UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): May 18, 2020

 

TIMBER PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

001-37411

 

59-3843182

(State or other jurisdiction
of incorporation)

 

(Commission
File Number)

 

(IRS Employer
Identification No.)

 

50 Tice Blvd, Suite A26

Woodcliff Lake, NJ 07677

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: (973) 314-9570

 

BioPharmX Corporation

900 E. Hamilton Ave., Suite 100

Campbell, California 95008

(Former name or former address, if changed since last report.)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

o

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

 

o

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

 

o

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

 

o

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 Par Value

 

TMBR

 

The NYSE American, LLC

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

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 13(a) of the Exchange Act. o

 

 

 


 

Item 2.01 Completion of Acquisition or Disposition of Assets.

 

Completion of Merger

 

On May 18, 2020, Timber Pharmaceuticals, Inc., formerly known as BioPharmX Corporation (the “Company”), completed its business combination with Timber Pharmaceuticals LLC, a Delaware limited liability company (“Timber Sub”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization, dated as of January 28, 2020 (the “Merger Agreement”), by and among the Company, Timber Sub and BITI Merger, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), as amended by Amendment No. 1 thereto made and entered into as of March 24, 2020 (the “First Amendment”) and Amendment No. 2 thereto made and entered into as of April 27, 2020 (the “Second Amendment”) (the Merger Agreement, as amended by the First Amendment and the Second Amendment, the “Amended Merger Agreement”), pursuant to which Merger Sub merged with and into Timber Sub, with Timber Sub surviving as a wholly-owned subsidiary of the Company (the “Merger”). In connection with, and immediately prior to the completion of, the Merger, the Company effected a reverse stock split of the Company’s common stock, par value $0.001 per share (the “Common Stock”), at a ratio of 1-for-12 (the “Reverse Stock Split”). Immediately after completion of the Merger, the Company changed its name to “Timber Pharmaceuticals, Inc.”, focused on the development and commercialization of treatments for orphan dermatologic diseases.

 

Under the terms of the Amended Merger Agreement, the Company issued shares of Common Stock to the holders of common units of Timber Sub. Immediately after the Merger, there were approximately 11,867,923 shares of Common Stock outstanding (after the Reverse Stock Split). Pursuant to the terms of the Amended Merger Agreement, the former holders of common units of Timber Sub (including the Investors, as defined in Item 8.01 of this report, but excluding VARs, as defined below) owned in the aggregate approximately 88.5% of the outstanding Common Stock, with the Company’s stockholders immediately prior to the Merger owning approximately 11.5% of the outstanding Common Stock. The number of shares of Common Stock issued to the holders of common units of Timber Sub for each common unit of Timber Sub outstanding immediately prior to the Merger was calculated using an exchange ratio (the “Exchange Ratio”) of approximately 629.57 shares of Common Stock for each Timber Sub unit. In addition, the 584 Value Appreciation Rights of Timber Sub (“VARs”) that were outstanding immediately prior to Merger became denoted and payable in 367,670 shares of Common Stock at the Effective Time. Further, the holder of the 1,820,046 preferred units of Timber Sub outstanding immediately prior to the Merger received 1,821 shares of the newly created convertible Series A Preferred Stock (as defined in Section 5.03 of this report) at the effective time of the Merger (the “Effective Time”).

 

The shares of Common Stock issued to the former holders of common units of Timber Sub (including the Investors) and the shares of Series A Preferred Stock issued to the former holder of preferred units of Timber Sub, were registered with the Securities and Exchange Commission (the “SEC”) on a Registration Statement on Form S-4 (Reg. No. 333-236526), as amended and supplemented (the “Registration Statement”).

 

The Common Stock listed on the NYSE American previously traded through the close of business on May 18, 2020 under the ticker symbol “BPMX,” commenced trading on the NYSE American, on a post-Reverse Stock Split basis, under the ticker symbol “TMBR” on May 19, 2020. The Common Stock has a new CUSIP number, 887080 109.

 

The foregoing description of the Amended Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement that was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on January 29, 2020, the full text of the First Amendment that was filed as Exhibit 2.3 to the Company’s Registration Statement on Form S-4/A filed with the SEC on March 30, 2020 and the full text of the Second Amendment that was filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on April 27, 2020, each of which is incorporated herein by reference.

 

On May 18, 2020 the Company issued a press release announcing the completion of the Merger. A copy of the press release is filed herewith as Exhibit 99.1 and incorporated herein by reference.

 

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Item 3.02 Unregistered Sales of Equity Securities

 

The description of the Bridge Warrants in Item 8.01 of this Current Report on Form 8-K is incorporated by reference into this Item 3.02

 

The Company will issue the Bridge Warrants to the Bridge Investors (as defined in Item 8.01) in reliance on the exemption from registration provided for under Section 4(a)(2) of the Securities Act. The Company will rely on this exemption from registration for private placements based in part on the representations made by the Bridge Investors, including the representations with respect to each Bridge Investor’s status as an “accredited investor,” as such term is defined in Rule 501(a) of the Securities Act, and the Bridge Investors’ investment intent.

 

In connection with the Merger, the Company issued 13,201 shares of common stock to Locust Walk Partners LLC to satisfy the success fee due at closing under the terms of its engagement.

 

Item 3.03 Material Modification to Rights of Security Holders.

 

As previously disclosed, at a special meeting of the Company’s stockholders held on May 13, 2020 (the “Special Meeting”), in addition to approving the issuance of Common Stock pursuant to the Merger, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation (the “Certificate of Incorporation”) to effect the Reverse Stock Split and an amendment to the Certificate of Incorporation to change the corporate name of the Company from “BioPharmX Corporation” to “Timber Pharmaceuticals, Inc.” (the “Name Change”).

 

Reverse Stock Split

 

On May 18, 2020, immediately prior to the Merger, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Reverse Stock Split. As of the opening of the NYSE American on May 19, 2020, the Common Stock began trading on a Reverse Stock Split-adjusted basis. All share numbers in this Form 8-K have been adjusted to reflect the Reverse Stock Split. As a result of the Reverse Stock Split, the number of issued and outstanding shares of Common Stock immediately prior to the Reverse Stock Split was reduced into a smaller number of shares, such that every 12 shares of Common Stock held by a stockholder of the Company immediately prior to the Reverse Stock Split were combined and reclassified into one share of Common Stock after the Reverse Stock Split. All outstanding and unexercised warrants to purchase shares of Common Stock otherwise remain in effect pursuant to their terms, subject to adjustment to account for the Reverse Stock Split. Immediately following the Reverse Stock Split, there were approximately 1,367,326  shares of Common Stock outstanding prior to the Merger. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares instead are entitled to receive cash in lieu of their fractional shares.

 

The Reverse Stock Split had no effect on the par value of the Common Stock, or the rights and privileges of the holders of Common Stock or preferred stock, and did not affect any stockholder’s percentage ownership interest in the Company, except to the extent that it resulted in any stockholders owning a fractional share. As approved by the Company’s stockholders, the Reverse Stock Split made no corresponding adjustment with respect to the Company’s authorized capital stock.

 

The foregoing description of the Reverse Stock Split does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment to the Certificate of Incorporation that effected the Reverse Stock Split, which is filed herewith as Exhibit 3.1, and incorporated herein by reference.

 

Name Change

 

On May 18, 2020, in connection with the Merger, the Company filed an amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware to effect the Name Change, which changed the Company’s name from “BioPharmX Corporation” to “Timber Pharmaceuticals, Inc.” The Name Change did not alter the voting powers or relative rights of the Common Stock.

 

On May 18, 2020, the trading symbol on the NYSE American for the Common Stock was changed from “BPMX” to “TMBR” to reflect the Name Change.

 

The foregoing description of the Name Change does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment to the Certificate of Incorporation that effected the Name Change, which is filed herewith as Exhibit 3.2, and incorporated herein by reference.

 

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Item 4.01 Change in Registrant’s Certifying Accountant

 

Prior to the Merger, the Company’s consolidated financial statements were audited by BPM LLP (“BPM”). For accounting purposes, the Merger is treated as a reverse acquisition and, as such, the historical financial statements of the accounting acquirer, Timber Sub, which have been audited by KPMG LLP (“KPMG”), will become the historical consolidated financial statements of the Company. In a reverse acquisition, a change of accountants is presumed to have occurred unless the same accountant audited the pre-transaction financial statements of both the legal acquirer and the accounting acquirer, and such change is generally presumed to occur on the date the reverse acquisition is completed.

 

On May 22, 2020, the Audit Committee of the Board of Directors (the “Board”) of the Company elected to continue to engage BPM, an independent registered accounting firm, as the Company’s independent registered public accounting firm to review the Company’s consolidated financial statements for the three month period ended April 30, 2020. Following BPM’s review of the consolidated financial statements for the three month period ended April 30, 2020, the Company intends to terminate BPM’s engagement and appoint and continue the engagement of KPMG LLP as the independent registered public accounting firm to review the Company’s consolidated financial statements.

 

Item 5.01 Changes in Control of Registrant.

 

The information set forth under “Completion of Merger” in Item 2.01 of this Current Report on Form 8-K is incorporated by reference into this Item 5.01.

 

In accordance with the Amended Merger Agreement, on May18, 2020, at the Effective Time, each of the directors of the Company resigned from the Board, and effective as of the Effective Time, the following individuals were appointed to the Board: Michael Derby (executive chairman), John Koconis, Zachary Rome, Gianluca Pirozzi, Michael Stocum, Edward Sitar and Linda Broenniman whose terms expire at the Company’s next annual meeting of stockholders.

 

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

 

Resignations of Executive Officers and Directors

 

In accordance with the Amended Merger Agreement, on May 18, 2020, at the Effective Time, (i) Steven M. Bosacki was terminated as Chief Executive Officer; and (ii) Michael Hubbard, Stephen Morlock, David S. Tierney, M.D. and R. Todd Plott resigned from the Board and any respective committee of the Board to which they belonged, which resignations were not the result of any disagreements with the Company relating to the Company’s operations, policies or practices.

 

Appointment of Certain Officers

 

In accordance with the Amended Merger Agreement, on May 18, 2020, the Board appointed the following officers of the Company, effective at the Effective Time: John Koconis, as Chief Executive Officer; Zachary Rome, as Executive Vice-President, Chief Operating Officer and Secretary; Michael Derby, as Executive Chairman of the Board of Directors; Joseph Lucchese, as Executive Vice President and Chief Financial Officer, and Amir Tavakkol, Ph.D., as Chief Scientific Officer.

 

John Koconis, 50, has served as Timber Sub’s s Chief Executive Officer since June 2019 and has served on Timber Sub’s 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.

