UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant☒Registrant ☑
Filed
File by a Party other than the Registrant☐Registrant ☐
Check the appropriate box:
| ☑ Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
☐ Definitive Proxy Statement
☐ Definitive Additional Materials
☐ Soliciting Material under §240.14a-12
SUN BIOPHARMA, INC. |
(Name of Registrant as Specified In Its Charter) |
(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
Payment of Filing Fee (Check the appropriate box):
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☐ | Fee computed on table below per Exchange Act Rules 14a-6(i) |
(1) | Title of each class of securities to which transaction applies: |
(2) | Aggregate number of securities to which transaction applies: |
(3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
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☐ | Fee previously paid |
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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(2) | Form, Schedule or Registration Statement No.: |
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April 27, 2017
Dear Shareholder:
The Board of Directors of Sun BioPharma, Inc. joins us in extending an invitation to attend our 2017 Annual Meeting of Shareholders (the “Annual Meeting”), to be held on June 6, 2017, at the Hampton Inn and Suites, 2860 Metro Drive, Bloomington, Minnesota 55425, commencing at 1:30 p.m. local time. On or about April 27, 2017, a full set of proxy materials will be mailed to each shareholder.
It is important that your shares be represented at the Annual Meeting whether or not you plan to attend in person. Please vote electronically over the Internet or, if you request and receive a paper copy of the proxy card by mail, you may vote by Internet or telephone or by returning your signed proxy card in the envelope provided. If you do attend the Annual Meeting and desire to vote in person, you may do so by following the procedures described in the proxy statement even if you have previously sent a proxy.
On behalf of the Board of Directors and management, it is our pleasure to express our appreciation for your continued support.
We hope that you will be able to attend the Annual Meeting.
Very truly yours,
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SUN BIOPHARMA, INC.
712 Vista Boulevard #305
Waconia, Minnesota55387
NOTICE OF ANNUAL MEETING OFSHAREHOLDERSTO BE HELD JUNE 6, 2017
NOTICE OFCONSENT SOLICITATION |
To the ShareholdersStockholders of Sun BioPharma, Inc.:
Notice is hereby given that the 2017 Annual Meeting of Shareholdersto stockholders of Sun BioPharma, Inc., a Delaware corporation will be held on June 6, 2017, at(the “Company”), that we are seeking the Hampton Innwritten consents of stockholders holding a majority of our issued and Suites, 2860 Metro Drive, Bloomington, Minnesota 55425, commencing at 1:30 p.m. local time, foroutstanding shares of common stock, par value $0.001 per share, as of (the “Record Date”), acting in lieu of a meeting, to authorize and approve the following purposes:proposal (the “Proposal”):
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On July 17, 2017, the Board of Directors approved the reverse stock split, reduction in authorized shares and the corresponding amendment to our Certificate of Incorporation referenced in the Proposal and determined to solicit the required votes of the stockholders of the Company entitled to vote thereon. Only shareholdersstockholders of record at the close of business on April 13, 2017, the record date for the meeting set by the Board of Directors,Record Date are entitled to noticeconsent to the Proposal.
This Notice of Consent Solicitation is being issued by the Company and is intended to be dispatched on or about , 2017 to all of the Annual Meeting and may vote atholders of common stock as of the Annual Meeting or any adjournment(s) or postponement(s) thereof.Record Date.We are not holding a meeting of stockholders in connection with the Proposal. The Consent Solicitation Statement on the following pages further describes the matter presented to stockholders for consent.
The Board requests that you sign, date and return the Consent included asAppendix A to theConsent Solicitation Statement in the enclosed envelope (or by facsimile or via the internet) as soon as possible.
By Order of the Board of Directors, | |
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/s/ Scott Kellen | |
| Scott Kellen Chief Financial Officer andSecretary |
Minneapolis, Minnesota
, 2017
YOUR VOTE IS IMPORTANT
Whether or not you plan to attend the Annual Meeting, we urge you to vote as soon as possible. If you attend the meeting, you may vote your shares in person if you wish, whether or not you submit a proxy in advance of the meeting.
IMPORTANT NOTICE REGARDING THE
AVAILABILITY OF PROXYCONSENT SOLICITATION MATERIALS FOR THESHAREHOLDERMEETING TO BE HELD ONJUNE 6, 2017
Our ProxyThe Notice of Consent Solicitation, Consent Solicitation Statement, for the 2017 Annual Meetingand form of Shareholders and our Annual Report on Form 10-K for the fiscal year ended December 31, 2016,Consent are available at https://www.rdgir.com/sun-biopharma-inc..
TABLE OF CONTENTS
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SUN BIOPHARMA, INC.
712 Vista Boulevard #305
Waconia, Minnesota55387
PROXY STATEMENT
CONSENT SOLICITATION |
The Board of Directors (the “Board”) of Sun BioPharma, Inc. (our “Company”) is soliciting proxiesrequesting the approval, by written consent in lieu of a meeting (each, a “Consent”), of the following proposal (the “Proposal”):
To amend the Certificate of Incorporation of Sun BioPharma, Inc., as amended from time to time, to effect a reverse stock split of the company’s common stock at a ratio of one-for-ten (1:10) and reduce the shares authorized for useissuance by 50%, with such reverse stock split and reduction in authorized shares to be effective at such date and time, if at all, as determined by the board of directors of the company in its sole discretion.
On July 17, 2017, the Board of Directors approved the reverse stock split, reduction in authorized shares and corresponding amendment to our Certificate of Incorporation (collectively, the “Amendment”) referenced in the Proposal and determined to solicit the required votes of the stockholders of the Company entitled to vote thereon. Only stockholders of record at the Annual Meetingclose of Shareholdersbusiness on , 2017 (the “Record Date”) are entitled to be held on June 6, 2017, and at any adjournment or postponement ofconsent to the meeting.Proposal.
The Annual Meeting willprimary purpose of the reverse stock split is to enable us to meet the required minimum bid price standard required to list our common stock on a national securities exchange, such as The NASDAQ Capital Market or NYSE MKT. Our common stock is currently traded on the over-the-counter markets through the OTCQB marketplace. Historically, the over-the-counter markets have been relatively thinly traded and lack the liquidity that could be held at the Hampton Inn and Suites, 2860 Metro Drive, Bloomington, Minnesota 55425. Registration for the Annual Meeting will begin at 1:00 p.m., local time. The Annual Meeting will commence at 1:30 p.m., local time. provided by a national securities exchange.
This solicitation is being made primarily by mail; however,mail. However, we also may use our officers, directors and employees (without providing them with additional compensation) to solicit proxies from shareholdersstockholders in person or by telephone, email, facsimile or letter. Distribution of this proxyconsent solicitation statement and the proxy cardConsents is scheduled to begin on or about April 27,, 2017.
We are not holding a meeting of stockholders in connection with the Proposal described herein. This Consent Solicitation Statement describes the matter that is presented to stockholders for approval. Approval of the Proposal requires receipt of affirmative Consents from the holders of a majority of our shares of common stock outstanding as the Record Date (the “Majority Stockholders”). There are no rights of appraisal or similar rights of dissenters with respect to the Proposal.
Pursuant to rules promulgated by the U.S. Securities and Exchange Commission (the “SEC”), we are providing access to our consent solicitation materials, consisting of the Notice of Consent Solicitation, this Consent Solicitation Statement, and the Consent both by sending you this full set of materials and by notifying you of the availability of the materials on the Internet. You may access the consent solicitation materials at .
To be counted toward approval of the Proposal, your Consent must be received within 60 days from the date of the earliest dated and delivered Consent(s). Under the Delaware General Corporation Law (“DGCL”), the failure to timely deliver a Consent will have the same effect as a vote against the Proposal.
The Board requests that you sign, date and return the Consent included asAppendixA to this Consent Solicitation Statement in the enclosed envelope (or submit your consent by facsimile or via the internet) as soon as possible. A form of the Certificate of Amendment to our Certificate of Incorporation (the “Certificate of Amendment”) to be filed with the Delaware Secretary of State to implement the reverse stock split and reduction in authorized shares is included asAppendix B.
You may revoke your written Consent at any time prior to the time that we have received a sufficient number of Consents to approve the Proposal. A revocation may be in any written form validly signed and dated by you, as long as it clearly states that the Consent previously given is no longer effective. Any such revocation should be sent to us at Sun BioPharma, Inc., c/o VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598.
Our Board of Directors believes that certain large holders of our common stock, our executive officers and our directors hold enough shares that they may provide sufficient Consents to approve the Proposal, although there has been no formal agreement with respect thereto. As of the Record Date, 8,844,896 shares (approximately 24.1%) of our outstanding shares of common stock are believed to be controlled and beneficially owned by our officers and directors, and 11,095,406 shares (approximately 30.2%) of our outstanding shares of common stock are believed to be controlled and beneficially owned by holders of 5% or more of our outstanding common stock.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTINGCONSENT SOLICITATION
The following questions and answers are intended to respond to questions frequently asked by the holders of our common stock concerning the actions approved by our Board of Directors. These questions do not, and are not intended to, address all the questions that may be important to you. You should carefully read the entire Consent Solicitation Statement, as well as its appendices and the documents incorporated by reference herein.
Q: | Why did I receive this |
A: | The Board of Directors is soliciting your |
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A: | All |
Q: | What am I |
A: | You are |
To amend the Certificate of Incorporation of Sun BioPharma, Inc., as amended from time to time, to effect a reverse stock split of the company’s common stock at a ratio of one-for-ten (1:10) and reduce the shares authorized for issuance by 50%, with such reverse stock split and reduction in authorized shares to be effective at such date and time, if at all, as determined by the board of directors of the company in its sole discretion.
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A: | The Board recommends that all stockholders provide their Consent in support of the Proposal. |
Q: | What is |
A: | The primary purpose of the reverse stock split is to enable us to meet the required minimum bid price standard required to list our common stock on a national securities exchange, such as The NASDAQ Capital Market or NYSE MKT. Our common stock is currently traded on the over-the-counter markets through the OTCQB marketplace. Historically, the over-the-counter markets have been relatively thinly traded and lack the liquidity that could be provided by a national securities exchange. |
In order to list our common stock on a national securities exchange, among other requirements, our common stock must maintain a minimum closing bid price of $4.00. As of August 2, 2017, the last executed trade price of our common stock, as reported on the OTCQB marketplace, was $1.15 per share. During the fiscal year ended December 31, 2016, the bid price of our common stock on the over-the-counter markets ranged between $6.01 and $0.56. We believe that completing the reverse stock split will result in an increase in our per share price that may enable us to apply to “uplist” our shares to a national securities exchange, provided that all of the other minimum requirements for listing on such exchange are satisfied. There can be no assurance that the market price for our common stock will increase in the same proportion as the reverse stock split or, if increased, that such price will be maintained or that it will be sufficient to permit us to apply to “uplist” our shares on a national securities exchange. We have not applied to list our common stock on any national securities exchange, and, even if we satisfy the listing requirements of an exchange, we may not apply to have our common stock listed on any exchange. Even if we do satisfy the requirements and apply for listing, there is no guarantee that our application will be approved. If our common stock is eventually listed on a national securities exchange, we may not be able to satisfy the requirements for continued listing.
Application for or approval of our common stock for listing on a national securities exchange is NOT a condition or requirement for effecting the reverse stock split. Even if the requisite number of stockholder Consents are received to approve the Proposal, our Board will have complete discretion as to whether or not to consummate the reverse stock split.
The proposed Certificate of Amendment to effectuate the reverse stock split is discussed in detail below under the heading “Proposal.” The full text of the proposed Certificate of Amendment is included asAppendixB to this Consent Solicitation Statement.
Q: | What is the purpose of the reduction in authorized shares? |
A: | In light of the reverse stock split, our Board believes that the number of shares of our capital stock that is currently authorized would provide significantly more available shares than would be necessary for our reasonably foreseeable needs. Further, because the amount of a Delaware corporation’s franchise tax fees is based on the number of authorized shares of its capital stock, a smaller number of authorized shares will result in an immediate decrease in the Company’s Delaware franchise tax obligations. Accordingly, our Board has approved and recommends |
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A: | The consummation of the |
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If we do not receive the approval for the reverse stock split, we also will be unlikely to meet the minimum bid price standard required in order to uplist our common stock onto a national securities exchange in the foreseeable future. This may preclude our ability to access capital from certain institutional and other investors who would not invest in an unlisted stock. Certain institutional and other investors also may not be willing to invest in a “penny stock” (an unlisted stock that has a market price of less than $5.00 per share).
