SUMR Summer Infant Inc

PROPOSAL NO. 1

THE REVERSE STOCK SPLIT PROPOSAL

Introduction

        Our Board has adopted and is recommending that our stockholders approve proposed amendments to our Amended and Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), to effect a reverse stock split (the "Reverse Split") of the Company's outstanding common stock at a ratio of not less than 1-for-3 and not more than 1-for-20, with such ratio to be determined at the sole discretion of the Board, and with such Reverse Split to be effected at such time and date, if at all, as determined by the Board in its sole discretion. The form of proposed amendments to our Certificate of Incorporation to effect the Reverse Split is attached as Appendix A to this Proxy Statement. However, the text of the proposed amendments is subject to revision to include such changes as may be required by the Secretary of State of the State of Delaware and as the Board deems necessary or advisable to effect the proposed amendment of our Certificate of Incorporation.

        By approving this proposal, stockholders will approve a series of amendments to our Certificate of Incorporation pursuant to which any whole number of outstanding shares of common stock between and including three and twenty would be combined into one share of our common stock, and authorize the Board to file only one such amendment, as determined by the Board in the manner described herein, and to abandon each amendment not selected by the Board. Our Board believes that stockholder approval of amendments granting the Board this discretion, rather than approval of a specified exchange ratio, provides the Board with maximum flexibility to react to then-current market conditions and, therefore, is in the best interests of the Company and its stockholders. The Board may effect only one Reverse Split as a result of this authorization. The Board may also elect not to do any Reverse Split. The Board's decision as to whether and when to effect the Reverse Split will be based on a number of factors, including market conditions, existing and expected trading prices for our common stock, and the continued listing requirements of the Nasdaq Capital Market.

        Although our stockholders may approve the Reverse Split, we will not effect the Reverse Split if the Board does not deem it to be in the best interests of the Company and its stockholders. The Reverse Split will take effect, if at all, after it is approved by stockholders holding a majority of the shares of our common stock outstanding on the record date, is deemed by the Board to be in the best interests of the Company and its stockholders, and after filing the amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware.

Background

        Our common stock is currently listed on the Nasdaq Capital Market. In order for our common stock to continue to be listed on the Nasdaq Capital Market, we must satisfy various listing maintenance standards established by The Nasdaq Stock Market ("Nasdaq"). If we are unable to meet the Nasdaq Capital Market requirements, our common stock will be subject to delisting.

        Under Nasdaq's continued listing requirements for the Nasdaq Capital Market, if the closing bid price of our common stock is under $1.00 per share for 30 consecutive business days and does not thereafter reach $1.00 per share or higher for a minimum of ten consecutive business days during the 180 calendar days following notification by Nasdaq, our common stock would be subject to delisting by Nasdaq.

        On April 4, 2019, Nasdaq notified us that the bid price of our common stock had closed below the required $1.00 per share for 30 consecutive trading days, and, accordingly, that we did not comply with the applicable Nasdaq minimum bid price requirement. We were provided an initial period of 180 calendar days in which to regain compliance with the minimum bid price requirement. On October 2, 2019, we received notice from Nasdaq indicating that, while we had not regained

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compliance with the minimum bid price requirement, the Nasdaq staff determined that we were eligible for an additional 180-day period, or until March 30, 2020, to regain compliance. The staff's determination was based on (i) our meeting the continued listing requirement for market value of our publicly held shares and all other initial listing standards for the Nasdaq Capital Market, with the exception of the bid price requirement, and (ii) our providing written notice to Nasdaq of our intent to cure the deficiency during this second compliance period, if necessary by effecting a reverse stock split.

        Accordingly, the Board adopted resolutions, subject to approval by our stockholders, to amend our Certificate of Incorporation to effect a Reverse Split of our common stock at a ratio in the range of 1-for-3 to 1-for-20, such ratio to be determined in the sole discretion of the Board. These resolutions were approved as a means of increasing the share price of our common stock above $1.00, which is required for continued listing on the Nasdaq Capital Market.

Purpose of the Proposed Reverse Split

        The Board's primary objective in proposing the Reverse Split is to raise the per share trading price of our common stock. The Board believes that the Reverse Split will result in a higher per share trading price, which is intended to enable us to maintain the listing of our common stock on the Nasdaq Capital Market and give the Company flexibility in considering and planning for future business needs. The Reverse Split will result in additional authorized and uinissued shares becoming available for general corporate purposes as the Board may determine from time to time, including for use under the Company's equity compensation plans.

        The Board believes that it is in the best interests of the Company and its stockholders to maintain the listing of our common stock on the Nasdaq Capital Market. If our common stock were delisted from the Nasdaq Capital Market, the Board believes such delisting would adversely affect the market liquidity of our common stock, decrease the market price of our common stock, adversely affect our ability to obtain financing for the continuation of our operations and result in the loss of confidence in our Company.