 

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Zachary Rome, 36, has served as Timber Sub’s President and has served on Timber Sub’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.

 

Michael Derby, 47, has served as the Executive Chairman of Timber Sub’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.

 

Joseph Lucchese, 53, has served as the Chief Financial Officer of Timber Sub 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 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, has served as Timber Sub’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.

 

5


 

Appointment of Directors

 

In accordance with the Amended Merger Agreement, on May 19, 2020, effective at Effective Time, the following individuals were appointed to the Board as directors:

 

Michael Derby, 47, Executive Chairman — See description under “Appointment of Certain Officers”.

 

John Koconis, 50 — See description under “Appointment of Certain Officers”.

 

Zachary Rome, 36 — See description under “Appointment of Certain Officers”.

 

Gianluca Pirozzi, 43, 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.

 

Michael Stocum, 54, 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.

 

Linda Broenniman, 63, 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, 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.

 

Edward J. Sitar, 59, 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.

 

 

Board Committees

 

Effective as of the Effective Time, the Company’s audit committee was comprised of Linda Broenniman, Gianluca Pirozzi and Edward Sitar (chairman), the Company’s compensation committee was comprised of Michael Stocum, Edward Sitar and Linda Broenniman (chair), and the Company’s nominating committee was comprised of Michael Stocum, Edward Sitar and Gianluca Pirozzi (chair).

 

6


 

Director Compensation

 

Other than reimbursement for reasonable expenses incurred in connection with attending board and committee meetings, the non-employee members of the Board will receive the following cash compensation:

 

·                  each non-employee director is entitled to receive $3,500 for each meeting of the board he or she attends; and

·                  each non-employee director who is a committee member is entitled to receive $1,500 for each committee meeting he or she attends, for up to four meetings in any calendar year.

 

Each non-employee director will receive an initial option grant to purchase 0.25% of the Company’s fully-diluted outstanding Common Stock at the time of grant. Such grants will vest in the following manner: 25% will vest on the first anniversary of the grant date, and the balance of the shares underlying the options will vest in equal calendar quarterly installments over the next three years, provided the non-employee director continues to provide continuous services to the Company as of such vesting date.

 

Agreements with Certain Executive Officers

 

Timber Sub extended an offer letter agreement (the “Koconis Agreement”) to Mr. Koconis on June 20, 2019 in connection with his position as Chief Executive Officer, which agreement was assumed by the Company at the Effective Time. Mr. Koconis is entitled to, among other things, (i) an annual gross base salary of $350,000 (which annual base salary will be increased to $400,000 upon the commercialization of the Company’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 Sub 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.

 

Timber Sub extended an offer letter agreement (the “Rome Agreement”) to Mr. Rome on March 31, 2020 in connection with his position as Executive Vice-President and Chief Operating Officer, which agreement was assumed by the Company at the Effective Time. Mr. Rome is entitled to, among other things, (i) an annual gross base salary of $210,000; and (ii) eligibility for a bonus up to 30% of his base salary.  The Rome Agreement is for a term of two years with automatic one-year renewals unless sooner terminated by Mr. Rome or the Company.

 

Timber Sub extended an offer letter agreement (the “Derby Agreement”) to Mr. Derby on March 31, 2020 in connection with his position as Executive Chairman of the Board, which agreement was assumed by the Company at the Effective Time. Mr. Derby is entitled to, among other things, (i) an annual gross base salary of $210,000; and (ii) eligibility for a bonus up to 30% of his base salary.  The Derby Agreement is for a term of two years with automatic one-year renewals unless sooner terminated by Mr. Derby or the Company.

 

Timber Sub extended an offer letter agreement (the “Lucchese Agreement”) to Mr. Lucchese on March 31, 2020 in connection with his position as Chief Financial Officer, which agreement was assumed by the Company at the Effective Time. Mr. Lucchese is entitled to, among other things, (i) an annual gross base salary of $210,000; and (ii) eligibility for a bonus up to 30% of his base salary. The Lucchese Agreement is for a term of two years with automatic one-year renewals unless sooner terminated by Mr. Lucchese or the Company.

 

The foregoing descriptions of the Koconis Agreement, the Consulting Agreement, the Rome Agreement, the Derby Agreement and the Lucchese Agreement do not purport to be complete and are qualified in their entirety by reference to the complete text of the Koconis Agreement and the Consulting Agreement, respectively, which are incorporated herein by referenced into this Current Report on Form 8-K as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5, respectively.

 

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Indemnification Agreements

 

On May 18, 2020, the Board adopted a form of indemnification agreement (the “Indemnification Agreement”) to be entered into between the Company and each of its directors and executive officers.

 

The Indemnification Agreement requires the Company to indemnify each director and officer to the fullest extent permitted by applicable law, for certain expenses, including attorneys’ fees, judgments, penalties, fines and settlement amounts actually and reasonably incurred in any threatened, pending or completed action, suit, claim, investigation, inquiry, administrative hearing, arbitration or other proceeding to which the director or officer was, or is threatened to be made, a party by reason of the fact that such director or officer is or was a director, officer, employee or agent of the Company. Subject to certain limitations, the Indemnification Agreement provides for the advancement of expenses incurred by the indemnitee, and the repayment to the Company of the amounts advanced to the extent that it is ultimately determined that the indemnitee is not entitled to be indemnified by the Company. The Indemnification Agreement also creates certain rights in favor of the Company, including the right to assume the defense of claims and to consent to settlements. The Indemnification Agreement does not exclude any other rights to indemnification or advancement of expenses to which the indemnitee may be entitled under applicable law, the certificate of incorporation or bylaws of the Company, any agreement, a vote of stockholders or disinterested directors, or otherwise.

 

The foregoing summary and description of the provisions of the Indemnification Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Indemnification Agreement, a copy of which is attached as Exhibit 10.6 hereto and is incorporated herein by reference.

 

Related-Party Transactions

 

The following is a summary of transactions since February 26, 2019 and all currently proposed transactions, to which the Company has been a participant, in which:

 

·                  the amounts exceeded or will exceed the lesser of $120,000 or one percent of the average of the company’s total assets at year-end for the last two completed fiscal years; and

·                  any of its current directors, executive officers or holders of more than 5% of the respective capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

 

Acquisition of Intellectual Property Rights from Patagonia Pharmaceuticals LLC (“Patagonia”)

 

On February 28, 2019, Timber Sub 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”). Zachary Rome, the Company’s Executive Vice-President and Chief Operating Officer serves as President of Patagonia and also maintains ownership thereof. Upon closing of the TMB-001 Acquisition, Timber Sub 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 Sub is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued. On June 26, 2019, Timber Sub 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 Sub 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 Sub is responsible for all development activities. The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued.

 

8


 

Management Services Agreement with TardiMed Sciences LLC (“TardiMed”)

 

Effective April 30, 2020, Timber Sub terminated that certain Management Services Agreement with TardiMed. Michael Derby, Zachary Rome and Joseph Lucchese had been providing certain advisory and management services to Timber Sub pursuant to such agreement. Upon the termination, Michael Derby, Zachary Rome and Joseph Lucchese were hired directly by Timber Sub, as set forth under “Agreements with Executive Officers” in this item.

 

Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan

 

On May 18, 2020, the Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan (the “2020 Plan”) became effective. The Company’s stockholders approved the 2020 Plan at the Special Meeting, and reserved a total of 970,833 shares of Common Stock for issuance thereunder. The general purpose of the 2020 Plan is to provide a means whereby eligible employees, officers, non-employee 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 of the Company. The 2020 Plan provides for options to purchase shares of common stock, stock appreciation rights 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. Employees, officers, directors, consultants, advisors and other individual service providers of our Company and our subsidiaries who, in the opinion of the Company’s compensation committee, are in a position to contribute to our success, or any person who is determined by the Company’s composition committee to be a prospective employee, officer, director, consultant, advisor or other individual service provider of the Company or any subsidiary will be eligible for granted under the 2020 Plan.

 

The terms and conditions of the 2020 Plan are described in the section entitled “Proposal No. 4: Approval of Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan” in the Company’s prospectus/definitive proxy statement filed with the SEC on March 30, 2020 (the “Proxy Statement/Prospectus”). The foregoing description of the 2020 Plan and the information incorporated by reference in the preceding sentence does not purport to be complete and is qualified in its entirety by the terms and conditions of the 2020 Plan, which is incorporated by reference to this Current Report on Form 8-K as Exhibit 10.7 and is incorporated herein by reference.

 

Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.

 

The information set forth in Item 3.03 of this Current Report on Form 8-K is incorporated by reference into this Item 5.03.

 

Series A Preferred Stock

 

In connection with the Merger, on May 18, 2020, the Company filed a Certificate of Designation of Preferences, Rights and Limitations (the “Certificate of Designations”) with the Secretary of State of the State of Delaware that became effective immediately. Pursuant to the Certificate of Designations, the Company designated 2,500 shares of the Company’s previously undesignated preferred stock as Series A Preferred (the “Series A Preferred Stock”).

 

The shares of Series A Preferred Stock have no voting rights. The holders of the Series A Preferred Stock are entitled to cumulative dividends from an after the date of issuance at a per annum of eight percent (8.00%) of the stated value. Dividends will be payable as and if declared by the Board out of amounts legally available therefor or upon a liquidation or redemption. Each share of Series A Preferred Stock is convertible at any time at the holder’s option into a number of shares of Common Stock (subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions as specified in the Certificate of Designations) at a conversion price equal to the stated value of the Series A Preferred Stock of $1,000 (plus any accrued dividends) divided by the conversion price, which shall be the greater of (i) $18.054 and (ii) the amount that is 110% of the Final Price Per Share as defined in the Financing Purchase Agreement (as defined in Item 8.01).  Holders of the Series A Preferred Stock are entitled to a liquidation preference in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company. In addition, upon a Change of Control (as defined in the Certificate of Designations), the Series A Preferred Stock shall be redeemable at the option of the holders, in whole or in part.

 

The foregoing description of the terms of the Series A Preferred Stock does not purport to be complete and is qualified in its entirety by reference to the complete text of the amendment to the Certificate of Designation that which is filed herewith as Exhibit 3.3, and incorporated herein by reference.

 

9


 

Item 7.01 Regulation FD Disclosure.

 

The Company has prepared presentation materials (the “Investor Presentation”) that management intends to use with its introductory conference call to be held at 11 A.M. (EDT) on May 26, 2020. A copy of the Investor Presentation is attached as Exhibit 99.3 hereto.

 

The information in this Current Report on Form 8-K under Item 7.01, including the information contained in Exhibit 99.3, is being furnished to the Securities and Exchange Commission, and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, except as shall be expressly set forth by a specific reference in such filing.

 

Item 8.01 Other Events.

