30 | ) | (43 | ) | |||
| | | | | | | |
Net cash used in investing activities |
(30 | ) | (43 | ) | |||
| | | | | | | |
Cash flows from financing activities: |
|||||||
Proceeds from the issuance of common stock, net of issuance costs |
7,200 | | |||||
Proceeds from exercises of common stock warrants |
| 10,546 | |||||
Proceeds from exercises of stock options |
4 | 1 | |||||
Payments on financing lease obligation |
(34 | ) | (19 | ) | |||
Proceeds from issuance of note payable |
625 | | |||||
| | | | | | | |
Net cash provided by financing activities |
7,795 | 10,528 | |||||
| | | | | | | |
Net decrease in cash and cash equivalents |
(2,342 | ) | (4,507 | ) | |||
Cash and cash equivalents as of beginning of year |
3,069 | 7,576 | |||||
| | | | | | | |
Cash and cash equivalents as of end of year |
$ | 727 | $ | 3,069 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Non-cash investing activities: |
|||||||
Property and equipment acquired through finance lease |
$ | 54 | $ | 61 | |||
Non-cash financing activities: |
|||||||
Issuance of warrants in connection with note payable |
$ | 460 | $ | | |||
Fair value of common stock liability reclassed to accrued expenses and other |
$ | 663 | $ | | |||
Supplemental disclosures: |
|||||||
Income taxes paid |
$ | 2 | $ | 2 |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BioPharmX Corporation (the Company) is incorporated under the laws of the state of Delaware and originally incorporated on August 30, 2010 in Nevada under the name Thompson Designs, Inc. The Company has one wholly-owned subsidiary, BioPharmX, Inc., a Nevada corporation. The Company is a specialty pharmaceutical company focused on the dermatology market. Its focus is to develop products that treat dermatologic conditions that are not being adequately addressed or those where current therapies and approaches are suboptimal. Its strategy is to bring new products to market by identifying optimal delivery mechanisms and/or alternative applications for United States Food and Drug Adminstration (FDA) approved or well characterized active pharmaceutical ingredients (API). The Company aims to reduce the time, cost and risks typically associated with new product development by utilizing APIs with demonstrated safety profiles and, when applicable, taking advantage of the regulatory approval pathway under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act. Section 505(b)(2) permits an applicant for a new product, such as a new or improved formulation or a new use of an approved product, to rely in part on literature and/or the FDA's findings of safety and/or effectiveness for a similar previously-approved product. The Company's approach is to identify the limitations of current treatment options and work to develop novel products using our proprietary HyantX topical drug delivery system.
Since the Company's inception, substantially all of the Company's efforts have been devoted to developing its product candidates, including conducting preclinical and clinical trials, and providing general and administrative support for its operations. The Company has financed its operations primarily through the sale of equity and convertible notes.
On January 28, 2020, the Company entered into an Agreement and Plan of Merger and Reorganization (the Merger Agreement), with Timber Pharmaceuticals LLC, a Delaware limited liability company (Timber), and BITI Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of BioPharmX (Merger Sub). Subject to the terms and conditions contained in the Merger Agreement, including approval of the transactions contemplated therein by the Company's stockholders and by Timber's members, Merger Sub will be merged with and into Timber (the Merger), with Timber surviving the Merger as a wholly-owned subsidiary of BioPharmX. As a condition to the closing of the Merger, Timber has agreed to secure $20 million of financing for the combined company. The Merger is currently expected to be completed in the first quarter of fiscal year 2021.
Under the Merger Agreement, following the Merger, the Timber members, including the investors funding the $20 million investment, will own approximately 88.5% of the outstanding common stock of BioPharmX and the BioPharmX stockholders will own approximately 11.5% of the outstanding common stock, subject to certain adjustments as more particularly set forth in the Merger Agreement. The holder of a preferred membership interest in Timber of approximately $1.7 million will receive shares of newly designated preferred stock of BioPharmX which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the preferred units of Timber currently outstanding. In addition, as part of the financing transaction, post-closing the Company will become obligated to issue warrants to purchase additional shares of common stock to the financing source, which may further dilute the holders of interests in the combined company. Upon completion of the Merger, the Company will change its name to Timber Pharmaceuticals, Inc. and the officers and directors of Timber will become the officers and directors of BioPharmX.
F-7
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In connection with the Merger Agreement, the Company entered into a Credit Agreement with Timber, pursuant to which Timber has agreed to make a bridge loan to the Company (the Bridge Loan), in an aggregate amount of $2.25 million with $250,000 original issue discount. As of the date of this report, the Company has received $1,250,000 under the Bridge Loan and the remaining $1,000,000 is expected upon closing of the Merger. As of January 31, 2020, the Company had received $625,000 with $75,000 original issue discount.
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses recognized during the reported period. Actual results could differ from those estimates.
Certain prior year amounts have been reclassified to conform to the current year presentation. Accounts receivable have been included in prepaid expenses and other current assets in the consolidated balance sheets. The amount for the prior period has been reclassified to be consistent with the current year presentation and has no impact on previously reported total assets, total stockholders' equity (deficit) or net loss.
On April 25, 2019, the Company effected a 1-for-25 reverse stock split of its common stock. As a result of the reverse stock split, every twenty-five shares of the Company's pre-reverse split outstanding common stock was combined and reclassified into one share of common stock. Par value per share remained unchanged at $0.001 per share. Proportionate voting rights and other rights of common stockholders were not affected by the reverse stock split. No fractional shares were issued in connection with the reverse stock split; stockholders who would otherwise hold a fractional share of common stock received cash in an amount equal to the product obtained by multiplying (i) the closing price of the Company's common stock on the last trading day prior to the effective date of the reverse stock split, by (ii) the number of shares of the Company's common stock held by the stockholder that would otherwise have been exchanged for the fractional share interest. All stock options and warrants outstanding and common stock reserved for issuance under the Company's equity incentive plans immediately prior to the reverse stock split were adjusted by dividing the number of affected shares of common stock by 25 and, as applicable, multiplying the exercise price by 25, as a result of the reverse stock split. All of the share numbers, share prices and exercise prices have been adjusted on a
F-8
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
retroactive basis as if such 1-for-25 reverse stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, prepaid and other current assets, accounts payable, accrued expenses, notes payable and other liabilities approximate fair value due to their short maturities.
Property and equipment is stated at cost less accumulated depreciation. Depreciation is recognized using the straight-line method. Repairs and maintenance costs are expensed as incurred.
Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management determines whether there has been an impairment by comparing the anticipated undiscounted future net cash flows to the related asset's carrying value. If an asset is considered impaired, the asset is written down to fair value, which is determined based either on discounted cash flows or appraised value, depending on the nature of the asset. For the year ended January 31, 2020, the Company recorded an impairment loss of approximately $78,000 on property and equipment, net as result of the closure of the office and laboratory space in San Jose, California. The Company did not identify any impairment losses for the year ended January 31, 2019.
The Company accounts for certain of its warrants as derivative liabilities based on provisions relating to cash settlement options. The Company recorded a liability for the fair value of the warrants at the time of issuance, and at each reporting date the warrants are revalued to the instrument's fair value. The fair value of the warrants are estimated using the Black-Scholes pricing model. This liability is subject to fair value re-measurement until the warrants are exercised or expired, and any change in fair value is recognized as other income or expense in the consolidated statements of operations and comprehensive loss.
In January 2020, the Company entered into an exchange agreement with certain warrant holders, in which approximately 2.3 million warrants to purchase shares of common stock will be exchanged for 850,000 shares of common stock. As of January 31, 2020, the common stock liability included the value of common stock to be issued in the exchange. The value of these shares was approximately $383,000 as of January 31, 2020 and is included in accrued expenses and other on the consolidated balance sheets.
F-9
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue is related to the iodine dietary supplement, VI2OLET, which was divested in November 2018. Effective February 1, 2018, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), using the modified retrospective transition method. The cumulative effect of the initial application of ASC 606 of approximately $2,000 was recognized as an adjustment to accumulated deficit and a decrease to deferred revenue as of February 1, 2018. The adoption of ASC 606 did not have a material impact on the Company's consolidated balance sheets, or statements of operations and comprehensive loss and cash flows for the year ended January 31, 2019.
Cost of goods sold is related to the iodine dietary supplement, VI2OLET, which was divested in November 2018. Cost of good sold includes direct costs related to the sale of VI2OLET, write-downs of excess and obsolete inventories and amortization of intangible assets.
Research and Development Expenses
Research and development expenses are expensed as incurred and consist primarily of personnel costs, including salaries, benefits and stock-based compensation, clinical studies performed by contract research organizations, product development, consulting, materials, supplies, and facilities and other overhead allocations.
The Company accounts for income taxes using the liability method whereby deferred tax asset and liability account balances are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established to reduce deferred tax assets when management estimates, based on available objective evidence, that it is more-likely-than-not that the benefit will not be realized for the deferred tax assets.
The Company's policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. No interest expense was recognized during the periods presented.
The Company recognizes stock-based compensation for equity awards on a straight-line basis over their vesting periods based on the grant date fair value. The Company estimates the fair value of stock options granted using the Black-Scholes pricing model. This model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. Equity instruments issued to non-employees are recorded at their fair value on the measurement date and are subject to periodic adjustment as the underlying equity instruments vest.
F-10
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive loss is the change in equity of an enterprise, except those resulting from stockholder transactions. Accordingly, comprehensive loss includes certain changes in equity that are excluded from net loss. For the years ended January 31, 2020 and 2019, the Company's comprehensive loss is equal to its net loss. There were no components of other comprehensive loss for any of the periods presented.
Basic net loss per share attributable to common stockholders is calculated based on the weighted average number of shares of the Company's common stock outstanding during the period. The weighted average shares outstanding for the years ended January 31, 2020 and 2019 exclude 7,733 shares of unvested restricted common stock. Diluted net loss per share attributable to common stockholders is calculated based on the weighted average number of shares of the Company's common stock outstanding and other dilutive securities outstanding during the period.
As of January 31, 2020 and 2019, approximately 8,421,000 and 7,308,000, potentially dilutive securities, respectively, were excluded from the computation of diluted loss per share because their effect on net loss per share would be anti-dilutive.
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (ASU) 2016-02, Leases, and in July 2018, ASU No. 2018-11, Targeted Improvements, which requires entities to recognize assets and liabilities for leases with lease terms greater than twelve months. The Company adopted this standard as of February 1, 2019, and the Company's leases are classified as operating leases and will continue to be classified as operating leases under the new accounting method. Adoption of the new standard resulted in the recording of an operating lease right-to-use asset of $1.2 million, which represents the present value of the remaining lease payments as of the date of adoption discounted using an incremental borrowing rate of 15%, and an operating lease liability of $1.3 million. The adoption did not have an impact on the Company's consolidated statements of operations and comprehensive loss or cash flows. See Note 10 for further information.
In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. Effective February 1, 2019, the Company adopted this standard, and the adoption did not have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value Measurement, which amended certain disclosure requirements over Level 1, Level 2 and Level 3 fair value measurements. The amendment is effective for annual and interim periods beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact of adopting this amendment, but does not anticipate it will have a material impact on its disclosures.
F-11
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business, or no material effect is expected on the consolidated financial statements as a result of future adoption.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern and will continue to conduct operations for the foreseeable future and realize assets and discharge liabilities in the ordinary course of operations. As of January 31, 2020, the Company had cash and cash equivalents of $0.7 million and working capital deficit of $0.7 million.
The Company has incurred recurring losses and negative cash flows from operations since inception and has funded its operating losses through the sale of common stock, preferred stock, warrants to purchase common stock and the issuance of notes. The Company incurred a net loss of $9.7 million and $17.3 million for the years ended January 31, 2020 and 2019, respectively, and had an accumulated deficit of $88.2 million as of January 31, 2020.
The Company has a limited operating history and its prospects are subject to risks, expenses and uncertainties frequently encountered by companies in its industry. The Company will require significant additional financing in the future. If the Merger is not consummated, it will likely be required to wind-down and dissolve as a company and would be required to pay all its debts and contractual obligations and set aside certain reserves for potential future claims. While the Company will also attempt to consummate a financing to allow it to continue as a going concern, based on its recent strategic process, it does not believe that it will be able to consummate a financing on reasonable terms sufficient to obtain such additional financial resources. These factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not contain any adjustments that might result from the resolution of any of the above uncertainties.
3. BALANCE SHEET DETAILS
|
January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
|
(in thousands) |
||||||
Property and equipment, net: |
|||||||
Laboratory equipment |
$ | 214 | $ | 196 | |||
Computer and equipment |
96 | 129 | |||||
| | | | | | | |
|
310 | 325 | |||||
Less: accumulated depreciation |
(217 | ) | (177 | ) | |||
| | | | | | | |
|
$ | 93 | $ | 148 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Depreciation expense for the years ended January 31, 2020 and 2019 was approximately $61,000 and $62,000, respectively. In the fourth quarter of fiscal year 2020, the Company recorded a write-down of
F-12
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. BALANCE SHEET DETAILS (Continued)
approximately $78,000 for certain property and equipment as result of the closure of the office and laboratory space in San Jose, California.
|
January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
|
(in thousands) |
||||||
Accrued expenses and other current liabilities: |
|||||||
Fair value of common stock liability |
$ | 383 | $ | | |||
Operating lease liabilitycurrent portion |
260 | | |||||
Legal |
138 | 45 | |||||
Compensation |
51 | 371 | |||||
Research and development |
49 | 399 | |||||
Other |
61 | 119 | |||||
| | | | | | | |
|
$ | 942 | $ | 934 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
4. FAIR VALUE MEASUREMENTS
The Company recognizes and discloses the fair value of its assets and liabilities using a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). Each level of input has different levels of subjectivity and difficulty involved in determining fair value.
As of January 31, 2020, the Company recorded a $0.4 million common stock liability, which is classified as Level 1 within the fair value hierarchy.
F-13
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. FAIR VALUE MEASUREMENTS (Continued)
The fair value of the warrant liability was classified as a Level 3 liability, as the Company uses unobservable inputs to value it. The table below presents the activity within Level 3 of the fair value hierarchy (in thousands):
|
Warrant Liability |
|||
---|---|---|---|---|
Balance as of February 1, 2018 |
$ | 39 | ||
Change in fair value of warrants |
(28 | ) | ||
| | | | |
Balance as of January 31, 2019 |
11 | |||
Change in fair value of warrants |
(11 | ) | ||
| | | | |
Balance as of January 31, 2020 |
$ | | ||
| | | | |
| | | | |
| | | | |
The warrant liability is included in accrued expenses and other current liabilities on the consolidated balance sheets.
5. COMMITMENTS AND CONTINGENCIES
As part of the Merger process, the Company's board of directors approved a retention bonus plan totaling $120,000 to be paid to employees. Payments under the retention bonus plan are based on meeting certain objectives. As of January 31, 2020, none of these objectives had been met. In the event the remaining employees are terminated as part of the Merger, severance payment obligations of approximately $75,000 are expected to be paid.
See Note 10 for discussion regarding the Company's operating and financing lease commitments.
The Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. In addition, the Company may receive letters alleging infringement of patents or other intellectual property rights. The Company is not a party to any material legal proceeding, nor is it aware of any pending or threatened litigation that the Company believes is likely to have a material adverse effect on its business, results of operations, cash flows or financial condition should such litigation be resolved unfavorably. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.
The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company's technology. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.
F-14
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. COMMITMENTS AND CONTINGENCIES (Continued)
The Company has entered into indemnification agreements with its directors, officers and certain of its medical advisors that may require the Company to indemnify its directors, officers and such medical advisors against liabilities that may arise by reason of their status or service in these roles, other than liabilities arising from willful misconduct of the individual. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with such indemnifications has been recorded to date.
6. STOCKHOLDERS' EQUITY (DEFICIT)
In March 2019, the Company issued 1,745,800 shares of common stock at a price per share of $0.09 resulting in net proceeds of $3.6 million in a registered direct offering.
On May 16, 2019, the Company entered into a Capital on Demand TM Sales Agreement (Sales Agreement) with JonesTrading Institutional Services LLC, as agent (JonesTrading), pursuant to which the Company may offer and sell, from time to time through JonesTrading, shares of the Company's common stock, par value $0.001 per share (the Common Stock), having an aggregate offering price of up to $8.5 million. As of January 31, 2020, the Company had sold an aggregate of 4,747,812 shares of Common Stock pursuant to the terms of such Sales Agreement for aggregate net proceeds of $3.6 million.
A summary of warrants outstanding as of January 31, 2020 is as follows:
|
Total | Price per Share |
Expiration Date | |||||
---|---|---|---|---|---|---|---|---|
Warrants related to June 2015 financing |
4,363 | $ | 68.75 | June 2020 | ||||
Warrants related to April 2016 financing |
70,581 | $ | 30.00 | April 2021 | ||||
Warrants related to September 2016 financing(1)(4) |
51,466 | $ | 18.75 | September 2021 to March 2022 |
||||
Warrants related to November 2016 financing |
1,216,230 | $ | 8.75 | November 2024 | ||||
Warrants related to November 2016 financing |
35,818 | $ | 10.938 | November 2022 | ||||
Warrants related to November 2016 financing |
7,926 | $ | 8.25 | November 2022 | ||||
Warrants related to April 2017 financing |
32,053 | $ | 22.50 | October 2022 | ||||
Warrants related to October 2017 financing |
153,848 | $ | 7.50 | October 2022 | ||||
Warrants related to November 2017 financing(4) |
2,277,412 | $ | 5.00 | November 2022 | ||||
Warrants related to November 2018 financing(2)(4) |
1,066,670 | $ | 4.10 | May/June 2021 | ||||
Warrants related to note payable(3) |
2,255,336 | $ | 0.01 | July 2022 | ||||
| | | | | | | | |
|
7,171,703 | |||||||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
F-15
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
reported as other income or expense. At the time of issuance, approximately $566,000 was recorded as a warrant liability. To value the warrant liability, the Company used the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.1%, contractual term of 5 years, expected volatility of 95.8% and a dividend rate of 0%. As of January 31, 2020, there was no fair value related to these warrants.
On July 5, 2016, the Company adopted the 2016 Equity Incentive Plan ("2016 Plan"), which permits the Company to grant equity awards to directors, officers, employees and consultants. In connection with the adoption of the 2016 Plan, the Company ceased to grant equity awards under its 2014 Equity Incentive Plan ("2014 Plan"), which was adopted on January 23, 2014. All grants and awards under the 2014 Plan, including stock options previously issued under BioPharmX, Inc.'s 2011 Equity Incentive
F-16
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
Plan that were substituted with stock options issued under the 2014 Plan, remain in effect in accordance with their terms. Stock options generally vest in one to four years and expire ten years from the date of grant. In March 2017, the 2016 Plan was amended and the shares reserved for issuance was increased by 800,000 shares to a total of 960,000 shares. In August 2018, the 2016 Plan was amended and the shares reserved for issuance were increased by 2,000,000 shares to a total of 2,960,000 shares of common stock. The 2014 Plan and 2016 Plan are referred to collectively as the "Plans."
The following table summarizes the Company's stock option activities under the Plans:
|
Available for Grant |
Shares | Weighted Average Exercise Prices |
Remaining Contractual Life |
Aggregate Intrinsic Value |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
(in thousands) |
|||||||||||
Balance as of February 1, 2018 |
75,396 | 988,452 | $ | 10.30 | 9.17 | $ | 304 | |||||||||
Shares authorized for issuance |
2,000,000 | | ||||||||||||||
Granted |
(417,660 | ) | 417,660 | $ | 5.23 | |||||||||||
Exercised |
| (11,129 | ) | $ | 2.53 | |||||||||||
Canceled and returned to the 2016 Plan |
449,839 | (449,839 | ) | $ | 7.52 | |||||||||||
Canceled subsequent to termination of the 2014 Plan |
| (27,199 | ) | $ | 25.33 | |||||||||||
| | | | | | | | | | | | | | | | |
Balance as of January 31, 2019 |
2,107,575 | 917,945 | $ | 9.02 | 7.92 | $ | 23 | |||||||||
Granted |
(893,820 | ) | 893,820 | $ | 0.84 | |||||||||||
Exercised |
| (1,667 | ) | $ | 2.50 | |||||||||||
Canceled and returned to the 2016 Plan |
524,231 | (524,231 | ) | $ | 5.26 | |||||||||||
Canceled subsequent to termination of the 2014 Plan |
| (51,375 | ) | $ | 25.43 | |||||||||||
| | | | | | | | | | | | | | | | |
Balance as of January 31, 2020 |
1,737,986 | 1,234,492 | $ | 4.02 | 8.37 | $ | 1 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Vested and exercisable |
508,154 | $ | 6.43 | 7.30 | $ | | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Vested and expected to vest |
1,069,509 | $ | 4.27 | 8.25 | $ | 1 | ||||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The Company has also awarded inducement option grants to purchase common stock to new employees outside of the 2016 Plan as permitted under Section 711(a) of the NYSE American Company Guide. Such options vest at the rate of 25% of the shares on the first anniversary of the commencement of such employee's employment with the Company, and then one forty-eighth (1/48) of
F-17
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. STOCKHOLDERS' EQUITY (DEFICIT) (Continued)
the shares monthly thereafter subject to such employee's continued service. The following table summarizes the Company's inducement grant stock option activities:
|
Shares | Weighted Average Exercise Prices |
Remaining Contractual Life |
Aggregate Intrinsic Value |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
(in thousands) |
|||||||||
Balance as of February 1, 2018 |
26,400 | $ | 35.90 | 7.72 | $ | | |||||||
Granted |
16,000 | $ | 4.75 | ||||||||||
Canceled |
(11,400 | ) | $ | 41.22 | |||||||||
| | | | | | | | | | | | | |
Balance as of January 31, 2019 |
31,000 | $ | 17.86 | 6.6 | $ | | |||||||
Canceled |
(24,333 | ) | $ | 21.46 | |||||||||
| | | | | | | | | | | | | |
Balance as of January 31, 2020 |
6,667 | $ | 4.75 | | $ | | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and exercisable |
6,667 | $ | 4.75 | | $ | | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Vested and expected to vest |
6,667 | $ | 4.75 | | $ | | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table summarizes significant ranges of outstanding and exercisable options as of January 31, 2020:
|
Options Outstanding | Options Vested and Exercisable |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of Exercise Prices
|
Number Outstanding |
Weighted Average Remaining Contractual Life (in Years) |
Weighted Average Exercise Prices |
Number Vested and Exercisable |
Weighted Average Exercise Prices |
|||||||||||
$0.44 - $0.84 |
666,764 | 9.21 | $ | 0.79 | 175,072 | $ | 0.81 | |||||||||
$0.85 - $4.00 |
95,094 | 6.59 | $ | 2.54 | 82,206 | $ | 2.54 | |||||||||
$4.01 - $10.50 |
388,625 | 8.06 | $ | 5.62 | 172,205 | $ | 5.84 | |||||||||
$10.51- $18.50 |
69,893 | 4.70 | $ | 16.78 | 64,555 | $ | 16.69 | |||||||||
$18.51 - $28.50 |
6,400 | 6.30 | $ | 20.19 | 6,400 | $ | 20.19 | |||||||||
$28.51 - $75.00 |
14,383 | 4.33 | $ | 51.17 | 14,383 | $ | 51.17 | |||||||||
| | | | | | | | | | | | | | | | |
|
1,241,159 | 8.33 | $ | 4.02 | 514,821 | $ | 6.41 | |||||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
The total intrinsic value of stock options exercised during the year ended January 31, 2020 was di minimus. The total intrinsic value of stock options exercised during the year ended January 31, 2019 was approximately $26,000. During the year ended January 31, 2019, certain stock options were exercised pursuant to net exercise provisions, resulting in 138,157 shares of common stock retired in exchange of the total exercise price. The weighted average grant date fair values of the stock options granted during the years ended January 31, 2020 and 2019 was $0.44 and $3.00, respectively.
F-18
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. STOCK-BASED COMPENSATION
The following table summarizes the stock-based compensation expenses included in the statements of operations and comprehensive loss (in thousands):
|
Year ended January 31, |
||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Research and development |
$ | 238 | $ | 654 | |||
Sales and marketing |
57 | 414 | |||||
General and administrative |
446 | 993 | |||||
| | | | | | | |
Total |
$ | 741 | $ | 2,061 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company estimates the fair value of stock options granted using the Black-Scholes pricing model. This model also requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. For employee grants, the fair value is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period. As of January 31, 2020, total compensation costs related to unvested, but not yet recognized, stock-based awards was $0.8 million, net of estimated forfeitures. This cost will be amortized on a straight-line basis over a weighted average remaining period of 2.29 years and will be adjusted for subsequent changes in estimated forfeitures.
The following assumptions were used to calculate the estimated fair value of awards granted:
|
Year ended January 31, | |||
---|---|---|---|---|
|
2020 | 2019 | ||
Expected volatility |
68.3% - 70.8% | 78.8% - 91.0% | ||
Expected term in years |
4.0 | 4.0 | ||
Risk-free interest rate |
1.88% - 2.51% | 2.43% - 2.98% | ||
Expected dividend yield |
| |
The expected term represents the period that the Company's stock-based awards are expected to be outstanding. For awards granted subject only to service vesting requirements, the Company utilizes the simplified method for estimating the expected term of the stock-based award, instead of historical exercise data.
The Company uses the historical volatility of the price of shares of common stock of selected public companies, including the Company's stock price, in the biotechnology sector due to its limited trading history.
F-19
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. STOCK-BASED COMPENSATION (Continued)
The Company bases the risk-free interest rate used in the Black-Scholes pricing model upon the implied yield curve currently available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term used as the assumption in the model.
The Company has never paid dividends on its common shares and currently does not intend to do so and, accordingly, the dividend yield percentage is zero for all periods.
8. EMPLOYEE BENEFIT PLAN
The Company sponsors a 401(k) defined contribution plan for its employees. This plan provides for tax-deferred salary deductions for all full-time employees. Employee contributions are voluntary. Employees may contribute up to 100% of their annual compensation to this plan, as limited by an annual maximum amount as determined by the Internal Revenue Service. The Company may match employee contributions in amounts to be determined at the Company's sole discretion. The Company has made no contributions to the plan for the years ended January 31, 2020 and 2019.
9. INCOME TAXES
No federal income taxes were paid during the years ended January 31, 2020 and 2019 due to the Company's net losses. The provision of income taxes consist of state minimum income taxes.
As of January 31, 2020, the Company had available federal net operating loss ("NOL") carryforwards of $77.4 million which will begin to expire in 2030 and California state NOL carryforwards of $70.8 million which will begin to expire in 2033. As of January 31, 2020 and 2019, the net deferred tax assets of approximately $24.0 million and $21.1 million, respectively, generated primarily by NOL carryforwards, have been fully reserved due to the uncertainty surrounding the realization of such benefits. The net valuation allowance increased by $2.6 million and $4.9 million during the years ended January 31, 2020 and 2019, respectively.
Current tax laws impose substantial restrictions on the utilization of NOL and credit carryforwards in the event of an "ownership change," as defined by the Internal Revenue Code. If there should be an ownership change, the Company's ability to utilize its carryforwards could be limited. Although the Company has not conducted a formal NOL carryforward analysis, as a result of the registered direct offering in March 2019, pending ownership change that will result from the Merger and prior financing transactions, the NOL and credit carryforwards amounts of $21.1 million and $1.2 million, respectively, may be materially limited.
F-20
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES (Continued)
Significant components of the Company's deferred tax assets were as follows (in thousands):
|
January 31, | ||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Deferred tax assets: |
|||||||
Net operating loss carryforwards |
$ | 21,101 | $ | 18,769 | |||
Stock-based compensation expense |
1,251 | 1,163 | |||||
Tax credit carryforwards |
1,203 | 1,022 | |||||
Operating lease liability |
285 | | |||||
Other |
121 | 160 | |||||
| | | | | | | |
Total deferred tax assets |
23,961 | 21,114 | |||||
Less: valuation allowance |
(23,700 | ) | (21,114 | ) | |||
| | | | | | | |
Net deferred tax assets |
261 | | |||||
Deferred tax liability: |
|||||||
Operating lease right-of-use asset |
(261 | ) | | ||||
| | | | | | | |
Total deferred tax liability |
(261 | ) | | ||||
Net deferred tax assets |
$ | | $ | | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
A reconciliation of income taxes provided at the federal statutory rate (21% in 2019) to the actual income tax provision was as follows (in thousands):
|
Year ended January 31, |
||||||
---|---|---|---|---|---|---|---|
|
2020 | 2019 | |||||
Income tax benefit computed at U.S. statutory rate |
$ | (2,034 | ) | $ | (3,624 | ) | |
State income tax (net of federal benefit) |
(645 | ) | (1,478 | ) | |||
Change in valuation allowance |
2,586 | 4,857 | |||||
Research and development credits |
(86 | ) | (158 | ) | |||
Other |
181 | 405 | |||||
| | | | | | | |
Provision for income taxes |
$ | 2 | $ | 2 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
As of January 31, 2020 and 2019, the Company did not have any material unrecognized tax benefits. The tax years from 2010 to 2020 remain open for examination by the federal and state authorities.
10. LEASES
On October 30, 2018, the Company signed a lease for 11,793 square feet of office and laboratory space in San Jose, California. The lease commenced in December 2018 and will terminate in December 2023. The lease requires payment of maintenance, utilities, taxes, insurance and other operating expenses associated with the leased space. On February 14, 2020, the Company entered into a sublease agreement for its 11,793 square feet office and laboratory space in San Jose, California. The sublease covers the term of the master lease. Payments from the sublease are expected to materially offset the costs for lease and related operating expenses.
F-21
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. LEASES (Continued)
Effective February 1, 2019, the Company adopted ASC 842, Leases, which resulted in the recording of an operating lease right-to-use asset of $1.2 million and corresponding short-term and long-term liabilities of $0.3 million and $1.0 million, respectively. The right-to-use asset and corresponding liability for the facility lease have been measured at the present value of the future minimum lease payments using a 15% rate which was considered the Company's incremental borrowing rate at the time of adoption. The Company has an option to extend the lease for an additional 36 months, but, as the renewal is not reasonably certain, the Company has not included this renewal option in its accounting for the lease. Lease expense is recognized on a straight-line basis over the lease term and was approximately $370,000 and $586,000 for the years ended January 31, 2020 and 2019, respectively. Cash paid for amounts included in the measurement of the operating lease liability for the year ended January 31, 2020 was approximately $338,000 and was included in net cash used in operating activities in the statement of cash flows.
The future minimum payments under the Company's operating lease as of January 31, 2020 are as follows (in thousands):
|
Operating Lease | |||
---|---|---|---|---|
Fiscal years ending January 31, |
||||
2021 |
$ | 372 | ||
2022 |
382 | |||
2023 |
392 | |||
2024 |
334 | |||
Total future minimum lease payments |
1,480 | |||
| | | | |
Less: present value discount |
(459 | ) | ||
| | | | |
Present value of operating lease liabilities |
$ | 1,021 | ||
| | | | |
| | | | |
| | | | |
The Company recorded financing leases related to laboratory equipment purchased in March 2018 and May 2019. The leased asset values were approximately $61,000 and $54,000, respectively, and the corresponding current and long-term liabilities were recorded in accrued expenses and other current liabilities and other long-term liabilities, respectively. Total future payments representing interest until the termination of leases were approximately $6,000 as of January 31, 2020.
The following table summarizes the Company's financing lease commitment as of January 31, 2020 (in thousands):
|
Financing Leases | |||
---|---|---|---|---|
Fiscal years ending January 31, |
||||
2021 |
$ | 43 | ||
2022 |
22 | |||
2023 |
5 | |||
| | | | |
Total |
$ | 70 | ||
| | | | |
| | | | |
| | | | |
F-22
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. NOTE PAYABLE
In connection with the Merger Agreement, the Company and Timber entered into a Credit Agreement, dated as of January 28, 2020, pursuant to which Timber has agreed to make a Bridge Loan to the Company in an aggregate amount of $2.25 million. Pursuant to the terms of the Credit Agreement, Timber will make the Bridge Loan to the Company in three tranches: (i) a $625,000 initial advance ($700,000 less $75,000 of original issue discount (OID)) made on the closing date of the Credit Agreement; (ii) $625,000 ($700,000 less $75,000 of OID) 30 days thereafter; and (iii) $1,000,000 ($1,100,000 less $100,000 of OID) upon the closing of the Merger. The Bridge Loan bears interest at a rate of 12% per annum and is repayable on June 15, 2020, subject to extension for an additional month under certain circumstances, the termination (without completion) of the Merger or upon a liquidity event, as defined in the Credit Agreement. The Company has also issued to Timber a promissory note setting forth the terms of repayment (the Note).
The Bridge Loan is collaterized by a lien on all of the Company's assets. Further, in connection with the Bridge Loan, on January 28, 2020 the Company issued to Timber a warrant to purchase approximately 2.3 million shares of common stock at an exercise price of $0.01 (the Bridge Warrant). The Bridge Warrant was exercised on a cashless basis on February 10, 2020 for a total amount of 2,200,328 shares of the Company's common stock.
As of January 31, 2020, the Company received the initial tranche of $625,000 and recorded the note payable based on the relative fair values of the Bridge Warrant and Note. To value the Bridge Warrrant, the Company used the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 1.44%, contractual term of 30 months, expected volatility of 70.3% and a dividend rate of 0%. The fair value of the Bridge Warrant was approximately $460,000 and was recorded as additional paid-in capital and a discount on the Bridge Loan. The debt discount and issuance costs of $522,000 as of January 31, 2020 will be amortized through June 15, 2020. The Company recorded $13,000 in note discount in interest expense for the year ended January 31, 2020. On February 28, 2020, the Company received the second tranche payment of $625,000.
12. SUBSEQUENT EVENTS
Except as noted in Note 11 and below, there are no subsequent events that have occurred since January 31, 2020 that require recognition or disclosure in the financial statements.
In connection with the financing between Timber and certain investors ("Timber Funding") on March 27, 2020, Timber and BioPharmX entered into a securities purchase agreement (the "Securities Purchase Agreement"), with certain accredited investors (the "Investors") pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to the Merger and BioPharmX agreed to issue to the Investors warrants to purchase shares of BioPharmX common stock on the tenth trading day following the consummation of the Merger (the "Investor Warrants") in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to certain senior secured notes (the "Notes") issued in connection with a bridge loan from the Investors to Timber in an aggregate amount of $3.75 million (the "Timber Bridge Loan") and (y) $20 million in cash from the Investors (the "Purchase Price"). In summary, immediately after the Merger, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment
F-23
BIOPHARMX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. SUBSEQUENT EVENTS (Continued)
provisions in the Investor Warrants sold in the Timber Funding, Timber's common members (including holders of VARs and investors providing the Timber Funding) will own in the aggregate (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX, with BioPharmX's stockholders as of immediately prior to the Effective Time owning approximately 11.5% of the outstanding capital stock of BioPharmX, subject to adjustment as set forth in this proxy statement/prospectus/information statement. The formula used to determine the shares to be issued to Timber common unitholders in the Merger excludes BioPharmX's outstanding stock options and warrants which are out-of-the-money and not exchangeable for common stock of BioPharmX pursuant to a fundamental transaction and other adjustments.
Each preferred membership unit of Timber will be converted into shares of a newly created class of BioPharmX convertible preferred stock. BioPharmX will assume outstanding and unexercised VARs of Timber, and in connection with the Merger they will become denoted in (and payable in) shares of BioPharmX's common stock (instead of Timber common units).
F-24
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members and Board of Managers
Timber Pharmaceuticals LLC:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Timber Pharmaceuticals LLC and subsidiary (the Company) as of December 31, 2019, the related consolidated statement of operations, members' deficit, and cash flows for the period from February 26, 2019 (Inception) through December 31, 2019, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flows for the period from February 26, 2019 through December 31, 2019, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered a loss from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regards to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the relevant ethical requirements relating to our audits.
We conducted our audits in accordance with the auditing standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ KPMG LLP
We have served as the Company's auditor since 2019.
Short Hills, New Jersey
February 14, 2020, except for Note 9, as to which the date is March 27, 2020
F-25
Consolidated Balance Sheet
|
December 31, 2019 |
|||
---|---|---|---|---|
ASSETS |
||||
Current assets |
||||
Cash |
$ | 57,073 | ||
Prepaid expenses |
32,820 | |||
| | | | |
Total current assets |
89,893 | |||
| | | | |
Total assets |
89,893 | |||
| | | | |
| | | | |
| | | | |
LIABILITIES AND MEMBERS' DEFICIT |
||||
Current liabilities |
||||
Accounts payable |
$ | 501,451 | ||
Accrued expenses |
214,660 | |||
License payable |
750,000 | |||
| | | | |
Total current liabilities |
1,466,111 | |||
| | | | |
Total liabilities |
1,466,111 | |||
| | | | |
Commitments and contingencies |
||||
Members' deficit |
||||
Members' units* |
1,698,895 | |||
Accumulated deficit |
(3,075,113 | ) | ||
| | | | |
Total members' deficit |
(1,376,218 | ) | ||
| | | | |
Total liabilities and members' deficit |
$ | 89,893 | ||
| | | | |
| | | | |
| | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-26
Consolidated Statement of Operations
|
For the Period from February 26, 2019 (Inception) through December 31, 2019 |
|||
---|---|---|---|---|
Grant revenues |
$ | 270,538 | ||
| | | | |
Operating costs and expenses |
||||
Research and development |
1,748,887 | |||
Research and developmentlicense acquired |
1,070,000 | |||
Selling, general and administrative |
488,799 | |||
| | | | |
Total operating expenses |
3,307,686 | |||
| | | | |
Loss from operations |
(3,037,148 | ) | ||
| | | | |
Other expense |
||||
Loss on foreign currency exchange |
130 | |||
| | | | |
Total other expense |
130 | |||
| | | | |
Net loss |
$ | (3,037,278 | ) | |
| | | | |
| | | | |
| | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-27
Consolidated Statement of Members' Deficit
|
Perferred Units | Common Units | |
|
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Accumulated Deficit |
Total Members' Deficit |
|||||||||||||||||
|
Units | Amount | Units | Amount | |||||||||||||||
Balance at February 26, 2019 (Inception) |
| $ | | | $ | | $ | | $ | | |||||||||
Members' contribution |
1,400,000 | 1,399,900 | 10,000 | 100 | | 1,400,000 | |||||||||||||
Non-cash contribution from TardiMed |
186,493 | 186,493 | | | | 186,493 | |||||||||||||
Accrued preferred unit dividend |
| 37,835 | | | (37,835 | ) | | ||||||||||||
Equity-based compensation |
| | | 74,567 | | 74,567 | |||||||||||||
Net loss |
| | | | (3,037,278 | ) | (3,037,278 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Balance at December 31, 2019 |
1,586,493 | $ | 1,624,228 | 10,000 | $ | 74,667 | $ | (3,075,113 | ) | $ | (1,376,218 | ) | |||||||
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F-28
Consolidated Statement of Cash Flows
|
For the Period from February 26, 2019 (Inception) through December 31, 2019 |
|||
---|---|---|---|---|
Cash flows from operating activities |
||||
Net loss |
$ | (3,037,278 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Research and development-licenses acquired, expensed |
1,070,000 | |||
Non-cash contribution from TardiMed |
186,493 | |||
Equity-based compensation |
74,567 | |||
Changes in assets and liabilities: |
||||
Prepaid expenses |
(32,820 | ) | ||
Accounts payable |
501,451 | |||
Accrued expenses |
214,660 | |||
| | | | |
Net cash used in operating activities |
(1,022,927 | ) | ||
| | | | |
Cash flows from investing activities |
||||
Purchase of research and development licenses |
(320,000 | ) | ||
| | | | |
Net cash used in investing activities |
(320,000 | ) | ||
| | | | |
Cash flows from financing activities |
||||
Members' contribution |
1,400,000 | |||
| | | | |
Net cash provided by financing activities |
1,400,000 | |||
| | | | |
Net increase in cash and cash equivalents |
57,073 | |||
Cash and cash equivalents, beginning of period |
| |||
| | | | |
Cash and cash equivalents, end of period |
$ | 57,073 | ||
| | | | |
| | | | |
| | | | |
Non cash financing activities: |
||||
Accrued preferred unit dividend |
$ | 37,835 |
The accompanying notes are an integral part of these consolidated financial statements
F-29
Note 1. Organization and description of business operations
Timber Pharmaceuticals LLC (together with its wholly-owned subsidiary, Timber Pharmaceuticals Australia Pty Ltd., the "Company" or "Timber") was formed on February 26, 2019 as a Delaware limited liability company. Timber was founded in 2019 to develop treatments for unmet needs in medical dermatology. Timber has a particular focus on rare diseases or conditions of the skin for which there are no current treatments. Timber is initially targeting multiple indications in rare/orphan dermatology with no approved treatments.
Liquidity and capital resources
The Company has no product revenues, incurred operating losses since Inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of December 31, 2019, the Company had a members' deficit of approximately $1.4 million.
The accompanying consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
The Company's future liquidity and capital funding requirements will depend on numerous factors, including:
The Company will likely need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity, or the completion of a licensing transaction for one or more of the Company's pipeline assets. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. Failure to obtain additional equity or debt financing will have a material, adverse impact on the Company's business operations. There can be no assurance that the Company will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or debt financings will likely have a dilutive effect on the holdings of the Company's existing member units. Accordingly, there are material risks and uncertainties that raise substantial doubt about the Company's ability to continue as a going concern.
F-30
Note 2. Significant accounting policies
The Company's consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") as determined by the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") and include all adjustments necessary for the fair presentation of its consolidated balance sheet, results of operations and cash flows for the period presented.
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the Company's consolidated financial statements relate to the valuation of equity-based awards and valuation of member units. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company's future results of operations will be affected.
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include cash held in banks and money market mutual funds. There are no cash equivalents as of December 31, 2019.
Research and development costs, including in-process research and development acquired as part of an asset acquisition for which there is no alternative future use, is expensed as incurred. Advance payments for goods and services that will be used in future research and development activities are expensed when the activity has been performed or when the goods have been received rather than when the payment is made.
Substantial portions of the Company's preclinical studies and clinical trials are performed by third-party laboratories, medical centers, contract research organizations and other vendors (collectively "CROs"). These CROs generally bill monthly or quarterly for services performed, or bill based upon milestone achievement. For preclinical studies, the Company accrues expenses based upon estimated percentage of work completed and the contract milestones remaining. Clinical trial costs are a significant component of research and development expenses and include costs associated with third-party contractors. The Company outsources a substantial portion of its clinical trial activities, utilizing external entities such as CROs, independent clinical investigators, and other third-party service providers to assist the Company with the execution of its clinical studies. For each clinical trial that the Company conducts, certain clinical trial costs are expensed immediately, while others are expensed over time based on the number of patients in the trial, the attrition rate at which patients leave the trial, and/or the period over which clinical investigators or CROs are expected to provide services. The Company's estimates depend on the timeliness and accuracy of the data provided by the CROs
F-31
Note 2. Significant accounting policies (Continued)
regarding the status of each program and total program spending. The Company periodically evaluates the estimates to determine if adjustments are necessary or appropriate based on information it receives.
The Company follows the accounting guidance in ASC 820 for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
As of December 31, 2019, the recorded values of prepaid expenses, accounts payable, accrued expenses, and license payable, approximate the fair values due to the short-term nature of the instruments.
The Company has not yet generated any revenue from product sales. The Company's source of revenue in 2019 has been from grants. When grant funds are received after costs have been incurred, the Company records grant revenue upon the receipt of cash.
The Company expenses equity-based compensation to employees and non-employees over the requisite service period based on the estimated grant-date fair value of the awards. The Company accounts for forfeitures as they occur. Equity-based awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award.
In 2019, the Company granted Value Appreciation Rights ("VARs") to certain employees at specified exercise prices. The Company estimates the fair value of VARs using the Black-Scholes option pricing model, and the assumptions used in calculating the fair value of equity-based awards represent management's best estimates and involve inherent uncertainties and the application of management's judgment. All equity-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations.
F-32
Note 2. Significant accounting policies (Continued)
The Company was organized as a limited liability company and subject to the provisions of Subchapter K of the Internal Revenue Code. As such, the Company is not viewed as a taxpaying entity in any jurisdiction and does not require a provision for income taxes. Each member is responsible for the tax liability, if any, related to its proportionate share of the Company's taxable losses.
Recent accounting pronouncements
In May 2014, the FASB issued Accounting Standard Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606), which requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts. The FASB subsequently issued ASU 2016-10, Revenue from Contracts with Customers: (Topic 606) Identifying Performance Obligations and Licensing, to address issues arising from implementation of the new revenue recognition standard. The Company adopted the standard effective February 2019. The Company does not currently have product revenues. Accordingly, the adoption of this standard did not have a material effect on the Company's consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. The amendments in this update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for fiscal periods beginning after December 15, 2018, including interim periods within those periods. The Company adopted ASU 2017-01 effective February 2019. The adoption of this guidance did not have a material impact on the Company's consolidated financial statements and related disclosures.
In June 2018, the FASB issued ASU 2018-07, CompensationStock Compensation (Topic 718) Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance also specifies that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor's own operations by issuing share-based payment awards. The Company adopted this standard effective February 2019. The adoption of this standard did not have a material effect on the Company's consolidated financial statements and related disclosures.
Note 3. Purchases of Assets
Acquisition of Intellectual Property Rights from Patagonia Pharmaceuticals LLC ("Patagonia")
On February 28, 2019, the Company acquired the intellectual property rights to a topical formulation of isotretinoin for the treatment of congenital ichthyosis and identified as TMB-001, formerly PAT-001, from Patagonia (the "TMB-001 Acquisition").
Upon closing of the TMB-001 Acquisition, the Company paid a one-time upfront payment of $50,000 to Patagonia. Patagonia is entitled to up to $27.0 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-001, with the first being $4.0 million for the initiation of a Phase 3 pivotal trial, as agreed with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low single digits to mid- double digits. The Company is responsible for
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Note 3. Purchases of Assets (Continued)
all development activities. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
On June 26, 2019 the Company acquired the intellectual property rights to a locally administered formulation of sitaxsentan for the treatment of cutaneous fibrosis and/or pigmentation disorders, and identified as TMB-003, formerly PAT-S03, from Patagonia (the "TMB-003 Acquisition").
Upon closing of the TMB-003 Acquisition, the Company paid a one-time upfront payment of $20,000 to Patagonia. Patagonia is entitled to up to $10.25 million of cash milestone payments relating to certain regulatory and commercial achievements of TMB-003, with the first being a one-time payment of $250,000 upon the opening of an IND with the FDA. In addition, Patagonia is entitled to net sales earn-out payments ranging from low to mid-single digits. The Company is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
The TMB-001 Acquisition and TMB-003 Acquisition were accounted for as an asset acquisition pursuant to ASU 2017-01 as the majority of the fair value of the assets acquired were concentrated in a group of similar assets, and the acquired assets did not have outputs or employees. Because the assets had not yet received regulatory approval, the purchase price paid for these assets was recorded as research and development expense in the Company's statement of operations for the period from Inception to December 31, 2019.
Acquisition of License from AFT Pharmaceuticals Limited ("AFT")
On July 5, 2019, the Company and AFT Pharmaceuticals Limited ("AFT") entered into a license agreement which provides the Company with (i) an exclusive license to certain licensed patents, licensed know-how and AFT trademarks to commercialize the Pascomer® product in the United States, Canada and Mexico and (2) a co-exclusive license to develop the Pascomer® product in this territory. Concurrently, the Company granted to AFT an exclusive license to commercialize the Pascomer® product outside of the Company's territory and co-exclusive sublicense to develop and manufacture the licensed product for commercialization outside of the Company's territory (the "AFT License Agreement").
The AFT License Agreement also provides for the formation of a joint steering committee to oversee, coordinate and review recommendations and approve decisions in respect of the matters the development and commercialized of the Pascomer® product. The committee will be comprised of four members, and each of the Company and AFT shall have the right to appoint two members. The Company shall have final decision making authority on all matters relating to the commercialization of the Pascomer® product in its territory and on all matters related to the development (and regulatory approval) of the Pascomer® product, with certain exceptions.
The development of the Pascomer® product shall be conducted pursuant to a written development plan, written by AFT and approved by the joint steering committee. AFT shall perform clinical trials of the Pascomer® product in the Company's territory and shall perform all CMC (chemistry, manufacturing and controls) and related activities to support regulatory approval. The Company is responsible for all expenses incurred by AFT during the term of the AFT License Agreement and the Company and AFT shall equally share all costs and expenses incurred by AFT for development and marketing work performed in furtherance of regulatory approval and commercialization worldwide, outside of the Company's territory.
Pursuant to the AFT License Agreement, the Company is obligated to reimburse AFT for previously spent development costs, subject to certain limitations, and to pay a one-time, irrevocable and
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Note 3. Purchases of Assets (Continued)
non-creditable upfront payment to AFT, payable in scheduled installments. Specifically, the Company paid $0.25 million in October 2019 and the remining $0.75 million due in quarterly installments with the last payment on July 1, 2020. AFT is entitled to up to $25.5 million of cash milestone payments relating to certain regulatory and commercial achievements of the AFT License. In addition, AFT is entitled to net sales royalties ranging from high single digits to low double digits for the program licensed. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at December 31, 2019.
The AFT License Agreement was accounted for as an asset acquisition pursuant to ASU 2017-01 as the majority of the fair value of the assets acquired were concentrated in a group of similar assets, and the acquired assets did not have outputs or employees. Because the assets had not yet received regulatory approval, the purchase price paid for these assets was recorded as research and development expense in the Company's statement of operations for the period from Inception to December 31, 2019.
Note 4. Accrued Expenses
The Company's accrued expenses consisted of the following:
|
December 31, 2019 |
|||
---|---|---|---|---|
Accrued expenses: |
||||
Employee related |
$ | 86,421 | ||
Research and development |
128,239 | |||
| | | | |
Total accrued expenses |
$ | 214,660 | ||
| | | | |
| | | | |
| | | | |
Note 5. Members' deficit
As of December 31, 2019, the membership units issued and paid were as follows:
|
Units | |||
---|---|---|---|---|
Common units |
10,000 | |||
Preferred units |
1,586,493 |
The Amended and Restated Limited Liability Company Agreement, between TardiMed Sciences LLC ("TardiMed") and Patagonia, as of March 20, 2019 and as amended on July 26, 2019 (the "LLC Agreement"), provides that 9,000 common units have been issued to TardiMed and are outstanding, and 1,000 common units have been issued to Patagonia and are outstanding. These common units were issued in exchange for initial capital contributions from TardiMed and Patagonia of $90 and $10, respectively. In addition, pursuant to the LLC Agreement, TardiMed agreed to commit $2.5 million of capital of the Company in exchange for preferred units, at a purchase price of $1.00 per Preferred Unit.
During 2019, TardiMed contributed $1.6 million of its commitment capital and 1,586,493 Preferred units have been issued to TardiMed and are outstanding.
As agreed to in the LLC Agreement, the Company shall be managed by a board of managers (the "Board") composed initially of up to three members ("Managers"), elected by the common unitholders and preferred unitholders holding a majority of the outstanding common units. Pursuant to the LLC
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Note 5. Members' deficit (Continued)
Agreement, Patagonia has the right to appoint one Manager on the Board for a period of three years. With certain exceptions provided for in the LLC Agreement, each Manager shall have one vote.
Preferred units are entitled to an eight percent cumulative annual return on the sum of such Preferred units outstanding, which shall accrue and compound annually, whether or not declared, and whether or not there are funds legally available for the payment thereof. Such preferred unit return is in preference to any distributions to common unit holders.
As of December 31, 2019, the Company accrued preferred dividends of $37,835 as a component of members' deficit.
The Board may not approve a sale of the Company without the prior written consent of Patagonia. However, such consent by Patagonia shall not be unreasonably withheld. If the Board proceeds with a sale of the Company (an "Approved Sale"), then each common unitholder and preferred unitholder shall raise no objections against such Approved Sale. If the Approved Sale is structured as a (x) merger or consolidation, each Common and Preferred unitholder shall waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (y) sale of Units, each Common and Preferred unitholder shall agree to sell all of his, her or its Units and rights to acquire Units on the terms and conditions approved by the Board.
No Common or Preferred unitholder shall have the power or right to withdraw or otherwise resign from the Company prior to the dissolution and winding up of the Company.
Note 6. Equity-based compensation
The Company has a 2019 Equity Incentive Plan (the "Plan") that permits the granting of incentive units (the "Incentive Units"). The maximum aggregate units that may be subject to awards and issued under the Plan is 1,111. At December 31, 2019, 695 Incentive Units are outstanding under the Plan.
In 2019 the Company granted equity based awards similar to stock options under the Plan as VARs. The VARs have an exercise price, a vesting period and an expiration date, in addition to other terms similar to typical equity option grant terms.
The VARs are subject to a time-based vesting requirement and provide for immediate vesting upon a change of control. Upon valid exercise of vested and exercisable VARs, the Company shall pay to the participant, in a single lump sum cash payment, an amount equal to the product of (a) the excess of (i) fair market value of an Incentive Unit on the date of exercise, over (ii) the exercise price, multiplied by (b) the number of Incentive Units with respect to which VARs are being exercised (the "VAR Amount"). Notwithstanding the foregoing the Equity Incentive Plan Committee of the Board (the "Committee") may elect, in its sole discretion, to pay the VAR Amount in the form of Incentive Units that are equivalent in value to the VAR Amount. The Company has a repurchase right upon vesting. It is the Committee's intention to pay the VAR Amount in the form of Incentive Units and therefore the VARs are accounted for as equity based awards.
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Note 6. Equity-based compensation (Continued)
The following is a summary of VARs issued and outstanding as of December 31, 2019 and for the period from February 26, 2019 (Inception) through December 31, 2019:
|
Number of Units |
Weighted Average Exercise Price |
Total Intrinsic Value |
Weighted Average Remaining Contractual Life (in years) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding as of February 26, 2019 (Inception) |
| $ | | $ | | | |||||||
Issued |
734 | 0.01 | 294,738 | 8.9 | |||||||||
Cancelled |
(39 | ) | 0.01 | | | ||||||||
| | | | | | | | | | | | | |
Outstanding as of December 31, 2019 |
695 | $ | 0.01 | $ | 279,077 | 9.4 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Value appreciation right awards vested and expected to vest |
695 | $ | 0.01 | $ | 279,077 | 9.4 | |||||||
Value appreciation right awards vested and exercisable |
13 | $ | 0.01 | $ | 5,220 | 9.2 |
As of December 31, 2019, the unrecognized compensation costs of $0.2 million will be recognized over an estimated weighted-average amortization period of 2.20 years. During the period from February 26, 2019 (Inception) through December 31, 2019 no VARs were exercised.
The fair value of VARs is estimated on the date of grant using the Black-Scholes option-pricing model. The Company is a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected unit price volatility based on the historical volatility of a publicly traded set of peer companies. Additionally, due to an insufficient history with respect to equity award activity, the expected term assumption is based on a permitted simplified method, which is based on the vesting period and contractual term for each tranche of awards. The mid-point between the weighted-average vesting term and the expiration date is used as the expected term under this method. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The fair value of the Company's common units were estimated to be $322.24 as of March 1, 2019, $451.49 as of June 30, 2019 and $401.56 as of September 30, 2019 and December 31, 2019. In order to determine the fair value, the Company considered, among other things, contemporaneous valuations of the Company's common units, the Company's business, financial condition and results of operations, including related industry trends affecting its operations; the likelihood of achieving a liquidity event, such as an initial public offering, or sale, given prevailing market conditions; the lack of marketability of the Company's common units; the market performance of comparable publicly traded companies; and U.S. and global economic and capital market conditions.
The weighted average grant date fair value of VARs granted period from February 26, 2019 (Inception) through December 31, 2019 was $0.3 million.
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Note 6. Equity-based compensation (Continued)
Key assumptions used to estimate the fair value of the VARs granted during period from February 26, 2019 (Inception) through December 31, 2019 are as follows:
Date of valuation
|
December 31, 2019 |
|
---|---|---|
Contractual life (in years) |
5.13 - 7.50 | |
Expected volatility |
82.3% - 117.0% | |
Risk-free interest rate |
1.4% - 2.6% | |
Expected dividend yield |
|
Note 7. Commitments and contingencies
The Company is not a party to any leases for office space or equipment.
As of December 31, 2019 there was no litigation against the Company.
Note 8. Related party transactions
Patagonia is a private, family-owned company founded in 2013 to address the medical needs of people with rare and serious dermatological conditions. On February 28, 2019 and June 26, 2019, the Company acquired the TMB-001 and TMB-003 licenses from Patagonia (see Note 3 for the payment terms and more details), respectively. The President of the Company is also the President of Patagonia. On February 27, 2019, the Company issued 1,000 founder common units to Patagonia for $10. As of December 31, 2019, Patagonia holds 1,000 common units which represents 10% of the total voting units outstanding.
Capital ContributionsTardiMed Sciences is a startup venture investment and operating firm in the life sciences space. The Chairman of the Board of the Company is also a Managing Member of TardiMed. The President of the Company is also a Partner of TardiMed. On February 27, 2019, the Company issued 9,000 founder common units to TardiMed for $90. As of December 31, 2019, TardiMed holds 9,000 common units which represents 90% of the total voting units outstanding. From February 26, 2019 to December 31, 2019, TardiMed contributed $1.4 million in exchange for 1.4 million preferred units.
Allocated ExpensesCertain expenses have been allocated by TardiMed and included in its statement of operations and statement of members' deficit as a contribution by TardiMed. These expenses are primarily comprised of TardiMed personnel and related expenses, rent and other office expenses. The Company allocated these expenses contributed on a 50%/50% basis to research and development and selling, general and administrative. Management considers the allocation methodologies used to allocate expenses as reasonable and appropriate based on historical TardiMed expenses attributable to the Company and the Company's operations. The expenses reflected in the consolidated financial statements may not be indicative of expenses that the Company will incur as an independent, publicly traded company and should not be relied upon as an indicator of its future results. From February 26,
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Note 8. Related party transactions (Continued)
2019 to December 31, 2019, $93,246 and $93,247 was allocated to research and development expenses and selling, general and administrative expenses, respectively.
Note 9. Subsequent events
The Company has completed an evaluation of all subsequent events through March 27, 2020 to ensure that these consolidated financial statements include appropriate disclosure of events both recognized in the consolidated financial statements and events which occurred but were not recognized in the consolidated financial statements. Except as described below, the Company has concluded that no subsequent event has occurred that require disclosure within these consolidated financial statements.
On January 28, 2020, BioPharmX Corporation ("BioPharmX") entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement") with Timber and BITI Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of BioPharmX ("Merger Sub"). Subject to the terms and conditions contained in the Merger Agreement, including approval of the transactions contemplated therein by BioPharmX's stockholders and by Timber's members, Merger Sub will be merged with and into Timber (the "Merger"), with Timber surviving the Merger as a wholly-owned subsidiary of BioPharmX. As a condition to the closing of the Merger, Timber has agreed to secure $20 million of financing for the combined company.
Under the Merger Agreement, following the Merger, (i) the Timber members, including the investors funding the $20 million investment and the bridge investors, will own approximately 88.5% of the outstanding common stock of BioPharmX (the "Common Stock"), and (ii) the BioPharmX stockholders will own approximately 11.5% of the outstanding Common Stock, subject to certain adjustments as more particularly set forth in the Merger Agreement. The holder of a preferred membership interest in Timber of approximately $1.7 million will receive shares of newly designated preferred stock of BioPharmX on comparable terms to the preferred membership interest in Timber which will also be convertible into Common Stock. Upon completion of the Merger, BioPharmX will change its name to Timber Pharmaceuticals, Inc. and the officers and directors of Timber will become the officers and directors of BioPharmX.
Credit Agreement with BioPharmX
In connection with the Merger Agreement, BioPharmX and Timber entered into a Credit Agreement, dated as of January 28, 2020 (the "Credit Agreement"), pursuant to which Timber has agreed to make a bridge loan to BioPharmX (the "Bridge Loan") in an aggregate amount of $2.25 million. Pursuant to the terms of the Credit Agreement, Timber made and will make the Bridge Loan to BioPharmX in three tranches: (i) a $625,000 initial advance ($700,000 less $75,000 of original issue discount ("OID")) made on the closing date of the Credit Agreement; (ii) $625,000 ($700,000 less $75,000 of OID) 30 days thereafter; and (iii) $1,000,000 ($1,100,000 less $100,000 of OID) upon the closing of the Merger. The Bridge Loan will bear interest at a rate of 12% per annum and is repayable upon the earlier of July 15, 2020, the termination (without completion) of the Merger, or upon a liquidity event, as defined in the Credit Agreement. BioPharmX has also issued to Timber a promissory note setting forth the terms of repayment (the "Note").
The Bridge Loan is secured by a lien on all of BioPharmX's assets. Further, in connection with the Bridge Loan, on January 28, 2020 BioPharmX issued to Timber a warrant to purchase approximately 2,255,336 shares of Common Stock at a nominal exercise price (the "Bridge Warrant"). The Bridge
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Note 9. Subsequent events (Continued)
Warrant was exercised on a cashless basis on February 10, 2020 for a total amount of 2,200,328 shares of BioPharmX Common Stock.
In connection with the Merger Agreement and the Credit Agreement, Timber entered into a securities purchase agreement, dated as of January 28, 2020 (the "SPA") with certain institutional investors (the "Buyers"), pursuant to which the Buyers have agreed to purchase, and Timber agreed to issue, senior secured promissory notes (the "Timber Bridge Notes") from Timber in the aggregate principal amount of $5 million, in exchange for an aggregate purchase price of $3.75 million, representing aggregate OID of $1.25 million. Pursuant to the terms of the SPA, the Buyers will purchase the Timber Bridge Notes in three closings: (i) the first closing for $1,666,666.67 in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) on the closing date of the SPA; (ii) the second closing for $1,666,666.67 in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) on February 14, 2020; and (iii) the third closing for $1,666,666.66 in aggregate principal amount (in exchange for an aggregate purchase price of $1.25 million) on March 13, 2020. The Timber Bridge Notes bear interest at a rate of 15% per annum (25% upon the occurrence of an event of default thereunder) and are repayable upon the earlier of (i) the closing of a fundamental transaction of Timber, (ii) the date on which Timber's equity is registered under the Securities Exchange Act of 1934, as amended or is exchanged for equity so registered (the "Public Company Date") or (iii) July 28, 2020. The Timber Bridge Notes are secured by a lien on all of Timber's assets.
In connection with the Timber Funding on March 27, 2020, Timber and BioPharmX entered into a securities purchase agreement (the "Securities Purchase Agreement"), with certain accredited investors (the "Investors") pursuant to which, among other things, Timber agreed to issue to the Investors Timber common units immediately prior to the Merger and BioPharmX agreed to issue to the Investors warrants to purchase shares of BioPharmX common stock on the tenth trading day following the consummation of the Merger (the "Investor Warrants") in a private placement transaction for an aggregate purchase price of approximately $25 million (which amount is comprised of (x) a $5 million credit with respect to certain senior secured notes (the "Notes") issued in connection with a bridge loan from the Investors to Timber in an aggregate amount of $3.75 million (the "Timber Bridge Loan") and (y) $20 million in cash from the Investors (the "Purchase Price"). In summary, immediately after the Merger, and not accounting for additional shares of BioPharmX common stock that may be issuable pursuant to the adjustment provisions in the Investor Warrants sold in the Timber Funding, Timber's common members (including holders of VARs and investors providing the Timber Funding) will own in the aggregate (or have the right to receive) approximately 88.5% of the outstanding capital stock of BioPharmX, with BioPharmX's stockholders as of immediately prior to the Effective Time owning approximately 11.5% of the outstanding capital stock of BioPharmX, subject to adjustment as set forth in this proxy statement/prospectus/information statement. The formula used to determine the shares to be issued to Timber common unitholders in the Merger excludes BioPharmX's outstanding stock options and warrants which are out-of-the-money and not exchangeable for common stock of BioPharmX pursuant to a fundamental transaction and other adjustments.
Each preferred membership unit of Timber will be converted into shares of a newly created class of BioPharmX convertible preferred stock. BioPharmX will assume outstanding and unexercised VARs of Timber, and in connection with the Merger they will become denoted in (and payable in) shares of BioPharmX's common stock (instead of Timber common units).
F-40
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
among:
BIOPHARMX CORPORATION,
a Delaware corporation;
BITI MERGER SUB, INC.
a Delaware corporation; and
TIMBER PHARMACEUTICALS LLC,
a Delaware limited liability company
Dated as of January 28, 2020
A-i
A-ii
A-iii
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (this "Agreement") is made and entered into as of January 28, 2020, by and among BIOPHARMX CORPORATION, a Delaware corporation ("Parent"), BITI MERGER SUB, INC., a Delaware corporation and wholly owned subsidiary of Parent ("Merger Sub"), and TIMBER PHARMACEUTICALS LLC, a Delaware limited liability company (the "Company"). Certain capitalized terms used in this Agreement are defined in Exhibit A.
A. Parent and the Company intend to effect a merger of Merger Sub with and into the Company (the "Merger") in accordance with this Agreement, the DGCL, and the DLLCA. Upon consummation of the Merger, Merger Sub will cease to exist and the Company will become a wholly-owned, limited liability company subsidiary of Parent.
B. The Parties intend that the Merger constitute a transaction described in Section 351(a) of the Code.
C. The Parent Board has (i) determined that the Contemplated Transactions are fair to, advisable and in the best interests of Parent and its stockholders, (ii) approved and declared advisable this Agreement and the Contemplated Transactions, including the issuance of shares of Parent Common Stock to the members of the Company pursuant to the terms of this Agreement and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholders of Parent vote to approve the issuance of shares of Parent Common Stock to the members of the Company pursuant to the terms of this Agreement.
D. The Merger Sub Board has (i) determined that the Contemplated Transactions are fair to, advisable, and in the best interests of Merger Sub and its sole stockholder, (ii) approved and declared advisable this Agreement and the Contemplated Transactions and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholder of Merger Sub vote to adopt this Agreement and thereby approve the Contemplated Transactions.
E. The Company Managers have (i) determined that the Contemplated Transactions are fair to, advisable and in the best interests of the Company and its members, (ii) approved and declared advisable this Agreement and the Contemplated Transactions and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the members of the Company vote to adopt this Agreement and thereby approve the Contemplated Transactions.
F. Concurrently with the execution and delivery of this Agreement and as a condition and inducement to the Company's willingness to enter into this Agreement, all of the officers and directors of Parent (who are listed on Section A of the Company Disclosure Schedule (solely in their capacity as stockholders of Parent)) are executing support agreements in favor of the Company in substantially the form attached hereto as Exhibit B (the "Parent Stockholder Support Agreement"), pursuant to which such Persons have, subject to the terms and conditions set forth therein and herein, agreed to vote all shares of Parent Common Stock of which they are the beneficial owner (as defined by Rule 13d-3 of the Exchange Act) in favor of the Parent Stockholder Matters.
G. It is expected that on the date that Parent holds the Parent Stockholders' Meeting, the holders of membership interests in the Company sufficient to adopt and approve this Agreement and the Merger as required under the DLLCA and the Company's Organizational Documents will execute and deliver an action by written consent adopting this Agreement in a form reasonably acceptable to Parent, in order to obtain the Required Company Member Vote (the "Company Member Written Consent").
A-1
The Parties, intending to be legally bound, agree as follows:
Section 1 DESCRIPTION OF TRANSACTION
1.1 The Merger. Upon the terms and subject to the conditions set forth in this Agreement, at the Effective Time, Merger Sub shall be merged with and into the Company, and the separate corporate existence of Merger Sub shall cease. The Company will continue as the surviving limited liability company in the Merger (the "Surviving Entity").
1.2 Effects of the Merger. The Merger shall have the effects set forth in this Agreement, the Certificate of Merger and in the applicable provisions of the DGCL and the DLLCA. As a result of the Merger, the Company will become a wholly-owned, limited liability company subsidiary of Parent.
1.3 Closing; Effective Time. Unless this Agreement is earlier terminated pursuant to the provisions of Section 9.1, and subject to the satisfaction or waiver of the conditions set forth in Sections 6, 7 and 8, the consummation of the Merger (the "Closing") shall take place remotely as promptly as practicable (but in no event later than the second Business Day following the satisfaction or waiver of the last to be satisfied or waived of the conditions set forth in Sections 6, 7 and 8, other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of each of such conditions), or at such other time, date and place as Parent and the Company may mutually agree. The date on which the Closing actually takes place is referred to as the "Closing Date." At the Closing, the Parties shall cause the Merger to be consummated by executing and filing with the Secretary of State of the State of Delaware a certificate of merger with respect to the Merger, satisfying the applicable requirements of the DGCL and the DLLCA and in a form reasonably acceptable to Parent and the Company (the "Certificate of Merger"). The Merger shall become effective at the time of the filing of such Certificate of Merger with the Secretary of State of the State of Delaware or at such later time as may be specified in such Certificate of Merger with the consent of Parent and the Company (the time as of which the Merger becomes effective being referred to as the "Effective Time").
1.4 Certificate of Formation; Directors, Managers and Officers. At the Effective Time:
(a) the Certificate of Formation of the Company, as in effect immediately prior to the Effective Time, shall be the Certificate of Formation of the Surviving Entity until thereafter amended in accordance with the provisions thereof and applicable Law.
(b) the limited liability company agreement of the Company as in effect immediately prior to the Effective Time shall be the limited liability company agreement of the Surviving Entity, until thereafter amended as provided by the DLLCA and such limited liability company agreement and as provided herein;
(c) the certificate of incorporation of Parent shall be identical to the certificate of incorporation of Parent immediately prior to the Effective Time, until thereafter amended as provided by the DGCL and such certificate of incorporation;
(d) the directors and officers of Parent, each to hold office in accordance with the certificate of incorporation and bylaws of Parent, shall be designated by the Company, and as set forth in Section 5.11; and
(e) the managers and officers of the Surviving Entity, each to hold office in accordance with the limited liability company agreement of the Surviving Entity, shall be the managers and officers of the Company as set forth in Section 5.11, after giving effect to the provisions of Section 5.11, or such other persons as shall be mutually agreed upon by Parent and the Company.
A-2
1.5 Conversion of Shares and Membership Interests.
(a) At the Effective Time, by virtue of the Merger and without any further action on the part of Parent, Merger Sub, the Company or any member of the Company or stockholder of Parent;
(i) The Company Preferred Equity outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive a number of shares of a class of newly issued Parent Preferred Stock which shall not be convertible to Parent Common Stock but which shall have economic terms which are substantially the same as the economic terms of the Company Preferred Equity currently outstanding. The Parties shall negotiate in good faith prior to filing the Form S-4 with the SEC for the form of Certificate of Designations with respect to the Parent Preferred Stock to be issued pursuant to this paragraph.
(ii) The Company Common Equity, together with the Company VARs specified by the Company pursuant to Exhibit C annexed hereto, outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive a number of shares of Parent Common Stock and/or options or warrants to purchase Parent Common Stock equal in the aggregate to the Timber Allocation Number (the "Merger Consideration").
(iii) Exhibit C annexed hereto describes how the Merger Consideration is to be allocated among shares of stock, options and warrants of the Parent and among the Company Equity holders including, if elected by the Company prior to Closing, holders of the Company VARs of the Company outstanding immediately prior to the Effective Time (with the treatment of vesting and any such repurchase options or risks of forfeiture, also described in Exhibit C).
(b) No fractional shares of Parent Common Stock shall be issued in connection with the Merger, and no certificates or scrip for any such fractional shares shall be issued. Any holder of Company Equity who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock issuable to such holder) shall, in lieu of such fraction of a share and upon delivery by such holder of a Stock Registration Form in accordance with Section 1.7(b) and any accompanying documents as required therein, be paid in cash the dollar amount (rounded to the nearest whole cent), without interest, determined by multiplying such fraction by the Parent Closing Price.
(c) All shares of common stock, $0.001 par value per share, of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for 100% of the membership interests of the Surviving Entity.
(d) If, between the date of this Agreement and the Effective Time, the outstanding Units of Company Equity or shares of Parent Common Stock shall have been changed into, or exchanged for, a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares or other like change, the Timber Allocation Number shall, to the extent necessary, be equitably adjusted to reflect such change to the extent necessary to provide the holders of Company Equity and Parent Common Stock with the same economic effect as contemplated by this Agreement prior to such stock dividend, subdivision, reclassification, recapitalization, split, combination or exchange of shares or other like change; provided, however, that nothing herein will be construed to permit the Company or Parent to take any action with respect to Company Equity or Parent Common Stock, respectively, that is prohibited or not expressly permitted by the terms of this Agreement.
1.6 Closing of the Company's Transfer Books. At the Effective Time: (a) all Company Equity outstanding immediately prior to the Effective Time shall be treated in accordance with Exhibit C and all holders of Company Equity that was outstanding immediately prior to the Effective Time shall cease to have any rights as equity holders of the Company; and (b) the transfer books of the Company shall be closed with respect to all Company Equity outstanding immediately prior to the Effective Time. No
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further transfer of any such Company Equity shall be made on such transfer books after the Effective Time. If, after the Effective Time, a valid certificate (if any) previously representing any Company Equity outstanding immediately prior to the Effective Time is presented to the Exchange Agent or to the Surviving Entity, such Certificate shall be canceled and shall be exchanged as provided in Exhibit C.
1.7 Issuance of Certificates.
(a) On or prior to the Closing Date, the Parent shall deposit with its transfer agent (the "Exchange Agent"): (i) certificates or evidence of book-entry shares representing the Parent Common Stock issuable pursuant to Section 1.5(a) and Exhibit C and (ii) cash sufficient to make payments in lieu of fractional shares in accordance with Section 1.5(b). The Parent Common Stock and cash amounts so deposited with the Exchange Agent, together with any dividends or distributions received by the Exchange Agent with respect to such shares, are referred to collectively as the "Exchange Fund."
(b) Promptly after the Effective Time, the Parties shall cause the holders of Company Equity listed on Exhibit C to deliver to the Exchange Agent a completed and executed Stock Registration Form in the form of Exhibit D. Upon delivery of each Stock Registration Form to the Exchange Agent (A) the holder of such Company Equity shall be entitled to receive in exchange therefor a certificate or certificates or book-entry shares representing the Merger Consideration (in a number of whole shares of Parent Common Stock) that such holder has the right to receive pursuant to the provisions of Section 1.5(a) and Exhibit C (and cash in lieu of any fractional share of Parent Common Stock pursuant to the provisions of Section 1.5(b)).
1.8 Further Action. If, at any time after the Effective Time, any further action is determined by the Surviving Entity to be necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Entity with full right, title and possession of and to all rights and property of the Company, then the officers and directors of the Surviving Entity shall be fully authorized, and shall use their and its commercially reasonable efforts (in the name of the Company, in the name of Merger Sub, in the name of the Surviving Entity and otherwise) to take such action.
Section 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to Section 10.13(i), except as set forth in the disclosure schedule delivered by the Company to Parent (the "Company Disclosure Schedule"), the Company represents and warrants to Parent and Merger Sub as follows:
2.1 Due Organization; Subsidiaries.
(a) The Company is a limited liability company duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization and has all necessary power and authority: (i) to conduct its business in the manner in which its business is currently being conducted; (ii) to own or lease and use its property and assets in the manner in which its property and assets are currently owned or leased and used; and (iii) to perform its obligations under all Contracts by which it is bound.
(b) The Company is duly licensed and qualified to do business, and is in good standing (to the extent applicable in such jurisdiction), under the Laws of all jurisdictions where the nature of its business requires such licensing or qualification other than in jurisdictions where the failure to be so qualified individually or in the aggregate would not be reasonably expected to have a Company Material Adverse Effect.
(c) The Company has no Subsidiaries, and does not owns any capital stock of, or any equity, ownership or profit sharing interest of any nature in, or controls directly or indirectly, any other Entity other than the Entities identified in Section 2.1(c) of the Company Disclosure Schedule.
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Such entity is recently formed, and representations with respect to the Company's business shall be read to include the Company and its subsidiary as a whole.
2.2 Organizational Documents. The Company has delivered to Parent accurate and complete copies of the Organizational Documents of the Company in effect as of the date of this Agreement. The Company is not in material breach or violation of its Organizational Documents.
2.3 Authority; Binding Nature of Agreement. The Company has all necessary power and authority as a limited liability company to enter into and to perform its obligations under this Agreement and to consummate the Contemplated Transactions. The Company Managers have (i) determined that the Contemplated Transactions are fair to, advisable and in the best interests of the Company and its members, (ii) approved and declared advisable this Agreement and the Contemplated Transactions and (iii) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the members of the Company vote to adopt this Agreement and thereby approve the Contemplated Transactions. This Agreement has been duly executed and delivered by the Company and assuming the due authorization, execution and delivery by Parent and Merger Sub, constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to the Enforceability Exceptions.
2.4 Vote Required. The affirmative vote (or written consent) of the Company Managers and holders of all of the membership interests of the Company outstanding on the record date for the Company Member Written Consent and entitled to vote thereon (the "Required Company Member Vote") is the only vote (or written consent) of the holders of any class or series of Company Equity necessary to adopt and approve this Agreement and approve the Contemplated Transactions.
2.5 Non-Contravention; Consents. Subject to obtaining the Required Company Member Vote and the filing of the Certificate of Merger required by the DGCL and the DLLCA, neither (x) the execution, delivery or performance of this Agreement by the Company, nor (y) the consummation of the Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the provisions of the Company's Organizational Documents;
(b) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Law or any order, writ, injunction, judgment or decree to which the Company, or any of the assets owned or used by the Company, is subject, except as would not reasonably be expected to be material to the Company or its business;
(c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by the Company, except as would not reasonably be expected to be material to the Company or its business;
(d) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Company Material Contract, or give any Person the right to: (i) declare a default or exercise any remedy under any Company Material Contract; (ii) any material payment, rebate, chargeback, penalty or change in delivery schedule under any Company Material Contract; (iii) accelerate the maturity or performance of any Company Material Contract; or (iv) cancel, terminate or modify any term of any Company Material Contract, except in the case of any non-material breach, default, penalty or modification; or
(e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by the Company (except for Permitted Encumbrances).
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Except for (i) any Consent set forth on Section 2.5 of the Company Disclosure Schedule under any Company Contract, (ii) the Required Company Member Vote, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL and the DLLCA, and (iv) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities Laws, the Company is not nor will it be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement, or (y) the consummation of the Contemplated Transactions, which if individually or in the aggregate were not given or obtained, would reasonably be expected to prevent or materially delay the ability of the Company to consummate the Contemplated Transactions.
2.6 Capitalization.
(a) Section 2.6(a) of the Company Disclosure Schedule sets forth the outstanding Company Equity as of the date of this Agreement.
(b) All of the outstanding membership interests of the Company have been validly issued, and are fully paid and nonassessable. Except as contemplated herein, there is no Company Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any membership interests of the Company. The Company is not under any obligation, nor is it bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding membership interests.
(c) Except as set forth in Section 2.6(c) of the Company Disclosure Schedule, the Company does not have any equity option plan or any other plan, program, agreement or arrangement providing for any equity-based compensation for any Person (a "Company Plan"). Section 2.6(c) of the Company Disclosure Schedule sets a complete description of all information with respect to the Company VARs. The Company has made available to Parent an accurate and complete copy of the Company Plans and all agreements evidencing outstanding Company VARs.
(d) Except as set forth on Section 2.6(c) of the Company Disclosure Schedule, there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any securities of the Company; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any securities of the Company; (iii) condition or circumstance that is reasonably likely to give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any securities of the Company; or (iv) outstanding or authorized equity appreciation, phantom equity, profit participation or other similar rights with respect to the Company.
(e) All outstanding securities of the Company have been issued and granted in material compliance with (i) all applicable securities Laws and other applicable Law, and (ii) all requirements set forth in applicable Contracts.
2.7 Financial Statements.
(a) Concurrently with the execution hereof, the Company has provided to Parent true and complete copies of the Company's unaudited consolidated balance sheets at, December 31, 2019, together with related unaudited consolidated statements of income, members' equity and cash flows, and notes thereto, of the Company for the fiscal period then ended (collectively, the "Company Financials", the balance sheet of December 31, 2019 being the "Company Unaudited Balance Sheet"). The Company Financials were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments, none of which are material) and fairly present, in all material respects, the financial
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position and operating results of the Company and its consolidated Subsidiaries as of the dates and for the periods indicated therein.
(b) To the Knowledge of the Company, the Company maintains accurate books and records reflecting their assets and liabilities and maintains a system of internal accounting controls designed to provide reasonable assurance that: (i) transactions are executed in accordance with management's general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of the financial statements of the Company and to maintain accountability of the Company's assets; (iii) access to the Company's assets is permitted only in accordance with management's general or specific authorization; (iv) the recorded accountability for the Company's assets is compared with the existing assets at regular intervals and appropriate action is taken with respect to any differences; and (v) accounts, notes and other receivables and inventory are recorded accurately, and proper and adequate procedures are implemented to effect the collection thereof on a current and timely basis. The Company maintains internal control over financial reporting that provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes.
(c) Section 2.7(c) of the Company Disclosure Schedule lists, and the Company has delivered to Parent accurate and complete copies of the documentation creating or governing, all securitization transactions and "off-balance sheet arrangements" (as defined in Item 303(c) of Regulation S-K under the Exchange Act) effected by the Company since February 26, 2019.
(d) Since February 26, 2019, there have been no formal internal investigations regarding financial reporting or accounting policies and practices discussed with, reviewed by or initiated at the direction of the chief executive officer, chief financial officer or general counsel of the Company, the Company Managers or any committee thereof. Since February 26, 2019, neither the Company nor its independent auditors have identified (i) any significant deficiency or material weakness in the design or operation of the system of internal accounting controls utilized by the Company , (ii) any fraud, whether or not material, that involves the Company, the Company's management or other employees who have a role in the preparation of financial statements or the internal accounting controls utilized by the Company or (iii) any claim or allegation regarding any of the foregoing.
2.8 Absence of Changes. Except as set forth on Section 2.8 of the Company Disclosure Schedule, between the date of the Company Unaudited Balance Sheet and the date of this Agreement, the Company has conducted its business only in the Ordinary Course of Business (except for the execution and performance of this Agreement and the discussions, negotiations and transactions related thereto) and there has not been any (a) Company Material Adverse Effect or (b) action, event or occurrence that would have required the consent of Parent pursuant to Section 4.2(b) had such action, event or occurrence taken place after the execution and delivery of this Agreement.
2.9 Absence of Undisclosed Liabilities. The Company does not have any liability, indebtedness, obligation or expense of any kind, whether accrued, absolute, contingent, matured or unmatured (whether or not required to be reflected in the financial statements in accordance with GAAP) (each a "Liability"), individually or in the aggregate, except for: (a) Liabilities disclosed, reflected or reserved against in the Company Unaudited Balance Sheet; (b) normal and recurring current Liabilities that have been incurred by the Company since the date of the Company Unaudited Balance Sheet in the Ordinary Course of Business and which are not in excess of $10,000 in the aggregate (c) Liabilities for performance of obligations of the Company under Company Contracts (other than for breach thereof); (d) Liabilities incurred in connection with the Contemplated Transactions; (e) Liabilities which would not, individually or in the aggregate, reasonably be expected to be material to the Company and (f) Liabilities listed in Section 2.9 of the Company Disclosure Schedule.
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2.10 Title to Assets. The Company owns, and has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all tangible properties or tangible assets and equipment used or held for use in its business or operations or purported to be owned by it, including: (a) all assets reflected on the Company Unaudited Balance Sheet; and (b) all other assets reflected in the books and records of the Company as being owned by the Company. All of such assets are owned or, in the case of leased assets, leased by the Company free and clear of any Encumbrances, other than Permitted Encumbrances.