Q: | Will there be a meeting of stockholders to consider the Proposal? |
A: | No. We will not hold a meeting of stockholders. We are incorporated in the State of Delaware. In accordance with our Certificate of Incorporation and Section 228 of the DGCL, our stockholders are permitted to take action without a meeting if consents in writing, setting forth the action so taken, are given by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. |
Q: | What vote is required to approve |
A: | The Proposal |
Proposal 2 –Ratification of the selection of Cherry Bekaert LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2017 - Provided a quorum is present at the Annual Meeting, this proposal will be approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the proposal.
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A properly executed proxy marked “ABSTAIN” with respect to a proposal will be counted for purposes of determining whether there is a quorum and will be considered present in person or by proxy and entitled to vote, but will not be deemed to have been voted in favor of such proposal. Abstentions will have no effect on the voting for the election of directors or any of the proposals.
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Shares held in street name. If your shares are held in a stock brokerage account or by a bank or other nominee, you are considered to be the beneficial owner of shares held in “street name,” and this Consent Solicitation Statement is being forwarded to you by your broker, bank, trust or nominee, which is considered the stockholder of record with respect to those shares. As the beneficial owner, you have the right to direct your broker, bank, trust or nominee to provide your Consent or to withhold Consent to the Proposal. Your broker, bank, trust or nominee has enclosed an instruction card for you to use in directing the broker, bank, trust or nominee regarding whether to Consents or to withhold Consent to the Proposal. Your broker, bank, trust or nominee will only be able to vote your shares with respect to the Proposal set forth herein if you have instructed them to provide your Consent. Please instruct your broker, bank, trust or nominee to provide the Consent by returning your completed written Consent or instruction form to your broker, bank, trust or nominee and contact the person responsible for your account to ensure that your vote can be counted. If your broker, bank, trust or nominee permits you to provide instructions via facsimile, the Internet or by telephone, you may instruct them to provide or withhold the Consent that way as well.
Q: | How do I |
A: | Shares registered in your name. If you are a |
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You are a “beneficial owner” of shares held in “streetbeneficial or street name” rather than a “shareholder of record,” if holder, your shares are held in the name of a broker, bank, trust or other nominee as a custodian, and this proxy statementConsent Solicitation Statement and the accompanying notice were forwarded to you by that organization. As a beneficial owner, youYou have the right to direct your broker, bank, trust or other nominee how to vote your shares. You may vote by proxyprovide or withhold the Consent by completing the voting instruction form provided by your custodian. Since a beneficial owner is not the shareholder of record, you may not vote your shares in person at the Annual Meeting unless you obtain a “legal proxy” from the broker, bank, trustee, or nominee that holds your shares giving you the right to vote the shares at the meeting.
Q: | What if I do not return the Consent or fail to provide instructions to my custodian? |
A: | Because the Proposal requires the written Consent of the holders of a majority of the outstanding shares of our common stock, your failure to respond will have the same effect as voting AGAINST the Proposal. |
Q: | Can I |
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Attendance at the meeting will not by itself revoke a previously granted proxy. Unless you decide to vote your shares in person, you should revoke your prior proxy in the same way you initially submitted it – that is, by Internet, facsimile or mail.
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A: | Shares registered in your name. If you |
Shares held in street name. If you holdare a beneficial or street name holder, your shares throughare held in the name of a broker, bank, trust or other nominee as a custodian, and you will receive votingshould follow the instructions from your broker. If you do not submit voting instructions toprovided by your broker, and your broker does not have discretionbank, trust or other nominee, provided that such revocation is made prior to vote your shares onthe time that we receive a particular matter, then your shares will not be counted in determiningsufficient number of written Consents to approve the outcome of the vote on that matter at the Annual Meeting. See “What is the effect of broker non-votes and abstentions?” as described above. Your broker will not have discretion to vote your shares for any matter to be voted upon at the Annual Meeting other than the ratification of the selection of our independent registered public accounting firm. Accordingly, it is important that you provide voting instructions to your broker for the matters to be voted upon at the Annual Meeting.Proposal set forth herein.
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If any matters not described in the proxy statement are properly presented at the Annual Meeting, the proxy holders will use their own judgment to determine how to vote your shares. If the Annual Meeting is adjourned, the proxy holders can vote your shares on the new meeting date as well, unless you have revoked your proxy instructions, as described under “Can I revoke or change my vote?”
Q: | Is myConsentconfidential? |
A: | All Consents and all tabulations that identify an individual stockholder are confidential. Your Consent will not be disclosed except to allow tabulation of the shares covered by valid Consents; and to meet applicable legal requirements. |
Q: | What does it mean if I get more than one |
A: | Your shares are |
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A: | We will pay the cost of soliciting |
PROPOSAL
Holders of common stock of the Company as of the Record Date are requested to approve the following Proposal:
To amend the Certificate of Incorporation of Sun BioPharma, Inc., as amended from time to time, to effect a reverse stock split of the company’s common stock at a ratio of one-for-ten (1:10) and reduce the shares authorized for issuance by 50%, with such reverse stock split and reduction in authorized shares to be effective at such date and time, if at all, as determined by the board of directors of the company in its sole discretion.
On July 17, 2017, our Board adopted a resolution declaring the reverse stock split, reduction in authorized shares, and corresponding Amendment to be advisable and in the best interests of the Company and its stockholders and directing that the reverse stock split, reduction in authorized shares, and Amendment be submitted to stockholders of the Company entitled to vote thereon for their approval.
The Board currently intends to effect the reverse stock split in order to increase the per share trading price of our common stock, which is currently trading on the over-the-counter markets, primarily through the OTCQB marketplace, to a level sufficiently above the minimum bid price standard required for initial listing on a national securities exchange, such as The Nasdaq Capital Market or the NYSE MKT. The reduction in authorized shares is intended to reduce our state tax obligations while retaining our ability to issue additional shares, as appropriate.
Provided that we receive stockholder approval of the Proposal, the reverse stock split and reduction in authorized shares would become effective upon the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware. The exact timing of the filing of the Certificate of Amendment will be determined by the Board, in its sole discretion, based upon its evaluation of when such action will be advantageous to the Company and our stockholders.
The Board reserves the right, notwithstanding any approval of the Proposal by the stockholders, and without further action by our stockholders, to elect not to proceed with the Amendment if, at any time prior to filing the Certificate of Amendment, the Board, in its sole discretion, determines that either the reverse stock split or the reduction in authorized shares is no longer in the best interests of the Company and our stockholders, or for any other reason.
A principal effect of the reverse stock split will be to decrease the number of outstanding shares of our common stock by approximately 90% from 36,704,639 to approximately 3,670,400. Except for de minimis adjustments that may result from the treatment of fractional shares as described below, the reverse stock split will not have any dilutive effect on our stockholders, since each stockholder would hold the same percentage of our common stock outstanding immediately following the reverse stock split as such stockholder held immediately prior to the reverse stock split. The relative voting and other rights that accompany the shares of common stock would not be affected by the reverse stock split.
Although the reverse stock split will not have any dilutive effect on our stockholders, the reverse stock split would reduce our outstanding shares of common stock by approximately 90% while the authorized capital shares would be only reduced by 50%. The resulting authorized and unissued shares of capital stock available after the reverse split could give our Board the authority to issue additional shares which would result in greater proportionate dilution to existing stockholders than would have been possible given the authorized and unissued shares available prior to filing the Amendment.
PROPOSAL 1:ELECTION OF CLASS I DIRECTORSReasons for theProposal
As noted above, the Board’s primary objective in proposing the reverse stock split is to enable the Company to raise the per share trading price of our common stock, which is currently trading on the over-the-counter markets, primarily through the OTCQB marketplace, to allow for an application to uplist our common stock on a national securities exchange, provided that at the time we submit our listing application, we satisfy the other listing criteria. Upon receiving stockholder approval, the Board may, in its sole discretion, file the Certificate of Amendment with the Secretary of State of the State of Delaware. Thereafter, the Board may, in its sole discretion, seek to obtain approval for listing on a national securities exchange.
Our business is overseen by a Board believes that the reverse stock split, and any resulting increase in the per share price of Directors divided into three classes as nearly equalour common stock, likely would enhance the acceptability and marketability of our common stock to the financial community and investing public allowing current shareholders to benefit from greater liquidity and improve the Company’s access to capital. Many institutional investors have policies prohibiting them from holding lower-priced stocks in number as possible, and directors typically are elected to a designated class for a term of three years. The Board has fixed at threetheir portfolios, which reduces the number of directorspotential buyers of our common stock. Additionally, analysts at many brokerage firms are reluctant to recommend lower-priced stocks to their clients or monitor the activity of lower-priced stocks. Brokerage houses frequently have internal practices and policies that discourage individual brokers from dealing in lower-priced stocks, particularly stocks categorized as “penny stocks. “Further, because brokers’ commissions on lower-priced stock generally represent a higher percentage of the stock price than commissions on higher priced stock, investors in lower-priced stocks pay transaction costs which are a higher percentage of their total share value, which may limit the willingness of individual investors and institutions to purchase our common stock.
In light of the reverse stock split, our Board believes that the number of shares of our capital stock that is currently authorized (200 million shares of common stock and 20 million shares of preferred stock) would provide more available shares than would likely be required for our reasonably foreseeable needs. Our Board is mindful of the potential negative effects of a large number of authorized but unissued shares of common stock. The availability of a substantial number of authorized but unissued shares of common stock could, under certain circumstances, discourage or make more difficult efforts to obtain control of our Company. Further, because the amount of a Delaware corporation’s franchise tax fees is based on the number of authorized shares of its capital stock. Reducing the authorized shares of our capital stock will have the immediate effect of reducing our Delaware franchise tax obligations. Our Board believes the number of shares of common stock should be reduced by 50% to 100 million shares, and the number of shares of authorized preferred stock should be similarly reduced to 10 million shares.
Our Company will need to obtain additional funds to continue its operations and execute its current business plans, including completing the current Phase 1 clinical trial, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets. We have been successful in the past in obtaining the necessary capital to support our operations principally through the sale of convertible debt and equity securities and we intend to seek additional financing through similar means before the end of the fiscal year. However, we have no current plans, agreements or arrangements, written or oral, to issue any of the authorized shares of capital stock that will be available as a result of the reverse stock split, if the Proposal is approved. If and when we do seek additional financing, there is no assurance that we will be able to obtain it under commercially reasonable terms and conditions, or at all. That risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.
Neither our Board nor the Company has proposed the reverse stock split or reduction in authorized shares in response to any effort, nor are we aware of any such effort, to accumulate our shares of common stock or obtain control of the Company, nor is it a plan by management to recommend a series of similar actions to our Board or our stockholders. Further, the Board does not intend for this transaction to be electedthe first step in a “going private transaction” within the meaning of Rule 13e-3 of the Securities Exchange Act of 1934 (the “Exchange Act”). Further, the Board is not aware of any attempt, or contemplated attempt, to acquire control of our Company or to pursue a “going private transaction.”
We do not believe that our officers or directors have interests in the Proposal that are different from or greater than those of any other of our stockholders.
Potential Disadvantages of theProposal
While we believe that the reverse stock split would be in the best interests of the Company and its stockholders, we cannot assure you that the reverse stock split, by itself, will be sufficient to allow us to accomplish our objective to obtain a listing on a national securities exchange. While we expect that the reduction in the number of outstanding shares of common stock will increase the market price of our common stock, we cannot assure you that after the reverse stock split the market price of our common stock will increase proportionately to reflect the ratio of the reverse stock split, that the market price of our common stock will not decrease to its pre-split level, that our market capitalization will be equal to the market capitalization before the reverse stock split or that we will satisfy the other listing criteria or will be able to obtain a listing on any national securities exchange, or to maintain such listing for any meaningful period of time.
The price of our common stock is dependent upon many factors, including the results of our clinical trials, business and financial performance, general market conditions and prospects for future success. If the per share market price does not increase proportionately as a result of the reverse stock split, then the value of our Company as measured by our market capitalization will be reduced, perhaps significantly.