 

Business Update

 

As a result of the Merger, the Company 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.

 

Timber Sub Private Placement Transaction

 

On May 18, 2020, the Company and Timber Sub completed a previously announced private placement transaction with certain accredited investors for an aggregate purchase price of approximately $25.0 million (comprised of (x) approximately $5 million credit with respect to the senior secured notes issued in connection with the bridge loan that certain of the Investors made to Timber at the time of the execution of the Merger Agreement, and (y) approximately $20 million in cash from the Investors (as defined below)), whereby, among other things, Timber Sub issued to the Investors common units of Timber Sub immediately prior to the Merger (the “Pre-Merger Financing”), pursuant to the Securities Purchase Agreement (the “Financing Purchase Agreement”), made and entered into as March 27, 2020, as amended, by and among the Company, Timber Sub and the institutional investors party thereto (the “Investors”).

 

At the closing of the Pre-Merger Financing Timber Sub issued and sold to the Investors common units of Timber Sub.  In addition, under the Financing Purchase Agreement the Company has agreed to issue on the tenth trading day following the consummation of the Merger (i) Series A Warrants to purchase Common Stock (the “Series A Warrants”) and (ii) Series B Warrants to purchase Common Stock (the “Series B Warrants” and, together with the Series A Warrants, the “Investor Warrants”).

 

In addition, pursuant to the terms of the Securities Purchase Agreement, dated as of January 28, 2020 between Timber Sub and several of the Investors (the “Bridge Investors”), the Company will issue to the Bridge Investors, within five trading days following the consummation of the Pre-Merger Financing, warrants to purchase 413,751 shares of Common Stock (the “Bridge Warrants”) at an exercise price of $12.0846.

 

The terms and conditions of the Pre-Merger Financing, including the Investor Warrants and Bridge Warrants, are described in the sections entitled “Agreements Related to the Merger—Timber Funding Securities Purchase Agreement” and “Agreements Related to the Merger—Timber Agreements” in the Proxy Statement/Prospectus and the Supplement to the Proxy Statement/Prospectus filed with the SEC on April 27, 2020.

 

The forms of the Investor Warrants and Bridge Warrants are incorporated by reference to this Current Report on Form 8-K as Exhibits 4.1 and 4.2, respectively.

 

Item 9.01. Financial Statements and Exhibits.

 

(a) Financial Statements of Business Acquired

 

Timber Sub’s audited financial statements for the year ended December 31, 2019 and the notes related thereto are filed herewith and attached hereto as Exhibit 99.2, are incorporated herein by reference.

 

Timber Sub’s unaudited interim financial statements for the three months ended March 31, 2020, and the notes related thereto, are filed herewith and attached hereto as Exhibit 99.3, are incorporated herein by reference.

 

10


 

(b) Pro Forma Financial Information

 

The Company’s unaudited pro forma condensed consolidated financial statements for the three months ended March 31, 2020 and for the year ended December 31, 2019, and the notes related thereto, filed herewith and attached hereto as Exhibit 99.4, are incorporated herein by reference.

 

(d) Exhibits.

 

Exhibit No.

 

Exhibit

 

 

 

2.1

 

Agreement and Plan of Merger and Reorganization, dated January 28, 2020, by and among the Company, Timber Sub. and Merger Sub (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed on January 29, 2020, and incorporated herein by reference)

 

 

 

2.2

 

Amendment No. 1 to Agreement and Plan of Merger and Reorganization, dated March 24, 2020, by and among the Company, Timber Sub and Merger Sub (filed as Exhibit 2.3 to the Company’s Registration Statement on Form S-4/A as filed on March 30, 2020 and incorporated herein by reference)

 

 

 

2.3

 

Amendment No. 2 to Agreement and Plan of Merger and Reorganization, dated April 27, 2020, by and among the Company, Timber Sub and Merger Sub (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K as filed on April 27, 2020 and incorporated herein by reference)

 

 

 

3.1

 

Amendment to Certificate of Incorporation of the Company related to the Reverse Stock Split

 

 

 

3.2

 

Amendment to Certificate of Incorporation of the Company related to the Name Change

 

 

 

3.3

 

Certificate of Designations for Series A Preferred Stock

 

 

 

4.1

 

Form of Series A/B Warrants (incorporated by reference to Exhibit 4.19 to the Company’s Registration Statement on Form S-4 filed with the SEC on March 30, 2020)

 

 

 

4.2

 

Form of Bridge Warrant (incorporated by reference to Exhibit 4.20 to the Company’s Registration Statement on Form S-4 filed with the SEC on March 30, 2020)

 

 

 

10.1

 

Offer Letter, dated June 20, 2019, between John Koconis and Timber Sub (incorporated by reference to Exhibit 10.28 to the Company’s Registration Statement on Form S-4 filed with the SEC on February 02, 2020)

 

 

 

10.2

 

Consulting Services Agreement, dated January 8, 2020, by and between Timber Sub and AT Consulting LLC (incorporated by reference to Exhibit 10.32 to the Company’s Registration Statement on Form S-4/A filed with the SEC on March 30, 2020)

 

 

 

10.3

 

Offer Letter, dated March 31, 2020, between Zachary Rome and Timber Sub

 

 

 

10.4

 

Offer Letter, dated March 31, 2020, between Michael Derby and Timber Sub

 

 

 

10.5

 

Offer Letter, dated March 31, 2020, between Joseph Lucchese and Timber Sub

 

 

 

10.6

 

Form of Indemnification Agreement

 

 

 

10.7

 

Timber Pharmaceuticals, Inc. 2020 Omnibus Equity Incentive Plan (incorporated by reference from Annex D to the Company’s prospectus/definitive proxy statement as filed on March 30, 2020 and incorporated herein by reference)

 

 

 

23.1

 

Consent of KPMG, Independent Registered Public Accounting Firm

 

 

 

99.1

 

Press Release dated May 18, 2020

 

11


 

99.2

 

The audited financial statements of Timber Sub for the year ended December 31, 2019, and the notes related thereto

 

 

 

99.3

 

The unaudited interim financial statements of Timber Sub for the three months ended March 31, 2020, and the notes related thereto

 

 

 

99.4

 

The unaudited pro forma condensed consolidated financial statements for the three months ended March 31, 2020 and for the year ended December 31, 2019, and the notes related thereto

 

 

 

99.5

 

Investor Presentation

 

12


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Timber Pharmaceuticals, Inc. (formally known as BioPharmX Corporation)

 

a Delaware corporation

 

(Registrant)

 

 

Date: May 22, 2020

By:

/s/ John Koconis

 

Name:

John Koconis

 

Title:

Chief Executive Officer

 

13


Exhibit 3.1

 

Delaware

The First State

 

I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF “BIOPHARMX CORPORATION”, FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF MAY, A.D. 2020, AT 4:29 O’CLOCK P.M.

 

 

 

 

5522198 8100

SR# 20204098852

Authentication: 202950341

Date: 05-18-20

 

You may verify this certificate online at corp.delaware.gov/authver.shtml

 

1


 

 

State of Delaware

 

Secretary of State

 

Division of Corporations

 

Delivered 04:28 PM 05/18/2020

 

FILED 04:29 PM 05/18/2020

 

SR 20204098852 - File Number 5522198

 

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 twelve (12) 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 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 15th day of May, 2020.

 

 

By:

/s/ Steven M. Bosacki

 

Name:

Steven M. Bosacki

 

Title:

CEO

 


Exhibit 3.2

 

Delaware

The First State

 

I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF “BIOPHARMX CORPORATION”, CHANGING ITS NAME FROM “BIOPHARMX CORPORATION” TO “TIMBER PHARMACEUTICALS, INC.”, FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF MAY, A.D. 2020, AT 4:30 O’CLOCK P.M.

 

 

5522198 8100
SR# 20204098854

Authentication: 202949966

Date: 05-18-20

You may verify this certificate online at corp.delaware.gov/authver.shtml

 

 

1


 

 

State of Delaware

Secretary of State

Division of Corporations

Delivered 04:28 PM 05/18/2020

FILED 04:30 PM 05/18/2020

SR 20204098854 - File Number 5522198

 

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 15th day of May, 2020.

 

 

By:

/s/ Steven M. Bosacki

 

Name:

Steven M. Bosacki

 

Title:

CEO

 


 

TIMBER PHARMACEUTICALS LLC

50 Tice Boulevard, Suite A26
Woodcliff Lake, NJ 07677

 

May 18, 2020

 

To the Office of the Secretary of State of the State of Delaware:

 

Timber Pharmaceuticals LLC, a Delaware limited liability company, hereby authorizes and consents to Timber Pharmaceuticals, Inc., a Delaware corporation, being formed in the State of Delaware, and/or using its name and/or a similar name in the State of Delaware.

 

 

Timber Pharmaceuticals LLC

 

 

 

By:

/s/ John Koconis

 

 

Name: John Koconis

 

 

Title: Chief Executive Officer

 


Exhibit 3.3

 

Delaware

The First State

 

I, JEFFREY W. BULLOCK, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF DESIGNATION OF “BIOPHARMX CORPORATION”, FILED IN THIS OFFICE ON THE EIGHTEENTH DAY OF MAY, A.D. 2020, AT 4:28 O’CLOCK P.M.

 

 

5522198 8100

SR# 20204098732

Authentication: 202949795
Date: 05-18-20

 

You may verify this certificate online at corp.delaware.gov/authver.shtml

 

1


 

 

State of Delaware

 

Secretary of State

 

Division of Corporations

 

Delivered 04:28 PM 05/1812020

 

FILED 04:28 PM 05/18/2020

 

SR 20204098732 - File Number 5522198

 

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 Considerationshall 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 I 3d-3 and Rule I 3d-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 Corporation’s 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).

 

2


 

Dividend Payment Date” shall have the meaning set forth in Section 3(a).

 

DTC” shall have the meaning set forth in Section 6(cXi).

 

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(cXi). “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).

 

3


 

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.

 

4


 

(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 May 12, 2020 and (ii) the amount that is 110% of the Final Price Per Share as defined in 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

 

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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 Corporation’s 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 Company’s 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

 

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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 Holder’s Affiliates, and any Persons acting as a group together with such Holder or any of such Holder’s 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

 

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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 Corporation’s 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

 

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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 Holder’s 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 Holder’s 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 Holder’s 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).

 

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(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 Holder’s 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 Holder’s 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,

 

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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 Holder’s 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 Holder’s 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.

 

(t)          (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)

 

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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 Holder’s 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

 

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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 Holder’s 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 ovemight 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, California 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.

 

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(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 15th day of May, 2020.