2.11 Real Property; Leasehold. The Company does not own nor has ever owned any real property. The Company has made available to Parent (a) an accurate and complete list of all real properties with respect to which the Company directly or indirectly holds a valid leasehold interest as well as any other real estate that is in the possession of or leased by the Company, and (b) copies of all leases under which any such real property is possessed (the "Company Real Estate Leases"), each of which is in full force and effect, with no existing material default thereunder. The Company's use and operation of each such leased property conforms to all applicable Laws in all material respects, and the Company has exclusive possession of each such leased property and has not granted any occupancy rights to tenants or licensees with respect to such leased property. In addition, each such leased property is free and clear of all Encumbrances other than Permitted Encumbrances. The Company has not received written notice from its landlords or any Governmental Body that: (i) relates to violations of building, zoning, safety or fire ordinances or regulations; (ii) claims any defect or deficiency with respect to any of such properties; or (iii) requests the performance of any repairs, alterations or other work to such properties.
2.12 Intellectual Property.
(a) The Company owns, or has the legal and valid right to use, as currently being used by the Company, all Company IP Rights, and with respect to Company IP Rights that are owned by the Company, has the right to bring actions for the infringement of such Company IP Rights, in each case except subject to the terms of the license agreements set forth on Section 2.12(c) of the Company Disclosure Schedule for any failure to own, have such rights to use, or have such rights to bring actions for infringement.
(b) Section 2.12(b) of the Company Disclosure Schedule sets forth an accurate, true and complete listing of (i) all Company IP Rights that are owned by the Company that are registered, filed or issued under the authority of, with or by any Governmental Body, including all Patents, registered Copyrights, and registered Trademarks (including domain names) and all applications for any of the foregoing, (ii) to the Knowledge of the Company, all Company IP Rights that are exclusively licensed to the Company that are registered, filed or issued under the authority of, with or by any Governmental Body, including all Patents, registered Copyrights, and registered Trademarks (including domain names) and (iii) all applications for any of the foregoing, and specifying as to each such item, as applicable, the owner(s) of record (and, in the case of domain names, the registrar), jurisdiction of application and/or registration, the application and/or registration number, the date of application and/or registration, and the status of application and/or registration. To the Knowledge of the Company, each item of Company IP Rights that is Company Registered IP is and at all times has been filed and maintained in compliance with all applicable Law and all filings, payments, and other actions required to be made or taken to maintain such item of Company Registered IP in full force and effect have been made by the applicable deadline.
(c) Section 2.12(c) of the Company Disclosure Schedule accurately identifies (i) all material Company Contracts pursuant to which Company IP Rights are licensed to the Company (other than (A) any non-customized software that (1) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (2) is not incorporated into, or material to the development,
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manufacturing, or distribution of, any of the Company's products or services, (B) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials and (C) any confidential information provided under confidentiality agreements), and (ii) whether the license or licenses granted to the Company are exclusive or non-exclusive. For purposes of greater certainty, the term "license" in this Section 2.12(c) and in Section 2.12(d) includes any license, sublicense, covenant, non-assert, consent, release or waiver.
(d) Section 2.12(d) of the Company Disclosure Schedule accurately identifies each material Company Contract pursuant to which the Company has granted any license under, or any right (whether or not currently exercisable) or interest in, any Company IP Rights to any Person (other than any Company IP Rights non-exclusively licensed to suppliers or service providers for the sole purpose of enabling such suppliers or service providers to provide services for the Company's benefit).
(e) Except as set forth in Section 2.12(e) of the Company Disclosure Schedule, the Company is not bound by, and no Company IP Rights are subject to, any Company Contract containing any covenant or other provision, or any judicial, administrative or arbitral order, judgment, award, order, decree, injunction, settlement or stipulation, that in any way limits or restricts the ability of the Company to use, exploit, assert, enforce, sell, transfer or dispose of any such Company IP Rights anywhere in the world, in each case, in a manner that would materially limit the business of the Company as currently conducted or planned to be conducted.
(f) Except as identified in Section 2.12(f) of the Company Disclosure Schedule, the Company is the sole and unrestricted legal and beneficial owner of all right, title, and interest to and in Company IP Rights (other than (i) Company IP Rights exclusively and non-exclusively licensed to the Company or one of its Subsidiaries, as identified in Section 2.12(c) of the Company Disclosure Schedule, (ii) any non-customized software that (A) is licensed to the Company solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Company's or any of its Subsidiaries' products or services and (iii) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials), in each case, free and clear of any Encumbrances (other than Permitted Encumbrances). Without limiting the generality of the foregoing:
(i) Each Person who is or was an employee or contractor of the Company and who is or was involved in the creation or development of any Company IP Rights has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to the Company and confidentiality provisions protecting confidential information of the Company and the Company has no reason to believe that any such Person is unwilling to provide the Company with cooperation as may be reasonably required to complete or prosecute all Company IP Rights.
(ii) Except as identified in Section 2.12(f)(ii) of the Company Disclosure Schedule, no current or former member, officer, director, or employee of the Company has any claim, right (whether or not currently exercisable), or interest to or in any Company IP Rights purported to be owned by the Company. To the Knowledge of the Company, no employee of the Company is (a) bound by or otherwise subject to any Contract restricting him or her from performing his or her duties for the Company or (b) in breach of any Contract with any former employer or other Person concerning Company IP Rights purported to be owned by the Company or confidentiality provisions protecting Trade Secrets and confidential information comprising Company IP Rights purported to be owned by the Company.
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(iii) Except as identified in Section 2.12(f)(iii) of the Company Disclosure Schedule, no Company IP Rights were developed, in whole or in part (A) pursuant to or in connection with the development of any professional, technical or industry standard, (B) under contract with or using the resources of any Governmental Body, academic institution or other entity that would subject any Company IP Rights to the rights of any Governmental Body, academic institution or other entity or (C) under any grants or other funding arrangements with third parties.
(iv) The Company has taken all commercially reasonable and appropriate steps to protect and maintain the Company IP Rights, including to preserve the confidentiality of all proprietary information that the Company holds, or purports to hold, as a material Trade Secret. Any disclosure by the Company of Trade Secrets to any third party has been pursuant to the terms of a written agreement with such Person or is otherwise lawful. Company has implemented and maintained a reasonable security plan consistent with industry practices of companies offering similar products or services. The Company has not experienced any breach of security or otherwise unauthorized access by third parties to the confidential information in Company's possession, custody or control.
(v) The Company has not assigned or otherwise transferred ownership of, or agreed to assign or otherwise transfer ownership of, any Company IP Rights owned or purported to be owned by or exclusively licensed to the Company to any other Person. As of the date of this Agreement, except as set forth in Section 2.12(f)(v) of the Company Disclosure Schedule, the Company has not sold or otherwise transferred (other than standard licenses or rights to use granted to customers, suppliers or service providers in the Ordinary Course of Business) any of the Company IP Rights to any third party, and there exists no obligation by the Company to assign or otherwise transfer any of the Company IP Rights to any third party.
(vi) To the Knowledge of the Company, (i) the Company IP Rights are valid and enforceable and (ii) constitute all Intellectual Property necessary for the Company to conduct its business as currently conducted and planned to be conducted. Company has not misrepresented, or failed to disclose, any facts or circumstances in any application for any Company IP Rights that would constitute fraud with respect to such application.
(g) To the Knowledge of the Company, the manufacture, marketing, license, sale or intended use of any product or technology currently licensed or sold or under development by the Company does not violate any license or agreement between the Company and any third party, and does not infringe or misappropriate any Intellectual Property right of any third party. Company has not been sued in any action, suit or proceeding, or received any written communications alleging that any Company IP rights or product or past activity has violated or would violate any Intellectual Property Rights of any third party and to the Company's knowledge a valid claim for such action, suit or proceeding does not exist. No Company IP Rights are subject to any proceeding, order, judgment, settlement agreement, stipulation or right that restricts in any manner the use, transfer, or licensing thereof by the Company, or which may affect the validity, use or enforceability of any Company IP Rights
(h) To the Knowledge of the Company, no third party is infringing upon any Company IP Rights or violating any license or agreement between the Company and such third party, and the Company have not sent any written communication to or asserted or threatened in writing any action or claim against any Person involving or relating to any Company IP Rights.
(i) There is no current or pending Legal Proceeding (including, but not limited to, opposition, interference, inter partes review, or other proceeding in any patent or other government office) contesting the validity, ownership or right to use, sell, license or dispose of any Company IP Rights or products or technologies, nor has the Company received any written notice asserting or
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suggesting that any such Company IP Rights, or the Company's right to use, sell, license or dispose of any such Company IP Rights or products or technologies conflicts with or infringes or misappropriates or will conflict with or infringe or misappropriate the rights of any other Person.
(j) Except as set forth in the Contracts listed on Section 2.12(j) of the Company Disclosure Schedule and except for Company Contracts entered into in the Ordinary Course of Business, (i) the Company is not bound by any Contract to indemnify, defend, hold harmless, or reimburse any other Person with respect to any Intellectual Property infringement, misappropriation, or similar claim, in each case, that would reasonably be expected to be material to the Company or its business, and (ii) the Company has never assumed, or agreed to discharge or otherwise take responsibility for, any existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual Property right, which assumption, agreement or responsibility is material and remains in force as of the date of this Agreement.
2.13 Agreements, Contracts and Commitments.
(a) Section 2.13(a) of the Company Disclosure Schedule identifies each Company Contract in effect as of the date of this Agreement that involves payment or receipt by the Company of more than $10,000 in the aggregate, or obligations after the date of this Agreement in excess of $10,000 in the aggregate other than any Benefit Plans and includes: (each, a "Company Material Contract" and collectively, the "Company Material Contracts"):
(i) each Company Contract relating to any agreement of indemnification or guaranty not entered into in the Ordinary Course of Business;
(ii) each Company Contract containing (A) any covenant limiting the freedom of the Company or the Surviving Entity to engage in any line of business or compete with any Person, (B) any most-favored pricing arrangement, (C) any exclusivity provision, or (D) any non-solicitation provision;
(iii) each Company Contract relating to capital expenditures and requiring payments after the date of this Agreement in excess of $10,000 pursuant to its express terms and not cancelable without penalty;
(iv) each Company Contract relating to the disposition or acquisition of material assets or any ownership interest in any Entity;
(v) each Company Contract relating to any mortgages, indentures, loans, notes or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit or creating any material Encumbrances with respect to any assets of the Company or any loans or debt obligations with officers or directors of the Company;
(vi) each Company Contract requiring payment by or to the Company after the date of this Agreement in excess of $50,000 pursuant to its express terms relating to: (A) any distribution agreement (identifying any that contain exclusivity provisions); (B) any agreement involving provision of services or products with respect to any pre-clinical or clinical development activities of the Company; (C) any dealer, distributor, joint marketing, alliance, joint venture, cooperation, development or other agreement currently in force under which the Company has continuing obligations to develop or market any product, technology or service, or any agreement pursuant to which the Company has continuing obligations to develop any Intellectual Property that will not be owned, in whole or in part, by the Company; or (D) any Contract to license any third party to manufacture or produce any product, service or technology of the Company or any Contract to sell, distribute or commercialize any products
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or service of the Company, in each case, except for Company Contracts entered into in the Ordinary Course of Business;
(vii) each Company Contract with any Person, including any financial advisor, broker, finder, investment banker or other Person, providing advisory services to the Company in connection with the Contemplated Transactions;
(viii) each Company Real Estate Lease;
(ix) each Company Contract with any Governmental Body;
(x) each Company IP Rights Agreement required to be listed on Section 2.12(c)or Section 2.12(d) of the Company Disclosure Schedule;
(xi) each Company Contract containing any royalty, dividend or similar arrangement based on the revenues or profits of the Company; or
(xii) any other Company Contract that is not terminable at will (with no penalty or payment) by the Company, as applicable, and (A) which involves payment or receipt by the Company or its Subsidiaries after the date of this Agreement under any such agreement, contract or commitment of more than $25,000 in the aggregate, or obligations after the date of this Agreement in excess of $10,000 in the aggregate, or (B) that is material to the business or operations of the Company, taken as a whole.
(b) The Company has delivered or made available to Parent accurate and complete copies of all Company Material Contracts, including all amendments thereto. Except as set forth in Section 2.13(b) of the Company Disclosure Schedule, there are no Company Material Contracts that are not in written form. The Company has not, nor to the Company's Knowledge, as of the date of this Agreement has any other party to a Company Material Contract, breached, violated or defaulted under, or received notice that it breached, violated or defaulted under, any of the terms or conditions of any Company Material Contract in such manner as would permit any other party to cancel or terminate any such Company Material Contract, or would permit any other party to seek damages which would reasonably be expected to be material to the Company or its business. As to the Company , as of the date of this Agreement, each Company Material Contract is valid, binding, enforceable and in full force and effect, subject to the Enforceability Exceptions. No Person is renegotiating, or has a right pursuant to the terms of any Company Material Contract to change, any material amount paid or payable to the Company under any Company Material Contract or any other material term or provision of any Company Material Contract.
2.14 Compliance; Permits; Restrictions.
(a) The Company is, and since February 26, 2019 has been, and, to the Company's knowledge, the entities that owned any of the Company's material intellectual property prior to such date were, in compliance in all material respects with all applicable Laws, including the Federal Food, Drug, and Cosmetic Act ("FDCA"), the Food and Drug Administration ("FDA") regulations adopted thereunder, the Controlled Substance Act and any other similar Law administered or promulgated by the FDA or other comparable Governmental Body responsible for regulation of the development, clinical testing, manufacturing, sale, marketing, distribution and importation or exportation of drug products (each, a "Drug Regulatory Agency"), except for any noncompliance, either individually or in the aggregate, which would not be material to the Company. No investigation, claim, suit, proceeding, audit or other action by any Governmental Body is pending or, to the Knowledge of the Company, threatened against the Company. There is no agreement, judgment, injunction, order or decree binding upon the Company which (i) has or would reasonably be expected to have the effect of prohibiting or materially impairing any business practice of the Company, any acquisition of material property by the Company or the conduct of
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business by the Company as currently conducted, (ii) is reasonably likely to have an adverse effect on the Company's ability to comply with or perform any covenant or obligation under this Agreement, or (iii) is reasonably likely to have the effect of preventing, delaying, making illegal or otherwise interfering with the Contemplated Transactions.
(b) The Company holds all required Governmental Authorizations which are material to the operation of the business of the Company as currently conducted (the "Company Permits"). Section 2.14(b) of the Company Disclosure Schedule identifies each Company Permit. The Company is in material compliance with the terms of the Company Permits. No Legal Proceeding is pending or, to the Knowledge of the Company, threatened, which seeks to revoke, limit, suspend, or materially modify any Company Permit. The rights and benefits of each Company Permit will be available to the Surviving Entity or its Subsidiaries, as applicable, immediately after the Effective Time on terms substantially identical to those enjoyed by the Company as of the date of this Agreement and immediately prior to the Effective Time.
(c) There are no proceedings pending or, to the Knowledge of the Company, threatened with respect to an alleged material violation by the Company of the FDCA, FDA regulations adopted thereunder, the Controlled Substance Act or any other similar Law administered or promulgated by any Drug Regulatory Agency.
(d) The Company holds all required Governmental Authorizations issuable by any Drug Regulatory Agency necessary or material to the conduct of the business of the Company or such Subsidiary as currently conducted, and, as applicable, the development, clinical testing, manufacturing, marketing, distribution and importation or exportation, as currently conducted, of any of its products or product candidates (collectively, the "Company Products") (collectively, the "Company Regulatory Permits") and no such Company Regulatory Permit has been (i) revoked, withdrawn, suspended, cancelled or terminated or (ii) modified in any adverse manner. The Company is in compliance in all material respects with the Company Regulatory Permits and have not received any written notice or other written communication, or to the Knowledge of the Company, any other communication from any Drug Regulatory Agency regarding (A) any material violation of or failure to comply materially with any term or requirement of any Company Regulatory Permit or (B) any revocation, withdrawal, suspension, cancellation, termination or material modification of any Company Regulatory Permit. Except for the information and files identified in Section 2.14(d) of the Company Disclosure Schedule, the Company has made available to Parent all information requested by Parent in the Company's or its Subsidiaries' possession or control relating to the Company Products and the development, clinical testing, manufacturing, importation and exportation of the Company Products, including complete copies of the following (to the extent there are any): (x) copies of all investigational new drug applications (INDs) submitted to the FDA, and all supplements to and amendments of such INDs; new drug applications; adverse event reports; clinical study reports and material study data; inspection reports, notices of adverse findings, warning letters, filings and letters and other material written correspondence to and from any Drug Regulatory Agency; and meeting minutes with any Drug Regulatory Agency; and (y) similar notices, letters, filings, correspondence and meeting minutes with any other Governmental Body. The Company has complied in all material respects with the ICH E9 Guidance for Industry: Statistical Principles for Clinical Trials in the management of the clinical data that have been presented to the Company. To the Knowledge of the Company, there are no facts that would be reasonably likely to result in any warning, untitled or notice of violation letter or Form FDA-483 from the FDA. The Company is not aware of any studies, tests or trials the results of which the Company believes reasonably call into question (i) the study, test or trial results of any Company Products, (ii) the efficacy or safety of any Company Products or (iii) any of the Company's filings with any Governmental Body.
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(e) All clinical, pre-clinical and other studies and tests conducted by or on behalf of, or sponsored by, the Company, or in which the Company or its current products or product candidates, including the Company Products, have participated, were and, if still pending, are being conducted in all material respects in accordance with standard medical and scientific research procedures and in compliance in all material respects with the applicable regulations of any applicable Drug Regulatory Agency and other applicable Law, including 21 C.F.R. Parts 50, 54, 56, 58 and 312. No preclinical or clinical trial currently being conducted by or on behalf of the Company has been terminated or suspended prior to completion for safety or non-compliance reasons. Since February 26, 2019, the Company has not received any notices, correspondence, or other communications from any Drug Regulatory Agency requiring, or to the Knowledge of the Company threatening to initiate, the termination or suspension of any clinical studies currently being conducted by or on behalf of, or sponsored by, the Company or in which the Company or its current products or product candidates, including the Company Products, have participated. The Company has not received any notices, correspondence, or other communications regarding any clinical studies that have been conducted by or on behalf of, or sponsored by, the Company or in which the Company or its products or product candidates have participated that are anticipated to result in any material liability to Company or have a Company Material Adverse Effect on the Company.
(f) The Company is not the subject of any pending or, to the Knowledge of the Company, threatened investigation in respect of its business or products by the FDA pursuant to its "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities" Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To the Knowledge of the Company, the Company has not committed any acts, made any statement, or failed to make any statement, in each case in respect of its business or products that would violate the FDA's "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities" Final Policy, and any amendments thereto. None of the Company or any of its officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion (i) under 21 U.S.C. Section 335a or (ii) any similar applicable Law. No debarment or exclusionary claims, actions, proceedings or investigations in respect of their business or products are pending or, to the Knowledge of the Company, threatened against the Company or any of its officers, employees or agents.
(g) The Company has complied with all Laws relating to patient, medical or individual health information, including the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations promulgated thereunder, all as amended from time to time (collectively "HIPAA"), including the standards for the privacy of Individually Identifiable Health Information at 45 C.F.R. Parts 160 and 164, Subparts A and E, the standards for the protection of Electronic Protected Health Information set forth at 45 C.F.R. Part 160 and 45 C.F.R. Part 164, Subpart A and Subpart C, the standards for transactions and code sets used in electronic transactions at 45 C.F.R. Part 160, Subpart A and Part 162, and the standards for Breach Notification for Unsecured Protected Health Information at 45 C.F.R. Part 164, Subpart D, all as amended from time to time. The Company has entered into, where required, and are in compliance in all material respects with the terms of all Business Associate (as defined in HIPAA) agreements to which the Company or a Subsidiary is a party or otherwise bound. The Company has created and maintained written policies and procedures to protect the privacy of all protected health information, provide training to all employees and agents as required under HIPAA, and have implemented security procedures, including physical, technical and administrative safeguards, to protect all personal information and Protected Health Information stored or transmitted in electronic form. The Company has not received written notice from the Office for Civil Rights for the U.S. Department of Health and Human Services or any other Governmental Body of any allegation regarding its failure to comply with HIPAA or any other state law or regulation applicable to the protection of
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individually identifiable health information or personally identifiable information. No successful Security Incident, Breach of Unsecured Protected Health Information or breach of personally identifiable information under applicable Laws have occurred with respect to information maintained or transmitted to the Company, or an agent or third party subject to a Business Associate Agreement with the Company. The Company is currently submitting, receiving and handling or is capable of submitting receiving and handling transactions in accordance with the Standard Transaction Rule. All capitalized terms in this Section 2.14(g) not otherwise defined in this Agreement shall have the meanings set forth under HIPAA.
(h) The Company has complied in all material respects with the ICH E9 Guidance for Industry to the extent applicable to its current activities.
2.15 Legal Proceedings; Orders.
(a) As of the date of this Agreement, there is no pending Legal Proceeding and, to the Knowledge of the Company, no Person has threatened in writing to commence any Legal Proceeding: (i) that involves (A) the Company, (B) any Company Associate (in his or her capacity as such) or (C) any of the material assets owned or used by the Company; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Contemplated Transactions.
(b) Except as set forth in Section 2.15(b) of the Company Disclosure Schedule, since February 26, 2019, no Legal Proceeding has been pending against the Company that resulted in material liability to the Company.
(c) There is no order, writ, injunction, judgment or decree to which the Company, or any of the material assets owned or used by the Company, is subject. To the Knowledge of the Company, no officer or other Key Employee of the Company is subject to any order, writ, injunction, judgment or decree that prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the business of the Company or to any material assets owned or used by the Company.
2.16 Tax Matters.
(a) The Company has timely filed all income Tax Returns and other material Tax Returns that they were required to file under applicable Law. All such Tax Returns are correct and complete in all material respects and have been prepared in compliance with all applicable Law. No claim has ever been made by any Governmental Body in any jurisdiction where the Company does not file a particular Tax Return or pay a particular Tax that the Company or such Subsidiary is subject to taxation by that jurisdiction.
(b) All income and other Taxes due and owing by the Company on or before the date hereof (whether or not shown on any Tax Return) have been fully paid. Since the date of the Company Unaudited Balance Sheet, neither the Company nor any of its Subsidiaries has incurred any material Liability for Taxes outside the Ordinary Course of Business.
(c) All Taxes that the Company is or was required by Law to withhold or collect have been duly and timely withheld or collected in all material respects on behalf of its employees, independent contractors, members, or other third parties and, have been timely paid to the proper Governmental Body or other Person or properly set aside in accounts for this purpose.
(d) There are no Encumbrances for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Company.
(e) No deficiencies for income or other Taxes with respect to the Company has been claimed, proposed or assessed by any Governmental Body in writing. There are no pending or ongoing, and
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to the Knowledge of the Company, threatened audits, assessments or other actions for or relating to any liability in respect of a material amount of Taxes of the Company. The Company has not waived any statute of limitations in respect of any income or other Taxes or agreed to any extension of time with respect to any income or other Tax assessment or deficiency.
(f) The Company is not a party to any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement, or similar agreement or arrangement, other than customary commercial contracts entered into in the Ordinary Course of Business the principal subject matter of which is not Taxes.
(g) The Company will not be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any Tax period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for Tax purposes; (ii) use of an improper method of accounting for a Tax period ending on or prior to the Closing Date; (iii) "closing agreement" as described in Section 7121 of the Code (or any similar provision of state, local or foreign Law) executed on or prior to the Closing Date; (iv) intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any similar provision of state, local or foreign Law); (v) installment sale or open transaction disposition made on or prior to the Closing Date; or (vi) prepaid amount received or deferred revenue accrued on or prior to the Closing Date.
(h) The Company has never had a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise has an office or fixed place of business in a jurisdiction outside of the United States.
(i) The Company has not participated in or been a party to a transaction that, as of the date of this Agreement, constitutes a "listed transaction" that is required to be reported to the IRS pursuant to Section 6011 of the Code and applicable Treasury Regulations thereunder.
(j) The Company has not taken any action or knows of any fact that would reasonably be expected to prevent the Merger from qualifying for the Intended Tax Treatment.
(k) The Company has been classified as a partnership for United States federal and applicable state income Tax purposes since its inception.
For purposes of this Section 2.16, each reference to the Company shall be deemed to include any Person that was liquidated into, merged with, or is otherwise a predecessor to, the Company.
2.17 Employee and Labor Matters; Benefit Plans.
(a) Section 2.17(a) of the Company Disclosure Schedule is a list of all material Benefit Plans, including, without limitation, each Benefit Plan that provides for retirement, change in control, deferred compensation, incentive compensation, severance or retiree medical or life insurance benefits. "Benefit Plan" means each (i) "employee benefit plan" as defined in Section 3(3) of ERISA and (ii) other pension, retirement, deferred compensation, excess benefit, profit sharing, bonus, incentive, equity or equity-based, phantom equity, employment, consulting, severance, change-of-control, retention, health, life, disability, group insurance, paid-time off, holiday, welfare and fringe benefit plan, program, contract, or arrangement (whether written or unwritten, qualified or nonqualified, funded or unfunded and including any that have been frozen or terminated), in any case, maintained, contributed to, or required to be contributed to, by the Company or any Company ERISA Affiliate for the benefit of any current or former employee, director, officer or independent contractor of the Company or under which the Company has any actual or contingent liability (including, without limitation, as to the result of it being treated as a single employer under Code Section 414 with any other person).
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(b) As applicable with respect to each material Benefit Plan, the Company has made available to Parent, true and complete copies of (i) each material Benefit Plan, including all amendments thereto, and in the case of an unwritten material Benefit Plan, a written description thereof, (ii) all current trust documents, investment management contracts, custodial agreements, administrative services agreements and insurance and annuity contracts relating thereto, (iii) the current summary plan description and each summary of material modifications thereto, (iv) the most recently filed annual reports with any Governmental Body (e.g., Form 5500 and all schedules thereto), (v) the most recent IRS determination, opinion or advisory letter, (vi) the most recent summary annual reports, nondiscrimination testing reports, actuarial reports, financial statements and trustee reports, (vii) for the last year, all records, notices and filings concerning IRS or Department of Labor or other Governmental Body audits or investigations, and (viii) all policies and procedures established to comply with the privacy and security rules of HIPAA.
(c) Each Benefit Plan has been maintained, operated and administered in compliance in all material respects with its terms and applicable Law, including the applicable provisions of ERISA and the Code.
(d) Each Benefit Plan which is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA and which is intended to meet the qualification requirements of Section 401(a) of the Code has received a determination letter or opinion letter from the IRS to the effect that such plan is qualified under Section 401(a) of the Code and the related trust is exempt from federal income Taxes under Section 501(a) of the Code, respectively, and nothing has occurred that would reasonably be expected to materially adversely affect the qualification of such Benefit Plan or the tax exempt status of the related trust.
(e) Neither the Company nor any Company ERISA Affiliate maintains, contributes to, is required to contribute to, or has any actual or contingent liability with respect to, (i) any "employee pension benefit plan" (within the meaning of Section 3(2) of ERISA) that is subject to Title IV or Section 302 of ERISA or Section 412 of the Code, (ii) any "multiemployer plan" (within the meaning of Section 3(37) of ERISA), (iii) any "multiple employer plan" (within the meaning of Section 413 of the Code) or (iv) any "multiple employer welfare arrangement" (within the meaning of Section 3(40) of ERISA).
(f) There are no pending audits or investigations by any Governmental Body involving any Benefit Plan, and no pending or, to the Knowledge of the Company, threatened claims (except for individual claims for benefits payable in the normal operation of the Benefit Plans), suits or proceedings involving any Benefit Plan, any fiduciary thereof or service provider thereto, in any case except as would not be reasonably expected to result in material liability to the Company.
(g) Neither the Company nor any Company ERISA Affiliate, nor to the Knowledge of the Company, any fiduciary, trustee or administrator of any Benefit Plan, has engaged in, or in connection with the transactions contemplated by this Agreement will engage in, any transaction with respect to any Benefit Plan which would subject any such Benefit Plan, the Company, any of its Subsidiaries or Company ERISA Affiliates or Parent to a material Tax, material penalty or material liability for a "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code.
(h) No Benefit Plan provides death, medical, dental, vision, life insurance or other welfare benefits beyond termination of service or retirement other than coverage mandated by Law. Section 2.17(h) of the Company Disclosure Schedule sets forth all outstanding severance obligations to existing and previously terminated employees and service providers of the Company, listing for each individual recipient (i) name, (ii) applicable plan or agreement, (iii) description of the severance, including terms of payment and (iv) amount.
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(i) Neither the execution of, nor the performance of the transactions contemplated by, this Agreement will either alone or in connection with any other event(s) (i) result in any payment or benefit becoming due to any current or former employee, director, officer, or independent contractor of the Company thereof, (ii) increase any amount of compensation or benefits otherwise payable under any Benefit Plan, (iii) result in the acceleration of the time of payment, funding or vesting of any benefits under any Benefit Plan, (iv) require any contribution or payment to fund any obligation under any Benefit Plan or (v) limit the right to merge, amend or terminate any Benefit Plan.
(j) Neither the execution of, nor the consummation of the transactions contemplated by this Agreement (either alone or when combined with the occurrence of any other event, including without limitation, a termination of employment) will result in the receipt or retention by any person who is a "disqualified individual" (within the meaning of Code Section 280G) of any payment or benefit that is or could be characterized as an excess "parachute payment" (within the meaning of Code Section 280G), determined without regard to the application of Code Section 280G(b)(5).
(k) The exercise price of each Company Option is not, never has been and can never be less than the fair market value of the underlying Company membership interest as of the grant date of such Company Option. Each Benefit Plan that is a "nonqualified deferred compensation plan" (within the meaning of Code Section 409A) complies and has at all times been in documentary and operational compliance with Code Section 409A and IRS regulations issued thereunder, except as would not be reasonably expected to result in material liability to the Company.
(l) No current or former employee, officer, director or independent contractor of the Company has any "gross up" agreements or other assurance of reimbursement for any Taxes imposed under Code Section 409A or Code Section 4999.
(m) The Company is not a party to, bound by, nor has a duty to bargain under, any collective bargaining agreement or other Contract with a labor union, labor organization, or similar Person representing any of its employees, and there is no labor union, labor organization, or similar Person representing or, to the Knowledge of the Company, purporting to represent or seeking to represent any employees of the Company, including through the filing of a petition for representation election.
(n) The Company is, and since February 26, 2019 has been, in material compliance with all applicable Laws respecting labor, employment, employment practices, and terms and conditions of employment, including worker classification, tax withholding, prohibited discrimination and retaliation, equal employment opportunities, harassment, fair employment practices, meal and rest periods, immigration, employee safety and health, wages (including overtime wages), unemployment and workers' compensation, leaves of absence, and hours of work. Except as would not be reasonably likely to result in a material liability to the Company, with respect to employees of the Company , the Company , since February 26, 2019: (i) has withheld and reported all amounts required by Law or by agreement to be withheld and reported with respect to wages, salaries and other payments, benefits, or compensation to employees, (ii) is not liable for any arrears of wages (including overtime wages), severance pay or any Taxes or any penalty for failure to comply with any of the foregoing, and (iii) is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of any Governmental Body, with respect to unemployment compensation benefits, disability, social security or other benefits or obligations for employees (other than routine payments to be made in the Ordinary Course of Business).
(o) Except as would not be reasonably likely to result in a material liability to the Company, with respect to each individual who currently renders services to the Company, the Company has accurately classified each such individual as an employee, independent contractor, or otherwise
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under all applicable Laws and, for each individual classified as an employee, the Company has accurately classified him or her as overtime eligible or overtime ineligible under all applicable Laws. The Company does not have any material liability with respect to any misclassification of: (a) any Person as an independent contractor rather than as an employee, (b) any employee leased from another employer, or (c) any employee currently or formerly classified as exempt from overtime wages.
(p) There is not and has not been in the past three (3) years, nor is there or has there been in the past three (3) years any threat of, any strike, slowdown, work stoppage, lockout, union election petition, demand for recognition, or any similar activity or dispute, or, to the Knowledge of the Company, any union organizing activity, against the Company. No event has occurred, and no condition or circumstance exists, that might directly or indirectly be likely to give rise to or provide a basis for the commencement of any such strike, slowdown, work stoppage, lockout, union election petition, demand for recognition, any similar activity or dispute, or, to the Knowledge of the Company, any union organizing activity.
(q) There is no Legal Proceeding, claim, unfair labor practice charge or complaint, labor dispute or grievance pending or, to the Knowledge of the Company, threatened against the Company relating to labor, employment, employment practices, or terms and conditions of employment.
(r) As of the date hereof, no Key Employee has submitted his or her resignation or, to the Knowledge of the Company, intends to resign.
2.18 Environmental Matters. The Company is and since February 26, 2019 has complied with all applicable Environmental Laws, which compliance includes the possession by the Company of all permits and other Governmental Authorizations required under applicable Environmental Laws and compliance with the terms and conditions thereof, except for any failure to be in such compliance that, either individually or in the aggregate, would not reasonably be expected to be material to the Company or its business. The Company has not received since February 26, 2019 (or prior to that time, which is pending and unresolved), any written notice or other communication (in writing or otherwise), whether from a Governmental Body or other Person, that alleges that the Company is not in compliance with or has liability pursuant to any Environmental Law and, to the Knowledge of the Company, there are no circumstances that would reasonably be expected to prevent or interfere with the Company's or any of its Subsidiaries' compliance in any material respects with any Environmental Law, except where such failure to comply would not reasonably be expected to be material to the Company or its business. No current or (during the time a prior property was leased or controlled by the Company) prior property leased or controlled by the Company has had a release of or exposure to Hazardous Materials in material violation of or as would reasonably be expected to result in any material liability of the Company pursuant to Environmental Law. No consent, approval or Governmental Authorization of or registration or filing with any Governmental Body is required by Environmental Laws in connection with the execution and delivery of this Agreement or the Contemplated Transactions. Prior to the date hereof, the Company has provided or otherwise made available to Parent true and correct copies of all material environmental reports, assessments, studies and audits in the possession or control of the Company with respect to any property leased or controlled by the Company or any business operated by it.
2.19 Insurance. The Company has delivered or made available to Parent accurate and complete copies of all material insurance policies and all material self-insurance programs and arrangements relating to the business, assets, liabilities and operations of the Company. Each of such insurance policies is in full force and effect and the Company is in compliance in all material respects with the terms thereof. Other than customary end of policy notifications from insurance carriers, since February 26, 2019, neither the Company nor any of its Subsidiaries has received any notice or other communication regarding any actual or possible: (i) cancellation or invalidation of any insurance policy;
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or (ii) refusal or denial of any coverage, reservation of rights or rejection of any material claim under any insurance policy. The Company has provided timely written notice to the appropriate insurance carrier(s) of each Legal Proceeding that is currently pending against the Company for which the Company has insurance coverage, and no such carrier has issued a denial of coverage or a reservation of rights with respect to any such Legal Proceeding, or informed the Company of its intent to do so.
2.20 No Financial Advisors. Except as set forth on Section 2.20 of the Company Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage fee, finder's fee, opinion fee, success fee, transaction fee or other fee or commission in connection with the Contemplated Transactions based upon arrangements made by or on behalf of the Company.
2.21 Transactions with Affiliates.
(a) Section 2.21(a) of the Company Disclosure Schedule describes any material transactions or relationships, since February 26, 2019, between, on one hand, the Company and, on the other hand, any (i) executive officer or director of the Company or any of such executive officer's or manager's immediate family members, (ii) owner of more than five percent (5%) of the voting power of the outstanding Company Equity or (iii) to the Knowledge of the Company, any "related person" (within the meaning of Item 404 of Regulation S-K under the Securities Act) of any such officer, director or owner (other than the Company) in the case of each of (i), (ii) or (iii) that is of the type that would be required to be disclosed under Item 404 of Regulation S-K under the Securities Act.
(b) Section 2.21(b) of the Company Disclosure Schedule lists each member agreement, voting agreement, registration rights agreement, co-sale agreement or other similar Contract between the Company and any holders of Company Equity, including any such Contract granting any Person investor rights, rights of first refusal, rights of first offer, registration rights, director designation rights or similar rights.
2.22 Anti-Bribery. None of the Company or any of their respective managers, officers, employees or agents or any other Person acting on their behalf has directly or indirectly made any bribes, rebates, payoffs, influence payments, kickbacks, illegal payments, illegal political contributions, or other payments, in the form of cash, gifts, or otherwise, or taken any other action, in violation of the Foreign Corrupt Practices Act of 1977, the UK Bribery Act of 2010 or any other anti-bribery or anti-corruption Law (collectively, the "Anti-Bribery Laws"). The Company is not or has been the subject of any investigation or inquiry by any Governmental Body with respect to potential violations of Anti-Bribery Laws.
2.23 Disclaimer of Other Representations or Warranties. Except as previously set forth in this Section 2 or in any certificate delivered by the Company to Parent and/or Merger Sub pursuant to this Agreement, the Company makes no representation or warranty, express or implied, at law or in equity, with respect to it or any of its assets, liabilities or operations, and any such other representations or warranties are hereby expressly disclaimed.
Section 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Subject to Section 10.13(i), except (i) as set forth in the disclosure schedule delivered by Parent to the Company (the "Parent Disclosure Schedule") or (ii) as disclosed in the Parent SEC Documents filed with the SEC on or after March 1, 2019 and prior to the date hereof and publicly available on the SEC's Electronic Data Gathering Analysis and Retrieval, system (but (A) without giving effect to information in any exhibits to Parent SEC Documents, even if publicly available on the SEC's Electronic Data Gathering Analysis and Retrieval system or incorporated by reference and (B) excluding any disclosures contained under the heading "Risk Factors" and any disclosure of risks included in any "forward-looking statements" disclaimer or in any other section to the extent they are forward-looking
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statements or cautionary, predictive or forward-looking in nature), Parent and Merger Sub represent and warrant to the Company as follows:
3.1 Due Organization; Subsidiaries.
(a) Each of Parent and Merger Sub is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Delaware and has all necessary corporate power and authority to conduct its business in the manner in which its business is currently being conducted and to own or lease and use its property and assets in the manner in which its property and assets are currently owned or leased and used. Since the date of its incorporation, Merger Sub has not engaged in any activities other than activities incident to its formation or in connection with or as contemplated by this Agreement.
(b) Parent is duly licensed and qualified to do business, and is in good standing (to the extent applicable in such jurisdiction), under the Laws of all jurisdictions where the nature of its business requires such licensing or qualification other than in jurisdictions where the failure to be so qualified individually or in the aggregate would not be reasonably expected to have a Parent Material Adverse Effect.
(c) Each of Parent's Subsidiaries is a corporation or other legal entity duly organized, validly existing and, if applicable, in good standing under the Laws of the jurisdiction of its organization and has all necessary corporate or other power and authority to conduct its business in the manner in which its business is currently being conducted and to own or lease and use its property and assets in the manner in which its property and assets are currently owned or leased and used, except where the failure to have such power or authority would not be reasonably expected to have a Parent Material Adverse Effect.
3.2 Organizational Documents. Parent has made available to the Company accurate and complete copies of Parent's and Merger Sub's Organizational Documents in effect as of the date of this Agreement. Neither Parent nor Merger Sub is in material breach or violation of its respective Organizational Documents.
3.3 Authority; Binding Nature of Agreement. Each of Parent and Merger Sub has all necessary corporate power and authority to enter into and to perform its obligations under this Agreement and to consummate the Contemplated Transactions. The Parent Board (at meetings duly called and held) has: (a) determined that the Contemplated Transactions are fair to, advisable and in the best interests of Parent and its stockholders; (b) approved and declared advisable this Agreement and the Contemplated Transactions, including the issuance of shares of Parent Common Stock to the members of the Company pursuant to the terms of this Agreement; and (c) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholders of Parent vote to approve this Agreement and the Contemplated Transactions, including the issuance of shares of Parent Common Stock to the members of the Company pursuant to the terms of this Agreement. The Merger Sub Board (by unanimous written consent) has: (x) determined that the Contemplated Transactions are fair to, advisable, and in the best interests of Merger Sub and its sole stockholder; (y) deemed advisable and approved this Agreement and the Contemplated Transactions; and (z) determined to recommend, upon the terms and subject to the conditions set forth in this Agreement, that the stockholder of Merger Sub vote to adopt this Agreement and thereby approve the Contemplated Transactions. This Agreement has been duly executed and delivered by Parent and Merger Sub and, assuming the due authorization, execution and delivery by the Company, constitutes the legal, valid and binding obligation of Parent and Merger Sub, enforceable against each of Parent and Merger Sub in accordance with its terms, subject to the Enforceability Exceptions.
3.4 Vote Required. The affirmative vote of a majority of the shares of Parent Common Stock that are outstanding and eligible to vote at the Parent Stockholders' Meeting is the only vote of the holders of
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any class or series of Parent's capital stock necessary to approve the Share Issuance Proposal, the Reverse Stock Split Proposal and such other proposals as may be required to approve the transactions contemplated by this Agreement (collectively, the "Required Parent Stockholder Matters", and such votes, the "Required Parent Stockholder Vote").
3.5 Non-Contravention; Consents. Subject to obtaining the Required Parent Stockholder Vote and the filing of the Certificate of Merger required by the DGCL and the DLLCA, neither (x) the execution, delivery or performance of this Agreement by Parent or Merger Sub, nor (y) the consummation of the Contemplated Transactions, will directly or indirectly (with or without notice or lapse of time):
(a) contravene, conflict with or result in a violation of any of the provisions of the Organizational Documents of Parent or Merger Sub;
(b) contravene, conflict with or result in a violation of, or give any Governmental Body or other Person the right to challenge the Contemplated Transactions or to exercise any remedy or obtain any relief under, any Law or any order, writ, injunction, judgment or decree to which Parent or Merger Sub, or any of the assets owned or used by Parent or Merger Sub, is subject, except as would not reasonably be expected to be material to Parent or its business;
(c) contravene, conflict with or result in a violation of any of the terms or requirements of, or give any Governmental Body the right to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental Authorization that is held by Parent, except as would not reasonably be expected to be material to Parent or its business;
(d) contravene, conflict with or result in a violation or breach of, or result in a default under, any provision of any Parent Material Contract, or give any Person the right to: (i) declare a default or exercise any remedy under any Parent Material Contract; (ii) any material payment, rebate, chargeback, penalty or change in delivery schedule under any Parent Material Contract; (iii) accelerate the maturity or performance of any Parent Material Contract; or (iv) cancel, terminate or modify any term of any Parent Material Contract, except in the case of any non-material breach, default, penalty or modification; or
(e) result in the imposition or creation of any Encumbrance upon or with respect to any asset owned or used by Parent (except for Permitted Encumbrances).
Except for (i) any Consent set forth on Section 3.5 of the Parent Disclosure Schedule under any Parent Contract, (ii) the Required Parent Stockholder Vote, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware pursuant to the DGCL and the DLLCA, and (iv) such consents, waivers, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities Laws, Parent is not and will not be required to make any filing with or give any notice to, or to obtain any Consent from, any Person in connection with (x) the execution, delivery or performance of this Agreement, or (y) the consummation of the Contemplated Transactions, which if individually or in the aggregate were not given or obtained, would reasonably be expected to prevent or materially delay the ability of Parent and Merger Sub to consummate the Contemplated Transactions. The Parent Board and the Merger Sub Board have taken and will take all actions necessary to ensure that the restrictions applicable to business combinations contained in Section 203 of the DGCL are, and will be, inapplicable to the execution, delivery and performance of this Agreement and to the consummation of the Contemplated Transactions. No other state Takeover Statute or similar Law applies or purports to apply to the Merger, this Agreement or any of the other Contemplated Transactions.
3.6 Capitalization.
(a) The authorized capital stock of Parent consists of 450,000,000 shares of Parent Common Stock, par value $0.001 per share, of which 15,227,891 shares have been issued and are outstanding
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as of December 31, 2019 (the "Capitalization Date") and 10,000,000 shares of preferred stock, par value $0.001 per share, none of which are outstanding at the Capitalization Date. Parent does not hold any shares of its capital stock in its treasury.
(b) All of the outstanding shares of Parent Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable. None of the outstanding shares of Parent Common Stock is entitled or subject to any preemptive right, right of participation, right of maintenance or any similar right and none of the outstanding shares of Parent Common Stock is subject to any right of first refusal in favor of Parent. Except as contemplated herein, there is no Parent Contract relating to the voting or registration of, or restricting any Person from purchasing, selling, pledging or otherwise disposing of (or granting any option or similar right with respect to), any shares of Parent Common Stock. Parent is not under any obligation, nor is it bound by any Contract pursuant to which it may become obligated, to repurchase, redeem or otherwise acquire any outstanding shares of Parent Common Stock or other securities.
(c) Except for the 2016 Equity Incentive Plan, as amended in March 2017 and August 2018, and the 2014 Equity Incentive Plan (under which awards may no longer be granted, collectively the "Parent Stock Plan"), and except for 6,667 inducement options further described in Section 3.6(c) of the Parent Disclosure Schedule, Parent does not have any stock option plan or any other plan, program, agreement or arrangement providing for any equity-based compensation for any Person. As of the date of this Agreement, 1,247,536 shares have been reserved for issuance upon exercise of Parent Options granted under the Parent Stock Plan that are outstanding as of the date of this Agreement, no shares that have been reserved for issuance with respect to the inducement options and 1,729,742 shares remain available for future issuance pursuant to the Parent Stock Plan.
(d) Except for the Parent Stock Plan, the inducement options described above, warrants to purchase securities of Parent and the Bridge Warrants, and as otherwise set forth on Section 3.6(d) of the Parent Disclosure Schedule, there is no: (i) outstanding subscription, option, call, warrant or right (whether or not currently exercisable) to acquire any shares of the capital stock or other securities of Parent or any of its Subsidiaries; (ii) outstanding security, instrument or obligation that is or may become convertible into or exchangeable for any shares of the capital stock or other securities of Parent or any of its Subsidiaries; or (iii) condition or circumstance that is reasonably likely to give rise to or provide a basis for the assertion of a claim by any Person to the effect that such Person is entitled to acquire or receive any shares of capital stock or other securities of Parent or any of its Subsidiaries. There are no outstanding or authorized stock appreciation, phantom stock, profit participation or other similar rights with respect to Parent or any of its Subsidiaries.
(e) All outstanding shares of Parent Common Stock, Parent Options, and other securities of Parent have been issued and granted in material compliance with (i) all applicable securities Laws and other applicable Law, and (ii) all requirements set forth in applicable Contracts.
3.7 SEC Filings; Financial Statements.
(a) Parent has delivered or made available to the Company accurate and complete copies of all registration statements, proxy statements, Certifications (as defined below) and other statements, reports, schedules, forms and other documents filed by Parent with the SEC since January 31, 2016 (the "Parent SEC Documents"), other than such documents that can be obtained on the SEC's website at www.sec.gov. All material statements, reports, schedules, forms and other documents required to have been filed by Parent or its officers with the SEC have been so filed on a timely basis. As of the time it was filed with the SEC (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing), each of the Parent SEC Documents complied in all material respects with the applicable requirements of the Securities Act or the Exchange Act (as the case may be) and, as of the time they were filed, none of the Parent SEC
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Documents contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The certifications and statements required by (i) Rule 13a-14 under the Exchange Act and (ii) 18 U.S.C. §1350 (Section 906 of the Sarbanes-Oxley Act) relating to the Parent SEC Documents (collectively, the "Certifications") are accurate and complete and comply as to form and content with all applicable Laws. As used in this Section 3.7, the term "file" and variations thereof shall be broadly construed to include any manner in which a document or information is furnished, supplied or otherwise made available to the SEC. Except as set forth in Section 3.7 of the Parent Disclosure Schedule, the Parent has never been and is not currently an issuer as such term is described in Rule 144(i) of the Securities Act.
(b) The financial statements (including any related notes) contained or incorporated by reference in the Parent SEC Documents: (i) complied as to form in all material respects with the published rules and regulations of the SEC applicable thereto; (ii) were prepared in accordance with GAAP (except as may be indicated in the notes to such financial statements or, in the case of unaudited financial statements, except as permitted by Form 10-Q of the SEC, and except that the unaudited financial statements may not contain footnotes and are subject to normal and recurring year-end adjustments none of which are material) applied on a consistent basis unless otherwise noted therein throughout the periods indicated; and (iii) fairly present, in all material respects, the financial position of Parent and its Subsidiaries as of the respective dates thereof and the results of operations and cash flows of Parent for the periods covered thereby. Other than as expressly disclosed in the Parent SEC Documents filed prior to the date hereof, there has been no material change in Parent's or its Subsidiaries' accounting methods or principles that would be required to be disclosed in Parent's financial statements in accordance with GAAP. The books of account and other financial records of Parent and each of its Subsidiaries are true and complete in all material respects.
(c) Parent is in compliance in all material respects with the applicable current listing and governance rules and regulations of the NYSE American Exchange and has not received any written notice that it is not in compliance with all current listing and governance rules and regulations of NYSE American Exchange, except as disclosed in the Parent SEC Documents.
(d) Parent maintains a system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and to provide reasonable assurance (i) that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, (ii) that receipts and expenditures are made only in accordance with authorizations of management and the Parent Board and (iii) regarding prevention or timely detection of the unauthorized acquisition, use or disposition of Parent's assets that could have a material effect on Parent's financial statements. Parent has evaluated the effectiveness of Parent's internal control over financial reporting as of January 31, 2019, and, to the extent required by applicable Law, presented in any applicable Parent SEC Document that is a report on Form 10-K or Form 10-Q (or any amendment thereto) its conclusions about the effectiveness of the internal control over financial reporting as of the end of the period covered by such report or amendment based on such evaluation. Parent has disclosed, based on its most recent evaluation of internal control over financial reporting, to Parent's auditors and audit committee (and made available to the Company a summary of the significant aspects of such disclosure) (A) all significant deficiencies and material weaknesses, if any, in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect Parent's ability to record, process, summarize and report financial information and (B) any known fraud that involves management or other employees who have a significant role in Parent's internal control over financial reporting.
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(e) Parent maintains "disclosure controls and procedures" (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) that are reasonably designed to ensure that information required to be disclosed by Parent in the periodic reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods, and that all such information is accumulated and communicated to Parent's management as appropriate to allow timely decisions regarding required disclosure and to make the Certifications.
3.8 Absence of Changes. Except as set forth on Section 3.8 of the Parent Disclosure Schedule, between the date of the Parent Balance Sheet and the date of this Agreement, the Parent has conducted its business only in the Ordinary Course of Business (except for the execution and performance of this Agreement and the discussions, negotiations and transactions related thereto) and there has not been any (a) Parent Material Adverse Effect or (b) action, event or occurrence that would have required the consent of Parent pursuant to Section 4.2(b) had such action, event or occurrence taken place after the execution and delivery of this Agreement.
3.9 Absence of Undisclosed Liabilities. As of the date hereof, Parent does not have any Liability, individually or in the aggregate, of a type required to be recorded or reflected on a balance sheet or disclosed in the footnotes thereto under GAAP except for: (a) Liabilities disclosed, reflected or reserved against in the Parent Balance Sheet; (b) Liabilities that have been incurred by Parent since the date of the Parent Balance Sheet in the Ordinary Course of Business and which are not in excess of $10,000; (c) Liabilities for performance of obligations of Parent under Parent Contracts; (d) Liabilities incurred in connection with the Contemplated Transactions; (e) Liabilities which would not, individually or in the aggregate, reasonably be expected to be material to Parent; and (f) Liabilities described in Section 3.9 of the Parent Disclosure Schedule.
3.10 Title to Assets. The Parent owns, and has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all tangible properties or tangible assets and equipment used or held for use in its business or operations or purported to be owned by it, including: (a) all assets reflected on the Parent Balance Sheet; and (b) all other assets reflected in the books and records of the Parent as being owned by the Parent. All of such assets are owned or, in the case of leased assets, leased by the Parent free and clear of any Encumbrances, other than Permitted Encumbrances.
3.11 Real Property; Leasehold. Parent does not own any real property. Parent has made available to the Company (a) an accurate and complete list of all real properties with respect to which Parent directly or indirectly holds a valid leasehold interest as well as any other real estate that is in the possession of or leased by Parent, and (b) copies of all leases under which any such real property is possessed (the "Parent Real Estate Leases"), each of which is in full force and effect, with no existing material default thereunder. Parent's use and operation of each such leased property conforms to all applicable Laws in all material respects, and Parent has exclusive possession of each such leased property and has not granted any occupancy rights to tenants or licensees with respect to such leased property. In addition, each such leased property is free and clear of all Encumbrances other than Permitted Encumbrances. Parent has not received written notice from its landlords or any Governmental Body that: (i) relates to violations of building, zoning, safety or fire ordinances or regulations; (ii) claims any defect or deficiency with respect to any of such properties; or (iii) requests the performance of any repairs, alterations or other work to such properties.
3.12 Intellectual Property.
(a) The Parent owns, or has the legal and valid right to use, as currently being used by the Parent, all Parent IP Rights, and with respect to Parent IP Rights that are owned by the Parent, has the right to bring actions for the infringement of such Parent IP Rights, in each case except subject to the terms of the license agreements set forth on Section 3.12(c) of the Parent Disclosure Schedule
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for any failure to own, have such rights to use, or have such rights to bring actions for infringement.
(b) Section 3.12(b) of the Parent Disclosure Schedule sets forth an accurate, true and complete listing of (i) all Parent IP Rights that are owned by the Parent that are registered, filed or issued under the authority of, with or by any Governmental Body, including all Patents, registered Copyrights, and registered Trademarks (including domain names) and all applications for any of the foregoing, (ii) to the Knowledge of the Parent, all Parent IP Rights that are exclusively licensed to the Parent that are registered, filed or issued under the authority of, with or by any Governmental Body, including all Patents, registered Copyrights, and registered Trademarks (including domain names) and (iii) all applications for any of the foregoing, and specifying as to each such item, as applicable, the owner(s) of record (and, in the case of domain names, the registrar), jurisdiction of application and/or registration, the application and/or registration number, the date of application and/or registration, and the status of application and/or registration. To the Knowledge of the Parent, each item of Parent IP Rights that is Parent Registered IP is and at all times has been filed and maintained in compliance with all applicable Law and all filings, payments, and other actions required to be made or taken to maintain such item of Parent Registered IP in full force and effect have been made by the applicable deadline.
(c) Section 3.12(c) of the Parent Disclosure Schedule accurately identifies (i) all material Parent Contracts pursuant to which Parent IP Rights are licensed to the Parent (other than (A) any non-customized software that (1) is so licensed solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (2) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Parent's products or services, (B) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials and (C) any confidential information provided under confidentiality agreements), and (ii) whether the license or licenses granted to the Parent are exclusive or non-exclusive. For purposes of greater certainty, the term "license" in this Section 3.12(c) and in Section 3.12(d) includes any license, sublicense, covenant, non-assert, consent, release or waiver.
(d) Section 3.12(d) of the Parent Disclosure Schedule accurately identifies each material Parent Contract pursuant to which the Parent has granted any license under, or any right (whether or not currently exercisable) or interest in, any Parent IP Rights to any Person (other than any Parent IP Rights non-exclusively licensed to suppliers or service providers for the sole purpose of enabling such suppliers or service providers to provide services for the Parent's benefit).
(e) Except as set forth in Section 3.12(e) of the Parent Disclosure Schedule, the Parent is not bound by, and no Parent IP Rights are subject to, any Parent Contract containing any covenant or other provision, or any judicial, administrative or arbitral order, judgment, award, order, decree, injunction, settlement or stipulation, that in any way limits or restricts the ability of the Parent to use, exploit, assert, enforce, sell, transfer or dispose of any such Parent IP Rights anywhere in the world, in each case, in a manner that would materially limit the business of the Parent as currently conducted or planned to be conducted.
(f) Except as identified in Section 3.12(f) of the Parent Disclosure Schedule, the Parent is the sole and unrestricted legal and beneficial owner of all right, title, and interest to and in Parent IP Rights (other than (i) Parent IP Rights exclusively and non-exclusively licensed to the Parent or one of its Subsidiaries, as identified in Section 3.12(c) of the Parent Disclosure Schedule, (ii) any non-customized software that (A) is licensed to the Parent solely in executable or object code form pursuant to a non-exclusive, internal use software license and other Intellectual Property associated with such software and (B) is not incorporated into, or material to the development, manufacturing, or distribution of, any of the Parent's or any of its Subsidiaries' products or services
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and (iii) any Intellectual Property licensed ancillary to the purchase or use of equipment, reagents or other materials), in each case, free and clear of any Encumbrances (other than Permitted Encumbrances). Without limiting the generality of the foregoing:
(i) Each Person who is or was an employee or contractor of the Parent and who is or was involved in the creation or development of any Parent IP Rights has signed a valid, enforceable agreement containing an assignment of such Intellectual Property to the Parent and confidentiality provisions protecting confidential information of the Parent and Parent has no reason to believe that any such Person is unwilling to provide Parent with cooperation as may reasonably be required to complete or prosecute all Parent IP Rights.
(ii) No current nor, to the Knowledge of Parent, former member, officer, director, or employee of the Parent has any claim, right (whether or not currently exercisable), or interest to or in any Parent IP Rights purported to be owned by the Parent. To the Knowledge of the Parent, no employee of the Parent is (a) bound by or otherwise subject to any Contract restricting him or her from performing his or her duties for the Parent or (b) in breach of any Contract with any former employer or other Person concerning Parent IP Rights purported to be owned by the Parent or confidentiality provisions protecting Trade Secrets and confidential information comprising Parent IP Rights purported to be owned by the Parent.
(iii) Except as identified in Section 3.12(f)(iii) of the Parent Disclosure Schedule, no Parent IP Rights were developed, in whole or in part (A) pursuant to or in connection with the development of any professional, technical or industry standard, (B) under contract with or using the resources of any Governmental Body, academic institution or other entity that would subject any Parent IP Rights to the rights of any Governmental Body, academic institution or other entity or (C) under any grants or other funding arrangements with third parties.
(iv) The Parent has taken all commercially reasonable and appropriate steps to protect and maintain the Parent IP Rights, including to preserve the confidentiality of all proprietary information that the Parent holds, or purports to hold, as a material Trade Secret. Any disclosure by the Parent of Trade Secrets to any third party has been pursuant to the terms of a written agreement with such Person or is otherwise lawful. Parent has implemented and maintained a reasonable security plan consistent with industry practices of companies offering similar products or services. Parent has not experienced any breach of security or otherwise unauthorized access by third parties to the confidential information in Parent's possession, custody or control
(v) The Parent has not assigned or otherwise transferred ownership of, or agreed to assign or otherwise transfer ownership of, any Parent IP Rights owned or purported to be owned by or exclusively licensed to the Parent to any other Person. As of the date of this Agreement, except as set forth in Section 3.12(f)(v) of the Parent Disclosure Schedule, the Parent has not sold or otherwise transferred (other than standard licenses or rights to use granted to customers, suppliers or service providers in the Ordinary Course of Business) any of the Parent IP Rights to any third party, and there exists no obligation by the Parent to assign or otherwise transfer any of the Parent IP Rights to any third party.
(vi) To the Knowledge of the Parent, (i) the Parent IP Rights are valid and enforceable and (ii) constitute all Intellectual Property necessary for the Parent to conduct its business as currently conducted and planned to be conducted. Parent has not misrepresented, or failed to disclose, any facts or circumstances in any application for any Parent IP Rights that would constitute fraud with respect to such application.
(g) To the Knowledge of the Parent, the manufacture, marketing, license, sale or intended use of any product or technology currently licensed or sold or under development by the Parent does not
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violate any license or agreement between the Parent or its Subsidiaries and any third party, and does not infringe or misappropriate any Intellectual Property right of any third party. Parent has not been sued in any action, suit or proceeding, or received any written communications alleging that any Parent IP Rights or product or past activity has violated or would violate any Intellectual Property rights of any third party and to the Parent's knowledge a valid claim for such action, suit or proceeding does not exist. No Parent IP Rights are subject to any proceeding, order, judgment, settlement agreement, stipulation or right that restricts in any manner the use, transfer, or licensing thereof by Parent, or which may affect the validity, use or enforceability of any such Parent IP Rights.
(h) To the Knowledge of the Parent, no third party is infringing upon any Parent IP Rights or violating any license or agreement between the Parent and such third party, and the Parent have not sent any written communication to or asserted or threatened in writing any action or claim against any Person involving or relating to any Parent IP Rights
(i) There is no current or pending Legal Proceeding (including, but not limited to, opposition, interference, inter partes review, or other proceeding in any patent or other government office) contesting the validity, ownership or right to use, sell, license or dispose of any Parent IP Rights or products or technologies, nor has the Parent received any written notice asserting or suggesting that any such Parent IP Rights, or the Parent's right to use, sell, license or dispose of any such Parent IP Rights or products or technologies conflicts with or infringes or misappropriates or will conflict with or infringe or misappropriate the rights of any other Person.
(j) Except as set forth in the Contracts listed on Section 3.12(j) of the Parent Disclosure Schedule and except for Parent Contracts entered into in the Ordinary Course of Business, (i) the Parent is not bound by any Contract to indemnify, defend, hold harmless, or reimburse any other Person with respect to any Intellectual Property infringement, misappropriation, or similar claim, in each case, that would reasonably be expected to be material to the Parent or its business, and (ii) the Parent has never assumed, or agreed to discharge or otherwise take responsibility for, any existing or potential liability of another Person for infringement, misappropriation, or violation of any Intellectual Property right, which assumption, agreement or responsibility is material and remains in force as of the date of this Agreement.
3.13 Agreements, Contracts and Commitments.
(a) Section 3.13 of the Parent Disclosure Schedule identifies each Parent Contract in effect as of the date of this Agreement that involves payment or receipt by the Company of more than $10,000 in the aggregate, or obligations after the date of this Agreement in excess of $10,000 in the aggregate other than any Benefit Plans and includes:
(i) a material contract as defined in Item 601(b)(10) of Regulation S-K as promulgated under the Securities Act;
(ii) each Contract relating to any agreement of indemnification or guaranty not entered into in the Ordinary Course of Business;
(iii) each Contract containing (A) any covenant limiting the freedom of Parent to engage in any line of business or compete with any Person, (B) any most-favored pricing arrangement, (C) any exclusivity provision, or (D) any non-solicitation provision;
(iv) each Contract relating to capital expenditures and requiring payments after the date of this Agreement in excess of $10,000 pursuant to its express terms and not cancelable without penalty;
(v) each Contract relating to the disposition or acquisition of material assets or any ownership interest in any Entity;
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(vi) each Contract relating to any mortgages, indentures, loans, notes or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit or creating any material Encumbrances with respect to any assets of Parent or any loans or debt obligations with officers or directors of Parent;
(vii) each Contract requiring payment by or to Parent after the date of this Agreement in excess of $50,000 pursuant to its express terms relating to: (A) any distribution agreement (identifying any that contain exclusivity provisions); (B) any agreement involving provision of services or products with respect to any pre-clinical or clinical development activities of Parent; (C) any dealer, distributor, joint marketing, alliance, joint venture, cooperation, development or other agreement currently in force under which Parent has continuing obligations to develop or market any product, technology or service, or any agreement pursuant to which Parent has continuing obligations to develop any Intellectual Property that will not be owned, in whole or in part, by Parent; or (D) any Contract to license any third party to manufacture or produce any product, service or technology of Parent or any Contract to sell, distribute or commercialize any products or service of Parent, in each case, except for Contracts entered into in the Ordinary Course of Business;
(viii) each Contract with any Person, including any financial advisor, broker, finder, investment banker or other Person, providing advisory services to Parent in connection with the Contemplated Transactions;
(ix) each Parent Real Estate Lease;
(x) each Contract with any Governmental Body;
(xi) each Parent IP Agreement;
(xii) each Contract containing any royalty, dividend or similar arrangement based on the revenues or profits of Parent; or
(xiii) any other Contract that is not terminable at will (with no penalty or payment) by Parent and (A) which involves payment or receipt by Parent after the date of this Agreement under any such agreement, contract or commitment of more than $25,000 in the aggregate, or obligations after the date of this Agreement in excess of $10,000 in the aggregate, or (B) that is material to the business or operations of Parent.
(b) Parent has delivered or made available to the Company accurate and complete copies of all Contracts to which Parent is a party or by which it is bound of the type described in the foregoing clauses (i)-(xiii) (any such Contract, a "Parent Material Contract"). There are no Parent Material Contracts that are not in written form. Parent has not nor, to Parent's Knowledge, as of the date of this Agreement, has any other party to a Parent Material Contract, breached, violated or defaulted under, or received notice that it breached, violated or defaulted under, any of the terms or conditions of any Parent Material Contract in such manner as would permit any other party to cancel or terminate any such Parent Material Contract, or would permit any other party to seek damages which would reasonably be expected to be material to Parent or its business. As to Parent, as of the date of this Agreement, each Parent Material Contract is valid, binding, enforceable and in full force and effect, subject to the Enforceability Exceptions. No Person is renegotiating, or has a right pursuant to the terms of any Parent Material Contract to change, any material amount paid or payable to Parent under any Parent Material Contract or any other material term or provision of any Parent Material Contract.
3.14 Compliance; Permits.
(a) Parent is, and since February 1, 2016 has been, in compliance in all material respects with all applicable Laws, including the FDCA, the FDA regulations adopted thereunder, the Controlled
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Substance Act and any other similar Law administered or promulgated by the FDA or other Drug Regulatory Agency, except for any noncompliance, either individually or in the aggregate, which would not be material to Parent. No investigation, claim, suit, proceeding, audit or other action by any Governmental Body is pending or, to the Knowledge of Parent, threatened against Parent. There is no agreement, judgment, injunction, order or decree binding upon Parent which (i) has or would reasonably be expected to have the effect of prohibiting or materially impairing any business practice of Parent or any of its Subsidiaries, any acquisition of material property by Parent or any of its Subsidiaries or the conduct of business by Parent or any of its Subsidiaries as currently conducted (ii) is reasonably likely to have an adverse effect on Parent's ability to comply with or perform any covenant or obligation under this Agreement, or (iii) is reasonably likely to have the effect of preventing, delaying, making illegal or otherwise interfering with the Contemplated Transactions.
(b) Parent holds all required Governmental Authorizations which are material to the operation of the business of Parent as currently conducted (the "Parent Permits"). Parent is in material compliance with the terms of the Parent Permits. No Legal Proceeding is pending or, to the Knowledge of Parent, threatened, which seeks to revoke, limit, suspend, or materially modify any Parent Permit.
(c) There are no proceedings pending or, to the Knowledge of Parent, threatened with respect to an alleged material violation by Parent of the FDCA, FDA regulations adopted thereunder, the Controlled Substance Act or any other similar Law administered or promulgated by any Drug Regulatory Agency.
(d) Parent and each Subsidiary holds all required Governmental Authorizations issuable by any Drug Regulatory Agency necessary or material to the conduct of the business of the Company or such Subsidiary as currently conducted, and, as applicable, the development, clinical testing, manufacturing, marketing, distribution and importation or exportation, as currently conducted, of any of its products or product candidates (collectively, the "Parent Products") (collectively, the "Parent Regulatory Permits") and no such Parent Regulatory Permit has been (i) revoked, withdrawn, suspended, cancelled or terminated or (ii) modified in any adverse manner. Parent and each Subsidiary is in compliance in all material respects with the Parent Regulatory Permits and has not received any written notice or other written communication, or to the Knowledge of Parent and each Subsidiary, any other communication from any Drug Regulatory Agency regarding (A) any material violation of or failure to comply materially with any term or requirement of any Parent Regulatory Permit or (B) any revocation, withdrawal, suspension, cancellation, termination or material modification of any Parent Regulatory Permit. Parent has made available to Company all information relating to the Parent Products and the development, clinical testing, manufacturing, importation and exportation of the Parent Products, including complete copies of the following (to the extent there are any): (x) copies of all investigational new drug applications (INDs) submitted to the FDA, and all supplements to and amendments of such INDs; new drug applications; adverse event reports; clinical study reports and material study data; inspection reports, notices of adverse findings, warning letters, filings and letters and other material written correspondence to and from any Drug Regulatory Agency; and meeting minutes with any Drug Regulatory Agency; and (y) similar notices, letters, filings, correspondence and meeting minutes with any other Governmental Body. Parent and each Subsidiary has complied in all material respects with the ICH E9 Guidance for Industry: Statistical Principles for Clinical Trials in the management of the clinical data that have been presented to the Parent. To the Knowledge of Parent and each Subsidiary, there are no facts that would be reasonably likely to result in any warning, untitled or notice of violation letter or Form FDA-483 from the FDA. Neither Parent nor any Subsidiary is aware of any studies, tests or trials the results of which Parent or any Subsidiary believes reasonably call into question (i) the study, test or trial results of any Parent Products,
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(ii) the efficacy or safety of any Parent Products or (iii) any of the Parent or its Subsidiaries filings with any Governmental Body.
(e) All clinical, pre-clinical and other studies and tests conducted by or on behalf of, or sponsored by, Parent or its Subsidiaries, or in which Parent or its Subsidiaries or their respective products or product candidates have participated, were and, if still pending, are being conducted in all material respects in accordance with standard medical and scientific research procedures and in compliance in all material respects with the applicable regulations of any applicable Drug Regulatory Agency and other applicable Law, including 21 C.F.R. Parts 50, 54, 56, 58 and 312. No preclinical or clinical trial currently being conducted by or on behalf of Parent or any of its Subsidiaries has been terminated or suspended prior to completion for safety or non-compliance reasons. Since February 1, 2016, neither Parent nor any of its Subsidiaries has received any notices, correspondence, or other communications from any Drug Regulatory Agency requiring, or to the Knowledge of Parent threatening to initiate, the termination or suspension of any clinical studies currently being conducted by or on behalf of, or sponsored by, Parent or any of its Subsidiaries or in which Parent or any of its Subsidiaries or their respective current products or product candidates, currently participate. Neither Parent nor any of its Subsidiaries has received any notices, correspondence, or other communications regarding any clinical studies that have been conducted by or on behalf of, or sponsored by, Parent or any of its Subsidiaries or in which Parent or any of its Subsidiaries or their respective products or product candidates have participated that are anticipated to result in any material liability to Parent or its Subsidiaries or have a Parent Material Adverse Effect.
(f) Neither Parent nor any of its Subsidiaries is the subject of any pending or, to the Knowledge of Parent, threatened investigation in respect of its business or products by the FDA pursuant to its "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities" Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. To the Knowledge of Parent, neither Parent nor any of its Subsidiaries has committed any acts, made any statement, or failed to make any statement, in each case in respect of its business or products that would violate the FDA's "Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities" Final Policy, and any amendments thereto. None of Parent, any of its Subsidiaries or any of their respective officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion (i) under 21 U.S.C. Section 335a or (ii) any similar applicable Law. No debarment or exclusionary claims, actions, proceedings or investigations in respect of their business or products are pending or, to the Knowledge of Parent, threatened against Parent, any of its Subsidiaries or any of their respective officers, employees or agents.
(g) Parent and its Subsidiaries are in compliance with all Laws relating to patient, medical or individual health information, including HIPAA, including the standards for the privacy of Individually Identifiable Health Information at 45 C.F.R. Parts 160 and 164, Subparts A and E, the standards for the protection of Electronic Protected Health Information set forth at 45 C.F.R. Part 160 and 45 C.F.R. Part 164, Subpart A and Subpart C, the standards for transactions and code sets used in electronic transactions at 45 C.F.R. Part 160, Subpart A and Part 162, and the standards for Breach Notification for Unsecured Protected Health Information at 45 C.F.R. Part 164, Subpart D, all as amended from time to time. Parent and its Subsidiaries have entered into, where required, and are in compliance in all material respects with the terms of all Business Associate (as defined in HIPAA) agreements to which Parent or a Subsidiary is a party or otherwise bound. Parent and its Subsidiaries have created and maintained written policies and procedures to protect the privacy of all protected health information, provide training to all employees and agents as required under HIPAA, and have implemented security procedures, including physical, technical and administrative safeguards, to protect all personal information and Protected Health Information stored or transmitted in electronic form. Neither Parent nor its
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Subsidiaries have received written notice from the Office for Civil Rights for the U.S. Department of Health and Human Services or any other Governmental Body of any allegation regarding its failure to comply with HIPAA or any other state law or regulation applicable to the protection of individually identifiable health information or personally identifiable information. No successful Security Incident, Breach of Unsecured Protected Health Information or breach of personally identifiable information under applicable state or federal laws have occurred with respect to information maintained or transmitted to Parent, any of its Subsidiaries, or an agent or third party subject to a Business Associate Agreement with Parent or a Subsidiary of Parent. Parent and each of its subsidiaries is currently submitting, receiving and handling or is capable of submitting receiving and handling transactions in accordance with the Standard Transaction Rule. All capitalized terms in this Section 3.14(g) not otherwise defined in this Agreement shall have the meanings set forth under HIPAA.
(h) Parent and each of its Subsidiaries have complied in all material respects with the ICH E9 Guidance for Industry to the extent applicable to their current activities.
3.15 Legal Proceedings; Orders.
(a) As of the date of this Agreement, there is no material pending Legal Proceeding and, to the Knowledge of Parent, no Person has threatened in writing to commence any Legal Proceeding: (i) that involves (A) Parent, (B) any Parent Associate (in his or her capacity as such) or (C) any of the material assets owned or used by Parent; or (ii) that challenges, or that may have the effect of preventing, delaying, making illegal or otherwise interfering with, the Contemplated Transactions.
(b) Except as set forth in Section 3.15(b) of the Parent Disclosure Schedule, since February 1, 2016, no Legal Proceeding has been pending against Parent that resulted in material liability to Parent.
(c) There is no order, writ, injunction, judgment or decree to which Parent, or any of the material assets owned or used by Parent, is subject. To the Knowledge of Parent, no officer or other Key Employee of Parent is subject to any order, writ, injunction, judgment or decree that prohibits such officer or employee from engaging in or continuing any conduct, activity or practice relating to the business of Parent or to any material assets owned or used by Parent.
3.16 Tax Matters.
(a) Parent has timely filed all income Tax Returns and other material Tax Returns that they were required to file under applicable Law. All such Tax Returns are correct and complete in all material respects and have been prepared in compliance with all applicable Law. No claim has ever been made by any Governmental Body in any jurisdiction where Parent does not file a particular Tax Return or pay a particular Tax that Parent is subject to taxation by that jurisdiction.
(b) All income and other Taxes due and owing by Parent on or before the date hereof (whether or not shown on any Tax Return) have been fully paid. Since the Parent Balance Sheet Date, Parent has not incurred any material Liability for Taxes outside the Ordinary Course of Business.
(c) All Taxes that Parent is or was required by Law to withhold or collect have been duly and timely withheld or collected in all material respects on behalf of its respective employees, independent contractors, stockholders, or other third parties and, have been timely paid to the proper Governmental Body or other Person or properly set aside in accounts for this purpose.
(d) There are no Encumbrances for Taxes (other than Taxes not yet due and payable) upon any of the assets of Parent.
(e) No deficiencies for income or other Taxes with respect to Parent have been claimed, proposed or assessed by any Governmental Body in writing. There are no pending or ongoing, and to the
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Knowledge of Parent, threatened audits, assessments or other actions for or relating to any liability in respect of a material amount of Taxes of Parent. Neither Parent nor any of its predecessors has waived any statute of limitations in respect of any income or other Taxes or agreed to any extension of time with respect to any income or other Tax assessment or deficiency.
(f) Parent is not a party to any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement, or similar agreement or arrangement, other than customary commercial contracts entered into in the Ordinary Course of Business the principal subject matter of which is not Taxes.
(g) Parent will not be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any Tax period (or portion thereof) ending after the Closing Date as a result of any: (i) change in method of accounting for Tax purposes; (ii) use of an improper method of accounting for a Tax period ending on or prior to the Closing Date; (iii) "closing agreement" as described in Section 7121 of the Code (or any similar provision of state, local or foreign Law) executed on or prior to the Closing Date; (iv) intercompany transaction or excess loss account described in Treasury Regulations under Section 1502 of the Code (or any similar provision of state, local or foreign Law); (v) installment sale or open transaction disposition made on or prior to the Closing Date; or (vi) prepaid amount received or deferred revenue accrued on or prior to the Closing Date.
(h) Parent has never been a member of a consolidated, combined or unitary Tax group (other than such a group the common parent of which is Parent). Parent has no Liability for any Taxes of any Person (other than Parent and any of its Subsidiaries) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign Law), or as a transferee or successor.
(i) Parent has not distributed stock of another Person, or had its stock distributed by another Person, in a transaction that was purported or intended to be governed in whole or in part by Section 355 of the Code or Section 361 of the Code (or any similar provisions of state, local or foreign Law).
(j) Parent has never had a permanent establishment (within the meaning of an applicable Tax treaty) or otherwise has an office or fixed place of business in a jurisdiction outside of the United States.
(k) Parent has not participated in or been a party to a transaction that, as of the date of this Agreement, constitutes a "listed transaction" that is required to be reported to the IRS pursuant to Section 6011 of the Code and applicable Treasury Regulations thereunder.
(l) Neither Parent nor any of its Subsidiaries has taken any action or knows of any fact that would reasonably be expected to prevent the Merger from qualifying for the Intended Tax Treatment.
For purposes of this Section 3.16, each reference to Parent shall be deemed to include any Person that was liquidated into, merged with, or is otherwise a predecessor to, Parent.
3.17 Employee and Labor Matters; Benefit Plans.
(a) Section 3.17(a) of the Parent Disclosure Schedule is a list of all material Parent Benefit Plans, including, without limitation, each Parent Benefit Plan that provides for retirement, change in control, deferred compensation, incentive compensation, severance or retiree medical or life insurance benefits. "Parent Benefit Plan" means each (i) "employee benefit plan" as defined in Section 3(3) of ERISA and (ii) other pension, retirement, deferred compensation, excess benefit, profit sharing, bonus, incentive, equity or equity-based, phantom equity, employment, consulting, severance, change-of-control, retention, health, life, disability, group insurance, paid-time off, holiday, welfare and fringe benefit plan, program, contract, or arrangement (whether written or
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unwritten, qualified or nonqualified, funded or unfunded and including any that have been frozen or terminated), in any case, maintained, contributed to, or required to be contributed to, by Parent or any Parent ERISA Affiliate for the benefit of any current or former employee, director, officer or independent contractor of Parent or any of its Subsidiaries or under which Parent has any actual or contingent liability (including, without limitation, as to the result of it being treated as a single employer under Code Section 414 with any other person).
(b) As applicable with respect to each material Parent Benefit Plan, Parent has made available to the Company, true and complete copies of (i) each material Parent Benefit Plan, including all amendments thereto, and in the case of an unwritten material Parent Benefit Plan, a written description thereof, (ii) all current trust documents, investment management contracts, custodial agreements, administrative services agreements and insurance and annuity contracts relating thereto, (iii) the current summary plan description and each summary of material modifications thereto, (iv) the most recently filed annual reports with any Governmental Body (e.g., Form 5500 and all schedules thereto), (v) the most recent IRS determination, opinion or advisory letter, (vi) the most recent summary annual reports, nondiscrimination testing reports, actuarial reports, financial statements and trustee reports, (vii) for the last three years, all records, notices and filings concerning IRS or Department of Labor or other Governmental Body audits or investigations, and (viii) all policies and procedures established to comply with the privacy and security rules of HIPAA.
(c) Each Parent Benefit Plan has been maintained, operated and administered in compliance in all material respects with its terms and applicable Law, including the applicable provisions of ERISA and the Code.
(d) Each Parent Benefit Plan which is an "employee pension benefit plans" within the meaning of Section 3(2) of ERISA and which is intended to meet the qualification requirements of Section 401(a) of the Code has received a determination letter or opinion letter from the IRS to the effect that such plan is qualified under Section 401(a) of the Code and the related trust is exempt from federal income Taxes under Section 501(a) of the Code, respectively, and nothing has occurred that would reasonably be expected to materially adversely affect the qualification of such Parent Benefit Plan or the tax exempt status of the related trust.
(e) Neither Parent or any Parent ERISA Affiliate maintains, contributes to, is required to contribute to, or has any actual or contingent liability with respect to, (i) any "employee pension benefit plan" (within the meaning of Section 3(2) of ERISA) that is subject to Title IV or Section 302 of ERISA or Section 412 of the Code, (ii) any "multiemployer plan" (within the meaning of Section 3(37) of ERISA), (iii) any "multiple employer plan" (within the meaning of Section 413 of the Code) or (iv) any "multiple employer welfare arrangement" (within the meaning of Section 3(40) of ERISA).
(f) There are no pending audits or investigations by any Governmental Body involving any Parent Benefit Plan, and no pending or, to the Knowledge of Parent, threatened claims (except for individual claims for benefits payable in the normal operation of the Parent Benefit Plans), suits or proceedings involving any Parent Benefit Plan, any fiduciary thereof or service provider thereto, in any case except as would not be reasonably expected to result in material liability to Parent.
(g) Neither Parent or any Parent ERISA Affiliate, nor to the Knowledge of Parent, any fiduciary, trustee or administrator of any Parent Benefit Plan, has engaged in, or in connection with the transactions contemplated by this Agreement will engage in, any transaction with respect to any Parent Benefit Plan which would subject any such Parent Benefit Plan, Parent or any of its Subsidiaries or Parent ERISA Affiliates to a material Tax, material penalty or material liability for a "prohibited transaction" under Section 406 of ERISA or Section 4975 of the Code.
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(h) No Parent Benefit Plan provides death, medical, dental, vision, life insurance or other welfare benefits beyond termination of service or retirement other than coverage mandated by Law and neither Parent nor any Parent ERISA Affiliate has made a written or oral representation promising the same. Section 3.17(h) of the Parent Disclosure Schedule sets forth all outstanding severance obligations to existing and previously terminated employees and service providers of Parent and its Subsidiaries, listing for each individual recipient (i) name, (ii) applicable plan or agreement, (iii) description of the severance, including terms of payment and (iv) amount. All such severance obligations are included within the Budget.
(i) Neither the execution of, nor the performance of the transactions contemplated by, this Agreement will either alone or in connection with any other event(s) (i) result in any payment or benefit becoming due to any current or former employee, director, officer, or independent contractor of Parent, (ii) increase any amount of compensation or benefits otherwise payable under any Parent Benefit Plan, (iii) result in the acceleration of the time of payment, funding or vesting of any benefits under any Parent Benefit Plan, (iv) require any contribution or payment to fund any obligation under any Parent Benefit Plan or (v) limit the right to merge, amend or terminate any Parent Benefit Plan.
(j) Neither the execution of, nor the consummation of the transactions contemplated by this Agreement (either alone or when combined with the occurrence of any other event, including without limitation, a termination of employment) will result in the receipt or retention by any person who is a "disqualified individual" (within the meaning of Code Section 280G) of any payment or benefit that is or could be characterized as an "excess parachute payment" (within the meaning of Code Section 280G), determined without regard to the application of Code Section 280G(b)(5).
(k) The exercise price of each Parent Option is not, never has been and can never be less than the fair market value of one share of Parent Common Stock as of the grant date of such Parent Option. Each Parent Benefit Plan that is a "nonqualified deferred compensation plan" (within the meaning of Code Section 409A) complies and has at all times been in documentary and operational compliance with Code Section 409A and IRS regulations issued thereunder, except as would not be reasonably expected to result in material liability to Parent.
(l) No current or former employee, officer, director or independent contractor of Parent has any "gross up" agreements or other assurance of reimbursement for any Taxes imposed under Code Section 409A or Code Section 4999.
(m) Parent is not a party to, bound by, nor has a duty to bargain under, any collective bargaining agreement or other Contract with a labor union, labor organization, or similar Person representing any of its employees, and there is no labor union, labor organization, or similar Person representing or, to the Knowledge of Parent, purporting to represent or seeking to represent any employees of Parent, including through the filing of a petition for representation election.