The number of shares held by each individual stockholder would be reduced if the reverse stock split is implemented. This may also reduce the number of stockholders who hold more than a “round lot,” or 100 shares. This has two disadvantages. For example, decreasing our number of round lot shareholders may impair our ability to comply with the rules of The Nasdaq Capital Market, which requires companies applying for listing to have at least 300 round lot stockholders. Additionally, the transaction costs to stockholders selling “odd lots” are typically higher on a per share basis. Consequently, the reverse stock split could increase the transaction costs to existing stockholders in the event they wish to sell all or a portion of their shares.
Although our Board believes that the decrease in the number of shares of our common stock outstanding as a consequence of the reverse stock split and the anticipated increase in the market price of our common stock would likely encourage interest in our common stock and promote greater liquidity for our stockholders, such liquidity could also be adversely affected by the reduced number of shares outstanding after the reverse stock split. As a result, there can be no assurance that the reverse stock split, if completed, will result in the intended benefits described above, that the market price of our common stock will increase following the reverse stock split or that the market price of our common stock will not decrease in the future.
Our Board believes that 100 million authorized shares of common stock will be sufficient for our expected purposes for the foreseeable future. However, these expectations could turn out to be wrong and we may require additional authorized shares sooner than we expect. In that case, we would be required to obtain the approval of our stockholders to effect an increase to our authorized shares. Any such increase to our authorized shares may require us to solicit consents or proxies and hold a vote at an annual or special meeting of our stockholders. The stockholder meeting process can be costly and time-consuming and is subject to a variety of SEC rules that implement waiting periods throughout the process, which could prevent us from obtaining any increase to our authorized shares in a timely manner. Moreover, our stockholders may not approve any proposal to increase our authorized shares. Either of these outcomes could cause us to forego opportunities that we believe to be valuable or prevent us from using equity for compensation or other corporate purposes, which could limit our flexibility and prospects.
Effecting theAmendment
Upon receipt of stockholder approval for the Proposal, if our Board concludes, in its sole discretion, that it is in the best interests of our Company and our stockholders to effect the reverse stock split and reduction in authorized shares, then the Certificate of Amendment will be filed with the Secretary of State of the State of Delaware. The actual timing of the filing of the Certificate of Amendment will be determined by our Board. Notwithstanding stockholder approval, if at any time prior to the filing of the Certificate of Amendment, the Board deems the reverse stock split or reduction in authorized shares to no longer be in the best interests of our Company and our stockholders, the Board may abandon this effort, without further action by our stockholders. The reverse stock split will be effective as of the date of filing with the Secretary of State of the State of Delaware or at such time and date as may be specified in the Certificate of Amendment (the “Effective Time”).
Upon the filing of the Certificate of Amendment, without further action on our part or on the part our stockholders, the outstanding shares of common stock held by stockholders of record as of the Effective Time would be converted into a lesser number of shares of common stock based on the a reverse stock split ratio of one-for-ten (1:10). For example, if you presently hold 10,000 shares of our common stock, you would hold 1,000 shares of our common stock following the reverse stock split.
Effect of theAmendmenton Registration, Voting Rights and Authorized Shares
The reverse stock split will affect all stockholders equally and will not affect any stockholder’s proportionate equity interest in the Company. None of the rights currently accruing to holders of our common stock will be affected by the reverse stock split. If and when our Board elects to effect the reverse stock split, the principal effect will be to proportionately decrease the number of outstanding shares of our common stock based on the split ratio.
Proportionate voting rights and other rights of the holders of our common stock will not be affected by the reverse stock split, other than as a result of the treatment of fractional shares as described below. For example, a holder of 2% of the voting power of the outstanding shares of our common stock immediately prior to the effectiveness of the reverse stock split will generally continue to hold 2% of the voting power of the outstanding shares of our common stock after the reverse stock split. The number of stockholders of record will not be affected by the reverse stock split.
The Amendment, in connection with the reverse stock split, would also reduce the number of authorized shares of our capital stock as follows: the authorized number of shares of our common stock and preferred stock will be reduced by 50% to 100 million and 10 million, respectively. As a result, the proportion of shares owned by our stockholders relative to the number of shares authorized for issuance will decrease, and the resulting authorized and unissued shares of common stock available for issuance after the reverse split may be used at such times and for such purposes as our Board may deem advisable without further action by our stockholders, except as required by applicable laws and regulations. In accordance with our Certificate of Incorporation and the DGCL, our stockholders do not have any preemptive rights to purchase or subscribe for any of our unissued shares.
Our Company will need to obtain additional funds to continue its operations and execute its current business plans, including completing the current Phase 1 clinical trial, planning for required future trials and pursuing regulatory approvals in the United States, the European Union and other international markets. We have been successful in the past in obtaining the necessary capital to support our operations principally through the sale of convertible debt and equity securities and we intend to seek additional financing through similar means before the end of the fiscal year. However, we have no current plans, agreements or arrangements, written or oral, to issue any of the authorized shares of capital stock that will be available as a result of the reverse stock split, if the Proposal is approved. If and when we do seek additional financing, there is no assurance that we will be able to obtain it under commercially reasonable terms and conditions, or at all. That risk would increase if our clinical data is inconclusive or not positive or economic conditions worsen in the market as a whole or in the pharmaceutical or biotechnology markets individually.
Effects of the Reverse Stock Split on Issued and Outstanding Shares of Common Stock
At the time that the reverse stock split is effectuated, shares of our common stock issued and outstanding will be proportionately decreased based on the split ratio. Ten shares of existing common stock will be combined into one new share of common stock. The number of shares of common stock issued and outstanding will therefore be reduced. For example, as of August 2, 2017, Annual Meetingwe had 36,704,639 shares of Shareholders. Based uponcommon stock outstanding. Without giving effect to any fractional shares that may be eliminated as a part of the recommendationreverse stock split, approximately 3,670,463 shares of common stock would be outstanding after giving effect to the reverse stock split. However, as described below, holders of common stock otherwise entitled to a fractional share as a result of the reverse stock split will receive a cash payment in lieu of such fractional share. These cash payments will reduce the number of post-reverse stock split shares of our common stock outstanding and, to the extent there are currently stockholders who would otherwise receive less than one share of common stock after the reverse stock split, may also reduce the number of holders of our common stock.
Effect on Par Value and Loss per Share
The par value per share of the common stock will remain unchanged at $0.001 per share after the reverse stock split. As a result, on the Effective Time of the reverse stock split the stated capital on our balance sheet, which is the number of shares outstanding multiplied by the $0.001 par value, will be reduced proportionately, based on the split ratio, from its Nominatingpresent amount and Governancethe additional paid-in capital account will be increased by the amount that the stated capital is reduced.
After the reverse stock split, net income or loss per share and other per share amounts will be increased proportionally because there will be fewer shares of our common stock outstanding. In future financial statements, net income or loss per share and other per share amounts for periods ending before the reverse stock split would be recast to give retroactive effect to the reverse stock split.
Effect on the Company’s Equity Incentive Plans
As of the Record Date, we had approximately 3,896,000 shares subject to stock options under our 2016 Omnibus Incentive Plan (the “2016 Plan”) and 2,943,600 shares subject to stock options under our 2011 Stock Option Plan (the “2011 Plan”).
Under the 2016 Plan, the Compensation Committee of the Board of Directors has nominatedSuzanne Gagnon, David B. Kaysen,sole discretion to determine the appropriate adjustment to the awards outstanding in the event of a stock split. Should the reverse stock split be effectuated, the number and Paul W. Schafferclass of shares underlying shares authorized to stand for election for three-year terms. Proxies solicited bybe granted or granted and the Board will, unless otherwise directed,price per share payable upon exercise of an award, as applicable, would be votedequitably adjusted to elect the nominees named below.The following table sets forth certain information regarding the current members of our Board of Directors:
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reflect such changes. The Board of Directors has fixed at threeapproved proportionate adjustments to the number of directors to be electedshares underlying awards outstanding and available for issuance and proportionate adjustments to the Board at the 2017 Annual Meeting of Shareholders. Based upon the recommendation of its Nominating and Governance Committee, the Board of Directors has nominated Suzanne Gagnon, David B. Kaysen, and Paul W. Schafferexercise price relating to stand for election for three-year terms. Proxies solicited by the Board will, unless otherwise directed, be voted to elect the nominees named below.any such awards.
Nominees for Class I Directors – Terms ExpiringUnder the 2011 Plan, the outstanding awards granted thereunder are automatically adjusted in 2020
Eachthe event of a stock split. Should the nominees named below are current directors of our Company and each nominee has indicated a willingness to serve as a director for the term to which he or she is elected, but in case any nominee is not a candidate at the meeting for any reason, the proxy holders named in our form of proxy may vote for a substitute nominee in their discretion or our Board of Directors may recommend thatreverse stock split be effectuated, the number of directorsshares underlying awards granted under the 2011 Plan, and the price per share payable upon exercise of such an awards would be equitably adjusted to be elected be reduced. The following table sets forth certain information regarding each director nominee:reflect such changes.
Suzanne Gagnon, M.D., has served as our Chief Medical Officer and as a director of our Company since September 4, 2015. Dr. Gagnon had previously served as a director of Sun BioPharma Research, Inc. (“SBR”), a former affiliate of the Company, since June 2015 and as its Chief Medical Officer since January 2015. Previously, Dr. Gagnon served as the Lead Clinical Consultant to the Company. Prior to working for the Company, Dr. Gagnon was the President of Gagnon Consulting LLC from July 2014 through December 2014 consulting on medical, safety and regulatory matters. From December 2001 through July 2014, Dr. Gagnon had acted as the Chief Medical Officer for three companies, ICON Clinical Research, Nupathe, Inc. and Idis, Inc.
David B. Kaysen has served as our President and Chief Executive Officer and as a director of our Company since September 4, 2015. Mr. Kaysen had previously served as the President of SBR since August 2015 and as Chief Executive Officer and as a director of SBR since July 2015. Prior to joining the Company, Mr. Kaysen was a self-employed medical technology consultant since April 2013. Mr. Kaysen previously was the President, Chief Executive Officer and a board member of Uroplasty, Inc. (now Cogentix Medical, Inc.), a publicly traded medical device company, from May 2006 through April 2013. Prior to that, Mr. Kaysen served as President and CEO and as a director of Diametrics Medical, a publicly traded diagnostics company, and Rehabilicare Inc. (now Compex Technologies), a publicly traded neuromodulation medical device company. Mr. Kaysen holds a Bachelor of Science in Business Administration from the University of Minnesota.
Paul W. Schaffer has served as a director since September 4, 2015. Mr. Schaffer had previously served as a director of SBR since January 2014. Mr. Schaffer graduated from Minnesota Pharmacy School in 1966. He owned and operated a compounding pharmacy, Bloomington Drug, for 42 years. Mr. Schaffer is an experienced biotech investor. We believe that Mr. Schaffer brings a wealth of experience in pharmaceutical development and manufacturing to the Board of Directors, as well as knowledge of regulations and issues facing pharmaceutical companies.
Accordingly, if the Proposal is approved by stockholders, upon the filing of the Certificate of Amendment with the Secretary of State of the State of Delaware, the number of all outstanding equity awards, the number of shares available for issuance and the exercise price relating to all outstanding equity awards under the 2016 Plan and 2011 Plan will be proportionately adjusted using the split ratio and fractional shares, if any, will be truncated.
Class II Directors – Terms Expiring in 2018The Compensation Committee is also authorized to effect any other changes necessary, desirable or appropriate to give effect to the reverse stock split, including any applicable technical, conforming changes to our 2016 Plan or 2011 Plan. For example, the 11,104,000 shares that remained available for issuance under the 2016 Plan as of the Record Date would be adjusted to 1,110,400 shares, subject to increase as and when awards made under such Plan expire or are forfeited and are returned per the terms of the 2016 Plan. In addition, under that example, the exercise price per share for each outstanding stock option would be increased by ten times, such that upon an exercise, the aggregate exercise price payable by the optionee to the Company would remain the same. For illustrative purposes only, an outstanding stock option for 10,000 shares of common stock, exercisable at $1.00 per share, would be adjusted into an option exercisable for 1,000 shares of common stock at an exercise price of $10.00 per share.
