Item 1.01 Entry into a Definitive Material
Agreement
As previously reported,
on March 27, 2020, Timber Pharmaceuticals, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase
Agreement”) with certain institutional investors (the “Holders”) for the purchase by the Holders of securities
of the Company, including common stock and warrants. On June 2, 2020, the Company issued to the Holders, pursuant to the Purchase
Agreement (i) Series A Warrants (the “Series A Warrants”) to purchase up to an aggregate of 8,384,764 shares of the
Company’s common stock, par value $0.001 per share (the “Common Stock”) at an initial exercise price of $2.7953
and (ii) Series B Warrants (the “Series B Warrants”, and together with the Series A Warrants, the “Warrants”)
to purchase up to an aggregate 7,042,175 shares of Common Stock at an exercise price of $0.001. The number of shares of Common
Stock underlying the Series A Warrants and the Series B Warrants, as well as the exercise price of the Series A Warrants, were
subject to periodic, price-based resets, up to a maximum of approximately 23,275,009 shares of Common Stock at a minimum exercise
price of $1.007 per share under the Series A Warrants and a maximum of approximately 26,895,265 shares of Common Stock under the
Series B Warrants, such amounts calculated using the reset formula described below, assuming the agreed-upon “Reset Floor
Price” for the Common Stock of $0.8056 per share. On July 17, 2020, the Company entered into an Amended and Restated Registration
Right Agreement (the “Registration Rights Agreement”) with the Holders.
Effective November
19, 2020 (the “Effective Date”), the Company entered into Waiver Agreements (the “Waiver Agreements”) with
each of the Holders. Pursuant to the Waiver Agreements (i) the Holders and the Company agreed to waive certain rights and amend
certain provisions of the Warrants, the Purchase Agreement and the Registration Rights Agreement and (ii) the Holders exercised
certain rights under the Registration Rights Agreement.
Waivers of Resets and Price and Share
Adjustments
Pursuant to the Waiver
Agreements, the Holders agreed to (i) waive certain provisions in the Warrants in order to allow for one immediate and final reset
of the number of shares of Common Stock underlying the Warrants and the exercise price of the Series A Warrants using the existing
formula provided in the Warrants, described below, and (ii) permanently waive the provisions providing for future resets of the
number of shares of Common Stock underlying the Warrants and the exercise price of the Series A Warrants (other than the anti-dilution
protection provisions in the Series A Warrants providing for adjustments to the exercise price of the Series A Warrants upon a
dilutive issuance). As a result of the foregoing, (A) the exercise price of the Series A Warrants was set at $1.16 per share (the
“Series A Exercise Price”), (B) the number of shares underlying all of the Series A Warrants was set at 20,178,214
and (C) the number of shares underlying all of the Series B Warrants was set at 22,766,776 .
The number of shares
underlying a Holder’s Series B Warrants was calculated using the existing formula set forth in the Series B Warrants and
was reached by dividing the initial purchase price paid by the Holder under the Purchase Agreement by a “Reset Price”,
equal to the arithmetic average of the five (5) lowest Weighted Average Prices (as defined in the Warrants) of the Common
Stock during the applicable “Reset Period,” in this case being the nine Trading Day (as defined in the Warrants) period
ending on the Effective Date (but not less than the Reset Floor Price), and subtracting from such quotient the number of shares
of Common Stock issued (or that were issuable) under the Purchase Agreement to the Holder. Pursuant to the Series A Warrants, the
Series A Exercise Price is equal to 125% of the Reset Price (but not higher than the prevailing Exercise Price), calculated in
accordance with the formula in the previous sentence, and the number of shares underlying the Series A Warrants was calculated
using the existing formula set forth in the Series A Warrants and is reached by multiplying the number of shares that were underlying
the Series A Warrants prior to the reset by the quotient of the exercise price prior to the reset divided by the new Series A Exercise
Price.
Waiver of Restrictions on Financing
The Waiver Agreements
provide that until April 30, 2021, neither the Company nor any of its subsidiaries will file any registration statement or any
amendment or supplement thereto, or cause any registration statement to be declared effective by the Securities and Exchange Commission
(the “SEC”), or grant any registration rights to any person that can be exercised prior to April 30, 2021 (other than
the demand registration statements referenced below). In addition, pursuant to the Waiver Agreements, the Company has agreed, until
after April 30, 2021, except with respect to the issuance or resale of Excluded Securities (as defined below) not to (i) directly
or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option
to purchase or other disposition of) any of its or its subsidiaries’ debt, equity or equity equivalent securities (any such
offer, sale, grant, disposition or announcement being referred to as a “Subsequent Placement”), (ii) enter into, or
effect a transaction under, any agreement whereby the Company may issue securities at a future determined price or (iii) be party
to any solicitations, negotiations or discussions with regard to the foregoing. “Excluded Securities” include any shares
of Common Stock issued or issuable or deemed to be issued under the Company’s equity plan, (ii) upon exercise of the Warrants
or (iii) upon conversion, exercise or exchange of any options or convertible which were outstanding on the day immediately preceding
the closing of the transactions contemplated by the Purchase Agreement.
Additionally, the Holders
waived certain provisions of the Warrants that limited the Company’s ability to effect certain fundamental transactions until
the forty-fifth (45th) trading day immediately following June 2, 2022. The Waiver Agreements provide that the Company shall not
effect a fundamental transaction until May 1, 2021.
Notwithstanding
the foregoing, the restrictions on the Company’s ability to effect a variable rate transaction contained in the Purchase
Agreement have not been amended by the Company and the Holders.
Extension of Leak Out Provisions.
Pursuant to the Waiver
Agreements, the Company and the Holders have agreed to extend the “leak out” protection to the Company agreed upon
in Leak Out Agreements signed by each of the Holders in May 2020, which limits the amount of shares of Common Stock each Holder
can sell, including upon exercise of the Warrants, to until the earliest of (i) 120 days after the initial effectiveness of the
first Registration Statement filed by the Company with respect to the shares of Common Stock underlying the Warrants, (ii) the
date on which an aggregate of at least 50,000,000 shares of Common Stock have been sold as reported by Bloomberg commencing with
sales on the first day after the initial effective date of such Registration Statement and (iii) April 9, 2021.
Elimination of Derivative Liability
In order to eliminate the derivative liability
accounting treatment of the Series A Warrants, the Waiver Agreements provide for the permanent waiver of (i) the volatility floor
from the Black Scholes calculation and (ii) the full ratchet anti-dilution provisions in the case of non-cash issuances of equity,
each contained in the Series A Warrants. The Company has agreed not to issue securities for less than the Series A Exercise Price
outside of a cash financing transaction, except with respect to Excluded Securities.
Exercise of Demand Registration
Pursuant to the Waiver
Agreements, the Holders exercised their demand registration rights pursuant to the Registration Rights Agreement and the Company
agreed to initially register 50% of the shares underlying the Series B Warrants. Pursuant to the Waiver Agreements, the Holders
have been granted two additional demand registrations with respect to any remaining shares of Common Stock issuable upon exercise
of the Warrants not yet registered.
The description of
terms and conditions of the Waiver Agreements set forth herein does not purport to be complete and is qualified in its entirety
by reference to the full text of the form of Waiver Agreement, which is attached hereto as Exhibit 10.1.