(n) Parent is, and since February 1, 2016 has been, in material compliance with all applicable Laws respecting labor, employment, employment practices, and terms and conditions of employment, including worker classification, tax withholding, prohibited discrimination and retaliation, equal employment opportunities, harassment, fair employment practices, meal and rest periods, immigration, employee safety and health, wages (including overtime wages), unemployment and workers' compensation, leaves of absence, and hours of work. Except as would not be reasonably likely to result in a material liability to Parent, with respect to employees of Parent, Parent, since February 1, 2016: (i) has withheld and reported all amounts required by Law or by agreement to be withheld and reported with respect to wages, salaries and other payments, benefits, or compensation to employees, (ii) is not liable for any arrears of wages (including overtime wages), severance pay or any Taxes or any penalty for failure to comply with any of the
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foregoing, and (iii) is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of any Governmental Body, with respect to unemployment compensation benefits, disability, social security or other benefits or obligations for employees (other than routine payments to be made in the Ordinary Course of Business).
(o) Except as would not be reasonably likely to result in a material liability to Parent, with respect to each individual who currently renders services to Parent, Parent has accurately classified each such individual as an employee, independent contractor, or otherwise under all applicable Laws and, for each individual classified as an employee, Parent has accurately classified him or her as overtime eligible or overtime ineligible under all applicable Laws. Parent has no material liability with respect to any misclassification of: (a) any Person as an independent contractor rather than as an employee, (b) any employee leased from another employer, or (c) any employee currently or formerly classified as exempt from overtime wages.
(p) There is not and has not been in the past three (3) years, nor is there or has there been in the past three (3) years any threat of, any strike, slowdown, work stoppage, lockout, union election petition, demand for recognition, or any similar activity or dispute, or, to the Knowledge of Parent, any union organizing activity, against Parent. No event has occurred, and no condition or circumstance exists, that might directly or indirectly be likely to give rise to or provide a basis for the commencement of any such strike, slowdown, work stoppage, lockout, union election petition, demand for recognition, any similar activity or dispute, or, to the Knowledge of Parent, any union organizing activity.
(q) There is no Legal Proceeding, claim, unfair labor practice charge or complaint, labor dispute or grievance pending or, to the Knowledge of Parent, threatened against Parent relating to labor, employment, employment practices, or terms and conditions of employment.
(r) As of the date hereof, no Key Employee has submitted his or her resignation or, except as disclosed in Section 3.17(r) of the Parent Disclosure Schedules, to the Knowledge of Parent, intends to resign.
3.18 Environmental Matters. Parent is and since February 1, 2016 has complied with all applicable Environmental Laws, which compliance includes the possession by Parent of all permits and other Governmental Authorizations required under applicable Environmental Laws and compliance with the terms and conditions thereof, except for any failure to be in such compliance that, either individually or in the aggregate, would not reasonably be expected to be material to Parent or its business. Parent has not received since February 1, 2016 (or prior to that time, which is pending and unresolved), any written notice or other communication (in writing or otherwise), whether from a Governmental Body or other Person, that alleges that Parent is not in compliance with or has liability pursuant to any Environmental Law and, to the Knowledge of Parent, there are no circumstances that would reasonably be expected to prevent or interfere with Parent's compliance in any material respects with any Environmental Law, except where such failure to comply would not reasonably be expected to be material to Parent or its business. No current or (during the time a prior property was leased or controlled by Parent) prior property leased or controlled by Parent has had a release of or exposure to Hazardous Materials in material violation of or as would reasonably be expected to result in any material liability of Parent pursuant to Environmental Law. No consent, approval or Governmental Authorization of or registration or filing with any Governmental Body is required by Environmental Laws in connection with the execution and delivery of this Agreement or the consummation of Contemplated Transactions. Prior to the date hereof, Parent has provided or otherwise made available to the Company true and correct copies of all material environmental reports, assessments, studies and audits in the possession or control of Parent with respect to any property leased or controlled by Parent or any business operated by it.
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3.19 Insurance. Parent has delivered or made available to the Company accurate and complete copies of all material insurance policies and all material self-insurance programs and arrangements relating to the business, assets, liabilities and operations of Parent and each of its Subsidiaries. Each of such insurance policies is in full force and effect and Parent and each of its Subsidiaries are in compliance in all material respects with the terms thereof. Other than customary end of policy notifications from insurance carriers, since February 1, 2017, neither Parent nor any of its Subsidiaries has received any notice or other communication regarding any actual or possible: (i) cancellation or invalidation of any insurance policy; or (ii) refusal or denial of any coverage, reservation of rights or rejection of any material claim under any insurance policy. Parent and each of its Subsidiaries have provided timely written notice to the appropriate insurance carrier(s) of each Legal Proceeding that is currently pending against Parent or any of its Subsidiaries for which Parent or such Subsidiary has insurance coverage, and no such carrier issued a denial of coverage or a reservation of rights with respect to any such Legal Proceeding, or informed Parent or any of its Subsidiaries of its intent to do so.
3.20 No Financial Advisors. Except as set forth on Section 3.20 of the Parent Disclosure Schedule, no broker, finder or investment banker is entitled to any brokerage fee, finder's fee, opinion fee, success fee, transaction fee or other fee or commission in connection with the Contemplated Transactions based upon arrangements made by or on behalf of Parent. All such fees, as well as fees to the Parent Financial Advisor, are included within the Budget.
3.21 Transactions with Affiliates. Except as set forth in the Parent SEC Documents, since the date of Parent's last proxy statement filed in 2019 with the SEC, no event has occurred that would be required to be reported by Parent pursuant to Item 404 of Regulation S-K.
3.22 Valid Issuance. The Parent Common Stock to be issued in the Merger will, when issued in accordance with the provisions of this Agreement, be validly issued, fully paid and nonassessable.
3.23 Opinion of Financial Advisor. The Parent Board has received an opinion of Cassel Salpeter & Co., LLC ("Parent Financial Advisor") to the effect that, as of the date of such opinion, and based upon and subject to the assumptions, qualifications, limitations and other matters considered in connection with the preparation of such opinion, the Merger Consideration to be issued by Parent in the Merger pursuant to this Agreement is fair, from a financial point of view, to Parent. It is agreed and understood that such opinion is for the benefit of the Parent Board and may not be relied upon by the Company.
3.24 Anti-Bribery. None of Parent or any of its Subsidiaries or any of their respective directors, officers, employees or agents or any other Person acting on their behalf has directly or indirectly made any bribes, rebates, payoffs, influence payments, kickbacks, illegal payments, illegal political contributions, or other payments, in the form of cash, gifts, or otherwise, or taken any other action, in violation of the Anti-Bribery Laws. Neither Parent nor any of its Subsidiaries is or has been the subject of any investigation or inquiry by any Governmental Body with respect to potential violations of Anti-Bribery Laws.
3.25 Disclaimer of Other Representations or Warranties. Except as previously set forth in this Section 3 or in any certificate delivered by Parent or Merger Sub to the Company pursuant to this Agreement, neither Parent nor Merger Sub makes any representation or warranty, express or implied, at law or in equity, with respect to it or any of its assets, liabilities or operations, and any such other representations or warranties are hereby expressly disclaimed.
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Section 4 CERTAIN COVENANTS OF THE PARTIES
4.1 Operation of Parent's Business.
(a) Except as set forth on Section 4.1(a) of the Parent Disclosure Schedule, as expressly permitted by this Agreement, as required by applicable Law or unless the Company shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the period commencing on the date of this Agreement and continuing until the earlier to occur of the termination of this Agreement pursuant to Section 9 and the Effective Time (the "Pre-Closing Period"): Parent shall conduct its business and operations in the Ordinary Course of Business as it has been conducted in the past month and in accordance, in all material respects, with the Budget set forth in Section 4.1(a) of the Parent Disclosure Schedule, and (c) in compliance with all applicable Laws and the requirements of all Contracts that constitute Parent Material Contracts.
(b) Except (i) as expressly permitted by this Agreement, (ii) as set forth in Section 4.1(b) of the Parent Disclosure Schedule, (iii) as required by applicable Law or (iv) with the prior written consent of the Company (which consent shall not be unreasonably withheld, delayed or conditioned), at all times during the Pre-Closing Period, Parent shall not:
(i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any shares of its capital stock or repurchase, redeem or otherwise reacquire any shares of its capital stock or other securities (except in connection with the payment of the exercise price and/or withholding Taxes incurred upon the exercise, settlement or vesting of any award granted under the Parent Stock Plan);
(ii) sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the foregoing with respect to: (A) any capital stock or other security of Parent (except for Parent Common Stock issued upon the valid exercise of outstanding Parent Options or outstanding warrants of Parent); (B) any option, warrant or right to acquire any capital stock or any other security; or (C) any instrument convertible into or exchangeable for any capital stock or other security of Parent;
(iii) except as required to give effect to anything in contemplation of the Closing, amend any of its Organizational Documents, or effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction except, for the avoidance of doubt, the Contemplated Transactions;
(iv) form any Subsidiary or acquire any equity interest or other interest in any other Entity or enter into a joint venture with any other Entity;
(v) (A) lend money to any Person, (B) incur or guarantee any indebtedness for borrowed money, (C) incur or guarantee any debt securities of others, or (D) make any capital expenditure or commitment in excess of the budgeted capital expenditure and commitment amounts set forth in the Budget;
(vi) other than as required by applicable Law or the terms of any Parent Benefit Plan as in effect on the date of this Agreement (including any retention arrangement entered into prior to the date of this Agreement and disclosed in Section 3.17(a)of the Parent Disclosure Schedule): (A) adopt, terminate, establish or enter into any Parent Benefit Plan; (B) cause or permit any Parent Benefit Plan to be amended in any material respect; (C) pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, benefits or other compensation or remuneration payable to, any of its directors, officers or employees, other than increases in base salary and annual cash bonus opportunities and payments made in the Ordinary Course of Business consistent with past practice;
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(D) increase the severance or change of control benefits offered to any current or new employees, directors or consultants or (E) hire any officer or employee.
(vii) recognize any labor union, labor organization, or similar Person;
(viii) enter into any material transaction other than in the Ordinary Course of Business and as contemplated by the Budget;
(ix) acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its assets or properties, or grant any Encumbrance with respect to such assets or properties, except in the Ordinary Course of Business and consistent with the Budget;
(x) sell, assign, transfer, license, sublicense, or otherwise dispose of any material Parent IP Rights (other than pursuant to non-exclusive licenses in the Ordinary Course of Business);
(xi) make, change or revoke any Tax election, fail to pay any income or other material Tax as such Tax becomes due and payable, file any amendment making any material change to any Tax Return, settle or compromise any income or other material Tax liability, enter into any Tax allocation, sharing, indemnification or other similar agreement or arrangement, request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material Taxes (other than in connection with any extension of time to file any Tax Return), or adopt or change any accounting method in respect of Taxes;
(xii) enter into, materially amend or terminate any Parent Material Contract;
(xiii) make any expenditures, incur any Liabilities or discharge or satisfy any Liabilities, in each case, in amounts that exceed the amounts contemplated in the Budget;
(xiv) other than as required by Law or GAAP, take any action to change accounting policies or procedures; or
(xv) agree, resolve or commit to do any of the foregoing.
Nothing contained in this Agreement shall give the Company, directly or indirectly, the right to control or direct the operations of Parent prior to the Effective Time. Prior to the Effective Time, Parent shall exercise, consistent with the terms and conditions of this Agreement, complete unilateral control and supervision over its business operations.
4.2 Operation of the Company's Business.
(a) Except as set forth on Section 4.2(a) of the Company Disclosure Schedule, as expressly permitted by this Agreement, as required by applicable Law or unless Parent shall otherwise consent in writing (which consent shall not be unreasonably withheld, delayed or conditioned), during the Pre-Closing Period: the Company shall conduct its business and operations in the Ordinary Course of Business and in compliance with all applicable Laws and the requirements of all Contracts that constitute Company Material Contracts.
(b) Except (i) as expressly permitted by this Agreement, (ii) as set forth in Section 4.2(b) of the Company Disclosure Schedule, (iii) as required by applicable Law or (iv) with the prior written consent of Parent (which consent shall not be unreasonably withheld, delayed or conditioned), at all times during the Pre-Closing Period, the Company shall not, nor shall it cause or permit any of its Subsidiaries to, do any of the following:
(i) declare, accrue, set aside or pay any dividend or make any other distribution in respect of any membership interests; or repurchase, redeem or otherwise reacquire any of its securities (except for membership interests from terminated employees, managers or consultants of the Company);
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(ii) sell, issue, grant, pledge or otherwise dispose of or encumber or authorize any of the foregoing with respect to: (A) any security of the Company (except for membership interests issued upon the valid exercise of Company VARs); (B) any option, warrant or right to acquire any security, other than option grants to employees and service providers in the Ordinary Course of Business; or (C) any instrument convertible into or exchangeable for any security of the Company;
(iii) except as required to give effect to anything in contemplation of the Closing, amend any of its Organizational Documents, or effect or be a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction except, for the avoidance of doubt, the Contemplated Transactions;
(iv) form any Subsidiary or acquire any equity interest or other interest in any other Entity or enter into a joint venture with any other Entity;
(v) (A) lend money to any Person, (B) incur or guarantee any indebtedness for borrowed money, or (C) guarantee any debt securities of others;
(vi) other than as required by applicable Law or the terms of any Benefit Plan, including any retention arrangement entered into prior to the date of this Agreement and disclosed in Section 2.17(a) of the Company Disclosure Schedule, as in effect on the date of this Agreement: (A) adopt, terminate, establish or enter into any Benefit Plan; (B) cause or permit any Benefit Plan to be amended in any material respect; (C) pay any bonus or make any profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, benefits or other compensation or remuneration payable to, any of its managers, officers or employees, other than increases in base salary and annual cash bonus opportunities and payments made in the Ordinary Course of Business consistent with past practice; (D) increase the severance or change of control benefits offered to any current or new employees, managers or consultants or (E) hire any officer or employee.
(vii) recognize any labor union, labor organization, or similar Person;
(viii) enter into any material transaction other than in the Ordinary Course of Business;
(ix) acquire any material asset or sell, lease or otherwise irrevocably dispose of any of its assets or properties, or grant any Encumbrance with respect to such assets or properties, except in the Ordinary Course of Business;
(x) sell, assign, transfer, license, sublicense or otherwise dispose of any material Company IP Rights (other than pursuant to non-exclusive licenses in the Ordinary Course of Business);
(xi) make, change or revoke any Tax election, fail to pay any income or other material Tax as such Tax becomes due and payable, file any amendment making any material change to any Tax Return, settle or compromise any income or other material Tax liability, enter into any Tax allocation, sharing, indemnification or other similar agreement or arrangement, request or consent to any extension or waiver of any limitation period with respect to any claim or assessment for any income or other material Taxes (other than in connection with any extension of time to file any Tax Return), or adopt or change any accounting method in respect of Taxes;
(xii) (A) terminate any Company Material Contract or (B) subject to Section 4.2(d) below, enter into or materially amend any Company Material Agreement if such proposed Company Material Agreement or amendment to a Company Material Agreement (x) is not in the Ordinary Course of Business and payments by the Company thereunder are expected to
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exceed $100,000, or (y) is in the Ordinary Course of Business but payments thereunder are expected to exceed $300,000;
(xiii) other than as required by Law or GAAP, take any action to change accounting policies or procedures; or
(xiv) agree, resolve or commit to do any of the foregoing.
(c) Nothing contained in this Agreement shall give either Party, directly or indirectly, the right to control or direct the operations of the other Party prior to the Effective Time. Prior to the Effective Time, the Company shall exercise, consistent with the terms and conditions of this Agreement, complete unilateral control and supervision over its business operations.
(d) Notwithstanding anything in Section 4.2(b) to the contrary, in the event that the Company wishes to obtain Parent's written consent to enter into or materially amend any Company Material Agreement as contemplated by Section 4.2(b)(xii) above, the Company shall provide notice thereof to Parent in accordance with Section 10.8 and include with such notice a copy of the proposed Company Material Agreement or the proposed amendment to a Company Material Agreement, as applicable. Parent shall have three (3) Business Days to review such notice and may request additional information or documents as Parent may require in its reasonable discretion in connection with such review. Parent's consent to any proposed Company Material Agreement or proposed amendment to a Company Material Agreement shall not be unreasonably withheld. Parent shall be deemed to have consented to any such proposed Company Material Agreement or proposed amendment to a Company Material Agreement if Parent does not respond to the Company by the end of such three (3) Business Day period.
4.3 Access and Investigation. Subject to the terms of the Confidentiality Agreement, which the Parties agree will continue in full force following the date of this Agreement, during the Pre-Closing Period, upon reasonable notice, Parent, on the one hand, and the Company, on the other hand, shall and shall use commercially reasonable efforts to cause such Party's Representatives to: (a) provide the other Party and such other Party's Representatives with reasonable access during normal business hours to such Party's Representatives, personnel, property and assets and to all existing books, records, Tax Returns, work papers and other documents and information relating to such Party; (b) provide the other Party and such other Party's Representatives with such copies of the existing books, records, Tax Returns, work papers, product data, and other documents and information relating to such Party, and with such additional financial, operating and other data and information regarding such Party as the other Party may reasonably request; (c) permit the other Party's officers and other employees to meet, upon reasonable notice and during normal business hours, with the chief financial officer and other officers and managers of such Party responsible for such Party's financial statements and the internal controls of such Party to discuss such matters as the other Party may deem necessary or appropriate and; (d) make available to the other Party copies of unaudited financial statements, material operating and financial reports prepared for senior management or the board of directors or managers of such Party, and any material notice, report or other document filed with or sent to or received from any Governmental Body in connection with the Contemplated Transactions. Any investigation conducted by either Parent or the Company pursuant to this Section 4.3 shall be conducted in such manner as not to interfere unreasonably with the conduct of the business of the other Party.
Notwithstanding the foregoing, any Party may restrict the foregoing access to the extent that any Law applicable to such Party requires such Party to restrict or prohibit access to any such properties or information or as may be necessary to preserve the attorney-client privilege under any circumstances in which such privilege may be jeopardized by such disclosure or access.
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4.4 Parent Non-Solicitation.
(a) Parent agrees that, during the Pre-Closing Period, neither it nor any of its Subsidiaries shall, nor shall it or any of its Subsidiaries authorize any of its Representatives to, directly or indirectly: (i) solicit, initiate or knowingly encourage, induce, discuss, negotiate or facilitate the communication, making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry or take any action that could reasonably be expected to lead to an Acquisition Proposal or Acquisition Inquiry; (ii) furnish any non-public information regarding Parent or any of its Subsidiaries to any Person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry; (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal or Acquisition Inquiry; (iv) approve, endorse or recommend any Acquisition Proposal (subject to Section 5.3); (v) execute or enter into any letter of intent or any Contract contemplating or otherwise relating to any Acquisition Transaction; or (vi) publicly propose to do any of the foregoing; provided, however, that, notwithstanding anything contained in this Section 4.4 and subject to compliance with this Section 4.4, prior to obtaining the Required Parent Stockholder Vote, Parent may furnish non-public information regarding Parent and its Subsidiaries to, and enter into discussions or negotiations with, any Person in response to a bona fide written Acquisition Proposal by such Person which the Parent Board determines in good faith, after consultation with Parent's outside financial advisors and outside legal counsel, constitutes, or is reasonably likely to result in, a Superior Offer (and is not withdrawn) if: (A) neither Parent nor any of its Representatives shall have breached this Section 4.4 in any material respect, (B) the Parent Board concludes in good faith based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the Parent Board under applicable Law; (C) Parent receives from such Person an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to Parent as those contained in the Confidentiality Agreement; and (D) substantially contemporaneously with furnishing any such nonpublic information to such Person, Parent furnishes such nonpublic information to the Company (to the extent such information has not been previously furnished by Parent to the Company). Without limiting the generality of the foregoing, Parent acknowledges and agrees that, in the event any Representative of Parent (whether or not such Representative is purporting to act on behalf of Parent) takes any action that, if taken by Parent, would constitute a breach of this Section 4.4, the taking of such action by such Representative shall be deemed to constitute a breach of this Section 4.4 by Parent for purposes of this Agreement. Notwithstanding the foregoing, Parent may, as set forth in Section 5.3 of the Parent Disclosure Schedule, continue to solicit potential bidders who might have an interest in acquiring its '01 and its '04 programs provided that Parent receives from any potential bidder a confidentiality agreement in form reasonably satisfactory to the Company and Parent keeps the Company fully informed of the status of all such negotiations, including but not limited to advising the Company orally (and promptly thereafter in writing) of any proposal for the purchase of any such interest in its '01 and/or '04 programs (including the identity of any person making or submitting a proposal for the acquisition of any such interest and the terms of such a proposal, as well as any material modifications of any such proposal), and no contract for the sale of the assets related to the '01 and/or '04 programs may be entered into nor consummated without the written consent of the Company, which consent shall not be unreasonably withheld.
(b) If Parent or any Representative of Parent receives an Acquisition Proposal or Acquisition Inquiry at any time during the Pre-Closing Period, then Parent shall promptly (and in no event later than two Business Day after Parent becomes aware of such Acquisition Proposal or Acquisition Inquiry) advise the Company orally (and promptly thereafter in writing) of such Acquisition Proposal or Acquisition Inquiry (including the identity of the Person making or submitting such Acquisition Proposal or Acquisition Inquiry, and the material terms thereof).
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Parent shall keep the Company reasonably informed with respect to the status and material terms of any such Acquisition Proposal or Acquisition Inquiry and any material modification or proposed material modification thereto.
(c) Parent shall immediately cease and cause to be terminated any existing discussions, negotiations and communications with any Person that relate to any Acquisition Proposal or Acquisition Inquiry as of the date of this Agreement and request the destruction or return of any nonpublic information of Parent or any of its Subsidiaries provided to such Person.
4.5 Company Non-Solicitation.
(a) The Company agrees that, during the Pre-Closing Period, neither it nor any of its Subsidiaries shall, nor shall it or any of its Subsidiaries authorize any of its Representatives to, directly or indirectly: (i) solicit, initiate or knowingly encourage, induce, discuss, negotiate or facilitate the communication, making, submission or announcement of any Acquisition Proposal or Acquisition Inquiry or take any action that could reasonably be expected to lead to an Acquisition Proposal or Acquisition Inquiry; (ii) furnish any non-public information regarding the Company to any Person in connection with or in response to an Acquisition Proposal or Acquisition Inquiry; (iii) engage in discussions or negotiations with any Person with respect to any Acquisition Proposal or Acquisition Inquiry; (iv) approve, endorse or recommend any Acquisition Proposal (subject to Section 5.2); (v) execute or enter into any letter of intent or any Contract contemplating or otherwise relating to any Acquisition Transaction; or (vi) publicly propose to do any of the foregoing; provided, however, that, notwithstanding anything contained in this Section 4.5 and subject to compliance with this Section 4.5, prior to obtaining the Required Company Member Vote, the Company may furnish non-public information regarding the Company to, and enter into discussions or negotiations with, any Person in response to a bona fide written Acquisition Proposal by such Person which the Company Managers determines in good faith, after consultation with the Company's outside financial advisors and outside legal counsel, constitutes, or is reasonably likely to result in, a Superior Offer (and is not withdrawn) if: (A) neither the Company nor any of its Representatives shall have breached this Section 4.5 in any material respect, (B) the Company Managers conclude in good faith based on the advice of outside legal counsel, that the failure to take such action is reasonably likely to be inconsistent with the fiduciary duties of the Company Managers under applicable Law; (C) the Company receives from such Person an executed confidentiality agreement containing provisions (including nondisclosure provisions, use restrictions, non-solicitation provisions and no hire provisions) at least as favorable to the Company as those contained in the Confidentiality Agreement; and (D) substantially contemporaneously with furnishing any such nonpublic information to such Person, the Company furnishes such nonpublic information to Parent (to the extent such information has not been previously furnished by the Company to Parent). Without limiting the generality of the foregoing, the Company acknowledges and agrees that, in the event any Representative of the Company (whether or not such Representative is purporting to act on behalf of the Company) takes any action that, if taken by the Company, would constitute a breach of this Section 4.5, the taking of such action by such Representative shall be deemed to constitute a breach of this Section 4.5 by the Company for purposes of this Agreement.
(b) If the Company or any Representative of the Company receives an Acquisition Proposal or Acquisition Inquiry at any time during the Pre-Closing Period, then the Company shall promptly (and in no event later than one Business Day after the Company becomes aware of such Acquisition Proposal or Acquisition Inquiry) advise Parent orally and in writing of such Acquisition Proposal or Acquisition Inquiry (including the identity of the Person making or submitting such Acquisition Proposal or Acquisition Inquiry, and the material terms thereof). The Company shall keep Parent reasonably informed with respect to the status and material terms of any such
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Acquisition Proposal or Acquisition Inquiry and any material modification or proposed material modification thereto.
(c) The Company shall immediately cease and cause to be terminated any existing discussions, negotiations and communications with any Person that relate to any Acquisition Proposal or Acquisition Inquiry as of the date of this Agreement and request the destruction or return of any nonpublic information of the Company provided to such Person.
4.6 Notification of Certain Matters. (a) During the Pre-Closing Period, the Company shall promptly notify Parent (and, if in writing, furnish copies of) if any of the following occurs: (i) any notice or other communication is received from any Person alleging that the Consent of such Person is or may be required in connection with any of the Contemplated Transactions; (ii) any Legal Proceeding against or involving or otherwise affecting the Company is commenced, or, to the Knowledge of the Company, threatened against the Company or, to the Knowledge of the Company, any manager, officer or Key Employee of the Company; (iii) the Company becomes aware of any inaccuracy in any representation or warranty made by it in this Agreement; or (iv) the failure of the Company to comply with any covenant or obligation of the Company; in each case that could reasonably be expected to make the timely satisfaction of any of the conditions set forth in Sections 6, 7 and 8, as applicable, impossible or materially less likely. No notification given to Parent pursuant to this Section 4.6 shall change, limit or otherwise affect any of the representations, warranties, covenants or obligations of the Company contained in this Agreement or the Company Disclosure Schedule for purposes of Sections 6, 7 and 8, as applicable.
(b) During the Pre-Closing Period, Parent shall promptly notify the Company (and, if in writing, furnish copies of) if any of the following occurs: (i) any notice or other communication is received from any Person alleging that the Consent of such Person is or may be required in connection with any of the Contemplated Transactions; (ii) any Legal Proceeding against or involving or otherwise affecting Parent or its Subsidiaries is commenced, or, to the Knowledge of Parent, threatened against Parent or its Subsidiaries or, to the Knowledge of Parent, any director, officer or Key Employee of Parent or its Subsidiaries; (iii) Parent becomes aware of any inaccuracy in any representation or warranty made by it in this Agreement; or (iv) the failure of Parent to comply with any covenant or obligation of Parent; in each case that could reasonably be expected to make the timely satisfaction of any of the conditions set forth in Sections 6, 7 and 8, as applicable, impossible or materially less likely. No notification given to Company pursuant to this Section 4.6 shall change, limit or otherwise affect any of the representations, warranties, covenants or obligations of Parent or any of its Subsidiaries contained in this Agreement or the Parent Disclosure Schedule for purposes of Sections 6, 7 and 8, as applicable.
Section 5 ADDITIONAL AGREEMENTS OF THE PARTIES
5.1 Registration Statement; Proxy Statement.
(a) As promptly as practicable after the date of this Agreement, the Parties shall prepare, and Parent shall cause to be filed with the SEC, the Registration Statement, in which the Proxy Statement will be included as a prospectus. Parent represents, covenants and agrees that the Proxy Statement, including any pro forma financial statements included therein (and the letter to stockholders, notice of meeting and form of proxy included therewith) will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The Company represents, covenants and agrees that the information provided by the Company to Parent for inclusion in the Proxy Statement (including the Company Financials) will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make such information not misleading. Notwithstanding the foregoing, Parent makes no covenant, representation or warranty
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with respect to statements made in the Proxy Statement (and the letter to stockholders, notice of meeting and form of proxy included therewith), if any, based on information provided by the Company or any of its Representatives specifically for inclusion therein. The Company and its legal counsel shall be given reasonable opportunity to review and comment on the Proxy Statement, including all amendments and supplements thereto, prior to the filing thereof with the SEC (at least three (3) business days prior to the filing thereof), and on the response to any comments of the SEC on the Proxy Statement, prior to the filing thereof with the SEC. Parent shall use commercially reasonable efforts to cause the Registration Statement and the Proxy Statement to comply with the applicable rules and regulations promulgated by the SEC, to respond promptly to any comments of the SEC or its staff and to have the Registration Statement declared effective under the Securities Act as promptly as practicable after it is filed with the SEC. Each of the Parties shall use commercially reasonable efforts to cause the Proxy Statement to be mailed to Parent's stockholders as promptly as practicable after the Registration Statement is declared effective under the Securities Act. Each Party shall promptly furnish to the other Party all information concerning such Party and such Party's Affiliates and such Party's stockholders that may be required or reasonably requested in connection with any action contemplated by this Section 5.1. If Parent, Merger Sub or the Company become aware of any event or information that, pursuant to the Securities Act or the Exchange Act, should be disclosed in an amendment or supplement to the Registration Statement or Proxy Statement, as the case may be, then such Party, as the case may be, shall promptly inform the other Parties thereof and shall cooperate with such other Parties in filing such amendment or supplement with the SEC and, if appropriate, in mailing such amendment or supplement to the Parent stockholders.
(b) The Company shall reasonably cooperate with Parent and provide, and require its Representatives to provide, Parent and its Representatives, with all true, correct and complete information regarding the Company that is required by Law to be included in the Registration Statement or reasonably requested by Parent to be included in the Registration Statement. Without limiting the foregoing, the Company will use commercially reasonable efforts to cause to be delivered to Parent a consent letter of the Company's independent accounting firm that is customary in scope and substance for consent letters delivered by independent public accountants in connection with registration statements similar to the Registration Statement.
5.2 Company Member Written Consent.
(a) On or prior to the date of the Parent Stockholders' Meeting, the Company shall obtain the approval by written consent from Company members sufficient for the Required Company Member Vote in lieu of a meeting pursuant to Section 12-302 of the DLLCA, for purposes of adopting and approving this Agreement and the Contemplated Transactions. Under no circumstances shall the Company assert that any other approval or consent is necessary by its members to approve this Agreement and the Contemplated Transactions.
(b) The Company agrees that: (i) the Company Managers shall recommend that the Company's members vote to adopt and approve this Agreement and the Contemplated Transactions and shall use reasonable best efforts to solicit such approval within the time set forth in Section 5.2(a) (the recommendation of the Company Managers that the Company's members vote to adopt and approve this Agreement being referred to as the "Company Managers Recommendation"); and (ii) the Company Managers Recommendation shall not be withdrawn or modified (and the Company Managers shall not publicly propose to withdraw or modify the Company Managers Recommendation) in a manner adverse to Parent, and no resolution by the Company Managers or any committee thereof to withdraw or modify the Company Managers Recommendation in a manner adverse to Parent or to adopt, approve or recommend (or publicly propose to adopt, approve or recommend) any Acquisition Proposal shall be adopted or proposed (the actions set forth in the foregoing clause (ii), collectively, a "Company Managers Adverse Recommendation Change").
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(c) Notwithstanding anything to the contrary contained in Section 5.2(b), and subject to compliance with Section 4.5 and Section 5.2, if at any time prior to the approval of the Required Parent Stockholder Matters by the Required Parent Stockholder Vote, the Company receives a bona fide written Superior Offer, the Company Managers may make a Company Managers Adverse Recommendation Change if, but only if, following the receipt of and on account of such Superior Offer, (i) the Company Managers determine in good faith, based on the advice of its outside legal counsel, that the failure to make a Company Managers Adverse Recommendation Change would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law, (ii) the Company has, and has caused its financial advisors and outside legal counsel to, during the Company Notice Period (as defined below), negotiate with Parent in good faith (if Parent so desires) to make such adjustments to the terms and conditions of this Agreement so that such Acquisition Proposal ceases to constitute a Superior Offer, and (iii) if after Parent shall have delivered to the Company a written offer to alter the terms or conditions of this Agreement during the Company Notice Period, the Company Managers shall have determined in good faith, based on the advice of its outside legal counsel, that the failure to withhold, amend, withdraw or modify the Company Managers Recommendation would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law (after taking into account such alterations of the terms and conditions of this Agreement); provided that Parent receives written notice from the Company confirming that the Company Managers have determined to change their recommendation at least four Business Days in advance of such Company Managers Adverse Recommendation Change, (the "Company Notice Period"), which notice shall include written copies of any relevant proposed transaction agreements with any party making a potential Superior Offer. In the event of any material amendment to any Superior Offer, the Company shall be required to provide Parent with notice of such material amendment and the Company Notice Period shall be extended, if applicable, to ensure that at least two Business Days remain in the Company Notice Period following such notification during which the Parties shall comply again with the requirements of this Section 5.3(c) and the Company Managers shall not make a Company Managers Adverse Recommendation Change prior to the end of such Company Notice Period as so extended.
5.3 Parent Stockholders' Meeting.
(a) Parent shall take all action necessary under applicable Law to call, give notice of and hold a meeting of the holders of Parent Common Stock to consider and vote to (i) approve the issuance of the shares of Parent Common Stock to the members of the Company pursuant to the terms of this Agreement (the "Share Issuance Proposal"), (ii) approve the change of the corporate name of Parent (the "Name Change Proposal"), (iii) approve the reverse stock split of the Company (the "Reverse Stock Split Proposal"), (iv) approve, if required, (a) the terms of the Parent Preferred Stock to be issued to the current holders of the preferred membership interests of the Company and (b) the issuance of Parent Common Stock underlying the warrants, if any, being issued to any financing sources related to the transactions contemplated by this Agreement, and (v) approve such other matters as are determined to be required to complete the Closing (collectively, the "Parent Stockholder Matters" and such meeting, the "Parent Stockholders' Meeting"). The Parent Stockholders' Meeting shall be held as promptly as practicable after the Registration Statement is declared effective under the Securities Act. Parent shall take reasonable measures to ensure that all proxies solicited in connection with the Parent Stockholders' Meeting are solicited in compliance with all applicable Law. Notwithstanding anything to the contrary contained herein, if on the date of the Parent Stockholders' Meeting, or a date preceding the date on which the Parent Stockholders' Meeting is scheduled, Parent reasonably believes that (i) it will not receive proxies sufficient to obtain the Required Parent Stockholder Vote, whether or not a quorum would be present or (ii) it will not have sufficient shares of Parent Common Stock represented (whether in person or by proxy) to constitute a quorum necessary to conduct the business of the Parent Stockholders' Meeting, Parent shall postpone or adjourn, or make one or more successive
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postponements or adjournments of, the Parent Stockholders' Meeting as long as the date of the Parent Stockholders' Meeting is not postponed or adjourned more than an aggregate of 60 calendar days in connection with any postponements or adjournments. Parent agrees that in connection with the reverse stock split, it will obtain the consent of the Company prior to (a) fixing any range for the reverse split to be approved by Parent's shareholders and (b) setting a final reverse stock split ratio to be effected by the Parent. Parent shall retain, and be responsible for the fees and expenses of, a nationally-recognized proxy solicitor, to be retained for the purpose of the solicitation of votes at the Parent Stockholders' Meeting and any postponements or adjournments thereof.
(b) Parent agrees that, subject to Section 5(c): (i) the Parent Board shall recommend that the holders of Parent Common Stock vote to approve the Parent Stockholder Matters, (ii) the Proxy Statement shall include a statement to the effect that the Parent Board recommends that Parent's stockholders vote to approve the Parent Stockholder Matters (the recommendation of the Parent Board being referred to as the "Parent Board Recommendation"); and (iii) the Parent Board Recommendation shall not be withheld, amended, withdrawn or modified (and the Parent Board shall not publicly propose to withhold, amend, withdraw or modify the Parent Board Recommendation) in a manner adverse to the Company (the actions set forth in the foregoing clause (iii), collectively, a "Parent Board Adverse Recommendation Change").
(c) Notwithstanding anything to the contrary contained in Section 5.3(b), and subject to compliance with Section 4.4 and Section 5.3, if at any time prior to the approval of the Required Parent Stockholder Matters by the Required Parent Stockholder Vote, Parent receives a bona fide written Superior Offer, the Parent Board may make a Parent Board Adverse Recommendation Change if, but only if, following the receipt of and on account of such Superior Offer, (i) the Parent Board determines in good faith, based on the advice of its outside legal counsel, that the failure to make a Parent Board Adverse Recommendation Change would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law, (ii) Parent has, and has caused its financial advisors and outside legal counsel to, during the Parent Notice Period (as defined below), negotiate with the Company in good faith (if the Company so desires) to make such adjustments to the terms and conditions of this Agreement so that such Acquisition Proposal ceases to constitute a Superior Offer, and (iii) if after the Company shall have delivered to Parent a written offer to alter the terms or conditions of this Agreement during the Parent Notice Period, the Parent Board shall have determined in good faith, based on the advice of its outside legal counsel, that the failure to withhold, amend, withdraw or modify the Parent Board Recommendation would be reasonably likely to be inconsistent with its fiduciary duties under applicable Law (after taking into account such alterations of the terms and conditions of this Agreement); provided that the Company receives written notice from Parent confirming that the Parent Board has determined to change its recommendation at least four Business Days in advance of such Parent Board Adverse Recommendation Change, (the "Parent Notice Period"), which notice shall include written copies of any relevant proposed transaction agreements with any party making a potential Superior Offer. In the event of any material amendment to any Superior Offer, Parent shall be required to provide the Company with notice of such material amendment and the Parent Notice Period shall be extended, if applicable, to ensure that at least two Business Days remain in the Parent Notice Period following such notification during which the Parties shall comply again with the requirements of this Section 5.3(c) and the Parent Board shall not make a Parent Board Adverse Recommendation Change prior to the end of such Parent Notice Period as so extended.
(d) Nothing contained in this Agreement shall prohibit Parent or the Parent Board from (i) complying with Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act, (ii) issuing a "stop, look and listen" communication or similar communication of the type contemplated by Section 14d-9(f) under the Exchange Act or (iii) otherwise making any disclosure to the Parent
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stockholders; provided however, that in the case of the foregoing clause (iii) the Parent Board determines in good faith, after consultation with its outside legal counsel, that failure to make such disclosure would be reasonably likely to be inconsistent with applicable Law, including its fiduciary duties under applicable Law; provided, further, that any such disclosures (other than a "stop, look and listen" communication or similar communication of the type contemplated by Section 14d-9(f) under the Exchange Act) shall be deemed to be a change of the Parent Board Recommendation unless the Parent Board expressly publicly reaffirms the Parent Board Recommendation (i) in such communication or (ii) within three Business Days after being requested in writing to do so by the Company.
5.4 Regulatory Approvals. Each Party shall use reasonable best efforts to file or otherwise submit, as soon as practicable after the date of this Agreement, all applications, notices, reports and other documents reasonably required to be filed by such Party with or otherwise submitted by such Party to any Governmental Body with respect to the Contemplated Transactions, and to submit promptly any additional information requested by any such Governmental Body.
5.5 Employee Benefits. For purposes of vesting, eligibility to participate, and level of benefits under the benefit plans, programs, contracts or arrangements of Parent or any of its Subsidiaries (including, following the Closing, the Surviving Entity) providing benefits to any Continuing Employee after the Closing (the "Post-Closing Plans"), each employee who continues to be employed by the Surviving Entity or any of their respective Subsidiaries immediately following the Closing ("Continuing Employees") shall be credited with his or her years of service with Parent, the Company or any of their respective Subsidiaries and their respective predecessors; provided that the foregoing shall not apply to the extent that its application would result in a duplication of benefits. In addition, and without limiting the generality of the foregoing, for purposes of each Post-Closing Plan providing medical, dental, pharmaceutical and/or vision benefits to a Continuing Employee, Parent shall cause all pre-existing condition exclusions and actively-at-work requirements of such Post-Closing Plan to be waived for such Continuing Employee and his or her covered dependents except to the extent such conditions would not have been waived or satisfied under the employee benefit plan whose coverage is being replaced under the Post-Closing Plan, and Parent shall use commercially reasonable efforts to cause any eligible expenses incurred by a Continuing Employee and his or her covered dependents during the portion of such plan year in which coverage is replaced with coverage under a Post-Closing Plan to be taken into account under such Post-Closing Plan with respect to the plan year in which participation in such Post-Closing Plan begins for purposes of satisfying all deductible, coinsurance and maximum out-of-pocket requirements applicable to such Continuing Employee and his or her covered dependents for such plan year as if such amounts had been paid in accordance with such Post-Closing Plan.
5.6 Indemnification of Officers and Directors.
(a) From the Effective Time through the sixth anniversary of the date on which the Effective Time occurs, each of Parent and the Surviving Entity shall indemnify and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, a director, manager, officer, fiduciary or agent of Parent or the Company, respectively (the "D&O Indemnified Parties"), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys' fees and disbursements (collectively, "Costs"), incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that the D&O Indemnified Party is or was a director, manager, officer, fiduciary or agent of Parent or of the Company, whether asserted or claimed prior to, at or after the Effective Time, in each case, to the fullest extent permitted under applicable Law. Each D&O Indemnified Party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of Parent and the Surviving Entity, jointly and severally, upon receipt by Parent or the Surviving Entity from the D&O Indemnified Party of a request
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therefor; provided that any such person to whom expenses are advanced provides an undertaking to Parent, to the extent then required by the DGCL, to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
(b) The provisions of the certificate of incorporation and bylaws of Parent with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of Parent that are presently set forth in the certificate of incorporation and bylaws of Parent shall not be amended, modified or repealed for a period of six years from the Effective Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers or directors of Parent. The certificate of incorporation and bylaws of the Surviving Entity shall contain, and Parent shall cause the certificate of incorporation and bylaws of the Surviving Entity to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers as those presently set forth in the certificate of incorporation and bylaws of Parent.
(c) From and after the Effective Time, (i) the Surviving Entity shall fulfill and honor in all respects the obligations of the Company to its D&O Indemnified Parties as of immediately prior to the Closing pursuant to any indemnification provisions under the Company's Organizational Documents and pursuant to any indemnification agreements between the Company and such D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the Effective Time and (ii) Parent shall fulfill and honor in all respects the obligations of Parent to its D&O Indemnified Parties as of immediately prior to the Closing pursuant to any indemnification provisions under Parent's Organizational Documents and pursuant to any indemnification agreements between Parent and such D&O Indemnified Parties, with respect to claims arising out of matters occurring at or prior to the Effective Time.
(d) From and after the Effective Time, Parent shall maintain directors' and officers' liability insurance policies, with an effective date as of the Closing Date, on commercially available terms and conditions and with coverage limits customary for U.S. public companies similarly situated to Parent.
(e) From and after the Effective Time, Surviving Entity shall pay all expenses, including reasonable attorneys' fees, that are incurred by the persons referred to in this Section 5.6 in connection with their successful enforcement of the rights provided to such persons in this Section 5.6.
(f) The provisions of this Section 5.6 are intended to be in addition to the rights otherwise available to the current and former officers and directors of Parent and the Company by Law, charter, statute, bylaw or agreement, and shall operate for the benefit of, and shall be enforceable by, each of the D&O Indemnified Parties, their heirs and their representatives.
(g) In the event Parent or the Surviving Entity or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving entity or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, then, and in each such case, proper provision shall be made so that the successors and assigns of Parent or the Surviving Entity, as the case may be, shall succeed to the obligations set forth in this Section 5.6. Parent shall cause the Surviving Entity to perform all of the obligations of the Surviving Entity under this Section 5.6.
5.7 Additional Agreements. The Parties shall use commercially reasonable efforts to cause to be taken all actions necessary to consummate the Contemplated Transactions. Without limiting the generality of the foregoing, each Party to this Agreement: (a) shall make all filings and other submissions (if any) and give all notices (if any) required to be made and given by such Party in connection with the Contemplated Transactions; (b) shall use reasonable best efforts to obtain each Consent (if any)
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reasonably required to be obtained (pursuant to any applicable Law or Contract, or otherwise) by such Party in connection with the Contemplated Transactions or for such Contract to remain in full force and effect; (c) shall use commercially reasonable efforts to lift any injunction prohibiting, or any other legal bar to, the Contemplated Transactions; and (d) shall use commercially reasonable efforts to satisfy the conditions precedent to the consummation of this Agreement.
5.8 Disclosure. Without limiting any Party's obligations under the Confidentiality Agreement, no Party shall, and no Party shall permit any of its Subsidiaries or any Representative of such Party to, issue any press release or make any disclosure (to any customers or employees of such Party, to the public or otherwise) regarding the Contemplated Transactions unless: (a) the other Party shall have approved such press release or disclosure in writing, such approval not to be unreasonably conditioned, withheld or delayed; or (b) such disclosure is requested by a Governmental Body or such Party shall have determined in good faith that such disclosure is required by applicable Law or by obligations pursuant to any listing agreement with or rules of any national securities exchange or interdealer quotation service and, to the extent practicable, before such press release or disclosure is issued or made, such Party shall have used commercially reasonable efforts to advise the other Party of, and consult with the other Party regarding, the text of such press release or disclosure; provided, however, that Parent may make any public statement in response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are consistent with previous press releases, public disclosures or public statements made by the Company or Parent in compliance with this Section 5.8.
5.9 Listing. At all times prior to Closing, Parent shall maintain its listing on the NYSE American Market. Parent shall use its commercially reasonable efforts, (a) to the extent required by the rules and regulations of the NYSE American Market, to prepare and submit to the NYSE American Market a notification form for the listing of the shares of Parent Common Stock to be issued in connection with the Contemplated Transactions, and to cause such shares to be approved for listing (subject to official notice of issuance); and (b) to the extent required by the NYSE American Market Rule 101, to file an initial listing application for the Parent Common Stock on the NYSE American Market (the "NYSE Listing Application") and to cause such the NYSE Listing Application to be conditionally approved prior to the Effective Time. The Parties will use commercially reasonable efforts to coordinate with respect to compliance with the NYSE rules and regulations. Parent agrees to pay all the NYSE fees associated with the NYSE Listing Application. The Company will cooperate with Parent as reasonably requested by Parent with respect to the NYSE Listing Application and promptly furnish to Parent all information concerning the Company and its members that may be required or reasonably requested in connection with any action contemplated by this Section 5.9.
5.10 Tax Matters.
(a) For United States federal income Tax purposes, the Parties intend that the Merger constitute a transaction described in Section 351(a) of the Code (the "Intended Tax Treatment").
(b) The Parties shall use their respective reasonable best efforts to cause the Merger to qualify, and will not take any action or cause any action to be taken which action would reasonably be expected to prevent the Merger from qualifying, for the Intended Tax Treatment.
5.11 Directors and Officers. The Parties shall use reasonable best efforts and take all necessary action so that immediately after the Effective Time, (a) the Parent Board is comprised of up to seven (7) members designated by the Company and (b) the Persons listed in Exhibit E under the heading "Officers" are elected or appointed, as applicable, to the positions of officers of Parent and the Surviving Entity, as set forth therein, to serve in such positions effective as of the Effective Time until successors are duly appointed and qualified in accordance with applicable Law. If any Person listed in Exhibit E is unable or unwilling to serve as an officer of Parent or the Surviving Entity, as set forth therein, as of the Effective Time, the Parties shall mutually agree upon a successor. The Persons listed
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in Exhibit E under the heading "Board Designees" shall be the Company's designees pursuant to clause (a) of this Section 5.11 (which list may be changed by the Company at any time prior to the Closing by written notice to Parent).
5.12 Section 16 Matters. Prior to the Effective Time, Parent and the Company shall take all such steps as may be required (to the extent permitted under applicable Laws) to cause any acquisitions of Parent Common Stock and any options to purchase Parent Common Stock in connection with the Contemplated Transactions, by each individual who is reasonably expected to become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent, to be exempt under Rule 16b-3 promulgated under the Exchange Act. At least thirty (30) days prior to the Anticipated Closing Date, the Company shall furnish the following information to Parent for each individual who, immediately after the Effective Time, will become subject to the reporting requirements of Section 16(a) of the Exchange Act with respect to Parent: (a) the number of shares of Company Equity owned by such individual and expected to be exchanged for shares of Parent Common Stock pursuant to the Merger, and (b) the number of other derivative securities (if any) with respect to Company Equity owned by such individual and expected to be converted into shares of Parent Common Stock or derivative securities with respect to Parent Common Stock in connection with the Merger.
5.13 Cooperation. Each Party shall cooperate reasonably with the other Party and shall provide the other Party with such assistance as may be reasonably requested for the purpose of facilitating the performance by each Party of its respective obligations under this Agreement and to enable the combined entity to continue to meet its obligations following the Effective Time.
5.14 Allocation Certificate. The Company will prepare and deliver to Parent at least ten days prior to the Anticipated Closing Date a certificate signed by the Chief Executive Officer of the Company in a form reasonably acceptable to Parent to update Exhibit C so as to set forth (as of immediately prior to the Effective Time) (a) each holder of Company membership interests, (b) such holder's name and address; (c) the number and type of Company Equity held; and (d) the number of shares of Parent Common Stock to be issued to such holder pursuant to this Agreement in respect of the Company Equity held by such holder as of immediately prior to the Effective Time (the "Allocation Certificate").
5.15 Company Financial Statements. As promptly as reasonably practicable following the date of this Agreement, the Company will furnish to Parent audited financial statements for the fiscal year ended December 31, 2019, for inclusion in the Proxy Statement and the Registration Statement (the "Company Audited Financial Statements"), and for each interim period completed prior to Closing that would be required to be included in the Registration Statement or any periodic report due prior to the Closing if the Company were subject to the periodic reporting requirements under the Securities Act or the Exchange Act (the "Company Interim Financial Statements"). Each of the Company Audited Financial Statements and the Company Interim Financial Statements will be suitable for inclusion in the Proxy Statement and the Registration Statement and prepared in accordance with GAAP as applied on a consistent basis during the periods involved (except in each case as described in the notes thereto) and on that basis will present fairly, in all material respects, the financial position and the results of operations, changes in members' equity, and cash flows of the Company as of the dates of and for the periods referred to in the Company Audited Financial Statements or the Company Interim Financial Statements, as the case may be.
5.16 Takeover Statutes. If any Takeover Statute is or may become applicable to the Contemplated Transactions, each of the Company, the Company Managers, Parent and the Parent Board, as applicable, shall grant such approvals and take such actions as are necessary so that the Contemplated Transactions may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise act to eliminate or minimize the effects of such statute or regulation on the Contemplated Transactions.
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5.17 Calculation of Parent Net Cash. At least ten (10) days prior to the Anticipated Closing Date, Parent shall deliver the Parent Net Cash Schedule to the Company. Upon the reasonable request of the Company, Parent shall make the work papers and back-up materials used or useful in preparing the Parent Net Cash Schedule available to the Company. Within three (3) Business Days after Parent delivers the Parent Net Cash Schedule to the Company (the "Parent Net Cash Response Date"), subject to the terms and definitions of this Agreement, the Company will have the right to dispute any part of such Parent Net Cash Schedule by delivering a written notice to that effect to Parent (a "Company Dispute Notice"). Any Company Dispute Notice shall identify in reasonable detail the nature of any proposed revisions to the calculation of Parent Net Cash set forth in the Parent Net Cash Schedule. If on or prior to the Parent Net Cash Response Date, (i) the Company notifies Parent in writing that it has no objections to the Parent Net Cash Schedule or (ii) the Company fails to deliver a Company Dispute Notice, then Parent Net Cash as set forth in the Parent Net Cash Schedule shall be deemed to have been finally determined for purposes of this Agreement and to represent the Parent Net Cash at the Anticipated Closing Date for purposes of this Agreement. If the Company delivers a Company Dispute Notice on or prior to the Parent Net Cash Response Date, then members of senior management of Parent and the Company shall promptly meet in person or telephonically at mutually agreed upon times and attempt in good faith to resolve the disputed item(s) and negotiate an agreed-upon determination of Parent Net Cash, which agreed upon Parent Net Cash amount shall be deemed to have been finally determined for purposes of this Agreement and to represent the Parent Net Cash at the Anticipated Closing Date for purposes of this Agreement.
5.18 Parent Lease Obligations. Parent represents that its current aggregate obligations under the Real Estate Lease do not exceed $1,500,000. Parent shall use reasonable efforts from and after the date hereof (a) to terminate, assign or sublease the Real Estate Lease, such that it shall no longer have any obligation under the Lease (or such liabilities shall be materially reduced), and (b) to satisfy all of its liabilities (including any liabilities created by any "Black Scholes" fundamental transaction provisions contained in any outstanding warrants of Parent or any of its Subsidiaries) other than Permitted Liabilities.
5.19 Funding Condition. The Company shall use reasonable efforts from and after the date hereof to arrange for and thereafter consummate the Timber Funding and satisfy the funding condition in Section 7.4, and Parent shall use reasonable efforts to provide information to potential financing providers and otherwise to assist the Company in such efforts to secure financing so as to satisfy such funding conditions.
Section 6 CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
The obligations of each Party to effect the Merger and otherwise consummate the Contemplated Transactions to be consummated at the Closing are subject to the satisfaction or, to the extent permitted by applicable Law, the written waiver by each of the Parties, at or prior to the Closing, of each of the following conditions:
6.1 Effectiveness of Registration Statement. The Registration Statement shall have become effective in accordance with the provisions of the Securities Act, and shall not be subject to any stop order or proceeding (or threatened proceeding by the SEC) seeking a stop order with respect to the Registration Statement that has not been withdrawn.
6.2 No Restraints. No temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the Contemplated Transactions shall have been issued by any court of competent jurisdiction or other Governmental Body of competent jurisdiction and remain in effect and there shall not be any Law which has the effect of making the consummation of the Contemplated Transactions illegal.
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6.3 Stockholder/Member Approval. (a) Parent shall have obtained the Required Parent Stockholder Vote and (b) the Company shall have obtained the Required Company Member Vote.
6.4 Listing. The shares of Parent Common Stock to be issued in the Merger, and all other shares of Parent Common Stock issuable in connection with the transactions contemplated herein, as described in Exhibit C, shall have been approved for listing (subject to official notice of issuance) on the NYSE American Market as of the Closing.
Section 7 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to effect the Merger and otherwise consummate the transactions to be consummated at the Closing are subject to the satisfaction or the written waiver by Parent, at or prior to the Closing, of each of the following conditions:
7.1 Accuracy of Representations. The Company Fundamental Representations shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date). The Company Capitalization Representations shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date, except, in each case, (x) for such inaccuracies which are de minimis, individually or in the aggregate or (y) for those representations and warranties which address matters only as of a particular date (which representations and warranties shall have been true and correct, subject to the qualifications as set forth in the preceding clause (x), as of such particular date). The representations and warranties of the Company contained in this Agreement (other than the Company Fundamental Representations and the Company Capitalization Representations) shall have been true and correct as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on the Closing Date except (a) in each case, or in the aggregate, where the failure to be true and correct would not reasonably be expected to have a Company Material Adverse Effect (without giving effect to any references therein to any Company Material Adverse Effect or other materiality qualifications), or (b) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and correct, subject to the qualifications as set forth in the preceding clause (a), as of such particular date) (it being understood that, for purposes of determining the accuracy of such representations and warranties, any update of or modification to the Company Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded).
7.2 Performance of Covenants. The Company shall have performed or complied with in all material respects all agreements and covenants required to be performed or complied with by it under this Agreement at or prior to the Effective Time.
7.3 Documents. Parent shall have received a certificate executed by the Chief Executive Officer or Chief Accounting Officer of the Company certifying (i) that the conditions set forth in Sections 7.1, 7.2, and 7.6 have been duly satisfied and (ii) that the information set forth in the Timber Allocation Certificate delivered by the Company in accordance with Section 5.14 and Exhibit C remains true and accurate in all respects as of the Closing Date.
7.4 Funding Condition. The Company shall have consummated the Timber Funding and provided Parent with an amendment, if required, to Exhibit C to reflect the treatment of investors in the Timber Funding as a result of the Merger.
7.5 Tax Certificate. Each holder of Company Equity shall furnish to Parent a properly executed IRS Form W-9 and a nonforeign affidavit, in form and substance acceptable to Parent, for the purpose of
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certifying such holder's "non-foreign" status in accordance with Treasury Regulations Section 1.1445-2(b)(2) and Section 6.01 of IRS Notice 2018-29.
7.6 No Company Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Company Material Adverse Effect.
Section 8 ADDITIONAL CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligations of the Company to effect the Merger and otherwise consummate the transactions to be consummated at the Closing are subject to the satisfaction or the written waiver by the Company, at or prior to the Closing, of each of the following conditions:
8.1 Accuracy of Representations. The Parent Fundamental Representations shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date (except to the extent such representations and warranties are specifically made as of a particular date, in which case such representations and warranties shall be true and correct as of such date). The Parent Capitalization Representations shall have been true and correct in all respects as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on and as of such date, except, in each case, (x) for such inaccuracies which are de minimis, individually or in the aggregate or (y) for those representations and warranties which address matters only as of a particular date (which representations and warranties shall have been true and correct, subject to the qualifications as set forth in the preceding clause (x), as of such particular date). The representations and warranties of Parent and Merger Sub contained in this Agreement (other than the Parent Fundamental Representations and the Parent Capitalization Representations) shall have been true and correct as of the date of this Agreement and shall be true and correct on and as of the Closing Date with the same force and effect as if made on the Closing Date except (a) in each case, or in the aggregate, where the failure to be true and correct would not reasonably be expected to have a Parent Material Adverse Effect (without giving effect to any references therein to any Parent Material Adverse Effect or other materiality qualifications), or (b) for those representations and warranties which address matters only as of a particular date (which representations shall have been true and correct, subject to the qualifications as set forth in the preceding clause (a), as of such particular date) (it being understood that, for purposes of determining the accuracy of such representations and warranties, any update of or modification to the Parent Disclosure Schedule made or purported to have been made after the date of this Agreement shall be disregarded).
8.2 Performance of Covenants. Parent and Merger Sub shall have performed or complied with in all material respects all of their agreements and covenants required to be performed or complied with by each of them under this Agreement and all agreements related to the Bridge Note and the Bridge Warrant at or prior to the Effective Time and given all notices and received all consents contemplated in the Parent Disclosure Schedules.
8.3 Documents. The Company shall have received the following documents, each of which shall be in full force and effect:
(a) a certificate executed by the Chief Executive Officer or Chief Accounting Officer of Parent confirming that the conditions set forth in Sections 8.1, 8.2, and 8.4 have been duly satisfied; and
(b) a written resignation, in a form reasonably satisfactory to the Company, dated as of the Closing Date and effective as of the Closing, executed by each of the officers and directors of Parent who are not to continue as officers or directors of Parent after the Closing pursuant to Section 5.11 hereof;
(c) a certificate executed by the Chief Executive Officer or Chief Accounting Officer of Parent confirming that Parent and Merger Sub have no liabilities (including any liabilities created by any
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"Black Scholes" fundamental transaction provisions contained in any outstanding warrants of Patent or any of its Subsidiaries or any severance obligations or other employee liabilities not included within the Budget) other than a Permitted Liability (and other proof of satisfaction of such liabilities reasonably requested by the Company); and
(d) pay off letters and releases, in a form reasonably satisfactory to the Company, from any party receiving proceeds of the Bridge Note, including but not limited to the bankers, financial advisors, counsel, accountants, and other processionals providing services to Parent in this Transaction and any executives receiving severance or other payments in connection with a "change of control".
8.4 No Parent Material Adverse Effect. Since the date of this Agreement, there shall not have occurred any Parent Material Adverse Effect.
Section 9 TERMINATION
9.1 Termination. This Agreement may be terminated prior to the Effective Time (whether before or after adoption of this Agreement by the Company's members and whether before or after approval of the Required Parent Stockholder Matters by Parent's stockholders, unless otherwise specified below):
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the Contemplated Transactions shall not have been consummated by June 15, 2020 (subject to extension to July 15, 2020 if the SEC reviews the Registration Statement and to possible extension as provided in this Section 9.1(b), the "End Date"); provided, however, that the right to terminate this Agreement under this Section 9.1(b) shall not be available to the Company, on the one hand, or to Parent, on the other hand, if such Party's action or failure to act has been a principal cause of the failure of the Contemplated Transactions to occur on or before the End Date and such action or failure to act constitutes a breach of this Agreement, provided, further, however, that, in the event that a request for additional information has been made by any Governmental Body, or in the event that the SEC has not declared effective under the Securities Act the Registration Statement by the date which is sixty (60) days prior to the End Date, then either the Company or Parent shall be entitled to extend the End Date for an additional sixty (60) days by written notice to the other the Party;
(c) by either Parent or the Company if a court of competent jurisdiction or other Governmental Body shall have issued a final and nonappealable order, decree or ruling, or shall have taken any other action, having the effect of permanently restraining, enjoining or otherwise prohibiting the Contemplated Transactions;
(d) by Parent if the Required Company Member Vote shall not have been obtained on the date that the Required Parent Stockholder Vote is obtained; provided, however, that once the Required Company Member Vote has been obtained, Parent may not terminate this Agreement pursuant to this Section 9.1(d);
(e) by either Parent or the Company if (i) the Parent Stockholders' Meeting (including, if Parent seeks to terminate, any adjournments and postponements thereof as described in Section 5.3(a)) shall have been held and completed and Parent's stockholders shall have taken a final vote on the Parent Stockholder Matters and (ii) the Required Parent Stockholder Matters shall not have been approved at the Parent Stockholders' Meeting (or at any adjournment or postponement thereof) by the Required Parent Stockholder Vote.
(f) by the Company (at any time prior to the approval of the Required Parent Stockholder Matters by the Required Parent Stockholder Vote) if a Parent Triggering Event shall have occurred;
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(g) by Parent (at any time prior to the Required Company Member Vote being obtained) if a Company Triggering Event shall have occurred;
(h) by the Company, upon a breach of any representation, warranty, covenant or agreement set forth in this Agreement by Parent or Merger Sub or if any representation or warranty of Parent or Merger Sub shall have become inaccurate, in either case, such that the conditions set forth in Section 8.1 or Section 8.2 would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become inaccurate; provided that the Company is not then in material breach of any representation, warranty, covenant or agreement under this Agreement; provided, further, that if such inaccuracy in Parent's or Merger Sub's representations and warranties or breach by Parent or Merger Sub is curable by the End Date by Parent or Merger Sub, then this Agreement shall not terminate pursuant to this Section 9.1(h) as a result of such particular breach or inaccuracy until the expiration of a 30-day period commencing upon delivery of written notice from the Company to Parent or Merger Sub of such breach or inaccuracy and its intention to terminate pursuant to this Section 9.1(h) (it being understood that this Agreement shall not terminate pursuant to this Section 9.1(h) as a result of such particular breach or inaccuracy if such breach by Parent or Merger Sub is cured prior to such termination becoming effective);
(i) by Parent, upon a breach of any representation, warranty, covenant or agreement set forth in this Agreement by the Company or if any representation or warranty of the Company shall have become inaccurate, in either case, such that the conditions set forth in Section 7.1 or Section 7.2 would not be satisfied as of the time of such breach or as of the time such representation or warranty shall have become inaccurate; provided that Parent is not then in material breach of any representation, warranty, covenant or agreement under this Agreement; provided, further, that if such inaccuracy in the Company's representations and warranties or breach by the Company is curable by the End Date by the Company then this Agreement shall not terminate pursuant to this Section 9.1(i) as a result of such particular breach or inaccuracy until the expiration of a 30-day period commencing upon delivery of written notice from Parent to the Company of such breach or inaccuracy and its intention to terminate pursuant to this Section 9.1(i) (it being understood that this Agreement shall not terminate pursuant to this Section 9.1(i) as a result of such particular breach or inaccuracy if such breach by the Company is cured prior to such termination becoming effective); or
(j) by Parent, at any time, if (i) Parent has received a Superior Offer, (ii) Parent has complied with its obligations under Section 5.3(c) in order to accept such Superior Offer, (iii) Parent concurrently terminates this Agreement and enters into a Permitted Alternative Agreement with respect to such Superior Offer and (iv) within two Business Days of such termination, Parent pays to the Company the Company Termination Fee and repays and discharge all of its obligations under the Bridge Note.
(k) by the Company, at any time, if (i) the Company has received a Superior Offer, (ii) the Company has complied with its obligations under Section 5.3(c) in order to accept such Superior Offer, (iii) the Company concurrently terminates this Agreement and enters into a Permitted Alternative Agreement with respect to such Superior Offer and (iv) within two Business Days of such termination, the Company pays to Parent the Parent Termination Fee less any amounts due it under the Bridge Note.
9.2 Effect of Termination. In the event of the termination of this Agreement as provided in Section 9.1, this Agreement shall be of no further force or effect; provided, however, that (a) this Section 9.2, Section 5.8, Section 9.3, Section 10 and the definitions of the defined terms in such Sections shall survive the termination of this Agreement and shall remain in full force and effect, and (b) the termination of this Agreement and the provisions of Section 9.3 shall not relieve any Party of any
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liability for fraud or for any willful or intentional breach of any representation, warranty, covenant, obligation or other provision contained in this Agreement.
9.3 Expenses; Termination Fees.
(a) Except as set forth in this Section 9.3, Section 5.6(d), and Section 5.9, all fees and expenses incurred in connection with this Agreement and the Contemplated Transactions shall be paid by the Party incurring such expenses, whether or not the Merger is consummated; provided, however, that Parent shall pay all fees and expenses incurred in relation to the printing and filing with the SEC of the Registration Statement (including any financial statements and exhibits) and any amendments or supplements thereto and paid to a financial printer or the SEC. It is understood and agreed that all fees and expenses incurred or to be incurred by the Parent in connection with the Contemplated Transactions and preparing, negotiating and entering into this Agreement and the performance of its obligations under this Agreement are taken into account in the Budget.
(b) If (i) this Agreement is terminated by the Company pursuant to Section 9.1(f), (ii) an Acquisition Proposal with respect to Parent shall have been publicly announced or disclosed or otherwise communicated to Parent or the Parent Board after the date of this Agreement but prior to the termination of this Agreement and (iii) within twelve months after the date of such termination, Parent consummates a Subsequent Transaction in respect of the Acquisition Proposal referred to in clause (ii), then Parent shall, within ten (10) Business Days of such entry into a definitive agreement or consummation of such Subsequent Transaction, (A) pay to the Company the Company Termination Fee and (B) repay and discharge all of Parent's obligations under the Bridge Note.
(c) If this Agreement is terminated by the Company or Parent pursuant to Section 9.1(e), Parent shall (A) pay to the Company the Company Termination Fee and (B) repay and discharge all of Parent's obligations under the Bridge Note.
(d) If this Agreement is terminated by Parent pursuant to Section 9.1(j), Parent shall, within ten (10) Business Days of such termination, (A) pay to the Company the Company Termination Fee and (B) repay and discharge all of Parent's obligations under the Bridge Note.
(e) If (i) this Agreement is terminated by Parent pursuant to Section 9.1(g), (ii) an Acquisition Proposal with respect to the Company shall have been publicly announced or disclosed or otherwise communicated to the Company or the Company Managers after the date of this Agreement but prior to the termination of this Agreement and (iii) within twelve months after the date of such termination, the Company consummates a Subsequent Transaction in respect of the Acquisition Proposal referred to in clause (ii), then the Company shall pay to Parent the Parent Termination Fee less any amounts due it under the Bridge Note within ten Business Days of such entry into a definitive agreement or consummation of such Subsequent Transaction.
(f) If this Agreement is terminated by the Company pursuant to Section 9.1(k), the Company shall pay to Parent, within ten Business Days of such termination, the Parent Termination Fee less any amounts due it under the Bridge Note.
(g) If this Agreement is terminated by the Parent pursuant to Section 9.1(b) solely because the Company has not satisfied the Funding Condition in Section 7.4 hereof by the End Date (other than by reason of Parent's failure to assist the Company as provided in Section 5.19), then the Company shall pay to Parent an amount equal to the Parent Termination Fee less any amounts due it under the Bridge Note within ten Business Days of its receiving such a notice of termination from Parent.
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(h) Any Company Termination Fee or Bridge Note repayment due under this Section 9.3 shall be paid by wire transfer of same day funds. If a Party fails to pay when due any amount payable by it under this Section 9.3, then such Party shall (i) reimburse the other Party for reasonable costs and expenses (including reasonable fees and disbursements of counsel) incurred by it in connection with the collection of such overdue amount and the enforcement by such Party of its rights under this Section 9.3, and (ii) such Party shall pay to the other Party interest on such overdue amount (for the period commencing as of the date such overdue amount was originally required to be paid and ending on the date such overdue amount is actually paid to the Company in full) at a rate per annum equal to the "prime rate" (as published in The Wall Street Journal or any successor thereto) in effect on the date such overdue amount was originally required to be paid.
(i) The Parties agree that, subject to Section 9.2, payment of the Company Termination Fee shall, in the circumstances in which it is owed in accordance with the terms of this Agreement, constitute the sole and exclusive remedy of the Company following the termination of this Agreement, it being understood that in no event shall Parent be required to pay the amounts payable pursuant to this Section 9.3 on more than one occasion and following payment of the Company Termination Fee (x) Parent shall have no further liability to the Company in connection with or arising out of this Agreement or the termination thereof, any breach of this Agreement by Parent giving rise to such termination, or the failure of the Contemplated Transactions to be consummated, (y) neither the Company nor any of its Affiliates shall be entitled to bring or maintain any other claim, action or proceeding against Parent or Merger Sub or seek to obtain any recovery, judgment or damages of any kind against such Parties (or any partner, member, stockholder, director, officer, employee, Subsidiary, Affiliate, agent or other Representative of such Parties) in connection with or arising out of this Agreement or the termination thereof, any breach by any such Parties giving rise to such termination or the failure of the Contemplated Transactions to be consummated and (z) the Company and its Affiliates shall be precluded from any other remedy against Parent, Merger Sub and their respective Affiliates, at law or in equity or otherwise, in connection with or arising out of this Agreement or the termination thereof, any breach by such Party giving rise to such termination or the failure of the Contemplated Transactions to be consummated.
(j) The Parties agree that, subject to Section 9.2, payment of the Parent Termination Fee shall, in the circumstances in which it is owed in accordance with the terms of this Agreement, constitute the sole and exclusive remedy of Parent following the termination of this Agreement, it being understood that in no event shall the Company be required to pay the amounts payable pursuant to this Section 9.3 on more than one occasion and following payment of the Parent Termination Fee (x) the Company shall have no further liability to Parent in connection with or arising out of this Agreement or the termination thereof, any breach of this Agreement by the Company giving rise to such termination, or the failure of the Contemplated Transactions to be consummated, (y) neither Parent nor any of its Affiliates shall be entitled to bring or maintain any other claim, action or proceeding against the Company or seek to obtain any recovery, judgment or damages of any kind against such Parties (or any partner, member, stockholder, director, officer, employee, Subsidiary, Affiliate, agent or other Representative of such Parties) in connection with or arising out of this Agreement or the termination thereof, any breach by any such Parties giving rise to such termination or the failure of the Contemplated Transactions to be consummated and (z) Parent and its Affiliates shall be precluded from any other remedy against the Company and its Affiliates, at law or in equity or otherwise, in connection with or arising out of this Agreement or the termination thereof, any breach by such Party giving rise to such termination or the failure of the Contemplated Transactions to be consummated.
(k) Each of the Parties acknowledges that (i) the agreements contained in this Section 9.3 are an integral part of the Contemplated Transactions, (ii) without these agreements, the Parties would not enter into this Agreement and (iii) any amount payable pursuant to this Section 9.3 is not a
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penalty, but rather is liquidated damages in a reasonable amount that will compensate the Company in the circumstances in which such amount is payable.
Section 10 MISCELLANEOUS PROVISIONS
10.1 Non-Survival of Representations and Warranties. The representations and warranties of the Company, Parent and Merger Sub contained in this Agreement or any certificate or instrument delivered pursuant to this Agreement shall terminate at the Effective Time, and only the covenants that by their terms survive the Effective Time and this Section 10 shall survive the Effective Time.
10.2 Amendment. This Agreement may be amended with the approval the Parent Board, the Merger Sub Board and the Company Managers at any time (whether before or after the adoption and approval of this Agreement by the Company's members or before or after obtaining the Required Parent Stockholder Vote); provided, however, that after any such approval of this Agreement by a Party's stockholders, no amendment shall be made which by Law requires further approval of such stockholders without the further approval of such stockholders. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the Company, Merger Sub and Parent.
10.3 Waiver.
(a) No failure on the part of any Party to exercise any power, right, privilege or remedy under this Agreement, and no delay on the part of any Party in exercising any power, right, privilege or remedy under this Agreement, shall operate as a waiver of such power, right, privilege or remedy; and no single or partial exercise of any such power, right, privilege or remedy shall preclude any other or further exercise thereof or of any other power, right, privilege or remedy.
(b) No Party shall be deemed to have waived any claim arising out of this Agreement, or any power, right, privilege or remedy under this Agreement, unless the waiver of such claim, power, right, privilege or remedy is expressly set forth in a written instrument duly executed and delivered on behalf of such Party and any such waiver shall not be applicable or have any effect except in the specific instance in which it is given.
10.4 Entire Agreement; Counterparts; Exchanges by Electronic Transmission. This Agreement and the other agreements referred to in this Agreement constitute the entire agreement and supersede all prior agreements and understandings, both written and oral, among or between any of the Parties with respect to the subject matter hereof and thereof; provided, however, that the Confidentiality Agreement shall not be superseded and shall remain in full force and effect in accordance with its terms. This Agreement may be executed in several counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. The exchange of a fully executed Agreement (in counterparts or otherwise) by all Parties by electronic transmission in .PDF format shall be sufficient to bind the Parties to the terms and conditions of this Agreement.
10.5 Applicable Law; Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the Laws of the State of Delaware, regardless of the Laws that might otherwise govern under applicable principles of conflicts of laws. In any action or proceeding between any of the Parties arising out of or relating to this Agreement or any of the Contemplated Transactions, each of the Parties: (a) irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware; (b) agrees that all claims in respect of such action or proceeding shall be heard and determined exclusively in accordance with clause (a) of this Section 10.5; (c) waives any objection to laying venue in any such action or proceeding in such courts; (d) waives any objection that such courts are an inconvenient forum or do not have jurisdiction over any Party; (e) agrees that service of process upon such Party in any such
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action or proceeding shall be effective if notice is given in accordance with Section 10.8 of this Agreement; and (f) irrevocably and unconditionally waives the right to trial by jury.
10.6 Attorneys' Fees. In any action at law or suit in equity to enforce this Agreement or the rights of any of the Parties, the prevailing Party in such action or suit (as determined by a court of competent jurisdiction) shall be entitled to recover its reasonable out-of-pocket attorneys' fees and all other reasonable costs and expenses incurred in such action or suit.
10.7 Assignability. This Agreement shall be binding upon, and shall be enforceable by and inure solely to the benefit of, the Parties and their respective successors and permitted assigns; provided, however, that neither this Agreement nor any of a Party's rights or obligations hereunder may be assigned or delegated by such Party without the prior written consent of the other Party, and any attempted assignment or delegation of this Agreement or any of such rights or obligations by such Party without the other Party's prior written consent shall be void and of no effect.
10.8 Notices. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly delivered and received hereunder (a) one Business Day after being sent for next Business Day delivery, fees prepaid, via a reputable international overnight courier service, (b) upon delivery in the case of delivery by hand, or (c) on the date delivered in the place of delivery if sent by email or facsimile (with a written or electronic confirmation of delivery) prior to 5:00 p.m. San Francisco time, otherwise on the next succeeding Business Day, in each case to the intended recipient as set forth below:
if to Parent or Merger Sub:
BioPharmX
Corporation:
115 Nicholson Lane,
San Jose, CA 95134
Facsimile: (305) 349-4833
Att: Chief Executive Officer
with a copy to (which shall not constitute notice):
Akerman LLP
350 East Las Olas Blvd.
Suite 1600
Fort Lauderdale, FL 33131
Facsimile: (305) 349-4833
Att: Philip B. Schwartz, Esq.
if to the Company:
Timber
Pharmaceuticals LLC
50 Tice Blvd, Suite A26
Woodcliff Lake, NJ 07677
E-mail: jkoconis@timberpharma.com
Att: John Koconis, Chief Executive Officer
with a copy to (which shall not constitute notice):
Lowenstein Sandler LLP
1251 Avenue of the Americas
New York, New York 10020
Facsimile: +1 973-597-2477
E-mail: sskolnick@lowenstein.com
Att: Steven M. Skolnick, Esq.
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10.9 Cooperation. Each Party agrees to cooperate fully with the other Party and to execute and deliver such further documents, certificates, agreements and instruments and to take such other actions as may be reasonably requested by the other Party to evidence or reflect the Contemplated Transactions and to carry out the intent and purposes of this Agreement.
10.10 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions of this Agreement or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If a final judgment of a court of competent jurisdiction declares that any term or provision of this Agreement is invalid or unenforceable, the Parties agree that the court making such determination shall have the power to limit such term or provision, to delete specific words or phrases or to replace such term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be valid and enforceable as so modified. In the event such court does not exercise the power granted to it in the prior sentence, the Parties agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term or provision.
10.11 Other Remedies; Specific Performance. Except as otherwise provided herein, any and all remedies herein expressly conferred upon a Party will be deemed cumulative with and not exclusive of any other remedy conferred hereby, or by law or equity upon such Party, and the exercise by a Party of any one remedy will not preclude the exercise of any other remedy. The Parties agree that irreparable damage for which monetary damages, even if available, would not be an adequate remedy, would occur in the event that any Party does not perform the provisions of this Agreement (including failing to take such actions as are required of it hereunder to consummate this Agreement) in accordance with its specified terms or otherwise breaches such provisions. Accordingly, the Parties acknowledge and agree that the Parties shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which they are entitled at law or in equity. Each of the Parties agrees that it will not oppose the granting of an injunction, specific performance or other equitable relief on the basis that any other Party has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or in equity. Any Party seeking an injunction or injunctions to prevent breaches of this Agreement shall not be required to provide any bond or other security in connection with any such order or injunction.
10.12 No Third Party Beneficiaries. Nothing in this Agreement, express or implied, is intended to or shall confer upon any Person (other than the Parties and the D&O Indemnified Parties to the extent of their respective rights pursuant to Section 5.6) any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
10.13 Construction.
(a) References to "cash," "dollars" or "$" are to U.S. dollars.
(b) For purposes of this Agreement, whenever the context requires: the singular number shall include the plural, and vice versa; the masculine gender shall include the feminine and neuter genders; the feminine gender shall include the masculine and neuter genders; and the neuter gender shall include masculine and feminine genders.
(c) The Parties have participated jointly in the negotiating and drafting of this Agreement and agree that any rule of construction to the effect that ambiguities are to be resolved against the drafting Party shall not be applied in the construction or interpretation of this Agreement, and no
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presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any provision of this Agreement.
(d) As used in this Agreement, the words "include" and "including," and variations thereof, shall not be deemed to be terms of limitation, but rather shall be deemed to be followed by the words "without limitation."
(e) The use of the word "or" shall not be exclusive.
(f) Except as otherwise indicated, all references in this Agreement to "Sections," "Exhibits" and "Schedules" are intended to refer to Sections of this Agreement and Exhibits and Schedules to this Agreement, respectively.
(g) Any reference to legislation or to any provision of any legislation shall include any modification, amendment, re-enactment thereof, any legislative provision substituted therefore and all rules, regulations, and statutory instruments issued or related to such legislations.
(h) The bold-faced headings and table of contents contained in this Agreement are for convenience of reference only, shall not be deemed to be a part of this Agreement and shall not be referred to in connection with the construction or interpretation of this Agreement.
(i) The Parties agree that each of the Company Disclosure Schedule and the Parent Disclosure Schedule shall be arranged in sections and subsections corresponding to the numbered and lettered sections and subsections contained in this Agreement. The disclosures in any section or subsection of the Company Disclosure Schedule or the Parent Disclosure Schedule shall qualify other sections and subsections in this Agreement to the extent it is readily apparent on its face from a reading of the disclosure that such disclosure is applicable to such other sections and subsections.
(j) Each of "delivered" or "made available" means, with respect to any documentation, that prior to 11:59 p.m. (San Francisco time) on the date that is two calendar days prior to the date of this Agreement (i) a copy of such material has been posted to and made available by a Party to the other Party and its Representatives in the electronic data room maintained by such disclosing Party or (ii) such material is disclosed in the Parent SEC Documents publicly made available on the SEC's Electronic Data Gathering Analysis and Retrieval system.
(k) Whenever the last day for the exercise of any privilege or the discharge of any duty hereunder shall fall upon a Saturday, Sunday, or any date on which banks in San Francisco, California are authorized or obligated by Law to be closed, the Party having such privilege or duty may exercise such privilege or discharge such duty on the next succeeding day which is a regular Business Day.
(Remainder of page intentionally left blank)
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the date first above written.
BIOPHARMX CORPORATION | ||||||
By: |
/s/ DAVID S. TIERNEY, M.D. |
|||||
Name: | David S. Tierney, M.D. | |||||
Title: | President and Chief Executive Officer |
BITI MERGER SUB, INC. | ||||||
By: |
/s/ STEVEN M. BOSACKI |
|||||
Name: | Steven M. Bosacki | |||||
Title: | President |
TIMBER PHARMACEUTICALS LLC | ||||||
By: |
/s/ JOHN KOCONIS |
|||||
Name: | John Koconis | |||||
Title: | Chief Executive Officer |
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"Acquisition Inquiry" means, with respect to a Party, an inquiry, indication of interest or request for information (other than an inquiry, indication of interest or request for information made or submitted by the Company, on the one hand, or Parent, on the other hand, to the other Party) that would reasonably be expected to lead to an Acquisition Proposal.
"Acquisition Proposal" means, with respect to a Party, any offer or proposal, whether written or oral (other than an offer or proposal made or submitted by or on behalf of the Company or any of its Affiliates, on the one hand, or by or on behalf of Parent or any of its Affiliates, on the other hand, to the other Party) contemplating or otherwise relating to any Acquisition Transaction with such Party.
"Acquisition Transaction" means any transaction or series of related transactions involving:
(a) any merger, consolidation, amalgamation, share exchange, business combination, issuance of securities, acquisition of securities, reorganization, recapitalization, tender offer, exchange offer or other similar transaction: (i) in which a Party is a constituent entity; (ii) in which a Person or "group" (as defined in the Exchange Act and the rules promulgated thereunder) of Persons directly or indirectly acquires beneficial or record ownership of securities representing more than 20% of the outstanding securities of any class of voting securities of a Party or any of its Subsidiaries; or (iii) in which a Party or any of its Subsidiaries issues securities representing more than 20% of the outstanding securities of any class of voting securities of such Party or any of its Subsidiaries; or
(b) any sale, lease, exchange, transfer, license, acquisition or disposition of any business or businesses or assets that constitute or account for 20% or more of the consolidated book value or the fair market value of the assets of a Party and its Subsidiaries, taken as a whole; provided, however, that a transaction described in Section 4.4 of the Parent Disclosure Schedules shall not constitute an Acquisition Transaction..
"Affiliate" of a Person means any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. The term "control" (including the terms "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
"Agreement" means the Agreement and Plan of Merger and Reorganization to which this Exhibit A is attached, as it may be amended from time to time.
"Anticipated Closing Date" means the anticipated Closing Date (as mutually agreed in good faith by Parent and the Company).
"Bridge Note" means the senior secured notes issued this date by Parent in the aggregate amount of $2,500,000, issued with a 10% original issue discount, whereby certain investors (the "Bridge Investors") will advance $2,250,000 to Parent in three tranches, which Bridge Note matures on the maturity date set forth in the Credit Agreement relating to such Bridge Note.
"Bridge Warrant" means the common stock purchase warrant issued on the date hereof to the Bridge Investors to purchase a number of shares of Parent Common Stock equal to the Bridge Warrant Share Number.
"Bridge Warrant Share Number" means, initially, 2,255,336 shares of Parent Common Stock as of the date hereof, which number of shares is subject to adjustment as provided in the Bridge Warrant.
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"Budget" means the Parent's operating budget for the period from the date hereof through the Closing as set forth in Section 4.1(a) of the Parent Disclosure Schedule.