 

 

/s/ Steven M. Bosacki

 

Name: Steven M. Bosacki

 

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:

 

 

 

 

 

A-1


 

 

Address for Delivery:

 

 

 

 

 

 

 

or

 

 

 

DWAC Instructions:

 

 

 

Broker no:

 

 

 

                                                                                              

 

 

 

Account no:

 

 

 

                                                                                              

 

[HOLDER]

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

A-2


Exhibit 10.3

 

50 Tice Boulevard
Suite A26
Woodcliff Lake, NJ 07677
(201) 645-4765 (tel)

 

March 31, 2020

 

Zach Rome

 

Subject: Rome Employment Offer

 

Dear Zach,

 

On behalf of Timber Pharmaceuticals LLC (“Timber” or the “Company”), I am pleased to extend to you an offer of employment for the role of Executive Vice-President and Chief Operating Officer. This position will be located at Timber’s current headquarters at 50 Tice Boulevard, Suite A26, Woodcliff Lake, NJ 07677. You will report to the Chief Executive Officer. Your start date will be mutually determined, but I anticipate it to be on or around May 1, 2020. I am excited about the possibility of you joining the team and your helping to build our high value medical dermatology company.

 

The terms of your employment offer are outlined below:

 

·                  Part-time employment, up to 20 hours per week, as required.

·                  Initial monthly base pay of $17,500 which, when annualized, is equivalent to $210,000 per year.

·                  Participation (pro-rated for 2020) in a Performance Bonus Plan with a target of 30% of your base salary, based on company and individual achievement. Your bonus will be based on your performance meeting mutually established individual goals and objectives to support the growth strategy of the Company as well as the Company’s overall performance.

·                  100% reimbursement of all health, dental and vision insurance benefit plan expenses that you may incur separate from your employment with the Company.

 

This offer of employment pursuant to the above terms shall remain in effect for two years from your start date, with automatic one-year renewals, unless terminated sooner either by you or the Company.

 

If you understand and accept these terms, please sign and return one copy of this offer letter to me.

 

Confidential

 

1


 

I would love to have you join the Timber team and be a part of building a great company. Should you have any questions regarding this offer, please feel free to contact me at: 973-452-8548.

 

Sincerely,

 

 

 

/s/ John V. Koconis

 

John V. Koconis

 

Chief Executive Officer

 

Timber Pharmaceuticals LLC

 

 

Agreed to and Accepted by:

 

/s/ Zach Rome

 

4/23/20

Zach Rome

 

Date

 

Confidential

 

2


Exhibit 10.4

 

50 Tice Boulevard
Suite A26
Woodcliff Lake, NJ 07677
(201) 645-4765 (tel)

 

March 31, 2020

 

Michael Derby

 

Subject: Derby Employment Offer

 

Dear Michael,

 

On behalf of Timber Pharmaceuticals LLC (“Timber” or the “Company”), I am pleased to extend to you an offer of employment for the role of Executive Chairman of the Board of Directors. This position will be located at Timber’s current headquarters at 50 Tice Boulevard, Suite A26, Woodcliff Lake, NJ 07677. You will report to the Company’s Board of Directors. Your start date will be mutually determined, but I anticipate it to be on or around May 1, 2020. I am excited about the possibility of you joining the team and your helping to build our high value medical dermatology company.

 

The terms of your employment offer are outlined below:

 

·                  Part-time employment, up to 20 hours per week, as required.

·                  Initial monthly base pay of $17,500 which, when annualized, is equivalent to $210,000 per year.

·                  Participation (pro-rated for 2020) in a Performance Bonus Plan with a target of 30% of your base salary, based on company and individual achievement. Your bonus will be based on your performance meeting mutually established individual goals and objectives to support the growth strategy of the Company as well as the Company’s overall performance.

·                  100% reimbursement of all health, dental and vision insurance benefit plan expenses that you may incur separate from your employment with the Company.

 

This offer of employment pursuant to the above terms shall remain in effect for two years from your start date, with automatic one-year renewals, unless terminated sooner either by you or the Company.

 

If you understand and accept these terms, please sign and return one copy of this offer letter to me.

 

Confidential

 

1


 

I would love to have you join the Timber team and be a part of building a great company. Should you have any questions regarding this offer, please feel free to contact me at: 973-452-8548.

 

Sincerely,

 

 

 

/s/ John V. Koconis

 

John V. Koconis

 

Chief Executive Officer

 

Timber Pharmaceuticals LLC

 

 

Agreed to and Accepted by:

 

/s/ Michael Derby

 

04/23/2020

Michael Derby

 

Date

 

Confidential

 

2


Exhibit 10.5

 

50 Tice Boulevard
Suite A26
Woodcliff Lake, NJ 07677
(201) 645-4765 (tel)

 

March 31, 2020

 

Joseph Lucchese

 

Subject: Lucchese Employment Offer

 

Dear Joe,

 

On behalf of Timber Pharmaceuticals LLC (“Timber” or the “Company”), I am pleased to extend to you an offer of employment for the role of Executive Vice President and Chief Financial Officer. This position will be located at Timber’s current headquarters at 50 Tice Boulevard, Suite A26, Woodcliff Lake, NJ 07677. You will report to the Chief Executive Officer. Your start date will be mutually determined, but I anticipate it to be on or around May 1, 2020. I am excited about the possibility of you joining the team and your helping to build our high value medical dermatology company.

 

The terms of your employment offer are outlined below:

 

·                       Part-time employment, up to 20 hours per week, as required.

·                       Initial monthly base pay of $17,500 which, when annualized, is equivalent to $210,000 per year.

·                       Participation (pro-rated for 2020) in a Performance Bonus Plan with a target of 30% of your base salary, based on company and individual achievement. Your bonus will be based on your performance meeting mutually established individual goals and objectives to support the growth strategy of the Company as well as the Company’s overall performance.

·                       100% reimbursement of all health, dental and vision insurance benefit plan expenses that you may incur separate from your employment with the Company.

 

This offer of employment pursuant to the above terms shall remain in effect for two years from your start date, with automatic one-year renewals, unless terminated sooner either by you or the Company.

 

Confidential

 

1


 

If you understand and accept these terms, please sign and return one copy of this offer letter to me.

 

I would love to have you join the Timber team and be a part of building a great company. Should you have any questions regarding this offer, please feel free to contact me at: 973-452-8548.

 

Sincerely,

 

 

 

/s/ John V. Koconis

 

John V. Koconis

 

Chief Executive Officer

 

Timber Pharmaceuticals LLC

 

 

Agreed to and Accepted by:

 

/s/ Joseph Lucchese

 

4/22/20

Joseph Lucchese

 

Date

 

Confidential

 

2


Exhibit 10.6

 

INDEMNIFICATION AGREEMENT

 

This Indemnification Agreement (“Agreement”) is made as of             , 2020 by and between Timber Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and                (“Indemnitee”).

 

RECITALS

 

WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors or officers or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation and due to the fact that such exposure frequently bears no relationship to compensation paid to such officers and directors;

 

WHEREAS, the Company and Indemnitee recognize that plaintiffs often seek damages in such large amounts and the costs of litigation may be so enormous (whether or not the case is meritorious), that the defense and/or settlement of such litigation is often beyond the personal resources of directors and officers;

 

WHEREAS, Indemnitee may be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the “DGCL”). The Company’s Certificate of Incorporation, as amended, provides for the indemnification of the officers and directors of the Company to the fullest extent permitted by Section 145 of the DGCL.  The DGCL expressly provides that the indemnification provisions set forth therein are not exclusive and contemplate that contracts may be entered into between the Company and its directors and officers with respect to indemnification;

 

WHEREAS, Section 145 of the DGCL empowers the Company to indemnify its officers, directors, employees and agents by agreement and to indemnify persons who serve, at the Company’s request, as the directors, officers, employees or agents of other corporations or enterprises;

 

WHEREAS, Section 102(b)(7) of the DGCL allows the Company to include in its Certificate of Incorporation a provision limiting or eliminating the personal liability of a director for monetary damages in respect of claims by shareholders and corporations for breach of certain fiduciary duties, and the Company has so provided in its Certificate of Incorporation that each director shall be exculpated from such liability to the maximum extent permitted by law;

 

WHEREAS, the Company, after reasonable investigation, has determined that the liability insurance coverage presently available to the Company may be inadequate in certain circumstances to cover all possible exposure for which Indemnitee should be protected.

 

WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining highly competent persons to serve as directors and officers.  The Board of Directors of the Company (the “Board”) has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of

 


 

the Company’s stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future;

 

WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified;

 

WHEREAS, this Agreement is a supplement to and in furtherance of the Company’s Certificate of Incorporation and Bylaws and any resolutions adopted pursuant thereto, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder; and

 

WHEREAS, Indemnitee does not regard the protection available under the Company’s Certificate of Incorporation, Bylaws and insurance as adequate in the present circumstances, and may not be willing to serve as an officer or director without adequate protection, and the Company desires Indemnitee to serve in such capacity.  Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he be so indemnified;

 

NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:

 

Section 1.                                           Services to the Company.  Indemnitee agrees to serve as a director or officer of the Company or, at the request of the Company, as a director, officer, employee, agent or fiduciary of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise.  Indemnitee may at any time and for any reason resign from such position (subject to any other contractual obligation or any obligation imposed by operation of law), in which event the Company shall have no obligation under this Agreement to continue Indemnitee in such position.  This Agreement shall not be deemed an employment contract between the Company (or any of its subsidiaries or any other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee was serving at the Company’s request as a director, officer, employee, agent or fiduciary) and Indemnitee.  Indemnitee specifically acknowledges that Indemnitee’s employment with the Company (or any of its subsidiaries or any other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee was serving at the Company’s request as a director, officer, employee, agent or fiduciary), if any, is at will, and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written employment contract between Indemnitee and the Company (or any of its subsidiaries or any other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee was serving at the Company’s request as a director, officer, employee, agent or fiduciary).  The foregoing notwithstanding, this Agreement shall continue in force after Indemnitee has ceased to serve as an officer or director of the Company.

 

2


 

Section 2.                                           Definitions.   As used in this Agreement:

 

(a)                                 A “Change in Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:

 

i.                                          Acquisition of Stock by Third Party.  Any Person (as defined below) is or becomes the Beneficial Owner (as defined below), directly or indirectly, of securities of the Company representing thirty-five percent (35%) or more of the combined voting power of the Company’s then outstanding securities;

 

ii.                                       Change in Board.  During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a person who has entered into an agreement with the Company to effect a transaction described in Sections 2(a)(i), 2(a)(iii) or 2(a)(iv)) whose election by the Board or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;

 

iii.                                    Corporate Transactions.  The effective date of a merger or consolidation of the Company with any other entity, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity;

 

iv.                                   Liquidation.  The approval by the stockholders of the Company of a complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets; and

 

v.                                      Other Events.  There occurs any other event of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below), whether or not the Company is then subject to such reporting requirement.

