Exhibit 10.2

 

[FORM OF] PARTICIPATION RIGHTS AGREEMENT

 

This PARTICIPATION RIGHTS AGREEMENT (this “Agreement”), dated as of          ,
2017 (the “Effective Date”) is made by and between Sun BioPharma, Inc., a
Delaware corporation (the “Company”), and the person named on the signature page
hereto (“Participant”).

 

WHEREAS, the Company desires to grant and Participant desires to receive a right
to participate in future offerings of the Company’s equity securities, subject
to certain reasonable conditions; and

 

WHEREAS, this Agreement is one of a series of similar Participation Rights
Agreements to which the Company is a party (collectively, the “Agreements”),
each of which is executed in connection with the Company’s private placement of
convertible promissory notes (collectively, the “Notes”) in February and March
2017.

 

NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and Participant agree as
follows:

 

1.     Issuance of New Securities. The Company hereby grants to Participant a
right to purchase Participant’s Pro Rata Portion of any new Equity Securities
that the Company may from time to time propose to issue or sell to any
person(s); provided, that this Agreement will not apply to any issuance
identified in Section 3, Excluded Issuances, below. “Equity Securities” means
any and all shares of Company common stock, par value $0.001 per share, and any
securities of the Company convertible into, or exchangeable or exercisable for,
such shares, and options, warrants or other rights to acquire such shares

 

1.1.     Additional Issuance Notices. In the case of any transaction not covered
by Section 4, Rights on Registered Offerings, below, the Company will give to
the Participant written notice (an “Issuance Notice”) of any proposed issuance
or sale of new Equity Securities before such issuance or sale may be
consummated. The Issuance Notice will set forth the Company’s bona fide
intention to offer such Equity Securities and the material terms and conditions
of the proposed issuance or sale, including: (a) the number and description of
new Equity Securities proposed to be issued; (b) the proposed issuance date,
which shall be at least seven (7) calendar days from the date of the Issuance
Notice; and (c) the proposed purchase price per share of new Equity Securities
and all other material terms of the offer or sale.

 

1.2.     Exercise of Participation Rights. In the case of any transaction not
covered by Section 4 below, Participant will, for a period of seven (7) calendar
days following the receipt of an Issuance Notice (the “Participation Period”),
have the right to elect irrevocably to purchase all of its Pro Rata Portion of
any new Equity Securities on the terms and conditions, including the purchase
price, set forth in the Issuance Notice by delivering a written notice to the
Company (a “Participation Notice”) indicating its desire to purchase its Pro
Rata Portion. The delivery of a Participation Notice by Participant will be a
binding and irrevocable offer by the Participant to purchase the new Equity
Securities described therein. The failure of Participant to deliver a
Participation Notice by the end of the Participation Period will constitute a
waiver of its rights under this Agreement with respect to the purchase of such
new Equity Securities, but shall not affect its rights with respect to any
future issuances or sales of new Equity Securities.

 

1.3.     Post-Notice Issuance. Following the expiration of the Participation
Period, the Company will be free to complete the proposed issuance or sale of
new Equity Securities described in the Issuance Notice with respect to which the
Participant has declined to exercise the participation right set forth in this
Agreement on terms no less favorable to the Company than those set forth in the
Issuance Notice (except that the amount of new Equity Securities to be issued or
sold by the Company may be reduced); provided, that: (i) such issuance or sale
is closed within one hundred twenty (120) calendar days after the expiration of
the Participation Period and (subject to the extension of such period for a
reasonable time not to exceed sixty (60) calendar days to the extent reasonably
necessary to obtain any third-party approvals; and (ii) for the avoidance of
doubt, the price at which the new Equity Securities are sold is at least equal
to or higher than the purchase price described in the Issuance Notice. In the
event the Company has not sold such new Equity Securities within such time
period, the Company may not thereafter issue or sell any new Equity Securities
without first again offering such securities to the Participant in accordance
with the procedures set forth in this Agreement.

 

 

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Participation Rights Agreement

 

 

 
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1.4.     Closing of the Issuance. The closing of any purchase by the Participant
pursuant to this Agreement will be consummated concurrently with the
consummation of the issuance or sale described in the Issuance Notice, except
that transactions described in Section 4 below will be consummated in the manner
proscribed by the underwriter or agent therefor. Upon the issuance or sale of
any new Equity Securities in accordance with this Agreement, the Company will
deliver the new Equity Securities in certificated form (or such other form has
been approved by the Company), free and clear of any liens (other than those
arising hereunder and those attributable to the actions of the purchasers
thereof), and the Company shall so represent and warrant to the purchasers
thereof, and further represent and warrant to such purchasers that such new
Equity Securities shall be, upon issuance thereof to such purchasers and after
payment therefor, duly authorized, validly issued, fully paid and
non-assessable. The Participant will deliver to the Company the purchase price
for the new Equity Securities purchased by it by certified or bank check or wire
transfer of immediately available funds, unless otherwise provided by the
Company or as otherwise provided pursuant to the terms of a transaction
described in Section 4 below. Each party to the purchase and sale of new Equity
Securities will take all such other actions as may be reasonably necessary to
consummate the purchase and sale including, without limitation, entering into
such additional agreements as may be necessary or appropriate.