"Business Day" means any day other than a Saturday, Sunday or other day on which banks in New York, New York are authorized or obligated by Law to be closed.
"Cash and Cash Equivalents" means all (a) cash and cash equivalents (excluding restricted cash), and (b) marketable securities, in each case, determined in accordance with GAAP, consistently applied.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Affiliate" means any Person that is (or at any relevant time was) under common control with the Company within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.
"Company Associate" means any current or former employee, independent contractor, officer or manager of the Company.
"Company Capitalization Representations" means the representations and warranties of the Company set forth in Sections 2.6(a) and 2.6(c).
"Company Common Equity" means the common Units of the Company.
"Company Contract" means any Contract: (a) to which the Company is a Party; (b) by which the Company or any Company IP Rights or any other asset of the Company is or may become bound or under which the Company has, or may become subject to, any obligation; or (c) under which the Company has or may acquire any right or interest.
"Company Equity" means all preferred and common membership interests or Units of the Company.
"Company ERISA Affiliate" means any corporation or trade or business (whether or not incorporated) which is treated with the Company as a single employer within the meaning of Section 414 of the Code.
"Company Fundamental Representations" means the representations and warranties of the Company set forth in Sections 2.1 (Due Organization; Subsidiaries), 2.3 (Authority; Binding Nature of Agreement), 2.4 (Vote Required), and 2.20 (No Financial Advisors).
"Company IP Rights" means all Intellectual Property owned by, licensed to, or controlled by the Company that is necessary for or used in the business of the Company as presently conducted.
"Company IP Rights Agreement" means any Contract governing, related to or pertaining to any Company IP Rights.
"Company Managers" means the managers of the Company.
"Company Material Adverse Effect" means any Effect that, considered together with all other Effects that have occurred prior to the date of determination of the occurrence of a Company Material Adverse Effect, has or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities or results of operations of the Company; provided, however, that Effects arising or resulting from the following shall not be taken into account in determining whether there has been a Company Material Adverse Effect: (a) general business or economic conditions affecting the industry in which the Company operates, (b) acts of war, armed hostilities or terrorism, (c) changes in financial, banking or securities markets or (d) the taking of any action required to be taken by this Agreement; except in each case with respect to clauses (a) through (c), to the extent disproportionately affecting the Company, relative to other similarly situated companies in the industries in which the Company operates.
"Company Preferred Equity" means the preferred Units of the Company.
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"Company Registered IP" means all Company IP Rights that are owned by or exclusively licensed to the Company that are registered, filed or issued under the authority of, with or by any Governmental Body, including all Patents, registered Copyrights, and registered Trademarks (including domain names) and all applications for any of the foregoing.
"Company Termination Fee" means the greater of (a) $1,250,000 or (b) the amount due to the Company under the Bridge Note
"Company Triggering Event" shall be deemed to have occurred if: (a) the Company shall have made a Company Managers Adverse Recommendation Change; (b) the Company Managers or any committee thereof shall have publicly approved, endorsed or recommended any Acquisition Proposal; or (c) the Company shall have entered into any letter of intent or similar document or any Contract relating to any Acquisition Proposal (other than a confidentiality agreement permitted pursuant to Section 4.5).
"Company VARs" means the value appreciation rights issued by the Company.
"Confidentiality Agreement" means the Confidentiality Agreement, dated as of June 19, 2019, by and between the Company and Parent.
"Consent" means any approval, consent, ratification, permission, waiver or authorization (including any Governmental Authorization).
"Contemplated Transactions" means the Merger and the other transactions contemplated by this Agreement.
"Contract" means, with respect to any Person, any agreement, contract, subcontract, lease (whether for real or personal property), mortgage, license, sublicense or other legally binding commitment or undertaking of any nature to which such Person is a party or by which such Person or any of its assets are bound or affected under applicable Law.
"DGCL" means the General Corporation Law of the State of Delaware.
"DLLCA" means the Limited Liability Company Act of the State of Delaware.
"Effect" means any effect, change, event, circumstance, or development.
"Encumbrance" means any lien, pledge, hypothecation, charge, mortgage, security interest, lease, license, option, easement, reservation, servitude, adverse title, claim, infringement, interference, option, right of first refusal, preemptive right, community property interest or restriction or encumbrance of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, any restriction on the receipt of any income derived from any asset, any restriction on the use of any asset and any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset).
"Enforceability Exceptions" means the (a) Laws of general application relating to bankruptcy, insolvency and the relief of debtors; and (b) rules of law governing specific performance, injunctive relief and other equitable remedies.
"Entity" means any corporation (including any non-profit corporation), partnership (including any general partnership, limited partnership or limited liability partnership), joint venture, estate, trust, company (including any company limited by shares, limited liability company or joint stock company), firm, society or other enterprise, association, organization or entity, and each of its successors.
"Environmental Law" means any federal, state, local or foreign Law relating to pollution or protection of human health or the environment (including ambient air, surface water, ground water, land surface or subsurface strata), including any Law or regulation relating to emissions, discharges, releases or threatened releases of Hazardous Materials, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials.
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"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
"Exchange Act" means the Securities Exchange Act of 1934.
"GAAP" means generally accepted accounting principles and practices in effect from time to time within the United States applied consistently throughout the period involved.
"Governmental Authorization" means any: (a) permit, license, certificate, franchise, permission, variance, exception, order, clearance, registration, qualification or authorization issued, granted, given or otherwise made available by or under the authority of any Governmental Body or pursuant to any Law; or (b) right under any Contract with any Governmental Body.
"Governmental Body" means any: (a) nation, state, commonwealth, province, territory, county, municipality, district or other jurisdiction of any nature; (b) federal, state, local, municipal, foreign or other government; (c) governmental or quasi-governmental authority of any nature (including any governmental division, department, agency, commission, bureau, instrumentality, official, ministry, fund, foundation, center, organization, unit, body or Entity and any court or other tribunal, and for the avoidance of doubt, any Taxing authority); or (d) self-regulatory organization (including the NYSE American Market).
"Hazardous Materials" means any pollutant, chemical, substance and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable chemical, or chemical compound, or hazardous substance, material or waste, whether solid, liquid or gas, that is subject to regulation, control or remediation under any Environmental Law, including without limitation, crude oil or any fraction thereof, and petroleum products or by-products.
"Intellectual Property" means any and all intellectual and industrial property rights and other similar proprietary rights, in any jurisdiction throughout the world, whether registered or unregistered, including all rights pertaining to or deriving from: (a) patents and patent applications, (including any and all provisionals, continuations, continuations-in-part, continued prosecution, divisionals and patents of addition; requests for, and grants of, continued examination, extensions, supplemental protection certificates, re-examinations, post-grant confirmations or amendments, counterparts claiming priority from, or reissues of, any of the foregoing; and any patents or patent applications that claim priority to or from any of the foregoing) and all rights to claim priority arising from or related to any of the foregoing (collectively, "Patents"); (b) inventions, invention disclosures, discoveries and improvements, whether or not patentable; (c) copyrights and works of authorship, whether or not copyrightable ("Copyrights"); (d) computer software and firmware, including data files, source code, object code and software-related specifications and documentation; (e) trademarks, trade names, service marks, certification marks, service names, brands, trade dress and logos, applications therefore, and the goodwill associated therewith (collectively, "Trademarks"); (f) trade secrets (including those trade secrets defined in the Uniform Trade Secrets Act and under corresponding foreign statutory Law and common law), non-public information, and confidential information, know-how, business and technical information, and rights to limit the use or disclosure thereof by any Person (collectively "Trade Secrets"); (g) mask works; (h) domain names; (i) proprietary databases and data compilations and all documentation relating to the foregoing; and, including in each case any and all (1) rights under which an employee, inventor, author or other person is obligated to assign ownership any of the foregoing; (2) registrations of, applications to register, and renewals of, any of the foregoing with or by any Governmental Body in any jurisdiction throughout the world, (3) rights of action arising from the foregoing, including all claims for damages by reason of present, past and future infringement, misappropriation, violation misuse or breach of contract in respect of the foregoing, and present, past and future rights to sue and collect damages or seek injunctive relief for any such infringement, misappropriation, violation, misuse or breach; and (4) income, royalties and any other payments now and hereafter due and/or payable in respect of the foregoing.
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"IRS" means the United States Internal Revenue Service.
"Key Employee" means, with respect to the Company or Parent, an executive officer of such Party or any employee of such Party that reports directly to the board of directors, or the managers of such Party or to the Chief Executive Officer or Chief Operating Officer of such Party.
"Knowledge" means, with respect to an individual, that such individual is actually aware of the relevant fact or such individual would reasonably be expected to know such fact in the ordinary course of the performance of such individual's employment responsibilities. Any Person that is an Entity shall have Knowledge if any officer or director of such Person as of the date such knowledge is imputed has Knowledge of such fact or other matter. The Knowledge Group for each of Parent and the Company shall be the four individuals listed in Section K of their respective Disclosure Schedules.
"Law" means any federal, state, national, foreign, material local or municipal or other law, statute, constitution, principle of common law, resolution, ordinance, code, edict, decree, rule, regulation, ruling or requirement issued, enacted, adopted, promulgated, implemented or otherwise put into effect by or under the authority of any Governmental Body (including under the authority of the NYSE American Market or the Financial Industry Regulatory Authority).
"Legal Proceeding" means any action, suit, litigation, arbitration, proceeding (including any civil, criminal, administrative, investigative or appellate proceeding), hearing, inquiry, audit, examination or investigation commenced, brought, conducted or heard by or before, or otherwise involving, any court or other Governmental Body or any arbitrator or arbitration panel.
"Merger Sub Board" means the board of directors of Merger Sub.
"Ordinary Course of Business" means, in the case of each of the Company and Parent, such actions taken in the ordinary course of its normal operations and consistent with its past practices.
"Organizational Documents" means, with respect to any Person (other than an individual), (a) the certificate or articles of association or incorporation or organization or limited partnership or limited liability company, and any joint venture, limited liability company, operating or partnership agreement and other similar documents adopted or filed in connection with the creation, formation or organization of such Person and (b) all bylaws, regulations and similar documents or agreements relating to the organization or governance of such Person, in each case, as amended or supplemented.
"Parent Affiliate" means any Person that is (or at any relevant time was) under common control with Parent within the meaning of Sections 414(b), (c), (m) and (o) of the Code, and the regulations issued thereunder.
"Parent Associate" means any current or former employee, independent contractor, officer or manager of Parent.
"Parent Balance Sheet" means the unaudited balance sheet of Parent as of October 31, 2019 (the "Parent Balance Sheet Date"), included in Parent's Report on Form 10-Q for the quarterly period ended October 31, 2019, as filed with the SEC.
"Parent Board" means the board of directors of Parent.
"Parent Capitalization Representations" means the representations and warranties of Parent set forth in Sections 3.6(a) and 3.6(c) .
"Parent Closing Price" means the volume weighted average closing trading price of a share of Parent Common Stock on the NYSE American Market for the five consecutive trading days ending five trading days immediately prior to the date upon which the Merger becomes effective.
"Parent Common Stock" means the common stock, $0.001 par value per share, of Parent.
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"Parent Contract" means any Contract: (a) to which Parent is a party; (b) by which Parent or any Parent IP Rights or any other asset of Parent is or may become bound or under which Parent has, or may become subject to, any obligation; or (c) under which Parent has or may acquire any right or interest.
"Parent ERISA Affiliate" means any corporation or trade or business (whether or not incorporated) which is treated with Parent or any of its Subsidiaries as a single employer within the meaning of Section 414 of the Code.
"Parent Fully Diluted Number" means the fully diluted number of shares of Parent Common Stock, including all shares issued and outstanding, and all shares reserved for issuance with respect to any outstanding stock options, warrants, convertible notes or other convertible debt or equity securities, but not (a) awards under the Parent Stock Plan or warrants issued in connection with any financing that in either case are either (i) "out of the money" (i.e., having an exercise price that is greater than the Parent Closing Price on the Anticipated Closing Date) or (ii) will be cancelled without liability to Parent at or prior to the Closing Date or (b) the Bridge Warrant.
"Parent Fundamental Representations" means the representations and warranties of Parent and Merger Sub set forth in Sections 3.1(a) (Due Organization; Subsidiaries), 3.3 (Authority; Binding Nature of Agreement), 3.4 (Vote Required) and 3.18 (No Financial Advisors).
"Parent IP Rights" means all Intellectual Property owned by, licensed to, or controlled by Parent that is necessary for or used in the business of Parent as presently conducted.
"Parent Material Adverse Effect" means any Effect that, considered together with all other Effects that have occurred prior to the date of determination of the occurrence of a Parent Material Adverse Effect, has or would reasonably be expected to have a material adverse effect on the business, condition (financial or otherwise), assets, liabilities or results of operations of Parent; provided, however, that Effects arising or resulting from the following shall not be taken into account in determining whether there has been a Parent Material Adverse Effect: (a) general business or economic conditions affecting the industry in which Parent operates, (b) acts of war, armed hostilities or terrorism, (c) changes in financial, banking or securities markets, or (d) the taking of any action required to be taken by this Agreement.
"Parent Net Cash" means the amount, whether positive or negative, of Parent's Cash and Cash Equivalents after the Closing (taking into account, for the avoidance of doubt, the state of affairs necessary for Parent to cause to be delivered the certificate referenced in Section 8.3(c)), determined in a manner consistent with the manner in which such items were determined in the Budget; provided, however, that (a) no amounts incurred by Parent in excess of projected amounts included in the Budget line items for Printer and Broadridge/Mediant shall reduce Parent Net Cash and (b) no amounts included under Public Company Expenses at the end of the Parent Budget (i.e., NYSE Annual Listing Fees, FY 1.31.2020 Audit, reverse stock split implementation and FINRA Fee) shall be included in determining Parent Net Cash, but (c) all other obligations and liabilities existing or incurred by Parent through consummation of the Merger and Closing shall be included in reducing Cash and Cash Equivalents and determining Parent Net Cash.
"Parent Net Cash Schedule" means a written schedule prepared and certified by the Chief Accounting Officer of Parent, on behalf of Parent and not in his or her personal capacity, setting forth, in reasonable detail, Parent's good faith estimate of Parent Net Cash as of the Anticipated Closing Date.
"Parent Options" means options or other rights to purchase shares of Parent Common Stock issued by Parent.
"Parent Preferred Stock" means the preferred stock, $0.001 par value per share, of Parent.
"Parent Registered IP" means all Parent IP Rights that are owned by or exclusively licensed to Parent that are registered, filed or issued under the authority of, with or by any Governmental Body, including
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all Patents, registered Copyrights, and registered Trademarks (including domain names) and all applications for any of the foregoing.
"Parent Termination Fee" means the greater of (a) $1,250,000 or (b) the amount due to the Company under the Bridge Note.
"Parent Triggering Event" shall be deemed to have occurred if: (a) Parent shall have failed to include in the Proxy Statement the Parent Board Recommendation or shall have made a Parent Board Adverse Recommendation Change; (b) the Parent Board or any committee thereof shall have publicly approved, endorsed or recommended any Acquisition Proposal; or (c) Parent shall have entered into any letter of intent or similar document or any Contract relating to any Acquisition Proposal (other than a confidentiality agreement permitted pursuant to Section 4.4).
"Party" or "Parties" means the Company, Merger Sub and Parent.
"Permitted Alternative Agreement" means a definitive agreement that contemplates or otherwise relates to an Acquisition Transaction that constitutes a Superior Offer.
"Permitted Encumbrance" means: (a) any liens for current Taxes not yet due and payable or for Taxes that are being contested in good faith and for which adequate reserves have been made on the Company Unaudited Balance Sheet or the Parent Balance Sheet, as applicable; (b) minor liens that have arisen in the Ordinary Course of Business and that do not (in any case or in the aggregate) materially detract from the value of the assets or properties subject thereto or materially impair the operations of the Company or any of its Subsidiaries or Parent, as applicable; (c) statutory liens to secure obligations to landlords, lessors or renters under leases or rental agreements; (d) deposits or pledges made in connection with, or to secure payment of, workers' compensation, unemployment insurance or similar programs mandated by Law; (e) non-exclusive licenses of Intellectual Property granted by the Company or any of its Subsidiaries or Parent, as applicable, in the Ordinary Course of Business and that do not (in any case or in the aggregate) materially detract from the value of the Intellectual Property subject thereto; and (f) statutory liens in favor of carriers, warehousemen, mechanics and materialmen, to secure claims for labor, materials or supplies.
"Permitted Liabilities" shall mean (a) the Real Estate Lease, (b) the Bridge Note and (c) any liabilities associated with any litigation challenging the Contemplated Transactions.
"Person" means any individual, Entity or Governmental Body.
"Proxy Statement" means the proxy statement to be sent to Parent's stockholders in connection with the Parent Stockholders' Meeting.
"Real Estate Lease" means Parent's lease for 115 Nicholson Lane, San Jose California 95134.
"Registration Statement" means the registration statement on Form S-4 (or any other applicable form under the Securities Act to register Parent Common Stock) to be filed with the SEC by Parent registering the public offering and sale of Parent Common Stock to all holders of the Units of the Company in the Merger, including all shares of Parent Common Stock to be issued in exchange for all other Units of the Company in the Merger, as said registration statement may be amended prior to the time it is declared effective by the SEC.
"Representatives" means directors, managers, officers, employees, agents, attorneys, accountants, investment bankers, advisors and representatives.
"Sarbanes-Oxley Act" means the Sarbanes-Oxley Act of 2002.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
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"Subsequent Transaction" means any Acquisition Transaction (with all references to 20% in the definition of Acquisition Transaction being treated as references to 50% for these purposes).
An entity shall be deemed to be a "Subsidiary" of a Person if such Person directly or indirectly owns or purports to own, beneficially or of record, (a) an amount of voting securities or other interests in such entity that is sufficient to enable such Person to elect at least a majority of the members of such entity's board of directors or other governing body, or (b) at least 50% of the outstanding equity, voting, beneficial or financial interests in such Entity.
"Superior Offer" means an unsolicited bona fide written Acquisition Proposal (with all references to 20% in the definition of Acquisition Transaction being treated as references to greater than 50% for these purposes) that: (a) was not obtained or made as a direct or indirect result of a breach of (or in violation of) this Agreement; and (b) is on terms and conditions that the Parent Board or the Company Managers, as applicable, determines in good faith, based on such matters that it deems relevant (including the likelihood of consummation thereof), as well as any written offer by the other Party to this Agreement to amend the terms of this Agreement, and following consultation with its outside legal counsel and outside financial advisors, if any, are more favorable, from a financial point of view, to Parent's stockholders or the Company's members, as applicable, than the terms of the Contemplated Transactions.
"Takeover Statute" means any "fair price," "moratorium," "control share acquisition" or other similar anti-takeover Law.
"Tax" means any federal, state, local, foreign or other tax, including any income, capital gain, gross receipts, capital stock, profits, transfer, estimated, registration, stamp, premium, escheat, unclaimed property, customs duty, ad valorem, occupancy, occupation, alternative, add-on, windfall profits, value added, severance, property, business, production, sales, use, license, excise, franchise, employment, payroll, social security, disability, unemployment, workers' compensation, national health insurance, withholding or other taxes, duties, fees, assessments or governmental charges, surtaxes or deficiencies thereof of any kind whatsoever, however denominated, and including any fine, penalty, addition to tax or interest imposed by a Governmental Body with respect thereto.
"Tax Return" means any return (including any information return), report, statement, declaration, estimate, schedule, notice, notification, form, election, certificate or other document, and any amendment or supplement to any of the foregoing, filed with or submitted to, or required to be filed with or submitted to, any Governmental Body in connection with the determination, assessment, collection or payment of any Tax or in connection with the administration, implementation or enforcement of or compliance with any Law relating to any Tax.
"Timber Allocation Number" means a number of shares of Parent Common Stock such that the Timber Allocation Number (or TAN) divided by the sum of the Timber Allocation Number plus the Parent Fully Diluted Number (or PFDN) would equal the Timber Percentage (or TP), as further shown by the following formula:
"Timber Funding" means an equity financing to be consummated at or immediately prior to the Closing whereby the Company receives gross proceeds of not less than twenty million dollars ($20,000,000). The Timber membership interests to be issued in the Timber Funding are part of the Timber Percentage.
"Timber Percentage" means 88.5%; provided however, that (a) if the Real Estate Lease has not been terminated, subleased or fully discharged prior to Closing, in a manner such that neither Parent not the Surviving Entity will have any liability therefor at or after Closing then the Timber Percentage shall be increased by one and one-half percentage points (1.5%), so that the Timber Percentage would become
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90% absent any adjustments pursuant to clauses (b) and (c) below; (b) if the Parent Net Cash as of the Anticipated Closing Date is higher than the amount projected for such date in the Budget, the Timber Percentage will be decreased by one-tenth of one percentage point (0.1%) for each full interval of $100,000 by which the Parent Net Cash exceeds the applicable amount set forth in the Budget; and (c) if the Parent Net Cash as of the Anticipated Closing Date is lower than as set forth in the Budget for such date, the Timber Percentage will be increased by one-tenth of one percentage point (0.1%) for each full interval of $100,000 by which the Parent Net Cash is less than the applicable amount set forth in the Budget. Further, if the Real Estate Lease is subleased so that not all of the liability therewith is fully discharged, then the Timber Percentage shall be increased by one-tenth of one percentage point (0.1%) for each full interval of $100,000 of remaining liability under the Real Estate Lease, up to a maximum of 1.5%, as contemplated by clause (a) above.
"Treasury Regulations" means the United States Treasury regulations promulgated under the Code.
"Units" means membership interests in the Company.
(b) Each of the following terms is defined in the Section set forth opposite such term:
Term
|
Section | |
---|---|---|
Allocation Certificate | 5.14 | |
Anti-Bribery Laws | 2.22 | |
Benefit Plan | 2.17(a) | |
Capitalization Date | 3.6(a) | |
Certificate of Merger | 1.3 | |
Certifications | 3.7(a) | |
Closing | 1.3 | |
Closing Date | 1.3 | |
Company | Preamble | |
Company Audited Financial Statements | 5.15 | |
Company Disclosure Schedule | Section 2 | |
Company Dispute Notice | 5.17(b) | |
Company Financials | 2.7(a) | |
Company Interim Financial Statements | 5.15 | |
Company Managers Adverse Recommendation Change | 5.2(b) | |
Company Managers Recommendation | 5.2(b) | |
Company Material Contract | 2.13(a) | |
Company Member Written Consent | Recitals | |
Company Notice Period | 5.2(c) | |
Company Permits | 2.14(b) | |
Company Plans | 2.6(c) | |
Company Products | 2.14(d) | |
Company Real Estate Leases | 2.11 | |
Company Regulatory Permits | 2.14(d) | |
Company Stock Certificate | 1.6 | |
Company Termination Fee | 9.3(b) | |
Company Unaudited Balance Sheet | 2.7(a) | |
Continuing Employees | 5.5 | |
Costs | 5.6(a) | |
D&O Indemnified Parties | 5.6(a) | |
Dissenting Shares | 1.8(a) | |
Drug Regulatory Agency | 2.14(a) | |
Effective Time | 1.3 |
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Term
|
Section | |
---|---|---|
End Date | 9.1(b) | |
Exchange Agent | 1.7(a) | |
Exchange Fund | 1.7(a) | |
FDA | 2.14(a) | |
FDCA | 2.14(a) | |
Foreign Plans | 2.17(m) | |
HIPAA | 2.14(g) | |
Intended Tax Treatment | 5.10(a) | |
Investor Agreements | 2.21(b) | |
Liability | 2.9 | |
Member Notice | 5.2(b) | |
Merger | Recitals | |
Merger Consideration | 1.5(a)(i) | |
Merger Sub | Preamble | |
Name Change Proposal | 5.3 | |
NYSE Listing Application | 5.9 | |
Parent | Preamble | |
Parent Benefit Plan | 3.17(a) | |
Parent Board Adverse Recommendation Change | 5.3(b) | |
Parent Board Recommendation | 5.3(b) | |
Parent Designees | 5.14 | |
Parent Disclosure Schedule | 3 | |
Parent Financial Advisor | 3.23 | |
Parent IP Agreements | 3.10 | |
Parent Material Contract | 3.13(b) | |
Parent Net Cash Response Date | 5.17(b) | |
Parent Notice Period | 5.3(c) | |
Parent Permits | 3.14(b) | |
Parent Products | 3.14(d) | |
Parent Real Estate Leases | 3.11 | |
Parent Regulatory Permits | 3.14(d) | |
Parent SEC Documents | 3.7(a) | |
Parent Stock Plan | 3.6(c) | |
Parent Stockholder Matters | 5.3(a) | |
Parent Stockholder Support Agreement | Recitals | |
Parent Stockholders' Meeting | 5.3(a) | |
Parent Termination Fee | 9.3(e) | |
Post-Closing Plans | 5.5 | |
Pre-Closing Period | 4.1(a) | |
Required Company Member Vote | 2.4 | |
Required Parent Stockholder Matters | 3.4 | |
Required Parent Stockholder Vote | 3.4 | |
Reverse Stock Split Proposal | 5.3 | |
Share Issuance Proposal | 5.3 | |
Surviving Entity | 1.1 |
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CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
BIOPHARMX CORPORATION
BioPharmX Corporation, a corporation organized under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify:
FIRST: The name of the corporation is BioPharmX Corporation. The Corporation's original Certificate of Incorporation was filed with the Secretary of State of Delaware on April 24, 2014.
SECOND: This Certificate of Amendment to the Certificate of Incorporation (the "Certificate of Amendment") amends the Corporation's Certificate of Incorporation filed with the Secretary of State of the State of Delaware on April 24, 2014 (the "Prior Certificate"), as previously amended, and has been duly adopted by the Corporation's Board of Directors and stockholders in accordance with the provisions of Section 242 of the DGCL.
RESOLVED, that, effective upon the filing of this Certificate of Amendment (the "Effective Time"), the Certificate of Incorporation as presently in effect be, and the same hereby is, amended to add the following two paragraphs to precede the first paragraph of Article FOURTH of the Certificate of Incorporation of the Corporation:
"Contingent and effective as of the filing of this Certificate of Amendment, each ( ) shares of the Corporation's Common Stock, par value $0.001 per share (the "Common Stock"), issued and outstanding prior to the Effective Time shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one (1) share of Common Stock, par value $0.001 per share, of the Corporation (the "Reverse Split"). No fractional share shall be issued in connection with the foregoing combination of the shares pursuant to the Reverse Split. The Corporation will pay in cash the fair value of such fractional shares, without interest and as determined in good faith by the Board of Directors of the Corporation when those entitled to receive such fractional shares are determined.
The Reverse Split shall occur automatically without any further action by the holders of Common Stock, and whether or not the certificates representing such shares have been surrendered to the Corporation; provided, however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable as a result of the Reverse Split unless the existing certificates evidencing the applicable shares of stock prior to the Reverse Split are either delivered to the Corporation, or the holder notifies the Corporation that such certificates have been lost, stolen or destroyed, and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates."
The Certificate of Amendment to the Prior Certificate so adopted reads in full as set forth above and is hereby incorporated by reference. All other provisions of the Prior Certificate remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer as of this day of , 2020.
By: | |
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Name: | |
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Title: | |
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CERTIFICATE OF AMENDMENT TO
CERTIFICATE OF INCORPORATION OF
BIOPHARMX CORPORATION
BioPharmX Corporation, a corporation organized under the General Corporation Law of the State of Delaware (the "Corporation"), does hereby certify:
FIRST: The name of the corporation is BioPharmX Corporation. The Corporation's original Certificate of Incorporation was filed with the Secretary of State of Delaware on April 24, 2014.
SECOND: This Certificate of Amendment to the Certificate of Incorporation (the "Certificate of Amendment") amends the Corporation's Certificate of Incorporation filed with the Secretary of State of the State of Delaware on April 24, 2014 (the "Prior Certificate"), as previously amended, and has been duly adopted by the Corporation's Board of Directors and stockholders in accordance with the provisions of Section 242 of the DGCL.
RESOLVED, that, effective upon the filing of this Certificate of Amendment (the "Effective Time"), the Certificate of Incorporation as presently in effect be, and the same hereby is, amended to amend Article FIRST in its entirety as follows:
The name of the Corporation is Timber Pharmaceuticals, Inc. (the "Corporation")
The Certificate of Amendment to the Prior Certificate so adopted reads in full as set forth above and is hereby incorporated by reference. All other provisions of the Prior Certificate remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its duly authorized officer as of this day of , 2020.
By: | |
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Name: | |
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Title: | |
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TIMBER PHARMACEUTICALS, INC.
2020 OMNIBUS EQUITY INCENTIVE PLAN
1. Establishment and Purpose
1.1 The purpose of the Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan (the "Plan") is to provide a means whereby eligible employees, officers, non-employee directors and other individual service providers develop a sense of proprietorship and personal involvement in the development and financial success of the Company (as defined herein) and to encourage them to devote their best efforts to the business of the Company, thereby advancing the interests of the Company and its stockholders. The Company, by means of the Plan, seeks to retain the services of such eligible persons and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Subsidiaries.
1.2 The Plan permits the grant of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Incentive Bonus Awards, Other Cash-Based Awards and Other Stock-Based Awards. This Plan shall become effective upon the date set forth in Section 17.1 hereof.
1.3 The Plan shall be effective upon completion of the transactions contemplated by the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020, among BioPharmX Corporation, a Delaware corporation ("BioPharmX"), Timber Pharmaceuticals LLC, ("Timber") and BITI Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of BioPharmX ("Merger Sub") pursuant to which Merger Sub will merge with and into Timber, with Timber surviving the merger as a wholly-owned subsidiary of the combined company (such transactions referred to as the "Merger"), provided that the Plan is approved by stockholders of BioPharmX. Following the Merger, BioPharmX will be renamed "Timber Pharmaceuticals, Inc."
2. Definitions
Wherever the following capitalized terms are used in the Plan, they shall have the meanings specified below:
2.1 "Affiliate" means, with respect to a Person, a Person that directly or indirectly Controls, or is Controlled by, or is under common Control with, such Person.
2.2 "Applicable Law" means the requirements relating to the administration of equity-based awards or equity compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, any stock exchange or quotation system on which the Common Stock is listed or quoted and the applicable laws of any foreign country or jurisdiction that applies to Awards.
2.3 "Award" means an award of a Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performance Share, Performance Unit, Incentive Bonus Award, Other Cash-Based Award and/or Other Stock-Based Award granted under the Plan.
2.4 "Award Agreement" means either (i) a written or electronic agreement entered into between the Company and a Participant setting forth the terms and conditions of an Award including any amendment or modification thereof, or (ii) a written or electronic statement issued by the Company to a Participant describing the terms and provisions of such Award, including any amendment or modification thereof. The Committee may provide for the use of electronic, internet or other non-paper Award Agreements, and the use of electronic, internet or other
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non-paper means for the acceptance thereof and actions thereunder by a Participant. Each Award Agreement shall be subject to the terms and conditions of the Plan and need not be identical.
2.5 "Board" means the Board of Directors of the Company.
2.6 "Cause" means a Participant's (i) conviction of, or the entry of a plea of guilty or no contest to, a felony or any other crime that causes the Company or its Affiliates disgrace or disrepute, or materially and adversely affects the Company's or its Affiliates' operations or financial performance, (ii) gross negligence or willful misconduct with respect to the Company or any of its Affiliates, including, without limitation fraud, embezzlement, theft or proven dishonesty in the course of Awardee's employment or other service; (iii) use of controlled drugs other than in accordance with a physician's prescription; (iv) refusal to perform any lawful, material obligation or fulfill any duty (other than any duty or obligation of the type described in clause (vi) below) to the Company or its Affiliates (other than due to a disability), which refusal, if curable, is not cured within fifteen (15) days after delivery of written notice thereof; (v) material breach of any agreement with or duty owed to the Company or any of its Affiliates, which breach, if curable, is not cured within fifteen (15) days after the delivery of written notice thereof; (vi) any breach of any obligation or duty to the Company or any of its Affiliates (whether arising by statute, common law or agreement) relating to confidentiality, noncompetition, nonsolicitation or proprietary rights; or (vii) any material breach of any policy of the Company or its Affiliates or any action that the Board, in its sole discretion, determines is reasonably likely to cause the Company or its Affiliates disgrace or disrepute. Notwithstanding the foregoing, if a Participant and the Company (or any of its Affiliates) have entered into an employment agreement, consulting agreement or other similar agreement that specifically defines "cause," then with respect to such Participant, "Cause" shall have the meaning defined in that employment agreement, consulting agreement or other agreement.
2.7 "Change in Control" shall be deemed to have occurred if any one of the following events shall occur:
(i) Any Person becomes the beneficial owner (as defined in Rule 13(d)-3 under the Exchange Act) of shares of Common Stock representing more than 50% of the total number of votes that may be cast for the election of directors of the Company; or
(ii) The consummation of any (a) merger or other business combination of the Company, (b) sale of all or substantially all of the Company's assets or (c) combination of the foregoing transactions (a "Transaction"), other than a Transaction involving only the Company and one or more of its subsidiaries, or a Transaction immediately following which the shareholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity or a parent entity; or
(iii) Within any twelve (12)-month period beginning on or after the Effective Date, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease (for any reason other than death) to constitute at least a majority of the Board (or the board of directors of any successor to the Company); provided that any director who was not a director as of the date hereof shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of the foregoing unless such election, recommendation or approval was the result of an actual or threatened election contest of the type contemplated by Rule 14a-11 promulgated under the Exchange Act or any successor provision; or
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(iv) the shareholders of the Company approve a plan of complete liquidation or dissolution of the Company.
Notwithstanding the foregoing, (1) no event or condition shall constitute a Change in Control to the extent that, if it were, a penalty tax would be imposed under Section 409A of the Code; provided that, in such a case, the event or condition shall continue to constitute a Change in Control to the maximum extent possible (e.g., if applicable, in respect of vesting without an acceleration of distribution) without causing the imposition of such penalty tax and (2) no Change in Control shall be deemed to have occurred, and no rights arising upon a Change in Control as provided in the Plan or any Award Agreement shall exist, to the extent that the Board so determines by resolution adopted and not rescinded prior to the Change in Control; provided, however, that no such determination by the Board shall be effective if it would cause a Participant to be subject to a penalty tax under Section 409A of the Code.
2.8 "Code" means the Internal Revenue Code of 1986, as amended. For purposes of this Plan, references to sections of the Code shall be deemed to include references to any applicable regulations thereunder and any successor or similar provision.
2.9 "Committee" means the committee of the Board delegated with the authority to administer the Plan, or the full Board, as provided in Section 3 of the Plan. With respect to any decision relating to a Reporting Person, the Committee shall consist solely of two or more directors who are disinterested within the meaning of Rule 16b-3 promulgated under the Exchange Act, as amended from time to time, or any successor provision. The fact that a Committee member shall fail to qualify under any of these requirements shall not invalidate an Award if the Award is otherwise validly made under the Plan. The Board may at any time appoint additional members to the Committee, remove and replace members of the Committee with or without cause, and fill vacancies on the Committee however caused.
2.10 "Common Stock" means the Company's Common Stock, par value $0.001 per share.
2.11 "Company" means Timber Pharmaceuticals, Inc., a Delaware corporation, and any successor thereto as provided in Section 15.8.
2.12 "Continuous Service" means that the Participant's service with the Company or an Affiliate, whether as an employee, director or consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an employee, director or consultant or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant's service with the Company or an Affiliate, will not terminate a Participant's Continuous Service; provided, however, that if the entity for which a Participant is rendering services ceases to qualify as an Affiliate, as determined by the Committee in its sole discretion, such Participant's Continuous Service will be considered to have terminated on the date such entity ceases to qualify as an Affiliate. For example, a change in status from an employee of the Company to a consultant of an Affiliate or to a director will not constitute an interruption of Continuous Service. To the extent permitted by Applicable Law, the Committee or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service will be considered interrupted in the case of (i) any leave of absence approved by the Company or chief executive officer, including sick leave, military leave or any other personal leave, or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence will be treated as Continuous Service for purposes of vesting in an Award only to such extent as may be provided in the Company's (or an Affiliate's) leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by Applicable Law or permitted by the Committee. Unless the Committee provides otherwise, in its sole discretion, or as otherwise
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required by Applicable Law, vesting of Awards shall be tolled during any unpaid leave of absence by a Participant.
2.13 "Control" means, as to any Person, the power to direct or cause the direction of the management and policies of such Person, or the power to appoint directors of the Company, whether through the ownership of voting securities, by contract or otherwise (the terms "Controlled by" and "under common Control with" shall have correlative meanings).
2.14 "Date of Grant" means the date on which an Award under the Plan is granted by the Committee, or such later date as the Committee may specify to be the effective date of an Award.
2.15 "Disability" means a Participant being considered "disabled" within the meaning of Section 409A of the Code and Treasury Regulation 1.409A-3(i)(4), as well as any successor regulation or interpretation.
2.16 "Effective Date" means the date of the Merger, provided that the Plan is approved by stockholders of BioPharmX.
2.17 "Eligible Person" means any person who is an employee, officer, director, consultant, advisor or other individual service provider of the Company or any Subsidiary, or any person who is determined by the Committee to be a prospective employee, officer, director, consultant, advisor or other individual service provider of the Company or any Subsidiary.
2.18 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.19 "Fair Market Value" of a share of Common Stock shall be, as applied to a specific date (i) the closing price of a share of Common Stock as of such date on the principal established stock exchange or national market system on which the Common Stock is then traded (or, if there is no trading in the Common Stock as of such date, the closing price of a share of Common Stock on the most recent date preceding such date on which trades of the Common Stock were recorded), or (ii) if the shares of Common Stock are not then traded on an established stock exchange or national market system but are then traded in an over-the-counter market, the average of the closing bid and asked prices for the shares of Common Stock in such over-the-counter market as of such date (or, if there are no closing bid and asked prices for the shares of Common Stock as of such date, the average of the closing bid and the asked prices for the shares of Common Stock on the most recent date preceding such date on which such closing bid and asked prices are available on such over-the-counter market), or (iii) if the shares of Common Stock are not then listed on a national securities exchange or national market system or traded in an over-the-counter market, the price of a share of Common Stock as determined by the Committee in its discretion in a manner consistent with Section 409A of the Code and Treasury Regulation 1.409A-1(b)(5)(iv), as well as any successor regulation or interpretation.
2.20 "Incentive Bonus Award" means an Award granted under Section 12 of the Plan.
2.21 "Incentive Stock Option" means a Stock Option granted under Section 6 hereof that is intended to meet the requirements of Section 422 of the Code and the regulations promulgated thereunder.
2.22 "Nonqualified Stock Option" means a Stock Option granted under Section 6 hereof that is not an Incentive Stock Option.
2.23 "Other Cash-Based Award" means a contractual right granted to an Eligible Person under Section 13 hereof entitling such Eligible Person to receive a cash payment at such times, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
2.24 "Other Stock-Based Award" means a contractual right granted to an Eligible Person under Section 13 representing a notional unit interest equal in value to a share of Common Stock to be
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paid and distributed at such times, and subject to such conditions as are set forth in the Plan and the applicable Award Agreement.
2.25 "Outside Director" means a director of the Board who is not an employee of the Company or a Subsidiary.
2.26 "Participant" means any Eligible Person who holds an outstanding Award under the Plan.
2.27 "Person" shall mean, unless otherwise provided, any individual, partnership, firm, trust, corporation, limited liability company or other similar entity. When two or more Persons act as a partnership, limited partnership, syndicate or other group for the purpose of acquiring, holding or disposing of Common Stock, such partnership, limited partnership, syndicate or group shall be deemed a "Person"
2.28 "Performance Goals" shall mean performance goals established by the Committee as contingencies for the grant, exercise, vesting, distribution, payment and/or settlement, as applicable, of Awards.
2.29 "Performance Shares" means a contractual right granted to an Eligible Person under Section 10 hereof representing a notional unit interest equal in value to a share of Common Stock to be paid and distributed at such times, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
2.30 "Performance Unit" means a contractual right granted to an Eligible Person under Section 11 hereof representing a notional dollar interest as determined by the Committee to be paid and distributed at such times, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
2.31 "Plan" means this Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan, as it may be amended from time to time.
2.32 "Reporting Person" means an officer, director or greater than ten percent stockholder of the Company within the meaning of Rule 16a-2 under the Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange Act.
2.33 "Restricted Stock Award" means a grant of shares of Common Stock to an Eligible Person under Section 8 hereof that are issued subject to such vesting and transfer restrictions and such other conditions as are set forth in the Plan and the applicable Award Agreement.
2.34 "Restricted Stock Unit Award" means a contractual right granted to an Eligible Person under Section 9 hereof representing notional unit interests equal in value to a share of Common Stock to be paid and distributed at such times, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
2.35 "Securities Act" means the Securities Act of 1933, as amended.
2.36 "Stock Appreciation Right" or "SAR" means a contractual right granted to an Eligible Person under Section 7 hereof entitling such Eligible Person to receive a payment, upon the exercise of such right, in such amount and at such time, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
2.37 "Stock Option" means a contractual right granted to an Eligible Person under Section 6 hereof to purchase shares of Common Stock at such time and price, and subject to such conditions, as are set forth in the Plan and the applicable Award Agreement.
2.38 "Subsidiary" means an entity (whether or not a corporation) that is wholly or majority owned or controlled, directly or indirectly, by the Company; provided, however, that with respect to
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Incentive Stock Options, the term "Subsidiary" shall include only an entity that qualifies under section 424(f) of the Code as a "subsidiary corporation" with respect to the Company.
3. Administration
3.1 Committee Members. The Plan shall be administered by the Committee; provided that the entire Board may act in lieu of the Committee on any matter, subject to Section 16b-3 Award requirements referred to in Section 2.9 of the Plan. If and to the extent permitted by Applicable Law, the Committee may authorize one or more Reporting Persons (or other officers) to make Awards to Eligible Persons who are not Reporting Persons (or other officers whom the Committee has specifically authorized to make Awards). Subject to Applicable Law and the restrictions set forth in the Plan, the Committee may delegate administrative functions to individuals who are Reporting Persons, officers, or employees of the Company or its Subsidiaries.
3.2 Committee Authority. The Committee shall have such powers and authority as may be necessary or appropriate for the Committee to carry out its functions as described in the Plan. Subject to the express limitations of the Plan, the Committee shall have authority in its discretion to determine the Eligible Persons to whom, and the time or times at which, Awards may be granted, the number of shares, units or other rights subject to each Award, the exercise, base or purchase price of an Award (if any), the time or times at which an Award will become vested, exercisable or payable, the performance criteria, performance goals and other conditions of an Award, the duration of the Award, and all other terms of the Award. Subject to the terms of the Plan, the Committee shall have authority to amend the terms of an Award in any manner that is not inconsistent with the Plan (including without limitation to determine, add, cancel, waive, amend or otherwise alter any restrictions, terms or conditions of any Award, or extend the post-termination exercisability period of any Stock Option and/or Stock Appreciation Right); provided that neither the Board nor the Committee may, without shareholder approval, reduce or reprice the exercise price of any Stock Option and/or Stock Appreciation Right that exceeds the Fair Market Value of a share of Common Stock on the date of such repricing; and provided further that no such action shall adversely affect the rights of a Participant with respect to an outstanding Award without the Participant's consent. The Committee shall also have discretionary authority to interpret the Plan, to make all factual determinations under the Plan, and to make all other determinations necessary or advisable for Plan administration, including, without limitation, to correct any defect, to supply any omission or to reconcile any inconsistency in the Plan or any Award Agreement. The Committee may prescribe, amend, and rescind rules and regulations relating to the Plan. The Committee's determinations under the Plan need not be uniform and may be made by the Committee selectively among Participants and Eligible Persons, whether or not such persons are similarly situated. The Committee shall, in its discretion, consider such factors as it deems relevant in making its interpretations, determinations and actions under the Plan including, without limitation, the recommendations or advice of any officer or employee of the Company or such attorneys, consultants, accountants or other advisors as it may select. All interpretations, determinations, and actions by the Committee shall be final, conclusive, and binding upon all parties.
3.3 No Liability; Indemnification. Neither the Board nor any Committee member, nor any Person acting at the direction of the Board or the Committee, shall be liable for any act, omission, interpretation, construction or determination made in good faith with respect to the Plan or any Award or Award Agreement. The Company and its Subsidiaries shall pay or reimburse any member of the Committee, as well as any other Person who takes action on behalf of the Plan, for all reasonable expenses incurred with respect to the Plan, and to the full extent allowable under Applicable Law shall indemnify each and every one of them for any claims, liabilities, and costs (including reasonable attorney's fees) arising out of their good faith performance of duties on
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behalf of the Company with respect to the Plan. The Company and its Subsidiaries may, but shall not be required to, obtain liability insurance for this purpose.
4. Shares Subject to the Plan
4.1 Plan Share Limitation.
(a) Subject to adjustment pursuant to Section 4.3 and any other applicable provisions hereof, the maximum aggregate number of shares of Common Stock which may be issued under all Awards granted to Participants under the Plan shall be 11,650,000 shares; all of which may, but need not, be issued in respect of Incentive Stock Options.
(b) The number of shares of Common Stock available for issuance under the Plan shall automatically increase on January 1st of each year commencing with the January 1 following the Effective Date and on each January 1 thereafter until the Expiration Date (as defined in Section 17.2 of the Plan), in an amount equal to four percent (4%) of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior to the first day of any calendar year, to provide that there shall be no increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year shall be a lesser number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence. For avoidance of doubt, none of the additional shares of Common Stock available for issuance pursuant to this Section 4.1(b) shall be issued in respect of Incentive Stock Options.
(c) Shares of Common Stock issued under the Plan may be either authorized but unissued shares or shares held in the Company's treasury. To the extent that any Award payable in shares of Common Stock is forfeited, cancelled, returned to the Company for failure to satisfy vesting requirements or upon the occurrence of other forfeiture events, or otherwise terminates without payment being made thereunder, the shares of Common Stock covered thereby will no longer be counted against the foregoing maximum share limitations and may again be made subject to Awards under the Plan pursuant to such limitations. Awards settled in cash shall not count against the foregoing maximum share limitation. Shares of Common Stock that otherwise would have been issued upon the exercise of a Stock Option or SAR or in payment with respect to any other form of Award, but are surrendered in payment or partial payment of the exercise price thereof and/or taxes withheld with respect to the exercise thereof or the making of such payment, will no longer be counted against the foregoing maximum share limitations and may again be made subject to Awards under the Plan pursuant to such limitations.
4.2 Outside Director Limitation. Subject to adjustment as provided in Section 4.3, the accounting value of Awards granted under the Plan to any Outside Director during any calendar year shall not exceed $500,000 (inclusive of any cash awards to an Outside Director for such year that are not made pursuant to the Plan); provided that in the case of a new Outside Director, such amount shall be increased to $750,000 for the initial year of the Outside Director's term.
4.3 Adjustments. If there shall occur any change with respect to the outstanding shares of Common Stock by reason of any recapitalization, reclassification, stock dividend, extraordinary dividend, stock split, reverse stock split, or other distribution with respect to the shares of Common Stock, or any merger, reorganization, consolidation, combination, spin-off or other similar corporate change, or any other change affecting the Common Stock, the Committee shall, in the manner and to the extent that it deems appropriate and equitable to the Participants and consistent with the terms of the Plan, cause an adjustment to be made in (i) the maximum numbers and kind of shares provided in Section 4.1 hereof, (ii) the numbers and kind of shares of Common Stock, units, or other rights subject to then outstanding Awards, (iii) the price for each
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share or unit or other right subject to then outstanding Awards, (iv) the performance measures or goals relating to the vesting of an Award, and (v) any other terms of an Award that are affected by the event to prevent dilution or enlargement of a Participant's rights under an Award. Notwithstanding the foregoing, in the case of Incentive Stock Options, any such adjustments shall, to the extent practicable, be made in a manner consistent with the requirements of Section 424(a) of the Code.
5. Participation and Awards
5.1 Designation of Participants. All Eligible Persons are eligible to be designated by the Committee to receive Awards and become Participants under the Plan. The Committee has the authority, in its discretion, to determine and designate from time to time those Eligible Persons who are to be granted Awards, the types of Awards to be granted and the number of shares of Common Stock or units subject to Awards granted under the Plan. In selecting Eligible Persons to be Participants and in determining the type and amount of Awards to be granted under the Plan, the Committee shall consider any and all factors that it deems relevant or appropriate.
5.2 Determination of Awards. The Committee shall determine the terms and conditions of all Awards granted to Participants in accordance with its authority under Section 3.2 hereof. An Award may consist of one type of right or benefit hereunder or of two or more such rights or benefits granted in tandem or in the alternative. To the extent deemed appropriate by the Committee, an Award shall be evidenced by an Award Agreement as described in Section 15.1 hereof.
6. Stock Options
6.1 Grant of Stock Option. A Stock Option may be granted to any Eligible Person selected by the Committee. Subject to the provisions of Section 6.6 hereof and Section 422 of the Code, each Stock Option shall be designated, in the sole discretion of the Committee, as an Incentive Stock Option or as a Nonqualified Stock Option.
6.2 Exercise Price. The exercise price per share of a Stock Option shall not be less than 100% of the Fair Market Value of a share of Common Stock on the Date of Grant, subject to adjustments as provided for under Section 4.3.
6.3 Vesting of Stock Options. The Committee shall in its sole discretion prescribe the time or times at which, or the conditions upon which, a Stock Option or portion thereof shall become vested and/or exercisable. Unless otherwise provided by the Committee, no Stock Option shall provide for vesting or exercise earlier than one year after the Date of Grant. The requirements for vesting and exercisability of a Stock Option may be based on the Continuous Service of the Participant for a specified time period (or periods) and/or on the attainment of a specified performance goal (or goals) established by the Committee in its discretion. The Committee may, in its sole discretion, accelerate the vesting or exercisability of any Stock Option at any time. The Committee, in its sole discretion, may allow a Participant to exercise unvested Nonqualified Stock Options, in which case the shares of Common Stock then issued shall be Restricted Stock having analogous vesting restrictions to the unvested Nonqualified Stock Options.
6.4 Term of Stock Options. The Committee shall in its discretion prescribe in an Award Agreement the period during which a vested Stock Option may be exercised, provided that the maximum term of a Stock Option shall be ten (10) years from the Date of Grant. A Stock Option may be earlier terminated as specified by the Committee and set forth in an Award Agreement upon or following the termination of a Participant's Continuous Service for any reason, including by reason of voluntary resignation, death, Disability, termination for Cause or any other reason. Except as otherwise provided in this Section 6 or in an Award Agreement as such agreement may
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be amended from time to time upon authorization of the Committee, no Stock Option may be exercised at any time during the term thereof unless the Participant is then in Continuous Service. Notwithstanding the foregoing, unless an Award Agreement provides otherwise:
(a) If a Participant's Continuous Service terminates by reason of his or her death, any Stock Option held by such Participant may, to the extent then exercisable, be exercised by such Participant's estate or any Person who acquires the right to exercise such Stock Option by bequest or inheritance at any time in accordance with its terms for up to one year after the date of such Participant's death (but in no event after the earlier of the expiration of the term of such Stock Option or such time as the Stock Option is otherwise canceled or terminated in accordance with its terms). Upon expiration of such one-year period, no portion of the Stock Option held by such Participant shall be exercisable and the Stock Option shall be deemed to be canceled, forfeited and of no further force or effect.
(b) If a Participant's Continuous Service terminates by reason of his or her Disability, any Stock Option held by such Participant may, to the extent then exercisable, be exercised by the Participant or his or her personal representative at any time in accordance with its terms for up to one year after the date of such Participant's termination of Continuous Service (but in no event after the earlier of the expiration of the term of such Stock Option or such time as the Stock Option is otherwise canceled or terminated in accordance with its terms). Upon expiration of such one-year period, no portion of the Stock Option held by such Participant shall be exercisable and the Stock Option shall be deemed to be canceled, forfeited and of no further force or effect.
(c) If a Participant's Continuous Service terminates for any reason other than death, Disability or Cause, any Stock Option held by such Participant may, to the extent then exercisable, be exercised by the Participant up until ninety (90) days following such termination of Continuous Service (but in no event after the earlier of the expiration of the term of such Stock Option or such time as the Stock Option is otherwise canceled or terminated in accordance with its terms). Upon expiration of such 90-day period, no portion of the Stock Option held by such Participant shall be exercisable and the Stock Option shall be deemed to be canceled, forfeited and of no further force or effect.
(d) To the extent that a Stock Option of a Participant whose Continuous Service terminates is not exercisable, such Stock Option shall be deemed forfeited and canceled on the ninetieth (90th) day after such termination of Continuous Service or at such earlier time as the Committee may determine.
6.5 Stock Option Exercise. Subject to such terms and conditions as shall be specified in an Award Agreement, a Stock Option may be exercised in whole or in part at any time during the term thereof by notice in the form required by the Company, and payment of the aggregate exercise price by certified or bank check, or such other means as the Committee may accept. As set forth in an Award Agreement or otherwise determined by the Committee, in its sole discretion, at or after grant, payment in full or in part of the exercise price of an Option may be made: (i) in the form of shares of Common Stock that have been held by the Participant for such period as the Committee may deem appropriate for accounting purposes or otherwise, valued at the Fair Market Value of such shares on the date of exercise; (ii) by surrendering to the Company shares of Common Stock otherwise receivable on exercise of the Option; (iii) by a cashless exercise program implemented by the Committee in connection with the Plan; (iv) subject to the approval of the Committee, by a full recourse, interest bearing promissory note having such terms as the Committee may, in its sole discretion, permit and/or (v) by such other method as may be approved by the Committee and set forth in an Award Agreement. Subject to any governing rules or regulations, as soon as practicable after receipt of written notification of exercise and full payment
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of the exercise price and satisfaction of any applicable tax withholding pursuant to Section 16.5, the Company shall deliver to the Participant evidence of book entry shares of Common Stock, or upon the Participant's request, Common Stock certificates in an appropriate amount based upon the number of shares of Common Stock purchased under the Option. Unless otherwise determined by the Committee, all payments under all of the methods indicated above shall be paid in United States dollars or shares of Common Stock, as applicable.
6.6 Additional Rules for Incentive Stock Options.
(a) Eligibility. An Incentive Stock Option may only be granted to an Eligible Person who is considered an employee under Treasury Regulation §1.421-1(h) of the Company or any Subsidiary.
(b) Annual Limits. No Incentive Stock Option shall be granted to an Eligible Person as a result of which the aggregate Fair Market Value (determined as of the Date of Grant) of the stock with respect to which Incentive Stock Options are exercisable for the first time in any calendar year under the Plan and any other stock option plans of the Company or any Subsidiary would exceed $100,000, determined in accordance with Section 422(d) of the Code. This limitation shall be applied by taking Incentive Stock Options into account in the order in which granted.
(c) Ten Percent Stockholders. If a Stock Option granted under the Plan is intended to be an Incentive Stock Option, and if the Participant, at the time of grant, owns stock possessing ten percent (10%) or more of the total combined voting power of all classes of Common Stock of the Company or any Subsidiary, then (i) the Stock Option exercise price per share shall in no event be less than 110% of the Fair Market Value of the Common Stock on the date of such grant and (ii) such Stock Option shall not be exercisable after the expiration of five (5) years following the date such Stock Option is granted.
(d) Termination of Employment. An Award of an Incentive Stock Option shall provide that such Stock Option may be exercised not later than three (3) months following termination of employment of the Participant with the Company and all Subsidiaries, or not later than one (1) year following death or a permanent and total disability within the meaning of Section 22(e)(3) of the Code, as and to the extent determined by the Committee to be necessary to comply with the requirements of Section 422 of the Code.
(e) Disqualifying Dispositions. If shares of Common Stock acquired by exercise of an Incentive Stock Option are disposed of within two (2) years following the Date of Grant or one (1) year following the transfer of such shares to the Participant upon exercise, the Participant shall, promptly following such disposition, notify the Company in writing of the date and terms of such disposition and provide such other information regarding the disposition as the Company may reasonably require.
7. Stock Appreciation Rights
7.1 Grant of Stock Appreciation Rights. A Stock Appreciation Right may be granted to any Eligible Person selected by the Committee. Stock Appreciation Rights may be granted on a basis that allows for the exercise of the right by the Participant or that provides for the automatic payment of the right upon a specified date or event.
7.2 Base Price. The base price of a Stock Appreciation Right shall be determined by the Committee in its sole discretion; provided, however, that the base price for any grant of a Stock Appreciation Right shall not be less than 100% of the Fair Market Value of a share of Common Stock on the Date of Grant, subject to adjustments as provided for under Section 4.3.
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7.3 Vesting Stock Appreciation Rights. The Committee shall in its discretion prescribe the time or times at which, or the conditions upon which, a Stock Appreciation Right or portion thereof shall become vested and/or exercisable. Unless otherwise provided by the Committee, no Stock Appreciation Right shall provide for vesting or exercise earlier than one year after the Date of Grant. The requirements for vesting and exercisability of a Stock Appreciation Right may be based on the Continuous Service of a Participant for a specified time period (or periods) or on the attainment of a specified performance goal (or goals) established by the Committee in its discretion. The Committee may, in its sole discretion, accelerate the vesting or exercisability of any Stock Appreciation Right at any time.
7.4 Term of Stock Appreciation Rights. The Committee shall in its discretion prescribe in an Award Agreement the period during which a vested Stock Appreciation Right may be exercised, provided that the maximum term of a Stock Appreciation Right shall be ten (10) years from the Date of Grant. A Stock Appreciation Right may be earlier terminated as specified by the Committee and set forth in an Award Agreement upon or following the termination of a Participant's Continuous Service for any reason, including by reason of voluntary resignation, death, Disability, termination for Cause or any other reason. Except as otherwise provided in this Section 7 or in an Award Agreement, as such agreement may be amended from time to time upon authorization of the Committee, no Stock Appreciation Right may be exercised at any time during the term thereof unless the Participant is then in Continuous Service.
7.5 Payment of Stock Appreciation Rights. Subject to such terms and conditions as shall be specified in an Award Agreement, a vested Stock Appreciation Right may be exercised in whole or in part at any time during the term thereof by notice in the form required by the Company and payment of any exercise price. Upon the exercise of a Stock Appreciation Right and payment of any applicable exercise price, a Participant shall be entitled to receive an amount determined by multiplying: (i) the excess of the Fair Market Value of a share of Common Stock on the date of exercise of the Stock Appreciation Right over the base price of such Stock Appreciation Right, by (ii) the number of shares as to which such Stock Appreciation Right is exercised. Payment of the amount determined under the immediately preceding sentence may be made, as approved by the Committee and set forth in the Award Agreement, in shares of Common Stock valued at their Fair Market Value on the date of exercise, in cash, or in a combination of shares of Common Stock and cash, subject to applicable tax withholding requirements set forth in Section 16.5. If Stock Appreciation Rights are settled in shares of Common Stock, then as soon as practicable following the date of settlement the Company shall deliver to the Participant evidence of book entry shares of Common Stock, or upon the Participant's request, Common Stock certificates in an appropriate amount.
8. Restricted Stock Awards
8.1 Grant of Restricted Stock Awards. A Restricted Stock Award may be granted to any Eligible Person selected by the Committee. The Committee may require the payment by the Participant of a specified purchase price in connection with any Restricted Stock Award. The Committee may provide in an Award Agreement for the payment of dividends and distributions to the Participant such times as paid to stockholders generally or at the times of vesting or other payment of the Restricted Stock Award. If any dividends or distributions are paid in stock while a Restricted Stock Award is subject to restrictions under Section 8.3 of the Plan, the dividends or other distributions shares shall be subject to the same restrictions on transferability as the shares of Common Stock to which they were paid unless otherwise set forth in the Award Agreement. The Committee may also subject the grant of any Restricted Stock Award to the execution of a voting agreement with the Company or with any Affiliate of the Company.
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8.2 Vesting Requirements. The restrictions imposed on shares of Common Stock granted under a Restricted Stock Award shall lapse in accordance with the vesting requirements specified by the Committee in the Award Agreement. Upon vesting of a Restricted Stock Award, such Award shall be subject to the tax withholding requirement set forth in Section 16.5. The requirements for vesting of a Restricted Stock Award may be based on the Continuous Service of the Participant for a specified time period (or periods) or on the attainment of a specified performance goal (or goals) established by the Committee in its discretion. The Committee may, in its sole discretion, accelerate the vesting of a Restricted Stock Award at any time. If the vesting requirements of a Restricted Stock Award shall not be satisfied, the Award shall be forfeited and the shares of Common Stock subject to the Award shall be returned to the Company. In the event that the Participant paid any purchase price with respect to such forfeited shares, unless otherwise provided by the Committee in an Award Agreement, the Company will refund to the Participant the lesser of (i) such purchase price and (ii) the Fair Market Value of such shares on the date of forfeiture.
8.3 Restrictions. Shares granted under any Restricted Stock Award may not be transferred, assigned or subject to any encumbrance, pledge, or charge until all applicable restrictions are removed or have expired, unless otherwise allowed by the Committee. The Committee may require in an Award Agreement that certificates representing the shares granted under a Restricted Stock Award bear a legend making appropriate reference to the restrictions imposed, and that certificates representing the shares granted or sold under a Restricted Stock Award will remain in the physical custody of an escrow holder until all restrictions are removed or have expired.
8.4 Rights as Stockholder. Subject to the foregoing provisions of this Section 8 and the applicable Award Agreement, the Participant to whom a Restricted Stock Award is made shall have all rights of a stockholder with respect to the shares granted to the Participant under the Restricted Stock Award, including the right to vote the shares and receive all dividends and other distributions paid or made with respect thereto, unless the Committee determines otherwise at the time the Restricted Stock Award is granted.
8.5 Section 83(b) Election. If a Participant makes an election pursuant to Section 83(b) of the Code with respect to a Restricted Stock Award, the Participant shall file, within thirty (30) days following the Date of Grant, a copy of such election with the Company (directed to the Secretary thereof) and with the Internal Revenue Service, in accordance with the regulations under Section 83 of the Code. The Committee may provide in an Award Agreement that the Restricted Stock Award is conditioned upon the Participant's making or refraining from making an election with respect to the Award under Section 83(b) of the Code.
9. Restricted Stock Unit Awards
9.1 Grant of Restricted Stock Unit Awards. A Restricted Stock Unit Award may be granted to any Eligible Person selected by the Committee. The value of each stock unit under a Restricted Stock Unit Award is equal to the Fair Market Value of the Common Stock on the applicable date or time period of determination, as specified by the Committee. A Restricted Stock Unit Award shall be subject to such restrictions and conditions as the Committee shall determine. A Restricted Stock Unit Award may be granted together with a dividend equivalent right with respect to the shares of Common Stock subject to the Award, which may be accumulated and may be deemed reinvested in additional stock units, as determined by the Committee in its sole discretion. If any dividend equivalents are paid while a Restricted Stock Unit Award is subject to restrictions under Section 9 of the Plan, the Committee may, in its sole discretion, provide in the Award Agreement for such dividend equivalents to immediately be paid to the Participant holding such Restricted Stock Unit Award or pay such dividend equivalents subject to the same restrictions on transferability as the Restricted Stock Units to which they relate.
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9.2 Vesting of Restricted Stock Unit Awards. On the Date of Grant, the Committee shall, in its discretion, determine any vesting requirements with respect to a Restricted Stock Unit Award, which shall be set forth in the Award Agreement. The requirements for vesting of a Restricted Stock Unit Award may be based on the Continuous Service of the Participant for a specified time period (or periods) or on the attainment of a specified performance goal (or goals) established by the Committee in its discretion. The Committee may, in its sole discretion, accelerate the vesting of a Restricted Stock Unit Award at any time. A Restricted Stock Unit Award may also be granted on a fully vested basis, with a deferred payment date as may be determined by the Committee or elected by the Participant in accordance with rules established by the Committee.
9.3 Payment of Restricted Stock Unit Awards. A Restricted Stock Unit Award shall become payable to a Participant at the time or times determined by the Committee and set forth in the Award Agreement, which may be upon or following the vesting of the Award. Payment of a Restricted Stock Unit Award may be made, at the discretion of the Committee, in cash or in shares of Common Stock, or in a combination thereof as described in the Award Agreement, subject to applicable tax withholding requirements set forth in Section 16.5. Any cash payment of a Restricted Stock Unit Award shall be made based upon the Fair Market Value of the Common Stock, determined on such date or over such time period as determined by the Committee. Notwithstanding the foregoing, unless specified otherwise in the Award Agreement, any Restricted Stock Unit, whether settled in Common Stock or cash, shall be paid no later than two and one-half months after the later of the calendar year or fiscal year in which the Restricted Stock Units vest. If Restricted Stock Unit Awards are settled in shares of Common Stock, then as soon as practicable following the date of settlement, the Company shall deliver to the Participant evidence of book entry shares of Common Stock, or upon the Participant's request, Common Stock certificates in an appropriate amount.
10. Performance Shares
10.1 Grant of Performance Shares. Performance Shares may be granted to any Eligible Person selected by the Committee. A Performance Share Award shall be subject to such restrictions and condition as the Committee shall specify. A Performance Share Award may be granted with a dividend equivalent right with respect to the shares of Common Stock subject to the Award, which may be accumulated and may be deemed reinvested in additional stock units, as determined by the Committee in its sole discretion.
10.2 Value of Performance Shares. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the Date of Grant. The Committee shall set performance goals in its discretion that, depending on the extent to which they are met over a specified time period, shall determine the number of Performance Shares that shall be paid to a Participant.
10.3 Earning of Performance Shares. After the applicable time period has ended, the number of Performance Shares earned by the Participant over such time period shall be determined as a function of the extent to which the applicable corresponding performance goals have been achieved. This determination shall be made solely by the Committee. The Committee may, in its sole discretion, waive any performance or vesting conditions relating to a Performance Share Award.
10.4 Form and Timing of Payment of Performance Shares. The Committee shall pay at the close of the applicable Performance Period, or as soon as practicable thereafter, any earned Performance Shares in the form of cash or in shares of Common Stock or in a combination thereof, as specified in a Participant's Award Agreement, subject to applicable tax withholding requirements set forth in Section 16.5. Notwithstanding the foregoing, unless specified otherwise in the Award Agreement, all Performance Shares shall be paid no later than two and one-half months following the later of
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the calendar year or fiscal year in which such Performance Shares vest. Any shares of Common Stock paid to a Participant under this Section 10.4 may be subject to any restrictions deemed appropriate by the Committee. If Performance Shares are settled in shares of Common Stock, then as soon as practicable following the date of settlement the Company shall deliver to the Participant evidence of book entry shares of Common Stock, or upon the Participant's request, Common Stock certificates in an appropriate amount.
11. Performance Units
11.1 Grant of Performance Units. Performance Units may be granted to any Eligible Person selected by the Committee. A Performance Unit Award shall be subject to such restrictions and condition as the Committee shall specify in a Participant's Award Agreement.
11.2 Value of Performance Units. Each Performance Unit shall have an initial notional value equal to a dollar amount determined by the Committee, in its sole discretion. The Committee shall set performance goals in its discretion that, depending on the extent to which they are met over a specified time period, will determine the number of Performance Units that shall be settled and paid to the Participant.
11.3 Earning of Performance Units. After the applicable time period has ended, the number of Performance Units earned by the Participant, and the amount payable in cash, in shares or in a combination thereof, over such time period shall be determined as a function of the extent to which the applicable corresponding performance goals have been achieved. This determination shall be made solely by the Committee. The Committee may, in its sole discretion, waive any performance or vesting conditions relating to a Performance Unit Award.
11.4 Form and Timing of Payment of Performance Units. The Committee shall pay at the close of the applicable Performance Period, or as soon as practicable thereafter, any earned Performance Units in the form of cash or in shares of Common Stock or in a combination thereof, as specified in a Participant's Award Agreement, subject to applicable tax withholding requirements set forth in Section 16.5. Notwithstanding the foregoing, unless specified otherwise in the Award Agreement, all Performance Units shall be paid no later than two and one-half months following the later of the calendar year or fiscal year in which such Performance Units vest. Any shares of Common Stock paid to a Participant under this Section 11.4 may be subject to any restrictions deemed appropriate by the Committee. If Performance Units are settled in shares of Common Stock, then as soon as practicable following the date of settlement the Company shall deliver to the Participant evidence of book entry shares of Common Stock, or upon the Participant's request, Common Stock certificates in an appropriate amount.
12. Incentive Bonus Awards
12.1 Incentive Bonus Awards. The Committee, at its discretion, may grant Incentive Bonus Awards to such Participants as it may designate from time to time. The terms of a Participant's Incentive Bonus Award shall be set forth in the Participant's Award Agreement. Each Award Agreement shall specify such general terms and conditions as the Committee shall determine.
12.2 Incentive Bonus Award Performance Criteria. The determination of Incentive Bonus Awards for a given year or years may be based upon the attainment of specified levels of Company or Subsidiary performance as measured by pre-established, objective performance criteria determined at the discretion of the Committee. The Committee shall (i) select those Participants who shall be eligible to receive an Incentive Bonus Award, (ii) determine the performance period, (iii) determine target levels of performance, and (iv) determine the level of Incentive Bonus Award to be paid to each selected Participant upon the achievement of each performance level. The Committee generally shall make the foregoing determinations prior to the commencement of
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services to which an Incentive Bonus Award relates, to the extent applicable, and while the outcome of the performance goals and targets is uncertain.
12.3 Payment of Incentive Bonus Awards.
(a) Incentive Bonus Awards shall be paid in cash or Common Stock, as set forth in a Participant's Award Agreement. Payments shall be made following a determination by the Committee that the performance targets were attained and shall be made within two and one-half months after the later of the end of the fiscal or calendar year in which the Incentive Award is no longer subject to a substantial risk of forfeiture.
(b) The amount of an Incentive Bonus Award to be paid upon the attainment of each targeted level of performance shall equal a percentage of a Participant's base salary for the fiscal year, a fixed dollar amount, or such other formula, as determined by the Committee.
13. Other Cash-Based Awards and Other Stock-Based Awards
13.1 Other Cash-Based and Stock-Based Awards. The Committee may grant other types of equity-based or equity-related Awards not otherwise described by the terms of this Plan (including the grant or offer for sale of unrestricted Shares) in such amounts and subject to such terms and conditions, as the Committee shall determine. Such Awards may involve the transfer of actual shares of Common Stock to a Participant, or payment in cash or otherwise of amounts based on the value of shares of Common Stock. In addition, the Committee, at any time and from time to time, may grant Other Cash-Based Awards to a Participant in such amounts and upon such terms as the Committee shall determine, in its sole discretion.
13.2 Value of Cash-Based Awards and Other Stock-Based Awards. Each Other Stock-Based Award shall be expressed in terms of shares of Common Stock or units based on shares of Common Stock, as determined by the Committee, in its sole discretion. Each Other Cash-Based Award shall specify a payment amount or payment range as determined by the Committee, in its sole discretion. If the Committee exercises its discretion to establish performance goals, the value of Other Cash-Based Awards that shall be paid to the Participant will depend on the extent to which such performance goals are met.
13.3 Payment of Cash-Based Awards and Other Stock-Based Awards. Payment, if any, with respect to Other Cash-Based Awards and Other Stock-Based Award shall be made in accordance with the terms of the Award, in cash or shares of Common Stock as the Committee determines.
14. Change in Control
14.1 Effect of a Change in Control.
(a) The Committee may, at the time of the grant of an Award and as set forth in an Award Agreement, provide for the effect of a "Change in Control" on an Award. Such provisions may include any one or more of the following: (i) the acceleration or extension of time periods for purposes of exercising, vesting in, or realizing gain from any Award, (ii) the elimination or modification of performance or other conditions related to the payment or other rights under an Award, (iii) provision for the cash settlement of an Award for an equivalent cash value, as determined by the Committee, or (iv) such other modification or adjustment to an Award as the Committee deems appropriate to maintain and protect the rights and interests of Participants upon or following a Change in Control. To the extent necessary for compliance with Section 409A of the Code, an Award Agreement shall provide that an Award subject to the requirements of Section 409A that would otherwise become payable upon a Change in Control shall only become payable to the extent that the requirements for a "change in control" for purposes of Section 409A have been satisfied.
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(b) Notwithstanding anything to the contrary set forth in the Plan, unless otherwise provided by an Award Agreement, upon or in anticipation of any Change in Control, the Committee may, in its sole and absolute discretion and without the need for the consent of any Participant, take one or more of the following actions contingent upon the occurrence of that Change in Control: (i) cause any or all outstanding Stock Options and Stock Appreciation Rights held by Participants affected by the Change in Control to become vested and immediately exercisable, in whole or in part; (ii) cause any or all outstanding Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units, Incentive Bonus Award and any other Award held by Participants affected by the Change in Control to become non-forfeitable, in whole or in part; (iii) cancel any Stock Option or Stock Appreciation Right in exchange for a substitute option in a manner consistent with the requirements of Treasury Regulation. §1.424-1(a) or §1.409A-1(b)(5)(v)(D), as applicable (notwithstanding the fact that the original Stock Option may never have been intended to satisfy the requirements for treatment as an Incentive Stock Option); (iv) cancel any Restricted Stock, Restricted Stock Units, Performance Shares or Performance Units held by a Participant in exchange for restricted stock or performance shares of or stock or performance units in respect of the capital stock of any successor corporation; (v) redeem any Restricted Stock held by a Participant affected by the Change in Control for cash and/or other substitute consideration with a value equal to the Fair Market Value of an unrestricted share of Common Stock on the date of the Change in Control; (vi) terminate any Award in exchange for an amount of cash and/or property equal to the amount, if any, that would have been attained upon the exercise of such Award or realization of the Participant's rights as of the date of the occurrence of the Change in Control (the "Change in Control Consideration"); provided, however that if the Change in Control Consideration with respect to any Option or Stock Appreciation Right does not exceed the exercise price of such Option or Stock Appreciation Right, the Committee may cancel the Option or Stock Appreciation Right without payment of any consideration therefor; and/or (vii) take any other action necessary or appropriate to carry out the terms of any definitive agreement controlling the terms and conditions of the Change in Control. Any such Change in Control Consideration may be subject to any escrow, indemnification and similar obligations, contingencies and encumbrances applicable in connection with the Change in Control to holders of Common Stock. Without limitation of the foregoing, if as of the date of the occurrence of the Change in Control the Committee determines that no amount would have been attained upon the realization of the Participant's rights, then such Award may be terminated by the Company without payment. The Committee may cause the Change in Control Consideration to be subject to vesting conditions (whether or not the same as the vesting conditions applicable to the Award prior to the Change in Control) and/or make such other modifications, adjustments or amendments to outstanding Awards or this Plan as the Committee deems necessary or appropriate.
(c) The Committee may require a Participant to (i) represent and warrant as to the unencumbered title to the Participant's Awards, (ii) bear such Participant's pro rata share of any post-closing indemnity obligations, and be subject to the same or similar post-closing purchase price adjustments, escrow terms, offset rights, holdback terms and similar conditions as the other holders of Common Stock, and (iii) execute and deliver such documents and instruments as the Committee may reasonably require for the Participant to be bound by such obligations. The Committee will endeavor to take action under this Section 14 in a manner that does not cause a violation of Section 409A of the Code with respect to an Award.
15. General Provisions
15.1 Award Agreement. To the extent deemed necessary by the Committee, an Award under the Plan shall be evidenced by an Award Agreement in a written or electronic form approved by the
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Committee setting forth the number of shares of Common Stock or units subject to the Award, the exercise price, base price, or purchase price of the Award, the time or times at which an Award will become vested, exercisable or payable and the term of the Award. The Award Agreement may also set forth the effect on an Award of termination of Continuous Service under certain circumstances. The Award Agreement shall be subject to and incorporate, by reference or otherwise, all of the applicable terms and conditions of the Plan, and may also set forth other terms and conditions applicable to the Award as determined by the Committee consistent with the limitations of the Plan. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code. The grant of an Award under the Plan shall not confer any rights upon the Participant holding such Award other than such terms, and subject to such conditions, as are specified in the Plan as being applicable to such type of Award (or to all Awards) or as are expressly set forth in the Award Agreement.
15.2 Forfeiture Events/Representations. The Committee may specify in an Award Agreement at the time of the Award that the Participant's rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment upon the occurrence of certain specified events, in addition to any otherwise applicable vesting or performance conditions of an Award. Such events shall include, but shall not be limited to, termination of Continuous Service for Cause, violation of material Company policies, breach of noncompetition, confidentiality or other restrictive covenants that may apply to the Participant, or other conduct by the Participant that is detrimental to the business or reputation of the Company. The Committee may also specify in an Award Agreement that the Participant's rights, payments and benefits with respect to an Award shall be conditioned upon the Participant making a representation regarding compliance with noncompetition, confidentiality or other restrictive covenants that may apply to the Participant and providing that the Participant's rights, payments and benefits with respect to an Award shall be subject to reduction, cancellation, forfeiture or recoupment on account of a breach of such representation. Notwithstanding the foregoing, the confidentiality restrictions set forth in an Award Agreement shall not, and shall not be interpreted to, impair a Participant from exercising any legally protected whistleblower rights (including under Rule 21 of the Exchange Act). In addition and without limitation of the foregoing, any amounts paid hereunder shall be subject to recoupment in accordance with The DoddFrank Wall Street Reform and Consumer Protection Act and any implementing regulations thereunder, any "clawback" policy adopted by the Company or as is otherwise required by applicable law or stock exchange listing condition.
15.3 No Assignment or Transfer; Beneficiaries.
(a) Awards under the Plan shall not be assignable or transferable by the Participant, except by will or by the laws of descent and distribution, and shall not be subject in any manner to assignment, alienation, pledge, encumbrance or charge. Notwithstanding the foregoing, the Committee may provide in an Award Agreement that the Participant shall have the right to designate a beneficiary or beneficiaries who shall be entitled to any rights, payments or other benefits specified under an Award following the Participant's death. During the lifetime of a Participant, an Award shall be exercised only by such Participant or such Participant's guardian or legal representative. In the event of a Participant's death, an Award may, to the extent permitted by the Award Agreement, be exercised by the Participant's beneficiary as designated by the Participant in the manner prescribed by the Committee or, in the absence of an authorized beneficiary designation, by the legatee of such Award under the Participant's will or by the Participant's estate in accordance with the Participant's will or the laws of descent and distribution, in each case in the same manner and to the same extent that such Award was exercisable by the Participant on the date of the Participant's death.
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(b) Limited Transferability Rights. Notwithstanding anything else in this Section 15.3 to the contrary, the Committee may in its discretion provide in an Award Agreement that an Award in the form of a Nonqualified Stock Option, share-settled Stock Appreciation Right, Restricted Stock, Performance Share or share-settled Other Stock-Based Award may be transferred, on such terms and conditions as the Committee deems appropriate, either (i) by instrument to the Participant's "Immediate Family" (as defined below), (ii) by instrument to an inter vivos or testamentary trust (or other entity) in which the Award is to be passed to the Participant's designated beneficiaries, or (iii) by gift to charitable institutions. Any transferee of the Participant's rights shall succeed and be subject to all of the terms of the applicable Award Agreement and the Plan. "Immediate Family" means any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive relationships.
15.4 Rights as Stockholder. A Participant shall have no rights as a holder of shares of Common Stock with respect to any unissued shares of Common Stock covered by an Award until the date the Participant becomes the holder of record of such securities. Except as provided in Section 4.3 hereof, no adjustment or other provision shall be made for dividends or other stockholder rights, except to the extent that the Award Agreement provides for dividend payments or dividend equivalent rights.
15.5 Employment or Continuous Service. Nothing in the Plan, in the grant of any Award or in any Award Agreement shall confer upon any Eligible Person or Participant any right to continue in Continuous Service, or interfere in any way with the right of the Company or any of its Subsidiaries to terminate the employment or other service relationship of an Eligible Person or Participant for any reason at any time.
15.6 Fractional Shares. In the case of any fractional share or unit resulting from the grant, vesting, payment or crediting of dividends or dividend equivalents under an Award, the Committee shall have the discretionary authority to (i) disregard such fractional share or unit, (ii) round such fractional share or unit to the nearest lower or higher whole share or unit, or (iii) convert such fractional share or unit into a right to receive a cash payment.
15.7 Other Compensation and Benefit Plans. The amount of any compensation deemed to be received by a Participant pursuant to an Award shall not constitute includable compensation for purposes of determining the amount of benefits to which a Participant is entitled under any other compensation or benefit plan or program of the Company or any Subsidiary, including, without limitation, under any bonus, pension, profit-sharing, life insurance, salary continuation or severance benefits plan, except to the extent specifically provided by the terms of any such plan.
15.8 Plan Binding on Transferees. The Plan shall be binding upon the Company, its transferees and assigns, and the Participant, the Participant's executor, administrator and permitted transferees and beneficiaries. In addition, all obligations of the Company under this Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
15.9 Foreign Jurisdictions. The Committee may adopt, amend and terminate such arrangements and grant such Awards, not inconsistent with the intent of the Plan, as it may deem necessary or desirable to comply with any tax, securities, regulatory or other laws of other jurisdictions with respect to Awards that may be subject to such laws. The terms and conditions of such Awards may vary from the terms and conditions that would otherwise be required by the Plan solely to the extent the Committee deems necessary for such purpose. Moreover, the Board may approve such supplements to or amendments, restatements or alternative versions of the Plan, not inconsistent
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with the intent of the Plan, as it may consider necessary or appropriate for such purposes, without thereby affecting the terms of the Plan as in effect for any other purpose.
15.10 No Obligation to Notify or Minimize Taxes. The Company will have no duty or obligation to any Participant to advise such holder as to the time or manner of exercising an Award. Furthermore, the Company will have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of an Award or a possible period in which the Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of an Award to the holder of such Award.
15.11 Corporate Action Constituting Grant of Awards. Corporate action constituting a grant by the Company of an Award to any Participant will be deemed completed as of the date of such corporate action, unless otherwise determined by the Committee or the Board, regardless of when the instrument, certificate, or letter evidencing the Award is communicated to, or actually received or accepted by, the Participant. In the event that the corporate records (e.g., Board or Committee consents, resolutions or minutes) documenting the corporate action constituting the grant contain terms (e.g., exercise price, vesting schedule or number of shares) that are inconsistent with those in the Award Agreement as a result of a clerical error in the papering of the Award Agreement, the corporate records will control and the Participant will have no legally binding right to the incorrect term in the Award Agreement.
15.12 Change in Time Commitment. In the event a Participant's regular level of time commitment in the performance of the Participant's services for the Company and any Affiliates is reduced (for example, and without limitation, if the Participant is an employee of the Company and the employee has a change in status from a full-time employee to a part-time employee) after the date of grant of any Award to the Participant, the Committee has the right in its sole discretion to (i) make a corresponding reduction in the number of shares subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment and (ii) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
15.13 Substitute Awards in Corporate Transactions. Nothing contained in the Plan shall be construed to limit the right of the Committee to grant Awards under the Plan in connection with the acquisition, whether by purchase, merger, consolidation or other corporate transaction, of the business or assets of any corporation or other entity. Without limiting the foregoing, the Committee may grant Awards under the Plan to an employee or director of another corporation who becomes an Eligible Person by reason of any such corporate transaction in substitution for awards previously granted by such corporation or entity to such person. The terms and conditions of the substitute Awards may vary from the terms and conditions that would otherwise be required by the Plan solely to the extent the Committee deems necessary for such purpose. Any shares of Common Stock subject to these substitute Awards shall not be counted against any of the maximum share limitations set forth in the Plan.