Michael T. Cullen, M.D., M.B.A.Effect on our Outstanding, has servedWarrants
If the reverse stock split is effectuated, the number of shares of our common stock that may be purchased upon exercise of outstanding warrants and the exercise prices for these securities will be ratably adjusted in accordance with their terms as Executive Chairman of the boardEffective Time. Thus, if the reverse stock split is effectuated, the number of shares of common stock issuable upon exercise of any outstanding warrant will automatically be reduced in the same ratio as the reduction in the number of shares of outstanding common stock. Correspondingly, the per share exercise price will be increased in direct proportion to the stock split ratio, so that the aggregate dollar amount payable for the purchase of the shares underlying warrants will remain unchanged.
Effect on our OutstandingConvertible Promissory Notes
Our convertible notes are convertible into shares of common stock or other securities of the Company upon the occurrence of a Qualified Financing, including the sale of equity securities or a strategic partnership, raising gross proceeds of at least $2.0 million on or before the maturity of the 2017 Notes or upon the request of a holder of any 2017 Note at a fixed conversion rate of $1.01 per share. If the reverse stock split is effectuated, holders of the convertible notes retain the right to convert at a conversion price determined by applying a discount to the price of the common stock or securities sold in the Qualified Financing. As such the number of shares of our common stock into which the convertible notes may be converted in connection with a Qualified Financing would be unaffected by the reverse stock split. However, the fixed conversion price which may be elected by holders of the convertible notes will be increased in direct proportion to the stock split ratio.
Effect on Registration and Stock Trading
Our common stock is currently registered under Section 12(g) of the Exchange Act, and we are subject to the periodic reporting and other requirements of the Exchange Act. If our common stock becomes listed on a national securities exchange, we would file a short form registration statement for our common stock to be registered under Section 12(b) of the Exchange Act. We currently do not intend to seek any change in our status as a directorreporting company for federal securities law purposes, either before or after the reverse stock split, except to have our common stock moved from a registration pursuant to Section 12(g) to Section 12(b) under the Exchange Act.
Effect on Registered and Beneficial Holders
Upon completion of the reverse stock split, if you hold registered shares of pre-split common stock in a book-entry form, you do not need to take any action to receive your shares of post-split common stock in registered book-entry form. On or after the Effective Time, the Company’s transfer agent may be instructed to send a transaction statement to your address of record as soon as practicable after the Effective Time indicating the number of shares of post-split common stock you hold.
If any stockholders of record hold their shares of our Company sinceCommon stock in certificate form, upon completion of the reverse stock split they may receive a transmittal letter from the Company’s transfer agent after the effective time of the Merger. Dr. Cullen brings 25 yearsreverse stock split. The transmittal letter would be accompanied by instructions specifying how to exchange your certificate representing the pre-split common stock for a statement of pharmaceutical experienceholding or a certificate of post-split common stock. No service charges, brokerage commissions or transfer taxes shall be payable by any holder of any pre-split certificate, except that if any post-split certificate is to be issued in a name other than that in which the pre-split certificate(s) are registered, it will be a condition of such issuance that (1) the person requesting such issuance must pay to us any applicable transfer taxes or establish to our Company, including expertisesatisfaction that such taxes have been paid or are not payable, (2) the transfer complies with all applicable federal and state securities laws, and (3) the surrendered certificate is properly endorsed and otherwise in workingproper form for transfer. Stockholders will not have to pay any service charges in connection with development-stage companiesthe exchange of their certificates.
Stockholders who hold shares in planning, designing and advancing drug candidates from preclinicalstreet name through clinical development. Dr. Cullen co-founded SBR in November 2011 and had continuously serveda nominee (such as Chairman its board of directors since that date. He previously served as its Chief Executive Officer and President of SBR from November 2011 to June 2015. Dr. Cullen provided due diligence consulting to the pharmaceutical industry from 2009 to 2011, after one year in transition consulting to Eisai Co., Ltd. He developed several oncology drugs as Chief Medical Officer for MGI Pharma Inc. from 2000 to 2008, and previously at G.D. Searle, SunPharm Corporation, and as Vice President for Clinical Consulting at IBAH Inc., the world’s fifth largest contract research organization, where he provided consulting services on business strategy, creating development plans, regulatory matters and designing clinical trials for several development stage companiesa bank, broker or trust) will be treated in the pharmaceutical industry. Dr. Cullen was also a co-foundersame manner as stockholders whose shares are registered in their names, and Chief Executive Officer of IDD Medical, a pharmaceutical start-up company. Dr. Cullen joined 3M Pharmaceuticalsnominees will be instructed to effect the reverse stock split for their beneficial holders. However, nominees may have different procedures and stockholders holding shares in 1988 and contributed to the development of cardiovascular, pulmonary and immune-response modification drugs. Over the course of his career Dr. Cullen has been instrumental in obtaining the approval of ten drugs, including three (3) since 2004: Aloxi®, Dacogen® and Lusedra®. Board-certified in Internal Medicine, Dr. Cullen practiced from 1977 to 1988 at Owatonna Clinic, Owatonna, MN, where he served as president. Dr. Cullen earned his MD and BS degrees from the University of Minnesota and his MBA from the University of St. Thomas and completed his residency and Board certification in Internal Medicine through the University of North Carolina in Chapel Hill and Wilmington, NC.street name should contact their nominees.
Fractional Shares
D. Robert Schemel has servedThe Company does not intend to issue fractional shares in connection with the reverse stock split. Holders of record of our common stock who otherwise would be entitled to receive fractional shares because they hold, as of a director sincedate prior to the effective timeEffective Time, a number of shares of our common stock not evenly divisible by 10 will be entitled to a cash payment in lieu thereof. The cash payment will equal the product obtained by multiplying (a) the most recent sale price per share of the Merger. Mr. SchemelCommon Stock as reported by OTC Markets Group, Inc. as of the date of the Effective Time, by (b) the fraction of one share owned by the stockholder. The ownership of a fractional interest will not give the holder thereof any voting, dividend or other rights except to receive payment therefor as described herein.
Holders of our common stock should be aware that, under the escheat laws of the various jurisdictions where our stockholders reside, where we are domiciled and where the funds will be deposited, sums due for fractional interests that are not timely claimed after the Effective Time may be required to be paid to the designated agent for each such jurisdiction. Thereafter, holders of our common stock otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.
As of the Record Date, we had previously served asholders of record of our common stock (although we have significantly more beneficial holders). We do not expect the reverse stock split to result in a director of SBR since March 2012. Mr. Schemel has over 39 years’ experiencesignificant reduction in the agriculture industry. From 1973-2005, Mr. Schemel ownednumber of record holders.
Anti-Takeover and operated a farming operation in Kandiyohi County, Minnesota, building a 5,000-acre operation producing corn, soybeans and sugar beets. Mr. Schemel has extensive experience in serving on boards of directors. From 1992-1996 he served as a board member for ValAdCo and then from 1996-2003 he served as the Chairman of the Board for Phenix Biocomposites. He is currently a member of the Southern Minnesota Beet Sugar Co-op which oversees the operation of the largest US sugar processing facility and a molasses desugarization facility in Renville, Minnesota, which has a total economic benefit currently exceeding $180 million annually We believe that Mr. Schemel brings business insight and leadership as well as significant experience in the development and growth of early stage companies.Dilutive Effects
Class III Directors –Terms ExpiringThe purpose of reducing our authorized common stock by only 50% after the reverse stock split is to reduce our potential Delaware franchise tax obligation while preserving sufficient authorized shares to facilitate our ability to raise additional capital to support our operations. The reduction in 2019our authorized common stock is not to intended to establish any barriers to a change of control or acquisition of our Company. The shares of common stock that are authorized but unissued provide our Board with flexibility to effect, among other transactions, public or private financings, acquisitions, stock dividends, stock splits and the granting of equity incentive awards. However, these authorized but unissued shares may also be used by our Board, consistent with and subject to its fiduciary duties, to deter future attempts to gain control of us or make such actions more expensive and less desirable.
Dalvir S. Gill, Ph.D. has served as a directorIn addition, given that the reverse stock split reduces our outstanding shares of common stock by approximately 90% while the authorized capital shares would be only reduced by 50%, the resulting authorized and unissued shares of capital stock available after the reverse split may give our Board the authority to issue additional shares which would result in greater proportionate dilution to existing stockholders than would have been possible given the authorized and unissued shares available prior to filing the Amendment. Our Board may issue shares of our Company since March 2016. Mr. Gill has servedcapital stock from time to time without delay or further action by the stockholders except as may be required by applicable law or exchange rules. The reverse stock split is not being recommended in response to any specific effort of which we are aware to obtain control of us, nor does our Board have any present intent to use the Chief Executive Officer andauthorized but unissued common stock to impede a director of TransCelerate BioPharma, Inc., a nonprofit organization focused on improving the health of people around the world by simplifying and enhancing the research and development of innovative new therapies since January 2013. Previously, he was the President of Phase II-IV Drug Development at PharmaNet-i3, an international contract research organization, from Julytakeover attempt. There are no plans or proposals to December 2012. Dr. Gill earned his B.Sc. in Applied Biology from the University of Hertfordshire and his Ph.D. in Pathobiology from the Royal Free Hospital School of Medicine, University of London. He also holds a diploma in the health economics of pharmaceuticals from the executive program of the Stockholm School of Economics. Dr. Gill has more than 25 years of drug development experience. We believeadopt other provisions or enter into any arrangements that Dr. Gill brings strategic insight and leadership and a wealth of experience in the pharmaceutical industry to the Board of Directors, as well as knowledge of the regulatory and clinical requirements associated with the development of new drug compounds.have material anti-takeover effects.
No Appraisal Rights
Under the DGCL, our stockholders are not entitled to appraisal or dissenter’s rights with respect to the reverse stock split, and we will not independently provide our stockholders with any such rights.
Jeffrey S.Mathiesen has servedFinancial Information
Our audited consolidated financial statements and accompanying notes filed with our Annual Report on Form 10-K for the year ended December 31, 2016, (our “Annual Report”), are incorporated herein by reference.
Our unaudited condensed consolidated interim financial statements and accompanying notes filed with our Quarterly Reports on Form 10-Q for the periods ended March 31, 2016 and for the period ended June 30, 2016 (our “Quarterly Reports”), are incorporated herein by reference.
Item 7 of Part II of our Annual Report “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is incorporated herein by reference.
Item 2 of Part I of our Quarterly Reports “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are incorporated herein by reference.
Certain Federal Income Tax Consequences of the Reverse Stock Split
The following discussion is a general summary of certain U.S. federal income tax consequences of the reverse stock split that may be relevant to (i) holders of our common stock that hold such stock as a directorcapital asset for U.S. federal income tax purposes and (ii) to us. This summary is based upon the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations promulgated thereunder, administrative rulings and judicial decisions as of the date hereof, all of which may change, possibly with retroactive effect, resulting in U.S. federal income tax consequences that may differ from those discussed below. This discussion does not address all aspects of U.S. federal income taxation that may be relevant to such holders in light of their particular circumstances or to holders that may be subject to special tax rules, including, without limitation: (i) holders subject to the alternative minimum tax; (ii) banks, insurance companies, or other financial institutions; (iii) tax-exempt organizations; (iv) dealers in securities or commodities; (v) regulated investment companies or real estate investment trusts; (vi) partnerships (or other flow-through entities for U.S. federal income tax purposes and their partners or members); (vii) traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; (viii) U.S. Holders (as defined below) whose “functional currency” is not the U.S. dollar; (ix) persons holding our common stock as a position in a hedging transaction, “straddle,” “conversion transaction” or other risk reduction transaction; (x) persons who acquire shares of our Company since September 2015. He has served as Chief Financial Officercommon stock in connection with employment or other performance of Gemphire Therapeutics Inc.,services; or (xi) U.S. expatriates. In addition, this summary does not address the tax consequences arising under the laws of any foreign, state or local jurisdiction and U.S. federal tax consequences other than U.S. federal income taxation. If a publicly traded biopharmaceutical company since January 2015. Previously, he served as Chief Financial Officer of Sunshine Heart, Inc., a publicly traded medical device company, from March 2011 to January 2015. From December 2005 to April 2010, Mr. Mathiesen served as Vice President and Chief Financial Officer of Zareba Systems, Inc., a manufacturer and marketer of medical products, perimeter fencing and security systems that was purchased by Woodstream Corporation in April 2010. Mr. Mathiesen has held executive positions with publicly traded companies dating back to 1993, including vice president and chief financial officer positions. He has servedpartnership (including any entity or arrangement treated as a directorpartnership for U.S. federal income tax purposes) holds shares of NeuroOne, Inc.,our common stock, the tax treatment of a private medical device company, since 2017. Mr. Mathiesen holdsholder that is a B.S.partner in Accountingthe partnership generally will depend upon the status of the partner and the activities of the partnership.