 

For purposes of this Section 2(a), the following terms shall have the following meanings:

 

(A)                               “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(B)                               “Person” shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, that Person shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company, and (iii) any corporation owned, directly or indirectly,

 

3


 

by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company.

 

(C)                               “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however, that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a merger of the Company with another entity.

 

(b)                                 “Corporate Status” describes the status of a person who is or was a director, officer, employee, agent or fiduciary of the Company or of any other corporation, limited liability company, partnership or joint venture, trust, employee benefit plan or other enterprise which such person is or was serving at the request of the Company.

 

(c)                                  “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.

 

(d)                                 “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding.  Expenses also shall include (i) Expenses incurred in connection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond, supersedeas bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 13(d) only, Expenses incurred by Indemnitee in connection with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement, by litigation or otherwise.  Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee.

 

(e)                                  “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither presently is, nor in the past five years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder.  Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.  The Company agrees to pay the reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

 

(f)                                   “Proceeding” shall include any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative

 

4


 

hearing or any other actual, threatened or completed proceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative legislative, or investigative nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwise by reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by him or of any action on his part while acting as director or officer of the Company, or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, limited liability company, partnership, joint venture, trust or other enterprise, in each case whether or not serving in such capacity at the time any liability or expense is incurred for which indemnification, reimbursement, or advancement of expenses can be provided under this Agreement; except one initiated by an Indemnitee to enforce his rights under this Agreement.

 

Section 3.                                           Indemnity in Third-Party Proceedings.  The Company shall indemnify Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company and, in the case of a criminal proceeding had no reasonable cause to believe that his conduct was unlawful.

 

Section 4.                                           Indemnity in Proceedings by or in the Right of the Company.   The Company shall indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company to procure a judgment in its favor.  Pursuant to this Section 4, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against all Expenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company.  No indemnification for Expenses shall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable to the Company, unless and only to the extent that the Delaware Court of Chancery or any court in which the Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnification.

 

Section 5.                                           Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify

 

5


 

Indemnitee against all Expenses actually and reasonably incurred by him or on his behalf in connection with each successfully resolved claim, issue or matter.  If the Indemnitee is not wholly successful in such Proceeding, the Company also shall indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or matter related to any claim, issue, or matter on which the Indemnitee was successful.  For purposes of this Section and without limiting the foregoing, if any Proceeding is disposed of, on the merits or otherwise (including a disposition without prejudice), without (i) the disposition being adverse to Indemnitee, (ii) an adjudication that Indemnitee was liable to the Company, (iii) a plea of guilty or nolo contendere by Indemnitee, (iv) an adjudication that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and (v) with respect to any criminal proceeding, an adjudication that Indemnitee had reasonable cause to believe Indemnitee’s conduct was unlawful, Indemnitee shall be considered for purposes of this Agreement to have been successful with respect thereto.

 

Section 6.                                           Indemnification For Expenses of a Witness.  Notwithstanding any other provision of this Agreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is, by reason of his Corporate Status, a witness or otherwise participates in any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses actually and reasonably incurred by him or on his behalf in connection therewith.

 

Section 7.                                           Additional Indemnification.

 

(a)                                 Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted by applicable law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the Proceeding.

 

(b)                                 For purposes of Section 7(a), the meaning of the phrase “to the fullest extent permitted by applicable law” shall include, but not be limited to:

 

i.                                          to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification by agreement, or the corresponding provision of any amendment to or replacement of the DGCL, and

 

ii.                                       to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.

 

Section 8.                                           Exclusions.   Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to make any indemnity in connection with any claim made against Indemnitee:

 

(a)                                 for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or

 

6


 

(b)                                 for any Proceedings with respect to which final judgment is rendered against Indemnitee for payment of (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act (as defined in Section 2(a) hereof) or similar provisions of state statutory law or common law, or (ii) any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by the Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), or the payment to the Company of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act), or

 

(c)                                  any Proceeding involving the enforcement of non-compete and/or non-disclosure agreements or the non-compete and/or non-disclosure provisions of employment, consulting or similar agreements the Indemnitee may be a party to with the Company or any subsidiary of the Company or any other applicable foreign or domestic corporation, partnership, joint venture, trust or other enterprise, if any; or

 

(d)                                 except as provided in Section 13(d) of this Agreement, in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law.

 

Section 9.                                           Advances of Expenses.   The Company shall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding, and such advancement shall be made within thirty (30) days after receipt by the Corporation of (i) a statement or statements from Indemnitee requesting such advance or advances from time to time, whether prior to or after final disposition of any Proceeding, and (ii) an undertaking by or on behalf of Indemnitee to repay such amount or amounts, only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Corporation as authorized by this Agreement or otherwise. Such undertaking shall be accepted without reference to the financial ability of Indemnitee to make such repayment.  Advances shall be unsecured and interest free.  Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed.  This Section 9 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8 or to any Proceeding for which the Company has assumed the defense thereof in accordance with Section 10(b) of this Agreement.

 

Section 10.                                    Procedure for Notification and Defense of Claim.

 

(a)                                 Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification or advancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof.

 

7


 

The written notification to the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding.  To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the final disposition of such action, suit or proceeding.  The omission by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver by Indemnitee of any rights under this Agreement.  The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification.

 

(b)                                 In the event the Company shall be obligated to pay the Expenses of Indemnitee with respect to a Proceeding, as provided in this Agreement, the Company shall be entitled to assume the defense of such Proceeding, with counsel reasonably acceptable to Indemnitee, upon delivery of written notice of its election to do so.  After delivery of such notice, approval of such counsel by Indemnitee and retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same Proceeding, provided that (1) Indemnitee shall have the right to employ Indemnitee’s own counsel in such Proceeding at Indemnitee’s expense and (2) if (i) the employment of counsel by Indemnitee has been previously authorized in writing by the Company, (ii) counsel to the Company or Indemnitee shall have reasonably concluded that there may be a conflict of interest or position, or reasonably believes that a conflict is likely to arise, on any significant issue between the Company and the Indemnitee in the conduct of such defense or (iii) the Company shall not, in fact, have employed counsel to assume the defense of such Proceeding, then the fees and expenses of Indemnitee’s counsel shall be at the expense of the Company, except as otherwise expressly provided by this Agreement.

 

(c)                                  The Company will be entitled to participate in the Proceeding at its own expense.

 

Section 11.                                    Procedure Upon Application for Indemnification.

 

(a)                                 Upon written request by Indemnitee for indemnification pursuant to Section 10(a), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case:  (i) if a Change in Control shall have occurred after the date of this Agreement, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred after the date of this Agreement, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Disinterested Directors, by the stockholders of the Company; and, if it is so determined that Indemnitee is entitled to

 

8


 

indemnification, payment to Indemnitee shall be made within ten (10) days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination.  Any costs or Expenses (including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.

 

(b)                                 In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as provided in this Section 11(b).  If a Change in Control shall not have occurred after the date of this Agreement, the Independent Counsel shall be selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected.  If a Change in Control shall have occurred after the date of this Agreement, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection be made by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected.  In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion.  Absent a proper and timely objection, the person so selected shall act as Independent Counsel.  If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court has determined that such objection is without merit.  If, within twenty (20) days after the submission by Indemnitee or the Company, as the case may be, of a written objection, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the Court or by such other person as the Court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 11(a) hereof.  Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).

 

Section 12.                                    Presumptions and Effect of Certain Proceedings.

 

(a)                                 In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this

 

9


 

Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption.  Neither the failure of the Company (including by its directors or independent legal counsel) to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including by its directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.

 

(b)                                 Subject to Section 13(e), if the person, persons or entity empowered or selected under Section 11 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if the person, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for the obtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 12(b) shall not apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 11(a) of this Agreement and if (A) within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to the stockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is made thereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, such meeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 11(a) of this Agreement.

 

(c)                                  The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his conduct was unlawful.

 

(d)                                 Reliance as Safe Harbor.  For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee’s action is based on the records or books of account of the Company or other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee

 

10


 

was serving as a director, officer, employee, agent or fiduciary, including financial statements, or on information supplied to Indemnitee by the officers of the Company or other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee was serving as a director, officer, employee, agent or fiduciary in the course of their duties, or on the advice of legal counsel for the enterprise or on information or records given or reports made to the Company or other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee was serving as a director, officer, employee, agent or fiduciary by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by  the Company or other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee was serving as a director, officer, employee, agent or fiduciary.  The provisions of this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed to have met the applicable standard of conduct set forth in this Agreement.

 

(e)                                  Actions of Others.  The knowledge and/or actions, or failure to act, of any other director, officer, agent or employee of the Company or other corporation, limited liability company, partnership, joint venture, trust employee benefit plan or other enterprise of which Indemnitee was serving as a director, officer, employee, agent or fiduciary shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement.

 

Section 13.                                    Remedies of Indemnitee.

 

(a)                                 Subject to Section 13(e), in the event that (i) a determination is made pursuant to Section 11 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement within ninety (90) days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5 or 6 or the last sentence of Section 11(a) of this Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3, 4 or 7 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event that the Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or other action or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder, Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses.  Alternatively, Indemnitee, at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association.  Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 13(a); provided, however, that the foregoing clause shall not apply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

 

11


 

(b)                                 In the event that a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination.  In any judicial proceeding or arbitration commenced pursuant to this Section 13 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be.

 

(c)                                  If a determination shall have been made pursuant to Section 11(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.

 

(d)                                 The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.  It is the intent of the Company that the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation, enforcement or defense of Indemnitee’s rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantially detract from the benefits intended to be extended to the Indemnitee hereunder.  The Company shall indemnify Indemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written request therefor) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action brought by Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, advancement of Expenses or insurance recovery, as the case may be.

 

(e)                                  Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement to indemnification under this Agreement shall be required to be made prior to the final disposition of the Proceeding.

 

Section 14.                                    Non-exclusivity; Survival of Rights; Insurance; Subrogation.

 

(a)                                 The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Company’s Certificate of Incorporation, the Company’s By-laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise.  No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status prior to such amendment, alteration or repeal.  To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnification or advancement of Expenses than would be afforded

 

12


 

currently under the Company’s Certificate of Incorporation, the Company’s By-laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

 

(b)                                 To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers, employees, or agents of the Company or of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which such person serves at the request of the Company, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such director, officer, employee or agent under such policy or policies.  If, at the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies.  The Company and the Indemnitee shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

 

(c)                                  In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee with respect to any insurance policy, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.

 

(d)                                 The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise.