 

2.     Conditions to Participation. Notwithstanding anything to the contrary in
this Agreement, Participant will not be entitled to participate in the purchase
and sale of any new Equity Securities unless Participant is at all times during
the Participation Period and through the consummation of the issuance or sale of
new Equity Securities: (a) an “accredited investor” as such term is then defined
in Rule 501(a) of the rules and regulations promulgated under the Securities
Act; and (b) not subject to any of the “bad actor” disqualifications described
in Rule 506(d)(1)(i) to (viii) (each, a “Disqualification Event”) promulgated
under the Securities Act, except for a Disqualification Event covered by Rule
506(d)(2) or (d)(3).

 

3.     Excluded Issuances. Notwithstanding anything to the contrary in this
Agreement, Participant will not be entitled to participate in the issuance of
Company equity securities issued in connection with: (a) a grant to any existing
or prospective consultant, employee, officer or director pursuant to any equity
incentive plan or arrangement; (b) the conversion or exchange of any then
outstanding securities of the Company into shares of Common Stock, or the
exercise of any then outstanding options, warrants or other rights to acquire
such shares; (c) any acquisition by the Company of the stock, assets, properties
or business of any person; (d) any merger, consolidation or other business
combination involving the Company; (e) a stock split, stock dividend or any
similar recapitalization; (f) any issuance of warrants or other similar rights
to purchase equity securities to lenders or other institutional investors in any
arm’s length transaction providing debt financing to the Company or any of its
subsidiaries (“Financing Warrants”) where such Financing Warrants, together with
all then outstanding Financing Warrants, are not equal to and not convertible
into an aggregate of more than five percent (5%) of the outstanding Equity
Securities on a fully diluted basis at the time of the issuance of such
Financing Warrants; or (g) the issuance of any Equity Securities to an investor
that is an operating company in the fields of biotechnology or development, sale
or distribution of pharmaceuticals.

 

4.     Rights on Registered Offerings. In lieu of the participation rights set
forth in Section 1 above, to the extent the proposed issuance of new Equity
Securities is not an excluded issuance pursuant to Section 3 and will involve
the issuance of Equity Securities registered pursuant to the Securities Act to
be sold in a transaction in which the Company has engaged one or more
underwriter(s) or placement agent(s), as the case may be, the Company will (i)
give the Participant notice of such proposed issuance as promptly as is
reasonably practical and prudent in light of the timing and nature of the
transaction and (ii) use commercially reasonable efforts to cause the
underwriter(s) or placement agent(s), to allow the Participant to participate in
such proposed issuance in an amount up to the Participant’s Pro-Rata Portion on
the same terms, conditions and price to be provided to other investors in the
proposed issuance of new Equity Securities, subject to Participant’s compliance
with any timing, indication, eligibility and documentation requirements imposed
by any underwriter or placement agent on similarly situated participants in the
transaction.

 

 

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5.     Determination of Pro Rata Amount. Participant’s “Pro Rata Portion” of any
issuance or sale of new Equity Securities means, on any issuance date for new
Equity Securities, the number of such Equity Securities equal to the product of
(i) the total number of new Equity Securities to be issued by the Company on
such date and (ii) the fraction determined by dividing (x) the Eligible Shares
owned by the Participant immediately prior to such issuance by (y) the total
number of shares of Equity Securities outstanding on such date immediately prior
to such issuance.

 

5.1.     Eligible Shares. “Eligible Shares” means the number of shares of Equity
Securities owned by Participant as of the date of this Agreement, plus any
shares of Equity Securities acquired directly from the Company, and minus the
aggregate number of shares of Equity Securities sold by Participant after the
date of this Agreement. The number of Eligible Shares held by Participant
pursuant to any then-outstanding Note(s) will be determined based on
Participant’s ability to elect to convert such Note(s) in to shares of Company
common stock.