We have not sought, and will not seek, an opinion of counsel or a ruling from the UniversityInternal Revenue Service (“IRS”) regarding the U.S. federal income tax consequences of South Dakotathe reverse stock split and there can be no assurance the IRS will not challenge the statements and conclusions set forth below or that a court would not sustain any such challenge. EACH HOLDER OF COMMON STOCK SHOULD CONSULT SUCH HOLDER’S TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX CONSEQUENCES OF THE REVERSE STOCK SPLIT TO SUCH HOLDER.
For purposes of the discussion below, a “U.S. Holder” is also a Certified Public Accountant. We believebeneficial owner of shares of our common stock that Mr. Mathiesen brings financial insight and leadership andfor U.S. federal income tax purposes is: (1) an individual citizen or resident of the United States; (2) a wealthcorporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of experience in capital marketsthe United States, any state or political subdivision thereof; (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (4) a trust, the administration of which is subject to the Boardprimary supervision of Directors,a U.S. court and as wellto which one or more U.S. persons have the authority to control all substantial decisions of the trust, or that has a valid election in effect to be treated as knowledgea U.S. person. A “Non-U.S. Holder” is a beneficial owner (other than a partnership) of public company accountingshares of our common stock who is not a U.S. Holder.
U.S. Holders
The reverse stock split should constitute a “recapitalization” for U.S. federal income tax purposes. As a result, a U.S. Holder generally should not recognize gain or loss upon the reverse stock split, except with respect to cash received in lieu of a fractional share of our common stock, as discussed below. A U.S. Holder’s aggregate tax basis in the shares of our common stock received pursuant to the reverse stock split should equal the aggregate tax basis of the shares of our common stock surrendered (excluding any portion of such basis that is allocated to any fractional share of our common stock), and financial reporting requirements.such U.S. Holder’s holding period (i.e. acquired date) in the shares of our common stock received should include the holding period in the shares of our common stock surrendered. Treasury regulations promulgated under the Code provide detailed rules for allocating the tax basis and holding period of the shares of our common stock surrendered to the shares of our common stock received pursuant to the reverse stock split. Holders of shares of our common stock acquired on different dates and at different prices should consult their tax advisors regarding the allocation of the tax basis and holding period of such shares.
A U.S. Holder who receives cash in lieu of a fractional share of our common stock pursuant to the reverse stock split should recognize capital gain or loss in an amount equal to the difference between the amount of cash received and the U.S. Holder’s tax basis in the shares of our common stock surrendered that is allocated to such fractional share of our common stock. Such capital gain or loss should be long term capital gain or loss if the U.S. Holder’s holding period for our common stock surrendered exceeded one year at the Effective Time. Long-term capital gains of non-corporate U.S. Holders are generally subject to reduced rates of taxation. The deductibility of capital losses is subject to limitations. Capital gains recognized by individuals, trusts and estates also may be subject to a federal Medicare contribution tax.
Information Reporting and Backup Withholding.Information returns generally will be required to be filed with the IRS with respect to the receipt of cash in lieu of a fractional share of our common stock pursuant to the reverse stock split in the case of certain U.S. Holders. In addition, U.S. Holders may be subject to a backup withholding tax (at the current applicable rate of 28%) on the payment of such cash if they do not provide their taxpayer identification numbers (in the case of individuals, their social security number) in the manner required or otherwise fail to comply with applicable backup withholding tax rules. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the U.S. Holder’s federal income tax liability, if any, provided the required information is timely furnished to the IRS.
J. Robert Paulson, Jr.Non-U.S. Holders, M.B.A. has served
Non-U.S. Holders who exchange shares of our common stock pursuant to the reverse stock split generally should be subject to tax in the manner described above under “U.S. Holders,” except that any capital gain realized by a Non-U.S. Holder as a directorresult of receiving cash in lieu of a fractional share of our Company since September 2015. Mr. Paulson has served as President, CEO, and a director of NxThera, Inc., a venture-funded medical device company developing a novel convective water vapor energy systemcommon stock generally should not be subject to treat a variety of endourological conditions, including benign prostatic hyperplasia (BPH) and prostate cancer since 2009. Previously, he was President, CEO and a director of Restore Medical Inc. from 2005 until its acquisition by MedtronicU.S. federal income or withholding tax unless:
● | the Non-U.S. Holder is an individual who holds our common stock as a capital asset, is present in the U.S. for 183 days or more during the taxable year of the reverse stock split and meets certain other conditions; |
● | the gain is effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the U.S. (or, if certain income tax treaties apply, is attributable to a Non-U.S. Holder’s permanent establishment in the U.S.); or |
● | we are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time within the shorter of the five-year period ending on the Effective Time, or the period that the Non-U.S. Holder held the shares of our common stock. We do not believe that we have been, currently are, or will become, a United States real property holding corporation. |
Individual Non-U.S. Holders who are subject to U.S. federal income tax because they are present in July 2008. He was CFO and VP of Global Marketingthe United States for Endocardial Solutions, which was acquired by St. Jude Medical in 2005. Before that, he was183 days or more during the Sr. VP/General Manager of Advanced Bionics, and held several executive positions with Medtronic, including VP/General Manageryear of the Surgical Navigation Technologies business, VP Corporate Strategy, and Director of Corporate Development. Mr. Paulson has held senior positions in marketing, corporate development, legal and finance at General Mills, and practiced corporate, M&A and securities law with the Minneapolis law firm of Lindquist & Vennum. He has servedreverse stock split will be taxed on gain recognized as a directorresult of Veran Medical since 2008,receiving cash in lieu of a fractional share of common at a flat rate of 30% or such lower rate as may be specified by an applicable income tax treaty. Other Non-U.S. Holders subject to U.S. federal income tax with respect to gain recognized as a result of receiving cash in lieu of a fractional share of common stock generally will be taxed on such gain in the same manner as if they were U.S. Holders and, in the case of foreign corporations, may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Information Reporting and Backup Withholding. In general, backup withholding and information reporting will not apply to payment of cash in lieu of a fractional share of our common stock to a Non-U.S. Holder pursuant to the reverse stock split if the Non-U.S. Holder certifies under penalties of perjury that it is a former director of Ablation Frontiers, Vascular SolutionsNon-U.S. Holder and Medical CV. We believe that Mr. Paulson brings strategic insight and leadership and a wealth of experience in healthcareneither we nor the transfer agent has actual knowledge to the Boardcontrary. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or allowed as a credit against the Non-U.S. Holder’s U.S. federal income tax liability, if any, provided that certain required information is timely furnished to the IRS. In certain circumstances the amount of Directors, as well as knowledgecash paid to a Non-U.S. Holder in lieu of capital marketsa fractional share of our common stock, the name and early stage companies.address of the beneficial owner and the amount, if any, of tax withheld may be reported to the IRS.
Text of Proposed Amendment; Effectiveness
The text of the proposed Certificate of Amendment is set forth inAppendix B to this Consent Solicitation Statement. If and when effected by our Board, the Certificate of Amendment will become effective upon its filing with the Secretary of State of the State of Delaware.
Vote Required Vote and Board Recommendation
Directors are elected byApproval of the Proposal requires the affirmative vote of a pluralitymajority of votes presentthe issued and entitled to vote. Provided that a quorum is present,outstanding shares of common stock as of the three nominees receiving the highest number of votes will be elected. The votes cannot be cast for a greater number of persons than three.
Record Date. The Board of Directors unanimously recommends that you vote “FOR” eachall stockholders deliver a Consent in favor of the nominees for Class I Directors listed above.Proposal in order to effect the reverse stock split and reduction in authorized shares as soon as possible.
CORPORATE GOVERNANCE
In accordance with applicable laws and our bylaws, the business and affairs of the Company are governed under the direction of the Board of Directors. The system of governance practices we follow is set forth in our corporate governance guidelines and in the charters of each of the committees of the Board of Directors. The corporate governance guidelines set forth the practices our board will follow with respect to its duties, committee matters, director qualifications and selection process, director compensation, director share ownership, director orientation and continuing education, executive evaluation, management succession and annual evaluation of the Board of Directors and committees. We also have adopted a code of business conduct and ethics relating to the conduct of our business by our employees, officers and directors. The corporate governance documents of the Company are reviewed periodically to ensure effective and efficient governance and compliance in a timely manner with all laws.
Corporate governance information, including the corporate governance guidelines, committee charters and the code of business conduct and ethics applicable to our directors, officers and employees is posted on our website at www.sunbiopharma.com under the “Investors” page. We plan to post to our website at the address described above any future amendments or waivers to our code of ethics and business conduct.
Board Leadership Structure
Our Board of Directors is led by our Executive Chairman, Michael T. Cullen. As Executive Chairman, Dr. Cullen (a) has the responsibility to call and preside over meetings of our Board of Directors, (b) preside over our annual meetings, (c) has primary responsibility in setting board agendas in consultation with our Chief Executive Officer, (d) has the ability to represent us with external stakeholders if approved by our Board of Directors, and (e) has the responsibility to seek input from other independent directors, facilitate discussions among the independent directors, and communicate such viewpoints to our Chief Executive Officer. We believe that this leadership structure (a) enhances the functionality of our Board of Directors, (b) strengthens communications between the board and our Chief Executive Officer, and (c) strengthens our board’s independence from management. In addition, this structure allows our Chief Executive Officer, David B. Kaysen, to focus his efforts on running our business and managing us in the best interests of our shareholders. Our Board of Directors believes that its current structure is the appropriate one at this time.
Nominating Process and Board Diversity
The Nominating and Governance Committee generally identifies director candidates based upon suggestions from current directors and senior management, recommendations by shareholders or use of a director search firm. Shareholders who wish to suggest qualified candidates may write to the attention of the chairman of our Nominating and Governance Committee at Sun BioPharma, Inc., 712 Vista Boulevard #305, Waconia, Minnesota 55387. All recommendations should state in detail the qualifications of such person for consideration by the committee and should be accompanied by an indication of the recommended person’s willingness to serve if elected. The committee will consider candidates recommended by shareholders in the same manner that it considers all director candidates.
Candidates for director are reviewed in the context of the current composition of our Board of Directors, our operations and the long-term interests of our shareholders. We do not have a policy regarding the consideration of diversity in identifying director nominees.
Director Independence
Our Board of Directors has reviewed the materiality of any relationship that each of our directors has with us, either directly or indirectly. Based on this review, our Board of Directors has determined that Messrs. Gill, Mathiesen, Paulson, Schaffer and Schemel are “independent directors” as defined under the applicable rules of The NASDAQ Stock Market, which we have voluntarily adopted as our standard for director independence.
Communications with our Board of Directors
You may contact our Board of Directors or any director by mail addressed to the attention of our Board of Directors or the specific director identified by name or title, at 712 Vista Boulevard #305, Waconia, Minnesota 55387. All communications will be submitted to our Board of Directors or the specified director on a periodic basis.
Board Meetings and Attendance
Our Board of Directors, held six meetings during 2016. Each director attended at least 75% of the meetings of our Board of Directors and the committees on which he or she served held during their service as a director or member of the committee in the year ended December 31, 2016.
Director Attendance at Annual Meeting
We do not have a formal policy regarding attendance of directors at our annual meeting of shareholders and this year’s Annual Meeting will be our second.
Committees of the Board of Directors
Our Board of Directors has established three standing committees: Audit, Compensation, and Nominating and Governance. The membership of each committee is as follows:
Committees Audit Compensation Nominating and Governance Independent Directors Michael T. Cullen – – – Suzanne Gagnon – – – Dalvir S. Gill – – Member ☑ David B. Kaysen – – – Jeffrey S. Mathiesen Chair – Member ☑ J. Robert Paulson, Jr. – Member Chair ☑ Paul W. Schaffer Member Member – ☑ D. Robert Schemel Member Chair – ☑ Director
Audit Committee
The Audit Committee’s primary functions, among others, are to: (a) assist the Board of Directors in discharging its statutory and fiduciary responsibilities with regard to audits of the books and records of our Company and the monitoring of its accounting and financial reporting practices; (b) carry on appropriate oversight to determine that our Company and its subsidiaries have adequate administrative and internal accounting controls and that they are operating in accordance with prescribed procedures and codes of conduct; and (c) independently review our Company’s financial information that is distributed to shareholders and the general public. The Audit Committee held four meetings during 2016. The Audit Committee has a charter, which is available on our website at www.sunbiopharma.com.