16. Legal Compliance
16.1 Securities Laws. No shares of Common Stock will be issued or transferred pursuant to an Award unless and until all then applicable requirements imposed by Federal and state securities and other laws, rules and regulations and by any regulatory agencies having jurisdiction, and by any exchanges upon which the shares of Common Stock may be listed, have been fully met. As a condition precedent to the issuance of shares pursuant to the grant or exercise of an Award, the Company may require the Participant to take any reasonable action to meet such requirements. The Committee may impose such conditions on any shares of Common Stock issuable under the
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Plan as it may deem advisable, including, without limitation, restrictions under the Securities Act, as amended, under the requirements of any exchange upon which such shares of the same class are then listed, and under any blue sky or other securities laws applicable to such shares. The Committee may also require the Participant to represent and warrant at the time of issuance or transfer that the shares of Common Stock are being acquired only for investment purposes and without any current intention to sell or distribute such shares. All Common Stock issued pursuant to the terms of this Plan shall constitute "restricted securities," as that term is defined in Rule 144 promulgated pursuant to the Securities Act, and may not be transferred except in compliance herewith and with the registration requirements of the Securities Act or an exemption therefrom. Certificates representing Common Stock acquired pursuant to an Award may bear such legend as the Company may consider appropriate under the circumstances.
16.2 Incentive Arrangement. The Plan is designed to provide an on-going, pecuniary incentive for Participants to produce their best efforts to increase the value of the Company. The Plan is not intended to provide retirement income or to defer the receipt of payments hereunder to the termination of a Participant's employment or beyond. The Plan is thus intended not to be a pension or welfare benefit plan that is subject to Employee Retirement Income Security Act of 1974 ("ERISA"), and shall be construed accordingly. All interpretations and determinations hereunder shall be made on a basis consistent with the Plan's status as not an employee benefit plan subject to ERISA.
16.3 Unfunded Plan. The adoption of the Plan and any reservation of shares of Common Stock or cash amounts by the Company to discharge its obligations hereunder shall not be deemed to create a trust or other funded arrangement. Except upon the issuance of Common Stock pursuant to an Award, any rights of a Participant under the Plan shall be those of a general unsecured creditor of the Company, and neither a Participant nor the Participant's permitted transferees or estate shall have any other interest in any assets of the Company by virtue of the Plan. Notwithstanding the foregoing, the Company shall have the right to implement or set aside funds in a grantor trust, subject to the claims of the Company's creditors or otherwise, to discharge its obligations under the Plan.
16.4 Section 409A Compliance. To the extent applicable, it is intended that the Plan and all Awards hereunder comply with the requirements of Section 409A of the Code or an exemption thereto, and the Plan and all Award Agreements shall be interpreted and applied by the Committee in a manner consistent with this intent in order to avoid the imposition of any additional tax under Section 409A of the Code. Notwithstanding anything in the Plan or an Award Agreement to the contrary, in the event that any provision of the Plan or an Award Agreement is determined by the Committee, in its sole discretion, to not comply with the requirements of Section 409A of the Code or an exemption thereto, the Committee shall, in its sole discretion, have the authority to take such actions and to make such interpretations or changes to the Plan or an Award Agreement as the Committee deems necessary, regardless of whether such actions, interpretations, or changes shall adversely affect a Participant, subject to the limitations, if any, of applicable law. If an Award is subject to Section 409A of the Code, any payment made to a Participant who is a "specified employee" of the Company or any Subsidiary shall not be made before the date that is six months after the Participant's "separation from service" to the extent required to avoid the adverse consequences of Section 409A of the Code. For purposes of this Section 16.4, the terms "separation from service" and "specified employee" shall have the meanings set forth in Section 409A of the Code. In no event whatsoever shall the Company be liable for any additional tax, interest or penalties that may be imposed on any Participant by Section 409A of the Code or any damages for failing to comply with Section 409A of the Code.
16.5 Tax Withholding.
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(a) The Company shall have the power and the right to deduct or withhold, or require a participant to remit to the Company, the minimum statutory amount to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of this Plan, but in no event shall such deduction or withholding or remittance exceed the minimum statutory withholding requirements unless permitted by the Company and such additional withholding amount will not cause adverse accounting consequences and is permitted under Applicable Law.
(b) Subject to such terms and conditions as shall be specified in an Award Agreement, a Participant may, in order to fulfill the withholding obligation, (i) tender previously-acquired shares of Common Stock or have shares of stock withheld from the exercise, provided that the shares have an aggregate Fair Market Value sufficient to satisfy in whole or in part the applicable withholding taxes; and/or (ii) utilize the broker-assisted exercise procedure described in Section 6.5 to satisfy the withholding requirements related to the exercise of a Stock Option.
(c) Notwithstanding the foregoing, a Participant may not use shares of Common Stock to satisfy the withholding requirements to the extent that (i) there is a substantial likelihood that the use of such form of payment or the timing of such form of payment would subject the Participant to a substantial risk of liability under Section 16 of the Exchange Act; (ii) such withholding would constitute a violation of the provisions of any law or regulation, or (iii) such withholding would cause adverse accounting consequences for the Company.
16.6 No Guarantee of Tax Consequences. Neither the Company, the Board, the Committee nor any other Person make any commitment or guarantee that any federal, state, local or foreign tax treatment will apply or be available to any Participant or any other Person hereunder.
16.7 Severability. If any provision of the Plan or any Award Agreement shall be determined to be illegal or unenforceable by any court of law in any jurisdiction, the remaining provisions hereof and thereof shall be severable and enforceable in accordance with their terms, and all provisions shall remain enforceable in any other jurisdiction.
16.8 Stock Certificates; Book Entry Form. Notwithstanding any provision of the Plan to the contrary, unless otherwise determined by the Committee or required by any applicable law, rule or regulation, any obligation set forth in the Plan pertaining to the delivery or issuance of stock certificates evidencing shares of Common Stock may be satisfied by having issuance and/or ownership of such shares recorded on the books and records of the Company (or, as applicable, its transfer agent or stock plan administrator).
16.9 Governing Law. The Plan and all rights hereunder shall be subject to and interpreted in accordance with the laws of the State of Delaware, without reference to the principles of conflicts of laws, and to applicable Federal securities laws.
17. Effective Date, Amendment and Termination
17.1 Effective Date. The effective date of the Plan shall be the date of the Merger, provided that the Plan is approved by stockholders of BioPharmX on or before such date.
17.2 Amendment; Termination. The Board may suspend or terminate the Plan (or any portion thereof) at any time and may amend the Plan at any time and from time to time in such respects as the Board may deem advisable or in the best interests of the Company or any Subsidiary; provided, however, that (a) no such amendment, suspension or termination shall materially and adversely affect the rights of any Participant under any outstanding Awards, without the consent of such Participant, (b) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the Company shall obtain stockholder approval of any Plan
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amendment in such a manner and to such a degree as required, and (c) stockholder approval is required for any amendment to the Plan that (i) increases the number of shares of Common Stock available for issuance under the Plan, or (ii) changes the persons or class of persons eligible to receive Awards. The Plan will continue in effect until terminated in accordance with this Section 17.2; provided, however, that no Award will be granted hereunder on or after the 10th anniversary of the date of the Plan's initial adoption by the Board (the "Expiration Date"); but provided further, that Awards granted prior to such Expiration Date may extend beyond that date.
INITIAL BOARD APPROVAL: March 22, 2020
INITIAL STOCKHOLDER APPROVAL: [ ]
EFFECTIVE DATE (DATE OF MERGER): [ ]
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LETTERHEAD OF CASSEL SALPETER & CO., LLC
January 22, 2020
BioPharmX
Corporation
115 Nicholson Lane
San Jose, California 95134
Attention: The Board of Directors
Members of the Board of Directors:
We understand that BioPharmX Corporation ("Parent") intends to enter into an Agreement and Plan of Merger and Reorganization (the "Agreement") by and among Parent, BITI Merger Sub, Inc., a wholly owned subsidiary of Parent ("Merger Sub"), and Timber Pharmaceuticals, LLC (the "Company"). We have been advised that pursuant to the Agreement, among other things, (i) Merger Sub will merge (the "Merger") with and into the Company, (ii) the Company will survive the Merger as a wholly owned subsidiary of Parent, (iii) the preferred membership interests of the Company (the "Company Preferred Equity") will be converted into the right to receive a number of shares of a class of newly issued preferred stock of Parent ("Parent Preferred Stock") which shall not be convertible into shares of Common Stock, par value $0.001 per share ("Parent Common Stock"), of Parent, and (iv) the common membership interests of the Company ("Company Common Equity") will be converted into the right to receive a number (the "Timber Allocation Number") of shares of Parent Common Stock and/or options or warrants to purchase Parent Common Stock (the "Merger Consideration") in an amount provided by the Agreement.
You have requested that Cassel Salpeter & Co., LLC render an opinion (this "Opinion") to the Board of Directors of Parent (the "Board") as to whether, as of the date of this Opinion, the Merger Consideration to be issued by Parent in the Merger pursuant to the Agreement is fair, from a financial point of view, to Parent. You have advised us that the Merger Consideration will constitute a percentage (the "Timber Percentage") of the number of shares of Parent Common Stock outstanding immediately after giving effect to the Merger, which shall be subject to adjustment as provided by the Agreement, as to which adjustment we express no view or opinion. In addition, you have advised us that certain financing sources or equity holders of the Company will receive certain anti-dilution or other rights that may increase the effective number of shares of Parent Common Stock being issued in the Merger. We express no view or opinion with respect to the terms of such anti-dilution or other rights or their impact, if any, on the Merger Consideration. You have advised us that your best currently available estimate, which you have made in good faith and taking into account the potential adjustments to the Timber Percentage and the potential effects of the anti-dilution and other rights being issued in the Merger, of the effective number of shares of Parent Common Stock being issued in the Merger pursuant to the Agreement is from 114,748,000 to 479,900,000 (the "Estimated Merger Consideration Range"). At your direction, we have evaluated the Merger Consideration to be issued in the Merger pursuant to the Agreement based on the Estimated Merger Consideration Range. In addition, you have advised us that long-term forecasts reflecting Parent management's best currently available estimates and judgments with respect to the future financial performance of Parent are not available and that Parent's registered public accounting firm has expressed substantial doubt about Parent's ability to continue as a going concern. Accordingly, you have directed us to assume, for purposes of our analyses and this Opinion, that Parent's liquidation value and recent trading prices of Parent Common Stock provide a reasonable basis on which to evaluate shares of Parent Common Stock, Parent and the Merger Consideration. You have further advised us that the shares of Parent Preferred Stock to be issued to holders of Company Preferred Equity in the Merger will not be convertible into shares of Parent Common Stock, will not otherwise participate in or be entitled to receive dividends or other distributions made on account of the Parent Common Stock and will entitle
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the holders thereof to receive only a return of the applicable liquidation preference and a preferred dividend.
In arriving at this Opinion, we have made such reviews, analyses, and inquiries as we have deemed necessary and appropriate under the circumstances. Among other things, we have:
This Opinion only addresses whether, as of the date hereof, the Merger Consideration to be issued by Parent in the Merger pursuant to the Agreement is fair, from a financial point of view, to Parent. It does not address any other terms, aspects, or implications of the Merger or the Agreement, or any other agreement including, without limitation, (i) the Parent Stockholder Support Agreement, (ii) any term or aspect of the Merger that is not susceptible to financial analysis, (iii) the fairness of the Merger, or all or any portion of the Merger Consideration, to any security holders of Parent, the Company or any other person or any creditors or other constituencies of Parent, the Company or any other person, (iv) the appropriate capital structure of Parent or whether Parent should be issuing debt or equity securities or a combination of both, nor (v) the fairness of the amount or nature, or any other aspect, of any compensation or consideration payable to or received by any officers, directors, or employees of any parties to the Merger, or any class of such persons, relative to the Merger Consideration in the Merger or otherwise. We are not expressing any view or opinion as to what the value of shares of Parent Common Stock or Parent Preferred Stock actually will be when issued in the Merger or the prices at which shares of Parent Common Stock or Parent Preferred Stock may trade, be purchased or sold at any time.
This Opinion does not address the relative merits of the Merger as compared to any alternative transaction or business strategy that might exist for Parent, or the merits of the underlying decision by the Board or Parent to engage in or consummate the Merger. The financial and other terms of the Merger were determined pursuant to negotiations between the parties to the Agreement and were not determined by or pursuant to any recommendation from us. In addition, we were not authorized to, and we did not, solicit indications of interest from third parties regarding a potential transaction involving Parent.
In arriving at this Opinion, we have, with your consent, relied upon and assumed, without independently verifying, the accuracy and completeness of all of the financial and other information that was supplied or otherwise made available to us or available from public sources, and we have further relied upon the assurances of Parent's and the Company's management that they were not
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aware of any facts or circumstances that would make any such information inaccurate or misleading. We also have relied upon, without independent verification, the assessments of the management of Parent and the Company as to the Company's existing and future technology, products and services and the validity and marketability of, and risks associated with, such technology, products and services (including, without limitation, the development, testing and marketing of such technology, products and services; the receipt of all necessary governmental and other regulatory approvals for the development, testing and marketing thereof; and the life of all relevant patents and other intellectual and other property rights associated with such technology, products and services), and we have assumed, at your direction, that there will be no developments with respect to any such matters that would adversely affect our analyses or this Opinion. We are not legal, tax, accounting, environmental, or regulatory advisors, and we do not express any views or opinions as to any legal, tax, accounting, environmental, or regulatory matters relating to Parent, the Company, the Merger, or otherwise. We understand and have assumed that Parent has obtained or will obtain such advice as it deems necessary or appropriate from qualified legal, tax, accounting, environmental, regulatory, and other professionals.
Management of Parent has advised us that (i) Parent's consolidated financial statements have been prepared assuming it will continue as a going concern, (ii) Parent has experienced recurring operating losses and negative cash flows, (iii) Parent expects to continue to generate operating losses and consume significant cash resources for the foreseeable future, (iv) there is substantial doubt about Parent's ability to continue as a going concern, (v) there are no assurances that Parent will be able to raise its revenues to a level which supports profitable operations and provides sufficient funds to pay its obligations, (vi) Parent has been and currently is experiencing significant liquidity issues, and (vii) the inability of Parent to continue as a going concern would likely result in a voluntary or involuntary bankruptcy, restructuring or liquidation of Parent in which Parent may receive less than the value at which its assets are carried on Parent's consolidated financial statements, and stockholders of Parent would likely receive little or no value for their investment in Parent.
With your consent, we have assumed that the Projections were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of the Company with respect to the future financial performance of the Company. We have assumed, at your direction, that the Projections provide a reasonable basis upon which to analyze and evaluate the Company and form an opinion. We express no view with respect to the Projections or the assumptions on which they are based. We have not evaluated the solvency or creditworthiness of Parent, the Company or any other party to the Merger, the fair value of Parent, the Company or any of their respective assets or liabilities, or whether Parent, the Company or any other party to the Merger is paying or receiving reasonably equivalent value in the Merger under any applicable foreign, state, or federal laws relating to bankruptcy, insolvency, fraudulent transfer, or similar matters, nor have we evaluated, in any way, the ability of Parent, the Company or any other party to the Merger to pay its obligations when they come due. We have not physically inspected Parent's or the Company's properties or facilities and have not made or obtained any evaluations or appraisals of Parent's or the Company's assets or liabilities (including any contingent, derivative, or off-balance-sheet assets and liabilities). We have not attempted to confirm whether Parent or the Company have good title to their respective assets. Our role in reviewing any information was limited solely to performing such reviews as we deemed necessary to support our own advice and analysis and was not on behalf of the Board, Parent, or any other party.
We have assumed, with your consent, that the Merger will be consummated in a manner that complies in all respects with applicable foreign, federal, state, and local laws, rules, and regulations and that, in the course of obtaining any regulatory or third party consents, approvals, or agreements in connection with the Merger, no delay, limitation, restriction, or condition will be imposed that would have an adverse effect on Parent, the Company or the Merger. We also have assumed, with your consent, that the final executed form of the Agreement will not differ in any material respect from the execution copy we have reviewed and that the Merger will be consummated on the terms set forth in the
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Agreement, without waiver, modification, or amendment of any term, condition, or agreement thereof that is material to our analyses or this Opinion. Without limitation to the foregoing, with your consent, we have further assumed that any adjustments to the Merger Consideration in accordance with the Agreement or otherwise would not be material to our analyses or this Opinion. We have also assumed that the representations and warranties of the parties to the Agreement contained therein are true and correct and that each such party will perform all of the covenants and agreements to be performed by it under the Agreement. We offer no opinion as to the contractual terms of the Agreement or the likelihood that the conditions to the consummation of the Merger set forth in the Agreement will be satisfied. You have also advised us, and we have assumed, that for U.S. federal tax income purposes the Merger shall constitute a transaction described in Section 351(a) of the Internal Revenue Code of 1986, as amended.
Our analysis and this Opinion are necessarily based upon market, economic, and other conditions as they exist on, and could be evaluated as of, the date hereof. Accordingly, although subsequent developments may arise that would otherwise affect this Opinion, we do not assume any obligation to update, review, or reaffirm this Opinion to you or any other person or otherwise to comment on or consider events occurring or coming to our attention after the date hereof.
This Opinion is addressed to the Board for the use and benefit of the members of the Board (in their capacities as such) in connection with the Board's evaluation of the Merger. This Opinion is not intended to and does not constitute advice or a recommendation to any of Parent's stockholders or any other security holders as to how such holder should vote or act with respect to any matter relating to the Merger or otherwise.
We will receive a fee for rendering this Opinion, no portion of which is contingent upon the completion of the Merger. In addition, Parent has agreed to reimburse certain of our expenses and to indemnify us and certain related parties for certain liabilities that may arise out of our engagement or the rendering of this Opinion. In accordance with our policies and procedures, a fairness committee was not required to, and did not, approve the issuance of this Opinion.
Based upon and subject to the foregoing, it is our opinion that, as of the date of this Opinion, the Merger Consideration to be issued by Parent in the Merger pursuant to the Agreement is fair, from a financial point of view, to Parent.
Very truly yours,
/s/ Cassel Salpeter & Co., LLC
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PART II
INFORMATION NOT REQUIRED IN PROXY STATEMENT/PROSPECTUS/INFORMATION STATEMENT
Item 20Indemnification and Officers
Subsection (a) of Section 145 of the General Corporation Law of the State of Delaware (the "DGCL") empowers a corporation to indemnify any person who was or is a party or who is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person's conduct was unlawful.
Subsection (b) of Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person acted in any of the capacities set forth above, against expenses (including attorneys' fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
Section 145 further provides that to the extent a director or officer of a corporation has been successful on the merits or otherwise in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and the indemnification provided for by Section 145 shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person's heirs, executors and administrators. Section 145 also empowers the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify such person against such liabilities under Section 145.
Section 102(b)(7) of the DGCL provides that a corporation's certificate of incorporation may contain a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that such provision shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which
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involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or (iv) for any transaction from which the director derived an improper personal benefit.
BioPharmX's certificate of incorporation provides that to the fullest extent permitted by the DGCL, a director of BioPharmX shall not be personally liable to BioPharmX or its stockholders for monetary damages for breach of fiduciary duty as a director. BioPharmX's amended and restated bylaws provide that to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal administrative or investigative, by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, against all expense, liability and loss actually and reasonably incurred or suffered by such person in connection with such action, suit or proceeding.
From the Effective Time of the Merger Agreement through the sixth anniversary of the date on which the Effective Time occurs, each of BioPharmX and Timber shall indemnify and hold harmless each person who is now, or has been at any time prior to the date hereof, or who becomes prior to the Effective Time, a director, manager, officer, fiduciary or agent of BioPharmX or Timber, respectively (the "D&O Indemnified Parties"), against all claims, losses, liabilities, damages, judgments, fines and reasonable fees, costs and expenses, including attorneys' fees and disbursements (collectively, "Costs"), incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative, arising out of or pertaining to the fact that the D&O Indemnified Party is or was a director, manager, officer, fiduciary or agent of BioPharmX or of Timber, whether asserted or claimed prior to, at or after the Effective Time, in each case, to the fullest extent permitted under applicable Law. Each D&O Indemnified Party will be entitled to advancement of expenses incurred in the defense of any such claim, action, suit, proceeding or investigation from each of BioPharmX and Timber, jointly and severally, upon receipt by BioPharmX or Timber from the D&O Indemnified Party of a request therefor; provided that any such person to whom expenses are advanced provides an undertaking to BioPharmX, to the extent then required by the DGCL, to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
Pursuant to the Merger Agreement, provisions of the certificate of incorporation and bylaws of BioPharmX with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers of BioPharmX that are presently set forth in the certificate of incorporation and bylaws of BioPharmX shall not be amended, modified or repealed for a period of six years from the Effective Time in a manner that would adversely affect the rights thereunder of individuals who, at or prior to the Effective Time, were officers or directors of BioPharmX. The certificate of incorporation and bylaws of Timber shall contain, and BioPharmX shall cause the certificate of incorporation and bylaws of Timber to so contain, provisions no less favorable with respect to indemnification, advancement of expenses and exculpation of present and former directors and officers as those presently set forth in the certificate of incorporation and bylaws of BioPharmX.
(a) Exhibit Index
A list of exhibits filed with this registration statement on Form S-4 is set forth on the Index to Exhibits and is incorporated herein by reference.
(b) Financial Statements
The financial statements filed with this registration statement on Form S-4 are set forth on the Financial Statement Index and are incorporated herein by reference.
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means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
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Incorporated by Reference | |
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Exhibit Number |
Description of Exhibit | Form | File Number |
Date of Filing | Exhibit Number |
Filed Herewith |
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101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | X |
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Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Campbell, State of California, on the 27th day of March, 2020.
BioPharmX Corporation | ||||
By: |
/s/ STEVEN M. BOSACKI Steven M. Bosacki Chief Executive Officer |
Pursuant to the requirements of the Securities Act, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature
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Title
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Date
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/s/ STEVEN M. BOSACKI Steven M. Bosacki |
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer) | March 27, 2020 | ||||
/s/ JOYCE GOTO Joyce Goto |
Chief Accounting Officer (Principal Accounting Officer) |
March 27, 2020 |
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/s/ * Michael Hubbard |
Director |
March 27, 2020 |
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/s/ * Stephen Morlock |
Director |
March 27, 2020 |
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/s/ * David S. Tierney, M.D. |
Director |
March 27, 2020 |
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/s/ * R. Todd Plott |
Director |
March 27, 2020 |
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*By: |
/s/ STEVEN M. BOSACKI Steven M. Bosacki Attorney-In-Fact |
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Exhibit 2.3
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this Amendment), is made and entered into as of March 24, 2020 (the First Amendment Effective Date), by and among BioPharmX, a Delaware corporation (Parent), BITI Merger Sub, Inc. a Delaware corporation and wholly owned subsidiary of Public Company (Merger Sub), and Timber Pharmaceuticals LLC, a New Jersey limited liability company (Company). Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in that certain Agreement and Plan of Merger and Reorganization, made and entered into as of January 28, 2020, by and among Parent, Merger Sub and Company (the Merger Agreement).
RECITALS
A. Section 10.2 of the Merger Agreement provides that the Merger Agreement may not be amended except by the approval of Parent, Merger Sub and Company.
B. The board of directors of each of the respective parties have determined that this Amendment is advisable and in the best interests of their respective entities and their respective stockholders.
C. The parties wish to amend the Merger Agreement as set forth in this Amendment, such amendment to be effective as of the date hereof.
AGREEMENT
The parties to this Amendment, intending to be legally bound, hereby agree as follows:
1. Amendment to Section 1.5(a)(i). Section 1.5(a)(i) of the Merger Agreement is hereby deleted in its entity and replaced with the following:
(i) The Company Preferred Equity outstanding immediately prior to the Effective Time shall be automatically converted into the right to receive a number of shares of a class of newly issued Parent Preferred Stock which, other than conversion rights, shall have economic terms which are substantially the same as the economic terms of the Company Preferred Equity currently outstanding. Annexed hereto is a form of Certificate of Designations with respect to the Parent Preferred Stock to be issued pursuant to this paragraph.
2. Amendment to Exhibit C. The phrase Conversion Rights: None in Exhibit C to the Merger Agreement shall be deleted in its entirety and replaced with the following:
Conversion Rights: Convertible at the option of the holder at a price equal to three times the volume weighted average closing price of a share of Parent Common Stock on the NYSE American for the five consecutive trading days ending one trading day immediately prior to the date of the Parent Stockholders Meeting.
3. Continuing Effectiveness; Entire Agreement. Except as expressly modified by this Amendment, the Merger Agreement shall remain in full force and effect in accordance with its terms, with each of Parent, Merger Sub and Company ratifying, adopting and affirming the Merger Agreement and otherwise intending to be bound thereby. This Amendment shall be deemed an amendment to the Merger Agreement and shall become effective when executed and delivered by the Parties. Upon the effectiveness of this Amendment, all references in the Merger Agreement to the Agreement or this Agreement, as applicable, shall refer to the Merger Agreement, as modified by this Amendment.
4. Miscellaneous. Article X of the Merger Agreement is hereby incorporated into this Amendment mutatis mutandis.
IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed as of the date first above written.
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BIOPHARMX CORPORATION | |
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By: |
/s/ Steven M. Bosacki |
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Name: |
Steven M. Bosacki |
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Title: |
CEO |
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BITI MERGER SUB, INC. | |
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By: |
/s/ Steven M. Bosacki |
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Name: |
Steven M. Bosacki |
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Title: |
CEO |
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TIMBER PHARMACEUTICALS LLC | |
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By: |
/s/ John Koconis |
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Name: |
John Koconis |
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Title: |
Chief Executive Officer |
[SIGNATURE PAGE TO AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION]
BIOPHARMX CORPORATION
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A PREFERRED STOCK
PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned, Steven M. Bosacki, does hereby certify that:
1. He is the President and Chief Executive Officer of BioPharmX Corporation, a Delaware corporation (the Corporation); and
2. The following resolutions were duly adopted by the board of directors of the Corporation (the Board of Directors):
WHEREAS, the certificate of incorporation of the Corporation provides for a class of its authorized stock known as preferred stock, consisting of 10,000,000 shares, par value $0.001 per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized to fix the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any unissued series of preferred stock and the number of shares constituting any series and the designation thereof; and
WHEREAS, it is the desire of the Board of Directors, in accordance with the provisions of the certificate of incorporation, to create a new series of preferred stock and to fix the rights, preferences, restrictions and other matters relating to such series of preferred stock, which shall consist of 2,500 shares of the preferred stock.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of a series of preferred stock for cash or exchange of other securities, rights or property and does hereby fix and determine the rights, preferences, restrictions and other matters relating to such series of preferred stock as follows:
TERMS OF SERIES A PREFERRED STOCK
Section 1. Designation, Amount and Par Value. The series of preferred stock shall be designated as Series A Preferred Stock (the Series A Preferred Stock) and the number of shares so designated shall be up to 2,500 (which shall not be subject to increase without the written consent of holders of a majority in interest of the Series A Preferred Stock then outstanding (each, a Holder and collectively, the Holders)). Each share of Series A Preferred Stock shall have a par value of $0.001 per share and a stated value equal to $1,000 (the Stated Value).
Section 2. Definitions. For the purposes hereof, the following terms shall have the following meanings:
Accruing Dividends shall have the meaning set forth in Section 3(a).
Affiliate means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 405 of the Securities Act of 1933, as amended.
Alternate Consideration shall have the meaning set forth in Section 7(d).
Attribution Parties shall have the meaning set forth in Section 6(d).
Beneficial Ownership Limitation shall have the meaning set forth in Section 6(d).
Board of Directors shall have the meaning set forth in the Recitals.
Business Day means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.
Change of Control means either (i) the sale, transfer, conveyance or other disposition, in one or a series of related transactions, of all or substantially all of the assets of the Corporation on a consolidated basis, (ii) the sale, transfer, conveyance or other disposition of shares or other securities in the Corporation, in one or a series of related transactions the result of which is that the Timber Holders immediately prior to such transaction are, after giving effect to such transaction, no longer, in the aggregate, able to elect a majority of the Board of Directors, or (iii) a transaction of series of transactions (including by way of merger, consolidation, recapitalization, reorganization or sale of securities) the result of which is that the Timber Holders immediately prior to such transaction are after giving effect to such transaction no longer, in the aggregate, the beneficial owners (as such term is defined in Rule 13d-3 and Rule 13d-5 promulgated under the Securities Exchange Act of 1934, as amended) directly or indirectly through one or more intermediaries, of more than 50% of the voting power of the outstanding securities of the Corporation.
Common Stock means the Corporations common stock, par value $0.001 per share, and stock of any other class of securities into which such securities may hereafter be reclassified or changed.
Conversion Date shall have the meaning set forth in Section 6(a).
Conversion Price shall have the meaning set forth in Section 6(b).
Conversion Shares means, collectively, the shares of Common Stock issuable upon conversion of the shares of Series A Preferred Stock in accordance with the terms hereof.
Distribution shall have the meaning set forth in Section 7(c).
Dividend Payment Date shall have the meaning set forth in Section 3(a).
DTC shall have the meaning set forth in Section 6(c)(i).
Fundamental Transaction shall have the meaning set forth in Section 7(d).
Holder shall have the meaning set forth in Section 1.
Liquidation shall have the meaning set forth in Section 5.
Notice of Conversion shall have the meaning set forth in Section 6(a).
Person means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.
Purchase Rights shall have the meaning set forth in Section 7(a).
Redemption Election shall have the meaning set forth in Section 8b).
Redemption Notice shall have the meaning set forth in Section 8(b).
Series A Preference Amount means the Stated Value plus any Accruing Dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon.
Series A Preferred Stock shall have the meaning set forth in Section 1.
Share Delivery Date shall have the meaning set forth in Section 6(c)(i).
Successor Entity shall have the meaning set forth in Section 7(d).
Standard Settlement Period shall have the meaning set forth in Section 6(c)(i).
Stated Value shall have the meaning set forth in Section 1.
Timber Holders means Chardan Capital Markets LLC, Patagonia Pharmaceuticals, LLC and TardiMed Sciences LLC, together with their respective Affiliates.
Trading Day means a day on which the principal Trading Market is open for business.
Trading Market means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the NYSE American or the New York Stock Exchange (or any successors to any of the foregoing).
Section 3. Dividends.
(a) Accrual and Payment of Dividends. From and after the date of the issuance of any shares of Series A Preferred Stock, cumulative dividends at the rate per annum of eight percent (8.00%) of the Stated Value shall accrue on such shares of Series A Preferred Stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Series A Preferred Stock) (the Accruing Dividends). All Accruing Dividends on any share shall be paid in cash only when, as and if declared by the Board of Directors out of funds legally available therefor or upon a liquidation or redemption of the Series A Preferred Stock in accordance with the provisions of Section 5 and Section 7; provided, that to the extent not paid on the last day of March, June, September and December of each calendar year (each such date, a Dividend Payment Date), all Accruing Dividends on any share shall accumulate and compound on the applicable Dividend Payment Date whether or not declared by the Board of Directors and shall remain accumulated, compounding dividends until paid pursuant hereto or redeemed pursuant to Section 7. All accrued and accumulated dividends on the shares shall be prior and in preference to any dividend on any shares of Common Stock and shall be fully declared and paid before any dividends are declared and paid, or any other distributions or redemptions are made.
(b) Partial Dividend Payments. Except as otherwise provided herein, if at any time the Corporation pays less than the total amount of dividends then accrued and accumulated with respect to the Series A Preferred Stock, such payment shall be distributed pro rata among the holders thereof based upon the aggregate accrued and accumulated but unpaid dividends on the shares held by each such holder.
Section 4. Voting Rights. Except as otherwise provided herein or as otherwise required by law, the Series A Preferred Stock shall have no voting rights.
Section 5. Liquidation.
(a) Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, (any such event, a Liquidation), each Holder of shares of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of Common Stock, an amount equal to the Series A Preference Amount.
(b) Insufficient Assets. If, upon the occurrence of any Liquidation, the assets and funds to be distributed among the holders of Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full Series A Preference Amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of Series A Preferred Stock in proportion to the Series A Preference Amount each such holder is entitled to receive, and no assets of the Corporation shall be distributed to the holders of Common Stock unless and until the Series A Preference Amount payable to all holders of Series A Preferred Stock has been paid in full. After the payment of all preferential amounts required to be paid to the holders of Series A Preferred Stock, the holders of shares of Common Stock then outstanding shall be entitled to receive the remaining assets and funds of the Corporation available for distribution to its stockholders.
(c) Notice Requirement. In the event of any Liquidation, the Corporation shall, within ten (10) days of the date the Board of Directors approves such action, or no later than twenty (20) days of any stockholders meeting called to approve such action, or within twenty (20) days of the commencement of any involuntary proceeding, whichever is earlier, give each Holder of shares of Series A Preferred Stock written notice of the proposed action. Such written notice shall describe the material terms and conditions of such proposed action, including a description of the stock, cash, and property to be received by the Holders of shares upon consummation of the proposed action and the date of delivery thereof.
Section 6. Conversion.
(a) Conversions at Option of Holder. Each share of Series A Preferred Stock shall be convertible, at any time and from time to time from and after the date of issuance at the option of the Holder thereof, into that number of shares of Common Stock (subject to the limitations set forth in Section 6(d)) determined by dividing the Series A Preference Amount of such share of Series A Preferred Stock by the Conversion Price. Holders shall effect conversions by providing the Corporation with the form of conversion notice attached hereto as Annex A (a Notice of Conversion). Each Notice of Conversion shall specify the number of shares of Series A Preferred Stock to be converted, the number of shares of Series A Preferred Stock owned prior to the conversion at issue, the number of shares of Series A Preferred Stock owned subsequent to the conversion at issue and the date on which such conversion is to be effected, which date may not be prior to the date the applicable Holder delivers by facsimile such Notice of Conversion to the Corporation (such date, the Conversion Date). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion to the Corporation is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. The calculations and entries set forth in the Notice of Conversion shall control in the absence of manifest or mathematical error. To effect conversions of shares of Series A Preferred Stock, a Holder shall not be required to surrender the certificate(s) representing the shares of Series A Preferred Stock to the Corporation unless all of the shares of Series A Preferred Stock represented thereby are so converted, in which case such Holder shall deliver the certificate representing such shares of Series A Preferred Stock promptly following the Conversion Date at issue. Shares of Series A Preferred Stock converted into Common Stock or redeemed in accordance with the terms hereof shall be deemed canceled and shall not be reissued.
(b) Conversion Price. The conversion price for the Series A Preferred Stock shall equal to the greater of (i) the amount that is 300% of the volume-weighted closing price of the Common Stock for the five consecutive trading days ending April 29, 2020; and (ii) the amount that is 110% of the Final Price Per Share as defined is that certain Securities Purchase Agreement, by and between the Corporation, Timber Pharmaceuticals LLC and the investors party thereto, subject to adjustment as provided herein (the Conversion Price).
(c) Mechanics of Conversion.
(i) Delivery of Conversion Shares Upon Conversion. Not later than the earlier of (i) two (2) Trading Days and (ii) the number of Trading Days comprising the Standard Settlement Period (as defined below) after each Conversion Date (the Share Delivery Date), the Corporation shall deliver, or cause to be delivered, to the converting
Holder (A) the number of Conversion Shares being acquired upon the conversion of the Series A Preferred Stock, which Conversion Shares shall be free of restrictive legends and trading restrictions and (B) a bank check in the amount of accrued and unpaid dividends, if any. The Corporation shall use its best efforts to deliver the Conversion Shares required to be delivered by the Corporation under this Section 6 electronically through the Depository Trust Company (DTC) or another established clearing corporation performing similar functions. As used herein, Standard Settlement Period means the standard settlement period, expressed in a number of Trading Days, on the Corporations primary Trading Market with respect to the Common Stock as in effect on the date of delivery of the Notice of Conversion. Notwithstanding the foregoing, with respect to any Notice(s) of Conversion delivered by 12:00 pm (NY time) on the date of issuance, the Corporation agrees to deliver the Conversion Shares subject to such notice(s) by 4:00 pm (NY time) on the date of issuance.
(ii) Failure to Deliver Conversion Shares. If, in the case of any Notice of Conversion, such Conversion Shares are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Corporation at any time on or before its receipt of such Conversion Shares, to rescind such Conversion, in which event the Corporation shall promptly return to the Holder any original Series A Preferred Stock certificate delivered to the Corporation and the Holder shall promptly return to the Corporation the Conversion Shares issued to such Holder pursuant to the rescinded Notice of Conversion
(iii) Obligation Absolute; Partial Liquidated Damages. The Companys obligation to issue and deliver the Conversion Shares upon conversion of Series A Preferred Stock in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by a Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by such Holder or any other Person of any obligation to the Corporation or any violation or alleged violation of law by such Holder or any other person, and irrespective of any other circumstance which might otherwise limit such obligation of the Corporation to such Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Corporation of any such action that the Corporation may have against such Holder. In the event a Holder shall elect to convert any or all of its Series A Preferred Stock, the Corporation may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and/or enjoining conversion of all or part of the Series A Preferred Stock of such Holder shall have been sought and obtained, and the Corporation posts a surety bond for the benefit of such Holder in the amount of 150% of the Series A Preference Amount of Series A Preferred Stock which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to such Holder to the extent it obtains judgment. In the absence of such injunction, the Corporation shall issue Conversion Shares upon a properly noticed conversion.
(iv) Reservation of Shares Issuable Upon Conversion. The Corporation covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of the Series A Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Series A Preferred Stock), not less than such aggregate number of shares of the Common Stock as shall be issuable (taking into account the adjustments and restrictions of Section 7) upon the conversion of the then outstanding shares of Series A Preferred Stock. The Corporation covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
(v) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of the Series A Preferred Stock. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Corporation shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
(vi) Transfer Taxes and Expenses. The issuance of Conversion Shares on conversion of this Series A Preferred Stock shall be made without charge to any Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares, provided that the Corporation shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such Conversion Shares upon conversion in a name other than that of the Holders of such shares of Series A referred Stock and the Corporation shall not be required to issue or deliver such Conversion Shares unless or until the Person or Persons requesting the issuance thereof shall have paid to the Corporation the amount of such tax or shall have established to the satisfaction of the Corporation that such tax has been paid. The Corporation shall pay all transfer agent fees required for same-day processing of any Notice of Conversion and all fees to the DTC (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares.
(d) Beneficial Ownership Limitation. The Corporation shall not effect any conversion of the Series A Preferred Stock, to the extent that, after giving effect to conversion set forth on the applicable Notice of Conversion, such Holder (together with such Holders Affiliates, and any Persons acting as a group together with such Holder or any of such Holders Affiliates (such Persons, Attribution Parties)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by such Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock received as dividends or issuable upon conversion of the Series A Preferred Stock with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted Series A Preferred Stock beneficially owned by such Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein (including,
without limitation, the Series A Preferred Stock) beneficially owned by such Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 6(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Corporation is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith (other than as it relates to a Holder relying on the number of shares issued and outstanding as provided by the Corporation pursuant to this Section). In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 6(d), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Corporations most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Corporation or (iii) a more recent written notice by the Corporation or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request (which may be via email) of a Holder, the Corporation shall within one Trading Day confirm orally and in writing to such Holder the number of shares of Common Stock then outstanding. The Beneficial Ownership Limitation shall be 9.99% the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of Series A Preferred Stock held by the applicable Holder. By written notice to the Corporation, a Holder of Series A Preferred Stock may from time to time increase or decrease the Beneficial Ownership Limitation to any other percentage specified in such notice; provided that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Corporation, and (ii) any such increase or decrease will apply only to such Holder. The provisions of this Section 6(e) shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this Section 6(d) shall apply to a successor holder of Series A Preferred Stock.
Section 7. Certain Adjustments.
(a) Share Dividends and Stock Splits. If the Corporation, at any time while this Series A Preferred Stock is outstanding: (i) pays a share dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any other Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation upon conversion of, or payment of a dividend on, this Series A Preferred Stock), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Corporation, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Corporation) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section 7(a) shall
become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
(b) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 7(a) above, if at any time the Corporation grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the Purchase Rights), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of such Holders Series A Preferred Stock (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holders right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
(c) Pro Rata Distributions. During such time as this Series A Preferred Stock is outstanding, if the Corporation declares or makes any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a Distribution), at any time after the first issuance of Series A Preferred Stock, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Series A Preferred Stock (without regard to any limitations on conversion hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holders right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
(d) Fundamental Transaction. If, at any time while any shares of Series A Preferred Stock are outstanding, (i) the Corporation, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Corporation with or into another Person, (ii) the Corporation, directly or indirectly, effects any sale, lease, license, assignment, transfer,
conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Corporation or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Corporation, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Corporation, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a Fundamental Transaction), then, upon any subsequent conversion of the Series A Preferred Stock by the Holder thereof, the Holder shall receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series A Preferred Stock), the number of shares of common stock (as applicable) of the successor or acquiring corporation or the number of shares of Common Stock of the Corporation (as applicable), if it is the surviving corporation, and all additional securities (equity or debt), cash, property or other consideration (all such additional consideration, the Alternate Consideration), receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which such Holders Series A Preferred Stock is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 6(d) on the conversion of the Series A Preferred Stock). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Corporation shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are entitled to elect the proportion of securities, cash, property or other consideration to be received by holders of Common Stock in a Fundamental Transaction, then each Holder of Series A Preferred Stock shall be given the same choice as to the proportion of securities, cash, property or other consideration such Holder is entitled to receive upon any conversion of such Holders shares of Series A Preferred Stock following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor to the Corporation or surviving entity in such Fundamental Transaction shall file a new Certificate of Designation in respect of a new series of preferred stock of the successor or acquiring corporation, or the Corporation, if it is the surviving corporation, setting forth the same rights, preferences, privileges and other terms contained in this Certificate of Designation in respect of the Series A Preferred Stock, including, without limitation, the provisions contained in this Section 7(d) and evidencing, among other things, the Holders right to convert such new preferred stock into Alternate Consideration. The Corporation shall cause any successor entity in a Fundamental Transaction in which the Corporation is not the survivor (the Successor Entity) to assume in writing all of the obligations of the Corporation
under this Certificate of Designation in accordance with the provisions of this Section 7(d) prior to such Fundamental Transaction and shall deliver to such Holder in exchange for such Holders Series A Preferred Stock a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to the Series A Preferred Stock which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of the Series A Preferred Stock (without regard to any limitations on the conversion of the Series A Preferred Stock) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of the Series A Preferred Stock immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder(s) thereof. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Certificate of Designation referring to the Corporation shall refer instead to the Successor Entity), and may exercise every right and power of the Corporation and shall assume all of the obligations of the Corporation under this Certificate of Designation with the same effect as if such Successor Entity had been named as the Corporation herein. For the avoidance of doubt, if, at any time while any shares of Series A Preferred Stock are outstanding, a Fundamental Transaction occurs, pursuant to the terms of this Section 7(d), a Holder of Series A Preferred Stock shall not be entitled to receive any consideration in such Fundamental Transaction in respect of such Holders shares of Series A Preferred Stock, except as provided for in this Certificate of Designation (or any new Certificate of Designation in respect of a new series of preferred stock issued to the Holders of Series A Preferred Stock as contemplated hereby. Notwithstanding the foregoing, if a Fundamental Transaction is also a Change of Control, the Holder shall be entitled to deliver a Redemption Election (as defined below) simultaneously with or after the Change of Control consistent with Section 8 and nothing herein shall adversely affect such rights.
(e) All calculations under this Section 7 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 7, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Corporation) issued and outstanding.
(f) (i) Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 7, the Corporation shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
(ii) Notice to Allow Conversion by Holder. If (A) the Corporation shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Corporation shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Corporation shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Corporation shall
be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Corporation is a party, any sale or transfer of all or substantially all of the assets of the Corporation, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Corporation shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Corporation, then, in each case, the Corporation shall cause to be filed at each office or agency maintained for the purpose of conversion of this Series A Preferred Stock, and shall cause to be delivered to each Holder at its last address as it shall appear upon the stock books of the Corporation, at least ten (10) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Corporation or any of the Subsidiaries, the Corporation shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert the Conversion Amount of this Series A Preferred Stock (or any part hereof) during the 10-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.
Section 8. Redemption.
(a) Upon or at anytime following the occurrence of a Change of Control, the Series A Preferred Stock shall be redeemable at the option of the Holders, in whole or in part, at the Series A Preference Amount. The Corporation shall redeem the number of shares specified in the Redemption Election (as defined below) on the date fixed for redemption set forth in the Redemption Notice (as defined below).
(b) If a Change of Control should occur, then, the Corporation shall give written notice to each Holder of Series A Preferred Stock at its address as it appears in the records of the Corporation, which notice shall describe such Change of Control and shall state the date of the Change of Control, and shall be mailed within 10 Business Days following the occurrence of the Change of Control (the Redemption Notice). Such notice shall also set forth (i) each Holders right to require the Corporation to redeem for cash shares of Series A Preferred Stock held by such holder as a result of such Change of Control; (ii) the Series A Preference Amount; (iii) the optional redemption date (which date shall be no earlier than 30 days and no later than 180 days from the date of such Change of Control unless the Corporation and the Holder agree to a later date); and (iv) the procedures to be followed by such Holder in exercising its right of redemption, including the place or places where certificates for such shares are to be surrendered for payment of the
Series A Preference Amount (which place shall be the principal place of business of the Corporation). In the event a Holder of shares of Series A Preferred Stock shall elect to require the Corporation to redeem any or all of such shares of Series A Preferred Stock, such Holder shall deliver, within 20 days of the mailing to it of the Redemption Notice, a written notice stating such Holders election and specifying the number of shares to be redeemed (the Redemption Election). Notwithstanding the foregoing, the Corporation and a Holder may mutually agree to extend the time period for such Redemption Election from time to time.
(c) Any shares of Series A Preferred Stock redeemed pursuant to this Section 8 shall no longer be deemed to be outstanding and shall not have the status of shares of Series A Preferred Stock, and all rights of the holders thereof as stockholders of the Corporation with respect to the shares of Series A Preferred Stock shall cease. The shares of Series A Preferred Stock not redeemed shall remain outstanding and entitled to all the rights, preferences and privileges provided in this Certificate of Designation.
Section 9. Miscellaneous.
(a) Notices. Any and all notices or other communications or deliveries to be provided by the Holders hereunder shall be in writing and delivered personally, by facsimile or email, or sent by a nationally recognized overnight courier service, addressed to the Corporation, at the following address, or such other facsimile number, e-mail address or address as the Corporation may specify for such purposes by notice to the Holders delivered in accordance with this Section 9:
BioPharmX Corporation
900 E. Hamilton Avenue, Suite 100
Campbell, CA 95008
Attn: Chief Executive Officer
Any and all notices or other communications or deliveries to be provided by the Corporation hereunder shall be in writing and delivered personally, by facsimile or email, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number, email address or address of such Holder appearing on the books of the Corporation. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via email at the email address set forth in this Section prior to 5:30 p.m. (New York City time) on any date, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or via email at the email address set forth in this Section on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, (iii) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service, or (iv) upon actual receipt by the party to whom such notice is required to be given.
(b) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Certificate of Designation shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to the principles of conflict of laws thereof.
(c) Waiver. Any waiver by the Corporation or a Holder of a breach of any provision of this Certificate of Designation shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Certificate of Designation or a waiver by any other Holders. The failure of the Corporation or a Holder to insist upon strict adherence to any term of this Certificate of Designation on one or more occasions shall not be considered a waiver or deprive that party (or any other Holder) of the right thereafter to insist upon strict adherence to that term or any other term of this Certificate of Designation on any other occasion. Any waiver by the Corporation or a Holder must be in writing.
(d) Severability. If any provision of this Certificate of Designation is invalid, illegal or unenforceable, the balance of this Certificate of Designation shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law.
(e) Headings. The headings contained herein are for convenience only, do not constitute a part of this Certificate of Designation and shall not be deemed to limit or affect any of the provisions hereof.
(f) Status of Converted or Redeemed Preferred Stock. If any shares of Series A Preferred Stock shall be redeemed or reacquired by the Corporation, such shares shall resume the status of authorized but unissued shares of preferred stock and shall no longer be designated as Series A Preferred Stock.
(g) Other Rights. The shares of Series A Preferred Stock shall not have any powers, preferences or relative, participating, optional or other special rights, other than as specifically set forth herein or in the certificate of incorporation.
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RESOLVED, FURTHER, that the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file this Certificate of Designation of Preferences, Rights and Limitations in accordance with the foregoing resolutions and the provisions of Delaware law.
IN WITNESS WHEREOF, the undersigned have executed this Certificate this day of , 2020.
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Name: |
Steven M. Bosacki |
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Title: |
Chief Executive Officer |
[Signature Page to Certificate of Designation of Preferences, Rights and Limitations of Series A Preferred Stock]
ANNEX A
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED HOLDER IN ORDER TO CONVERT SHARES OF PREFERRED STOCK)
The undersigned hereby elects to convert the number of shares of Series A Preferred Stock indicated below into shares of common stock, par value $0.001 per share (the Common Stock), of BioPharmX Corp., a Delware corporation (the Corporation), according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a Person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto. No fee will be charged to the Holders for any conversion, except for any such transfer taxes.
Conversion calculations:
Date to Effect Conversion:
Number of shares of Preferred Stock owned prior to Conversion:
Number of shares of Preferred Stock to be Converted:
Stated Value of shares of Preferred Stock to be Converted:
Number of shares of Common Stock to be Issued:
Applicable Conversion Price:
Number of shares of Preferred Stock subsequent to Conversion:
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this Agreement), dated as of March 27, 2020, by and among BioPharmX Corporation, a Delaware corporation, with headquarters located at 900 E. Hamilton Ave., Suite 100, Campbell, California 95008, to be renamed Timber Pharmaceuticals, Inc. pursuant to the Merger Agreement (as defined below) (the Company), and the investors listed on the Schedule of Buyers attached hereto (each, a Buyer and collectively, the Buyers).
WHEREAS:
A. In connection with: (i) the Securities Purchase Agreement (the Bridge Securities Purchase Agreement) by and among Timber Pharmaceuticals LLC, a Delaware limited liability company (Timber Private Company) and certain Buyers dated as of January 28, 2020, upon the terms and subject to the conditions of the Bridge Securities Purchase Agreement, Timber Private Company has agreed, among other things, to cause the Company to issue to each Buyer Warrants (collectively, the Bridge Warrants) which each will be exercisable to purchase shares of the Companys common stock, par value $0.001 per share (the Common Stock) (as exercised, collectively, the Bridge Warrant Shares) in accordance with the terms of the Bridge Warrants and (ii) the Securities Purchase Agreement (the Securities Purchase Agreement) by and among Timber Private Company, the Company and the Buyers of even date herewith, upon the terms and subject to the conditions of the Securities Purchase Agreement, (x) Timber Private Company has agreed to issue to each Buyer Common Units of Timber Private Company and (y) the Company has agreed to issue Series A Warrants and Series B Warrants (each, as hereinafter defined) (collectively, the Primary Warrants and together with the Bridge Warrants, the Warrants) which each will be exercisable to purchase shares Common Stock (as exercised, collectively, the Primary Warrant Shares and together with the Bridge Warrant Shares, the Warrant Shares) in accordance with the terms of the Primary Warrants.
B. In accordance with the terms of the Securities Purchase Agreement, provided that the transactions contemplated by that certain Agreement and Plan of Merger among the Company, BITI Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company, and Timber Private Company, dated as of January 28, 2020 (the Merger Agreement) are consummated, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the 1933 Act), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Buyers hereby agree as follows:
1. Definitions.
Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:
(a) Additional Effective Date means the date an Additional Registration Statement is declared effective by the SEC.
(b) Additional Effectiveness Deadline means the date which is the earlier of (i) in the event that the Additional Registration Statement (x) is not subject to a full review by the SEC, the date which is thirty (30) calendar days after the earlier of the applicable Additional Filing Date and the Additional Filing Deadline or (y) is subject to a full review by the SEC, the date which is sixty (60) calendar days after the earlier of the applicable Additional Filing Date and the Additional Filing Deadline and (ii) the fifth (5th) Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Additional Registration Statement will not be reviewed or will not be subject to further review; provided, however, that if the Additional Effectiveness Deadline falls on a Saturday, Sunday or other day that the SEC is closed for business, the Additional Effectiveness Deadline shall be extended to the next Business Day on which the SEC is open for business.
(c) Additional Filing Date means the date on which an Additional Registration Statement is filed with the SEC.
(d) Additional Filing Deadline means if Cutback Shares are required to be included in any Additional Registration Statement, the later of (i) the date sixty (60) days after the date substantially all of the Registrable Securities registered under the immediately preceding Registration Statement are sold and (ii) the date six (6) months from the Initial Effective Date, the most recent Subsequent Effective Date or the most recent Additional Effective Date, as applicable.
(e) Additional Registrable Securities means, (i) any Cutback Shares not previously included on a Registration Statement, and (ii) any capital stock of the Company issued or issuable with respect to the Bridge Warrants, the Series A Warrants, the Series B Warrants, the Bridge Warrant Shares, the Series A Warrant Shares, the Series B Warrant Shares or the Cutback Shares, as applicable, as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on exercise of the Warrants.
(f) Additional Registration Statement means a registration statement or registration statements of the Company filed under the 1933 Act covering the resale any Additional Registrable Securities.
(g) Additional Required Registration Amount means any Cutback Shares not previously included on a Registration Statement, all subject to adjustment as provided in Section 2(g), without regard to any limitations on the exercise of the Warrants.
(h) Applicable Percentage means (i) if the transactions contemplated by the Primary Securities Purchase Agreement close for an aggregate gross Purchase Price to the Company of at least $20,000,000, then, 100% and (ii) otherwise, 300%.
(i) Business Day means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York are authorized or required by law to remain closed.
(j) Closing Date shall have the meaning set forth in the Securities Purchase Agreement.
(k) Cutback Shares means any of the Initial Required Registration Amount, the Subsequent Required Registration Amount or the Additional Required Registration Amount of Registrable Securities not included in all Registration Statements previously declared effective hereunder as a result of a limitation on the maximum number of shares of Common Stock of the Company permitted to be registered by the staff of the SEC pursuant to Rule 415. For the purpose of determining the Cutback Shares, in order to determine any applicable Required Registration Amount, unless an Investor gives written notice to the Company to the contrary with respect to the allocation of its Cutback Shares, first the Bridge Warrant Shares shall be excluded on a pro rata basis among the Investors until all of the Bridge Warrant Shares have been excluded, second the Series A Warrant Shares shall be excluded on a pro rata basis among the Investors until all of the Series A Warrant Shares have been excluded and third the Series B Warrant Shares shall be excluded on a pro rata basis among the Investors until all of the Series B Warrant Shares have been excluded.
(l) Designee means [ ].
(m) effective and effectiveness refer to a Registration Statement that has been declared effective by the SEC and is available for the resale of the Registrable Securities required to be covered thereby.
(n) Effective Date means the Initial Effective Date, each Subsequent Effective Date and/or each Additional Effective Date, as applicable.
(o) Effectiveness Deadline means the Initial Effectiveness Deadline, each Subsequent Effectiveness Deadline and/or each Additional Effectiveness Deadline, as applicable.
(p) Eligible Market means the Principal Market, The Nasdaq Capital Market, The Nasdaq Global Select Market, The Nasdaq Global Market or The New York Stock Exchange, Inc.
(q) End Reset Date shall have the meaning ascribed to such term in the Series B Warrants
(r) Filing Deadline means the Initial Filing Deadline, each Subsequent Filing Deadline and/or each Additional Filing Deadline, as applicable.
(s) Initial Effective Date means the date that the Initial Registration Statement has been declared effective by the SEC.
(t) Initial Effectiveness Deadline means the date which is the earlier of (x) (i) in the event that the Initial Registration Statement is not subject to a full review by the SEC, forty five (45) calendar days after the Closing Date or (ii) in the event that the Initial Registration Statement is subject to a full review by the SEC, seventy-five (75) calendar days after the Closing Date and (y) the fifth (5th) Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Initial Registration Statement will not be reviewed or will not be subject to further review; provided, however, that if the Initial Effectiveness Deadline falls on a Saturday, Sunday or other day that the SEC is closed for business, the Initial Effectiveness Deadline shall be extended to the next Business Day on which the SEC is open for business.
(u) Initial Filing Date means the date on which the Initial Registration Statement is filed with the SEC.
(v) Initial Filing Deadline means the date which is fifteen (15) Trading Days after the Closing Date.
(w) Initial Registrable Securities means (i) the Bridge Warrant Shares issued or issuable upon exercise of the Bridge Warrants, (ii) the Series A Warrant Shares issued or issuable upon exercise of the Series A Warrants, (iii) the Series B Warrant Shares issued or issuable upon exercise of the Series B Warrants and (iii) any capital stock of the Company issued or issuable with respect to the Bridge Warrant Shares, the Bridge Warrants, the Series A Warrant Shares, the Series A Warrants, the Series B Warrant Shares or the Series B Warrants, in each case as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on the exercise of the Bridge Warrants, the Series A Warrants and/or the Series B Warrants.
(x) Initial Registration Statement means a registration statement or registration statements of the Company filed under the 1933 Act covering the resale of Initial Registrable Securities.
(y) Initial Required Registration Amount means the sum of (i) the number of shares of Common Stock issued and issuable pursuant to the Series A Warrants and the Series B Warrants equal to the greater of (A) the sum of (x) the number of Series A Warrant Shares issued and issuable pursuant to the Series A Warrants determined in accordance with Section 2(d) of the Series A Warrants assuming a Reset Price (as defined in the Series A Warrants) equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein, (y) the number of Series B Warrant Shares issued and issuable pursuant to the Series B Warrants assuming that the Maximum Eligibility Number (as defined in the Series B Warrant) is determined based on a Reset Price (as defined in the Series B Warrants) equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein and (B) the number of shares of Common Stock issuable upon exercise of the Series A Warrants and the Series B Warrants and (ii) the number of shares of Common Stock issued and issuable pursuant to the Bridge Warrants equal to the Applicable Percentage of the maximum number of Bridge Warrant Shares issued and issuable pursuant to the Bridge Warrants, in each case, without giving effect to any limitation on exercise set forth in the Warrants, calculated as of the Trading Day immediately preceding the applicable date of determination and all subject to adjustment as provided in Section 2(g).
(z) Investor means a Buyer or any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9 and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 9.
(aa) Person means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.
(bb) Principal Market means the NYSE American.
(cc) register, registered, and registration refer to a registration effected by preparing and filing one or more Registration Statements (as defined below) in compliance with the 1933 Act and pursuant to Rule 415, and the declaration or ordering of effectiveness of such Registration Statement(s) by the SEC.
(dd) Registrable Securities means the Initial Registrable Securities, the Subsequent Registrable Securities and/or the Additional Registrable Securities, as applicable.
(ee) Registration Statement means the Initial Registration Statement, the Subsequent Registration Statement(s) and/or the Additional Registration Statement(s), as applicable.
(ff) Required Holders means the holders of at least a majority of the Registrable Securities and shall include the Designee so long as the Designee or any of its affiliates holds any Registrable Securities.
(gg) Required Registration Amount means either the Initial Required Registration Amount, the Subsequent Required Registration Amount and/or the Additional Required Registration Amount, as applicable.
(hh) Reservation Date shall have the meaning ascribed to such term in the Primary Warrants.
(ii) Reset Floor Price shall have the meaning ascribed to such term in the Primary Warrants.
(jj) Rule 415 means Rule 415 promulgated under the 1933 Act or any successor rule providing for offering securities on a continuous or delayed basis.
(kk) SEC means the United States Securities and Exchange Commission.
(ll) Series A Warrants shall have the meaning set forth in the Securities Purchase Agreement.
(mm) Series A Warrant Shares shall have the meaning set forth in the Securities Purchase Agreement.
(nn) Series B Warrants shall have the meaning set forth in the Securities Purchase Agreement.
(oo) Series B Warrant Shares shall have the meaning set forth in the Securities Purchase Agreement.
(pp) Subsequent Effective Date means the date that a Subsequent Registration Statement has been declared effective by the SEC.
(qq) Subsequent Effectiveness Deadline means the date which is the earlier of (x) the sixtieth (60th) day after the earlier of the applicable Subsequent Filing Date and the applicable Subsequent Filing Deadline and (y) the fifth (5th) Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Subsequent Registration Statement will not be reviewed or will not be subject to further review; provided, however, that if a Subsequent Effectiveness Deadline falls on a Saturday, Sunday or other day that the SEC is closed for business, the Subsequent Effectiveness Deadline shall be extended to the next Business Day on which the SEC is open for business.
(rr) Subsequent Filing Date means the date on which the applicable Subsequent Registration Statement is filed with the SEC.
(ss) Subsequent Filing Deadline means the date which is thirty (30) calendar days after each End Reset Date.
(tt) Subsequent Registrable Securities means (i) the Series A Warrant Shares issued or issuable upon exercise of the Series A Warrants to the extent such Series A Warrant Shares were not included in all Registration Statements previously declared effective hereunder, (ii) the Series B Warrant Shares issued or issuable upon exercise of the Series B Warrants to the extent such Series B Warrant Shares were not included in all Registration Statements previously declared effective hereunder and (iii) any capital stock of the Company issued or issuable with respect to the Series A Warrant Shares, Series B Warrant Shares, Series A Warrants or Series B Warrants to the extent such capital stock was not included in all Registration Statements previously declared effective hereunder, in each case as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on the exercise of the Primary Warrants.
(uu) Subsequent Registration Statement means a registration statement or registration statements of the Company filed under the 1933 Act covering the resale of Subsequent Registrable Securities.
(vv) Subsequent Required Registration Amount means the number of shares of Common Stock issued and issuable pursuant to the Series A Warrants and the Series B Warrants equal the greater of (A) the sum of (x) the number of Series A Warrant Shares issued and issuable pursuant to the Series A Warrants determined in accordance with Section 2(d) of the
Series A Warrants assuming a Reset Price (as defined in the Series A Warrants) equal to Reset Floor Price without giving effect to any limitation on exercise set forth therein to the extent such Series A Warrant Shares were not included in all Registration Statements previously declared effective hereunder, (y) the number of Series B Warrant Shares issued and issuable pursuant to the Series B Warrants assuming that the Maximum Eligibility Number (as defined in the Series B Warrant) is determined based on a Reset Price (as defined in the Series B Warrants) equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein to the extent such Series B Warrant Shares were not included in all Registration Statements previously declared effective hereunder and (B) the number of shares of Common Stock issuable upon exercise of the Series A Warrants and the Series B Warrants, each without giving effect to any limitation on exercise set forth in the Primary Warrants to the extent such Series A Warrant Shares and Series B Warrant Shares were not included in all Registration Statements previously declared effective hereunder, calculated as of the Trading Day immediately preceding the applicable date of determination and all subject to adjustment as provided in Section 2(g).
(ww) Trading Day means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities exchange or securities market on which the Common Stock is then traded.
2. Registration.
(a) Initial Mandatory Registration. The Company shall prepare, and, as soon as practicable but in no event later than the Initial Filing Deadline, file with the SEC the Initial Registration Statement on Form S-3 covering the resale of all of the Initial Registrable Securities. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration on another appropriate form reasonably acceptable to the Required Holders, subject to the provisions of Section 2(f). The Initial Registration Statement prepared pursuant hereto shall register for resale at least the number of shares of Common Stock equal to the Initial Required Registration Amount determined as of the date the Initial Registration Statement is initially filed with the SEC, subject to adjustment as provided in Section 2(g). The Initial Registration Statement shall contain (except if otherwise directed by the Required Holders) the Plan of Distribution and Selling Stockholders sections in substantially the form attached hereto as Exhibit B. The Company shall use its commercially reasonable efforts to have the Initial Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Initial Effectiveness Deadline. By 9:30 a.m. New York time on the Business Day following the Initial Effective Date, the Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with sales pursuant to such Initial Registration Statement.
(b) Subsequent Mandatory Registrations. The Company shall prepare, and, as soon as practicable but in no event later than the Subsequent Filing Deadline, file with the SEC a Subsequent Registration Statement on Form S-3 covering the resale of all of the Subsequent Registrable Securities not previously registered on a Subsequent Registration Statement hereunder. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration on another appropriate form reasonably acceptable to the Required Holders, subject to the provisions of Section 2(f). Each Subsequent
Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the Subsequent Required Registration Amount determined as of the date such Subsequent Registration Statement is initially filed with the SEC, subject to adjustment as provided in Section 2(g). Each Subsequent Registration Statement shall contain (except if otherwise directed by the Required Holders) the Plan of Distribution and Selling Stockholders sections in substantially the form attached hereto as Exhibit B. The Company shall use its commercially reasonable efforts to have each Subsequent Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Subsequent Effectiveness Deadline. By 9:30 a.m. New York time on the Business Day following the Subsequent Effective Date, the Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with sales pursuant to such Subsequent Registration Statement.
(c) Additional Mandatory Registrations. The Company shall prepare, and, as soon as practicable but in no event later than the Additional Filing Deadline, file with the SEC an Additional Registration Statement on Form S-3 covering the resale of all of the Additional Registrable Securities not previously registered on an Additional Registration Statement hereunder. To the extent the staff of the SEC does not permit the Additional Required Registration Amount to be registered on an Additional Registration Statement, the Company shall file Additional Registration Statements successively trying to register on each such Additional Registration Statement the maximum number of remaining Additional Registrable Securities until the Additional Required Registration Amount has been registered with the SEC. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration on another appropriate form reasonably acceptable to the Required Holders, subject to the provisions of Section 2(f). Each Additional Registration Statement prepared pursuant hereto shall register for resale at least that number of shares of Common Stock equal to the Additional Required Registration Amount determined as of the date such Additional Registration Statement is initially filed with the SEC, subject to adjustment as provided in Section 2(g). Each Additional Registration Statement shall contain (except if otherwise directed by the Required Holders) the Plan of Distribution and Selling Stockholders sections in substantially the form attached hereto as Exhibit B. The Company shall use its commercially reasonable efforts to have each Additional Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the Additional Effectiveness Deadline. By 9:30 a.m. New York time on the Business Day following the Additional Effective Date, the Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with sales pursuant to such Additional Registration Statement.
(d) Allocation of Registrable Securities. The initial number of Registrable Securities included in any Registration Statement and any increase or decrease in the number of Registrable Securities included therein shall be allocated pro rata among the Investors based on the number of Registrable Securities held by each Investor at the time the Registration Statement covering such initial number of Registrable Securities or increase or decrease thereof is declared effective by the SEC. In the event that an Investor sells or otherwise transfers any of such Investors Registrable Securities, each transferee shall be allocated a pro rata portion of the then remaining number of Registrable Securities included in such Registration Statement for such transferor. Any shares of Common Stock included in a Registration Statement and which remain
allocated to any Person which ceases to hold any Registrable Securities covered by such Registration Statement shall be allocated to the remaining Investors, pro rata based on the number of Registrable Securities then held by such Investors which are covered by such Registration Statement. In no event shall the Company include any securities other than Registrable Securities on any Registration Statement without the prior written consent of the Required Holders.
(e) Legal Counsel. Subject to Section 5 hereof, the Required Holders shall have the right to select one legal counsel to review and oversee any registration pursuant to this Section 2 (Legal Counsel), which shall be Schulte Roth & Zabel LLP or such other counsel as thereafter designated by the Required Holders. The Company and Legal Counsel shall reasonably cooperate with each other in performing the Companys obligations under this Agreement.
(f) Ineligibility for Form S-3. In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (i) register the resale of the Registrable Securities on Form S-1 or another appropriate form reasonably acceptable to the Required Holders and (ii) undertake to register the Registrable Securities on Form S-3 as soon as such form is available, provided that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the SEC.
(g) Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2(a), Section 2(b) or Section 2(c) is insufficient to cover the Required Registration Amount of Registrable Securities required to be covered by such Registration Statement or an Investors allocated portion of the Registrable Securities pursuant to Section 2(d), the Company shall amend the applicable Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least the Required Registration Amount as of the Trading Day immediately preceding the date of the filing of such amendment or new Registration Statement, in each case, as soon as practicable, but in any event not later than fifteen (15) days after the necessity therefor arises. The Company shall use its commercially reasonable efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed insufficient to cover all of the Registrable Securities if at any time the number of shares of Common Stock available for resale under the Registration Statement is less than the Required Registration Amount as of such time. The calculation set forth in the foregoing sentence shall be made without regard to any limitations on the exercise of the Warrants, such calculation shall assume that the Bridge Warrants are then exercisable in full into a number of shares of Common Stock equal to the Applicable Percentage of the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the Bridge Warrants then outstanding, without giving effect to any limitation on exercise included in the Bridge Warrants and (i) until the Reservation Date, such calculation shall assume that the Series A Warrants and the Series B Warrants are then exercisable in full into a number of shares of Common Stock equal to the sum of (x) the number of Series A Warrant Shares issued and issuable pursuant to the Series A Warrants determined in accordance with Section 2(d) of the Series A Warrants assuming a Reset Price (as defined in the Series A
Warrants) equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein, (y) the number of Series B Warrant Shares issued and issuable pursuant to the Series B Warrants assuming that the Maximum Eligibility Number (as defined in the Series B Warrant) is determined based on a Reset Price (as defined in the Series B Warrants) equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein, and (ii) thereafter, 100% of the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of the Primary Warrants then outstanding, without giving effect to any limitation on exercise included in the Primary Warrants
(h) Effect of Failure to File and Obtain and Maintain Effectiveness of Registration Statement. If (x) a Registration Statement covering all of the Registrable Securities required to be covered thereby and required to be filed by the Company pursuant to this Agreement is (A) not filed with the SEC on or before the applicable Filing Deadline (a Filing Failure) or (B) not declared effective by the SEC on or before the applicable Effectiveness Deadline, (an Effectiveness Failure) or (y) on any day after the applicable Effective Date sales of all of the Registrable Securities required to be included on such Registration Statement cannot be made (other than during an Allowable Grace Period (as defined in Section 3(r)) pursuant to such Registration Statement or otherwise (including, without limitation, because of the suspension of trading or any other limitation imposed by an Eligible Market, a failure to keep such Registration Statement effective, a failure to disclose such information as is necessary for sales to be made pursuant to such Registration Statement, a failure to register a sufficient number of shares of Common Stock or a failure to maintain the listing of the Common Stock) (a Maintenance Failure), then, as partial relief for the damages to any holder by reason of any such delay in or reduction of its ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity, including, without limitation, specific performance or the additional obligation of the Company to register any Cutback Shares), the Company shall pay to each holder of Registrable Securities relating to such Registration Statement an amount in cash equal to two percent (2.0%) of the aggregate Purchase Price (as such term is defined in the Securities Purchase Agreement) of such Investors Registrable Securities whether or not included in such Registration Statement on each of the following dates: (i) the day of a Filing Failure; (ii) the day of an Effectiveness Failure; (iii) the initial day of a Maintenance Failure; (iv) on the thirtieth day after the date of a Filing Failure and every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until such Filing Failure is cured; (v) on the thirtieth day after the date of an Effectiveness Failure and every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until such Effectiveness Failure is cured; and (vi) on the thirtieth day after the initial date of a Maintenance Failure and every thirtieth day thereafter (pro rated for periods totaling less than thirty days) until such Maintenance Failure is cured. The payments to which a holder shall be entitled pursuant to this Section 2(h) are referred to herein as Registration Delay Payments. In no event shall the aggregate amount of all Registration Delay Payments payable to an Investor exceed 8.0% of the aggregate Purchase Price of such Investors Registrable Securities. Registration Delay Payments shall be paid on the earlier of (I) the dates set forth above and (II) the third Business Day after the event or failure giving rise to the Registration Delay Payments is cured. In the event the Company fails to make Registration Delay Payments in a timely manner, such Registration Delay Payments shall bear interest at the rate of one and one-half percent (1.5%) per month (prorated for partial months) until paid in full.
3. Related Obligations.
At such time as the Company is obligated to file a Registration Statement with the SEC pursuant to Section 2(a), 2(b), 2(c), 2(f) or 2(g), the Company will use its commercially reasonable efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:
(a) The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities and use its commercially reasonable efforts to cause such Registration Statement relating to the Registrable Securities to become effective as soon as practicable after such filing (but in no event later than the Effectiveness Deadline). The Company shall use commercially reasonable efforts to keep each Registration Statement effective pursuant to Rule 415 at all times until the earlier of (i) the date as of which the Investors may sell all of the Registrable Securities covered by such Registration Statement without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1) (or any successor thereto) promulgated under the 1933 Act or (ii) the date on which the Investors shall have sold all of the Registrable Securities covered by such Registration Statement (the Registration Period). The Company shall ensure that each Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein (in the case of prospectuses, in the light of the circumstances in which they were made) not misleading. The term commercially reasonable efforts shall mean, among other things, that the Company shall submit to the SEC, within two (2) Business Days after the later of the date that (i) the Company learns that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has no further comments on a particular Registration Statement, as the case may be, and (ii) the approval of Legal Counsel pursuant to Section 3(c) (which approval is immediately sought), a request for acceleration of effectiveness of such Registration Statement to a time and date not later than two (2) Business Days after the submission of such request. The Company shall respond in writing to comments made by the SEC in respect of a Registration Statement as soon as practicable, but in no event later than fifteen (15) days after the receipt of comments by or notice from the SEC that an amendment is required in order for a Registration Statement to be declared effective.
(b) The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to a Registration Statement and the prospectus used in connection with such Registration Statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the 1933 Act, as may be necessary to keep such Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities of the Company covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3(b)) by reason of the Company
filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the 1934 Act), the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement such Registration Statement.
(c) The Company shall (A) permit Legal Counsel to review and comment upon (i) a Registration Statement at least three (3) Business Days prior to its filing with the SEC and (ii) all amendments and supplements to all Registration Statements (except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any similar or successor reports) within a reasonable number of days prior to their filing with the SEC, and (B) not file any Registration Statement or amendment or supplement thereto in a form to which Legal Counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (i) copies of any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any Registration Statement, (ii) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by an Investor, and all exhibits and (iii) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, upon the effectiveness of any Registration Statement, one copy of the prospectus included in such Registration Statement and all amendments and supplements thereto. The Company shall reasonably cooperate with Legal Counsel in performing the Companys obligations pursuant to this Section 3.
(d) The Company shall furnish to each Investor whose Registrable Securities are included in any Registration Statement, without charge, upon request, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such Registration Statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference, if requested by an Investor, all exhibits and each preliminary prospectus, (ii) upon the effectiveness of any Registration Statement, ten (10) copies of the prospectus included in such Registration Statement and all amendments and supplements thereto (or such other number of copies as such Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as such Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by such Investor.
(e) The Company shall use its commercially reasonable efforts to (i) register and qualify, unless an exemption from registration and qualification applies, the resale by Investors of the Registrable Securities covered by a Registration Statement under such other securities or blue sky laws of all applicable jurisdictions in the United States, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be
reasonably necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(e), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify Legal Counsel and each Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or blue sky laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.
(f) The Company shall notify Legal Counsel and each Investor in writing of the happening of any event, as promptly as practicable after becoming aware of such event but in any event on the same Trading Day as such event, as a result of which the prospectus included in a Registration Statement, as then in effect, includes an untrue statement of a material fact or omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (provided that in no event shall such notice contain any material, nonpublic information), and, subject to Section 3(r), promptly prepare a supplement or amendment to such Registration Statement to correct such untrue statement or omission, and, if requested by an Investor, unless filed with the SEC through EDGAR and available to the public through the EDGAR system, deliver one copy of such supplement or amendment to Legal Counsel and each Investor (or such other number of copies as Legal Counsel or such Investor may reasonably request). The Company shall also promptly notify Legal Counsel and each Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a Registration Statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to Legal Counsel and each Investor by facsimile or email on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to a Registration Statement or related prospectus or related information and (iii) of the Companys reasonable determination that a post-effective amendment to a Registration Statement would be appropriate. By 9:30 a.m. New York City time on the Trading Day following the date any post-effective amendment has become effective, the Company shall file with the SEC in accordance with Rule 424 under the 1933 Act the final prospectus to be used in connection with sales pursuant to such Registration Statement.
(g) The Company shall use its commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify Legal Counsel and each Investor who holds Registrable Securities being sold of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
(h) If any Investor is required under applicable securities laws to be described in the Registration Statement as an underwriter or an Investor believes that it could reasonably be deemed to be an underwriter of Registrable Securities, at the reasonable request of such Investor, the Company shall furnish to such Investor, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as an Investor may reasonably request (i) a letter, dated such date, from the Companys independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Investors, and (ii) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given in an underwritten public offering, addressed to the Investors.
(i) If any Investor is required under applicable securities laws to be described in the Registration Statement as an underwriter or an Investor believes that it could reasonably be deemed to be an underwriter of Registrable Securities, the Company shall make available for inspection by (i) such Investor, (ii) Legal Counsel and (iii) one firm of accountants or other agents retained by the Investors (collectively, the Inspectors), all pertinent financial and other records, and pertinent corporate documents and properties of the Company (collectively, the Records), as shall be reasonably deemed necessary by each Inspector, and cause the Companys officers, directors and employees to supply all information which any Inspector may reasonably request; provided, however, that each Inspector shall agree to hold in strict confidence and shall not make any disclosure (except to an Investor) or use of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (a) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement or is otherwise required under the 1933 Act, (b) the release of such Records is ordered pursuant to a final, non-appealable subpoena or order from a court or government body of competent jurisdiction, or (c) the information in such Records has been made generally available to the public other than by disclosure in violation of this Agreement. Each Investor agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein (or in any other confidentiality agreement between the Company and any Investor) shall be deemed to limit the Investors ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations.
(j) The Company shall hold in confidence and not make any disclosure of information concerning an Investor provided to the Company unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, or (iv) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning an Investor is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Investor and allow such Investor, at the Investors expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.
(k) The Company shall use its commercially reasonable efforts either to (i) cause all of the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange or (ii) secure the inclusion for quotation of all of the Registrable Securities on the Principal Market or (iii) if, despite the Companys commercially reasonable efforts, the Company is unsuccessful in satisfying the preceding clauses (i) and (ii), to secure the inclusion for quotation on an Eligible Market for such Registrable Securities and, without limiting the generality of the foregoing, to use its commercially reasonable efforts to arrange for at least two market makers to register with the Financial Industry Regulatory Authority, Inc. (FINRA) as such with respect to such Registrable Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3(k).
(l) The Company shall cooperate with the Investors who hold Registrable Securities being offered and, to the extent applicable, facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Investors may reasonably request and registered in such names as the Investors may request.
(m) If requested by an Investor, the Company shall as soon as practicable (i) incorporate in a prospectus supplement or post-effective amendment such information as an Investor reasonably requests to be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering; (ii) make all required filings of such prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any Registration Statement if reasonably requested by an Investor holding any Registrable Securities.
(n) The Company shall use its commercially reasonable efforts to cause the Registrable Securities covered by a Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
(o) The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with, and in the manner provided by, the provisions of Rule 158 under the 1933 Act) covering a twelve-month period beginning not later than the first day of the Companys fiscal quarter next following the applicable Effective Date of a Registration Statement.
(p) The Company shall otherwise use its commercially reasonable efforts to comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
(q) Within two (2) Business Days after a Registration Statement which covers Registrable Securities is declared effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investors whose Registrable Securities are included in such Registration Statement) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.
(r) Notwithstanding anything to the contrary herein, at any time after the Effective Date, the Company may delay the disclosure of material, non-public information concerning the Company the disclosure of which at the time is not, in the good faith opinion of the Board of Directors of the Company and its counsel, in the best interest of the Company and, in the opinion of counsel to the Company, otherwise required (a Grace Period); provided, that the Company shall promptly (i) notify the Investors in writing of the existence of material, non-public information giving rise to a Grace Period (provided that in each notice the Company will not disclose the content of such material, non-public information to the Investors) and the date on which the Grace Period will begin, and (ii) notify the Investors in writing of the date on which the Grace Period ends; and, provided further, that no Grace Period shall exceed five (5) consecutive Trading Days and during any three hundred sixty five (365) day period such Grace Periods shall not exceed an aggregate of forty (40) days and the first day of any Grace Period must be at least five (5) Trading Days after the last day of any prior Grace Period (each, an Allowable Grace Period). For purposes of determining the length of a Grace Period above, the Grace Period shall begin on and include the date the Investors receive the notice referred to in clause (i) and shall end on and include the later of the date the Investors receive the notice referred to in clause (ii) and the date referred to in such notice. The provisions of Section 3(g) hereof shall not be applicable during the period of any Allowable Grace Period. Upon expiration of the Grace Period, the Company shall again be bound by the first sentence of Section 3(f) with respect to the information giving rise thereto unless such material, non-public information is no longer applicable. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale, prior to the Investors receipt of the notice of a Grace Period and for which the Investor has not yet settled.
(s) Neither the Company nor any Subsidiary or affiliate thereof shall identify any Investor as an underwriter in any public disclosure or filing with the SEC, the Principal Market or any Eligible Market and any Investor being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has under this Agreement or any other Transaction Document (as defined in the Securities Purchase Agreement); provided, however, that the foregoing shall not prohibit the Company from including the disclosure found in the Plan of Distribution section attached hereto as Exhibit B in the Registration Statement.
(t) Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Buyers in this Agreement or otherwise conflicts with the provisions hereof.
4. Obligations of the Investors.
(a) At least five (5) Business Days prior to the first anticipated Filing Date of a Registration Statement, the Company shall notify each Investor in writing of the information the Company requires from each such Investor if such Investor elects to have any of such Investors Registrable Securities included in such Registration Statement. It shall be a condition precedent to the obligations of the Company to complete any registration pursuant to this Agreement with respect to the Registrable Securities of a particular Investor that such Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect and maintain the effectiveness of the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.
(b) Each Investor, by such Investors acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Investor has notified the Company in writing of such Investors election to exclude all of such Investors Registrable Securities from such Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of Section 3(f), such Investor will immediately discontinue disposition of Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until such Investors receipt of copies of the supplemented or amended prospectus as contemplated by Section 3(g) or the first sentence of Section 3(f) or receipt of notice that no supplement or amendment is required. Notwithstanding anything to the contrary, the Company shall cause its transfer agent to deliver unlegended shares of Common Stock to a transferee of an Investor in accordance with the terms of the Securities Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investors receipt of a notice from the Company of the happening of any event of the kind described in Section 3(g) or the first sentence of Section 3(f) and for which the Investor has not yet settled.
(d) Each Investor covenants and agrees that it will comply with the prospectus delivery requirements of the 1933 Act as applicable to it or an exemption therefrom in connection with sales of Registrable Securities pursuant to the Registration Statement.
5. Expenses of Registration.
All reasonable expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company shall be paid by the Company. The Company shall also reimburse the Investors for the fees and disbursements of Legal Counsel in connection with the registration, filing or qualification pursuant to Sections 2 and 3 of this Agreement, which amount shall be limited to $10,000 for each such registration, filing or qualification without the prior written consent of the Company
6. Indemnification.
In the event any Registrable Securities are included in a Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend each Investor, the directors, officers, partners, members, employees, agents, representatives of, and each Person, if any, who controls any Investor within the meaning of the 1933 Act or the 1934 Act (each, an Indemnified Person), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, reasonable attorneys fees, amounts paid in settlement or expenses, joint or several (collectively, Claims), incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (Indemnified Damages), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in a Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other blue sky laws of any jurisdiction in which Registrable Securities are offered (Blue Sky Filing), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to a Registration Statement or (iv) any violation of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, Violations). For the avoidance of doubt, the Violations set forth in this Section 6(a) are intended to apply, and shall apply, to direct claims asserted by any Buyer against the Company as well as any third party claims asserted by an Indemnified Person (other than a Buyer) against the Company. Subject to Section 6(c), the Company shall reimburse the Indemnified Persons, promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by such Indemnified Person for such Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(d); and (ii) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld or
delayed. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an Investor is participating, each such Investor agrees to severally and not jointly indemnify, hold harmless and defend, to the same extent and in the same manner as is set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement and each Person, if any, who controls the Company within the meaning of the 1933 Act or the 1934 Act (each, an Indemnified Party), against any Claim or Indemnified Damages to which any of them may become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or Indemnified Damages arise out of or are based upon any Violation, in each case to the extent, and only to the extent, that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by such Investor expressly for use in connection with such Registration Statement; and, subject to Section 6(c), such Investor shall reimburse the Indemnified Party for any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any such Claim; provided, however, that the indemnity agreement contained in this Section 6(b) and the agreement with respect to contribution contained in Section 7 shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of such Investor, which consent shall not be unreasonably withheld or delayed; provided, further, however, that the Investor shall be liable under this Section 6(b) for only that amount of a Claim or Indemnified Damages as does not exceed the net proceeds to such Investor as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Investors pursuant to Section 9.