        If the Reverse Split is approved by our stockholders and implemented by the Board, we expect to satisfy the $1.00 per share minimum bid price requirement for continued listing. However, despite the approval of the Reverse Split by our stockholders and implementation by the Board, there can be no assurance that the Reverse Split will result in our meeting and maintaining the $1.00 minimum bid price requirement. The effect of the Reverse Split upon the market price for our common stock cannot be predicted, and the history of similar reverse stock splits for companies in like circumstances is varied. The market price per share of our common stock after the Reverse Split may not rise in proportion to the reduction in the number of shares of our common stock outstanding resulting from the Reverse Split due to, among other reasons, our performance and other factors which may be unrelated to the number of shares outstanding. The common stock could also be delisted from the Nasdaq Capital Market due to our failure to comply with one or more other Nasdaq listing rules.

        With the exception of the Company's routine practice of granting stock options, restricted stock units, and other stock-based awards to employees and other service providers, the Company has no current specific plan, commitment, arrangement, understanding, or agreement regarding the issuance of additional shares of common stock resulting from the increase in the number of unissued shares available for issuance under our Certificate of Incorporation after giving effect to the proposed Reverse Split. Unless required by applicable law or stock exchange rules, no further vote of the stockholders will be required to issue such shares.

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        We believe that the availability of the range of split ratios provides the Board with the flexibility to implement the Reverse Split in a manner designed to maximize the anticipated benefits for the Company and its stockholders. In determining which split ratio to implement, if any, following the receipt of stockholder approval, our Board may consider, among other things (i) our ability to comply with Nasdaq listing requirements; (ii) the historical trading price and trading volume of our common stock; (iii) the then-prevailing trading price and volume of our common stock, and the anticipated impact of the Reverse Split on the trading market for our common stock; and (iv) prevailing general market and economic conditions.

        The Reverse Split will affect all of our stockholders uniformly and will not affect any stockholder's percentage ownership interests in our Company or proportionate voting power, except for minor adjustment due to the additional net share fraction that will need to be issued as a result of the treatment of fractional shares. No fractional shares will be issued in connection with the Reverse Split. Instead, the Company will issue one full share of the post-Reverse Split common stock to any stockholder of record who would have been entitled to receive a fractional share as a result of the process.

        The amendment will not change the terms of our common stock. The shares of new common stock will have the same voting rights and rights to dividends and distributions and will be identical in all other respects to the common stock now authorized. The common stock issued pursuant to the Reverse Split will remain fully paid and non-assessable.

        Our common stock is currently registered under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and we are subject to the periodic reporting and other requirements of the Exchange Act. We do not intend for the Reverse Split to constitute, or be the first step in a series of plans or proposals for, a "going private" transaction pursuant to Rule 13e-3 under the Exchange Act, and we will continue to be subject to the periodic reporting and other requirements of the Exchange Act after giving effect to the Reverse Split. Following the Reverse Split, we expect our common stock will continue to be listed on the Nasdaq under the symbol "SUMR," although it will trade under a new CUSIP number as described below under "Procedure for Effecting Reverse Split and Exchange of Stock Certificates."

Effect on Authorized Shares of Stock

        The Reverse Split would affect all issued and outstanding shares of common stock and outstanding rights to acquire common stock. We will not change the number of shares of common stock currently authorized. However, upon the effectiveness of the Reverse Split, the number of authorized shares of common stock that are not issued or outstanding would increase due to the reduction in the number of shares of common stock issued and outstanding as a result of the Reverse Split.

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        As of the record date, we had (i) 49,000,000 shares of authorized common stock, par value $0.0001 per share, of which [18,941,459] shares were issued and outstanding, and (ii) 1,000,000 shares of authorized preferred stock, par value $0.0001 per share, of which no shares were issued and outstanding. If we issue additional shares, the ownership interest of holders of common stock will be diluted. We do not have any plans, arrangements or understandings for the remaining portion of the authorized but unissued shares that will be available following the Reverse Split.

Effect on Equity Awards

        If the Reverse Split is implemented, the number of shares of common stock subject to outstanding equity awards issued by the Company, including options and restricted stock awards, and the number of shares reserved for future issuance under the Company's 2012 Equity Incentive Plan, will be reduced by the same ratio as the reduction in the outstanding shares. Correspondingly, the exercise price for individual outstanding options, on a per share basis, will be proportionally increased (i.e., the aggregate exercise price for all outstanding options will be unaffected, but following a Reverse Split such exercise price will apply to a reduced number of shares). As of December 28, 2019, there were outstanding (i) stock options to purchase an aggregate of 911,873 shares of common stock at a weighted average exercise price of $1.59 per share, and (ii) restricted stock awards representing the right to acquire an aggregate of 201,525 shares of common stock. Assuming, for example, a 1-for-10 Reverse Split, the number of shares covered by outstanding options and restricted stock awards will be reduced to one-tenth the number currently issuable, and the exercise price of options will be increased by ten times the current exercise price.