All of the members of the Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC. Our Board of Directors has determined that Jeffrey S. Mathiesen is qualified to serve as an audit committee financial expert, as that term is defined under the applicable rules of the SEC. Each member of the Audit Committee satisfies the independence requirements of Rule 10A-3(b)(1) of the Securities Exchange Act.
AUDIT COMMITTEE REPORT
In accordance with its written charter adopted by the Board of Directors, as amended from time to time, the Audit Committee assists the Board with fulfilling its oversight responsibility regarding the quality and integrity of the accounting, auditing and financial reporting practices of the Company.
In discharging its duties, the Audit Committee:
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Based upon the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2016 as filed with the Securities and Exchange Commission.
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Compensation Committee
The Compensation Committee reviews and recommends to our Board of Directors on an annual basis the goals and objectives relevant to the annual compensation of our executive officers in light of their respective performance evaluations. Our Compensation Committee is responsible for administering our 2011 Equity Incentive Plan, as amended and 2016 Omnibus Incentive Plan, including approval of individual grants of stock options and other awards. The Compensation Committee held seven meetings during 2016. The Compensation Committee has a charter, which is available on our website at www.sunbiopharma.com.
Nominating and Governance Committee
The Nominating and Governance Committee is primarily responsible for identifying individuals qualified to serve as members of our Board of Directors, recommending individuals to our Board of Directors for nomination as directors and committee membership, reviewing the compensation paid to our non-employee directors and recommending adjustments in director compensation, as necessary, in addition to overseeing the annual evaluation of our Board of Directors. The Nominating and Governance Committee held two meetings during 2016. The Nominating and Governance Committee has a charter that is available on our website at www.sunbiopharma.com.
Role of the Board in Risk Oversight
One of the key functions of our Board of Directors is informed oversight of our risk management process. The Board of Directors does not have a standing risk management committee, but rather administers this oversight function directly through the Board of Directors as a whole, as well as through various standing committees of our Board of Directors that address risks inherent in their respective areas of oversight. In particular, our Board of Directors is responsible for monitoring and assessing strategic risk exposure and our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures, including guidelines and policies to govern the process by which risk assessment and management is undertaken. The Audit Committee also monitors compliance with legal and regulatory requirements. Our Nominating and Governance Committee monitors the effectiveness of our corporate governance practices, including whether they are successful in preventing illegal or improper liability-creating conduct. Our Compensation Committee assesses and monitors whether any of our compensation policies and programs has the potential to encourage excessive risk-taking.
Certain Relationships and Related Party Transactions
We have engaged in certain transactions with our executive officers. See “Executive Compensation: Employment Agreements” for details of our employment agreements with certain of our executive officers.
Limitation of Liability of Directors and Officers and Indemnification
Our certificate of incorporation limits the liability of the directors to the fullest extent permitted by Delaware law.
Our bylaws provide that we will indemnify and advance expenses to the directors and officers to the fullest extent permitted by law or, if applicable, pursuant to indemnification agreements. They further provide that we may choose to indemnify other employees or agents of our Company from time to time. The Delaware General Corporation Law and the bylaws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in connection with their services to our Company, regardless of whether the bylaws permit indemnification. We maintain a directors’ and officers’ liability insurance policy.
At present there is no pending litigation or proceeding involving any of the current or former directors or officers as to which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Related Person Transaction Approval Policy
Our Board of Directors has adopted a written policy regarding transactions with related persons, which we refer to as our related party transaction approval policy. Our related party transaction approval policy requires that any executive officer proposing to enter into a transaction with a “related party” generally must promptly disclose to our Audit Committee the proposed transaction and all material facts with respect thereto. In reviewing a transaction, our Audit Committee will consider all relevant facts and circumstances, including (1) the commercial reasonableness of the terms, (2) the benefit and perceived benefits, or lack thereof, to us, (3) the opportunity costs of alternate transactions and (4) the materiality and character of the related party’s interest, and the actual or apparent conflict of interest of the related party.
Our Audit Committee will not approve or ratify a related party transaction unless it determines that, upon consideration of all relevant information, the transaction is beneficial to our Company and shareholders and the terms of the transaction are fair to our Company. No related party transaction will be consummated without the approval or ratification of our Audit Committee. It will be our policy that a director will recuse him- or herself from any vote relating to a proposed or actual related party transaction in which they have an interest. Under our related party transaction approval policy, a “related party” includes any of our directors, director nominees, executive officers, any beneficial owner of more than 5% of our common stock and any immediate family member of any of the foregoing. Related party transactions exempt from our policy include transactions available to all of our employees and shareholders on the same terms and transactions between us and the related party that, when aggregated with the amount of all other transactions between us and the related party or its affiliates, involve less than $120,000 in a fiscal year.
Compensation Committee Interlocks and Insider Participation
None of the members of the Compensation Committee nor any director nominee proposed to become a member of the Compensation Committee is or has at any time during the last completed fiscal year been an officer or employee of our Company. None of our executive officers has served as a member of the board of directors or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our Board of Directors during the last completed fiscal year.
None of the members of the Compensation Committee is or has at any time during the last completed fiscal year been an officer or employee of our Company. None of our executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on our Board of Directors or Compensation Committee during the last completed fiscal year.
DIRECTOR COMPENSATION
Directors who are also our employees receive no additional compensation for serving on our Board of Directors. During 2016, our Company reimbursed non-employee directors for out-of-pocket expenses incurred in connection with attending meetings of our Board of Directors and its committees.
Non-Employee Director Compensation for 2016
The following table sets forth information concerning annual compensation for our non-employee directors during the year ended December 31, 2016:
Name Option Awards(a) ($) Total ($) Dalvir S. Gill 198,000 198,000 Jeffrey S. Mathiesen 198,000 198,000 J. Robert Paulson, Jr. 198,000 198,000 Paul W. Schaffer 198,000 198,000 D. Robert Schemel 198,000 198,000
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the beneficial ownership of our outstanding common stock as of April 13,August 2, 2017 by (i) each of our namedexecutive officers; (ii) each of our directors; (iii) all of our executive officers, directors and director nominees as a group; and (iv) each beneficial owner of 5% or more of our outstanding common stock. Ownership percentages are based on 36,534,63936,704,639 shares of common stock outstanding as of the close of business on the same date.
Beneficial ownership is determined in accordance with the rules of the SEC. To our knowledge and subject to applicable community property laws, each of the holders of stock listed below has sole voting and investment power as to the stock ownedunless otherwise noted. The table below includes the number of shares underlying options that are exercisable within 60 days from April 13,August 2, 2017. Except as otherwise noted below, the address for each director or officer listed in the table is c/o Sun BioPharma, Inc., 712 Vista Blvd #305, Waconia, Minnesota 55387.
Name | Amount and Nature of Beneficial Ownership | Percentage of Outstanding Shares | ||||||
Executive Officers and Directors | ||||||||
Michael T. Cullen | 4,397,014 | (a) | 11.7 | % | ||||
David B. Kaysen | 592,750 | (b) | 1.6 | % | ||||
Scott Kellen | 267,750 | (c) | * | |||||
Suzanne Gagnon | 911,250 | (d) | 2.5 | % | ||||
Dalvir S. Gill | 156,000 | (e) | * | |||||
Jeffrey S. Mathiesen | 156,000 | (e) | * | |||||
J. Robert Paulson, Jr. | 156,000 | (e) | * | |||||
Paul W. Schaffer | 1,400,144 | (f)(g) | 3.8 | % | ||||
D. Robert Schemel | 3,876,836 | (h) | 10.5 | % | ||||
All directors and current executive officers as a group (9 persons) | 11,913,744 | (i) | 30.0 | % | ||||
Ryan R. Gilbertson | 6,153,899 | (j)(g) | 16.3 | % | ||||
| 1675 Neal Ave Delano, MN 55328 | ||||||||
Paul M. Herron | 2,454,860 | (k) | 6.7 | % | ||||
| 105 Cypress Lagoon Court Ponte Vedra Beach, FL 32082 | ||||||||
Douglas M. Polinsky | 2,002,723 | (l)(g) | 5.4 | % | ||||
| 328 Barry Ave S. #210 Wayzata, MN 55391 | ||||||||
Clifford F. McCurdy, III | 1,840,000 | 5.0 | % | |||||
15625 West Hwy 318 Williston, FL 326961 | ||||||||
Name Amount and Nature of Beneficial Ownership Percentage of Outstanding Shares Executive Officers and Directors Michael T. Cullen 11.7% David B. Kaysen 530,250 1.4% Scott Kellen 230,250 * Suzanne Gagnon 863,750 2.3% Dalvir S. Gill 104,000 * Jeffrey S. Mathiesen 104,000 * J. Robert Paulson, Jr. 104,000 * Paul W. Schaffer 1,306,801 3.6% D. Robert Schemel 3,824,836 10.4% All directors and current executive officers as a group (9 persons) 11,427,401 25.9% Ryan R. Gilbertson 6,148,528 16.4% Paul M. Herron 2,454,860 6.7% Clifford F. McCurdy, III 15625 West Hwy 318 Williston, FL 326961 1,840,000 5.0% 4,314,514 (a) (b) (c) (d) (e) (e) (e) (f)(g) (h) (i)
1675 Neal Ave
Delano, MN 55328 (j)(g)
105 Cypress Lagoon Court
Ponte Vedra Beach, FL 32082 (k)
* Less than 1 percent.
| * | Less than 1 percent. |
(a) | Includes 1,895,764 shares held by the Cullen Living Trust and 818,750 shares subject to stock options and 25,000 shares subject to warrants. |
(b) | Includes 455,250 shares subject to stock options and 25,000 shares subject to warrants. |
(c) | Includes 177,750 shares subject to stock options and 17,500 shares subject to warrants. |
(d) | Includes 10,000 shares held by the Gagnon Family Trust, 418,750 shares subject to stock options and 15,000 shares subject to warrants. |
(e) | Consists of |
(f) | Includes |
(g) | Upon a “qualified financing,” the convertible promissory note(s) beneficially owned would instead automatically convert into common stock at |
(h) | Includes 2,826,548 shares held by spouse and |
(i) | Includes |
(j) | Includes 800,000 shares subject to warrants and 280,000 shares held by Total Depth Foundation. Also includes an estimated |
(k) | Includes 414,860 shares held jointly with spouse and 200,000 shares subject to warrants. |
| (l) | Includes 101,705 shares held jointly with spouse and an estimated 152,685 shares issuable upon the holder’s election pursuant to a convertible promissory note. |
EXECUTIVE COMPENSATION
Base salaries for each of our named executive officers were initially established based on arm’s-length negotiations with the applicable executive. Our Compensation Committee reviews our executive officers’ salaries annually. When negotiating or reviewing base salaries, the Compensation Committee expects to consider market competitiveness based on their market experience, the executive’s expected future contribution to our success and the relative salaries and responsibilities of our other executives. All three of our Company’s continuing executive officers were employed by the Company during the most recent completed fiscal year.
Summary Compensation Table
The following table provides information regarding the compensation earned during fiscal year 2016 and fiscal year 2015 by our named executive officers:
Name and principal position Fiscal Year Salary Option awards Total Michael T. Cullen 2016 2015 David B. Kaysen 2016 2015 Scott Kellen 2016 2015
($)
($)(a)
($) 199,364 145,248 344,612 Executive Chairman 90,000 140,000 230,000 248,859 1,016,736 1,265,595 President andChief Executive Officer 77,955 – 78,000 209,046 435,744 644,790 Chief Financial Officer andVice President of Finance 50,000 – 50,000
(a) The values of option awards in this table represent the fair value of such awards granted during the fiscal year, as computed in accordance with FASB ASC 718. The assumptions used to determine the valuation of the awards are discussed in Note 9 to our consolidated financial statements, included in our annual report on Form 10-K for the fiscal year ended December 31, 2016.