(c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and, the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses of not more than one counsel for all such Indemnified Person or Indemnified Party to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the Indemnified Person or Indemnified Party, as applicable, the representation by such counsel of the Indemnified Person or Indemnified Party, as the case may be, and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. In the case of an Indemnified Person, legal counsel referred to in the immediately preceding sentence shall be selected by the Investors holding at least a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The Indemnified Party or
Indemnified Person shall reasonably cooperate with the indemnifying party in connection with any negotiation or defense of any such action or Claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or Claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its prior written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the prior written consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such Claim or litigation and such settlement shall not include any admission as to fault on the part of the Indemnified Party. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The provisions of this Section 6(c) shall not apply to direct claims between the Company and a Buyer.
(d) The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
(e) The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
7. Contribution.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no Person involved in the sale of Registrable Securities which Person is guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) in connection with such sale shall be entitled to contribution from any Person involved in such sale of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the amount of net proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement.
8. Reports Under the 1934 Act.
With a view to making available to the Investors the benefits of Rule 144 promulgated under the 1933 Act or any other similar rule or regulation of the SEC that may at any time permit the Investors to sell securities of the Company to the public without registration (Rule 144), the Company agrees to, so long as an Investor owns Registrable Securities:
(a) make and keep public information available, as those terms are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144; and
(c) furnish to each Investor so long as such Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company, if true, that it has complied with the reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company (unless such report or document is already publicly available), and (iii) such other information as may be reasonably requested to permit the Investors to sell such securities pursuant to Rule 144 without registration.
9. Assignment of Registration Rights.
The rights under this Agreement shall be automatically assignable by the Investors to any transferee of all or any portion of such Investors Registrable Securities if: (i) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (a) the name and address of such transferee or assignee, and (b) the securities with respect to which such registration rights are being transferred or assigned; (iii) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act or applicable state securities laws; (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (v) such transfer shall have been made in accordance with the applicable requirements of the Securities Purchase Agreement.
10. Amendment of Registration Rights.
Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Required Holders. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Investor and the Company. No such amendment shall be effective to the extent that it applies to less than all of the holders of the Registrable Securities. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of this Agreement unless the same consideration (other than the reimbursement of legal fees) also is offered to all of the parties to this Agreement.
11. Miscellaneous.
(a) Notwithstanding anything herein to the contrary, this Agreement shall not be effective unless and until the transactions contemplated by the Merger Agreement are consummated.
(b) A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from such record owner of such Registrable Securities.
(c) Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon delivery, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party), (iii) upon delivery, when sent by electronic mail (provided that the sending party does not receive an automated rejection notice); or (iv) one Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:
If to the Company:
BioPharmX Corporation
900 E. Hamilton Ave., Suite 100
Campbell, California 95008
Facsimile: |
(305) 349-4833 |
Attention: |
Chief Executive Officer |
E-mail: |
sbosacki@biopharmx.com |
With a copy (for informational purposes only) to:
Lowenstein Sandler LLP
1251 Avenue of the Americas
New York, New York 10020
Telephone: |
(973) 597-2476 |
Facsimile: |
(973) 597-2477 |
Attention: |
Steven M. Skolnick, Esq. |
E-mail: |
sskolnick@lowenstein.com |
and, if on or prior to the Closing Date:
Akerman LLP
350 East Las Olas Blvd.
Suite 1600
Fort Lauderdale, FL 33131
Telephone: |
(954) 468-2455 |
Facsimile: |
(305) 349-4833 |
Attention: |
Philip B. Schwartz, Esq. |
E-mail: |
philip.schwartz@akerman.com |
If to the Transfer Agent:
Computershare Trust Company, N.A.
520 Pike Street, Suite 1305
Seattle, WA 98101
Telephone: |
(206) 674-3050 |
Facsimile: |
(206) 674-3059 |
Attention: |
Lisa Porter |
E-mail: |
lisa.porter@computershare.com |
If to Legal Counsel:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, New York 10022
Telephone: |
(212) 756-2000 |
Facsimile: |
(212) 593-5955 |
Attention: |
Eleazer Klein, Esq. |
Email: |
eleazer.klein@srz.com |
If to a Buyer, to its address, facsimile number or email address set forth on the Schedule of Buyers attached hereto, with copies to such Buyers representatives as set forth on the Schedule of Buyers, or to such other address, facsimile number and/or email address to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the senders facsimile machine or e-mail transmission containing the
time, date, recipient facsimile number or e-mail address and an image of the first page of such transmission or (C) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
(d) Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
(e) All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
(f) If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
(g) This Agreement, the other Transaction Documents (as defined in the Securities Purchase Agreement) and the instruments referenced herein and therein constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement, the other Transaction Documents and the instruments referenced herein and therein supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.
(h) Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the permitted successors and assigns of each of the parties hereto.
(i) The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
(j) This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission or electronic mail of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
(k) Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
(l) All consents and other determinations required to be made by the Investors pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by the Required Holders, determined as if all of the Warrants held by Investors then outstanding have been exercised for Registrable Securities without regard to any limitations on exercise of the Warrants.
(m) The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
(n) This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
(o) The obligations of each Investor hereunder are several and not joint with the obligations of any other Investor, and no provision of this Agreement is intended to confer any obligations on any Investor vis-à-vis any other Investor. Nothing contained herein, and no action taken by any Investor pursuant hereto, shall be deemed to constitute the Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investors are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated herein.
* * * * * *
IN WITNESS WHEREOF, each Buyer and the Company have caused their respective signature page to this Registration Rights Agreement to be duly executed as of the date first written above.
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COMPANY: | |
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BIOPHARMX CORPORATION | |
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By: |
/s/ Steven M. Bosacki |
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Name: |
Steven M. Bosacki |
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Title: |
Chief Executive Officer |
[FORM OF SERIES [A] [B] WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE HOLDER, IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
TIMBER PHARMACEUTICALS, INC.
SERIES [A] [B] WARRANT TO PURCHASE COMMON STOCK
Warrant No.:
Number of Shares of Common Stock:
Date of Issuance: [·], 2020(1) (Issuance Date)
Timber Pharmaceuticals, Inc., a Delaware corporation formerly known as BioPharmX Corporation (the Company), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [HOLDER], the registered holder hereof or its permitted assigns (the Holder), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, at any time or times on or after the date hereof, but not after 11:59 p.m., New York time, on the Expiration Date, (as defined below), [INSERT IN SERIES A WARRANT: ( )(2) fully paid nonassessable shares of Common Stock] [INSERT IN SERIES B WARRANT: a number of fully paid nonassessable shares of Common Stock equal to the Maximum Eligibility Number], subject to adjustment as provided herein (the Warrant Shares). Except as otherwise defined herein, capitalized terms in this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, this Warrant), shall have the meanings set forth in
(1) Insert the Warrant Closing Date (as defined in the Securities Purchase Agreement).
(2) Insert 75% of the sum of (i) the number of Exchange Shares issued in exchange for the number of Initial Common Units (as defined in the Securities Purchase Agreement) purchased by the Holder pursuant to the Securities Purchase Agreement, (ii) the number of Exchange Shares issued in exchange of the number of Additional Common Units (as defined in the Securities Purchase Agreement) delivered or deliverable to the Holder pursuant to the Securities Purchase Agreement without giving effect to any limitation on delivery to the Holder pursuant to Section 1(c)(iv) of the Securities Purchase Agreement and (iii) the Initial Maximum Eligibility Number (as defined in the Series B Warrants).
Section 18. This Warrant is one of the [INSERT IN SERIES A WARRANT: Series A] [INSERT IN SERIES B WARRANT: Series B] Warrants to purchase Common Stock (the SPA Warrants) issued pursuant to Section 1 of that certain Securities Purchase Agreement, dated as of [], 2020 (the Subscription Date), by and among the Company, Timber Pharmaceuticals LLC, a Delaware limited liability company, and the investors (the Buyers) referred to therein (as may be amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms, the Securities Purchase Agreement). Capitalized terms used herein and not otherwise defined shall have the definitions ascribed to such terms in the Securities Purchase Agreement.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder at any time or times on or after the Issuance Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the Exercise Notice), of the Holders election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the Aggregate Exercise Price) in cash by wire transfer of immediately available funds or (B) [INSERT IN SERIES A WARRANT: if the provisions of Section 1(d) are applicable,] by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder, nor shall any ink-original signature or medallion guarantee (or other type of guarantee or notarization) with respect to any Exercise Notice be required. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1st) Trading Day following the date on which the Holder has delivered the applicable Exercise Notice to the Company, the Company shall transmit by facsimile or electronic mail an acknowledgment of confirmation of receipt of the Exercise Notice to the Holder and the Companys transfer agent (the Transfer Agent). On or before the applicable Share Delivery Date, the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (DTC) Fast Automated Securities Transfer Program and (A) the applicable Warrant Shares are subject to an effective resale registration statement in favor of the Holder or (B) if exercised via Cashless Exercise, at a time when Rule 144 would be available for immediate resale of the applicable Warrant Shares by the Holder, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holders or its designees balance account with DTC through its Deposit / Withdrawal At Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or (A) the applicable Warrant Shares are not subject to an effective resale registration statement in favor of the Holder and (B) if exercised via Cashless Exercise, at a time when Rule 144 would not be available for immediate resale of the applicable Warrant Shares by the Holder, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Companys share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and
expenses with respect to the issuance of Warrant Shares via DTC, if any, including, without limitation, for same day processing. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holders DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than two (2) Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 7(d)) representing the right to purchase the number of Warrant Shares issuable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but rather the number of Warrant Shares to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. The Companys obligations to issue and deliver Warrant Shares in accordance with the terms and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination. While any SPA Warrants remain outstanding, the Company shall use a transfer agent that participates in the DTC Fast Automated Securities Transfer Program. [INSERT IN SERIES B WARRANT: NOTWITHSTANDING ANY PROVISION OF THIS WARRANT TO THE CONTRARY, NO MORE THAN THE MAXIMUM ELIGIBILITY NUMBER OF WARRANT SHARES SHALL BE EXERCISABLE IN THE AGGREGATE HEREUNDER.] For the avoidance of doubt, without limiting any rights of a Holder to receive cash payments pursuant to Section 1(c) below, the Company shall not be required to cash settle the exercise of this Warrant if an effective resale registration statement is not in place at the time of exercise.
(b) Exercise Price. For purposes of this Warrant, Exercise Price means $[·](3) per share, subject to adjustment as provided herein.
(c) Companys Failure to Timely Deliver Securities. If the Company shall fail for any reason or for no reason to issue to the Holder on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Companys share register or if
(3) [INSERT IN SERIES A WARRANT: Insert 125% of the lower of (i) the quotient determined by dividing (x) the aggregate Purchase Price paid by the initial Holder of this Warrant pursuant to the Securities Purchase Agreement, by (y) the number of Initial Common Shares purchased by the initial Holder of this Warrant pursuant to the Securities Purchase Agreement (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the Subscription Date) and (ii) the Final Per Share Price (as defined in the Securities Purchase Agreement).]
[INSERT IN SERIES B WARRANT: Insert 0.001.]
the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, to credit the Holders balance account with DTC, for such number of shares of Common Stock to which the Holder is entitled upon the Holders exercise of this Warrant or (II) if the Registration Statement covering the resale of the Warrant Shares that are the subject of the Exercise Notice (the Unavailable Warrant Shares) is not available for the resale of such Unavailable Warrant Shares and the Company fails to promptly, but in no event later than as is required pursuant to the Registration Rights Agreement (x) so notify the Holder and (y) deliver the Warrant Shares electronically without any restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holders or its designees balance account with DTC through its Deposit / Withdrawal At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred as a Notice Failure and together with the event described in clause (I) above, an Exercise Failure), then, in addition to all other remedies available to the Holder, (X) the Company shall pay in cash to the Holder on each day after the applicable Share Delivery Date and during such Exercise Failure an amount equal to 1.5% of the product of (A) the number of shares of Common Stock not issued to the Holder on or prior to the applicable Share Delivery Date and to which the Holder is entitled, and (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the applicable date of delivery of the applicable Exercise Notice and ending on the applicable Share Delivery Date, and (Y) the Holder, upon written notice to the Company, may void its Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrant that has not been exercised pursuant to such Exercise Notice; provided that the voiding of an Exercise Notice shall not affect the Companys obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise. In addition to the foregoing, if on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Companys share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit the Holders balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holders exercise hereunder or pursuant to the Companys obligation pursuant to clause (ii) below or (II) a Notice Failure occurs, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock relating to the applicable Exercise Failure (a Buy-In), then the Company shall, within three (3) Trading Days after the Holders request and in the Holders discretion, either (i) pay cash to the Holder in an amount equal to the Holders total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the Buy-In Price), at which point the Companys obligation to deliver such certificate (and to issue such shares of Common Stock) or credit the Holders balance account with DTC for such shares of Common Stock shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holders balance account with DTC, as applicable, and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the date of delivery of the applicable Exercise Notice and ending on the applicable Share Delivery Date. Nothing herein shall limit the Holders right to pursue any other remedies available to it hereunder,
at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Companys failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) upon the exercise of this Warrant as required pursuant to the terms hereof.
(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary, [INSERT IN SERIES A WARRANT: if the Registration Statement covering the resale of the Unavailable Warrant Shares is not available for the resale of such Unavailable Warrant Shares,] the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the Net Number of shares of Common Stock determined according to the following formula (a Cashless Exercise):
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Net Number = |
(A x B) - (A x C) |
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B |
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For purposes of the foregoing formula: |
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A= the total number of shares with respect to which this Warrant is then being exercised.
B= as applicable: (i) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of regular trading hours (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (y) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice or (z) the Bid Price of the Common Stock on the principal Eligible Market for the Common Stock as reported by Bloomberg as of the time of the Holders execution of the applicable Exercise Notice if such Exercise Notice is executed during regular trading hours on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of regular trading hours on a Trading Day) pursuant to Section 1(a) hereof or (iii) the Weighted Average Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of regular trading hours on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
If shares of Common Stock are issued pursuant to this Section 1(d), the Company hereby acknowledges and agrees that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares for purposes of Rule 144(d), shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Securities Purchase Agreement. The Company agrees not to take any position contrary to this Section 1(d).
(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 12.
(f) Beneficial Ownership Limitation on Exercises. Notwithstanding anything to the contrary contained herein, the Company shall not effect the exercise of any portion of this Warrant, and the Holder shall not have the right to exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any such exercise shall be null and void and treated as if never made, to the extent that after giving effect to such exercise, the Holder together with the other Attribution Parties collectively would beneficially own in excess of [4.99] [9.99]%(4) (the Maximum Percentage) of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and the other Attribution Parties shall include the number of shares of Common Stock held by the Holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any convertible notes or convertible preferred stock or warrants, including the [INSERT IN SERIES A WARRANT: Series B] [INSERT IN SERIES B WARRANT: Series A] Warrants) beneficially owned by the Holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 1(f). For purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the 1934 Act). For purposes of this Warrant, in determining the number of outstanding shares of Common Stock the Holder may acquire upon the exercise of this Warrant without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Companys most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission (the SEC), as the case may be, (y) a more recent public announcement by the Company or (3) any other written notice by the Company or the Transfer
(4) Insert Maximum Percentage as indicated on the Buyers signature page attached to the Securities Purchase Agreement.
Agent setting forth the number of shares of Common Stock outstanding (the Reported Outstanding Share Number). If the Company receives an Exercise Notice from the Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall (i) promptly notify the Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Exercise Notice would otherwise cause the Holders beneficial ownership, as determined pursuant to this Section 1(f), to exceed the Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares to be purchased pursuant to such Exercise Notice (the number of shares by which such purchase is reduced, the Reduction Shares) and (ii) as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid by the Holder for the Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Trading Day confirm in writing or by electronic mail to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon exercise of this Warrant results in the Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so issued by which the Holders and the other Attribution Parties aggregate beneficial ownership exceeds the Maximum Percentage (the Excess Shares) shall be deemed null and void and shall be cancelled ab initio and any portion of this Warrant so exercised shall be reinstated, and the Holder shall not have the power to vote or to transfer the Excess Shares. As soon as reasonably practicable after the issuance of the Excess Shares has been deemed null and void, the Company shall return to the Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the other Attribution Parties and not to any other holder of SPA Warrants that is not an Attribution Party of the Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to the terms of this Warrant in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(f) to the extent necessary to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(f) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of this Warrant. For the avoidance of doubt, without limiting any rights of a Holder to receive cash payments pursuant to Section 1(c) below, in no event shall the Company be required to cash settle any Excess Shares.
(g) Insufficient Authorized Shares. If at any time while this Warrant remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this Warrant at least a number of shares of Common Stock equal to: (i) until the Reservation Date, [INSERT IN SERIES A WARRANT: the number of Warrant Shares issued and issuable pursuant to the SPA Warrants determined in accordance with Section 2(d) assuming a Reset Price equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein] [INSERT IN SERIES B WARRANT: the number of Warrant Shares issued and issuable pursuant to the SPA Warrants assuming that the Maximum Eligibility Number is determined based on a Reset Price equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein] and (ii) thereafter, 100% of the maximum number of shares of Common Stock as shall from time to time be necessary to effect the exercise of all of this Warrant then outstanding without regard to any limitation on exercise included herein (the foregoing clauses (i) and (ii), as applicable, the Required Reserve Amount and the failure to have such sufficient number of authorized and unreserved shares of Common Stock, an Authorized Share Failure), then the Company shall immediately take all action necessary to increase the Companys authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Warrant then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders approval of such increase in authorized shares of Common Stock and to cause its board of directors to recommend to the stockholders that they approve such proposal. Notwithstanding the foregoing, if any such time of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding shares of Common Stock to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. In the event that upon any exercise of this Warrant, the Company does not have sufficient authorized shares to deliver in satisfaction of such exercise, then unless the Holder elects to void such attempted exercise, the Holder may require the Company to pay to the Holder within three (3) Trading Days of the applicable exercise, cash in an amount equal to the product of (i) the number of Warrant Shares that the Company is unable to deliver pursuant to this Section 1(g) and (ii) the highest Weighted Average Price during the period beginning on the date of such attempted exercise and the date that the Company makes the applicable cash payment.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) [INSERT IN SERIES B WARRANT: Intentionally omitted.] [INSERT IN SERIES A WARRANT: Adjustment Upon Issuance of Shares of Common Stock. If and whenever on or after the Subscription Date and through the second (2nd) anniversary of the Issuance Date, inclusive,, the Company publicly announces, issues or sells, enters into a definitive,
binding agreement pursuant to which the Company is required to issue or sell or, in accordance with clauses (i) or (ii) of this Section 2(a), is deemed to have issued or sold, any shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities) for a consideration per share (the New Issuance Price) less than a price (the Applicable Price) equal to the Exercise Price in effect immediately prior to such public announcement, issue or sale or deemed issuance or sale or entry into such a definitive, binding agreement (the foregoing a Dilutive Issuance), then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price. In the event of any Dilutive Issuance after the second (2nd) anniversary of the Issuance Date, then immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the product of (A) the Exercise Price in effect immediately prior to such Dilutive Issuance and (B) the quotient determined by dividing (1) the sum of (I) the product derived by multiplying the Exercise Price in effect immediately prior to such Dilutive Issuance and the number of shares of Common Stock Deemed Outstanding immediately prior to such Dilutive Issuance plus (II) the consideration, if any, received by the Company upon such Dilutive Issuance, by (2) the product derived by multiplying (I) the Exercise Price in effect immediately prior to such Dilutive Issuance by (II) the number of shares of Common Stock Deemed Outstanding immediately after such Dilutive Issuance. For purposes of determining the adjusted Exercise Price under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or sells or enters into a definitive, binding agreement pursuant to which the Company is required to grant or sell, or the Company publicly announces the issuance or sale of, any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(a)(i), the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option less any consideration paid or payable by the Company with respect to such one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells, or enters into a definitive, binding agreement pursuant to which the
Company is required to grant or sell or the Company publicly announces the issuance or sale of, any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 2(a)(ii), the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security less any consideration paid or payable by the Company with respect to such one share of Common Stock upon the issuance or sale of such Convertible Security and upon conversion, exercise or exchange of such Convertible Security. No further adjustment of the Exercise Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(a), no further adjustment of the Exercise Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. Notwithstanding anything herein to the contrary, no adjustment to the Exercise Price or number of Warrant Shares shall be made pursuant to this Section 2(a) as a result of any change of the terms of any Options or Convertible Securities after their date of issuance.
(iv) Calculation of Consideration Received. If any Option and/or Convertible Security and/or Adjustment Right is issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company (as determined by the Holder, the Primary Security, and such Option and/or Convertible Security and/or Adjustment Right, the Secondary Securities), together comprising one integrated transaction, (or one or more transactions if such issuances or sales or deemed issuances or sales of securities of the Company either (A) have at least one investor or purchaser in common, (B) are consummated in reasonable proximity to each other and/or (C) are consummated under the same plan of financing) the aggregate consideration per share of Common Stock with respect to such Primary Security shall be deemed to be equal to the difference of (x) the lowest price per share for which one share of Common Stock was issued (or was deemed to be issued pursuant to Section 2(a)(i) or Section 2(a)(ii), as applicable) in such integrated transaction solely with respect to such Primary Security, minus (y) with respect to such Secondary Securities, the sum of (I) the Black Scholes Consideration Value of each such Option, if any, (II) the fair market value (as determined by the Holder in good faith) or the Black Scholes Consideration Value, as applicable, of such Adjustment Right, if any, and (III) the fair market value (as determined by the Holder) of such Convertible Security, if any, in each case, as determined on a per share basis in accordance with this Section 2(a)(iv). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor (for the purpose of determining the consideration paid
for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the net amount of consideration received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the arithmetic average of the Weighted Average Prices of such security for each of the five (5) Trading Days immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor (for the purpose of determining the consideration paid for such Common Stock, Option or Convertible Security, but not for the purpose of the calculation of the Black Scholes Consideration Value) will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the Valuation Event), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. Notwithstanding anything to the contrary contained herein, if a calculation pursuant to this Section 2(a)(iv) would result in an Exercise Price that is lower than the par value of the Common Stock, then the Exercise Price shall be deemed to equal the par value of the Common Stock.
(v) Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(vi) No Readjustments. For the avoidance of doubt, in the event the Exercise Price has been adjusted pursuant to this Section 2(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not consummated, is unwound or is cancelled after the facts for any reason whatsoever, in no event shall the Exercise Price be readjusted to the Exercise Price that would have been in effect if such Dilutive Issuance had not occurred or been consummated.
(vii) Exercise Floor Price. No adjustment to the Exercise Price pursuant to Section 2(a) of this Warrant shall cause the Exercise Price to be less than $[](5) (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the Closing Date) (the Exercise Floor Price). For the avoidance of doubt, if a Dilutive Issuance would cause the Exercise Price to be lower than the Exercise Floor Price but for the immediately preceding sentence, then the Exercise Price shall be equal to the Exercise Floor Price.]
(b) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant, with the prior written consent of the Holder, (i) reduce the then current Exercise Price and/or (ii) increase the then current number of Warrant Shares, in each case, to any amount or number and for any period of time deemed appropriate by the Board of Directors of the Company.
(c) Adjustment Upon Subdivision or Combination of Common Stock. If the Company at any time on or after the Closing Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Closing Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(d) Resets. [INSERT IN SERIES A WARRANT: On each Reset Date the Exercise Price shall be adjusted to equal the applicable Reset Price. Upon each Reset Date, the number of Warrant Shares issuable immediately prior to such reset shall be increased, but in no event decreased, to the number of shares of Common Stock determined by multiplying (x) the Exercise Price in effect on the Issuance Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the Issuance Date), or if a Reset Date has occurred hereunder, the Reset Price in effect on the immediately preceding Reset Date (in each case, as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after such Reset Date), as applicable, by (y) the number of Warrant Shares acquirable upon exercise of this Warrant immediately prior to such reset (which number of Warrant Shares, for the avoidance of doubt, shall give effect to any prior exercises of this Warrant) without regard to any limitation on exercise included herein, and dividing the product thereof by the Exercise Price resulting from such reset.] [INSERT IN SERIES B WARRANT: The Maximum Eligibility Number shall be increased (but not decreased) on each Reset Date to equal the applicable Reset Share Amount.]
(5) Insert price determined by calculating a fully-diluted post-merger (after giving effect to the issuance of the Initial Common Shares and Additional Common Shares, if any, without giving effect to the limitations under Section 1(c)(iv) of the Securities Purchase Agreement), valuation of $15,000,000.
(e) [INSERT IN SERIES A WARRANT: Other Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Companys Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares, as mutually determined by the Companys Board of Directors and the Required Holders, so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(e) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.]
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, Options, evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a Distribution), at any time after the Closing Date, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that to the extent that the Holders right to participate in any such Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time following the Closing Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the Purchase Rights), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any
limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, that to the extent that the Holders right to participate in any such Purchase Right would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to such extent) and such Purchase Right to such extent shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance) to the same extent as if there had been no such limitation).
(b) Fundamental Transactions. The Company shall not enter into, allow or be a party to a Fundamental Transaction until the Reservation Date. If, at any time after the Reservation Date until this Warrant ceases to be outstanding, a Fundamental Transaction occurs or is consummated, then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 1(f) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the Alternate Consideration) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 1(f) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the Successor Entity) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance reasonably satisfactory to the Required Holders and approved by the Required Holders (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any
limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Required Holders. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the Company shall be added to the term Company under this Warrant (so that from and after the occurrence or consummation of such Fundamental Transaction, each and every provision of this Warrant referring to the Company shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly and severally), and the Successor Entity or Successor Entities, jointly and severally with the Company, may exercise every right and power of the Company prior thereto and the Successor Entity or Successor Entities shall assume all of the obligations of the Company prior thereto under this Warrant with the same effect as if the Company and such Successor Entity or Successor Entities, jointly and severally, had been named as the Company in this Warrant.
(c) [INSERT IN SERIES A WARRANTS: Notwithstanding the foregoing, in the event of a Fundamental Transaction, at the request of the Holder delivered before the ninetieth (90th) day after the occurrence or consummation of such Fundamental Transaction, the Company (or the Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such request (or, if later, on the effective date of the Fundamental Transaction), cash in an amount equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the effective date of such Fundamental Transaction; provided, however, that, if such Fundamental Transaction is not within the Companys control, including not approved by the Companys Board of Directors, the Holder shall only be entitled to receive from the Company or any Successor Entity, the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with such Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with such Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which Successor Entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five (5) Business Days of the Holders election and (ii) the date of consummation of the Fundamental Transaction.]
5. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, and will at all times in good faith carry out all of the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, the Required Reserve Amount of shares of Common Stock.
6. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Persons capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Persons capacity as the Holder of this Warrant, any of the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 6, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
7. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 7(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 7(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 7(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 7(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no SPA Warrants for fractional Warrant Shares shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 7(a) or Section 7(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 10(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation; provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the time of exercise specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
9. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Required Holders. Any change, amendment or waiver pursuant to the immediately preceding sentence shall be binding on the Holder of this Warrant and all holders of the SPA Warrants. [INSERT IN SERIES A WARRANTS: Notwithstanding the foregoing, after the date that is ten (10) Trading Days immediately following the Reservation Date, the provisions of this Warrant may be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company has obtained the written consent of the Holder.]
10. GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in Section 10(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Companys obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
11. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and all the Buyers and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.
12. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall cause the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not disputed and the Company shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within one (1) Business Day of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within two (2) Business Days of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile or electronic mail (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Holder and approved by the Company, such approval not to be unreasonably withheld, conditioned or delayed or (b) the disputed arithmetic calculation of the Warrant Shares
to the Companys independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment banks or accountants determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.
13. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief). No remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy. Nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
14. TRANSFER. This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged or assigned without the consent of the Company, except as may otherwise be required by Section 2(f) of the Securities Purchase Agreement.
15. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the Company and the Holder as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the Company and the Holder or the practical realization of the benefits that would otherwise be conferred upon the Company and the Holder. The Company and the Holder will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
16. DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall contemporaneously with any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.
17. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Warrant is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b) there occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors rights and involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys fees and disbursements.
18. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) 1933 Act means the Securities Act of 1933, as amended.
(b) Additional Vested Common Shares means the Exchange Shares issued in exchange for the Additional Common Units (as defined in the Securities Purchase Agreement) delivered or deliverable to the initial Holder of this Warrant pursuant to the Securities Purchase Agreement without giving effect to any limitation on delivery to the Holder pursuant to Section 1(c)(iv) of the Securities Purchase Agreement.
(c) [INSERT IN SERIES A WARRANT: Adjustment Right means any right granted with respect to any securities issued in connection with, or with respect to, any issuance or sale (or deemed issuance or sale in accordance with Section 2(a)(i) or Section 2(a)(ii)) of shares of Common Stock (other than rights of the type described in Section 3 and 4 hereof) that could result in a decrease in the net consideration received by the Company in connection with, or with respect to, such securities (including, without limitation, any cash settlement rights, cash adjustment or other similar rights).] [INSERT IN SERIES B WARRANT: Intentionally omitted.]]
(d) Affiliate shall have the meaning ascribed to such term in Rule 405 promulgated under the 1933 Act or any successor rule.
(e) [INSERT IN SERIES A WARRANT: Approved Stock Plan means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Companys securities may be issued to any employee, officer or director for services provided to the Company.] [INSERT IN SERIES B WARRANT: Intentionally omitted.]
(f) Attribution Parties means, collectively, the following Persons: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed or advised by the Holders investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a
Group together with the Holder or any of the foregoing and (iv) any other Person whose beneficial ownership of the Common Stock would or could be aggregated with the Holders and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.
(g) Bid Price means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on an Eligible Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Eligible Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
(h) [INSERT IN SERIES A WARRANT: Black Scholes Consideration Value means the value of the applicable Option, Convertible Security or Adjustment Right (as the case may be) calculated using the Black-Scholes Option Pricing Model obtained from the OV function on Bloomberg determined as of the date of issuance and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option, Convertible Security or Adjustment Right (as the case may be) as of the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the issuance of such Option, Convertible Security or Adjustment Right (as the case may be), or, if the issuance of such Option, Convertible Security or Adjustment Right (as the case may be) is not publicly announced, the date of issuance of such Option, Convertible Security or Adjustment Right (as the case may be), (iii) the underlying price per share used in such calculation shall be the highest Weighted Average Price of the Common Stock during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the issuance of such Option or Convertible Security (as the case may be) and ending on (A) the Trading Day immediately following the public announcement of the execution of definitive documents with respect to the issuance of such Option or Convertible Security (as the case may be), or, (B) if the execution of definitive documents with respect to the issuance of such Option or Convertible Security (as the case may be) is not publicly announced, the date of such issuance, (iv) a remaining option time equal to the time between the date of the public announcement of the execution of definitive documents with respect to the issuance of such Option or Convertible Security (as the case may be) or, if the execution of definitive documents with respect to the issuance of such Option or Convertible Security (as the case may be) is not publicly announced, the date of such issuance, (v) a zero cost of borrow and (vi) a 365 day annualization factor.] [INSERT IN SERIES B WARRANT: Intentionally omitted.]
(i) [INSERT IN SERIES A WARRANT: Black Scholes Value means the value of this Warrant calculated using the Black-Scholes Option Pricing Model obtained from the OV function on Bloomberg determined as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if such Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated, for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of such date of request, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, or, if such Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated, (iii) the underlying price per share used in such calculation shall be the greater of (x) the highest Weighted Average Price of the Common Stock during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the applicable Fundamental Transaction and ending on (A) the Trading Day immediately following the public announcement of such Fundamental Transaction, if the applicable Fundamental Transaction is publicly announced or (B) the Trading Day immediately following the consummation of the applicable Fundamental Transaction if the applicable Fundamental Transaction is not publicly announced and (y) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, (iv) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction or, if such applicable Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated, (v) a zero cost of borrow and (vi) a 365 day annualization factor.] [INSERT IN SERIES B WARRANT: Intentionally omitted.]
(j) Bloomberg means Bloomberg Financial Markets.
(k) Business Day means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
(l) Closing Date shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(m) Common Stock means (i) the Companys shares of common stock, par value $0.001 per share, and (ii) any capital stock into which such Common Stock shall have been changed or any capital stock resulting from a reclassification, reorganization or recapitalization of such Common Stock.
(n) [INSERT IN SERIES A WARRANT: Common Stock Deemed Outstanding means, at any given time, the number of shares of Common Stock actually outstanding at such time, plus the number of shares of Common Stock deemed to be outstanding pursuant to Sections 2(a)(i) and 2(a)(ii) hereof regardless of whether the Options or Convertible Securities are actually exercisable at such time, but excluding any shares of Common Stock owned or held by or for the account of the Company or issuable upon exercise of the SPA Warrants.] [INSERT IN SERIES B WARRANT: Intentionally omitted.]
(o) Convertible Securities means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.
(p) Designee means [ ].
(q) Eligible Market means the Principal Market, the NYSE American, The Nasdaq Global Select Market, The Nasdaq Global Market or The New York Stock Exchange, Inc.
(r) [INSERT IN SERIES A WARRANT: Intentionally omitted.][INSERT IN SERIES B WARRANT: End Reset Date means the forty-fifth (45th) Trading Day immediately following each End Reset Measuring Date.]
(s) [INSERT IN SERIES B WARRANT: End Reset Measuring Date means the fifteenth (15th) Trading Day immediately following the Issuance Date and every fifteenth (15th) Trading Day thereafter; provided, however, that any such date shall not be deemed an End Reset Measuring Date if on such date (1) the Holder cannot freely sell any Registrable Securities pursuant to a resale registration statement and (2) the Holder cannot sell any Registrable Securities without restriction or limitation pursuant to Rule 144; provided, further, that no date following the occurrence of a Satisfaction Event shall be deemed an End Reset Measuring Date; provided, further, that no such date shall be deemed an End Reset Measuring Date if an End Reset Measuring Date has previously occurred and either (1) if the Holder was able to then freely sell any Registrable Securities pursuant to a resale registration statement in accordance with such prior End Reset Measuring Date, such ability continued uninterrupted through and including the applicable date of determination or (2) if the Holder was able to freely sell any Registrable Securities without restriction or limitation pursuant to Rule 144 in accordance with such prior End Reset Measuring Date, such ability continued uninterrupted through and including the applicable date of determination.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(t) [INSERT IN SERIES A WARRANT: Excluded Securities means any Common Stock issued or issuable or deemed to be issued in accordance with Section 2(a)(i) or Section 2(a)(ii) by the Company: (i) under any Approved Stock Plan, (ii) upon exercise of any SPA Warrants and any Series B Warrants issued pursuant to the Securities Purchase Agreement; provided, that the terms of such SPA Warrants and Series B Warrants are not amended, modified or changed on or after the Subscription Date, (iii) upon conversion, exercise or exchange of any Options or Convertible Securities which are outstanding on the day immediately preceding the Subscription Date; provided, that such issuance of Common Stock upon exercise of such Options or Convertible Securities is made pursuant to the terms of such Options or Convertible Securities in effect on the date immediately preceding the Subscription Date and such Options or Convertible Securities are not amended, modified or changed on or after the Subscription Date or (iv) pursuant to the Merger Agreement or the Form S-4.] [INSERT IN SERIES B WARRANT: Intentionally omitted.]
(u) Expiration Date means [INSERT IN SERIES A WARRANTS: the date sixty (60) months after the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a Holiday), the next day that is not a Holiday] [INSERT IN SERIES B WARRANTS: the day following the later to occur of (x) the Reservation Date and (y) the date on which this Warrant has been exercised in full and no Warrant Shares remain issuable hereunder (without giving effect any limitation on exercise included herein)].
(v) Exchange Shares shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(w) Fundamental Transaction means (A) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its significant subsidiaries (as defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase, tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby all such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock not held by all such Subject Entities as of the Subscription Date calculated as if any shares of Common Stock held by all such Subject Entities were not
outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other stockholders of the Company to surrender their shares of Common Stock without approval of the stockholders of the Company or (C) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction. For the avoidance of doubt, in no event shall the Merger (as defined in the Merger Agreement) or the transactions contemplated by the Merger Agreement and completed before the Issuance Date be deemed to be a Fundamental Transaction.
(x) Group means a group as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.
(y) Initial Common Shares means the Exchange Shares issued in exchange for the Initial Common Units (as defined in the Securities Purchase Agreement) purchased by the initial Holder of this Warrant.
(z) [INSERT IN SERIES B WARRANT: Initial Maximum Eligibility Number means, the number (if positive) obtained by subtracting (i) the sum of (x) the number of Initial Common Shares purchased by the initial Holder of this Warrant on the Closing Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the Closing Date) and (y) the number of Additional Vested Common Shares (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the applicable date the Additional Vested Common Shares are delivered) delivered or deliverable to the initial Holder of this Warrant pursuant to the Securities Purchase Agreement, from (ii) the quotient determined by dividing (x) the aggregate Purchase Price paid by the initial Holder of this Warrant on the Closing Date, by (y) the greater of (I) the Reset Floor Price and (II) eighty-five percent (85%) of the sum of the three (3) lowest Weighted Average Prices of the Common Stock during the period beginning on the first (1st) Trading Day immediately following the Closing Date and ending on the Warrant Closing Date (as defined in the Securities Purchase Agreement), inclusive (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period), divided by three (3).] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(aa) [INSERT IN SERIES B WARRANT: Interim Reset Date means each of the ninth (9th) Trading Day, the eighteenth (18th) Trading Day, the twenty-seventh (27th) Trading Day and the thirty-sixth (36th) Trading Day, in each case, immediately following each End Reset Measuring Date.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(bb) [INSERT IN SERIES B WARRANT: Maximum Eligibility Number means, initially, the Initial Maximum Eligibility Number, and such number shall be increased (but not decreased) on each Reset Date to equal the applicable Reset Share Amount.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(cc) Merger Agreement shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(dd) Options means any rights, warrants or options to subscribe for or purchase (i) shares of Common Stock or (ii) Convertible Securities , including without limitation, the Warrants (as defined in the Securities Purchase Agreement).
(ee) Parent Entity of a Person means an entity that, directly or indirectly, controls the applicable Person, including such entity whose common capital or equivalent equity security is quoted or listed on an Eligible Market (or, if so elected by the Holder, any other market, exchange or quotation system), or, if there is more than one such Person or such entity, the Person or such entity designated by the Required Holders or in the absence of such designation, such Person or entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.
(ff) Person means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(gg) Principal Market means The Nasdaq Capital Market.
(hh) [INSERT IN SERIES B WARRANT: Public Information Failure shall have the meaning ascribed to such term in the Securities Purchase Agreement.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(ii) [INSERT IN SERIES B WARRANT: Purchase Price shall have the meaning ascribed to such term in the Securities Purchase Agreement.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(jj) Registrable Securities shall have the meaning ascribed to such term in the Registration Rights Agreement.
(kk) Registration Rights Agreement means that certain Registration Rights Agreement dated as of the Subscription Date by and among the Company and the Buyers.
(ll) Registration Statement shall have the meaning ascribed to such term in the Registration Rights Agreement.
(mm) Required Holders means the holders of the SPA Warrants representing at least a majority of the shares of Common Stock underlying the SPA Warrants then outstanding and shall include the Designee so long as the Designee or any of its Affiliates holds any SPA Warrants.
(nn) Reservation Date means the forty-fifth (45th) Trading Day immediately following [](6).
(oo) Reset Date [INSERT IN SERIES A WARRANT: shall have the meaning ascribed to such term in the Series B Warrants.] [INSERT IN SERIES B WARRANT: means each Interim Reset Date and each End Reset Date; provided, however, that the Holder may by written notice to the Company elect to waive any such Reset Date; provided, further, that any Reset Date that has been waived pursuant to the immediately preceding proviso may be advanced or delayed to any date selected by the Holder; provided, further, that each End Reset Date may be advanced, but not delayed.]
(pp) Reset Floor Price means $[](7) (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the Closing Date).
(qq) [INSERT IN SERIES B WARRANT: Reset Period means the period beginning on the End Reset Measuring Date and ending on the applicable Reset Date.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(rr) Reset Price means [INSERT IN SERIES B WARRANT: the arithmetic average of the five (5) lowest Weighted Average Prices of the Common Stock during the applicable Reset Period immediately preceding the applicable Reset Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period); provided, however, that solely if the principal trading market for the Common Stock is as of the applicable Reset Date the Principal Market, the Reset Price shall not be lower than the Reset Floor Price.] [INSERT IN SERIES A WARRANT: the lower of (i) the Exercise Price then in effect and (ii) 125% of the applicable Reset Price (as defined in the Series B Warrants) determined as of the related Reset Date.]
(ss) [INSERT IN SERIES B WARRANT: Reset Share Amount means the number of shares of Common Stock equal to the number (if positive) obtained by subtracting (I) the sum of (i) the number of Initial Common Shares purchased by the initial Holder of this Warrant pursuant to the Securities Purchase Agreement (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the Subscription Date) and (ii) the number of Additional Vested Common Shares (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events related to the Common Stock occurring after the applicable date the Additional Vested Common Shares are delivered) delivered or deliverable to the initial Holder of this Warrant pursuant to the Securities Purchase Agreement, from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by the initial Holder of this Warrant pursuant to the Securities
(6) Insert the date that is the two (2) year anniversary of the Issuance Date.
(7) Insert price determined by calculating a fully-diluted post-merger (after giving effect to the issuance of the Initial Common Shares and Additional Common Shares, if any, without giving effect to the limitations under Section 1(c)(iv) of the Securities Purchase Agreement), valuation of $10,000,000. Purchase Agreement, by (y) the applicable Reset Price determined as of the related Reset Date.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(tt) Rule 144 means Rule 144 promulgated under the 1933 Act or any successor rule.
(uu) [INSERT IN SERIES A WARRANT: Intentionally omitted.] [INSERT IN SERIES B WARRANT: Satisfaction Event means any of the following events:
(1) all Registrable Securities are able to be freely sold without any restriction or limitation by the Holder at all times during the forty-five (45) Trading Day period beginning on, and including, any End Reset Measuring Date either (a) pursuant to a resale registration statement or (b) pursuant to Rule 144; or
(2) the Reservation Date has occurred.]
(vv) [INSERT IN SERIES B WARRANT: Series A Warrants shall have the meaning ascribed to such term in the Securities Purchase Agreement.] [INSERT IN SERIES A WARRANT: Series B Warrants shall have the meaning ascribed to such term in the Securities Purchase Agreement.]
(ww) Share Delivery Date means the earlier of (i) the second (2nd) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder delivers the applicable Exercise Notice to the Company, so long as the Holder delivers the applicable Aggregate Exercise Price (or notice of a Cashless Exercise) on or prior to the earlier of (i) the second (2nd) Trading Day following the date on which the Holder has delivered the applicable Exercise Notice to the Company and (ii) the number of Trading Days comprising the Standard Settlement Period following the date on which the Holder has delivered the applicable Exercise Notice to the Company (provided that if the applicable Aggregate Exercise Price (or applicable notice of a Cashless Exercise) has not been delivered by such date, the applicable Share Delivery Date shall be one (1) Trading Day after the Holder has delivered the applicable Aggregate Exercise Price (or applicable notice of a Cashless Exercise) to the Company.
(xx) Standard Settlement Period means the standard settlement period, expressed in a number of Trading Days, on the Companys primary Eligible Market with respect to the Common Stock as in effect on the date of delivery of the applicable Exercise Notice.
(yy) Subject Entity means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.
(zz) Subsidiary shall have the meaning ascribed to such term in the Securities Purchase Agreement.
(aaa) Successor Entity means one or more Person or Persons (or, if so elected by the Holder, the Company or Parent Entity) formed by, resulting from or surviving any Fundamental Transaction or one or more Person or Persons (or, if so elected by the Holder, the Company or the Parent Entity) with which such Fundamental Transaction shall have been entered into.
(bbb) Trading Day means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities exchange or securities market on which the Common Stock is then traded.
(ccc) [INSERT IN SERIES B WARRANT: Underlying Securities means (i) the shares of Common Stock issued or issuable upon exercise of the Series A Warrants, (ii) the shares of Common Stock issued or issuable upon exercise of the SPA Warrants and (iii) any capital stock of the Company issued or issuable with respect to the Series A Warrants, the SPA Warrants or the shares of Common Stock issued or issuable upon exercise of the Series A Warrants or the SPA Warrants, in each case as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on the exercise of the Series A Warrants or the SPA Warrants.] [INSERT IN SERIES A WARRANT: Intentionally omitted.]
(ddd) Weighted Average Price means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:00 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its Volume at Price function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:00 a.m., New York time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as such market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or Pink Open Market (f/k/a OTC Pink) published by the OTC Markets Group, Inc. (or similar organization or agency succeeding to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 12 with the term Weighted Average Price being substituted for the term Exercise Price. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction relating to the Common Stock during the applicable calculation period.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.
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EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
TIMBER PHARMACEUTICALS, INC.
The undersigned holder hereby exercises the right to purchase shares of Common Stock (Warrant Shares) of Timber Pharmaceuticals, Inc., a Delaware corporation formerly known as BioPharmX Corporation (the Company), evidenced by the attached Warrant to Purchase Common Stock (the Warrant). [INSERT IN SERIES B WARRANT: In lieu of a fixed number of Warrant Shares, the undersigned holder may elect to indicate above a percentage of the trading volume on the date of this Exercise Notice, which may be subject to a minimum and/or a maximum number of Warrant Shares, all subject to the provisions of Section 1(f) of the Warrant. If a fixed number of Warrant Shares is not indicated above, then the number of Warrant Shares and the Aggregate Exercise Price set forth in Sections 1, 2 and 3 of this Exercise Notice shall be mutually calculated by the Company and the undersigned holder after the end of trading on the Principal Market on the date of this Exercise Notice in accordance with the foregoing instructions and the provisions of Section 1(f) of the Warrant.] Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:
a Cash Exercise with respect to Warrant Shares; and/or
a Cashless Exercise with respect to Warrant Shares, resulting in a delivery obligation of the Company to the Holder of shares of Common Stock representing the applicable Net Number.
2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant.
4. Please issue the Common Stock into which the Warrant is being exercised to the Holder, or for its benefit, as follows:
o Check here if requesting delivery as a certificate to the following name and to the following address:
Issue to:
Address:
Telephone Number:
Facsimile Number:
o Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:
DTC Participant:
DTC Number:
Account Number:
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ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs Computershare Trust Company, N.A. to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated [·], 2020 from the Company and acknowledged and agreed to by Computershare Trust Company, N.A.
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[FORM OF WARRANT]
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE HOLDER, IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
[·](1)
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: [·]
Number of Shares of Common Stock: [·]
Date of Issuance: [·] (Issuance Date)
[·], a Delaware corporation (the Company), hereby certifies that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, [HOLDER], the registered holder hereof or its permitted assigns (the Holder), is entitled, subject to the terms set forth below, to purchase from the Company, at the Exercise Price (as defined below) then in effect, at any time or times on or after the Issuance Date, but not after 11:59 p.m., New York time, on the Expiration Date, (as defined below), ( )(2) fully paid nonassessable shares of Common Stock, subject to adjustment as provided herein (the Warrant Shares). Except as otherwise defined herein, capitalized terms in this Warrant to Purchase Common Stock (including any Warrants to Purchase Common Stock issued in exchange, transfer or replacement hereof, this Warrant), shall have the meanings set forth in Section 19. This Warrant is one of the Warrants to purchase Common Stock (the SPA Warrants) issued pursuant to Section 1(e) of that certain Securities Purchase Agreement, dated as of [·] (the Subscription Date), by and among the Company and the investors (the Buyers) referred to therein (as may be amended, amended and restated, supplemented or otherwise modified from time to time, the Securities Purchase Agreement). Capitalized terms used herein and not otherwise defined shall have the definitions ascribed to such terms in the Securities Purchase Agreement.
(1) To insert name of public company after merger.
(2) Insert a number of shares of Common Stock that equals 100% of the as-converted shares as if the sum of all Outstanding Amounts (as defined in the Notes) of the Notes as of such Notes respective issuance dates were outstanding on the Issuance Date and converted in full at the Exercise Price (as defined below) as in effect on the Issuance Date.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof (including, without limitation, the limitations set forth in Section 1(f)), this Warrant may be exercised by the Holder at any time or times on or after the Issuance Date, in whole or in part, by (i) delivery of a written notice, in the form attached hereto as Exhibit A (the Exercise Notice), of the Holders election to exercise this Warrant and (ii) (A) payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which this Warrant is being exercised (the Aggregate Exercise Price) in cash by wire transfer of immediately available funds or (B) if the provisions of Section 1(d) are applicable, by notifying the Company that this Warrant is being exercised pursuant to a Cashless Exercise (as defined in Section 1(d)). No ink-original Exercise Notice shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Exercise Notice be required. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Execution and delivery of the Exercise Notice with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. On or before the first (1st) Trading Day following the date on which the Holder has delivered an Exercise Notice to the Company, the Company shall transmit by facsimile or electronic mail an acknowledgment of confirmation of receipt of the Exercise Notice to the Holder and the Companys transfer agent (the Transfer Agent). On or before the earlier of (i) the second (2nd) Trading Day and (ii) the number of Trading Days comprising the Standard Settlement Period, in each case, following the date on which the Holder has delivered the Exercise Notice to the Company, so long as the Holder delivers the Aggregate Exercise Price (or notice of a Cashless Exercise) on or prior to the first (1st) Trading Day following the date on which the Holder has delivered the Exercise Notice to the Company (a Share Delivery Date) (provided that if the Aggregate Exercise Price has not been delivered by such date, the applicable Share Delivery Date shall be one (1) Trading Day after the Aggregate Exercise Price (or notice of a Cashless Exercise) is delivered), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (DTC) Fast Automated Securities Transfer Program and (A) the applicable Warrant Shares are subject to an effective resale registration statement in favor of the Holder or (B) if exercised via Cashless Exercise, at a time when Rule 144 would be available for immediate resale of the applicable Warrant Shares by the Holder, credit such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holders or its designees balance account with DTC through its Deposit / Withdrawal At Custodian system, or (Y) if (A) the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program or (B) the applicable Warrant Shares are not subject to an effective resale registration statement in favor of the Holder and, if exercised via Cashless Exercise, at a time when Rule 144 would not be available for immediate resale of the applicable Warrant Shares by the Holder, issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Companys share register in the name of the Holder or its designee, for the number of Warrant Shares to which the Holder is entitled pursuant to such exercise. The Company shall be responsible for all fees and expenses of the Transfer Agent and all fees and expenses with respect to the issuance of Warrant
Shares via DTC, if any, including without limitation for same day processing. Upon delivery of the Exercise Notice, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holders DTC account or the date of delivery of the certificates evidencing such Warrant Shares, as the case may be. If this Warrant is submitted in connection with any exercise pursuant to this Section 1(a) and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than two (2) Trading Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 8(d)) representing the right to purchase the number of Warrant Shares issuable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised. No fractional Warrant Shares are to be issued upon the exercise of this Warrant, but rather the number of Warrant Shares to be issued shall be rounded up to the nearest whole number. The Company shall pay any and all taxes which may be payable with respect to the issuance and delivery of Warrant Shares upon exercise of this Warrant. The Companys obligations to issue and deliver Warrant Shares in accordance with the terms and subject to the conditions hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination. While any SPA Warrants remain outstanding, the Company shall use a transfer agent that participates in the DTC Fast Automated Securities Transfer Program.
(b) Exercise Price. For purposes of this Warrant, Exercise Price means $[·](3), subject to adjustment as provided herein.
(c) Companys Failure to Timely Deliver Securities. If the Company shall fail, for any reason or no reason, to issue to the Holder on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, a certificate for the number of shares of Common Stock to which the Holder is entitled and register such shares of Common Stock on the Companys share register or if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, to credit the Holders balance account with DTC, for such number of shares of Common Stock to which the Holder is entitled upon the Holders exercise of this Warrant or (II) if a registration statement covering the resale of the Warrant Shares that are the subject of the Exercise Notice (the Unavailable Warrant Shares) is not available for the resale of such Unavailable Warrant Shares and the Company fails to promptly (x) so notify the Holder and (y) deliver the Warrant
(3) Insert lowest price at which new equity is invested (or conversion price, exercise price or exchange price for any Options or Convertible Securities issued) in any capital raising transaction that occurs on or after the Public Company Date (as defined in the Notes). Until the Company raises $20MM, upon any Dilutive Issuances, there will be a price and share adjustment pursuant to Section 2(a). Once the Company raises $20MM, the adjustment pursuant to Section 2(a) will be limited to a price only adjustment. If the Company has raised in excess of $20MM at the time of the issuance of the Warrants, the language between brackets in Section 2(a) will not be inserted in the final Warrants and upon any Dilutive Issuances, there will be no change to the number of Warrant Shares pursuant to Section 2(a), only a price adjustment.
Shares electronically without any restrictive legend by crediting such aggregate number of Warrant Shares to which the Holder is entitled pursuant to such exercise to the Holders or its designees balance account with DTC through its Deposit / Withdrawal At Custodian system (the event described in the immediately foregoing clause (II) is hereinafter referred as a Notice Failure and together with the event described in clause (I) above, an Exercise Failure), then, in addition to all other remedies available to the Holder, (X) the Company shall pay in cash to the Holder on each day after the applicable Share Delivery Date and during such Exercise Failure an amount equal to 1.5% of the product of (A) the sum of the number of shares of Common Stock not issued to the Holder on or prior to the applicable Share Delivery Date and to which the Holder is entitled, and (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the date of delivery of the applicable Exercise Notice and ending on the applicable Share Delivery Date, and (Y) the Holder, upon written notice to the Company, may void its Exercise Notice with respect to, and retain or have returned, as the case may be, any portion of this Warrant that has not been exercised pursuant to such Exercise Notice; provided that the voiding of an Exercise Notice shall not affect the Companys obligations to make any payments which have accrued prior to the date of such notice pursuant to this Section 1(c) or otherwise. In addition to the foregoing, if on or prior to the applicable Share Delivery Date either (I) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, the Company shall fail to issue and deliver a certificate to the Holder and register such shares of Common Stock on the Companys share register or, if the Transfer Agent is participating in the DTC Fast Automated Securities Transfer Program, credit the Holders balance account with DTC for the number of shares of Common Stock to which the Holder is entitled upon the Holders exercise hereunder or pursuant to the Companys obligation pursuant to clause (ii) below or (II) a Notice Failure occurs, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock corresponding to all or any portion of the number of shares of Common Stock issuable upon such exercise that the Holder is entitled to receive from the Company and has not received from the Company in connection with such Exercise Failure (a Buy-In), then the Company shall, within two (2) Trading Days after the Holders request and in the Holders discretion, either (i) pay cash to the Holder in an amount equal to the Holders total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the Buy-In Price), at which point the Companys obligation to deliver such certificate (and to issue such shares of Common Stock) or credit the Holders balance account with DTC for such shares of Common Stock shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such shares of Common Stock or credit the Holders balance account with DTC, as applicable, and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) any trading price of the Common Stock selected by the Holder in writing as in effect at any time during the period beginning on the date of delivery of the applicable Exercise Notice and ending on the applicable Share Delivery Date. Nothing herein shall limit the Holders right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Companys failure to timely deliver certificates representing shares of Common Stock (or to electronically deliver such shares of Common Stock) upon the exercise of this Warrant as required pursuant to the terms hereof.
(d) Cashless Exercise. Notwithstanding anything contained herein to the contrary, if on or after the Issuance Date, a registration statement covering the resale of the Unavailable Warrant Shares is not available for the resale of such Unavailable Warrant Shares, the Holder may, in its sole discretion, exercise this Warrant in whole or in part and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Aggregate Exercise Price, elect instead to receive upon such exercise the Net Number of shares of Common Stock determined according to the following formula (a Cashless Exercise):
Net Number = (A x B) - (A x C)
B
For purposes of the foregoing formula:
A= the total number of shares with respect to which this Warrant is then being exercised.
B= as applicable: (i) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice if such Exercise Notice is (1) both executed and delivered pursuant to Section 1(a) hereof on a day that is not a Trading Day or (2) both executed and delivered pursuant to Section 1(a) hereof on a Trading Day prior to the opening of regular trading hours (as defined in Rule 600(b)(68) of Regulation NMS promulgated under the federal securities laws) on such Trading Day, (ii) at the option of the Holder, either (x) the Weighted Average Price of the Common Stock on the Trading Day immediately preceding the date of the applicable Exercise Notice, or (y) the Bid Price of the Common Stock on the principal trading market as reported by Bloomberg as of the time of the Holders execution of the applicable Exercise Notice if such Exercise Notice is executed during regular trading hours on a Trading Day and is delivered within two (2) hours thereafter (including until two (2) hours after the close of regular trading hours on a Trading Day) thereafter pursuant to Section 1(a) hereof or (iii) the Weighted Average Price of the Common Stock on the date of the applicable Exercise Notice if the date of such Exercise Notice is a Trading Day and such Exercise Notice is both executed and delivered pursuant to Section 1(a) hereof after the close of regular trading hours on such Trading Day.
C= the Exercise Price then in effect for the applicable Warrant Shares at the time of such exercise.
For purposes of Rule 144(d) promulgated under the 1933 Act, as in effect on the date hereof, the Company hereby acknowledges and agrees that the Warrant Shares issued in a Cashless Exercise shall be deemed to have been acquired by the Holder, and the holding period for the Warrant Shares shall be deemed to have commenced, on the date this Warrant was originally issued pursuant to the Securities Purchase Agreement. The Company agrees not to take any position contrary to this Section 1(d).
(e) Disputes. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall promptly issue to the Holder the number of Warrant Shares that are not disputed and resolve such dispute in accordance with Section 13.
(f) Beneficial Ownership Limitations on Exercises. Notwithstanding anything to the contrary contained herein, the Company shall not effect the exercise of any portion of this Warrant, and the Holder shall not have the right to exercise any portion of this Warrant, pursuant to the terms and conditions of this Warrant and any such exercise shall be null and void and treated as if never made, to the extent that after giving effect to such exercise, the Holder together with the other Attribution Parties collectively would beneficially own in excess of [4.99] [9.99]%(4) (the Maximum Percentage) of the number of shares of Common Stock outstanding immediately after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by the Holder and the other Attribution Parties shall include the number of shares of Common Stock held by the Holder and all other Attribution Parties plus the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) exercise of the remaining, unexercised portion of this Warrant beneficially owned by the Holder or any of the other Attribution Parties and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any convertible notes or convertible preferred stock or warrants, including the other SPA Warrants) beneficially owned by the Holder or any other Attribution Party subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 1(f). For purposes of this Section 1(f), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the 1934 Act). For purposes of determining the number of outstanding shares of Common Stock the Holder may acquire upon the exercise of this Warrant without exceeding the Maximum Percentage, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (x) the Companys most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the Securities and Exchange Commission (the SEC), as the case may be, (y) a more recent public announcement by the Company or (3) any other written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding (the Reported Outstanding Share Number). If the Company receives an Exercise Notice from the Holder at a time when the actual number of outstanding shares of Common Stock is less than the Reported Outstanding Share Number, the Company shall (i) notify the Holder in writing of the number of shares of Common Stock then outstanding and, to the extent that such Exercise Notice would otherwise cause the Holders beneficial ownership, as determined pursuant to this Section 1(f), to
(4) Insert Maximum Percentage as indicated on the Buyers signature page attached to the Securities Purchase Agreement.
exceed the Maximum Percentage, the Holder must notify the Company of a reduced number of Warrant Shares to be purchased pursuant to such Exercise Notice (the number of shares by which such purchase is reduced, the Reduction Shares) and (ii) as soon as reasonably practicable, the Company shall return to the Holder any exercise price paid by the Holder for the Reduction Shares. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Trading Day confirm orally and in writing or by electronic mail to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder and any other Attribution Party since the date as of which the Reported Outstanding Share Number was reported. In the event that the issuance of shares of Common Stock to the Holder upon exercise of this Warrant would result in the Holder and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so issued by which the Holders and the other Attribution Parties aggregate beneficial ownership would exceed the Maximum Percentage (the Excess Shares) shall be deemed null and void and shall be cancelled ab initio and any portion of this Warrant so exercised shall be reinstated, and the Holder shall not have the power to vote or to transfer the Excess Shares. As soon as reasonably practicable after the issuance of the Excess Shares has been deemed null and void, the Company shall return to the Holder the exercise price paid by the Holder for the Excess Shares. Upon delivery of a written notice to the Company, the Holder may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to the Company and (ii) any such increase or decrease will apply only to the Holder and the other Attribution Parties and not to any other holder of SPA Warrants that is not an Attribution Party of the Holder. For purposes of clarity, the shares of Common Stock issuable pursuant to the terms of this Warrant in excess of the Maximum Percentage shall not be deemed to be beneficially owned by the Holder for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to exercise this Warrant pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of exercisability. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(f) to the extent necessary to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(f) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor holder of this Warrant.
(g) Insufficient Authorized Shares. From and after the Issuance Date, the Company shall reserve a number of authorized and otherwise unreserved shares of Common Stock to satisfy its obligation to issue shares of Common Stock upon exercise of this Warrant equal to at least 300% of the number of shares of Common Stock as shall be necessary to effect the exercise in full of all of this Warrant then outstanding without regard to any limitation on exercise set forth herein (the Required Reserve Amount). If at any time while this Warrant remains outstanding the Company does not have a sufficient number of authorized and unreserved shares of Common Stock to satisfy its obligation to reserve for issuance upon exercise of this Warrant at least a number
of shares of Common Stock equal to the Required Reserve Amount (the failure to have such sufficient number of authorized and unreserved shares of Common Stock, an Authorized Share Failure), then the Company shall immediately take all action necessary to increase the Companys authorized shares of Common Stock to an amount sufficient to allow the Company to reserve the Required Reserve Amount for this Warrant then outstanding. Without limiting the generality of the foregoing sentence, as soon as practicable after the date of the occurrence of an Authorized Share Failure, but in no event later than sixty (60) days after the occurrence of such Authorized Share Failure, the Company shall hold a meeting of its stockholders for the approval of an increase in the number of authorized shares of Common Stock. In connection with such meeting, the Company shall provide each stockholder with a proxy statement and shall use its best efforts to solicit its stockholders approval of such increase in authorized shares of Common Stock and to cause its Board of Directors to recommend to the stockholders that they approve such proposal. Notwithstanding the foregoing, if any such time of an Authorized Share Failure, the Company is able to obtain the written consent of a majority of the shares of its issued and outstanding Common Stock to approve the increase in the number of authorized shares of Common Stock, the Company may satisfy this obligation by obtaining such consent and submitting for filing with the SEC an Information Statement on Schedule 14C. In the event that upon any exercise of this Warrant, the Company does not have sufficient authorized shares to deliver in satisfaction of such exercise, then unless the Holder elects to void such attempted exercise, the Holder may require the Company to pay to the Holder within two (2) Trading Days of the applicable attempted exercise, cash in an amount equal to the product of (i) the quotient determined by dividing (x) the number of Warrant Shares that the Company is unable to deliver pursuant to this Section 1(g), by (y) the total number of Warrant Shares issuable upon exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant) and (ii) the Black Scholes Value; provided, that (x) references to the date of the public announcement of the applicable Fundamental Transaction or, if such applicable Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated in the definition of Black Scholes Value shall instead refer to the date the Holder exercises this Warrant and the Company cannot deliver the required number of Warrant Shares because of an Authorized Share Failure and (y) clause (iii) of the definition of Black Scholes Value shall instead refer to the underlying price per share used in such calculation shall be the highest Weighted Average Price during the period beginning on the date of the applicable date of exercise and the date that the Company makes the applicable cash payment.
2. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Adjustment Upon Issuance of Shares of Common Stock. If and whenever on or after the Subscription Date, the Company issues or sells, or in accordance with this Section 2 is deemed to have issued or sold, any shares of Common Stock (including the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding shares of Common Stock deemed to have been issued or sold by the Company in connection with any Excluded Securities for a consideration per share (the New Issuance Price) less than a price (the Applicable Price) equal to the Exercise Price in effect immediately prior to such issue or sale or deemed issuance or sale (the foregoing a Dilutive Issuance), then
immediately after such Dilutive Issuance, the Exercise Price then in effect shall be reduced to an amount equal to the New Issuance Price. [Until the day immediately following the day that the Company has raised gross proceeds of at least $20 million in one or more Subsequent Placement(s) occurring after the Issuance Date, upon each adjustment of the Exercise Price hereunder, the number of Warrant Shares issuable immediately prior to such Dilutive Issuance shall be adjusted to the number of shares of Common Stock determined by multiplying the Exercise Price then in effect immediately prior to such adjustment by the number of Warrant Shares acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment.](5) For purposes of determining the adjusted Exercise Price under this Section 2(a), the following shall be applicable:
(i) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 2(a)(i), the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of the Option, upon exercise of the Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option less any consideration paid or payable by the Company with respect to such one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion exercise or exchange of any Convertible Security issuable upon exercise of such Option. No further adjustment of the Exercise Price [or number of Warrant Shares] shall be made upon the actual issuance of such shares of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 2(a)(ii), the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one
(5) NTD: This provision will be deleted if at the time of the issuance of the SPA Warrants the Company will have raised at least $20 million from and after the time Timber Pharmaceuticals merges into a publicly traded corporation, whether pursuant to the BPMX Term Sheet (as defined in the Notes) or otherwise.
share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security less any consideration paid or payable by the Company with respect to such one share of Common Stock upon the issuance or sale of such Convertible Security and upon conversion, exercise or exchange of such Convertible Security. No further adjustment of the Exercise Price [or number of Warrant Shares] shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of this Warrant has been or is to be made pursuant to other provisions of this Section 2(a), no further adjustment of the Exercise Price [or number of Warrant Shares] shall be made by reason of such issue or sale.
(iii) Change in Option Price or Rate of Conversion. Notwithstanding anything herein to the contrary, no adjustment to the Exercise Price or number of Warrant Shares shall be made pursuant to this Section 2(a) as a result of any change of the terms of any Options or Convertible Securities after their date of issuance.
(iv) Calculation of Consideration Received. In case any Option is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction, (x) the Options will be deemed to have been issued for the Option Value of such Options and (y) the other securities issued or sold in such integrated transaction shall be deemed to have been issued or sold for the difference of (I) the aggregate consideration received by the Company less any consideration paid or payable by the Company pursuant to the terms of such other securities of the Company, less (II) the Option Value of such Options. If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration other than cash received therefor will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company will be the Closing Sale Price of such publicly traded securities on the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Required Holders. If such parties are unable to reach agreement within ten (10) days after the occurrence of an event requiring valuation (the Valuation Event), the fair value of such consideration will be determined within five (5) Business Days after the tenth (10th) day following the Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Required Holders. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company. Notwithstanding anything to the contrary
contained herein, if any calculation pursuant to this Section 2(a)(iv) would result in a dollar value that is lower than the par value of the Common Stock, then such dollar value shall be deemed to equal the par value of the Common Stock.
(v) Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in shares of Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.
(vi) No Readjustments. For the avoidance of doubt, in the event the Exercise Price has been adjusted pursuant to this Section 2(a) and the Dilutive Issuance that triggered such adjustment does not occur, is not consummated, is unwound or is cancelled after the facts for any reason whatsoever, in no event shall the Exercise Price be readjusted to the Exercise Price that would have been in effect if such Dilutive Issuance had not occurred or been consummated.
(b) Voluntary Adjustment By Company. The Company may at any time during the term of this Warrant, with the prior written consent of the Holder, (i) reduce the then current Exercise Price and/or (ii) increase the then current number of Warrant Shares, in each case, to any amount and for any period of time deemed appropriate by the Board of Directors of the Company.
(c) Adjustment Upon Subdivision or Combination of Shares of Common Stock. If the Company at any time on or after the Subscription Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Subscription Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(a) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(d) Other Events. If any event occurs of the type contemplated by the provisions of this Section 2 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Companys Board of Directors will make an appropriate adjustment in the Exercise Price and the number of Warrant Shares, as mutually determined by the Companys Board of Directors and the Required Holders, so as to protect the rights of the Holder; provided that no such adjustment pursuant to this Section 2(d) will increase the Exercise Price or decrease the number of Warrant Shares as otherwise determined pursuant to this Section 2.
3. RIGHTS UPON DISTRIBUTION OF ASSETS. If the Company shall, on or after the Subscription Date, declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to any or all holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, Options, evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a Distribution), then, in each case, the Holder will be entitled to participate in such Distribution as if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that to the extent that the Holders right to participate in any such Distribution would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Distribution to such extent (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation).
4. PURCHASE RIGHTS; FUNDAMENTAL TRANSACTIONS; OTHER COVENANTS.
(a) Purchase Rights. In addition to any adjustments pursuant to Section 2 above, if at any time on or after the Subscription Date and on or prior to the Expiration Date the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of Common Stock (the Purchase Rights), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Maximum Percentage) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issuance or sale of such Purchase Rights (provided, however, that to the extent that the Holders right to participate in any such Purchase Right would result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, then the Holder shall not be entitled to participate in such Purchase Right to such extent (and shall not be entitled to beneficial ownership of such Common Stock as a result of such Purchase Right (and beneficial ownership) to such extent) and such Purchase Right to such extent shall be held in abeyance for the benefit of the Holder until such time or times as its right thereto would not result in the Holder and the other Attribution Parties exceeding the Maximum Percentage, at which time or times the Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right to be held similarly in abeyance) to the same extent as if there had been no such limitation).
(b) Fundamental Transactions. If, at any time while this Warrant is outstanding, a Fundamental Transaction occurs or is consummated, then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction, at the option of the Holder (without regard to any limitation in Section 1(f) on the exercise of this Warrant), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the Alternate Consideration) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation in Section 1(f) on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the Successor Entity) to assume in writing all of the obligations of the Company under this Warrant in accordance with the provisions of this Section 4(b) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant referring to the Company shall be added to the term Company under this Warrant (so that from and after the occurrence or consummation of such Fundamental Transaction, each and every provision of this Warrant referring to the Company shall refer instead to each of the Company and the Successor Entity or Successor Entities, jointly and severally), and the Successor Entity or Successor Entities, jointly and severally with the Company, may exercise every right and power of the Company prior thereto and the Successor Entity or Successor Entities shall assume all of
the obligations of the Company prior thereto under this Warrant with the same effect as if the Company and such Successor Entity or Successor Entities, jointly and severally, had been named as the Company in this Warrant.
(c) Notwithstanding the foregoing, in the event of a Fundamental Transaction, at the request of the Holder delivered before the ninetieth (90th) day after the occurrence or consummation of such Fundamental Transaction, the Company (or the Successor Entity) shall purchase this Warrant from the Holder by paying to the Holder, within five (5) Business Days after such request (or, if later, on the effective date of the Fundamental Transaction), cash in an amount equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the effective date of such Fundamental Transaction, payable in cash; provided, however, that, if such Fundamental Transaction is not within the Companys control, including not approved by the Companys Board of Directors, the Holder shall only be entitled to receive from the Company or any Successor Entity, as of the date of consummation of such Fundamental Transaction, the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock of the Company in connection with such Fundamental Transaction, whether that consideration be in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with such Fundamental Transaction. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within five (5) Business Days of the Holders election (or, if later, on the effective date of the Fundamental Transaction).
(d) Options and Convertible Securities. Notwithstanding anything to the contrary contained herein, the Company shall not amend any Options or Convertible Securities after their respective issuance (whether such Options or Convertible Securities were issued on or prior to the date hereof or will be issued at any time after the date hereof, including, without limitation, any SPA Warrants), unless the Holder as of the applicable date of determination consents to such amendment in writing prior to the effective date of such amendment.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Warrant and to issue this Warrant in accordance with the terms hereof. The execution and delivery of this Warrant by the Company and the consummation by the Company of the transactions contemplated hereby, including, without limitation, the issuance of the Warrant Shares have been duly authorized by the Companys governing body and (other than the filing of a Form D with the SEC and any other filings as may be required by any state securities agencies), no further filing, consent or authorization is required by the Company, its governing body or its stockholders. This Warrant has been duly executed and delivered by the Company, and constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with its terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors rights and remedies.
(b) No Conflicts. Except as disclosed in Schedule 5(b), the execution, delivery and performance of this Warrant by the Company and the consummation by the Company of the transactions contemplated hereby (including, without limitation, the issuance of the Warrant Shares) will not (i) result in a violation of the certificate of incorporation, bylaws, any certificate of designations or other constituent documents of the Company or any capital stock of the Company or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in any respect under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws, rules and regulations) and including all applicable foreign, federal and state laws, rules and regulations applicable to the Company or by which any property or asset of the Company is bound or affected, except, in the case of clauses (ii) and (iii) above, as would not have or reasonably be expected to result in a Material Adverse Effect (as defined in the Securities Purchase Agreement with the term Transaction Documents in such definition modified to include the SPA Warrants).
(c) Issuance of Securities. The issuance of the Warrant Shares are duly authorized and, upon exercise of this Warrants in accordance with the terms of this Warrant, the Warrant Shares when issued will be validly issued and free from all preemptive or similar rights, taxes, liens and charges and other encumbrances with respect to the issue thereof and the Warrant Shares shall be fully paid and nonassessable with the holders being entitled to all rights accorded to a holder of Common Stock. The offer and issuance by the Company of this Warrants and the Warrant Shares is exempt from registration under the 1933 Act.
6. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all of the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, so long as any of the SPA Warrants are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued shares of Common Stock, solely for the purpose of effecting the exercise of the SPA Warrants, the number of shares of Common Stock as shall from time to time be necessary to effect the exercise of the SPA Warrants then outstanding (without regard to any limitations on exercise).
7. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, the Holder, solely in such Persons capacity as a holder of this Warrant, shall not be entitled to vote or receive dividends or be deemed the holder of capital stock of the Company for any purpose, nor shall anything contained in this Warrant be construed to confer upon the Holder, solely in such Persons capacity as the Holder of this Warrant, any of
the rights of a stockholder of the Company or any right to vote, give or withhold consent to any corporate action (whether any reorganization, issue of stock, reclassification of stock, consolidation, merger, conveyance or otherwise), receive notice of meetings, receive dividends or subscription rights, or otherwise, prior to the issuance to the Holder of the Warrant Shares which such Person is then entitled to receive upon the due exercise of this Warrant. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company. Notwithstanding this Section 7, the Company shall provide the Holder with copies of the same notices and other information given to the stockholders of the Company generally, contemporaneously with the giving thereof to the stockholders.
8. REISSUANCE OF WARRANTS.
(a) Transfer of Warrant. If this Warrant is to be transferred, the Holder shall surrender this Warrant to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Warrant (in accordance with Section 8(d)), registered as the Holder may request, representing the right to purchase the number of Warrant Shares being transferred by the Holder and, if less than the total number of Warrant Shares then underlying this Warrant is being transferred, a new Warrant (in accordance with Section 8(d)) to the Holder representing the right to purchase the number of Warrant Shares not being transferred.
(b) Lost, Stolen or Mutilated Warrant. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company shall execute and deliver to the Holder a new Warrant (in accordance with Section 8(d)) representing the right to purchase the Warrant Shares then underlying this Warrant.
(c) Exchangeable for Multiple Warrants. This Warrant is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Warrant or Warrants (in accordance with Section 8(d)) representing in the aggregate the right to purchase the number of Warrant Shares then underlying this Warrant, and each such new Warrant will represent the right to purchase such portion of such Warrant Shares as is designated by the Holder at the time of such surrender; provided, however, that no SPA Warrants for fractional Warrant Shares shall be given.
(d) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant (i) shall be of like tenor with this Warrant, (ii) shall represent, as indicated on the face of such new Warrant, the right to purchase the Warrant Shares then underlying this Warrant (or in the case of a new Warrant being issued pursuant to Section 8(a) or Section 8(c), the Warrant Shares designated by the Holder which, when added to the number of shares of Common Stock underlying the other new Warrants issued in connection with such issuance, does not exceed the number of Warrant Shares then underlying this Warrant), (iii) shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date, and (iv) shall have the same rights and conditions as this Warrant.
9. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with Section 9(f) of the Securities Purchase Agreement. The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Warrant, including in reasonable detail a description of such action and the reason therefor. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least twenty (20) Business Days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation; provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder. It is expressly understood and agreed that the time of exercise specified by the Holder in each Exercise Notice shall be definitive and may not be disputed or challenged by the Company.
10. AMENDMENT AND WAIVER. Except as otherwise provided herein, the provisions of this Warrant may be amended or waived and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, only if the Company has obtained the written consent of the Holder.
11. GOVERNING LAW; JURISDICTION; JURY TRIAL. This Warrant shall be governed by and construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Warrant shall be governed by, the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. The Company hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to the Company at the address set forth in Section 9(f) of the Securities Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company in any other jurisdiction to collect on the Companys obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder.
THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT OR ANY TRANSACTION CONTEMPLATED HEREBY.
12. CONSTRUCTION; HEADINGS. This Warrant shall be deemed to be jointly drafted by the Company and all of the Buyers and shall not be construed against any Person as the drafter hereof. The headings of this Warrant are for convenience of reference and shall not form part of, or affect the interpretation of, this Warrant.
13. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Exercise Price or the arithmetic calculation of the Warrant Shares, the Company shall cause the Transfer Agent to issue to the Holder the number of shares of Common Stock that is not disputed and the Company shall submit the disputed determinations or arithmetic calculations via facsimile or electronic mail within one (1) Business Day of receipt of the Exercise Notice giving rise to such dispute, as the case may be, to the Holder. If the Holder and the Company are unable to agree upon such determination or calculation of the Exercise Price or the Warrant Shares within one (1) Business Day of such disputed determination or arithmetic calculation being submitted to the Holder, then the Company shall, within one (1) Business Day submit via facsimile or electronic mail (a) the disputed determination of the Exercise Price to an independent, reputable investment bank selected by the Holder and approved by the Company, such approval not to be unreasonably withheld, conditioned or delayed or (b) the disputed arithmetic calculation of the Warrant Shares to an independent, outside accountant, selected by the Holder and approved by the Company, such approval not to be unreasonably withheld, conditioned or delayed. The Company shall cause at its expense the investment bank or the accountant, as the case may be, to perform the determinations or calculations and notify the Company and the Holder of the results no later than five (5) Business Days from the time it receives the disputed determinations or calculations. Such investment banks or accountants determination or calculation, as the case may be, shall be binding upon all parties absent demonstrable error.
14. REMEDIES, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies provided in this Warrant shall be cumulative and in addition to all other remedies available under this Warrant and the other Transaction Documents, at law or in equity (including a decree of specific performance and/or other injunctive relief). No remedy contained herein shall be deemed a waiver of compliance with the provisions giving rise to such remedy. Nothing herein shall limit the right of the Holder to pursue actual damages for any failure by the Company to comply with the terms of this Warrant. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the holder of this Warrant shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
15. TRANSFER. This Warrant and the Warrant Shares may be offered for sale, sold, transferred, pledged or assigned without the consent of the Company.
16. SEVERABILITY. If any provision of this Warrant is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Warrant so long as this Warrant as so modified continues to express, without material change, the original intentions of the Company and the Holder as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the Company or the Holder or the practical realization of the benefits that would otherwise be conferred upon the Company or the Holder. The Company and the Holder will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
17. DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Warrant, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries, the Company shall contemporaneously with any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, nonpublic information relating to the Company or its Subsidiaries, the Company so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Company or its Subsidiaries.
18. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Warrant is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Warrant or to enforce the provisions of this Warrant or (b) there occurs any bankruptcy, reorganization, receivership of the company or other proceedings affecting company creditors rights and involving a claim under this Warrant, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys fees and disbursements.
19. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) 1933 Act means the Securities Act of 1933, as amended.
(b) Affiliate shall have the meaning ascribed to such term in Rule 405 of the 1933 Act.
(c) Approved Stock Plan means any employee benefit plan which has been approved by the Board of Directors of the Company, pursuant to which the Companys securities may be issued to any employee, officer or director for services provided to the Company.
(d) Attribution Parties means, collectively, the following Persons: (i) any investment vehicle, including, any funds, feeder funds or managed accounts, currently, or from time to time after the Issuance Date, directly or indirectly managed or advised by the Holders investment manager or any of its Affiliates or principals, (ii) any direct or indirect Affiliates of the Holder or any of the foregoing, (iii) any Person acting or who could be deemed to be acting as a Group together with the Holder or any of the foregoing and (iv) any other Person whose beneficial ownership of the Common Stock would or could be aggregated with the Holders and the other Attribution Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose of the foregoing is to subject collectively the Holder and all other Attribution Parties to the Maximum Percentage.
(e) Bid Price means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on an Eligible Market, the bid price of the Common Stock for the time in question (or the nearest preceding date) on the Eligible Market on which the Common Stock is then listed or quoted as reported by Bloomberg (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the Pink Open Market (f/k/a OTC Pink) published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (c) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Purchasers of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.
(f) Black Scholes Value means the value of this Warrant calculated using the Black-Scholes Option Pricing Model obtained from the OV function on Bloomberg determined as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if such Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated, for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of this Warrant as of the date of the public announcement of the applicable Fundamental Transaction, or, if such applicable Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the day immediately following the public announcement of the applicable Fundamental Transaction, or, if such Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated, (iii) the underlying price per share used in such calculation shall be the greater of (x) the highest Weighted Average Price of the Common Stock during the period beginning on the Trading Day prior to the execution of definitive documents relating to the applicable Fundamental Transaction and ending on (A) the Trading Day immediately following the public announcement of such Fundamental Transaction or (B) the Trading Day immediately following the consummation of the applicable Fundamental Transaction, if the applicable Fundamental Transaction is not publicly announced, and (y) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction, (v) a remaining option time
equal to the time between the date of the public announcement of the applicable Fundamental Transaction or, if such applicable Fundamental Transaction is not publicly announced, the date such Fundamental Transaction has occurred or is consummated, (vi) a zero cost of borrow and (v) a 360 day annualization factor.
(g) Bloomberg means Bloomberg Financial Markets.
(h) Business Day means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
(i) Common Stock means (i) the Companys shares of Common Stock, par value $0.001 per share, and (ii) any capital stock into which such Common Stock shall be changed or any capital stock resulting from a reorganization, recapitalization or reclassification of such Common Stock.
(j) Common Stock Equivalents means, collectively, Options and Convertible Securities.
(k) Convertible Securities means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock.
(l) Eligible Market means the Principal Market, The Nasdaq Capital Market, The Nasdaq Global Select Market, The Nasdaq Global Market or The New York Stock Exchange.
(m) Excluded Securities means any Common Stock issued or issuable: (i) in connection with any Approved Stock Plan, (ii) upon exercise of the SPA Warrants; provided, that the terms of such SPA Warrants are not amended, modified or changed on or after the Subscription Date or (iii) upon exercise of any Options or Convertible Securities which are outstanding on the day immediately preceding the Subscription Date; provided, that the terms of such Options or Convertible Securities are not amended, modified or changed on or after the Subscription Date.
(n) Expiration Date means the date sixty (60) months after the Issuance Date or, if such date falls on a day other than a Business Day or on which trading does not take place on the Principal Market (a Holiday), the next day that is not a Holiday.