 

(e)                                  The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, employee or agent of any other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such other corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise.

 

Section 15.                                    Severability.  If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to

 

13


 

conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby.

 

Section 16.                                    Enforcement. The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.

 

Section 17.                                    Entire Agreement.  Supersedes Prior Agreements.  This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however, that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation of the Company and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

 

Section 18.                                    Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by the parties thereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of this Agreement nor shall any waiver constitute a continuing waiver.

 

Section 19.                                    Notice by Indemnitee.  Indemnitee agrees promptly to notify the Company in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification or advancement of Expenses covered hereunder.  The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which it may have to the Indemnitee under this Agreement or otherwise except to the extent the Corporation is prejudiced in its defense of such action, suit or proceeding as a result of such failure.

 

Section 20.                                    Notices.   All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courier and receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oral confirmation that such transmission has been received:

 

(a)                                 If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provide to the Company.

 

(b)                                 If to the Company to

 

Timber Pharmaceuticals, Inc.

50 Tice Blvd, Suite A26

Woodcliff Lake, NJ 07677

Attention:  Executive Chairman of the Board

 

14


 

or to any other address as may have been furnished to Indemnitee by the Company.

 

Section 21.                                    Contribution.  To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).

 

Section 22.                                    Applicable Law and Consent to Jurisdiction.  This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably Corporation Services Company as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

 

Section 23.                                    Identical Counterparts.  This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement.  Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

 

Section 24.                                    Miscellaneous.    Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof.

 

15


 

IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written.

 

TIMBER PHARMACEUTICALS, INC.

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

INDEMNITEE

 

 

 

 

 

Name:

 

 

 

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16


Exhibit 23.1

 

Consent of Independent Registered Public Accounting Firm

 

The Members and Board of Managers
Timber Pharmaceuticals, Inc.:

 

We consent to the incorporation by reference in the registration statement (No. 333-236526) on Form S-4 of Timber Pharmaceuticals, Inc. (formerly BioPharmX Corporation) of our report dated February 14, 2020, with respect to the consolidated balance sheet of Timber Pharmaceuticals LLC and subsidiary as of December 31, 2019, the related consolidated statements of operations, members’ deficit, and cash flows for period from February 26, 2019 (inception) through December 31, 2019 and the related notes, which report appears in the current report on Form 8-K of Timber Pharmaceuticals, Inc. dated May 22, 2020.

 

Our report dated February 14, 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
May 22, 2020

 


Exhibit 99.1

 

Timber Pharmaceuticals Announces Merger Closing

 

·                  Trading under “TMBR” on the NYSE American Market to begin May 19, 2020

·                  Closed $25 million financing

 

WOODCLIFF LAKE, N.J., May 18, 2020 /PRNewswire/ — Timber Pharmaceuticals, Inc., (NYSE American: TMBR), formerly known as BioPharmX Corporation (“Timber” or the “Company”), a biopharmaceutical company focused on the development and commercialization of treatments for orphan dermatologic diseases, today announced that its merger with Timber Pharmaceuticals LLC. (“Timber LLC”) closed May 18, 2020. The combined company will operate under the name Timber Pharmaceuticals, Inc., and its shares will commence trading on the NYSE American market at the open of trading on May 19, 2020, under the ticker symbol “TMBR”.

 

Pursuant to the closing of the merger, all of Timber LLC’s outstanding units were converted into the Company’s common stock. As a result of the merger, approximately 11,867,923  shares of the Company were outstanding as of May 18, 2020, after taking into account the previously announced 1-for-12 reverse stock split that became effective at the close of trading on May 18, 2020.  Timber LLC will operate as a wholly-owned subsidiary of the Company.

 

Immediately prior to the merger, Timber LLC completed a private placement financing resulting in gross proceeds of $25 million under the terms of the securities purchase agreement previously announced in March 2020.

 

John Koconis, Chief Executive Officer of Timber, commented, “We are excited to have completed this merger and welcome the BioPharmX shareholders to Timber. With the completion of the $25 million financing that is expected to fund our two late stage product candidates through multiple key clinical development milestones, we believe Timber is well positioned for its transition into a public company. Timber’s business model which is focused on orphan dermatologic indications is currently conducting two Phase 2B clinical trials on two of our product candidates and we look forward to realizing the value of our pipeline to the benefit of all of Timber’s stakeholders.”

 

A Current Report on Form 8-K containing more detailed information regarding the merger transaction and the Company’s financing will be filed with the Securities and Exchange Commission.

 

About Timber Pharmaceuticals, Inc.

 

Timber Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of treatments for orphan dermatologic diseases. The Company’s investigational therapies have proven mechanisms-of-action backed by decades of clinical experience and well-established CMC (chemistry, manufacturing and control) and safety profiles. The Company is initially focused on developing non-systemic treatments for rare dermatologic diseases including congenital ichthyosis (CI), tuberous sclerosis complex (TSC), and localized scleroderma. For more information, visit https://www.timberpharma.com/.

 


 

Forward-Looking Statements

 

This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and Private Securities Litigation Reform Act, as amended, including those relating to the Company’s product development, clinical and regulatory timelines, market opportunity, competitive position, possible or assumed future results of operations, business strategies, potential growth opportunities and other statements that are predictive in nature. These forward-looking statements are based on current expectations, estimates, forecasts and projections about the industry and markets in which we operate and management’s current beliefs and assumptions.

 

These statements may be identified by the use of forward-looking expressions, including, but not limited to, “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “potential, “predict,” “project,” “should,” “would” and similar expressions and the negatives of those terms. These statements relate to future events or our financial performance and involve known and unknown risks, uncertainties, and other factors which may cause actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such factors include those set forth in the Company’s filings with the Securities and Exchange Commission. Prospective investors are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

 

Timber Pharmaceuticals Investor Contact

 

John Koconis

Chief Executive Office

jkoconis@timberpharma.com

 

PCG Advisory Inc.

Stephanie Prince

Managing Director

646-762-4518

sprince@pcgadvisory.com

 


Exhibit 99.2

 

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.

 

Going Concern Uncertainty

 

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.

 

Basis for Opinion

 

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

 

1


 

TIMBER PHARMACEUTICALS LLC

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

 

 


*                 See accompanying consolidated statement of changes in members’ deficit for each class of units which make up outstanding member units.

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2


 

TIMBER PHARMACEUTICALS LLC.

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 development—license 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.

 

3


 

TIMBER PHARMACEUTICALS LLC.

Consolidated Statement of Members’ Deficit

 

 

 

Perferred Units

 

Common Units

 

Accumulated

 

Total
Members’

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Deficit

 

Deficit

 

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.

 

4


 

TIMBER PHARMACEUTICALS LLC

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

 

5


 

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:

 

·                  its ability to raise additional funds to finance its operations;

 

·                  the outcome, costs and timing of clinical trial results for the Company’s current or future product candidates;

 

·                  the emergence and effect of competing or complementary products;

 

·                  its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

 

·                  its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel; and

 

·                  the terms and timing of any collaborative, licensing or other arrangements that it has or may establish.

 

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.

 

6


 

Note 2. Significant accounting policies

 

Basis of presentation

 

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.

 

Use of estimates

 

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.

 

Cash and cash equivalents

 

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

 

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.

 

Accrued Outsourcing Costs

 

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

 

7


 

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.

 

Fair Value Measurement

 

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.

 

Revenue Recognition

 

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.

 

Equity-based compensation

 

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.

 

8


 

Note 2. Significant accounting policies (Continued)

 

Income taxes

 

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, Compensation—Stock 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

 

9


 

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

 

10


 

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.

 

Rights of membership units

 

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

 

11


 

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.

 

Distributions rights

 

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.

 

Liquidation

 

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.

 

VARs

 

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.

 

12


 

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:

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

Number

 

Weighted Average

 

Total

 

Remaining

 

 

 

of

 

Exercise

 

Intrinsic

 

Contractual

 

 

 

Units

 

Price

 

Value

 

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.

 

13


 

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

 

Leases

 

The Company is not a party to any leases for office space or equipment.

 

Litigation

 

As of December 31, 2019 there was no litigation against the Company.

 

Note 8. Related party transactions

 

Patagonia

 

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.

 

TardiMed

 

Capital Contributions—TardiMed 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 Expenses—Certain 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,

 

14


 

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.

 

Merger Agreement

 

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

 

15


 

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.

 

Bridge Financing

 

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.

 

Securities Purchase Agreement

 

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).

 

16


Exhibit 99.3

 

 

TIMBER PHARMACEUTICALS LLC

 

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

MARCH 31, 2020

 

(UNAUDITED)

 


 

TABLE OF CONTENTS

 

TIMBER PHARMACEUTICALS LLC
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

 

Page No.

Unaudited Condensed Consolidated Balance Sheet as of March 31, 2020 and December 31, 2019

3

Unaudited Condensed Consolidated Statement of Operations for the three months ended March 31, 2020 and the period from February 26, 2019 (Inception) through March 31, 2019

4

Unaudited Condensed Consolidated Statement of Members’ Equity (Deficit) for the three months ended March 31, 2020 and the period from February 26, 2019 (Inception) through March 31, 2019

5

Unaudited Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2020 and the period from February 26, 2019 (Inception) through March 31, 2019

6

Unaudited Notes to Condensed Consolidated Financial Statements

7

 


 

Independent Auditors’ Review Report

 

The Members and Board of Managers
Timber Pharmaceuticals LLC:

 

Report on the Financial Statements

 

We have reviewed the condensed financial statements of Timber Pharmaceuticals LLC (the Company), which comprise the condensed balance sheet as of March 31, 2020, and the related statements of operations, members’ equity (deficit), and cash flows for the three-month period ended March 31, 2020 and for the period from February 26, 2019 (inception) through March 31, 2019, and the related notes.

 

Management’s Responsibility

 

The Company’s management is responsible for the preparation and fair presentation of the condensed financial information in accordance with U.S. generally accepted accounting principles; this responsibility includes the design, implementation, and maintenance of internal control sufficient to provide a reasonable basis for the preparation and fair presentation of interim financial information in accordance with U.S. generally accepted accounting principles.

 

Auditors’ Responsibility

 

Our responsibility is to conduct our reviews in accordance with auditing standards generally accepted in the United States of America applicable to reviews of interim financial information and in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States) (PCAOB). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America and in accordance with the auditing standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial information. Accordingly, we do not express such an opinion.

 

Conclusion

 

Based on our reviews, we are not aware of any material modifications that should be made to the condensed financial information referred to above for it to be in accordance with U.S. generally accepted accounting principles.