Outstanding Equity Awards as of December 31, 2016
Option Awards Grant Date Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Option exercise price ($) Option expiration Date Michael T. Cullen 3/5/2015 3/5/2025 12/12/2016 131,250(a) 12/12/2026 David B. Kaysen 12/12/2016 218,750(a) 12/12/2026 12/12/2016 376,000(b) 12/12/2026 Scott Kellen 12/12/2016 131,250(a) 12/12/2026 12/12/2016 141,000(b) 12/12/2026 Name 800,000 – 0.3175 18,750 1.51 31,250 1.51 424,000 1.51 18,750 1.51 159,000 1.51
(a) Scheduled to vest in eight equal installments on the last day of each calendar quarter, starting March 31, 2017.
(b) Vests proportionately based on cash proceeds received by, or contractually obligated to be remitted to, the Company after June 1, 2016 and before December 31, 2018 from any transaction, excluding certain internal operating-related cash flows.
Employment Agreements
We are party to employment agreements with our Executive Chairman, President and Chief Executive Officer, and Chief Financial Officer (collectively, the “Executives”). In addition to the specific terms summarized below, each of the Executives is eligible to participate in the other compensation and benefit programs generally available to our employees, including our other executive officers. Each employment agreement also includes customary confidentiality, non-competition and non-solicitation covenants.
Executive ChairmanSUBMISSION OFSTOCKHOLDER PROPOSALS AND NOMINATIONS
Under his employment agreement, Dr. Cullen is entitled to receive an initial annualized base salary equal to $384,000. Notwithstanding the foregoing, Dr. Cullen has received a portion of his monthly salary in cash and the remainder has been accrued and will become payable after the completion of a Qualified Financing, as defined below. The amounts paid in cash and accrued during 2016 were as follows:
Period Start Period End Cash Payment Deferred Salary 1/1/2016 2/29/2016 $7,500 $24,500 3/1/2016 6/15/2016 $1,750 $30,250 6/16/2016 12/31/2016 $16,000 $16,000
Starting with the fiscal year ending December 31, 2016, Dr. Cullen has been eligible for an annual performance-based cash bonus with a target amount equal to no less than 45% of his base salary. Payment of the bonus amount will be subject to achievement of metrics to be established by the Board of Directors and Dr. Cullen’s continued employment with the Company through the end of the applicable cash bonus period. Neither the Board of Directors nor the Compensation Committee of the Board of Directors established such performance criteria for 2016 and therefore no cash bonus was paid.
President and Chief Executive Officer
Under his employment agreement, Mr. Kaysen is entitled to receive an initial annualized base salary equal to $420,000. Through June 15, 2016, Mr. Kaysen continued to serve as a part-time employee, pursuant to which he was entitled to receive a reduced monthly salary of $17,500. Since June 16, 2016, Mr. Kaysen has served as a full-time employee. Since March 1, 2016, Mr. Kaysen has received a portion of his monthly salary in cash and the remainder has been accrued and will become payable after the completion of any transaction or series of related transactions involving the issuance of equity securities (including any securities that are convertible into or exercisable for equity securities) resulting in gross cash proceeds of $10,000,000 or more (a “Qualified Financing”). The amounts paid in cash and accrued during 2016 were as follows:
Period Start Period End Cash Payment Deferred Salary 1/1/2016 2/29/2016 $17,500 – 3/1/2016 6/15/2016 $6,750 $10,750 6/16/2016 12/31/2016 $17,500 $17,500
Starting with the fiscal year ending December 31, 2016, Mr. Kaysen has been eligible for an annual performance-based cash bonus with a target amount equal to no less than 60% of his base salary. Payment of the bonus amount will be subject to achievement of metrics to be established by the Board of Directors and Mr. Kaysen’s continued employment with the Company through the end of the applicable cash bonus period. Neither the Board of Directors nor the Compensation Committee of the Board of Directors established such performance criteria for 2016 and therefore no cash bonus was paid. Mr. Kaysen is also eligible to receive cash bonuses of (i) $260,000 upon the completion of a Qualified Financing and (ii) $36,000 upon the completion of certain other objectives specified in his employment agreement. Mr. Kaysen had satisfied the objectives of the bonus amount of $36,000 during the first quarter of 2016, payment of which has also been deferred until the completion of a Qualified Financing.
In place of the option award that his employment agreement would have required upon the completion of a Qualified Financing, on December 12, 2016, Mr. Kaysen received an option to purchase an aggregate of 800,000 shares of our common stock at an exercise price of $1.51 per share. Such option, vests proportionately based on cash proceeds received by, or contractually obligated to be remitted to, the Company after June 1, 2016 and before December 31, 2018 from any transaction, excluding certain internal operating-related cash flows. The performance criteria was 22% satisfied on the date of grant, resulting in vesting of the option as to 176,000 shares. On March 17, 2017, the Compensation Committee certified the further satisfaction of the performance criteria as a result of the sale of convertible promissory notes in February and March 2017 resulting in gross proceeds of $3.1 million. Upon completion of the sale of those convertible promissory notes, the option became exercisable for a total of 424,000 shares or 53% of the total underlying shares.
Chief Financial Officer
Under his employment agreement, Mr. Kellen is entitled to receive an initial annualized base salary equal to $240,000. Notwithstanding the foregoing, since March 1, 2016 Mr. Kaysen has received a portion of his monthly salary in cash and the remainder has been accrued and will become payable after the completion of a Qualified Financing. The amounts paid in cash and accrued during 2016 were as follows:
Period Start Period End Cash Payment Deferred Salary 3/1/2016 6/15/2016 $8,000 $12,000 6/16/2016 12/31/2016 $13,333 $6,667
Starting with the fiscal year ending December 31, 2016, Mr. Kellen has been eligible for an annual performance-based cash bonus with a target amount equal to no less than 40% of his base salary. Payment of the bonus amount will be subject to achievement of metrics to be established by the Board of Directors and Mr. Kellen’s continued employment with the Company through the end of the applicable cash bonus period. Neither the Board of Directors nor the Compensation Committee of the Board of Directors established such performance criteria for 2016 and therefore no cash bonus was paid.
In place of the option award that his employment agreement would have required upon the completion of a Qualified Financing, on December 12, 2016, Mr. Kellen received an option to purchase an aggregate of 300,000 shares of our common stock at an exercise price of $1.51 per share. Such option, vests proportionately based on cash proceeds received by, or contractually obligated to be remitted to, the Company after June 1, 2016 and before December 31, 2018 from any transaction, excluding certain internal operating-related cash flows. The performance criteria was 22% satisfied on the date of grant, resulting in vesting of the option as to 66,000 shares. On March 17, 2017, the Compensation Committee certified the further satisfaction of the performance criteria as a result of the sale of convertible promissory notes in February and March 2017 resulting in gross proceeds of $3.1 million. Upon completion of the sale of those convertible promissory notes, the option became exercisable for a total of 159,000 shares or 53% of the total underlying shares.
Potential Payments Upon Termination or Change-in-Control
Under their respective employment agreements, if an Executives’ employment is terminated by us for any reason other than for “cause” (as defined in the applicable employment agreement) or by the Executive for “good reason” (as defined in the applicable employment agreement), then the Executive will be eligible to receive an amount equal to his respective annualized salary plus an amount equal to a prorated portion of his cash bonus target for the year in which the termination occurred, in addition to other amounts accrued on or before the date of termination. If any such termination occurs within six months prior or two years after a “change of control” (as defined in the applicable employment agreement), then Dr. Cullen and Mr. Kellen would instead receive an amount equal to his respective annualized salary, plus an amount equal to his full cash bonus target for the year in which the termination occurred. Upon a similar termination, Mr. Kaysen would receive an amount equal to 1.5 times his annualized salary, plus an amount equal to his full cash bonus target.
PROPOSAL 2:RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected Cherry Bekaert LLP to serve as our independent registered public accounting firm for fiscal year 2017, and the Board of Directors is asking shareholders to ratify that selection. Although current law, rules and regulations, as well as the Audit Committee charter, require our independent registered public accounting firm to be supervised by the Audit Committee and recommended to the Board of Directors for appointment and, if necessary, removal, our Board of Directors considers the selection of an independent registered public accounting firm to be a matter of shareholder concern and considers this proposal to be an opportunity for shareholders to provide direct feedback.
Notwithstanding its selection of Cherry Bekaert LLP, the Audit Committee, in its discretion, may appoint another independent registered public accounting firm at any time during the year if the committee believes that such a change would be in the best interests of our Company and its shareholders. If the appointment of Cherry Bekaert LLP is not ratified by our shareholders, the Audit Committee may reconsider whether it should appoint another independent registered public accounting firm.
As a result of the Merger, our Company was deemed to have changed its independent registered public accounting firm. Accordingly, on September 4, 2015, the Company’s Board of Directors effectively discharged Mantyla McReynolds LLP (“MMR”) as its independent registered public accounting firm. With the exception of a “going concern” modification, the report of MMR on the financial statements of the Company for its two most recent fiscal years contained no adverse opinion or disclaimer of opinion, and was not qualified or modified as to uncertainty, audit scope or accounting principle. In connection with MMR’s audit for the fiscal years ended December 31, 2013 and 2014, and through the date of dismissal, there were no disagreements with MMR on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of MMR would have caused them to make reference thereto in its report on the financial statements for such years.
During the two most recent fiscal years and through the date of dismissal, none of the events specified in Item 304(a)(1)(iv) of Regulation S-K have occurred, with the exception of material weaknesses identified in the Company’s internal control over financial reporting prior to the Merger.
On September 4, 2015, the Company retained Cherry Bekaert LLP to serve as its principal independent registered public accounting firm. During the three most recent fiscal years and to the date of this report, the Company has not consulted with Cherry Bekaert LLP regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, and either a written report was provided to the Company or oral advice was provided that Cherry Bekaert LLP concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement and required to be reported under Item 304(a)(1)(iv) of Regulation S-K and the related instructions thereto.
We previously provided MMR with a copy of the foregoing disclosure and requested that it furnish us with a letter addressed to the SEC stating whether it agrees with the above statements. A copy of the letter from MMR was filed with the SEC as Exhibit 16.1 to a current report on Form 8-K filed September 11, 2015 (File No. 000-55242).
Representatives of Cherry Bekaert LLP are not expected to be present at the Annual Meeting.
Required Vote and Board Recommendation
Provided that a quorum is present, approval of this proposal will require the number of votes cast in favor to exceed the number of votes cast in opposition.
The Board of Directors unanimously recommends that you vote “FOR” the ratification of theselectionof Cherry Bekaert LLP as the Company’s independent registered public accounting firm for 2017.
Fees
Cherry Bekaert LLP served as our independent registered public accounting firm for the year ended December 31, 2016 and 2015. The following table presents the aggregate fees for professional services provided by Cherry Bekaert LLP related to 2016 and 2015:
Year Ended December 31, 2016 December 31, 2015 Audit Fees(a) Total $ 111,500 $ 147,500 $ 111,500 $ 147,500
(a) Reflects the fees approved by Sun BioPharma, Inc. and billed or to be billed by Cherry Bekaert LLP with respect to services performed for the audit for the applicable fiscal year. For 2016, this amount includes $7,000 for services and consents procedures in connection with the filing of registration statements on Form S-1 and Form S-8.
“Audit Fees” consisted of fees for the audit of our annual consolidated financial statements, including audited consolidated financial statements presented in our annual report on Form 10-K, review of the consolidated financial statements presented in our quarterly reports on Form 10-Q, services rendered in connection with our Form 8-K in connection with our merger and services that are normally provided by the independent registered public accountants in connection with statutory and regulatory filings or engagements for those fiscal years. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements and statutory audits required by non-U.S. jurisdiction.
Pre-approval Policy
The Audit Committee has established a policy governing our use of the services of our independent registered public accountants. Under the policy, the Audit Committee is required to pre-approve all audit and permitted non-audit services performed by our independent registered public accountants in order to ensure that the provision of such services does not impair the public accountants’ independence. In 2016, all fees identified above under the captions “Audit Fees” that were billed by Cherry Bekaert LLP were approved by the Audit Committee in accordance with SEC requirements.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The rules of the SEC require us to disclose the identity of directors, executive officers and beneficial owners of more than 10% of our common stock who did not file on a timely basis reports required by Section 16(a) of the Securities Exchange Act of 1934. Based solely on a review of copies of such reports and written representations from reporting persons, we believe that all directors and executive officers complied with all filing requirements applicable to them during fiscal 2016.