(o) Fundamental Transaction means (A) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving corporation) another Subject Entity, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company or any of its significant subsidiaries (as defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or (iii) make, or allow one or more Subject Entities to make, or allow the Company to be subject to or have its Common Stock be subject to or party to one or more Subject Entities making, a purchase,
tender or exchange offer that is accepted by the holders of at least either (x) 50% of the outstanding shares of Common Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all Subject Entities making or party to, or Affiliated with any Subject Entities making or party to, such purchase, tender or exchange offer were not outstanding; or (z) such number of shares of Common Stock such that all Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such purchase, tender or exchange offer, become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv) consummate a stock purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with one or more Subject Entities whereby such Subject Entities, individually or in the aggregate, acquire, either (x) at least 50% of the outstanding shares of Common Stock, (y) at least 50% of the outstanding shares of Common Stock calculated as if any shares of Common Stock held by all the Subject Entities making or party to, or Affiliated with any Subject Entity making or party to, such stock purchase agreement or other business combination were not outstanding; or (z) such number of shares of Common Stock such that the Subject Entities become collectively the beneficial owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the outstanding shares of Common Stock, or (v) reorganize, recapitalize or reclassify its Common Stock, (B) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, allow any Subject Entity individually or the Subject Entities in the aggregate to be or become the beneficial owner (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, whether through acquisition, purchase, assignment, conveyance, tender, tender offer, exchange, reduction in outstanding shares of Common Stock, merger, consolidation, business combination, reorganization, recapitalization, spin-off, scheme of arrangement, reorganization, recapitalization or reclassification or otherwise in any manner whatsoever, of either (x) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock, (y) at least 50% of the aggregate ordinary voting power represented by issued and outstanding Common Stock not held by all such Subject Entities as of the Subscription Date calculated as if any shares of Common Stock held by all such Subject Entities were not outstanding, or (z) a percentage of the aggregate ordinary voting power represented by issued and outstanding shares of Common Stock or other equity securities of the Company sufficient to allow such Subject Entities to effect a statutory short form merger or other transaction requiring other stockholders of the Company to surrender their shares of Common Stock without approval of the stockholders of the Company or (C) that the Company shall, directly or indirectly, including through Subsidiaries, Affiliates or otherwise, in one or more related transactions, the issuance of or the entering into any other instrument or transaction structured in a manner to circumvent, or that circumvents, the intent of this definition in which case this definition shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this definition to the extent necessary to correct this definition or any portion of this definition which may be defective or inconsistent with the intended treatment of such instrument or transaction.
(p) Group means a group as that term is used in Section 13(d) of the 1934 Act and as defined in Rule 13d-5 thereunder.
(q) Lead Investor means [ ].
(r) Option Value means the value of an Option based on the Black and Scholes Option Pricing model obtained from the OV function on Bloomberg determined as of (A) the Trading Day prior to the public announcement of the issuance of the applicable Option, if the issuance of such Option is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Option if the issuance of such Option is not publicly announced, for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the applicable Option as of the applicable date of determination, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of (A) the Trading Day immediately following the public announcement of the applicable Option if the issuance of such Option is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Option if the issuance of such Option is not publicly announced, (iii) the underlying price per share used in such calculation shall be the highest Weighted Average Price of the Common Stock during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the issuance of the applicable Option and ending on (A) the Trading Day immediately following the public announcement of such issuance, if the issuance of such Option is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Option if the issuance of such Option is not publicly announced, (iv) a zero cost of borrow and (v) a 360 day annualization factor.
(s) Options means any rights, warrants or options to subscribe for or purchase (i) shares of Common Stock or (ii) Convertible Securities, including, without limitation, any SPA Warrants.
(t) Person means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof.
(u) Principal Market means [The NYSE American].
(v) Required Holders means the holders of the SPA Warrants representing at least a majority of the shares of Common Stock underlying the SPA Warrants then outstanding and shall include the Lead Investor so long as the Lead Investor or any of its Affiliates holds any SPA Warrants.
(w) Standard Settlement Period means the standard settlement period, expressed in a number of Trading Days, on the principal securities exchange or securities market on which the Common Stock is then traded as in effect on the date of delivery of the applicable Exercise Notice.
(x) Subject Entity means any Person, Persons or Group or any Affiliate or associate of any such Person, Persons or Group.
(y) Subsequent Placement means any direct or indirect, offer, sale, grant any option to purchase, or other disposition of any of its or its Subsidiaries equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for Common Stock or Common Stock Equivalents.
(z) Subsidiary means any entity in which the Company, directly or indirectly, owns any of the capital stock or holds an equity or similar interest.
(aa) Trading Day means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock on such day, then on the principal securities exchange or securities market on which the Common Stock is then traded.
(bb) Weighted Average Price means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its Volume at Price function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as such market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as such market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the OTC Link or Pink Open Market (f/k/a OTC Pink) published by the OTC Markets Group, Inc. (or similar organization or agency succeeding to its functions of reporting prices). If the Weighted Average Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Weighted Average Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved pursuant to Section 13 with the term Weighted Average Price being substituted for the term Exercise Price. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or other similar transaction relating to the Common Stock during the applicable calculation period.
[Signature Page Follows]
IN WITNESS WHEREOF, the Company has caused this Warrant to Purchase Common Stock to be duly executed as of the Issuance Date set out above.
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EXHIBIT A
EXERCISE NOTICE
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS
WARRANT TO PURCHASE COMMON STOCK
[·]
The undersigned holder hereby exercises the right to purchase of the shares of Common Stock (Warrant Shares) of [·], a Delaware corporation (the Company), evidenced by the attached Warrant to Purchase Common Stock (the Warrant). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:
a Cash Exercise with respect to Warrant Shares; and/or
a Cashless Exercise with respect to Warrant Shares, resulting in a delivery obligation of the Company to the Holder of shares of Common Stock representing the applicable Net Number.
2. Payment of Exercise Price. In the event that the holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the holder shall pay the Aggregate Exercise Price in the sum of $ to the Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the holder Warrant Shares in accordance with the terms of the Warrant.
4. Please issue the Common Stock into which the Warrant is being exercised to the Holder, or for its benefit, as follows:
o Check here if requesting delivery as a certificate to the following name and to the following address:
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ACKNOWLEDGMENT
The Company hereby acknowledges this Exercise Notice and hereby directs [Computershare Trust Company, N.A.] to issue the above indicated number of shares of Common Stock in accordance with the Transfer Agent Instructions dated [·] from the Company and acknowledged and agreed to by [Computershare Trust Company, N.A.]
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Akerman LLP Las Olas Centre II, Suite 1600 350 East Las Olas Boulevard Fort Lauderdale, FL 33301-2999
T: 954 463 2700 F: 954 463 2224 |
March 27, 2020
BioPharmX Corporation
900 E. Hamilton Ave., Suite 100
Campbell, California 95008
Ladies and Gentlemen:
We have acted as counsel to you, BioPharmX Corporation, a Delaware corporation (BioPharmX), in connection with the filing of a registration statement on Form S-4 (the Registration Statement), which includes the proxy statement/prospectus/information statement of Timber Pharmaceuticals, LLC, a Delaware limited liability company (Timber) and BioPharmX, relating to the proposed merger of BITI Merger Sub, Inc., a Delaware corporation and a direct and wholly-owned subsidiary of BioPharmx (Merger Sub), with and into Timber with Timber continuing as the surviving limited liability company and as a wholly owned subsidiary of BioPharmX, pursuant to the Agreement and Plan of Merger, including the exhibits thereto, dated as of January 28, 2020, as amended (the Merger Agreement), by and among Timber, Merger Sub and BioPharmX.
For purposes of rendering our opinion, we have examined and relied upon the Merger Agreement and the schedules and exhibits thereto, the Registration Statement, statements made in representation letters that have been delivered to us by Timber and BioPharmX, and such other documents as we deemed necessary to render the opinion expressed below. We have expressly assumed (i) that the statements, information, covenants, representations and facts concerning the merger set forth in the Registration Statement and in the Agreement are and will continue to be up to the Effective Time, true, complete and accurate in all respects, (ii) that the merger will be completed in accordance with the terms and conditions of the Merger Agreement, without the waiver or modification of any such terms and conditions, and the Registration Statement, (iii) that the representations and covenants contained in tax representation letters delivered to us by Timber, Merger Sub and BioPharmX are true, complete and accurate, (iv) that there is no change in applicable law between the date hereof and the effective time of the merger, (v) all parties to the Merger Agreement have acted and will act in accordance with the terms of the Merger Agreement; and (vi) for U.S. federal income tax purposes, Timber, Merger Sub and BioPharmX will treat the merger as an exchange described in Section 351 of the Internal Revenue Code of 1986, as amended (the Code).
akerman.com
We have also assumed the authenticity of original documents, the accuracy of copies, the genuineness of signatures and the legal capacity of signatories. Moreover, we have assumed that all facts, information, statements and representations contained in the documents we have reviewed were true, complete and correct at the time made and will continue to be true, complete and correct in all respects at all times up to and including the Effective Time, and that all such facts, information, statements and representations can be established to the Internal Revenue Service or courts, if necessary, by clear and convincing evidence. If any of the assumptions described above are untrue for any reason, or if the merger is consummated other than in accordance with the terms and conditions set forth in the Merger Agreement, our opinion as expressed below may be adversely affected.
The opinion expressed herein is based upon the provisions of the Code, Treasury Department proposed, temporary, and final regulations, judicial decisions, and ruling and administrative interpretations of the Internal Revenue Service, as each of the foregoing exists on the date hereof. Our opinion is not binding on the Internal Revenue Service or a court of law, and no assurance can be given that legislative or administrative action or judicial decisions that differ from our opinion will not be forthcoming. Any such differences could be retroactive to transactions or business operations prior to such action or decisions. Nevertheless, we undertake no responsibility to advise you of any developments in the application or interpretation of the income tax laws of the U.S. after the merger is affected.
Our opinion is limited to the U.S. federal income tax matters addressed herein, and no other opinions are rendered with respect to other U.S. federal tax matters or to any issues arising under the tax laws of any other country, or any state or locality. This opinion is expressed as of the date hereof, and we disclaim any undertaking to advise you of subsequent changes relating to matters considered herein or of any subsequent changes in applicable law.
We hereby confirm to you that the discussion set forth in the Registration Statement under the caption Material U.S. Federal Income Tax Consequences of the Merger insofar as it is related to U.S. federal income tax law and legal conclusions with respect thereto, is our opinion, subject to the exceptions, assumptions, qualifications and limitations set forth therein and herein.
In rendering this opinion, we have assumed that Lowenstein Sandler LLP, in its capacity as counsel to Timber, has delivered to Timber, and has not withdrawn, an opinion that is substantially similar to this one.
This opinion is not to be relied upon, used, circulated, quoted, or otherwise referred to for any other purpose or by any other person or entity without our prior written consent.
Very truly yours,
/s/ Akerman LLP
Akerman LLP
Lowenstein Sandler LLP
One Lowenstein Drive | Roseland, NJ 07068 | tel 973.597.2500 | fax 973.597.2400
March 27, 2020
Timber Pharmaceuticals, LLC
50 Tice Boulevard, Suite A26
Woodcliff Lake, NJ 07677
Ladies and Gentlemen:
We have acted as counsel to you, Timber Pharmaceuticals, LLC, a Delaware limited liability company (Timber), in connection with the filing of a registration statement on Form S-4 (the Registration Statement), which includes the proxy statement/prospectus/information statement of Timber and BioPharmx Corporation, a Delaware corporation (BioPharmX), relating to the proposed merger of BITI Merger Sub, Inc., a Delaware corporation and a direct and wholly owned subsidiary of BioPharmx (Merger Sub), with and into Timber with Timber continuing as the surviving limited liability company and as a wholly owned subsidiary of BioPharmX, pursuant to the Agreement and Plan of Merger, including the exhibits thereto, dated as of January 28, 2020 (the Merger Agreement), by and among Timber, Merger Sub and BioPharmX.
For purposes of rendering our opinion, we have examined and relied upon the Merger Agreement and the schedules and exhibits thereto, the Registration Statement, statements made in representation letters that have been delivered to us by Timber and BioPharmX, and such other documents as we deemed necessary to render the opinion expressed below. We have expressly assumed (i) that the statements, information, covenants, representations and facts concerning the merger set forth in the Registration Statement and in the Agreement are and will continue to be up to the Effective Time, true, complete and accurate in all respects, (ii) that the merger will be completed in accordance with the terms and conditions of the Agreement, without the waiver or modification of any such terms and conditions, and the Registration Statement, (iii) that the representations and covenants contained in tax representation letters delivered to us by Timber, Merger Sub and BioPharmX are true, complete and accurate, (iv) that there is no change in applicable law between the date hereof and the effective time of the merger, (v) all parties to the Merger Agreement have acted and will act in accordance with the terms of the Merger Agreement; and (vi) for U.S. federal income tax purposes, Timber, Merger Sub and BioPharmX will treat the merger as an exchange described in Section 351 of the Internal Revenue Code of 1986, as amended (the Code).
We have also assumed the authenticity of original documents, the accuracy of copies, the genuineness of signatures and the legal capacity of signatories. Moreover, we have assumed that
all facts, information, statements and representations contained in the documents we have reviewed were true, complete and correct at the time made and will continue to be true, complete and correct in all respects at all times up to and including the Effective Time, and that all such facts, information, statements and representations can be established to the Internal Revenue Service or courts, if necessary, by clear and convincing evidence. If any of the assumptions described above are untrue for any reason, or if the merger is consummated other than in accordance with the terms and conditions set forth in the Merger Agreement, our opinion as expressed below may be adversely affected.
The opinion expressed herein is based upon the provisions of the Code, Treasury Department proposed, temporary, and final regulations, judicial decisions, and ruling and administrative interpretations of the Internal Revenue Service, as each of the foregoing exists on the date hereof. Our opinion is not binding on the Internal Revenue Service or a court of law, and no assurance can be given that legislative or administrative action or judicial decisions that differ from our opinion will not be forthcoming. Any such differences could be retroactive to transactions or business operations prior to such action or decisions. Nevertheless, we undertake no responsibility to advise you of any developments in the application or interpretation of the income tax laws of the U.S. after the merger is affected.
Our opinion is limited to the U.S. federal income tax matters addressed herein, and no other opinions are rendered with respect to other U.S. federal tax matters or to any issues arising under the tax laws of any other country, or any state or locality. This opinion is expressed as of the date hereof, and we disclaim any undertaking to advise you of subsequent changes relating to matters considered herein or of any subsequent changes in applicable law.
We hereby confirm to you that the discussion set forth in the Registration Statement under the caption Material U.S. Federal Income Tax Consequences of the Merger insofar as it is related to U.S. federal income tax law and legal conclusions with respect thereto, is our opinion, subject to the exceptions, assumptions, qualifications and limitations set forth therein and herein.
In rendering this opinion, we have assumed that Akerman LLP, in its capacity as counsel to BioPharmX and Merger Sub, has delivered to BioPharmX, and has not withdrawn, an opinion that is substantially similar to this one.
This opinion is not to be relied upon, used, circulated, quoted, or otherwise referred to for any other purpose or by any other person or entity without our prior written consent.
Very truly yours,
/s/ Lowenstein Sandler LLP
www.lowenstein.com
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this Agreement), dated as of March 27, 2020, by and among Timber Pharmaceuticals LLC, a Delaware limited liability company, with headquarters located at 50 Tice Boulevard, Suite A26, Woodcliff Lake, NJ 07677 (Timber), BioPharmX Corporation, a Delaware corporation, with headquarters located at 900 E. Hamilton Ave., Suite 100, Campbell, California 95008 (BioPharmX), and the investors listed on the Schedule of Buyers attached hereto (each, a Buyer and collectively, the Buyers).
WHEREAS:
A. Timber, BioPharmX and each Buyer is executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the 1933 Act), and Rule 506(b) of Regulation D (Regulation D) as promulgated by the United States Securities and Exchange Commission (the SEC) under the 1933 Act.
B. Each Buyer wishes to purchase, and Timber wishes to sell, upon the terms and conditions stated in this Agreement, (i) that aggregate number of units of Timber, each having the rights and obligations specified with respect to Common Units in the Timber LLCA (as defined below) (the Timber Common Units), set forth opposite such Buyers name in column (3) on the Schedule of Buyers (which aggregate amount of Timber Common Units for all Buyers together (the Buyers Allocation Number) shall equal a number of units, to be determined on the Closing Date, that is exchangeable on the terms described in the Merger Agreement (as defined below) for an aggregate of 20.0% of the estimated Parent Fully Diluted Number (as defined below), assuming solely for this purpose that all of the Exchange Shares (as defined below) estimated to be issued in exchange for Additional Common Units (as defined below) were not then outstanding, and shall collectively be referred to herein as the Initial Common Units), and (ii) up to that aggregate number of Timber Common Units set forth opposite such Buyers name in column (4) of the Schedule of Buyers attached hereto (which aggregate amount for all Buyers shall equal the Buyers Allocation Number) (the Additional Common Units and together with the Initial Common Units, the Common Units), which shall be issued in escrow to The Bank of New York Mellon acting as escrow agent (the Escrow Agent) in accordance with those certain escrow agreements by and among each Buyer, on the one hand, and Timber, BioPharmX and the Escrow Agent on the other hand, in the form attached hereto as Exhibit A (collectively, the Securities Escrow Agreement) and which shall be delivered from time to time to the Buyers pursuant to the terms and conditions set forth in this Agreement.
C. In addition, BioPharmX hereby agrees to issue to each Buyer, following completion of the Merger (as defined below) upon the terms and conditions stated in this Agreement (i) warrants, in the form attached hereto as Exhibit B-1 (the Series A Warrants), representing the right to acquire an initial amount of shares of BioPharmXs common stock, par value $0.001 per share (the BioPharmX Common Stock) equal to seventy-five (75%) percent of the quotient determined by dividing the Purchase Price (as defined below) paid by such Buyer on the Closing Date (as defined below), by the Final Per Share Price (as defined below) (such shares of BioPharmX Common Stock issuable upon exercise of the Series A Warrants, collectively, the Series A Warrant Shares), and (ii) warrants, in the form attached hereto as Exhibit B-2 (the Series B
Warrants and, together with the Series A Warrants, the Warrants), representing the right to acquire that number of shares BioPharmX Common Stock in accordance with its terms and conditions (such shares of BioPharmX Common Stock issuable upon exercise of the Series B Warrants, collectively, the Series B Warrant Shares and, together with the Series A Warrant Shares, the Warrant Shares).
D. Contemporaneously with the execution and delivery of this Agreement, the Buyers and BioPharmX are executing and delivering a Registration Rights Agreement, in the form attached hereto as Exhibit C (the Registration Rights Agreement), pursuant to which BioPharmX has agreed to provide, following the closing of the Merger, certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement) under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.
E. The Common Units (and, as applicable, the Exchange Shares issued in exchange therefor), the Warrants and the Warrant Shares collectively are referred to herein as the Securities.
F. The Parent Fully Diluted Number is equal to the fully-diluted post-Merger outstanding shares of BioPharmX Common Stock, which figure does not include any outstanding options or warrants of BioPharmX that are out-of-the-money at the Closing (as defined below).
NOW, THEREFORE, Timber, BioPharmX and each Buyer hereby agree as follows:
1. PURCHASE AND SALE OF COMMON UNITS AND WARRANTS.
(a) Purchase of Initial Common Units. Subject to the satisfaction (or waiver) of the conditions set forth in Sections 7 and 8 below, (x) Timber shall issue and sell to each Buyer, and each Buyer severally, but not jointly, agrees to purchase from Timber on the Closing Date (as defined below), the number of Initial Common Units as is set forth opposite such Buyers name in column (3) on the Schedule of Buyers and (y) Timber shall issue in escrow in the name of the Escrow Agent a number of shares of Timber Common Units equal to the Buyers Allocation Number (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the date hereof) issuable as Additional Common Units, in accordance with the terms hereof and the Securities Escrow Agreement (the Closing).
(b) Closing. The date and time of the Closing (the Closing Date) shall be 10:00 a.m., New York City time, on a date mutually agreed to by Timber, BioPharmX and each Buyer after notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 7 and 8 below, at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. The Closing may also be undertaken remotely by electronic transfer of Closing documentation.
(c) Issuance of Warrants and Delivery of Additional Common Units.
(i) Obligation to Issue Warrants. On the Warrant Closing Date (as defined below), and for no additional consideration, BioPharmX shall issue to each Buyer (x)
Series A Warrants to acquire an initial amount of shares of BioPharmX Common Stock equal to seventy-five (75%) percent of the quotient determined by dividing the Purchase Price paid by such Buyer on the Closing Date, by the Final Per Share Price and (y) Series B Warrants to acquire Series B Warrant Shares in accordance with its terms and conditions (the Warrant Closing).
(ii) Obligation to Deliver Additional Common Units. Promptly but in any event by no later than (x) the Warrant Closing Date and/or (y) if Section 1(c)(iv) prevents the delivery on the Warrant Closing Date of all or any portion of the Exchange Shares (as defined in Section 5(d)) issued in exchange of Additional Common Units to a Buyer, the second (2nd) Trading Day immediately after the delivery to BioPharmX of a notice by such Buyer in the form attached hereto as Exhibit D setting forth such Buyers election to receive all or any portion of the Exchange Shares issued in exchange of the Additional Common Units such Buyer is entitled to pursuant to this Section 1(c)(ii) and the delivery of which is no longer prevented by Section 1(c)(iv) (a Capacity Notice) (the Warrant Closing Date and each second (2nd) Trading Day immediately following the delivery to BioPharmX of a Capacity Notice, an Additional Exchange Shares Delivery Date), subject to Section 1(c)(iv), BioPharmX shall, in each case, without any additional consideration, cause the Escrow Agent to transfer from the escrow account governed by the Securities Escrow Agreement and deliver by crediting to such Buyers or its designees balance account with The Depository Trust Company (DTC) through its Deposit / Withdrawal At Custodian system, the Additional Common Units (once exchanged for the Exchange Shares as set forth herein) (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events occurring after the date hereof and including any securities, cash, rights or other property distributed with respect to such Additional Common Units or in exchange for such Additional Common Units), which such Exchange Shares issued in exchange of Additional Common Units shall be equal to the lesser of (A) the number of Exchange Shares issued in exchange for the Additional Common Units deposited in such Buyers escrow account (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events occurring after the date hereof) and (B) the number (if positive) obtained by subtracting (I) the number of Exchange Shares issued in exchange for the Initial Common Units purchased by such Buyer on the Closing Date (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events occurring after the date hereof), from (II) the quotient determined by dividing (x) the aggregate Purchase Price paid by such Buyer on the Closing Date, by (y) the greater of (a) the Reset Floor Price (as defined in the Warrants) and (b) eighty-five percent (85%) of the sum of the three (3) lowest Weighted Average Prices (as defined in the Warrants) of the BioPharmX Common Stock during the period beginning on the first (1st) Trading Day immediately following the Closing Date and ending on the Warrant Closing Date, inclusive (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events during such period), divided by three (3) (such price, the Final Per Share Price). On the Warrant Closing Date, each Investor Representative (as defined in the applicable Securities Escrow Agreement), Timber and BioPharmX shall instruct the Escrow Agent to release to BioPharmX from the applicable escrow account governed by the Securities Escrow Agreement any Exchange Shares issued in exchange for Additional Common Units to the extent that the
Buyer(s) affiliated with such Investor Representative is not entitled to receive such Exchange Shares pursuant to this Section 1(c)(ii) without giving effect to the limitations under Section 1(c)(iv).
(iii) Mechanics of Delivery.
(1) General. BioPharmX shall be responsible for all fees and expenses of its transfer agent (the Transfer Agent) and all fees and expenses with respect to the delivery of Exchange Shares issued in exchange of Additional Common Units and transfer of such shares to each Buyers or its designees balance account with DTC, if any, including, without limitation, for same day processing. BioPharmXs obligations to cause the Transfer Agent to deliver and transfer Exchange Shares issued in exchange of Additional Common Units to the Buyers in accordance with the terms and subject to the conditions hereof and the Securities Escrow Agreement are absolute and unconditional, irrespective of any action or inaction by such Buyer to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination. Notwithstanding anything to the contrary contained herein, in no event will BioPharmX have any responsibility under Section 1(c) until after the completion of the Merger and any Exchange Shares issued in exchange of Additional Common Units be delivered with any restrictive legends or any restrictions or limitations on resale by the Buyers. If BioPharmX and/or the Transfer Agent requires any legal opinions with respect to the delivery of any Exchange Shares issued in exchange of Additional Common Units without restrictive legends or the removal of any such restrictive legends, BioPharmX agrees to cause at its expense its legal counsel to issue any such legal opinions. BioPharmX hereby acknowledges and agrees that the holding period of any Exchange Shares issued in exchange of Additional Common Units delivered hereunder for purposes of Rule 144 shall be deemed to have commenced on the Closing Date. For purposes of this Agreement, Person means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.
(2) BioPharmXs Failure to Timely Deliver Securities. If BioPharmX shall fail for any reason or for no reason to credit such Buyers or its designees balance account with DTC on the applicable Additional Exchange Shares Delivery Date for such number of Exchange Shares issued in exchange of shares of BioPharmX Common Stock to which such Buyer is entitled under Section 1(c)(ii) (a Delivery Failure), then, in addition to all other remedies available to such Buyer, BioPharmX shall pay in cash to such Buyer on each day after such Additional Exchange Shares Delivery Date that BioPharmX shall fail to credit such Buyers or its designees balance account with DTC for the number of shares of BioPharmX Common Stock to which such Buyer is entitled pursuant to BioPharmXs obligation pursuant to clause (ii) below, an amount equal to 1.5 % of the product of (A) the number of Exchange Shares not issued to such Buyer on or prior to the applicable Additional Exchange Shares Delivery Date and to which the Buyer is entitled, and (B) any trading price of the BioPharmX Common Stock selected by the Buyer in writing as in effect at any time during the period beginning on the applicable Additional Exchange Shares Delivery Date and ending on the date BioPharmX makes the
applicable cash payment, and if on or after such Trading Day such Buyer (or any Person in respect of, or on behalf, of such Buyer) purchases (in an open market transaction or otherwise) shares of BioPharmX Common Stock related to the applicable Delivery Failure, then, in addition to all other remedies available to such Buyer, Timber shall, within two (2) Trading Days after such Buyers request and in such Buyers discretion, either (i) pay cash to such Buyer in an amount equal to such Buyers total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of BioPharmX Common Stock so purchased (the Buy-In Price), at which point BioPharmXs obligation to credit such Buyers or its designees balance account with DTC for such shares of BioPharmX Common Stock shall terminate, or (ii) promptly honor its obligation to credit such Buyers or its designees balance account with DTC and pay cash to such Buyer in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of BioPharmX Common Stock, multiplied by (B) any trading price of the BioPharmX Common Stock selected by such Buyer in writing as in effect at any time during the period beginning on the applicable Additional Exchange Shares Delivery Date and ending on the date of such delivery and payment under this Section 1(c)(iii)(2). Nothing shall limit any Buyers right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to BioPharmXs failure to timely electronically deliver shares of BioPharmX Common Stock as required pursuant to the terms hereof. Notwithstanding the foregoing, BioPharmX shall have no obligations under Section 1(c) until after the closing of the Merger.
(3) Charges, Taxes and Expenses. Issuance of the Additional Common Units to the Escrow Agent and subsequent delivery of the Exchange Shares issued in exchange thereof to the Buyers shall be made without charge to the Buyers for any issue or transfer tax or other incidental expense in respect of such issuance and transfer, all of which taxes (other than the Buyers income taxes) and expenses shall be paid by BioPharmX, and the Exchange Shares issued in exchange of such Additional Common Units shall be delivered in the name of the respective Buyer or in such name or names as may be directed by the respective Buyer.
(4) Closing of Books. Neither Timber nor BioPharmX will close its stockholder books or records in any manner which prevents the timely exercise of such Buyers rights with respect to the Exchange Shares issued in exchange of the Additional Common Units.
(iv) Blocker. Notwithstanding anything to the contrary contained herein, BioPharmX shall not deliver Exchange Shares issued in exchange of Additional Common Units, and no Buyer shall have the right to receive Exchange Shares issued in exchange of Additional Common Units, and any such delivery shall be null and void and treated as if never made, to the extent that after giving effect to such delivery, such Buyer together with its other Attribution Parties (as defined in the Warrants) would beneficially own in excess of such percentage corresponding to the checked box on such Buyers signature page attached hereto (the Maximum Percentage) of the number of shares of BioPharmX Common Stock outstanding immediately after giving effect to such delivery. For purposes of the foregoing sentence, the aggregate number of shares of BioPharmX Common Stock beneficially owned by such Buyer and the other
Attribution Parties shall include the number of shares of BioPharmX Common Stock held by such Buyer and all other Attribution Parties plus the number of Exchange Shares issued in exchange of Additional Common Units delivered to such Buyer pursuant to Section 1(c) hereof with respect to which the determination of such sentence is being made, but shall exclude the number of shares of BioPharmX Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of the Warrants beneficially owned by such Buyer or any of the other Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of BioPharmX beneficially owned by such Buyer or any of the other Attribution Parties (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. For purposes of this Section 1(c)(iv), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the 1934 Act). For purposes of determining the number of outstanding shares of BioPharmX Common Stock that the Buyers may receive without exceeding the Maximum Percentage, the Buyers may rely on the number of outstanding shares of BioPharmX Common Stock as reflected in (1) BioPharmXs most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other public filing with the SEC, as the case may be, (2) a more recent public announcement by BioPharmX or (3) any other written notice by BioPharmX or the Transfer Agent setting forth the number of shares of BioPharmX Common Stock outstanding (the Reported Outstanding Share Number). If BioPharmX receives a Capacity Notice from such Buyer at a time when the actual number of outstanding shares of BioPharmX Common Stock is less than the Reported Outstanding Share Number, BioPharmX shall promptly notify the Buyers in writing of the number of shares of BioPharmX Common Stock then outstanding and, to the extent that such Capacity Notice would otherwise cause a Buyers beneficial ownership, as determined pursuant to this Section 1(c)(iv), to exceed the Maximum Percentage, such Buyer must notify BioPharmX of a reduced number of Exchange Shares issued in exchange of Additional Common Units to be delivered pursuant to such Capacity Notice. For any reason at any time, upon the written or oral request of a Buyer, BioPharmX shall within one (1) Business Day confirm in writing or by electronic mail to such Buyer the number of shares of BioPharmX Common Stock then outstanding. In any case, the number of outstanding shares of BioPharmX Common Stock shall be determined after giving effect to the conversion or exercise of securities of BioPharmX, including the Warrants held by each Buyer and the other Attribution Parties since the date as of which the Reported Outstanding Share Number was reported. In the event that the delivery of Exchange Shares issued in exchange of Additional Common Units to such Buyer results in such Buyer and the other Attribution Parties being deemed to beneficially own, in the aggregate, more than the Maximum Percentage of the number of outstanding shares of BioPharmX Common Stock (as determined under Section 13(d) of the 1934 Act), the number of shares so delivered by which such Buyers and the other Attribution Parties aggregate beneficial ownership exceeds the Maximum Percentage (the Excess Shares) shall be deemed null and void and shall be cancelled ab initio, and such Buyer shall not have the power to vote or to transfer the Excess Shares. If a Buyers right to receive Exchange Shares issued in exchange of Additional Common Units is limited, in whole or in part, by this Section 1(c)(iv), all such Exchange Shares issued in exchange of Additional Common Units that are so limited shall be held in abeyance for the benefit of such Buyer by the Escrow Agent until the earlier to occur of the fifth (5th) anniversary of the Closing Date and such time as such Buyer notifies BioPharmX that its right thereto would not result in such Buyer exceeding the Maximum Percentage and BioPharmX shall promptly but in any event
within two (2) Trading Days after the delivery of such Capacity Notice deliver to such Buyer the Exchange Shares issued in exchange of such Additional Common Units. Upon delivery of a written notice to BioPharmX, each Buyer may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% as specified in such notice; provided that (i) any such increase in the Maximum Percentage will not be effective until the sixty-first (61st) day after such notice is delivered to BioPharmX and (ii) any such increase or decrease will apply only to such Buyer and the other Attribution Parties and not to any of the other Buyers that is not an Attribution Party of such Buyer. For purposes of clarity, the Exchange Shares issued in exchange of the Additional Common Units deliverable pursuant to the terms hereof in excess of the Maximum Percentage shall not be deemed to be beneficially owned by such Buyer for any purpose including for purposes of Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 1(c)(iv) to the extent necessary to correct this paragraph or any portion of this paragraph which may be defective or inconsistent with the intended beneficial ownership limitation contained in this Section 1(c)(iv) or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitation contained in this paragraph may not be waived and shall apply to a successor of such Buyer. As used herein, Business Day means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.
(d) Warrant Closing. The time of the Warrant Closing shall be 10:00 a.m., New York City time on the later of (x) the tenth (10th) Trading Day immediately following the Closing Date and (y) the second (2nd) Trading Day immediately following the completion of the Merger (the Warrant Closing Date), at the offices of Schulte Roth & Zabel LLP, 919 Third Avenue, New York, New York 10022. The Warrant Closing may also be undertaken remotely by electronic transfer of Warrant Closing documentation.
(e) Purchase Price. The purchase price for the Common Units and the related Warrants to be purchased by each Buyer pursuant to this Agreement shall be $25,000,000, with each Buyers individual contribution amount set forth opposite such Buyers name in column (5) of the Schedule of Buyers (the Purchase Price). If a Buyer, or an affiliate of such Buyer, is also party to that certain Securities Purchase Agreement, dated January 28, 2020, by and between Timber and the buyers thereto (the Bridge Securities Purchase Agreement), at such Buyers election and upon surrender of such Buyers, or such Buyers affiliates, Note (as defined below), the Purchase Price may be offset by an amount equal to the Outstanding Amount (as defined in the Note) due and payable by Timber to such Buyer, or such Buyers affiliate, on the Closing Date under a senior secured note (the Note) issued by Timber pursuant to the Bridge Securities Purchase Agreement. Timber and each Buyer that is, or has an affiliate that is, a party to the Bridge Securities Purchase Agreement, acknowledges and agrees that, effective immediately upon the Closing and the issuance of Initial Common Units hereunder, and immediately prior to the consummation of the Merger, pursuant to Section 1 of the Notes, the Note, if any, issued to such Buyer or such Buyers affiliates shall be deemed to have been repaid concurrently with the Closing, shall have no further force and effect and shall be deemed to be cancelled.
(f) Form of Payment. On the Closing Date, (i) each Buyer shall pay its respective Purchase Price (less, in the case of [ ] (the Lead Investor), any amounts withheld pursuant to Section 5(h) and less, in the case of any electing Buyer as
described in Section 1(e), any Outstanding Amount pursuant to such Buyers, or such Buyers affiliates, Note surrendered to Timber pursuant to Section 1(e)), to Timber for the Common Units and the Warrants to be issued and sold to such Buyer pursuant to this Agreement by wire transfer of immediately available funds in accordance with Timbers written wire instructions and (ii) Timber shall deliver to each Buyer the number of Initial Common Units such Buyer is purchasing as is set forth opposite such Buyers name in column (3) of the Schedule of Buyers. On the Warrant Closing Date, BioPharmX shall deliver to each Buyer (x) a Series A Warrant pursuant to which such Buyer shall have the right to acquire an initial amount of shares of BioPharmX Common Stock equal to seventy-five (75%) percent of the quotient determined by dividing the Purchase Price paid by such Buyer on the Closing Date, by the Final Per Share Price, and (y) a Series B Warrant pursuant to which such Buyer shall have the right to acquire Series B Warrant Shares in accordance with its terms and conditions, in each case duly executed on behalf of BioPharmX and registered in the name of such Buyer or its designee.
2. BUYERS REPRESENTATIONS AND WARRANTIES. Each Buyer, severally and not jointly, represents and warrants with respect to only itself to each of Timber and BioPharmX that, as of the date hereof and as of the Closing Date:
(a) No Public Sale or Distribution. Such Buyer is (i) acquiring the Common Units and the Warrants and (ii) upon exercise of the Warrants (other than pursuant to a Cashless Exercise (as defined in the Warrants)) will acquire the Warrant Shares issuable upon exercise of the Warrants, for its own account and not with a view towards, or for resale in connection with, the public sale or distribution thereof, except pursuant to sales registered or exempted under the 1933 Act; provided, however, that by making the representations herein, such Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act. Such Buyer is acquiring the Securities hereunder in the ordinary course of its business. Such Buyer does not presently have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities.
(b) Accredited Investor Status; No Disqualification Events. Such Buyer is an accredited investor as that term is defined in Rule 501(a) of Regulation D. To the extent such Buyer is a beneficial owner of 10% or more of BioPharmX Common Stock as of the date hereof or as of the Closing Date, none of (i) such Buyer, (ii) any of such Buyers directors, executive officers, other officers that may serve as a director or officer of any company in which it invests, general partners or managing members, or (iii) any beneficial owner of Timbers or BioPharmXs voting equity securities (in accordance with Rule 506(d) of the Securities Act) held by such Buyer is subject to any Disqualification Event, except for Disqualification Events covered by Rule 506(d)(2) or (d)(3) under the Securities Act and disclosed reasonably in advance of the Closing in writing in reasonable detail to Timber and BioPharmX.
(c) Reliance on Exemptions. Such Buyer understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that Timber and BioPharmX are relying in part upon the truth and accuracy of, and such Buyers compliance with, the representations, warranties, agreements, acknowledgments and understandings of such Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of such Buyer to acquire the Securities.
(d) Information. Such Buyer and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of Timber and BioPharmX and materials relating to the offer and sale of the Securities that have been requested by such Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity to ask questions of Timber and BioPharmX. Neither such inquiries nor any other due diligence investigations conducted by such Buyer or its advisors, if any, or its representatives shall modify, amend or affect such Buyers right to rely on Timbers and BioPharmXs representations and warranties contained herein. Such Buyer understands that its investment in the Securities involves a high degree of risk. Such Buyer has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. Such Buyer acknowledges and agrees that neither Chardan Capital Markets, LLC (the Placement Agent) nor any Affiliate (as defined in Rule 144) of the Placement Agent has provided such Buyer with any information or advice with respect to the Securities nor is such information or advice necessary or desired. Neither the Placement Agent nor any Affiliate has made or makes any representation as to Timber and BioPharmX or the quality of the Securities and the Placement Agent and any Affiliate may have acquired non-public information with respect to Timber and BioPharmX which such Buyer agrees need not be provided to it. In connection with the issuance of the Securities to such Buyer, neither the Placement Agent nor any of its Affiliates has acted as a financial advisor or fiduciary to such Buyer.
(e) No Governmental Review. Such Buyer understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.
(f) Transfer or Resale. Such Buyer understands that except as provided in the Registration Rights Agreement: (i) the Securities have not been and are not being registered under the 1933 Act or any state securities laws, and may not be offered for sale, sold, assigned or transferred unless (A) subsequently registered thereunder, (B) subject to Section 1(c)(iii)(1), such Buyer shall have delivered to BioPharmX an opinion of counsel, in a form reasonably satisfactory to BioPharmX, to the effect that such Securities to be sold, assigned or transferred may be sold, assigned or transferred pursuant to an exemption from such registration, or (C) such Buyer provides BioPharmX with reasonable assurance that such Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A promulgated under the 1933 Act, as amended, (or a successor rule thereto) (collectively, Rule 144); (ii) any sale of the Securities made in reliance on Rule 144 may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of the Securities under circumstances in which the seller (or the Person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither BioPharmX nor any other Person is under any obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder; provided, however, that the Common Units will be exchanged on the Closing Date, or pursuant to Section 5(d) will be exchangeable, for
shares of BioPharmX Common Stock registered under the 1933 Act pursuant to the registration statement on Form S-4 filed by BioPharmX (File No. 333-236526) (as amended from time to time, the Form S-4). Notwithstanding the foregoing, the Securities may be pledged in connection with a bona fide margin account or other loan or financing arrangement secured by the Securities and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Buyer effecting a pledge of Securities shall be required to provide BioPharmX with any notice thereof or otherwise make any delivery to BioPharmX pursuant to this Agreement or any other Transaction Document (as defined in Section 4(b)), including, without limitation, this Section 2(f).
(g) Legends. Such Buyer understands that the certificates or other instruments representing the Common Units and the Warrants and, until such time as the resale or exchange of the Common Units and the Warrant Shares have been registered under the 1933 Act as contemplated by the Registration Rights Agreement or the Form S-4, as applicable, the stock certificates representing the Securities, except as set forth below, shall bear a restrictive legend in the following form (and a stop-transfer order may be placed against transfer of such stock certificates):
[NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN][THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL SELECTED BY THE HOLDER, IN A FORM REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
The legend set forth above shall be removed and BioPharmX shall issue a certificate without such legend to the holder of the Securities upon which it is stamped or issue to such holder by electronic delivery at the applicable balance account at DTC, if (i) such Securities are registered for resale under the 1933 Act or exchanged for other securities in a transaction registered under the 1933 Act, (ii) in connection with a sale, assignment or other transfer, except as provided in Section 1(c)(iii)(1), such holder provides BioPharmX with an opinion of counsel, in a form reasonably satisfactory to BioPharmX, to the effect that such sale, assignment or transfer of the Securities may
be made without registration under the applicable requirements of the 1933 Act, or (iii) the Securities can be sold, assigned or transferred pursuant to Rule 144. BioPharmX shall be responsible for the fees of its Transfer Agent and all DTC fees associated with such issuance. If BioPharmX shall fail for any reason or for no reason to issue to the holder of the Securities within two (2) Trading Days after the occurrence of any of (i) through (iii) above (the initial date of such occurrence, the Legend Removal Date and such failure, a Legend Removal Failure), a certificate without such legend to such holder or to issue such Securities to such holder by electronic delivery at the applicable balance account at DTC, then, in addition to all other remedies available to such holder, BioPharmX shall pay in cash to such holder on each day after the second (2nd) Trading Day after the Legend Removal Date and during such Legend Removal Failure an amount equal to 2.0% of the product of (i) the number of shares represented by such certificate, and (ii) any trading price of the BioPharmX Common Stock selected by the holder in writing as in effect at any time during the period beginning on the applicable Legend Removal Date and ending on the date BioPharmX makes the applicable cash payment, and if on or after such Trading Day the holder purchases (in an open market transaction or otherwise) BioPharmX Common Stock relating to the applicable Legend Removal Failure, then BioPharmX shall, within two (2) Trading Days after the holders request and in the holders discretion, either (i) pay cash to the holder in an amount equal to the holders total purchase price (including brokerage commissions, if any) for the BioPharmX Common Stock so purchased (the Legend Buy-In Price), at which point the obligation of BioPharmX to deliver such unlegended Securities shall terminate, or (ii) promptly honor its obligation to deliver to the holder such unlegended Securities as provided above and pay cash to the holder in an amount equal to the excess (if any) of the Legend Buy-In Price over the product of (A) such number of shares of BioPharmX Common Stock, times (B) any trading price of the BioPharmX Common Stock selected by the holder in writing as in effect at any time during the period beginning on the applicable Legend Removal Date and ending on the date BioPharmX makes the applicable cash payment. BioPharmX shall be responsible for the fees of its Transfer Agent and all DTC fees associated with such issuance.
(h) Validity; Enforcement. This Agreement and the other Transaction Documents to which such Buyer is a party have been duly and validly authorized, executed and delivered on behalf of such Buyer and shall constitute the legal, valid and binding obligations of such Buyer enforceable against such Buyer in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors rights and remedies.
(i) No Conflicts. The execution, delivery and performance by such Buyer of this Agreement and the other Transaction Documents to which such Buyer is a party and the consummation by such Buyer of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of such Buyer or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Buyer is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Buyer, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of such Buyer to perform its obligations hereunder.
3. REPRESENTATIONS AND WARRANTIES OF TIMBER.
Timber represents and warrants to each of the Buyers that, as of the date hereof and as of the Closing Date:
(a) Organization and Qualification. Each of Timber and its Timber Subsidiaries (which for purposes of this Agreement means any entity in which Timber, directly or indirectly, owns any of the capital stock or holds an equity or similar interest) are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each of Timber and each of the Timber Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a Timber Material Adverse Effect. As used in this Agreement, Timber Material Adverse Effect means any material adverse effect on the business, properties, assets, liabilities, operations, results of operations, condition (financial or otherwise) or prospects of Timber and the Timber Subsidiaries, individually or taken as a whole, or on the transactions contemplated hereby or on the other Timber Transaction Documents (as defined below) or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of Timber to perform any of its obligations under any of the Timber Transaction Documents (as defined below). Timber has no Timber Subsidiaries except as set forth in Schedule 3(a). The outstanding shares of capital stock of each of the Timber Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by Timber or another Timber Subsidiary free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Timber Subsidiaries are outstanding.
(b) Authorization; Enforcement; Validity. Timber has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Securities Escrow Agreement, the Leak-Out Agreements (as defined in Section 8(xx)) and each of the other agreements entered into by Timber in connection with the transactions contemplated by this Agreement (collectively, the Timber Transaction Documents) and to issue the Common Units in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other Timber Transaction Documents by Timber and the consummation by Timber of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Common Units, have been duly authorized by Timbers board of managers (the Board of Managers) and (other than the filing of a Form D with the SEC and any other filings as may be required by any state securities agencies), no further filing, consent or authorization is required by Timber, its Board of Managers or its members. This Agreement and the other Timber Transaction Documents have been duly executed and delivered by Timber, and constitute the legal, valid and binding obligations of Timber, enforceable against Timber in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors rights and remedies.
(c) Issuance of Common Units. The issuance of the Common Units is duly authorized and, upon issuance in accordance with the terms of the Timber Transaction Documents, the Common Units shall be validly issued and free from all preemptive or similar rights (except for those which have been validly waived prior to the date hereof), taxes, liens and charges and other encumbrances with respect to the issue thereof and the Common Units shall be fully paid and nonassessable with the holders being entitled to all rights accorded to a holder of Timber Common Units. Assuming the accuracy of each of the representations and warranties set forth in Section 3 of this Agreement, the offer and issuance by Timber of the Common Units is exempt from registration under the 1933 Act.
(d) No Conflicts. Except as disclosed in Schedule 3(d), the execution, delivery and performance of the Timber Transaction Documents by Timber and any of the Timber Subsidiaries and the consummation by Timber of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Common Units) will not (i) result in a violation of the Timber Certificate of Formation (as defined below) or Timber LLCA (as defined below) or other organizational documents of Timber or any of the Timber Subsidiaries, any capital stock of Timber or any of the Timber Subsidiaries or the articles of association or bylaws of Timber or any of the Timber Subsidiaries or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in any respect under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which Timber or any of the Timber Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws, rules and regulations) applicable to Timber or any of the Timber Subsidiaries or by which any property or asset of Timber or any of the Timber Subsidiaries is bound or affected, except, in the case of clauses (ii) and (iii) above, as would not have or reasonably be expected to result in a Timber Material Adverse Effect.
(e) Consents. Except as disclosed in Schedule 3(e), Timber is not required to obtain any consent from, authorization or order of, or make any filing or registration with (other than the filing of a Form D with the SEC and any other filings as may be required by any state securities agencies), any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the Timber Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which Timber is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date (or in the case of filings detailed above, will be made timely after the Closing Date).
(f) Acknowledgment Regarding Buyers Purchase of Securities. Timber acknowledges and agrees that each Buyer is acting solely in the capacity of an arms length purchaser with respect to the Timber Transaction Documents and the transactions contemplated hereby and thereby and that, prior to the purchase of Securities hereunder, no Buyer is (i) an officer or director of Timber or any of the Timber Subsidiaries, (ii) an affiliate of Timber or any of the Timber Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of Timber, a beneficial
owner of more than 10% of the Timber Common Units (as defined for purposes of Rule 13d-3 of the 1934 Act). Timber further acknowledges that no Buyer is acting as a financial advisor or fiduciary of Timber or any of the Timber Subsidiaries (or in any similar capacity) with respect to the Timber Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the Timber Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyers purchase of the Securities. Timber further represents to each Buyer that Timbers decision to enter into the Timber Transaction Documents has been based solely on the independent evaluation by Timber and its representatives.
(g) No General Solicitation; Placement Agents Fees. Neither Timber, nor any of the Timber Subsidiaries or their affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities. Timber shall be responsible for the payment of any placement agents fees, financial advisory fees, or brokers commissions (other than for Persons engaged by any Buyer or its investment advisor) relating to or arising out of the transactions contemplated hereby, including, without limitation, placement agent fees payable to the Placement Agent in connection with the sale of the Securities. Timber shall pay, and hold each Buyer harmless against, any liability, loss or expense (including, without limitation, attorneys fees and out-of-pocket expenses) arising in connection with any such claim. Timber acknowledges that it has engaged the Placement Agent in connection with the sale of the Securities. Other than the Placement Agent, neither Timber nor any of the Timber Subsidiaries has not engaged any placement agent or other agent in connection with the offer or sale of the Securities.
(h) No Integrated Offering. None of Timber, the Timber Subsidiaries, their affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the issuance of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require approval of the members of Timber for purposes of the 1933 Act or any applicable member approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of BioPharmX are listed or designated for quotation. None of Timber, the Timber Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps that would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings for purposes of any such applicable member approval provisions.
(i) Application of Takeover Protections; Rights Agreement. Timber and its Board of Managers have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested member, business combination, poison pill (including, without limitation, any distribution under a rights agreement) or other similar anti-takeover provision under the Timber Certificate of Formation, Timber LLCA or other organizational documents or the laws of the jurisdiction of its formation which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, Timbers issuance of the Common Units and any Buyers ownership of the Securities. Timber and its Board of Managers have taken all necessary action, if any, in order to render inapplicable any member rights plan or similar arrangement relating to accumulations of beneficial ownership of Timber Common Units or a change in control of Timber or any of the Timber Subsidiaries.
(j) S-4; Financial Statements. As of the dates of the filing of the Form S-4, including any amendments thereto, the sections of the Form S-4 titled Risk Factors Risks Related to Timbers Business, Financial Position and Capital Requirements, Timber Business, Timber Managements Discussion and Analysis of Financial Condition and Results of Operations, Related Party Transactions of Directors and Executive Officers of Timber and Principal Securityholders of Timber, at the time the Form S-4 or such amendment thereto was filed with the SEC, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of each filing date of the Form S-4 or any amendment thereto, the financial statements of Timber included in the Form S-4 complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP), consistently applied during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of Timber and the Timber Subsidiaries as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate). No other information provided by or on behalf of Timber to any of the Buyers which is not included in the Form S-4 (including, without limitation, information referred to in Section 2(d) of this Agreement or in the disclosure schedules to this Agreement) contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading.
(k) Absence of Certain Changes. Except as disclosed in Schedule 3(k)(i), since December 31, 2019, there has been no material adverse change and no material adverse development in the business, assets, liabilities, properties, operations, condition (financial or otherwise), results of operations or prospects of Timber or the Timber Subsidiaries. Except as disclosed in Schedule 3(k)(ii), since December 31, 2019, neither Timber nor any of the Timber Subsidiaries have (i) declared or paid any dividends, (ii) sold any assets, individually or in the aggregate, in excess of $100,000 outside of the ordinary course of business or (iii) had capital expenditures, individually or in the aggregate, in excess of $100,000. Neither Timber nor any of the Timber Subsidiaries has taken any steps to seek protection pursuant to any law or statute relating to bankruptcy, insolvency, reorganization, receivership, liquidation or winding up, nor does Timber or any of the Timber Subsidiaries have any knowledge or reason to believe that any of its creditors intend to initiate involuntary bankruptcy proceedings or any actual knowledge of any fact which would reasonably lead a creditor to do so. Timber and the Timber Subsidiaries, individually and on a consolidated basis, are not as of the date hereof, and, after giving effect to the transactions contemplated hereby to occur at the Closing, will not be Insolvent (as defined below). For purposes of this Agreement, Insolvent means, with respect to any Person, (i) the present fair saleable value of such Persons assets is less than the amount required to pay such
Persons total Indebtedness (as defined below), (ii) such Person is unable to pay its debts and liabilities, subordinated, contingent or otherwise, as such debts and liabilities become absolute and matured, (iii) such Person intends to incur or believes that it will incur debts that would be beyond its ability to pay as such debts mature or (iv) such Person has unreasonably small capital with which to conduct the business in which it is engaged as such business is now conducted and is proposed to be conducted.
(l) No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur with respect to Timber, the Timber Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by Timber under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by Timber of Timber Common Units and which has not been publicly announced.
(m) Conduct of Business; Regulatory Permits. Neither Timber nor any of the Timber Subsidiaries is in violation of any term of or in default under the Timber Certificate of Formation, the Timber LLCA, any certificate of designations, preferences or rights of any outstanding series of preferred units of Timber or any of the Timber Subsidiaries, or their organizational charter or memorandum of association or certificate of incorporation or articles of association or bylaws, respectively. Neither Timber nor any of the Timber Subsidiaries is in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to Timber or any of the Timber Subsidiaries, and neither Timber nor any of the Timber Subsidiaries will conduct its business in violation of any of the foregoing, except in all cases for possible violations which would not, individually or in the aggregate, reasonably be expected to have a Timber Material Adverse Effect. Timber and the Timber Subsidiaries possess all certificates, authorizations and permits issued by the appropriate foreign, federal or state regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Timber Material Adverse Effect, and neither Timber nor any such Timber Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit. Without limiting the generality of the foregoing, except as set forth in Schedule 3(m), Timber has no knowledge of any facts or circumstances that would reasonably lead to delisting or suspension of the BioPharmX Common Stock by the NYSE American Market (the Principal Market) in the foreseeable future.
(n) Foreign Corrupt Practices. Neither Timber nor any of the Timber Subsidiaries, nor any director, officer, agent, employee or other Person acting on behalf of Timber or any of the Timber Subsidiaries has, in the course of its actions for, or on behalf of, Timber or any of the Timber Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
(o) Tax Election. The Board of Managers of Timber will elect for Timber to be taxed as a corporation for U.S. federal income tax purposes pursuant to Treas. Reg. Section 301.7701-3 (the Corporate Tax Election) on or prior to the closing date of the merger (the Merger) contained in that certain Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020, among BioPharmX, BITI Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of BioPharmX and Timber (the Merger Agreement).
(p) Transactions With Affiliates. Except as set forth in Schedule 3(p), none of the officers, directors or employees of Timber or any of the Timber Subsidiaries is presently a party to any transaction with Timber or any of the Timber Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of the Timber or any of the Timber Subsidiaries, any corporation, partnership, trust or other Person in which any such officer, director, or employee has a substantial interest or is an employee, officer, director, trustee or partner.
(q) Equity Capitalization. Timber has 10,107 Timber Common Units which are issued and outstanding, (ii) value appreciation rights denoted in (and payable in) 584 Timber Common Units issued and outstanding and (iii) 1,661,559 preferred units issued and outstanding. No Timber Common Units are held in treasury. All of such outstanding units are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. (i) Except as disclosed in Schedule 3(q)(i), hereto, none of Timbers or any Timber Subsidiarys capital equity is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by Timber or any Timber Subsidiarys; (ii) except as disclosed in Schedule 3(q)(ii), there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital equity of Timber or any of the Timber Subsidiaries, or contracts, commitments, understandings or arrangements by which Timber is or may become bound to issue additional capital stock of Timber or any of the Timber Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital equity of Timber or any of the Timber Subsidiaries; (iii) except as disclosed in Schedule 3(q)(iii), there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of Timber or any of the Timber Subsidiaries or by which Timber or any of the Timber Subsidiaries is or may become bound; (iv) except as disclosed in Schedule 3(q)(iv), there are no financing statements securing obligations in any amounts filed in connection with Timber or any of the Timber Subsidiaries; (v), except as disclosed in Schedule 3(q)(v), there are no agreements or arrangements under which Timber or any of the Timber Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act; (vi) except as disclosed in Schedule 3(q)(vi), there are no outstanding securities or instruments of Timber or any of the Timber Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which Timber or any of the Timber Subsidiaries is or may become bound to redeem a security of Timber or any of the Timber Subsidiaries; (vii) except as disclosed in Schedule 3(q)(vii), there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of
the Securities; (viii) except as disclosed in Schedule 3(q)(viii), neither Timber nor any of its Timber Subsidiaries has any stock appreciation rights or phantom stock plans or agreements or any similar plan or agreement; and (ix) except as disclosed in Schedule 3(q)(ix), Timber or any of the Timber Subsidiaries have no liabilities or obligations, other than those incurred in the ordinary course of Timbers or any of the Timber Subsidiarys respective businesses and which, individually or in the aggregate, do not or could not have a Timber Material Adverse Effect. True, correct and complete copies of Timbers certificate of formation, as in effect on the date hereof (the Timber Certificate of Formation), and Timbers limited liability company agreement, as amended and as in effect on the date hereof (the Timber LLCA), and the terms of all securities convertible into, or exercisable or exchangeable for, Timber Common Units and the material rights of the holders thereof in respect thereto shall be provided to the Buyers on the Closing Date.
(r) Indebtedness and Other Contracts. Neither Timber nor any of the Timber Subsidiaries, (i) except as disclosed in Schedule 3(r)(i), has any outstanding Indebtedness (as defined below), (ii) except as disclosed in Schedule 3(r)(ii), is a party to any contract, agreement or instrument, the violation of which, or default under which, by the other party(ies) to such contract, agreement or instrument would reasonably be expected to result in a Timber Material Adverse Effect, (iii) except as disclosed in Schedule 3(r)(iii), is in violation of any term of, or in default under, any contract, agreement or instrument relating to any Indebtedness, except where such violations and defaults would not result, individually or in the aggregate, in a Timber Material Adverse Effect, or (iv) except as disclosed in Schedule 3(r)(iv), is a party to any contract, agreement or instrument relating to any Indebtedness, the performance of which, in the judgment of Timbers officers, has or is expected to have a Timber Material Adverse Effect. Schedule 3(r) provides a detailed description of the material terms of such outstanding Indebtedness. For purposes of this Agreement: (x) Indebtedness of any Person means, without duplication (A) all indebtedness for borrowed money, (B) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (including, without limitation, capital leases in accordance with GAAP, consistently applied during the periods involved) (other than trade payables entered into in the ordinary course of business consistent with past practice), (C) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (D) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (E) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (F) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (G) all indebtedness referred to in clauses (A) through (F) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, claim, lien, tax, right of first refusal, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (H) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (A) through (G) above; and (y) Contingent Obligation means, as to any Person, any direct or indirect liability, contingent
or otherwise, of that Person with respect to any indebtedness, capital lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.
(s) Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of Timber, threatened against or affecting Timber or any of the Timber Subsidiaries, the Timber Common Units or any of the Timber Subsidiarys capital stock or any of Timbers or any of the Timber Subsidiarys officers or directors, whether of a civil or criminal nature or otherwise, in their capacities as such, except as set forth in Schedule 3(s). The matters set forth in Schedule 3(s) would not reasonably be expected to have a Timber Material Adverse Effect.
(t) Insurance. Timber and each of the Timber Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of Timber believes to be prudent and customary in the businesses in which Timber and the Timber Subsidiaries are engaged. Neither Timber nor any of the Timber Subsidiaries has been refused any insurance coverage sought or applied for and neither Timber nor any of the Timber Subsidiaries has any reason to believe that it will be unable to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Timber Material Adverse Effect.
(u) Employee Relations. Neither Timber nor any of the Timber Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. Timber and the Timber Subsidiaries believe that their relations with their respective employees are good. No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of Timber or any of the Timber Subsidiaries has notified Timber or any such Timber Subsidiary that such officer intends to leave Timber or any such Timber Subsidiary or otherwise terminate such officers employment with Timber or any such Timber Subsidiary. No executive officer or other key employee of Timber or any of the Timber Subsidiaries is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject Timber or any of the Timber Subsidiaries to any liability with respect to any of the foregoing matters. Timber and the Timber Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Timber Material Adverse Effect.
(v) Title. Timber and the Timber Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of Timber and the Timber Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by Timber and any of the Timber Subsidiaries. Any real property and facilities held under lease by Timber and any of the Timber Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by Timber and the Timber Subsidiaries.
(w) Intellectual Property Rights. Timber and the Timber Subsidiaries own or possess adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, original works of authorship, inventions, licenses, approvals, governmental authorizations, trade secrets and other intellectual property rights and all applications and registrations therefor (Intellectual Property Rights) necessary to conduct their respective businesses as now conducted. Each of the patents owned by Timber or any of the Timber Subsidiaries is listed on Schedule 3(w)(i). Except as set forth in Schedule 3(w)(ii), none of Timbers or any of the Timbers Subsidiaries Intellectual Property Rights have expired, terminated or been abandoned or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement. Timber has no knowledge of any infringement by Timber or the Timber Subsidiaries of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of Timber or any of the Timber Subsidiaries, being threatened, against Timber or any of the Timber Subsidiaries regarding their Intellectual Property Rights. Neither Timber nor any of the Timber Subsidiaries is aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. Timber and the Timber Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.
(x) Environmental Laws. Timber and the Timber Subsidiaries (A) are in compliance with all Environmental Laws (as defined below), (B) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (C) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (A), (B) and (C), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a Timber Material Adverse Effect. The term Environmental Laws means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, or toxic or hazardous substances or wastes (collectively, Hazardous Materials) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(y) Subsidiary Rights. Timber or one of the Timber Subsidiaries has the unrestricted right to vote, and (subject to limitations imposed by applicable law) to receive dividends and distributions on, all capital securities of the Timber Subsidiaries as owned by Timber or such Timber Subsidiary.
(z) Tax Status. Timber and each of the Timber Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and (iii) has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of Timber know of no basis for any such claim.
(aa) Internal Accounting. Timber and each of the Timber Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, consistently applied during the periods involved and applicable law, and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with managements general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. Except as set forth in Schedule 3(aa), during the twelve months prior to the date hereof neither Timber nor any of the Timber Subsidiaries has received any notice or correspondence from any accountant relating to any material weakness in any part of the system of internal accounting controls of Timber or any of the Timber Subsidiaries.
(bb) Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between Timber and an unconsolidated or other off balance sheet entity that would be reasonably likely to have a Timber Material Adverse Effect.
(cc) Investment Company Status. Neither Timber nor any of the Timber Subsidiaries is, and upon consummation of the sale of the Securities, and for so long as any Buyer holds any Securities, will not be, an investment company, an affiliate of an investment company, a company controlled by an investment company or an affiliated person of, or promoter or principal underwriter for, an investment company as such terms are defined in the Investment Company Act of 1940, as amended.
(dd) Acknowledgement Regarding Buyers Trading Activity. Timber acknowledges and agrees that, except as set forth in the Leak-Out Agreements, (i) none of the Buyers has been asked to agree, nor has any Buyer agreed, to desist from purchasing or selling, long and/or short, securities of Timber or BioPharmX, or derivative securities based on securities issued by Timber or BioPharmX or to hold the Securities for any specified term; (ii) any Buyer, and counter-parties in derivative transactions to which any such Buyer is a party, directly or indirectly, presently may have a short position in the Timber Common Units or BioPharmX Common Stock and (iii) each Buyer shall not be deemed to have any affiliation with or control over any arms length counter-party in any derivative transaction. Timber further understands
and acknowledges that (a) one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing members or stockholders equity interest in Timber and/or BioPharmX, respectively, both at and after the time the hedging and/or trading activities are being conducted. Timber acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the Warrants or any of the documents executed in connection herewith.
(ee) Manipulation of Price. Timber has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of Timber or BioPharmX to facilitate the sale or resale of any of the Securities, (ii) other than the Placement Agent, sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the Placement Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of Timber or BioPharmX.
(ff) FDA. As to each product subject to the jurisdiction of the U.S. Food and Drug Administration (FDA) under the Federal Food, Drug and Cosmetic Act, as amended, and the regulations thereunder (FDCA) that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by Timber or any of its Timber Subsidiaries (each such product, a Pharmaceutical Product), such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by Timber in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a Timber Material Adverse Effect. There is no pending, completed or, to Timbers knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against Timber or any of its Timber Subsidiaries, and none of Timber or any of its Timber Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by Timber or any of its Timber Subsidiaries, (iv) enjoins production at any facility of Timber or any of its Timber Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with Timber or any of its Timber Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by Timber or any of its Timber Subsidiaries, and which, either individually or in the aggregate, would have a Timber Material Adverse Effect. The properties, business and operations of Timber have been and are being conducted in all material respects in accordance with all
applicable laws, rules and regulations of the FDA. Except as set forth on Schedule 3(ff) or as disclosed in the SEC Documents, Timber has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by Timber nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by Timber.
(gg) U.S. Real Property Holding Corporation. Neither Timber nor any of the Timber Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and Timber and each Timber Subsidiary shall so certify upon any Buyers request.
(hh) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance, sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by Timber, and all laws imposing such taxes will be or will have been complied with.
(ii) Bank Holding Company Act. Neither Timber nor any of the Timber Subsidiaries or affiliates is subject to the Bank Holding Company Act of 1956, as amended (the BHCA) and to regulation by the Board of Governors of the Federal Reserve System (the Federal Reserve). Neither Timber nor any of the Timber Subsidiaries or their affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither Timber nor any of the Timber Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(jj) Shell Company Status. Timber is not, and has never been, an issuer identified in, or subject to, Rule 144(i)(1) of the 1933 Act.
(kk) Compliance with Anti-Money Laundering Laws. The operations of Timber and the Timber Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements and all other applicable U.S. and non-U.S. anti-money laundering laws, rules and regulations, including, but not limited to, those of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the United States Bank Secrecy Act, as amended by the USA PATRIOT Act of 2001, and the United States Money Laundering Control Act of 1986 (18 U.S.C. §§1956 and 1957), as amended, as well as the implementing rules and regulations promulgated thereunder, and the applicable money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any governmental agency or self-regulatory body (collectively, the Anti-Money Laundering Laws), and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving Timber or any of the Timber Subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of Timber, threatened.
(ll) No Conflicts with Sanctions Laws. Neither Timber nor any of the Timber Subsidiaries, nor any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of Timber or any of the Timber Subsidiaries or any of their affiliates is, or is directly or indirectly owned or controlled by, a Person that is currently the subject or the target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Office of Foreign Assets Control of the U.S. Department of the Treasury (OFAC) or the U.S. Departments of State or Commerce and including, without limitation, the designation as a Specially Designated National or on the Sectoral Sanctions Identifications List, collectively Blocked Persons), the United Nations Security Council, the European Union, Her Majestys Treasury or any other relevant sanctions authority (collectively, Sanctions Laws); neither Timber, nor any of the Timber Subsidiaries, any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of Timber, any of the Timber Subsidiaries or their affiliates, is located, organized or resident in a country or territory that is the subject or target of a comprehensive embargo or Sanctions Laws prohibiting trade with the country or territory, including, without limitation, Crimea, Cuba, Iran, North Korea, Sudan and Syria (each, a Sanctioned Country); Timber maintains in effect and enforces policies and procedures designed to ensure compliance by Timber and the Timber Subsidiaries with applicable Sanctions Laws; neither Timber, nor any of the Timber Subsidiaries, any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of Timber or any of the Timber Subsidiaries or their affiliates, acting in any capacity in connection with the operations of Timber or the Timber Subsidiaries, conducts any business with or for the benefit of any Blocked Person or engages in making or receiving any contribution of funds, goods or services to, from or for the benefit of any Blocked Person, or deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked or subject to blocking pursuant to any applicable Sanctions Laws; no action of Timber or the Timber Subsidiaries in connection with (i) the execution, delivery and performance of this Agreement and the other Timber Transaction Documents, (ii) the issuance and sale of the Securities, or (iii) the direct or indirect use of proceeds from the Securities or the consummation of any other transaction contemplated hereby or by the other Timber Transaction Documents or the fulfillment of the terms hereof or thereof, will result in the proceeds of the transactions contemplated hereby and by the other Timber Transaction Documents being used, or loaned, contributed or otherwise made available, directly or indirectly, to any Timber Subsidiary, joint venture partner or other person or entity, for the purpose of (i) unlawfully funding or facilitating any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions Laws, (ii) unlawfully funding or facilitating any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions Laws. For the past five (5) years, Timber and the Timber Subsidiaries have not knowingly engaged in and is not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions Laws or with any Sanctioned Country.
(mm) Anti-Bribery. Neither Timber nor any of the Timber Subsidiaries has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law which violation is required to be disclosed. Neither Timber, nor any of the Timber Subsidiaries, any of their affiliates, nor any director, officer, agent, employee or other person associated with or acting on behalf of Timber, the Timber Subsidiaries or any of their
affiliates, has (i) used any funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee, to any employee or agent of a private entity with which Timber or the Timber Subsidiaries does or seeks to do business or to foreign or domestic political parties or campaigns, (iii) violated or is in violation of any provision of any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or any applicable provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended (the FCPA), the U.K. Bribery Act 2010, or any other similar law of any other jurisdiction in which Timber or the Timber Subsidiaries operates its business, including, in each case, the rules and regulations thereunder (the Anti-Bribery Laws), (iv) taken, is currently taking or will take any action in furtherance of an offer, payment, gift or anything else of value, directly or indirectly, to any person while knowing that all or some portion of the money or value will be offered, given or promised to anyone to improperly influence official action, to obtain or retain business or otherwise to secure any improper advantage or (v) otherwise made any offer, bribe, rebate, payoff, influence payment, unlawful kickback or other unlawful payment; Timber and the Timber Subsidiaries have instituted and have maintained, and will continue to maintain, policies and procedures reasonably designed to promote and achieve compliance with the laws referred to in (iii) above and with this representation and warranty; none of Timber, nor the Timber Subsidiaries or any of their affiliates will directly or indirectly use the proceeds of the convertible securities or lend, contribute or otherwise make available such proceeds to any subsidiary, affiliate, joint venture partner or other person or entity for the purpose of financing or facilitating any activity that would violate the laws and regulations referred to in (iii) above; there are, and have been, no allegations, investigations or inquiries with regard to a potential violation of any Anti-Bribery Laws by Timber, the Timber Subsidiaries or their affiliates, or any of their respective current or former directors, officers, employees, members, representatives or agents, or other persons acting or purporting to act on their behalf.
(nn) No Additional Agreements. Neither Timber nor any of the Timber Subsidiaries have any agreement or understanding with any Buyer with respect to the transactions contemplated by the Timber Transaction Documents other than as specified in the Timber Transaction Documents.
(oo) Disclosure. Except for discussions specifically regarding the offer and sale of the Securities, Timber confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning Timber, any of any of the Timber Subsidiaries, BioPharmX or any of the BioPharmX Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other Transaction Documents. Timber understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of Timber and BioPharmX. All disclosure provided to the Buyers regarding Timber or any of the Timber Subsidiaries, their business and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of Timber is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. All of the written information furnished after the date hereof by or on behalf of Timber to you pursuant to or in
connection with this Agreement and the other Timber Transaction Documents, taken as a whole, will be true and correct in all material respects as of the date on which such information is so provided and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading. Each press release issued by Timber or any of the Timber Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to Timber or any of the Timber Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date hereof or announcement by Timber but which has not been so publicly disclosed. Timber acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.
(pp) Unit Option Plans. Each unit option granted by Timber was granted (i) in accordance with the terms of the applicable Timber unit plan and (ii) with an exercise price at least equal to the fair market value of the Timber Common Units on the date such unit option would be considered granted under GAAP, consistently applied during the periods involved and applicable law. No membership interest option granted under Timbers unit option plan has been backdated. Timber has not knowingly granted, and there is no and has been no Timber policy or practice to knowingly grant, unit options prior to, or otherwise knowingly coordinate the grant of unit options with, the release or other public announcement of material information regarding Timber or the Timber Subsidiaries or their financial results or prospects.
(qq) No Disagreements with Accountants and Lawyers. There are no material disagreements of any kind presently existing, or reasonably anticipated by Timber to arise, between Timber and the accountants and lawyers formerly or presently employed by Timber and Timber is current with respect to any fees owed to its accountants and lawyers which could affect Timbers ability to perform any of its obligations under any of the Timber Transaction Documents.
(rr) No Disqualification Events. With respect to Securities to be offered and sold hereunder in reliance on Rule 506(b) under the 1933 Act (Regulation D Securities), none of Timber, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of Timber participating in the offering hereunder, any beneficial owner of 20% or more of Timbers outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with Timber in any capacity at the time of sale (each, an Timber Covered Person and, together, Timber Covered Persons) is subject to any of the Bad Actor disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a Disqualification Event), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). Timber has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. Timber has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Buyers a copy of any disclosures provided thereunder.
(ss) Other Covered Persons. Timber is not aware of any Person (other than the Placement Agent) that has been or will be paid (directly or indirectly) remuneration for solicitation of Buyers or potential purchasers in connection with the sale of any Regulation D Securities.
(tt) Notice of Disqualification Events. Timber will notify the Buyers and the Placement Agent in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Timber Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Timber Covered Person.
(uu) Dilutive Effect. Timber understands and acknowledges that the number of Additional Common Units issuable pursuant to Section 1(c)(ii) and the number of Warrant Shares issuable pursuant to the terms of the Warrants will increase in certain circumstances. Timber further acknowledges that its obligation to issue Additional Common Units pursuant to this Agreement and the obligation of BioPharmX to issue Warrant Shares pursuant to the terms of the Warrants in accordance with this Agreement and with the Warrants are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other members or stockholders of Timber or BioPharmX, respectively.
4. REPRESENTATIONS AND WARRANTIES OF BIOPHARMX.
BioPharmX represents and warrants to each of the Buyers that, as of the date hereof and as of the Closing Date:
(a) Organization and Qualification. Each of BioPharmX and each of its BioPharmX Subsidiaries (which for purposes of this Agreement means any entity in which BioPharmX, directly or indirectly, owns any of the capital stock or holds an equity or similar interest) (the BioPharmX Subsidiaries, together with the Timber Subsidiaries, the Subsidiaries) are entities duly organized and validly existing and in good standing under the laws of the jurisdiction in which they are formed, and have the requisite power and authorization to own their properties and to carry on their business as now being conducted and as presently proposed to be conducted. Each of BioPharmX and each of the BioPharmX Subsidiaries is duly qualified as a foreign entity to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not reasonably be expected to have a BioPharmX Material Adverse Effect. As used in this Agreement, BioPharmX Material Adverse Effect means any material adverse effect on the business, properties, assets, liabilities, operations, results of operations or condition (financial or otherwise) of BioPharmX and the BioPharmX Subsidiaries, individually or taken as a whole, or on the transactions contemplated hereby or on the other BioPharmX Transaction Documents or by the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of BioPharmX to perform any of its obligations under any of the BioPharmX Transaction Documents (as defined below). BioPharmX has no BioPharmX Subsidiaries except as set forth in Schedule 4(a). The outstanding shares of capital stock of each of the BioPharmX Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by BioPharmX or another BioPharmX Subsidiary free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the BioPharmX Subsidiaries are outstanding.
(b) Authorization; Enforcement; Validity. BioPharmX has the requisite corporate power and authority to enter into and perform its obligations under this Agreement, the Warrants, the Registration Rights Agreement, the Securities Escrow Agreement, the Irrevocable Transfer Agent Instructions (as defined in Section 6(b)), the Leak-Out Agreements and each of the other agreements entered into by BioPharmX in connection with the transactions contemplated by this Agreement (collectively, the BioPharmX Transaction Documents and, together with the Timber Transaction Documents, the Transaction Documents) and to issue the Warrants and the Warrant Shares in accordance with the terms hereof and thereof. The execution and delivery of this Agreement and the other BioPharmX Transaction Documents by BioPharmX and the consummation by BioPharmX of the transactions contemplated hereby and thereby, including, without limitation, the issuance of the Warrants and the reservation for issuance and the issuance of the Warrant Shares issuable upon exercise of the Warrants have been duly authorized by BioPharmXs board of directors (the Board of Directors) and (other than the filing with the SEC of one or more Registration Statements (as defined in the Registration Rights Agreement) in accordance with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies) no further filing, consent or authorization is required by BioPharmX, its Board of Directors or its stockholders (other than, as of the date hereof, stockholder consent related to items in the Form S-4 and completion of the Merger). This Agreement and the other BioPharmX Transaction Documents have been duly executed and delivered by BioPharmX, and constitute the legal, valid and binding obligations of BioPharmX, enforceable against BioPharmX in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of applicable creditors rights and remedies.
(c) Issuance of Securities. The issuance of the Warrants are duly authorized and, upon issuance in accordance with the terms of the BioPharmX Transaction Documents, following the completion of the Merger, the Warrants shall be validly issued and free from all preemptive or similar rights (except for those which have been validly waived prior to the date hereof), taxes, liens and charges and other encumbrances with respect to the issue thereof. As of the Closing Date, a number of shares of BioPharmX Common Stock shall have been duly authorized and reserved for issuance which equals the sum of (i) until the Reservation Date (as defined in the Warrants), such calculation shall assume that the Series A Warrants and the Series B Warrants are then exercisable in full into a number of shares of BioPharmX Common Stock equal to the sum of (x) the number of Series A Warrant Shares issued and issuable pursuant to the Series A Warrants determined in accordance with Section 2(d) of the Series A Warrants assuming a Reset Price (as defined in the Series A Warrants) equal to the Reset Floor Price (as defined in the Warrants) without giving effect to any limitation on exercise set forth therein, (y) the number of Series B Warrant Shares issued and issuable pursuant to the Series B Warrants assuming that the Maximum Eligibility Number (as defined in the Series B Warrant) is determined based on a Reset Price (as defined in the Series B Warrants) equal to the Reset Floor Price without giving effect to any limitation on exercise set forth therein, and (ii) thereafter, 100% of the maximum number of shares of BioPharmX Common Stock as shall from time to time be necessary to effect
the exercise of all of the Warrants then outstanding, without giving effect to any limitation on exercise included herein (the foregoing clauses (i) and (ii), as applicable, the Required Reserve Amount) (as adjusted for stock splits, stock dividends, recapitalizations, reorganizations, reclassification, combinations, reverse stock splits or other similar events occurring after the date hereof). Upon exercise of the Warrants in accordance with the Warrants, the Warrant Shares when issued will be validly issued, fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of BioPharmX Common Stock. Assuming the accuracy of each of the representations and warranties set forth in Section 2 of this Agreement, the offer and issuance by BioPharmX of the Warrants and the Warrant Shares is exempt from registration under the 1933 Act.
(d) No Conflicts. Except as disclosed in Schedule 4(d), the execution, delivery and performance of the BioPharmX Transaction Documents by BioPharmX and the consummation by BioPharmX of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Warrants and reservation for issuance and issuance of the Warrant Shares) will not (i) result in a violation of the BioPharmX Certificate of Incorporation (as defined below) or BioPharmX Bylaws (as defined below) or other organizational documents of BioPharmX or any of the BioPharmX Subsidiaries, any capital stock of BioPharmX or any of the BioPharmX Subsidiaries or the articles of association or bylaws of BioPharmX or any of the BioPharmX Subsidiaries or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) in any respect under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which BioPharmX or any of the BioPharmX Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including foreign, federal and state securities laws and regulations and the rules and regulations of the Principal Market and including all applicable foreign, federal, state laws, rules and regulations) applicable to BioPharmX or any of the BioPharmX Subsidiaries or by which any property or asset of BioPharmX or any of the BioPharmX Subsidiaries is bound or affected; except, in the case of clauses (ii) and (iii) above, as would not have or reasonably be expected to result in a BioPharmX Material Adverse Effect.
(e) Consents. Except as disclosed in Schedule 4(e), other than from Timber pursuant to the Merger Agreement and approval of the Principal Market to list additional shares on the Principal Market (in each case, as of the date hereof), BioPharmX is not required to obtain any consent from, authorization or order of, or make any filing or registration with (other than the filing with the SEC of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, a Form D with the SEC and any other filings as may be required by any state securities agencies), any court, governmental agency or any regulatory or self-regulatory agency or any other Person in order for it to execute, deliver or perform any of its obligations under or contemplated by the BioPharmX Transaction Documents, in each case, in accordance with the terms hereof or thereof. All consents, authorizations, orders, filings and registrations which BioPharmX is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the Closing Date (or in the case of filings detailed above, will be made timely after the Closing Date), and BioPharmX is unaware of any facts or circumstances which might prevent BioPharmX from obtaining or effecting any of the registration, application or filings contemplated by the BioPharmX Transaction Documents. Except as disclosed in
Schedule 4(e) or as disclosed in the SEC Documents (as defined below), BioPharmX is not in violation of the listing requirements of the Principal Market and has no knowledge of any facts or circumstances which would reasonably lead to delisting or suspension of the BioPharmX Common Stock in the foreseeable future. The issuance by BioPharmX of the Warrants and Warrant Shares shall not have the effect of delisting or suspending the BioPharmX Common Stock from the Principal Market.
(f) No General Solicitation. Neither BioPharmX, nor any of the BioPharmX Subsidiaries or their affiliates, nor any Person acting on its or their behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D) in connection with the offer or sale of the Securities.
(g) Application of Takeover Protections; Rights Agreement. BioPharmX and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, interested stockholder, business combination, poison pill (including, without limitation, any distribution under a rights agreement) or other similar anti-takeover provision under the BioPharmX certificate of incorporation, as amended and as in effect on the date hereof (the BioPharmX Certificate of Incorporation), and the BioPharmX bylaws, as amended and as in effect on the date hereof (the BioPharmX Bylaws) or other organizational documents or the laws of the jurisdiction of its formation which is or could become applicable to any Buyer as a result of the transactions contemplated by this Agreement, including, without limitation, BioPharmXs issuance of the Securities and any Buyers ownership of the Securities.
(h) Foreign Corrupt Practices. Neither BioPharmX, nor any of the BioPharmX Subsidiaries, nor any director, officer, agent, employee or other Person acting on behalf of BioPharmX or any of the BioPharmX Subsidiaries has, in the course of its actions for, or on behalf of, BioPharmX or any of the BioPharmX Subsidiaries (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
(i) Equity Capitalization. As of the date hereof, the authorized capital stock of BioPharmX consists of (i) 450,000,000 shares of BioPharmX Common Stock, of which as of the date hereof, 18,278,219 are issued and outstanding, 1,765,392 shares are reserved for issuance pursuant to BioPharmXs stock option plans, of which 1,206,286 shares are subject to outstanding BioPharmX options granted under the BioPharmX stock plans and warrants to purchase 2,644,708 shares of common stock are outstanding and (ii) 10,000,000 shares of preferred stock, par value $0.001 per share, of which no shares are issued and are outstanding as of the date hereof. No BioPharmX Common Stock are held in treasury. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable.
(j) Investment Company Status. Neither BioPharmX nor any of the BioPharmX Subsidiaries is, and upon consummation of the sale of the Securities, and for so long as any Buyer holds any Securities, will not be, an investment company, an affiliate of an investment company, a company controlled by an investment company or an affiliated person of, or promoter or principal underwriter for, an investment company as such terms are defined in the Investment Company Act of 1940, as amended.
(k) Shell Company Status. BioPharmX is not, and has not been, for a period of at least one year prior to the date hereof, an issuer identified in Rule 144(i)(1) of the 1933 Act. BioPharmX filed current Form 10 information (as defined in Rule 144 (i)(3)) with the SEC at least one year prior to the date hereof reflecting its status as an entity that was no longer an issuer described in Rule 144(i)(1)(i).
(l) Compliance with Anti-Money Laundering Laws. The operations of BioPharmX and the BioPharmX Subsidiaries are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements and all other applicable Anti-Money Laundering Laws, and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving BioPharmX or any of the BioPharmX Subsidiaries with respect to the Anti-Money Laundering Laws is pending or, to the knowledge of BioPharmX, threatened.