 

Emphasis of Matter

 

The accompanying interim financial information has been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the interim financial information, the Company has suffered recurring losses from operations, has a net capital deficiency, and has stated that substantial doubt exists about the Company’s ability to continue as a going concern. Management’s evaluation of the conditions and events and management’s plans regarding these matters are also described in Note 1. The accompanying interim financial information does not include any adjustments that might result from the outcome of this uncertainty.

 


 

Report on Condensed Balance Sheet as of December 31, 2019

 

We have previously audited, in accordance with auditing standards generally accepted in the United States of America and in accordance with the auditing standards of the PCAOB, the balance sheet as of December 31, 2019, and the related statements of operations, members’ deficit, and cash flows for the period from February 26, 2019 (inception) through December 31, 2019 (not presented herein); and we expressed an unqualified audit opinion on those audited financial statements in our report dated February 14, 2020. In our opinion, the accompanying condensed balance sheet of the Company as of December 31, 2019 is consistent, in all material respects, with the audited financial statements from which it has been derived.  Our report dated February 14, 2020 contains an explanatory paragraph that states that the Company has suffered recurring losses 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
May 22, 2020

 


 

TIMBER PHARMACEUTICALS LLC
Condensed Consolidated Balance Sheet

(Unaudited)

 

 

 

March 31,

 

December 31,

 

 

 

2020

 

2019

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

$

897,921

 

$

57,073

 

Loan to BioPharmX, net of loan discount of $339,167

 

1,060,833

 

 

Investment in BioPharmX at fair value

 

708,560

 

 

Other current assets

 

60,187

 

32,820

 

Total current assets

 

2,727,501

 

89,893

 

Total assets

 

$

2,727,501

 

$

89,893

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ DEFICIT

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable

 

$

1,551,351

 

$

501,451

 

Accrued expenses

 

120,035

 

214,660

 

License payable

 

750,000

 

750,000

 

Bridge notes payable , net of debt discount of $3,213,445

 

1,786,555

 

 

Warrant liability

 

3,253,769

 

 

Total current liabilities

 

7,461,710

 

1,466,111

 

Total liabilities

 

7,461,710

 

1,466,111

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

Members’ deficit

 

 

 

 

 

Members’ units*

 

1,893,985

 

1,698,895

 

Accumulated deficit

 

(6,628,194

)

(3,075,113

)

Total members’ deficit

 

(4,734,209

)

(1,376,218

)

Total liabilities and members’ deficit

 

$

2,727,501

 

$

89,893

 

 


*See accompanying unaudited condensed consolidated statement of changes in members’ deficit for each class of units which make up outstanding member units.

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


 

TIMBER PHARMACEUTICALS LLC.
Condensed Consolidated Statement of Operations

(Unaudited)

 

 

 

Three Months
Ended March 31,
2020

 

For the Period
from February 26,
2019 (Inception)
through March 31,
2019

 

 

 

 

 

 

 

Grant revenues

 

$

26,907

 

$

 

 

 

 

 

 

 

Operating costs and expenses

 

 

 

 

 

Research and development

 

1,018,231

 

30,194

 

Research and development - license acquired

 

 

50,000

 

Transaction costs

 

1,189,842

 

 

Selling, general and administrative

 

456,794

 

8,059

 

Total operating expenses

 

2,664,867

 

88,253

 

Loss from operations

 

(2,637,960

)

(88,253

)

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

Interest expense

 

(1,102,606

)

 

Interest income

 

456,775

 

 

Change in fair value of investment in BioPharmX

 

83,560

 

 

Change in fair value of warrant liability

 

(321,051

)

 

Gain on foreign currency exchange

 

2,682

 

 

Total other expense

 

(880,640

)

 

Net loss

 

$

(3,518,600

)

$

(88,253

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


 

TIMBER PHARMACEUTICALS LLC.
Condensed Consolidated Statement of Members’ Equity (Deficit)

(Unaudited)

 

 

 

Preferred Units

 

Common Units

 

Accumulated

 

Total Members’

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Deficit

 

Deficit

 

Balance at December 31, 2019

 

1,586,493

 

$

1,624,228

 

10,000

 

$

74,667

 

$

(3,075,113

)

$

(1,376,218

)

Non-cash contribution from TardiMed

 

142,392

 

142,392

 

 

 

 

142,392

 

Accrued preferred unit dividend

 

 

34,481

 

 

 

(34,481

)

 

Equity-based compensation

 

 

 

 

18,217

 

 

18,217

 

Net loss

 

 

 

 

 

(3,518,600

)

(3,518,600

)

Balance at March 31, 2020

 

1,728,885

 

$

1,801,101

 

10,000

 

$

92,884

 

$

(6,628,194

)

$

(4,734,209

)

 

 

 

Preferred Units

 

Common Units

 

Accumulated

 

Total Members’

 

 

 

Units

 

Amount

 

Units

 

Amount

 

Deficit

 

Equity

 

Balance at February 26, 2019 (Inception)

 

 

$

 

 

$

 

$

 

$

 

Members’ contribution

 

99,915

 

99,900

 

10,000

 

100

 

 

100,000

 

Equity-based compensation

 

 

 

 

4,571

 

 

4,571

 

Net loss

 

 

 

 

 

(88,253

)

(88,253

)

Balance at March 31, 2019

 

99,915

 

$

99,900

 

10,000

 

$

4,671

 

$

(88,253

)

$

16,318

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5


 

TIMBER PHARMACEUTICALS LLC

Condensed Consolidated Statement of Cash Flows

(Unaudited)

 

 

 

Three Months 
Ended March 31, 
2020

 

For the Period 
from February 26,
2019 (Inception) 
through March 31,
2019

 

Cash flows from operating activities

 

 

 

 

 

Net loss

 

$

(3,518,600

)

$

(88,253

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Research and development-licenses acquired, expensed

 

 

50,000

 

Non-cash contribution from TardiMed

 

142,392

 

 

Equity-based compensation

 

18,217

 

4,571

 

Change in fair value of warrant liability

 

321,051

 

 

Change in fair value of investment in BioPharmX

 

(83,560

)

 

Amortization of loan discount

 

(435,833

)

 

Amortization of debt discount

 

1,019,273

 

 

Accrued interest on BioPharmX loan

 

(20,942

)

 

Accrued interest on bridge notes

 

83,333

 

 

Changes in assets and liabilities:

 

 

 

 

 

Other current assets

 

(6,425

)

 

Accounts payable

 

1,049,900

 

6,635

 

Accrued expenses

 

(177,958

)

 

Net cash used in operating activities

 

(1,609,152

)

(27,047

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Loan to BioPharmX

 

(1,250,000

)

 

Purchase of research and development licenses

 

 

(50,000

)

Net cash used in investing activities

 

(1,250,000

)

(50,000

)

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Members’ contributions

 

 

100,000

 

Proceeds from bridge notes payable

 

3,700,000

 

 

Net cash provided by financing activities

 

3,700,000

 

100,000

 

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

840,848

 

22,953

 

Cash and cash equivalents, beginning of period

 

57,073

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

897,921

 

$

22,953

 

 

 

 

 

 

 

Non cash financing activities:

 

 

 

 

 

Accrued preferred unit dividend

 

$

34,481

 

$

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

6


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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.

 

Merger Agreement

 

On January 28, 2020, 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. The Company incurred approximately $1.2 million of legal, consulting and other professional fees related to the Merger, which were classified as transaction costs in the accompanying unaudited condensed consolidated statement of operations for the three months ended March 31, 2020.

 

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.

 

On March 24, 2020, BioPharmX entered into the first amendment to the Merger Agreement with Timber and BITI Merger Sub. The first amendment to the Merger Agreement states; (i) BioPharmX’s preferred equity outstanding immediately prior to the effective time will be automatically converted into a number of shares of preferred stock that, other than conversion rights, has economic terms the same as those of holders of preferred units of Timber; and (ii) the preferred shares are convertible, at the option of their holder, at a price equal to the greater of (i) three times the volume weighted closing price of a share of BioPharmX’s Common Stock on the NYSE American for the five consecutive trading days ending one trading day immediately prior to the date of BioPharmX’s special meeting of stockholders which has been called to consider the Merger, or (ii) 110% of the “Final Purchase Price.”

 

On April 27, 2020, BioPharmX entered into the second amendment to the Merger Agreement with Timber and BITI Merger Sub. Under the terms of the amendment, BioPharmX has agreed to lower their ownership percentage from 11.5% to no lower than 8.9% of the combined entity to meet market capitalization requirements.

 

On May 18, 2020, Timber Pharmaceuticals, Inc., formerly known as BioPharmX Corporation, completed its business combination with Timber.  In connection with, and immediately prior to the completion of the Merger, BioPharmX effected a reverse stock split of the Company’s common stock, par value $0.001 per share, at a ratio of 1-for-12. Immediately after completion of the Merger, the Company changed its name to Timber Pharmaceuticals, Inc.

 

Securities Purchase Agreement

 

In connection with the Merger Agreement, 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 shares of Timber units immediately

 

7


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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 the Bridge Notes and (y) $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 units exchangeable in the Merger for 20.0% of the post-closing company common shares on a fully-diluted basis. In addition, (i) Timber will deposit the same number of shares equal to the number 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 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 Securities Purchase Agreement is lower than the effective price per share paid by the Investors for the converted initial shares, and (ii) on the tenth trading day following the close of the Merger, Timber Pharmaceuticals, Inc. will issue to the Investors (x) Series A warrants to purchase shares of Timber Pharmaceuticals, Inc. common stock and (y) Series B warrants to purchase shares of Timber Pharmaceuticals, Inc. common stock. The Series A Investor 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 Investor Warrants will initially be exercisable for an amount of Timber Pharmaceuticals, Inc. common stock equal to 75% of such shares of Timber common stock issued to the Investors, subject to certain adjustments. The Series B Investor 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 Timber Pharmaceuticals, Inc. common stock based upon the final purchase price adjusted for trading prices of Timber Pharmaceuticals, Inc. common stock following the warrant closing date. The number of Timber Pharmaceuticals, Inc. common stock issuable pursuant to the Series B Investor Warrants is also subject to adjustment based on specified reset price.

 

On April 27, 2020, BioPharmX, Timber and the Investors entered into the first amendment to the Securities Purchase Agreement dated March 27, 2020. The amendment states if market capitalization requirements are not satisfied, the converted additional shares that are to be placed in escrow under the Securities Purchase Agreement will no longer be returned to BioPharmX as treasury stock depending on the market price of the BioPharmX common stock, and if the market capitalization requirements are still not satisfied, the Investors will purchase up to an additional 67 million restricted shares of BioPharmX common stock for immediate delivery to the Escrow Agent to be held in escrow so long as an investor would otherwise hold in excess of 9.99% of the BioPharmX common stock. Any shares purchased would reduce the number of shares available for purchase under the Series B Warrant to be issued by BioPharmX on the warrant closing date.

