Description of Capital Stock
DESCRIPTION OF CAPITAL STOCK
The following description of Timber Pharmaceuticals, Inc. (the “Company” or “Timber”) capital stock is only a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to the applicable provisions of Delaware law, the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”) and amended and restated bylaws (the “Bylaws”), which are subject to future amendment in accordance with the provisions thereof.
The Company is authorized to issue 460,000,000 shares of all classes of capital stock, of which 450,000,000 shares is common stock, $0.001 par value per share (the “Common Stock”), and 10,000,000 shares are undesignated preferred stock, no par value (the “Preferred Stock”). As of March 15, 2021, the Company had 36,843,045 outstanding shares of Common Stock and 1,819 outstanding shares of Preferred Stock.
Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of Common Stock are entitled to receive dividends out of funds legally available if the Company’s board of directors (the “Board”), in its discretion, determines to issue dividends and then only at the times and in the amounts that the Board may determine.
Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. Timber has not provided for cumulative voting for any matter in the Certificate of Incorporation. Accordingly, pursuant to the Certificate of Incorporation, holders of a majority of the shares of Common Stock will be able to elect all of Timber’s directors.
No Preemptive or Similar Rights
The Common Stock is not entitled to preemptive rights, and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon liquidation, dissolution or winding-up, the assets legally available for distribution to Timber stockholders would be distributable ratably among the holders of the Common Stock and any participating Preferred Stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of Preferred Stock.
As of March 15, 2021, Timber had outstanding options to purchase an aggregate of 200,237 shares of Common Stock, with a weighted-average exercise price of $8.58 per share.
As of March 15, 2021, Timber had outstanding warrants to purchase an aggregate of 17,335,503 shares of Common Stock, with a weighted-average exercise price of $2.37 per share.
Value Appreciation Rights
As of March 15, 2021, Timber had outstanding value appreciation rights convertible into an aggregate of 367,670 shares of Common Stock.
In connection with its financing prior to the merger with BioPharmX Corporation, Timber entered into a Registration Rights Agreement with certain investors identified therein (the “Investors”) on March 27, 2020 (the “Registration Rights Agreement”). Pursuant to the Registration Rights Agreement, as amended, Timber was required to file an initial resale registration statement with respect to shares of Common Stock held by or issuable to the Investors pursuant to the Series A Warrants, Series B Warrants and the Bridge Warrants (the “Registrable Securities”), within 15 trading days after the closing of the Pre-Merger Financing, or June 16, 2020. On July 17, 2020, Timber and the Investors entered into an Amended and Restated Registration Rights Agreement, pursuant to which the Investors were given certain demand registration rights. Pursuant to the Waiver Agreements, the Investors exercised such demand registration rights, and Timber agreed to initially register 50% of the shares underlying the Series B Warrants. Pursuant to the Waiver Agreements, the Inventors have been granted two additional demand registrations with respect to any remaining Registrable Securities not yet registered..
As of March 15, 2021, 1,819 shares of Preferred Stock are issued and outstanding and no such shares were subject to outstanding options or other rights to purchase or acquire. However, shares of Preferred Stock may be issued in one or more series from time to time by the Board, and the Board is expressly authorized to fix by resolution or resolutions the designations and the powers, preferences and rights, and the qualifications, limitations and restrictions thereof, of the shares of each series of Preferred Stock. Subject to the determination of the Board, any shares of Preferred Stock that may be issued in the future would generally have preferences over the Common Stock with respect to the payment of dividends and the distribution of assets in the event of liquidation, dissolution or winding up of the Company.
Anti-Takeover Effect of Unissued Shares of Capital Stock
Common Stock. Shares of authorized and unissued Common Stock are available for future issuance without additional stockholder approval. While these additional shares are not designed to deter or prevent a change of control, under some circumstances Timber could use the additional shares to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control by, for example, issuing those shares in private placements to purchasers who might side with the Board in opposing a hostile takeover bid.