 

5.2.     Participant Reporting. To facilitate recordkeeping, Participant will
notify the Company of any sale or other disposition of Company common stock
within ten (10) calendar days of Participant’s irrevocable commitment to such
sale or disposition, which notice will set forth (a) the total number of shares
transferred and (b) the number of such transferred shares that constituted Note
Conversion Shares immediately preceding the transfer. “Note Conversion Shares”
means (a) all shares of Company common stock issuable based on a holder’s
ability to elect to convert any then outstanding Notes and (b) all shares of
Company common stock issued and outstanding as a result of the past conversion
of any Notes, excluding any such shares that are no longer beneficially owned by
the original holder of such shares.

 

6.     Termination. This Agreement, including all of Participant’s rights
hereunder, will automatically terminate on the earlier of (a) the closing of a
Corporate Transaction and (b) March 20, 2019. “Corporate Transaction” means:
(1) the closing of the sale, transfer or other disposition, in a single
transaction or series of related transactions, of all or substantially all of
the Company’s assets; (2) the consummation of a merger or consolidation of the
Company with or into another entity (except a merger or consolidation in which
the holders of capital stock of the Company immediately prior to such merger or
consolidation continue to hold a majority of the outstanding voting securities
of the capital stock of the Company or the surviving or acquiring entity
immediately following the consummation of such transaction); or (3) the closing
of the transfer (whether by merger, consolidation or otherwise), in a single
transaction or series of related transactions, to a “person” or “group” (within
the meaning of Section 13(d) and Section 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)) of the Company's capital stock if, after
such closing, such person or group would become the “beneficial owner” (as
defined in Rule 13d-3 under the Exchange Act) of more than fifty percent (50%)
of the outstanding voting securities of the Company (or the surviving or
acquiring entity). For the avoidance of doubt, a transaction will not constitute
a “Corporate Transaction” if its sole purpose is to change the state of the
Company's incorporation or to create a holding company that will be owned in
substantially the same proportions by the persons who held the Company’s
securities immediately prior to such transaction. Notwithstanding the foregoing,
the sale of Equity Securities in a bona fide financing transaction will not be
deemed a “Corporate Transaction.”

 

 

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7.     Amendment, Modification and Waiver. Except as otherwise provided herein,
the provisions of this Agreement may only be amended, modified, supplemented or
waived with the prior written consent of the Company and the holders of at least
seventy five percent (75%) of the Note Conversion Shares. No waiver by any party
or parties shall operate or be construed as a waiver in respect of any failure,
breach or default not expressly identified by such written waiver, whether of a
similar or different character, and whether occurring before or after that
waiver. Except as otherwise set forth in this Agreement, no failure to exercise,
or delay in exercising, any right, remedy, power or privilege arising from this
Agreement shall operate or be construed as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.

 

8.     Notices. Any notices required or permitted to be given under the terms of
this Agreement must be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and will be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally, by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications are:

 

If to the Company, then to:

 

Sun BioPharma, Inc.
712 Vista Blvd #305
Waconia, Minnesota 55387
Attn: Chief Executive Officer

 

with a copy (which shall not constitute notice) to:

 

Faegre Baker Daniels LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
Attn: W. Morgan Burns and Joshua L. Colburn

 

If to Participant: To the address set forth immediately below Participant’s name
on the signature pages hereto.

 

Each party will provide written notice to the other parties of any change in its
address.

 

9.     Successors and Assigns. This Agreement is binding upon and will inure to
the benefit of the parties hereto and their respective successors and permitted
assigns. The Company may assign this Agreement at any time in connection with a
sale or acquisition of the Company, whether by merger, consolidation, sale of
all or substantially all of the Company’s assets, or similar transaction,
without the consent of the Participant; provided, that the successor or acquirer
agrees in writing to assume all of the Company’s rights and obligations under
this Agreement. The Participant may not assign this Agreement without the prior
written consent of the Company.

 

10.     No Third-Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.

 

11.     No Strict Construction. The language used in this Agreement is deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.

 

[Signature Page Follows]

 

 

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Participation Rights Agreement 

 

 
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed as
of the date first above written.

 

 

 

Company:

 

        SUN BIOPHARMA, INC.  

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

                  Participant:                     Signature(s):               
Name(s):                Address:               Email:               Fax:    

 

 

Participation Rights Agreement

 Signature Page

 

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed as
of the date first above written.

 

 

 

Company:

 

        SUN BIOPHARMA, INC.  

 

 

 

 

 

 

 

 

 

By:

 

 

 

Name:

 

 

 

Title:

 

 

                  Participant:                     Signature(s):               
Name(s):                Address:               Email:               Fax:    

 

 

Participation Rights Agreement

 Signature Page