(m) No Conflicts with Sanctions Laws. Neither BioPharmX nor any of the BioPharmX Subsidiaries, nor any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of BioPharmX or any of the BioPharmX Subsidiaries or any of their affiliates is, or is directly or indirectly owned or controlled by, a Person that is currently the subject or the target of any sanctions administered or enforced by the U.S. government (including, without limitation, the Sanctions Laws; neither BioPharmX, nor any of BioPharmX Subsidiaries, any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of BioPharmX or any of the BioPharmX Subsidiaries or their affiliates, is located, organized or resident in a country or territory that is the subject or target of a comprehensive embargo or Sanctions Laws prohibiting trade with the country or territory, including, without limitation, a Sanctioned Country); BioPharmX maintains in effect and enforces policies and procedures designed to ensure compliance by BioPharmX and the BioPharmX Subsidiaries with applicable Sanctions Laws; neither BioPharmX, nor any of the BioPharmX Subsidiaries, any director, officer, employee, agent, affiliate or other person associated with or acting on behalf of BioPharmX or any of the BioPharmX Subsidiaries or their affiliates, acting in any capacity in connection with the operations of BioPharmX or the BioPharmX Subsidiaries, conducts any business with or for the benefit of any Blocked Person or engages in making or receiving any contribution of funds, goods or services to, from or for the benefit of any Blocked Person, or deals in, or otherwise engages in any transaction relating to, any property or interests in property blocked or subject to blocking pursuant to any applicable Sanctions Laws; no action of BioPharmX or any of the BioPharmX Subsidiaries in connection with (i) the execution, delivery and performance of this Agreement and the other BioPharmX Transaction Documents, (ii) the issuance and sale of the Securities, or (iii) the direct or indirect use of proceeds from the Securities or the consummation of any other transaction contemplated hereby or by the other BioPharmX Transaction Documents or the fulfillment of the terms hereof or thereof, will result in the proceeds of the transactions contemplated hereby and by the other BioPharmX Transaction Documents being used, or loaned, contributed or otherwise made available, directly or indirectly, to any BioPharmX Subsidiary, joint
venture partner or other person or entity, for the purpose of (i) unlawfully funding or facilitating any activities of or business with any person that, at the time of such funding or facilitation, is the subject or target of Sanctions Laws, (ii) unlawfully funding or facilitating any activities of or business in any Sanctioned Country or (iii) in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions Laws. For the past five (5) years, BioPharmX and the BioPharmX Subsidiaries have not knowingly engaged in and are not now knowingly engaged in any dealings or transactions with any person that at the time of the dealing or transaction is or was the subject or the target of Sanctions Laws or with any Sanctioned Country.
(n) Anti-Bribery. Neither BioPharmX nor any of the BioPharmX Subsidiaries has made any contribution or other payment to any official of, or candidate for, any federal, state or foreign office in violation of any law which violation is required to be disclosed. Neither BioPharmX, nor any of the BioPharmX Subsidiaries or any of their affiliates, nor any director, officer, agent, employee or other person associated with or acting on behalf of BioPharmX, the BioPharmX Subsidiaries or any of their affiliates, has (i) used any funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity, (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee, to any employee or agent of a private entity with which BioPharmX or the BioPharmX Subsidiaries does or seeks to do business or to foreign or domestic political parties or campaigns, (iii) violated or is in violation of any provision of any applicable law or regulation implementing the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions or any applicable provision of the FCPA, the U.K. Bribery Act 2010, or the Anti-Bribery Laws, (iv) taken, is currently taking or will take any action in furtherance of an offer, payment, gift or anything else of value, directly or indirectly, to any person while knowing that all or some portion of the money or value will be offered, given or promised to anyone to improperly influence official action, to obtain or retain business or otherwise to secure any improper advantage or (v) otherwise made any offer, bribe, rebate, payoff, influence payment, unlawful kickback or other unlawful payment; BioPharmX and the BioPharmX Subsidiaries have instituted and have maintained, and will continue to maintain, policies and procedures reasonably designed to promote and achieve compliance with the laws referred to in (iii) above and with this representation and warranty; none of BioPharmX, nor the BioPharmX Subsidiaries or any of their affiliates will directly or indirectly use the proceeds of the convertible securities or lend, contribute or otherwise make available such proceeds to any subsidiary, affiliate, joint venture partner or other person or entity for the purpose of financing or facilitating any activity that would violate the laws and regulations referred to in (iii) above; there are, and have been, no allegations, investigations or inquiries with regard to a potential violation of any Anti-Bribery Laws by BioPharmX, the BioPharmX Subsidiaries or their affiliates, or any of their respective current or former directors, officers, employees, stockholders, representatives or agents, or other persons acting or purporting to act on their behalf.
5. COVENANTS.
(a) Commercially Reasonable Efforts. Each party shall use its commercially reasonable efforts timely to satisfy each of the covenants and the conditions to be satisfied by it as provided in Sections 7 and 8 of this Agreement.
(b) Form D and Blue Sky. Each of Timber and BioPharmX agrees to file a Form D with respect to the Common Units and Warrants, respectively, as required under Regulation D and to provide a copy thereof to each Buyer promptly after such filing. Each of Timber and BioPharmX shall, on or before the Closing Date, take such action as it shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Securities for sale to the Buyers at the Closing and the Warrant Closing pursuant to this Agreement under applicable securities or Blue Sky laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyers on or prior to the Closing Date. Each of Timber and BioPharmX shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or Blue Sky laws of the states of the United States following the Closing Date.
(c) Reporting Status. Until the date on which the Investors (as defined in the Registration Rights Agreement) shall have sold all of the Warrant Shares and none of the Warrants are outstanding (the Reporting Period), BioPharmX shall use its commercially reasonable efforts to timely file all reports required to be filed with the SEC pursuant to the 1934 Act, and BioPharmX shall not terminate its status as an issuer required to file reports under the 1934 Act unless the 1934 Act or the rules and regulations thereunder would no longer require or otherwise permit such termination, and BioPharmX shall take all actions reasonably necessary to maintain its eligibility to register the Warrant Shares for resale by the Investors on Form S-3 or, if it is ineligible to use Form S-3, on Form S-1.
(d) Exchange of Shares.
(i) Promptly following the issuance of the Common Units on the Closing Date the Common Units shall be exchanged for shares of BioPharmX Common Stock (the Exchange Shares) at the completion of the Merger on the terms described in the Merger Agreement. Such Exchange Shares shall be delivered to each Buyer by crediting to such Buyers or its designees balance account within (i) with respect to the Exchange Shares being issued in exchange of the Initial Common Units, two (2) Trading Days following the Closing Date and (ii) with respect to the Exchange Shares being issued in exchange of any Additional Common Units, on the applicable Additional Exchange Shares Delivery Date. Notwithstanding anything to the contrary contained herein, in no event will any Exchange Shares be delivered with any restrictive legends or any restrictions or limitations on resale by the Buyers, except to the extent any Buyer is then an affiliate of BioPharmX. If BioPharmX and/or the Transfer Agent requires any legal opinions with respect to the delivery of any Exchange Shares without restrictive legends or the removal of any such restrictive legends, BioPharmX agrees to cause at its expense its legal counsel to issue any such legal opinions.
(ii) So long as such Buyer has paid its Purchase Price hereunder and has complied with the requirements set forth in Section 1.7(b) of the Merger Agreement, as applicable, if BioPharmX following the completion of the Merger shall fail for any reason or for no reason to credit such Buyers or its designees balance account with DTC within two (2) Trading Days following the Closing Date (the Merger Delivery Date) the applicable Exchange Shares with respect to the Initial Common Units to which such Buyer is entitled hereunder (a Merger Delivery Failure), then, in addition to all other remedies available to such Buyer, BioPharmX shall pay in cash to such Buyer on each day after such Merger Delivery Date that BioPharmX shall fail to credit such Buyers or its designees balance account with DTC for the number of shares of BioPharmX Common Stock to which such Buyer is entitled pursuant to the exchange of the Initial Common Units for BioPharmX Common Stock pursuant to the Merger, an amount equal to 2.0% of the product of (A) the number of Exchange Shares with respect to the Initial Common Units not delivered to such Buyer on or prior to the Merger Delivery Date and to which the Buyer is entitled, and (B) any trading price of the BioPharmX Common Stock selected by the Buyer in writing as in effect at any time during the period beginning on the Merger Delivery Date and ending on the date BioPharmX makes the applicable cash payment, and if on or after such Trading Day such Buyer (or any Person in respect of, or on behalf, of such Buyer) purchases (in an open market transaction or otherwise) shares of BioPharmX Common Stock related to the applicable Merger Delivery Failure, then, in addition to all other remedies available to such Buyer, BioPharmX shall, within two (2) Trading Days after such Buyers request and in such Buyers discretion, either (i) pay cash to such Buyer in an amount equal to such Buyers total purchase price (including brokerage commissions and other out-of-pocket expenses, if any) for the shares of BioPharmX Common Stock so purchased (the Merger Buy-In Price), at which point BioPharmXs obligation to credit such Buyers or its designees balance account with DTC for such shares of BioPharmX Common Stock shall terminate, or (ii) promptly honor its obligation to credit such Buyers or its designees balance account with DTC and pay cash to such Buyer in an amount equal to the excess (if any) of the Merger Buy-In Price over the product of (A) such number of shares of BioPharmX Common Stock, multiplied by (B) any trading price of the BioPharmX Common Stock selected by such Buyer in writing as in effect at any time during the period beginning on the Merger Delivery Date and ending on the date of such delivery and payment under this Section 5(d)(ii). Nothing shall limit any Buyers right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to BioPharmXs failure to timely electronically deliver shares of BioPharmX Common Stock as required pursuant to the terms hereof.
(e) Use of Proceeds. Timber shall use the proceeds from the sale of the Securities for working capital and general corporate purposes, which shall not include the payment of any outstanding Indebtedness, other than the Notes issued pursuant to that certain Bridge Securities Purchase Agreement.
(f) Financial Information. Starting immediately following the completion of the Merger, BioPharmX agrees to send the following to each Investor (as defined in the Registration Rights Agreement) during the Reporting Period (i) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, within one (1) Business Day after the filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, any Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K (or any analogous reports under the 1934 Act) and any registration statements (other than on Form S-8) or amendments filed pursuant to the 1933 Act, (ii) unless the following have been widely disseminated by wire service or in one or more newspapers of general circulation, on the same day as the release thereof, facsimile or e-mailed copies of all press releases issued by BioPharmX, and (iii) unless the following are filed with the SEC through EDGAR and are available to the public through the EDGAR system, copies of any notices and other information made available or given to the stockholders of BioPharmX generally, contemporaneously with the making available or giving thereof to the stockholders.
(g) Listing. During the Reporting Period, BioPharmX shall promptly secure the listing of all of the Exchange Shares and Registrable Securities on the Principal Market and shall use its reasonable best efforts to maintain such listing of all Exchange Shares and Registrable Securities from time to time issuable under the terms of the Transaction Documents. BioPharmX shall maintain the authorization for quotation of the BioPharmX Common Stock on the Principal Market or any other Eligible Market (as defined in the Warrants). During the Reporting Period, neither BioPharmX nor any of the BioPharmX Subsidiaries shall take any action which would be reasonably expected to result in the delisting or suspension of the BioPharmX Common Stock on the Principal Market. BioPharmX shall pay all fees and expenses in connection with satisfying its obligations under this Section 5(g).
(h) Fees. Timber shall, upon the request of the Lead Investor (a Buyer) or its designee(s), deposit with counsel for the Lead Investor up to $50,000 (in addition to any other amounts paid to any Buyer or its counsel prior to the date of this Agreement), which amount may be withheld by such Buyer from its Purchase Price at the Closing to the extent not previously deposited by Timber. Timber shall be responsible for the payment of any placement agents fees, financial advisory fees, or brokers commissions (other than for Persons engaged by any Buyer) relating to or arising out of the transactions contemplated hereby, including, without limitation, any fees or commissions payable to the Placement Agent and the Escrow Agent. Except as otherwise set forth in the Transaction Documents, each party to this Agreement shall bear its own expenses in connection with the sale of the Securities to the Buyers.
(i) Pledge of Securities. Each of Timber and BioPharmX acknowledges and agrees that the Securities (excluding Securities held in escrow pursuant to the Securities Escrow Agreement) may be pledged by an Investor, at the Investors sole cost and expense, in connection with a bona fide margin agreement or other loan or financing arrangement that is secured by the Securities. The pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and no Investor effecting a pledge of Securities shall be required to provide BioPharmX with any notice thereof or otherwise make any delivery to BioPharmX pursuant to this Agreement or any other Transaction Document, including, without limitation, Section 2(f) hereof; provided that an Investor and its pledgee shall be required to comply with the provisions of Section 2(f) hereof in order to effect a sale, transfer or assignment of Securities to such pledgee.
BioPharmX hereby agrees to execute and deliver such documentation as a pledgee of the Securities may reasonably request in connection with a pledge of the Securities to such pledgee by an Investor, at the Investors sole cost and expense.
(j) Disclosure of Transactions and Other Material Information. On or before the Disclosure Time (as defined below), BioPharmX shall file a Current Report on Form 8-K or Form S-4 describing the terms of the transactions contemplated by the Transaction Documents in the form required by the 1934 Act and attaching the material Transaction Documents (including, without limitation, this Agreement (and all schedules and exhibits to this Agreement), the form of the Warrant, the Registration Rights Agreement, the Securities Escrow Agreement, and the form of Leak-Out Agreement as exhibits to such filing (including all attachments), the 8-K Filing). From and after the filing of the 8-K Filing, to BioPharmXs knowledge, BioPharmX hereby acknowledges and agrees that no Buyer shall be in possession of any material, non-public information received from BioPharmX, any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents, that is not disclosed in the 8-K Filing. In addition, to BioPharmXs knowledge, effective upon the filing of the 8-K Filing, BioPharmX acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between BioPharmX, any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and any of the Buyers or any of their affiliates, on the other hand, shall terminate and be of no further force or effect. BioPharmX shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees, affiliates and agents, not to, provide any Buyer with any material, non-public information regarding, BioPharmX or any of its Subsidiaries from and after the date hereof without the express prior written consent of such Buyer. If a Buyer has, or believes it has, received any such material, non-public information regarding BioPharmX or any of its Subsidiaries from BioPharmX, any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents, it may provide BioPharmX with written notice thereof. Timber shall, within two (2) Trading Days of receipt of such notice, make public disclosure of such material, non-public information. In the event of a breach of the foregoing covenant by BioPharmX, any of its Subsidiaries, or any of their respective officers, directors, employees, affiliates and agents, in addition to any other remedy provided herein or in the Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, non-public information without the prior approval by BioPharmX, its Subsidiaries, or any of their respective officers, directors, employees, affiliates or agents. No Buyer shall have any liability to BioPharmX, its Subsidiaries, or any of their respective officers, directors, employees, affiliates or agents for any such disclosure. To the extent that BioPharmX or any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents delivers any material, non-public information to a Buyer without such Buyers consent, BioPharmX hereby covenants and agrees that such Buyer shall not have any duty of confidentiality to BioPharmX, any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents with respect to, or a duty to BioPharmX, any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents not to trade on the basis of, such material, non-public information. Subject to the foregoing, none of BioPharmX, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that BioPharmX shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect
to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided, that in the case of clause (i) the Lead Investor shall be consulted by BioPharmX in connection with any such 8-K Filing or other public disclosure prior to its release). Except for the Form S-4 and the Registration Statement required to be filed pursuant to the Registration Rights Agreement, without the prior written consent of any applicable Buyer, none of BioPharmX nor any of its Subsidiaries or affiliates shall disclose the name of such Buyer in any filing, announcement, release or otherwise. Upon receipt or delivery by BioPharmX of any notice in accordance with the terms of this Agreement or any other Transaction Document, unless BioPharmX has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to BioPharmX or the BioPharmX Subsidiaries, BioPharmX shall contemporaneously with any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that BioPharmX believes that a notice contains material, nonpublic information relating to BioPharmX or the BioPharmX Subsidiaries, BioPharmX so shall indicate to the Buyers contemporaneously with delivery of such notice, and in the absence of any such indication, the Buyers shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to BioPharmX or the BioPharmX Subsidiaries. As used herein, Disclosure Time means, (i) if this Agreement is signed on a day that is not a Trading Day or after 9:00 a.m. (New York City time) and before midnight (New York City time) on any Trading Day, 9:01 a.m. (New York City time) on the second (2nd) Trading Day following the date hereof, unless otherwise instructed in writing as to an earlier time by the Lead Investor, or (ii) if this Agreement is signed between midnight (New York City time) and 9:00 a.m. (New York City time) on any Trading Day, no later than 9:01 a.m. (New York City time) on the Trading Day immediately following the date hereof, unless otherwise instructed in writing as to an earlier time by the Lead Investor.
From and after the filing of the 8-K Filing, Timber hereby acknowledges and agrees that no Buyer shall be in possession of any material, non-public information received from Timber, BioPharmX, any of their respective Subsidiaries or any of their respective officers, directors, employees, affiliates or agents, that is not disclosed in the 8-K Filing. In addition, effective upon the filing of the 8-K Filing, Timber acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between Timber, BioPharmX, any of their respective Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and any of the Buyers or any of their affiliates, on the other hand, shall terminate and be of no further force or effect. Timber shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees, affiliates and agents, not to, provide any Buyer with any material, non-public information regarding Timber, BioPharmX or any of their respective Subsidiaries from and after the date hereof without the express prior written consent of such Buyer. If a Buyer has, or believes it has, received any such material, non-public information regarding Timber, BioPharmX or any of their respective Subsidiaries from Timber any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents, it may provide Timber with written notice thereof. BioPharmX shall, within two (2) Trading Days of receipt of such notice, cause BioPharmX to make public disclosure of such material, non-public information. In the event of a breach of the foregoing covenant by Timber, BioPharmX, any of their respective Subsidiaries, or any of their respective officers, directors, employees, affiliates and agents, in addition to any other
remedy provided herein or in the Transaction Documents, a Buyer shall have the right to make a public disclosure, in the form of a press release, public advertisement or otherwise, of such material, non-public information without the prior approval by Timber, BioPharmX, their respective Subsidiaries, or any of their respective officers, directors, employees, affiliates or agents. No Buyer shall have any liability to Timber, BioPharmX, their respective Subsidiaries, or any of its or their respective officers, directors, employees, affiliates or agents for any such disclosure. To the extent that Timber, any of its Subsidiaries or any of their respective officers, directors, employees, affiliates or agents delivers any material, non-public information to a Buyer without such Buyers consent, Timber hereby covenants and agrees that such Buyer shall not have any duty of confidentiality to Timber, BioPharmX, any of their respective Subsidiaries or any of their respective officers, directors, employees, affiliates or agents with respect to, or a duty to Timber, BioPharmX, any of their respective Subsidiaries or any of their respective officers, directors, employees, affiliates or agents not to trade on the basis of, such material, non-public information. Subject to the foregoing, none of Timber, its Subsidiaries nor any Buyer shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that Timber shall be entitled, without the prior approval of any Buyer, to make any press release or other public disclosure with respect to such transactions (i) in substantial conformity with the 8-K Filing and contemporaneously therewith and (ii) as is required by applicable law and regulations (provided, that in the case of clause (i) the Lead Investor shall be consulted by Timber in connection with any such 8-K Filing or other public disclosure prior to its release). Except for the Form S-4 and the Registration Statement required to be filed pursuant to the Registration Rights Agreement, without the prior written consent of any applicable Buyer, none of Timber, or any of its Subsidiaries or affiliates shall disclose the name of such Buyer in any filing, announcement, release or otherwise. Upon receipt or delivery by Timber of any notice in accordance with the terms of this Agreement or any other Transaction Document, unless Timber has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to Timber, BioPharmX, any of their Subsidiaries, Timber shall cause BioPharmX to contemporaneously with any such receipt or delivery publicly disclose such material, nonpublic information on a Current Report on Form 8-K or otherwise. In the event that Timber believes that a notice contains material, nonpublic information relating to Timber, BioPharmX or any of their respective Subsidiaries, Timber so shall indicate to the Buyers contemporaneously with delivery of such notice, and in the absence of any such indication, the Buyers shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to Timber, BioPharmX or any of their respective Subsidiaries.
(k) Corporate Existence. So long as any Buyer beneficially owns any Securities, BioPharmX shall maintain its corporate existence and shall not be party to any Fundamental Transaction (as defined in the Warrants) unless BioPharmX is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants.
(l) Reservation of Shares. Until the Reservation Date, BioPharmX shall take all action necessary to have authorized, and reserved for the purpose of issuance, no less than the number of shares of BioPharmX Common Stock equal to the Required Reserve Amount. From and after such Reservation Date, BioPharmX shall take all action necessary to have authorized, and reserved for the purpose of issuance, no less than the number of shares of BioPharmX
Common Stock necessary to effect the exercise of all of the Warrants then outstanding, without regard to any limitation on exercise included therein. If at any time the number of shares of BioPharmX Common Stock authorized and reserved for issuance is not sufficient to meet the requirements set forth in this Section 5(l), BioPharmX will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares, including, without limitation, calling a special meeting of stockholders to authorize additional shares to meet BioPharmXs obligations under this Section 5(l), in the case of an insufficient number of authorized shares, obtain stockholder approval of an increase in such authorized number of shares, and voting the management shares of BioPharmX in favor of an increase in the authorized shares of BioPharmX Common Stock to ensure that the number of authorized shares is sufficient to meet the requirements set forth in this Section 5(l).
(m) Conduct of Business. The business of Timber, BioPharmX and their respective Subsidiaries shall not be conducted in violation of any law, ordinance or regulation of any governmental entity, including, without limitation, FCPA and other applicable Anti-Bribery Laws, OFAC regulations and other applicable Sanctions Laws, and Anti-Money Laundering Laws.
(i) None of Timber, BioPharmX, nor any of their Subsidiaries or affiliates, directors, officers, employees, representatives or agents shall:
(a) conduct any business or engage in any transaction or dealing with or for the benefit of any Blocked Person, including the making or receiving of any contribution of funds, goods or services to, from or for the benefit of any Blocked Person;
(b) deal in, or otherwise engage in any transaction relating to, any property or interests in property blocked or subject to blocking pursuant to the applicable Sanctions Laws;
(c) use any of the proceeds of the transactions contemplated by this Agreement to finance, promote or otherwise support in any manner any illegal activity, including, without limitation, any Anti-Money Laundering Laws, Sanctions Laws, or Anti-Bribery Laws; or
(d) violate, attempt to violate, or engage in or conspire to engage in any transaction that evades or avoids, or has the purpose of evading or avoiding, any of the Anti-Money Laundering Laws, Sanctions Laws, or Anti-Bribery Laws.
(ii) Each of Timber and BioPharmX shall maintain in effect and enforce policies and procedures designed to ensure compliance by it and its Subsidiaries and their directors, officers, employees, agents representatives and affiliates with the Sanctions Laws and Anti-Bribery Laws.
(iii) During the Reporting Period, each of Timber and BioPharmX will promptly notify the Buyers in writing if any of it, or any of its Subsidiaries or affiliates, directors, officers, employees, representatives or agents, shall become a Blocked Person, or become directly or indirectly owned or controlled by a Blocked Person.
(iv) During the Reporting Period, each of Timber and BioPharmX shall provide such information and documentation as the Buyers or any of their affiliates may require to satisfy compliance with the Anti-Money Laundering Laws, Sanctions Laws, or Anti-Bribery Laws.
(v) The covenants set forth above shall be ongoing during the Reporting Period. During the Reporting Period, each of Timber and BioPharmX shall promptly notify the Buyers in writing should it become aware (a) of any changes to these covenants, or (b) if it cannot comply with the covenants set forth herein. During the Reporting Period, each of Timber and BioPharmX shall also promptly notify the Buyers in writing should they become aware of an investigation, litigation or regulatory action relating to an alleged or potential violation of the Anti-Money Laundering Laws, Sanctions Laws, and Anti-Bribery Laws.
(n) Additional Issuances of Securities.
(i) For purposes of this Agreement, the following definitions shall apply.
(1) Convertible Securities means any stock or securities (other than Options) convertible into or exercisable or exchangeable for Timber Common Units or BioPharmX Common Stock.
(2) Options means any rights, warrants or options to subscribe for or purchase Timber Common Units, BioPharmX Common Stock or Convertible Securities, including without limitation, any Warrants.
(3) Common Stock Equivalents means, collectively, Options and Convertible Securities.
(ii) From the date of the completion of the Merger until the date that is ninety (90) calendar days after the earlier of (x) the two (2) year anniversary of the Closing Date, and (y) the date that the Initial Registration Statement (as defined in the Registration Rights Agreement) has been declared effective by the SEC; provided, that this clause (z) shall only apply if there are no Cutback Shares (as defined in the Registration Rights Agreement) arising from the Initial Registration Statement (the Trigger Date), BioPharmX shall not, directly or indirectly, file any registration statement or any amendment or supplement thereto other than (A) the Form S-4 and (B) registration statements after the effective date of the Merger with respect to the issuance or resale of any Excluded Securities (as defined in the Series A Warrants) ((A) and (B), including any amendments or supplements thereto provided that the registration statements referenced in clauses (A) and (B) shall not register pursuant to any amendment or supplement thereto a greater number of shares of BioPharmX Common Stock as being contemplated on the date hereof (as such number of shares of BioPharmX Common Stock may be adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction occurring after the date hereof), collectively, Exempt Registration Statements), or cause any registration statement other than the Exempt Registration Statements to be declared effective by the SEC, or grant any registration rights to any Person that can be exercised prior to such time as set forth above, other than pursuant to the Registration
Rights Agreement. From the date hereof until the Trigger Date, neither Timber nor BioPharmX shall, (1) directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries debt, equity or equity equivalent securities, including without limitation any debt, preferred stock or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for Timber Common Units, BioPharmX Common Stock or Common Stock Equivalents, including, without limitation, any rights, warrants or options to subscribe for or purchase Timber Common Units or BioPharmX Common Stock or directly or indirectly convertible into or exchangeable or exercisable for Timber Common Units or BioPharmX Common Stock at a price which varies or may vary with the market price of the Timber Common Units or BioPharmX Common Stock, including by way of one or more reset(s) to any fixed price (any such offer, sale, grant, disposition or announcement being referred to as a Subsequent Placement), (2) enter into, or effect a transaction under, any agreement, including, but not limited to, an equity line of credit or at-the-market offering, whereby Timber or BioPharmX may issue securities at a future determined price or (3) be party to any solicitations, negotiations or discussions with regard to the foregoing.
(iii) The restrictions contained in Section 5(n)(ii) shall not apply to any issuance or proposed issuance of any Excluded Securities.
(o) Public Information. At any time during the period commencing from the six (6) month anniversary of the Closing Date (or the completion of the Merger, if later) and ending at such time that all of the Registrable Securities, if a registration statement is not available for the resale of all of the Registrable Securities, may be sold without restriction or limitation pursuant to Rule 144 and without the requirement to be in compliance with Rule 144(c)(1), if BioPharmX shall (i) fail for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) or (ii) if BioPharmX shall fail to satisfy any condition set forth in Rule 144(i)(2) (each, a Public Information Failure) then, as partial relief for the damages to any holder of Securities by reason of any such delay in or reduction of its ability to sell the Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), BioPharmX shall pay to each such holder an amount in cash equal to two percent (2.0%) of the aggregate Purchase Price of such holders Securities on the day of a Public Information Failure and on every thirtieth day (prorated for periods totaling less than thirty days) thereafter until the earlier of (i) the date such Public Information Failure is cured and (ii) such time that such Public Information Failure no longer prevents a holder of Securities from selling such Securities pursuant to Rule 144 without any restrictions or limitations. The payments to which a holder shall be entitled pursuant to this Section 5(o) are referred to herein as Public Information Failure Payments. Public Information Failure Payments shall be paid on the earlier of (I) the last day of the calendar month during which such Public Information Failure Payments are incurred and (II) the third Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event BioPharmX fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of one and one-half percent (1.5%) per month (prorated for partial months) until paid in full.
(p) Notice of Disqualification Events. Each of Timber and BioPharmX will notify the Buyers in writing, prior to the Closing Date of (i) any Disqualification Event relating to any Timber Covered Person or BioPharmX Covered Person, respectively, and (ii) any event that would, with the passage of time, reasonably be expected to become a Disqualification Event relating to any Timber Covered Person or BioPharmX Covered Person, respectively.
(q) FAST Compliance. While any Warrants are outstanding, BioPharmX shall maintain a transfer agent that participates in the DTC Fast Automated Securities Transfer Program.
(r) [Reserved]
(s) Leak-Out. BioPharmX shall not amend, modify, waive or terminate any provision of any of the Leak-Out Agreements and shall enforce the provisions of each Leak-Out Agreement in accordance with its terms. If any officer or director that is a party to a Leak-Out Agreement breaches any provision of a Leak-Out Agreement, BioPharmX shall promptly use its commercially reasonable efforts to seek specific performance of the terms of such Leak-Out Agreement.
(t) Variable Securities. Until the date that is three (3) years following the Closing Date, Timber, BioPharmX, each Timber Subsidiary and each BioPharmX Subsidiary shall be prohibited from effecting or entering into an agreement to effect any Subsequent Placement involving a Variable Rate Transaction. Variable Rate Transaction means a transaction in which Timber, BioPharmX, any Timber Subsidiary or any BioPharmX Subsidiary (i) issues or sells any Convertible Securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Timber Common Units or BioPharmX Common Stock at any time after the initial issuance of such Convertible Securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of Timber or BioPharmX or the market for the Timber Common Units or BioPharmX Common Stock, other than pursuant to a customary weighted average anti-dilution provision or (ii) enters into any agreement (including, without limitation, an equity line of credit or an at-the-market offering) whereby Timber, BioPharmX, any Timber Subsidiary or any BioPharmX Subsidiary may sell securities at a future determined price (other than standard and customary preemptive or participation rights). Each Buyer shall be entitled to obtain injunctive relief against Timber, BioPharmX, the Timber Subsidiaries and the BioPharmX Subsidiaries to preclude any such issuance, which remedy shall be in addition to any right to collect damages for an actual breach of this Section 5(s).
(u) BioPharmX Closing Representations and Warranties. Effective as of the time of completion of the Merger, BioPharmX covenants and agrees to make the representations and warranties set forth on Annex I attached hereto to each of the Buyers.
(v) Merger Agreement. Timber shall amend or waive any of the terms of the Merger Agreement without the prior written consent of the Required Holders (as defined in Section 10(e)).
(w) Options and Convertible Securities. Notwithstanding anything to the contrary contained in any Transaction Documents, neither Timber nor BioPharmX shall amend any Options or Convertible Securities after their respective issuance (whether such Options or Convertible Securities were issued on or prior to the date hereof or will be issued at any time after the date hereof, including, without limitation, pursuant to this Agreement), unless each holder of Series A Warrants as of the applicable date of determination consents to such amendment in writing prior to the effective date of such amendment.
(x) Timber shall terminate that certain Management Services Agreement, dated as of January 1, 2020, by and between Timber and TardiMed Sciences LLC effective as of the Closing Date, and shall hire any persons currently performing services thereunder for the benefit of Timber as employees of BioPharmX post-closing on terms and conditions which shall be approved by the Compensation Committee of the Board of Directors and ratified by a majority of the independent members of the Board of Directors.
(y) Closing Documents. On or prior to fourteen (14) calendar days after the Closing Date, Timber agrees to deliver, or cause to be delivered, to each Buyer and Schulte Roth & Zabel LLP a complete closing set (which may be solely in electronic format) of the executed Transaction Documents, Securities and any other documents required to be delivered to any party pursuant to Section 8 hereof or otherwise.
6. REGISTER; TRANSFER AGENT INSTRUCTIONS.
(a) Register. BioPharmX shall maintain at its principal executive offices (or such other office or agency of BioPharmX as it may designate by notice to each holder of Securities), a register for the Warrants in which BioPharmX shall record the name and address of the Person in whose name the Warrants have been issued (including the name and address of each transferee) and the number of Warrant Shares issuable upon exercise of the Warrants held by such Person. BioPharmX shall keep the register open and available at all times during business hours for inspection of any Buyer or its legal representatives.
(b) Transfer Agent Instructions. Following the completion of the Merger, BioPharmX shall issue irrevocable instructions to its Transfer Agent, and any subsequent transfer agent, in the form attached hereto as Exhibit E, (the Irrevocable Transfer Agent Instructions) to issue certificates or credit shares to the applicable balance accounts at DTC, registered in the name of each Buyer or its respective nominee(s), for the Exchange Shares issued in exchange of the Additional Common Units and the Warrant Shares upon delivery of a Capacity Notice or upon exercise of the Warrant, as applicable, in such amounts as specified from time to time by each Buyer to BioPharmX upon delivery of a Capacity Notice or upon exercise of the Warrants, as applicable. BioPharmX warrants that no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 6(b), and stop transfer instructions to give effect to Section 2(f) hereof, will be given by BioPharmX to its Transfer Agent, and that the Securities shall otherwise be freely transferable on the books and records of BioPharmX as and to the extent provided in this Agreement and the other Transaction Documents. If a Buyer effects a sale, assignment or transfer of the Securities in accordance with Section 2(f), BioPharmX shall permit the transfer and shall promptly instruct its Transfer Agent to issue one or more certificates or credit shares to the applicable balance accounts at DTC in such name and in such denominations as specified by such Buyer to effect such sale, transfer or assignment. In the event that such sale, assignment or transfer involves the Warrant Shares sold, assigned or transferred pursuant to an effective registration statement or pursuant to Rule 144, the Transfer Agent shall issue such Securities to the Buyer, assignee or transferee, as the case may be, without any restrictive legend. BioPharmX acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to a Buyer. Accordingly, BioPharmX acknowledges that the remedy at law for a breach of its obligations under this Section 6(b) will be inadequate and agrees, in the event of a breach or
threatened breach by BioPharmX of the provisions of this Section 6(b), that a Buyer shall be entitled, in addition to all other available remedies, to an order and/or injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required.
7. CONDITIONS TO TIMBERS OBLIGATION TO SELL AND BIOPHARMXS OBLIGATION TO ISSUE.
The obligation of Timber hereunder to issue and sell the Common Units at the Closing and the obligation of BioPharmX hereunder to issue the Warrants at the Warrant Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each of Timbers and BioPharmXs sole benefit and may be waived by Timber and/or BioPharmX at any time in its sole discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of the Transaction Documents to which it is a party and delivered the same to Timber.
(ii) Such Buyer shall have delivered to Timber the Purchase Price (less, in the case of the Lead Investor, the amounts withheld pursuant to Section 5(h) and less, in the case of any electing Buyer as described in Section 1(e), any Outstanding Amount pursuant to such Buyers, or such Buyers affiliates, Note surrendered to Timber pursuant to Section 1(e)) for the Common Units and the related Warrants being purchased by such Buyer at the Closing by wire transfer of immediately available funds pursuant to the wire instructions provided by Timber.
(iii) The representations and warranties of such Buyer shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of such specified date), and such Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by such Buyer at or prior to the Closing Date.
(iv) All conditions precedent to the closing of the Merger shall have been satisfied or waived.
8. CONDITIONS TO EACH BUYERS OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Common Units and the related Warrants at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for each Buyers sole benefit and may be waived by such Buyer at any time in its sole discretion by providing Timber with prior written notice thereof:
(i) Timber shall have duly executed and delivered to such Buyer (A) each of the Timber Transaction Documents and (B) the Common Units (allocated in such amounts as such Buyer shall request), being purchased by such Buyer at the Closing pursuant to this Agreement.
(ii) BioPharmX shall have duly executed and delivered to such Buyer each of the BioPharmX Transaction Documents.
(iii) Such Buyer shall have received the opinion of Lowenstein Sandler LLP, dated as of the Closing Date, in the form attached hereto as Exhibit F-1.
(iv) Such Buyer shall have received the opinion of Akerman LLP dated as of the Closing Date, in the form attached hereto as Exhibit F-2.
(v) BioPharmX shall have delivered to such Buyer a copy of the Irrevocable Transfer Agent Instructions in escrow to be released upon the effectiveness of the Merger, which instructions shall have been delivered to and acknowledged in writing by the Transfer Agent.
(vi) Each of Timber and BioPharmX shall have delivered to such Buyer a certificate evidencing the formation and good standing of Timber and BioPharmX in such entitys jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) calendar days prior to the Closing Date.
(vii) Each of Timber and BioPharmX shall have delivered to such Buyer a certificate evidencing its qualification as a foreign corporation and good standing issued by the Secretary of State (or comparable office) of the jurisdiction in which it has its headquarters, as of a date within ten (10) calendar days prior to the Closing Date.
(viii) Each of Timber and BioPharmX shall have delivered to such Buyer a certified copy of the Timber Certificate of Formation and the BioPharmX Certificate of Incorporation, respectively, as certified by the Secretary of State (or comparable office) of its jurisdiction of formation within ten (10) calendar days prior to the Closing Date.
(ix) Each of Timber and BioPharmX shall have delivered to such Buyer a certificate, executed by its Secretary and dated as of the Closing Date, as to (i) the resolutions consistent with Section 3(b) or Section 4(b), respectively, as adopted by its Board of Managers and Board of Directors, respectively, in a form reasonably acceptable to such Buyer, (ii) the Timber Certificate of Formation or the BioPharmX Certificate of Incorporation, respectively, and (iii) the Timber LLCA and BioPharmX Bylaws, respectively, each as in effect at the Closing, in the form attached hereto as Exhibit G.
(x) The representations and warranties of each of Timber and BioPharmX shall be true and correct as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date which shall be true and correct as of such specified date) and each of Timber and BioPharmX shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by it at or prior to the Closing Date. Such Buyer shall have received certificates, executed by the Chief Executive Officer of each of Timber and BioPharmX, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by such Buyer in the form attached hereto as Exhibit H.
(xi) BioPharmX shall have delivered to such Buyer a letter from its Transfer Agent certifying the number of shares of BioPharmX Common Stock outstanding as of a date within five (5) calendar days of the Closing Date.
(xii) The proposed Merger between Timber and BioPharmX shall have been consummated or shall occur immediately following the Closing and the BioPharmX Common Stock (I) shall be designated for quotation or listed on the Principal Market and (II) shall not have been suspended, as of the Closing Date, by the SEC or the Principal Market from trading on the Principal Market nor shall suspension by the SEC or the Principal Market have been threatened, as of the Closing Date, either (A) in writing by the SEC or the Principal Market or (B) by falling below the minimum listing maintenance requirements or initial listing requirements of the Principal Market.
(xiii) Each of Timber and BioPharmX shall have obtained all member, stockholder, governmental, regulatory or other third party consents and approvals, including, without limitation, approval of the Principal Market, necessary for the completion of the Merger and the sale of the Securities, including, without limitation, in the case of BioPharmX, any and all stockholder approval required by the Principal Market with respect to the issuances of the Warrants and the Warrant Shares in full upon exercise of the Warrants without giving effect to any limitation on the exercise of the Warrants set forth therein.
(xiv) All conditions precedent to the closing of the Merger contained in the Merger Agreement shall have been satisfied or waived.
(xv) The Form S-4 shall have become effective in accordance with the provisions of the 1933 Act, and shall not be subject to any stop order or proceeding (or threatened proceeding by the SEC) seeking a stop order with respect to the Form S-4 that has not been withdrawn.
(xvi) The Securities Escrow Agreement shall have been executed and delivered to such Buyer by the other parties thereto.
(xvii) Timber shall have issued the Additional Common Units in escrow in the name of the Escrow Agent in accordance with the terms of the Securities Escrow Agreement.
(xviii) Such Buyer shall have received Timbers wire instructions on Timbers letterhead duly executed by an authorized executive officer of Timber.
(xix) Each Buyer shall have delivered to Timber a leak-out agreement, in the form attached hereto as Exhibit I (collectively, the Leak-Out Agreements), executed by each Buyer.
(xx) The Corporate Tax Election shall remain in full force and effect.
(xxi) Each of Timber and BioPharmX shall have delivered to such Buyer such other documents relating to the transactions contemplated by this Agreement as such Buyer or its counsel may reasonably request.
9. TERMINATION. In the event that the Closing shall not have occurred with respect to a Buyer on or before June 15, 2020 due to Timbers, BioPharmXs or such Buyers failure to satisfy the conditions set forth in Sections 7 and 8 above (and the nonbreaching partys failure to waive such unsatisfied condition(s)), the Buyer, if such Buyer is the nonbreaching party, or Timber, if Timber is the nonbreaching party, shall have the option to terminate this Agreement with respect to such Buyer, if such Buyer is the breaching party, or with respect to Timber and BioPharmX, if Timber or BioPharmX are the breaching party, at the close of business on such date by delivering a written notice to that effect to each other party to this Agreement and without liability of any party to any other party; provided, however, that if this Agreement is terminated pursuant to this Section 9, Timber shall remain obligated to reimburse the Lead Investor or its designee(s), as applicable, for the expenses described in Section 5(h) above.
10. MISCELLANEOUS.
(a) Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in The City of New York, Borough of Manhattan, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. In addition to, but not in limitation of, any other rights of a Buyer hereunder, if (a) this Agreement is placed in the hands of an attorney for collection of any indemnification or other obligation hereunder then outstanding or enforcement or any such obligation is collected or enforced through any legal proceeding or a Buyer otherwise takes action to collect amounts due under this Agreement or to enforce the provisions of this Agreement or (b) there occurs any bankruptcy, reorganization, receivership of Timber or BioPharmX or other proceedings affecting Timbers or BioPharmXs creditors rights and involving a claim under this Agreement, then Timber or BioPharmX, as applicable, shall pay the costs incurred by such Buyer for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys fees and disbursements.
(b) Counterparts. This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile or .pdf signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile or .pdf signature.
(c) Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
(d) Severability. If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties. The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).
(e) Entire Agreement; Amendments. This Agreement and the other Transaction Documents supersede all other prior oral or written agreements between Timber, BioPharmX, their affiliates and Persons acting on their behalf, on the one hand, and the Buyers, their affiliates and Persons acting on their behalf, on the other hand, with respect to the matters discussed herein, and this Agreement, the other Transaction Documents and the instruments referenced herein and therein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, none of Timber, BioPharmX nor any Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be amended other than by an instrument in writing signed by Timber, BioPharmX and the Required Holders, and any amendment to this Agreement made in conformity with the provisions of this Section 10(e) shall be binding on all Buyers and holders of Securities, Timber and BioPharmX. No provisions hereto may be waived other than by an instrument in writing signed by the party against whom enforcement is sought. No such amendment shall be effective to the extent that it applies to less than all of the Buyers or holders of the applicable Securities then outstanding. No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration (other than the reimbursement of legal fees) also is offered to all of the parties to the Transaction Documents, holders of Common Units or holders of the Warrants, as the case may be. Neither Timber nor BioPharmX has, directly or indirectly, made any agreements with any Buyers relating to the terms
or conditions of the transactions contemplated by the Transaction Documents except as set forth in the Transaction Documents. Without limiting the foregoing, each of Timber and BioPharmX confirms that, except as set forth in this Agreement, no Buyer has made any commitment or promise or has any other obligation to provide any financing to Timber or BioPharmX or otherwise. As used herein, Required Holders means (I) prior to the Closing Date, the Buyers entitled to purchase at the Closing a majority of the aggregate amount of Securities issued and issuable hereunder and under the Warrants (without regard to any restriction or limitation on the exercise of the Warrants or the delivery of the Exchange Shares issued in exchange of Additional Common Units contained therein or herein) and shall include the Lead Investor and (II) on or after the Closing Date, holders of at least a majority of the aggregate amount of Securities issued and issuable hereunder and under the Warrants (without regard to any restriction or limitation on the exercise of the Warrants or the delivery of the Exchange Shares issued in exchange of Additional Common Units contained therein or herein) as of the applicable time of determination and shall include the Lead Investor so long as the Lead Investor or any of its Affiliates holds any Securities.
(f) Notices. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement or any of the other Transaction Documents must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon delivery, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party) or by electronic mail; (iii) upon delivery, when sent by electronic mail (provided that the sending party does not receive an automated rejection notice); or (iv) one (1) Business Day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses, facsimile numbers and e-mail addresses for such communications shall be:
If to Timber:
Timber Pharmaceuticals LLC
50 Tice Blvd, Suite A26
Woodcliff Lake, NJ 07677
Telephone: (973) 314-9570
Attention: John Koconis, Chief Executive Officer
E-mail: jkoconis@timberpharma.com
With a copy (for informational purposes only) to:
Lowenstein Sandler LLP
1251 Avenue of the Americas
New York, NY 10020
Telephone: (212) 262-6700
Facsimile: (973) 597-2477
Attention: Steven M. Skolnick, Esq.
E-mail: sskolnick@lowenstein.com
If to BioPharmX:
BioPharmX Corporation
900 E. Hamilton Ave., Suite 100
Campbell, CA 95008
Facsimile: (305) 349-4833
Attention: Chief Executive Officer
E-mail: sbosacki@biopharmx.com
With a copy (for informational purposes only) to:
Akerman LLP
350 East Las Olas Blvd.
Suite 1600
Fort Lauderdale, FL 33131
Telephone: 954-468-2455
Facsimile: (305) 349-4833
Attention: Philip B. Schwartz, Esq.
E-mail: philip.schwartz@akerman.com
If to the Escrow Agent:
The Bank of New York Mellon
Corporate Trust Administration
240 Greenwich Street
New York, NY 10286
Attention: Escrow Unit
If to the Transfer Agent:
Computershare Trust Company, N.A.
520 Pike Street, Suite 1305
Seattle, WA 98101
Telephone: (206) 674-3050
Facsimile: (206) 674-3059
Attention: Lisa Porter
E-mail: lisa.porter@computershare.com
If to a Buyer, to its address, facsimile number and e-mail address set forth on the Schedule of Buyers, with copies to such Buyers representatives as set forth on the Schedule of Buyers,
With a copy (for informational purposes only) to:
Schulte Roth & Zabel LLP
919 Third Avenue
New York, NY 10022
Telephone: (212) 756-2000
Facsimile: (212) 593-5955
Attention: Eleazer N. Klein, Esq.
E-mail: eleazer.klein@srz.com
or to such other address, facsimile number and/or e-mail address and/or to the attention of such other Person as the recipient party has specified by written notice given to each other party five (5) calendar days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the senders facsimile machine or e-mail containing the time, date, recipient facsimile number and an image of the first page of such transmission or (C) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (i), (ii) or (iii) above, respectively.
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Common Units or the Warrants. Neither Timber nor BioPharmX shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the Required Holders, including by way of a Fundamental Transaction (unless BioPharmX is in compliance with the applicable provisions governing Fundamental Transactions set forth in the Warrants and other than the Merger in accordance with the terms and conditions of the Merger Agreement). A Buyer may assign some or all of its rights hereunder without the consent of Timber or BioPharmX, in which event such assignee shall be deemed to be a Buyer hereunder with respect to such assigned rights.
(h) Third Party Beneficiaries. The Placement Agent shall be a third party beneficiary of the representations and warranties of the Buyers in Section 2, the representations and warranties of Timber in Section 3 and the representations and warranties of BioPharmX in Section 4. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except that each Indemnitee shall have the right to enforce the obligations of Timber and BioPharmX with respect to Section 10(k) and as otherwise set forth in this Section 10(h).
(i) Survival. Unless this Agreement is terminated under Section 9, the representations and warranties of Timber, BioPharmX and the Buyers contained in Sections 2, 3 and 4, and the agreements and covenants set forth in Sections 5, 6 and 10 shall survive the Closing. Each Buyer, and each of Timber and BioPharmX, shall be responsible only for its own representations, warranties, agreements and covenants hereunder.
(j) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
(k) Indemnification. (i) In consideration of each Buyers execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of Timbers other obligations under the Transaction Documents, Timber shall defend, protect, indemnify and hold harmless each Buyer and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the Indemnitees) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys fees and disbursements (the Indemnified Liabilities), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by Timber in the Transaction Documents or any other certificate, instrument or document of Timber contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of Timber contained in the Transaction Documents or any other certificate, instrument or document of Timber contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of Timber or BioPharmX) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure made by such Buyer pursuant to Section 5(j), or (iv) the status of such Buyer or holder of the Securities as an investor in Timber pursuant to the transactions contemplated by the Transaction Documents. To the extent that the foregoing undertaking by Timber may be unenforceable for any reason, Timber shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 10(k)(i) shall be the same as those set forth in Section 6 of the Registration Rights Agreement.
(ii) In consideration of each Buyers execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of BioPharmXs other obligations under the Transaction Documents, BioPharmX (starting immediately after the completion of the Merger) shall defend, protect, indemnify and hold harmless the Indemnitees from and against any and all Indemnified Liabilities incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by BioPharmX in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of BioPharmX contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim
brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of Timber or BioPharmX) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, (iii) any disclosure made by such Buyer pursuant to Section 5(j), or (iv) the status of such Buyer or holder of the Securities as an investor in BioPharmX pursuant to the transactions contemplated by the Transaction Documents. To the extent that the foregoing undertaking by BioPharmX may be unenforceable for any reason, BioPharmX shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 10(k)(ii) shall be the same as those set forth in Section 6 of the Registration Rights Agreement.
(l) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
(m) Remedies. Each Buyer and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law. Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. Furthermore, each of Timber and BioPharmX recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Buyers. Each of Timber and BioPharmX therefore agrees that the Buyers shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security.
(n) Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Buyer exercises a right, election, demand or option under a Transaction Document and either Timber or BioPharmX does not timely perform its related obligations within the periods therein provided, then such Buyer may rescind or withdraw, in its sole discretion from time to time upon written notice to Timber or BioPharmX, as applicable, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.
(o) Payment Set Aside. To the extent that Timber or BioPharmX makes a payment or payments to the Buyers hereunder or pursuant to any of the other Transaction Documents or the Buyers enforce or exercise their rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to Timber or BioPharmX, a trustee, receiver or any other Person under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of
any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
(p) Independent Nature of Buyers Obligations and Rights. The obligations of each Buyer under any Transaction Document are several and not joint with the obligations of any other Buyer, and no Buyer shall be responsible in any way for the performance of the obligations of any other Buyer under any Transaction Document. Nothing contained herein or in any other Transaction Document, and no action taken by any Buyer pursuant hereto or thereto, shall be deemed to constitute the Buyers as, and each of Timber and BioPharmX acknowledges that the Buyers do not so constitute, a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Buyers are in any way acting in concert or as a group, and neither Timber nor BioPharmX shall assert any such claim with respect to such obligations or the transactions contemplated by the Transaction Documents and each of Timber and BioPharmX acknowledges that the Buyers are not acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. Each of Timber and BioPharmX acknowledges and each Buyer confirms that it has independently participated in the negotiation of the transaction contemplated hereby with the advice of its own counsel and advisors. Each Buyer shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any other Buyer to be joined as an additional party in any proceeding for such purpose.
[Signature Pages Follow]
IN WITNESS WHEREOF, each Buyer, Timber and BioPharmX have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above.
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TIMBER PHARMACEUTICALS LLC | ||
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/s/ John Koconis | |
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John Koconis |
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Title: |
Chief Executive Officer |
IN WITNESS WHEREOF, each Buyer, Timber and BioPharmX have caused their respective signature page to this Securities Purchase Agreement to be duly executed as of the date first written above.
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BIOPHARMX CORPORATION | ||
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/s/ Steven M. Bosacki | |
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Name: |
Steven M. Bosacki |
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Title: |
Chief Executive Officer |
[Signature Page to Securities Purchase Agreement]
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EXHIBITS
Exhibit A |
Form of Securities Escrow Agreement |
Exhibit B-1 |
Form of Series A Warrants |
Exhibit B-2 |
Form of Series B Warrants |
Exhibit C |
Form of Registration Rights Agreement |
Exhibit D |
Form of Capacity Notice |
Exhibit E |
Form of Irrevocable Transfer Agent Instructions |
Exhibit F-1 |
Form of Opinion of Lowenstein Sandler LLP |
Exhibit F-2 |
Form of Opinion of Akerman LLP |
Exhibit G |
Form of Secretarys Certificate |
Exhibit H |
Form of Officers Certificate |
Exhibit I |
Form of Leak-Out Agreement |
SCHEDULES
Timber Disclosure Schedules
Schedule 3(a) |
Timber Subsidiaries |
Schedule 3(d) |
No Conflicts |
Schedule 3(e) |
Consents |
Schedule 3(k) |
Absence of Certain Changes |
Schedule 3(m) |
Conduct of Business; Regulatory Permits |
Schedule 3(p) |
Transactions with Affiliates |
Schedule 3(q) |
Equity Capitalization |
Schedule 3(r) |
Indebtedness and Other Contracts |
Schedule 3(s) |
Absence of Litigation |
Schedule 3(w) |
Intellectual Property Rights |
Schedule 3(aa) |
Internal Accounting |
Schedule 3(ff) |
FDA |
BioPharmX Disclosure Schedules
Schedule 4(a) |
BioPharmX Subsidiaries |
Schedule 4(d) |
No Conflicts |
Schedule 4(e) |
Consents |
Schedule A1(d) |
SEC Documents; Financial Statements |
Schedule A1(g) |
Sarbanes-Oxley Act; Internal Accounting Controls |
Schedule A1(h) |
Transactions with Affiliates and Employees |
Schedule A1(i) |
Equity Capitalization |
Schedule A1(k) |
Absence of Litigation |
Schedule A1(o) |
Intellectual Property Rights |
Schedule A1(r) |
Registration Rights |
Schedule A1(s) |
Solvency |
Schedule A1(v) |
FDA |
ANNEX I
BioPharmX represents and warrants to each of the Buyers that, as of the Closing Date:
(a) Acknowledgment Regarding Buyers Purchase of Securities. BioPharmX acknowledges and agrees that each Buyer is acting solely in the capacity of an arms length purchaser with respect to the BioPharmX Transaction Documents and the transactions contemplated hereby and thereby and that no Buyer is (i) an officer or director of BioPharmX or any of the BioPharmX Subsidiaries, (ii) an affiliate of BioPharmX or any of the BioPharmX Subsidiaries (as defined in Rule 144) or (iii) to the knowledge of BioPharmX, a beneficial owner of more than 10% of the BioPharmX Common Stock (as defined for purposes of Rule 13d-3 of the 1934 Act). BioPharmX further acknowledges that no Buyer is acting as a financial advisor or fiduciary of BioPharmX or any of the BioPharmX Subsidiaries (or in any similar capacity) with respect to the BioPharmX Transaction Documents and the transactions contemplated hereby and thereby, and any advice given by a Buyer or any of its representatives or agents in connection with the BioPharmX Transaction Documents and the transactions contemplated hereby and thereby is merely incidental to such Buyers purchase of the Securities. BioPharmX further represents to each Buyer that BioPharmXs decision to enter into the BioPharmX Transaction Documents has been based solely on the independent evaluation by BioPharmX and its representatives.
(b) No Integrated Offering. None of BioPharmX, the BioPharmX Subsidiaries their affiliates, nor any Person acting on their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would require registration of the issuance of any of the Securities under the 1933 Act, whether through integration with prior offerings or otherwise, or cause this offering of the Securities to require approval of stockholders of BioPharmX for purposes of the 1933 Act or any applicable stockholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of BioPharmX are listed or designated for quotation. None of BioPharmX, the BioPharmX Subsidiaries, their affiliates nor any Person acting on their behalf will take any action or steps that would require registration of the issuance of any of the Securities under the 1933 Act or cause the offering of any of the Securities to be integrated with other offerings for purposes of any such applicable stockholder approval provisions.
(c) Application of Takeover Protections; Rights Agreement. BioPharmX and its Board of Directors have taken all necessary action, if any, in order to render inapplicable any stockholder rights plan or similar arrangement relating to accumulations of beneficial ownership of BioPharmX Common Stock or a change in control of BioPharmX or any of the BioPharmX Subsidiaries.
(d) SEC Documents; Financial Statements. Except as disclosed in Schedule A1(d), during the two (2) years prior to the date hereof, BioPharmX has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the 1934 Act (all of the foregoing filed prior to the date hereof or prior to the Closing Date, and all exhibits included therein and financial statements, notes and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the SEC Documents). BioPharmX has delivered to the Buyers or their respective representatives true, correct and complete copies of the SEC Documents not available on the EDGAR system. As of their respective filing dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act applicable to BioPharmX and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of the dates of the filing of the Form S-4, including any amendments thereto, the Form S-4, other than the sections of the Form S-4 titled Risk Factors Risks Related to Timbers Business, Financial Position and Capital Requirements, Timber Business, Timber Managements Discussion and Analysis of Financial Condition and Results of Operations, Related Party Transactions of Directors and Executive Officers of Timber and Principal Securityholders of Timber, at the time the Form S-4 or such amendment thereto was filed with the SEC, did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. As of their respective filing dates, the financial statements of BioPharmX included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. As of each filing date of the Form S-4 or any amendment thereto, the financial statements of BioPharmX included in the Form S-4 complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with GAAP, consistently applied during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of BioPharmX and the BioPharmX Subsidiaries as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments which will not be material, either individually or in the aggregate). No other information provided by or on behalf of BioPharmX to any of the Buyers which is not included in the SEC Documents (including, without limitation, information referred to in Section 2(d) of this Agreement or in the disclosure schedules to this Agreement) contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstance under which they are or were made, not misleading.
(e) No Undisclosed Events, Liabilities, Developments or Circumstances. No event, liability, development or circumstance has occurred or exists, or is contemplated to occur with respect to BioPharmX, the BioPharmX Subsidiaries or their respective business, properties, prospects, operations or financial condition, that would be required to be disclosed by BioPharmX under applicable securities laws on a registration statement on Form S-1 filed with the SEC relating to an issuance and sale by BioPharmX of its BioPharmX Common Stock and which has not been publicly announced.
(f) Regulatory Permits. BioPharmX and each of the BioPharmX Subsidiaries possess all certificates, authorizations and permits issued by the appropriate foreign, federal or state regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a BioPharmX Material Adverse Effect, and neither BioPharmX nor any such BioPharmX Subsidiary has received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
(g) Sarbanes-Oxley Act; Internal Accounting Controls. BioPharmX is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002, as amended, that are effective as of the date of completion of the Merger, and any and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date of completion of the Merger. BioPharmX and each of the BioPharmX Subsidiaries maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with managements general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, consistently applied during the periods involved and applicable law, and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with managements general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference. BioPharmX maintains disclosure controls and procedures (as such term is defined in Rule 13a-15 under the 1934 Act) that are effective in ensuring that information required to be disclosed by BioPharmX in the reports that it files or submits under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the SEC, including, without limitation, controls and procedures designed to ensure that information required to be disclosed by BioPharmX in the reports that it files or submits under the 1934 Act is accumulated and communicated to BioPharmXs management, including its principal executive officer or officers and its principal financial officer or officers, as appropriate, to allow timely decisions regarding required disclosure. Except as set forth in Schedule A1(g), during the twelve months prior to the date hereof neither BioPharmX nor any of the BioPharmX Subsidiaries has received any notice or correspondence from any accountant relating to any material weakness in any part of the system of internal accounting controls of BioPharmX or any of the BioPharmX Subsidiaries.
(h) Transactions With Affiliates and Employees. Except as set forth in Schedule A1(h), none of the officers, directors or employees of BioPharmX or any of the BioPharmX Subsidiaries is presently a party to any transaction with BioPharmX or any of the BioPharmX Subsidiaries (other than for ordinary course services as employees, officers or directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such officer, director or employee or, to the knowledge of BioPharmX or any of the BioPharmX Subsidiaries, any corporation, partnership, trust or other Person in which any such officer, director, or employee has a substantial interest or is an employee, officer, director, trustee or partner.
(i) Equity Capitalization. As of the date of completion of the Merger, the authorized capital stock of BioPharmX consists of (i) 450,000,000 shares of BioPharmX Common Stock, of which as of the date of completion of the Merger, [·] are issued and outstanding, [·] shares are reserved for issuance pursuant to BioPharmXs stock option and purchase plans, of which [·] shares are subject to outstanding BioPharmX options granted under the BioPharmX stock plans and [·] shares are subject to outstanding BioPharmX restricted stock units, and [·] shares are reserved for issuance pursuant to securities (other than the aforementioned options and
Warrants) exercisable or exchangeable for, or convertible into, BioPharmX Common Stock and (ii) 10,000,000 shares of preferred stock, par value $0.001 per share, of which [no] shares are issued and are outstanding as of the date of completion of the Merger. No BioPharmX Common Stock are held in treasury. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. [·] shares of BioPharmXs issued and outstanding BioPharmX Common Stock on the date of completion of the Merger are as of the date of completion of the Merger owned by Persons who are affiliates (as defined in Rule 405 of the 1933 Act) of BioPharmX or any of the BioPharmX Subsidiaries. (i) Except as disclosed in Schedule A1(i)(i), hereto, none of BioPharmXs or any BioPharmX Subsidiarys capital stock is subject to preemptive rights or any other similar rights or any liens or encumbrances suffered or permitted by BioPharmX or any BioPharmX Subsidiary; (ii) except as disclosed in Schedule A1(i)(ii), there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of BioPharmX or any of the BioPharmX Subsidiaries, or contracts, commitments, understandings or arrangements by which BioPharmX or any of the BioPharmX Subsidiaries is or may become bound to issue additional capital stock of BioPharmX or any of the BioPharmX Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of BioPharmX or any of the BioPharmX Subsidiaries; (iii) except as disclosed in Schedule A1(i)(iii), there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of BioPharmX or any of the BioPharmX Subsidiaries or by which BioPharmX or any of the BioPharmX Subsidiaries is or may become bound; (iv) except as disclosed in Schedule A1(i)(iv), there are no financing statements securing obligations in any amounts filed in connection with BioPharmX or any of the BioPharmX Subsidiaries; (v), except as disclosed in Schedule A1(i)(v), there are no agreements or arrangements (other than pursuant to the Registration Rights Agreement) under which BioPharmX or any of the BioPharmX Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act; (vi) except as disclosed in Schedule A1(i)(vi), there are no outstanding securities or instruments of BioPharmX or any of the BioPharmX Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which BioPharmX or any of the BioPharmX Subsidiaries is or may become bound to redeem a security of BioPharmX or any of the BioPharmX Subsidiaries; (vii) except as disclosed in Schedule A1(i)(vii), there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) except as disclosed in Schedule A1(i)(viii), neither BioPharmX nor any BioPharmX Subsidiary has any stock appreciation rights or phantom stock plans or agreements or any similar plan or agreement; and (ix) neither BioPharmX nor any of the BioPharmX Subsidiaries have any liabilities or obligations required to be disclosed in the SEC Documents which are not so disclosed in the SEC Documents, other than those incurred in the ordinary course of BioPharmXs or the BioPharmX Subsidiaries respective businesses and which, individually or in the aggregate, do not or could not have a BioPharmX Material Adverse Effect. True, correct and complete copies of the BioPharmX Certificate of Incorporation and BioPharmX Bylaws, and the terms of all securities convertible into, or exercisable or exchangeable for, BioPharmX Common Stock and the material rights of the holders thereof in respect thereto have heretofore been filed as part of the SEC Documents.
(j) Compliance. Neither BioPharmX nor any BioPharmX Subsidiary: (i) is in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by BioPharmX or any BioPharmX Subsidiary under), nor has BioPharmX or any BioPharmX Subsidiary received notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any judgment, decree, or order of any court, arbitrator or other governmental authority or (iii) is or has been in violation of any statute, rule, ordinance or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws relating to taxes, environmental protection, occupational health and safety, product quality and safety and employment and labor matters, except in each case as would not have or reasonably be expected to result in a BioPharmX Material Adverse Effect.
(k) Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by the Principal Market, any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of BioPharmX, threatened against or affecting BioPharmX or any of the BioPharmX Subsidiaries, the BioPharmX Common Stock or any of the BioPharmX Subsidiarys capital stock or any of BioPharmXs or any of the BioPharmX Subsidiaries officers or directors, whether of a civil or criminal nature or otherwise, in their capacities as such, except as set forth in Schedule A1(k). The matters set forth in Schedule A1(k) would not reasonably be expected to have a BioPharmX Material Adverse Effect.
(l) Insurance. BioPharmX and any of the BioPharmX Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of BioPharmX believes to be prudent and customary in the businesses in which BioPharmX and the BioPharmX Subsidiaries are engaged. Neither BioPharmX nor any such BioPharmX Subsidiary has been refused any insurance coverage sought or applied for and neither BioPharmX nor any such BioPharmX Subsidiary has any reason to believe that it will be unable to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a BioPharmX Material Adverse Effect.
(m) Employee Relations. Neither BioPharmX nor any of the BioPharmX Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. BioPharmX and the BioPharmX Subsidiaries believe that their relations with their respective employees are good. No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of BioPharmX or any of the BioPharmX Subsidiaries has notified BioPharmX or any such BioPharmX Subsidiary that such officer intends to leave BioPharmX or any such BioPharmX Subsidiary or otherwise terminate such officers employment with BioPharmX or any such BioPharmX Subsidiary. No executive officer or other key employee of BioPharmX or any of the BioPharmX Subsidiaries is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as
the case may be) does not subject BioPharmX or any of the BioPharmX Subsidiaries to any liability with respect to any of the foregoing matters. BioPharmX and the BioPharmX Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a BioPharmX Material Adverse Effect.
(n) Title. BioPharmX and the BioPharmX Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of BioPharmX and the BioPharmX Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as do not materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by BioPharmX and any of the BioPharmX Subsidiaries. Any real property and facilities held under lease by BioPharmX or any of the BioPharmX Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by BioPharmX or any of the BioPharmX Subsidiaries.
(o) Intellectual Property Rights. BioPharmX and the BioPharmX Subsidiaries own or possess adequate Intellectual Property Rights necessary to conduct their respective businesses as now conducted and as presently proposed to be conducted. Each of patents owned by BioPharmX or any of the BioPharmX Subsidiaries is listed on Schedule A1(o)(i). Except as set forth in Schedule A1(o)(ii), none of the BioPharmXs or any of the BioPharmX Subsidiaries Intellectual Property Rights have expired, terminated or been abandoned, or are expected to expire, terminate or be abandoned, within three years from the date of this Agreement. BioPharmX has no knowledge of any infringement by BioPharmX or any of the BioPharmX Subsidiaries of Intellectual Property Rights of others. There is no claim, action or proceeding being made or brought, or to the knowledge of BioPharmX or the BioPharmX Subsidiaries, being threatened, against BioPharmX or any of the BioPharmX Subsidiaries regarding their Intellectual Property Rights. Neither BioPharmX nor any of the BioPharmX Subsidiaries is aware of any facts or circumstances which might give rise to any of the foregoing infringements or claims, actions or proceedings. BioPharmX and the BioPharmX Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of all of their Intellectual Property Rights.
(p) Environmental Laws. BioPharmX and the BioPharmX Subsidiaries (i) are in compliance with all Environmental Laws, (ii) have received all permits, licenses or other approvals required of them under applicable Environmental Laws to conduct their respective businesses and (ii) are in compliance with all terms and conditions of any such permit, license or approval where, in each of the foregoing clauses (i), (ii) and (iii), the failure to so comply could be reasonably expected to have, individually or in the aggregate, a BioPharmX Material Adverse Effect.
(q) Tax Status. BioPharmX and each of the BioPharmX Subsidiaries (i) has timely made or filed all foreign, federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, (ii) has timely paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being
contested in good faith and (iii) has set aside on its books provision reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the BioPharmX and the BioPharmX Subsidiaries know of no basis for any such claim.
(r) Registration Rights. Except as set forth on Schedule A1(r), other than each of the Buyers, no Person has any right to cause BioPharmX or any BioPharmX Subsidiary to effect the registration under the 1933 Act of any securities of BioPharmX or any BioPharmX Subsidiary.
(s) Solvency. Based on the consolidated financial condition of BioPharmX as of the Closing Date, after giving effect to the receipt by Timber of the proceeds from the sale of the Securities hereunder: (i) the fair saleable value of BioPharmXs assets exceeds the amount that will be required to be paid on or in respect of BioPharmXs existing debts and other liabilities (including known contingent liabilities) as they mature, (ii) BioPharmXs assets do not constitute unreasonably small capital to carry on its business as now conducted and as proposed to be conducted including its capital needs taking into account the particular capital requirements of the business conducted by BioPharmX, consolidated and projected capital requirements and capital availability thereof, and (iii) the current cash flow of BioPharmX, together with the proceeds BioPharmX would receive, were it to liquidate all of its assets, after taking into account all anticipated uses of the cash, would be sufficient to pay all amounts on or in respect of its liabilities when such amounts are required to be paid. BioPharmX does not intend to incur debts beyond its ability to pay such debts as they mature (taking into account the timing and amounts of cash to be payable on or in respect of its debt). BioPharmX has no knowledge of any facts or circumstances which lead it to believe that it will file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule A1(s) sets forth as of the date of completion of the Merger all outstanding secured and unsecured Indebtedness of BioPharmX or any BioPharmX Subsidiary, or for which BioPharmX or any BioPharmX Subsidiary has commitments. For the purposes of this Section 4, Indebtedness means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade account payables and accrued expenses incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in BioPharmXs consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP. Neither BioPharmX nor any BioPharmX Subsidiary is in default with respect to any Indebtedness.
(t) Acknowledgment Regarding Buyers Trading Activity. BioPharmX acknowledges and agrees that, except as set forth in the Leak-Out Agreements, (i) none of the Buyers has been asked to agree, nor has any Buyer agreed, to desist from purchasing or selling, long and/or short, securities of BioPharmX, or derivative securities based on securities issued by BioPharmX or to hold the Securities for any specified term; (ii) any Buyer, and counter-parties in derivative transactions to which any such Buyer is a party, directly or indirectly, presently may have a short position in the BioPharmX Common Stock and (iii) each Buyer shall not be
deemed to have any affiliation with or control over any arms length counter-party in any derivative transaction. BioPharmX further understands and acknowledges that (a) one or more Buyers may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Warrant Shares are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders equity interest in BioPharmX both at and after the time the hedging and/or trading activities are being conducted. BioPharmX acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement, the Warrants or any of the documents executed in connection herewith.
(u) Manipulation of Price. BioPharmX has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of BioPharmX to facilitate the sale or resale of any of the Securities, (ii) other than the Placement Agent, sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) other than the Placement Agent, paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of BioPharmX.
(v) FDA. As to each Pharmaceutical Product subject to the jurisdiction of the FDA under the FDCA that is manufactured, packaged, labeled, tested, distributed, sold, and/or marketed by BioPharmX or any of its BioPharmX, such Pharmaceutical Product is being manufactured, packaged, labeled, tested, distributed, sold and/or marketed by BioPharmX in compliance with all applicable requirements under FDCA and similar laws, rules and regulations relating to registration, investigational use, premarket clearance, licensure, or application approval, good manufacturing practices, good laboratory practices, good clinical practices, product listing, quotas, labeling, advertising, record keeping and filing of reports, except where the failure to be in compliance would not have a BioPharmX Material Adverse Effect. There is no pending, completed or, to BioPharmXs knowledge, threatened, action (including any lawsuit, arbitration, or legal or administrative or regulatory proceeding, charge, complaint, or investigation) against BioPharmX or any of its BioPharmX Subsidiaries, and none of BioPharmX or any of its BioPharmX Subsidiaries has received any notice, warning letter or other communication from the FDA or any other governmental entity, which (i) contests the premarket clearance, licensure, registration, or approval of, the uses of, the distribution of, the manufacturing or packaging of, the testing of, the sale of, or the labeling and promotion of any Pharmaceutical Product, (ii) withdraws its approval of, requests the recall, suspension, or seizure of, or withdraws or orders the withdrawal of advertising or sales promotional materials relating to, any Pharmaceutical Product, (iii) imposes a clinical hold on any clinical investigation by BioPharmX or any of its BioPharmX Subsidiaries, (iv) enjoins production at any facility of BioPharmX or any of its BioPharmX Subsidiaries, (v) enters or proposes to enter into a consent decree of permanent injunction with BioPharmX or any of its BioPharmX Subsidiaries, or (vi) otherwise alleges any violation of any laws, rules or regulations by BioPharmX or any of its BioPharmX Subsidiaries, and which, either individually or in the aggregate, would have a BioPharmX Material Adverse Effect. The properties, business and operations of BioPharmX have been and are being conducted in all material respects in accordance with all applicable laws, rules and regulations of the FDA. Except as set forth on Schedule A1(v) or as disclosed in the SEC
Documents, BioPharmX has not been informed by the FDA that the FDA will prohibit the marketing, sale, license or use in the United States of any product proposed to be developed, produced or marketed by BioPharmX nor has the FDA expressed any concern as to approving or clearing for marketing any product being developed or proposed to be developed by BioPharmX.
(w) U.S. Real Property Holding Corporation. Neither BioPharmX nor any of the BioPharmX Subsidiaries is, or has ever been, and so long as any of the Securities are held by any of the Buyers, shall become, a U.S. real property holding corporation within the meaning of Section 897 of the Internal Revenue Code of 1986, as amended, and BioPharmX and each BioPharmX Subsidiary shall so certify upon any Buyers request.
(x) Eligibility for Registration. BioPharmX is eligible to register the Warrant Shares for resale by the Buyers using Form S-3 promulgated under the 1933 Act.
(y) Transfer Taxes. On the Closing Date, all stock transfer or other taxes (other than income or similar taxes) which are required to be paid in connection with the issuance, sale and transfer of the Securities to be sold to each Buyer hereunder will be, or will have been, fully paid or provided for by BioPharmX, and all laws imposing such taxes will be or will have been complied with.
(z) Bank Holding Company Act. Neither BioPharmX nor any of the BioPharmX Subsidiaries or affiliates is subject to BHCA and to regulation by the Board of Governors of the Federal Reserve. Neither BioPharmX nor any of the BioPharmX Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither BioPharmX nor any of the BioPharmX Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
(aa) No Additional Agreements. Neither BioPharmX nor any of the BioPharmX Subsidiaries have any agreement or understanding with any Buyer with respect to the transactions contemplated by the BioPharmX Transaction Documents other than as specified in the BioPharmX Transaction Documents.
(bb) Disclosure. Except for discussions specifically regarding the offer and sale of the Securities, BioPharmX confirms that neither it nor any other Person acting on its behalf has provided any of the Buyers or their agents or counsel with any information that constitutes or could reasonably be expected to constitute material, non-public information concerning Timber, the Timber Subsidiaries, BioPharmX or any of the BioPharmX Subsidiaries, other than the existence of the transactions contemplated by this Agreement and the other BioPharmX Transaction Documents. BioPharmX understands and confirms that each of the Buyers will rely on the foregoing representations in effecting transactions in securities of BioPharmX. All disclosure provided to the Buyers regarding BioPharmX and the BioPharmX Subsidiaries, their businesses and the transactions contemplated hereby, including the schedules to this Agreement, furnished by or on behalf of BioPharmX or any of the BioPharmX Subsidiaries is true and correct and does not
contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. All of the written information furnished after the date of completion of the Merger by or on behalf of BioPharmX or any of the BioPharmX Subsidiaries to you pursuant to or in connection with this Agreement and the other BioPharmX Transaction Documents, taken as a whole, will be true and correct in all material respects as of the date on which such information is so provided and will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in the light of the circumstances under which they are made, not misleading. Each press release issued by BioPharmX or any of the BioPharmX Subsidiaries during the twelve (12) months preceding the date of this Agreement did not at the time of release contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or information exists with respect to BioPharmX or any of the BioPharmX Subsidiaries or its or their business, properties, liabilities, prospects, operations (including results thereof) or conditions (financial or otherwise), which, under applicable law, rule or regulation, requires public disclosure at or before the date of completion of the Merger or announcement by BioPharmX but which has not been so publicly disclosed. BioPharmX acknowledges and agrees that no Buyer makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 2.
(cc) Stock Option Plans. Each stock option granted by BioPharmX was granted (i) in accordance with the terms of the applicable BioPharmX stock option plan and (ii) with an exercise price at least equal to the fair market value of the BioPharmX Common Stock on the date such stock option would be considered granted under GAAP, consistently applied during the periods involved and applicable law. No stock option granted under BioPharmXs stock option plan has been backdated. BioPharmX has not knowingly granted, and there is no and has been no BioPharmX policy or practice to knowingly grant, stock options prior to, or otherwise knowingly coordinate the grant of stock options with, the release or other public announcement of material information regarding BioPharmX or the BioPharmX Subsidiaries or their financial results or prospects.
(dd) No Disqualification Events. With respect to Regulation D Securities to be offered and sold hereunder, none of BioPharmX, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of BioPharmX participating in the offering hereunder, any beneficial owner of 20% or more of BioPharmXs outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with BioPharmX in any capacity at the time of sale (each, an BioPharmX Covered Person and, together, BioPharmX Covered Persons) is subject to a Disqualification Event, except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). BioPharmX has exercised reasonable care to determine whether any BioPharmX Covered Person is subject to a Disqualification Event. BioPharmX has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Buyers a copy of any disclosures provided thereunder.
(ee) Other Covered Persons. BioPharmX is not aware of any Person (other than the Placement Agent) that has been or will be paid (directly or indirectly) remuneration for solicitation of Buyers or potential purchasers in connection with the sale of any Regulation D Securities.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Amendment No. 1 to the Registration Statement on Form S-4 of our report (which contains an explanatory paragraph relating to BioPharmX Corporation's ability to continue as a going concern as described in Note 2 to the consolidated financial statements) dated March 27, 2020, relating to the consolidated financial statements of BioPharmX Corporation, which appears in the Annual Report on Form 10-K of BioPharmX Corporation for the year ended January 31, 2020. We also consent to the reference of our firm under the heading "Experts" in such Registration Statement.
/s/ BPM LLP
San Jose, California
March 27, 2020
Consent of Independent Registered Public Accounting Firm
The
Members and Board of Managers
Timber Pharmaceuticals LLC:
We consent to the use of our report dated February 14, 2020, except as to Note 9, which is as of March 27, 2020, with respect to the consolidated balance sheet of Timber Pharmaceuticals LLC as of December 31, 2019, the related consolidated statement of operations, members' deficit, and cash flows for the period from February 26, 2019 (Inception) through December 31, 2019, and the related notes, included herein and to the reference to our firm under the heading "Experts" in the prospectus.
Our report dated February 14, 2020, except as to Note 9, which is as of March 27, 2020, contains an explanatory paragraph that states that Timber Pharmaceuticals LLC has suffered a loss from operations and has a net capital deficiency, which raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of that uncertainty.
/s/ KPMG LLP
Short Hills, New Jersey
March 27, 2020
CONSENT OF CASSEL SALPETER & CO., LLC
BioPharmX Corporation
115 Nicholson Lane
San Jose, California 95134
Attention: Board of Directors
RE: Proxy Statement / Prospectus of BioPharmX Corporation (BioPharmX), which forms part of Amendment No. 1 to the Registration Statement on Form S-4 of BioPharmX (the Registration Statement).
Members of the Board of Directors:
We hereby consent to the inclusion of our opinion letter, dated January 22, 2020, to the Board of Directors of BioPharmX as Annex E to the Proxy Statement/Prospectus included in Amendment No. 1 to the Registration Statement filed with the Securities and Exchange Commission today and the references to our firm and our opinion, including the quotation or summarization of such opinion, in such Registration Statement, under the headings PROSPECTUS SUMMARY Opinion of the BioPharmX Financial Advisor, THE MERGER Background of the Merger, THE MERGER Reasons for the Merger and THE MERGER Opinion of the BioPharmX Financial Advisor. The foregoing consent applies only to Amendment No. 1 to the Registration Statement being filed with the Securities and Exchange Commission today and not to any other amendments or supplements to the Registration Statement, and our opinion is not to be filed with, included in or referred to in whole or in part in any other registration statement (including any other amendments to the above-mentioned Registration Statement), proxy statement or any other document, except in accordance with our prior written consent.
In giving our consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder, nor do we admit that we are experts with respect to any part of such Registration Statement within the meaning of the term experts as used in the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder.
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/s/ Cassel Salpeter & Co., LLC |
If you would like to reduce the costs incurred by our company in mailing proxy materials, Use any touch-tone telephone to transmit your voting instructions. Vote by 11:59 P.M. ET Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, 123,456,789,012.12345 TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. The Board of Directors recommends you vote FOR proposals 1, 2, 3, 4, 5, 6 and 7: For 0 0 Against 0 0 Abstain 0 0 1. Approve the issuance of shares of BioPharmX's common stock to Timber's members pursuant to the terms of the Merger Agreement; For 0 Against 0 Abstain 0 2. Approve an amendment to the Certificate of Incorporation of BioPharmX to effect a reverse stock split of BioPharmX's common stock, at a ratio within the range of 1-for-5 to 1-for-25, with such specific ratio to be mutually agreed upon by BioPharmX and Timber; 5. Approve the issuance of: (a) shares of BioPharmX's common stock upon exercise of the Investor Warrants to be issued in the $20 million of financing that is a condition precedent of the Merger (the "Timber Funding"), and (b) additional shares of BioPharmX common stock that may be issued following the closing of the Timber Funding, in each case pursuant to the Securities Purchase Agreement and as required by and in accordance with NYSE American Rule 713. 0 0 0 3. Approve an amendment to BioPharmX's Certificate of Incorporation to change the corporate name of BioPharmX from "BioPharmX Corporation" to "Timber Pharmaceuticals, Inc."; and 0 0 0 6. To consider and vote upon an adjournment of the BioPharmX Special Meeting, if necessary, to solicit additional proxies if there are not sufficient votes in favor of Proposal Nos. 1, 2 and 5. 0 0 0 4. Approve the Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan and to authorize for issuance 11,650,000 shares of BioPharmX common stock thereunder. 0 0 0 7. To transact such other business as may properly come before the BioPharmX Special Meeting or any adjournment or postponement thereof. (see reverse for instructions) John Sample ANY CITY, ONA1A 1A1 Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date 02 0000000000 1 OF 1 1 2 0000451493_1 R1.0.1.18 For address change/comments, mark here. 0 Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer. Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 1234 ANYWHERE STREET SHARES CUSIP # JOB #SEQUENCE # VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information. Vote by 11:59 P.M. ET on April 29, 2020. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. VOTE BY PHONE - 1-800-690-6903 on April 29, 2020. Have your proxy card in hand when you call and then follow the instructions. John Sample234567VOTE BY MAIL 1234567 1234567NY 11717. NAME THE COMPANY NAME INC. - COMMON THE COMPANY NAME INC. - CLASS A THE COMPANY NAME INC. - CLASS B THE COMPANY NAME INC. - CLASS C THE COMPANY NAME INC. - CLASS D THE COMPANY NAME INC. - CLASS E THE COMPANY NAME INC. - CLASS F THE COMPA N Y NAME INC. - 401 K CONTROL # SHARES123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 123,456,789,012.12345 x PAGE1 OF 2 BIOPHARMX CORPORATION c/o Proxy Services P.O. Box 9142 Farmingdale, NY 11735 Investor Address Line 1 Investor Address Line 2 Investor Address Line 3 Investor Address Line 4 Investor Address Line 5 8 8 8 1 1234 ANYWHERE STREET ANY CITY, ONA1A 1A1 234567 234567 234567 234567
Alternatively, due to the emerging public health impact of coronavirus disease 2019 (COVID-19), we are planning for the possibility that the BioPharmX special meeting may need to be held solely by means of remote communication. If we take this step, we will announce the decision to do so in advance, and details on how to participate in the webcast will be set forth in a press release issued by BioPharmX and available on our website at www.biopharmx.com. Important Notice Regarding the Availability of Proxy Materials for the Special Meeting: The Notice and Proxy Statement is available at www.proxyvote.com BIOPHARMX CORPORATION Special Meeting of Stockholders April 30, 2020 10:00 AM This proxy is solicited by the Board of Directors The stockholder(s) hereby appoint(s) Steven M. Bosacki and Joyce Goto (the "Named Proxies"), or either of them, as proxies, each with the power to appoint his/her substitute, and hereby authorize(s) him/her to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of BIOPHARMX CORPORATION that the stockholder(s) is/ are entitled to vote at the Special Meeting of Stockholders to be held at 10:00 AM, Eastern Time on April 30, 2020, at the Law offices of Akerman LLP at Three Brickell City Centre, 98 Southeast Seventh Street, Suite 1100, Miami, Florida 33131 and any adjournment or postponement thereof. This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted "FOR" proposals 1, 2, 3, 4, 5, 6 and 7. In their discretion, the Named Proxies are authorized to vote upon such other matters that may properly come before the Special Meeting or any adjournment or postponement thereof. Address change/comments: (If you noted any Address Changes and/or Comments above, please mark corresponding box on the reverse side.) Continued and to be signed on reverse side 0000451493_2 R1.0.1.18
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