Preferred Stock. The Certificate of Incorporation grants the Board the authority, without any further vote or action by its stockholders, to issue preferred stock in one or more series and to fix the number of shares constituting any such series and the preferences, limitations and relative rights, including dividend rights, dividend rate, voting rights, terms of redemption, redemption price or prices, conversion rights and liquidation preferences of the shares constituting any series. The existence of authorized but unissued Preferred Stock could reduce Timber’s attractiveness as a target for an unsolicited takeover bid since it could, for example, issue shares of Preferred Stock to parties who might oppose such a takeover bid or shares that contain terms the potential acquirer may find unattractive. This may have the effect of delaying or preventing a change in control, may discourage bids for the Common Stock at a premium over the market price of the common stock, and may adversely affect the market price of, and the voting and other rights of the holders of, Common Stock.
The provisions of Delaware law, the Certificate of Incorporation and Bylaws could have the effect of delaying, deferring or discouraging another person from acquiring control of the Company. These provisions, which are summarized below, may have the effect of discouraging takeover bids. They are also designed, in part, to encourage persons seeking to acquire control of us to negotiate first with the Board. Timber believes that the benefits of increased protection of the Company’s potential ability to negotiate with an unfriendly or unsolicited acquirer outweigh the disadvantages of discouraging a proposal to acquire the Company because negotiation of these proposals could result in an improvement of their terms.
Timber is subject to the provisions of Section 203 of the Delaware General Corporation Law (“DGCL”) regulating corporate takeovers. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date on which the person became an interested stockholder unless:
|·||Prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;|
|·||The interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding, for purposes of determining the voting stock outstanding, but not the outstanding voting stock owned by the interested stockholder, (1) shares owned by persons who are directors and also officers and (2) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or|
|·||At or subsequent to the date of the transaction, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder.|
Generally, a business combination includes a merger, asset or stock sale, or other transaction or series of transactions together resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who, together with affiliates and associates, owns or, within three years prior to the determination of interested stockholder status, did own 15% or more of a corporation’s outstanding voting stock. Timber expects the existence of this provision to have an anti-takeover effect with respect to transactions its board of directors does not approve in advance. Timber also anticipates that Section 203 may also discourage attempts that might result in a premium over the market price for the shares of common stock held by stockholders.
Certificate of Incorporation and Bylaw Provisions
The Certificate of Incorporation and Bylaws include a number of provisions that could deter hostile takeovers or delay or prevent changes in control of the Company, including the following:
|·||Board of Directors Vacancies. The Bylaws authorize the Board to fill vacant directorships, including newly created seats. This provision could prevent a stockholder from gaining control of the Board by filling vacancies with its own nominees. This makes it more difficult to change the composition of the Board but promotes continuity of management.|
|·||Special Meetings of Stockholders. The Bylaws provide that special meetings of stockholders may be called only by a majority of the Board or an officer instructed by the directors to call a special meeting, thus prohibiting a stockholder from calling a special meeting. This provision might delay the ability of stockholders to force consideration of a proposal or for stockholders controlling a majority of Timber’s capital stock to take any action, including the removal of directors.|
|·||No Cumulative Voting. The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a corporation’s certificate of incorporation provides otherwise. The Certificate of Incorporation and Bylaws do not provide for cumulative voting.|
|·||Amendment of Bylaw Provisions. Any of the above provisions in the Bylaws may be amended or repealed by unanimous written consent of the Board.|
|·||Issuance of Undesignated Preferred Stock. The Board has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of undesignated Preferred Stock with rights and preferences, including voting rights, designated from time to time by the Board. The existence of authorized but unissued shares of Preferred Stock enables the Board to render more difficult or to discourage an attempt to obtain control by merger, tender offer, proxy contest or other means.|
Transfer Agent and Registrar
The transfer agent and registrar for Timber common stock is Computershare Trust Company, N.A.
Timber common stock is listed on the NYSE American market under the trading symbol ‘‘TMBR”.