 

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. The Company had an accumulated members’ deficit of approximately $4.7 million at March 31, 2020, a net loss of approximately $3.5 million, and approximately $1.6 million of net cash used in operating activities for the three months ended March 31, 2020.

 

The accompanying condensed 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:

 

·                  its ability to raise additional funds to finance its operations;

 

·                  the outcome, costs and timing of clinical trial results for the Company’s current or future product candidates;

 

·                  the emergence and effect of competing or complementary products;

 

·                  its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

 

8


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

·                  its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel; and

 

·                  the terms and timing of any collaborative, licensing or other arrangements that it has or may establish.

 

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 for twelve months from the issuance date of these unaudited condensed consolidated financial statements.

 

The impact of the worldwide spread of a novel strain of coronavirus (“COVID 19”) has been unprecedented and unpredictable, but based on the Company’s current assessment, the Company does not expect any material impact on its long-term strategic plans, operations and its liquidity due to the worldwide spread of COVID-19. However, the Company is continuing to assess the effect on its operations by monitoring the spread of COVID-19 and the actions implemented to combat the virus throughout the world and its assessment of the impact of COVID-19 may change.

 

Note 2. Significant accounting policies

 

Basis of presentation

 

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.

 

Use of estimates

 

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 valuations of investments, loans, warrants, notes, equity-based awards and 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.

 

Research and development

 

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, are 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.

 

Accrued Outsourcing Costs

 

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

 

9


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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 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.

 

Fair Value Measurement

 

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 March 31, 2020 and 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.

 

Revenue Recognition

 

The Company has not yet generated any revenue from product sales. The Company’s source of revenue in both 2020 and 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.

 

Warrant Liability

 

The Company accounts for certain common stock warrants outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statements of operations. The fair value of the warrants issued by the Company has been estimated using a probability-weighted Black-Scholes option pricing model at each measurement date.

 

Equity-based compensation

 

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.

 

10


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Income taxes

 

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.

 

Note 3. Credit Agreement with BioPharmX Corporation (“BioPharmX”)

 

Loan to 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. During the three months ended March 31, 2020, the Company recorded coupon interest income of approximately $21,000 in connection with the loan to BioPharmX.

 

Investment in BioPharmX Common Stock

 

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 was exercised on a cashless basis on February 10, 2020 for a total amount of 2,323,147 shares of BioPharmX Common Stock. The Company’s investment represented approximately 12% of the outstanding common stock of BioPharmX. The Company elected the fair value option for its investment in BioPharmX because BioPharmX is traded on an active exchange. The investment was classified as a Level 1 financial instrument at March 31, 2020. Based upon the closing price of BioPharmX’s common stock of $0.31 per share as of March 31, 2020, the Company recorded an increase in the fair value of the investment of approximately $0.1 million during the three months ended March 31, 2020, as reflected in the accompanying unaudited condensed consolidated statement of operations. The investment in BioPharmX was approximately $0.7 million as of March 31, 2020.

 

The following table reflects the activity related to the Company’s loan to BioPharmX as of March 31, 2020:

 

 

 

Loan to BioPharmX

 

Principal - initial advance

 

$

700,000

 

Discount recognized on initial advance

 

(75,000

)

Fair value of bridge warrant

 

(625,000

)

Balance as of January 28, 2020

 

$

 

Principal - second closing

 

700,000

 

Discount recognized on second closing

 

(75,000

)

Balance as of March 3, 2020

 

$

625,000

 

Amortization of loan discount

 

435,833

 

Balance as of March 31, 2020

 

$

1,060,833

 

 

11


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 4. Purchases of Assets

 

Acquisition of Licenses from Patagonia Pharmaceuticals LLC (“Patagonia”)

 

On February 28, 2019, the Company acquired the license for a topical formulation of isotretinoin for the treatment of congenital ichthyosis and identified as TMB-001, formerly PAT-001, from Patagonia (the “TMB-001 License”).

 

Upon closing of the TMB-001 License, 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 the TMB-001 License, 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 royalties ranging from low single digits to mid double digits for the program licensed. The Company 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 March 31, 2020 and December 31, 2019.

 

On June 26, 2019, the Company acquired the license for a locally administered (e.g. topical or subcutaneous) 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 License”).

 

Upon closing of the TMB-003 License Agreement, 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 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 earn-out payments ranging from low to mid-single digits for the program licensed. The Company 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 March 31, 2020 and December 31, 2019.

 

The TMB-001 License and TMB-003 License acquisitions were accounted for as asset acquisitions pursuant to ASC Topic 805, Business Combinations (Topic 805”) 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 of $50,000 paid for these assets was recorded as research and development expense in the accompanying unaudited condensed consolidated statement of operations for the period from Inception to March 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 (collectively, the “Company’s territory”) and (2) a co-exclusive license to develop the Pascomer® product in the Company’s 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.

 

12


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

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 non-creditable upfront payment of $1.0 million to AFT, payable in scheduled installments. Specifically, the Company paid $0.25 million in October 2019 and the remaining $0.75 million due in quarterly installments with the last payment on July 1, 2020.  As of March 31, 2020, the Company has not paid the second quarterly installment of $0.25 million. AFT and the Company have mutually agreed to defer the second quarterly installment payment until completion of the Merger.

 

AFT is entitled to up to $25.5 million of cash milestone payments relating to certain regulatory and commercial achievements of the AFT License, with the first being $1.0 million upon the successful completion of Phase IIb Clinical Trial, where the results of such clinical trial meet the clinical trials primary clinical endpoints. 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 March 31, 2020 and December 31, 2019.

 

The AFT License Agreement was accounted for as an asset acquisition pursuant to Topic 805 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 5. Accounts Payable and Accrued Expenses

 

As of March 31, 2020 and December 31, 2019, the Company’s accounts payable and accrued expenses consisted of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2020

 

2019

 

Legal expenses

 

$

545,360

 

$

9,628

 

Research and development

 

476,327

 

543,155

 

Professional fees

 

370,524

 

65,926

 

Personnel expenses

 

126,702

 

86,421

 

Accrued interest

 

83,333

 

 

Other

 

69,140

 

10,981

 

Total

 

$

1,671,386

 

$

716,111

 

 

Note 6. Bridge Notes Payable

 

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 agreed to purchase, and Timber agreed to issue, senior secured promissory notes (the “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 discount of $1.25 million.  Timber also agreed to reimburse the Buyer’s representative $50,000 in transaction costs.  Pursuant to the terms of the SPA, the Buyers purchased the Bridge Notes in three closings for $1,666,666.67 in aggregate principal amount in each closing, in exchange for an aggregate purchase price of $1.25 million in each closing.  Each closing occurred in the three months ended March 31, 2020.  The 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 Bridge Notes are secured by a lien on all of Timber’s assets. Additionally, the Bridge Notes are automatically exchangeable into securities issued pursuant to the Securities Purchase Agreement, described in Note 1, into a variable number of securities issued pursuant to the Securities Purchase Agreement with an aggregate fair value determined by dividing the aggregate principal ($5 million) and accrued but unpaid interest of the Bridge Notes at the time of the exchange by the per share price received from investors in the Securities Purchase Agreement.

 

13


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Based on the terms of the Bridge Notes and the Company’s assessment that the automatic exchange feature was the predominant settlement feature of the Bridge Notes, the Company determined that the notes were share-settled debt, and as such accreted the initial carrying value of the Bridge Notes to the fair value of the securities issued pursuant to the Securities Purchase Agreement into which the Bridge Notes will be exchanged, through the estimated exchange date.  The Company recognized approximately $1.0 million of accretion of debt discount from the date the Bridge Notes were issued through March 31, 2020, classified as interest expense in the condensed consolidated statement of operations.

 

In connection with the SPA, the Company is obligated, within five trading days following the consummation of the first capital raising transaction, post-Merger (see Note 1), to issue to the Buyers, warrants to purchase a total number  shares of common stock that equates to 100% of the US converted shares, as if the 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. Each warrant is exercisable into a number of shares of $0.001 par value common stock of BioPharmX, and have a term of 5 years from the closing date of the Merger. The warrants do not meet the scope exception of ASC 815, Derivative Accounting,  and therefore, have been accounted for as a liability. The warrant liability has initially been recorded at the fair value on the date the Company became obligated to issue the warrants (each closing date of the Bridge Notes), with subsequent changes in fair value recognized at each reporting period end date. During the three months ended March 31, 2020, the Company recorded approximately $0.3 million as the change in fair value of the warrants as reflected in the condensed consolidated statement of operations.

 

 

 

Bridge Notes Payable

 

Warrant Liability

 

Balance at January 1, 2020

 

$

 

$

 

January 28, 2020 - First closing issuance

 

1,666,666

 

929,899

 

February 14, 2020 - Second closing issuance

 

1,666,667

 

981,557

 

March 13, 2020 - Third closing issuance

 

1,666,667

 

1,021,262

 

Original issue discount

 

(1,300,000

)

 

Discount resulting from allocation of proceeds to warrant liability

 

(2,932,718

)

 

 

 

767,282

 

2,932,718

 

Amortization of debt discount

 

1,019,273

 

 

Change in fair value

 

 

321,051

 

Balance at March 31, 2020

 

$

1,786,555

 

$

3,253,769

 

 

The inputs used to calculate the fair value of the warrants using the probability Black-Scholes model are as follows:

 

 

 

For the period
January 28, 2020 -
March 31, 2020

 

Dividend yield

 

 

Expected price volatility

 

84.9%

 

Risk free interest rate

 

0.38% - 1.48%

 

Expected term

 

5.0 - 5.3 years

 

 

Note 7. Members’ deficit

 

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.

 

14


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements

 

During the three months ended March 31, 2020, TardiMed contributed approximately $0.1 million of capital, and as of March 31, 2020, its capital totaled $1.8 million, and 1,728,885 preferred units are issued and outstanding.

 

Rights of membership units

 

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 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.

 

Distributions rights

 

Preferred unitholders 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 March 31, 2020 and December 31, 2019, the Company’s accrued preferred dividends totaled $72,315 and $37,835, respectively, as a component of members’ deficit. As of March 31, 2019, the Company’s accrued preferred dividends were nominal.

 

Liquidation

 

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 8. 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 Incentive Units that may be subject to awards and issued under the Plan is 1,111. At March 31, 2020 and December 31, 2019, 584 and 695, respectively, Incentive Units are outstanding under the Plan.

 

VARs

 

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.

 

The following is a summary of VARs issued and outstanding as of March 31, 2020 and for the three months ended March 31, 2020:

 

15


 

TIMBER PHARMACEUTICALS LLC

Notes to the Unaudited Condensed Consolidated Financial Statements