OTHER MATTERS
The Board of Directors is not aware of any matters that are expected to come before the Annual Meeting other than those referred to in this proxy statement. If any other matter should come before the Annual Meeting, the persons named in the accompanying proxy intend to vote the proxies in accordance with their best judgment.
SUBMISSION OF SHAREHOLDER PROPOSALS AND NOMINATIONS
ShareholderStockholder proposals intended to be presented at the annual meeting of shareholdersstockholders to be held in the year 2018 that are requested to be included in the proxy statement for that meeting must be received by us at our principal executive office no later than December 28, 2017. We must receive any other shareholderstockholder proposals intended to be presented, and any director nominees for election, at the annual meeting of shareholdersstockholders in the year 2018 at our principal executive office no earlier than February 6, 2018 and no later than March 8, 2018. Upon timely receipt of any such proposal we will determine whether or not to include such proposal in the proxy statement and proxy in accordance with applicable regulations governing the solicitation of proxies.
Our management knows of no matters other than the foregoing to be brought before the Annual Meeting. However, this proxy gives discretionary authority in the event that additional matters should be presented.
ADDITIONAL INFORMATION
Our annual reportreports on Form 10-K and quarterly reports on Form 10-Q, including our financial statementstatements and the notes thereto, for the year ended December 31, 2016, accompanies the delivery of this proxy statement and a copy of such annual report, as filed with the SEC, isare available on the SEC’s Internet site, www.sec.gov, and our corporate website, www.sunbiaopharma.com, under “Investor Relations.”
We will provide a copy of the annual report on Form 10-K for the fiscal year ended December 31, 2016 and any subsequent quarterly reports on Form 10-Q and/or the exhibits to the Form 10-Kthereto upon written request and payment of specified fees. The written request for such Form 10-K and/or Exhibits should be directed to Scott Kellen, Chief Financial Officer and Secretary at:
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Such request must set forth a good faith representation that the requesting party was a holder of record or a beneficial owner of our common stock as of the Record Date. The annual report on Form 10-K complete with exhibits and the proxy statement are also available at no cost through the EDGAR database available from the Securities and Exchange Commission’s internet site (www.sec.gov), and at https://www.rdgir.com/sun-biopharma-inc.
ALL STOCKHOLDERS ARE URGED TO EXECUTE THE ACCOMPANYING CONSENT AND TO RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE. STOCKHOLDERS MAY REVOKE ANY CONSENT IF SO DESIRED AT ANY TIME BEFORE THE COMPANY RECEIVES SUFFICIENT CONSENTS TO APPROVE THE PROPOSAL.
Appendix A
Sun BioPharma, Inc.
(Delaware corporation)
WRITTEN CONSENT OF THE STOCKHOLDERS
IN LIEU OF MEETING
The undersigned, being a holder of common stock, par value $0.001 per share (“Common Stock”) of Sun BioPharma, Inc., a Delaware corporation (the “Corporation”), as of , 2017, hereby takes the following action, in accordance with Sections 228 and 242 of the Delaware General Corporation Law, with respect to all shares of Common Stock held by the undersigned and regarding the Proposal set forth below, as the same is described in the Consent Solicitation Statement on Schedule 14A, dated , 2017 (the “Statement”).
The Board of Directors recommends that stockholders CONSENT to the following resolutions.
WHEREAS, the Corporation’s Board of Directors (the “Board”) has determined that it is advisable and in the best interests of the Corporation and its stockholders to amend the Corporation’s Certificate of Incorporation (the “Charter”) to (a) effect a one-for-ten (1:10) reverse stock split, such that every holder of Common Stock as of the Effective Date (as defined below) will receive one share of Common Stock for every ten shares of Common Stock then held (the “Reverse Stock Split”) and (b) reduce the number of shares of capital stock authorized for issuance by 50% (the “Share Reduction”).
RESOLVED, that the Reverse Stock Split and Share Reduction be, and each hereby is, adopted and approved.
RESOLVED, that the form and substance of the Certificate of Amendment to the Certificate of Incorporation in substantially the form set forth inExhibit B to the Statement (the “Certificate of Amendment”), be and hereby is, authorized, approved and adopted in all respects, with such additions, deletions or modifications, not inconsistent herewith, as the Chief Executive Officer or the Chief
RESOLVED, that, at any time prior to the date the Certificate of Amendment becomes effective (the “Effective Date”) the Board may abandon the amendment of the Charter and determine not to file a Certificate of Amendment, even though the amendment may have been approved by the stockholders of the Corporation, if the Board, in its discretion, determines that either (i) the Reverse Stock Split or Share Reduction is no longer in the best interests of the Corporation or its stockholders or (ii) the Conditions can no longer be satisfied.
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☐ CONSENT (FOR) | ☐ CONSENT WITHHELD (AGAINST) |
INSTRUCTIONS: TO CONSENT OR WITHHOLD CONSENT TO THE APPROVAL OF THE PROPOSAL, CHECK THE APPROPRIATE BOX ABOVE. IF NO BOX IS MARKED ABOVE WITH RESPECT TO EACH PROPOSAL, THE UNDERSIGNED WILL BE DEEMED TO HAVE CONSENTED TO THE PROPOSAL.
[Signatures and Instructions for Return on Reverse]
MAIL: Mark, sign and date your Consent and return it in the postage-paid envelope we have provided or return it to Sun BioPharma, Inc., c/o VStock Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598.
INTERNET: Visit https://www.vstocktransfer.com/proxy and log-on using your control number.
FACSIMILE: Mark, sign and date your Consent and return it via fax to +1 (646) 536-3179.
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[print name of record stockholder as set forth on stock certificate or in the books of the Corporation] | [signature of record stockholder or person authorized to sign on behalf of record stockholder] | |
[title or authority of authorized person, if applicable] | [signature, if held jointly] |
Appendix B
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
SUN BIOPHARMA, INC.
Sun BioPharma, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, hereby certifies as follows:
1. | This Certificate of Amendment (the “Certificate of Amendment”) amends the provisions of the corporation’s Certificate of Incorporation adopted by the Certificate of Merger filed with the Secretary of State on May 25, 2016 (the “Certificate of Incorporation”). |
2. | Section 4.1 of Article 4 of the Certificate of Incorporation is hereby amended and restated in its entirety as follows: |
4.1 | AUTHORIZED CAPITAL STOCK. The Corporation is authorized to issue one hundred and ten million (110,000,000) shares of capital stock, of which one hundred million (100,000,000) shares will be shares of common stock, par value $0.001 per share (the “Common Stock”), and ten million (10,000,000) shares will be shares of preferred stock, par value $0.001 per share (the “Preferred Stock”). | |
Upon the filing and effectiveness (the “Effective Time”) pursuant to the Delaware General Corporation Law of this Certificate of Amendment to the Certificate of Incorporation of the Corporation, each ten (10) shares of Common Stock either issued and outstanding or held by the Corporation in treasury stock immediately 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 (the “Reverse Stock Split”). No fractional shares will be issued in connection with the Reverse Stock Split. Stockholders who otherwise would be entitled to receive fractional shares of Common Stock will be entitled to receive cash (without interest or deduction) from the Corporation's transfer agent in lieu of such fractional share interests upon the submission of a transmission letter by a stockholder holding the shares in book-entry form and, where shares are held in certificated form, upon the surrender of the stockholder’s Old Certificates (as defined below), in an amount equal to the product obtained by multiplying (a) the most recent sale price per share of the Common Stock as reported by OTC Markets Group, Inc. as of the date of the Effective Time, by (b) the fraction of one share owned by the stockholder. Each certificate that immediately prior to the Effective Time represented shares of Common Stock (“Old Certificates”), will thereafter represent that number of shares of Common Stock into which the shares of Common Stock represented by the Old Certificate will have been combined, subject to the elimination of fractional share interests as described above |
3. | This amendment was duly adopted in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. |
4. | All other provisions of the Certificate of Incorporation will remain in full force and effect. |
IN WITNESS WHEREOF, the corporation has caused this Certificate of Amendment to be signed by the authorized officer named below, this ___ day of _________, 2017.
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| FAX Mark, sign and date card and fax it to (646) 536-3179 | |
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ANYWHERE PA 99999-9999 | CONSENT BY MAIL Mark, sign and date this consent card and return it in the envelope we have provided. |
Annual Meeting Proxy CardPlease Mark, Date, Sign and Return Promptly in the Enclosed Envelope.
Notice of Consent Solicitation - Sun BioPharma, Inc. Common Stock
| DETACH PROXY CARD HERE TO VOTE BY MAIL | |
DETACH PROXY CARD HERE TO VOTE BY MAIL
The Board of Directors recommends you vote FOR allthat stockholders CONSENT to the following resolutions.
WHEREAS, the Corporation's Board of Directors (the "Board") has determined that it is advisable and in the best interests of the following director nominees:Corporation and its stockholders to amend the Corporation's certificate of Incorporation (the "Charter") to (a) effect a one-for-ten (1:10) reverse stock split, such that every holder of Common Stock as of the Effective Date (as defined Below) will receive one share of Common Stock for every ten shares of Common Stock then held (the "Reverse Stock Split") and (b) reduce the number of shares of capital stock authorized for issuance by 50% (the " Share Reduction").
RESOLVED, that the Reverse Stock Split and Share Reduction be, and each hereby is, Adopted and approved.
RESOLVED, that the form and substance of the Certificate of Amendment to the Certificate of Incorporation in substantially the form set forth in Exhibit B to the Statement (the " Certificate of Amendment"), be and hereby is, authorized, app Executive Officer of the Chief.
RESOLVED, that, at any time prior to the date the Certificate of Amendment becomes effective (the "Effective Date") the Board may abandon the amendment of the Charter and determine not to file a Certificate of Amendment, even though the amendment may have been approved by the Stockholders of the Corporation, if the Board, in its discretion, determines that either (i) the Reverse Stock Split or Share Reduction is no longer in the best interests of the Corporation or its stockholders or (ii) the Conditions can no longer be satisfied.
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INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL NOMINEES STRIKE A LINE THROUGH THE NOMINEES' NAME BELOW:
The Board of Directors recommends you vote FOR proposals 2:
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* SPECIMEN * | AC:ACCT999 | 90.00 |
SUN BIOPHARMA, INC.Sun BioPharma, Inc.
Annual MeetingNotice of ShareholdersConsent Solicitation
JUNE 6,August 9, 2017
Important Notice Regarding the Availability of Proxy Materials for the
Annual Meeting of ShareholdersTo Be Held onJune 6, 2017
The Notice, Proxy Statement and Annual Report for 2017 are available athttps://www.rdgir.com/sun-biopharma-inc
SUN BIOPHARMA, INC.
THIS PROXYCONSENT ISSOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, hereby appoints David B. Kaysen and Scott Kellen, and eachbeing a holder of them, as proxies, each with the power to appoint his substitute, and hereby authorizes such proxies to represent and to vote, as designated on the reverse, allrecord of shares of common stock, par value $0.001 per share (the “Common Stock”) of Sun BioPharma, Inc. held(the “Corporation”) as of August 9, 2017 (the record date established for the purpose of determining the stockholders entitled to consent hereto), hereby takes the following action, in accordance with the Bylaws of the Corporation, as amended from time to time, and pursuant to Sections 228 and 242 of the Delaware General Corporation Law, with respect to all shares of Common Stock held by the undersigned atwith respect to the close of businessProposal set forth below, as the same is described in the Consent Solicitation Statement on April 13, 2017, at the Annual Meeting of Shareholders to be held on June 6, 2017, or any adjournment thereof.Schedule 14A dated August 9, 2017. (the “Statement”)
This proxy, when properly executed,By signing and returning this Action by Written Consent, the undersigned stockholder will be deemed to have voted all shares of capital stock owned by the undersigned in the manner directed herein.above with respect to the proposed amendment. If no such direction is made,the undersigned stockholder signs and returns this proxyconsent but does not check a box, the undersigned will be voted in accordance withdeemed to have consented FOR approval of the Board of Directors’ recommendations.proposed amendment.
Please check here if you planThe Board of Directors of the Corporation Recommends that stockholders CONSENT to attend the Annual Meetingadoption of Shareholders on June 6, 2017 at 1:30 p.m. (Local Time). ☐
the following resolutions:
(Continued and to bemarked, dated, andsigned on Reverse Side)