Accounting Matters

        The par value of the shares of our common stock is not changing as a result of the implementation of the Reverse Split. Our stated capital, which consists of the par value per share of our common stock multiplied by the aggregate number of shares of our common stock issued and outstanding, will be reduced proportionately on the effective date of the Reverse Split. Correspondingly, our additional paid-in capital, which consists of the difference between our stated capital and the aggregate amount paid to us upon the issuance of all currently outstanding shares of our common stock, will be increased by a number equal to the decrease in stated capital. Further, net loss per share, book value per share and other per share amounts will be increased as a result of the Reverse Split because there will be fewer shares of common stock outstanding.

Possible Disadvantages of Reverse Split

        Even though the Board believes that the potential advantages of the Reverse Split outweigh any disadvantages that might result, the following are some of the possible disadvantages of a Reverse Split:

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The reduced number of shares of our common stock resulting from a Reverse Split could adversely affect the liquidity of our common stock, especially in the case of larger block trades.



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A Reverse Split could result in a significant devaluation of our market capitalization and the trading price of our common stock, on an actual or an as-adjusted basis, based on the experience of other companies that have effected reverse stock splits.



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A Reverse Split may leave certain stockholders with one or more "odd lots," which are stock holdings in amounts of less than 100 shares of our common stock. These odd lots may be more difficult to sell than shares of common stock in even multiples of 100. Additionally, any reduction in brokerage commissions resulting from the Reverse Split, as discussed above, may be offset, in whole or in part, by increased brokerage commissions required to be paid by stockholders selling odd lots created by the Reverse Split.

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There can be no assurance that the market price per new share of our common stock after the Reverse Split will remain unchanged or increase in proportion to the reduction in the number of old shares of our common stock outstanding before the Reverse Split. For example, based on the closing market price of our common stock on January 10, 2020 of $0.37 per share, if the stockholders approve this proposal and the Board selects and implements a Reverse Split ratio of 1-for-10, there can be no assurance that the post-split market price of our common stock would be $3.70 per share or greater. Accordingly, the total market capitalization of our common stock after the proposed Reverse Split may be lower than the total market capitalization before the proposed Reverse Split and, in the future, the market price of our common stock following the Reverse Split may not exceed or remain higher than the market price prior to the proposed Reverse Split.



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If the Reverse Split is effected and the market price of our common stock declines, the percentage decline may be greater than would occur in the absence of a Reverse Split. The market price of our common stock will, however, also be based on our performance and other factors, which are unrelated to the number of shares outstanding.

Potential Anti-Takeover Effect

        SEC rules require disclosure and discussion of the effects of any proposal that could be used as an anti-takeover device. This proposal, if adopted and implemented, will result in a relative increase in the number of authorized but unissued shares of our common stock vis-à-vis the outstanding shares of our common stock and could, under certain circumstances, have an anti-takeover effect, although that is not the purpose or intent of the proposal. A relative increase in the number of authorized but unissued shares of common stock could have other effects on our stockholders, depending upon the exact nature and circumstances of any actual issuances of authorized shares. A relative increase in our authorized but unissued shares of common stock could potentially deter takeovers, including takeovers that our Board determines are not in the best interest of our stockholders, in that additional shares could be issued (within the limits imposed by applicable law) in one or more transactions that could make a change in control or takeover more difficult. Our Board is not aware of any attempt to take control of our business and has not considered the Reverse Split to be a tool to be utilized as a type of anti-takeover device. We currently have no plans, proposals or arrangements to issue any shares of common stock that would become newly available for issuance as a result of the Reverse Split.

Board Discretion to Implement the Reverse Split

        Our Board has reserved the right to abandon the amendment at any time before the effectiveness of the filing of the amendment to our Certificate of Incorporation with the Delaware Secretary of State to implement the Reverse Split, even if the adoption of the amendment is approved by our stockholders.

Procedure for Effecting Reverse Split and Exchange of Stock Certificates

        If the Reverse Split is approved by our stockholders, the Reverse Split would become effective at such time as it is deemed by the Board to be in the best interests of the Company and its stockholders and we file the amendment to our Certificate of Incorporation with the Secretary of State of Delaware. Even if the Reverse Split is approved by our stockholders, the Board has discretion not to carry out the Reverse Split. Upon the filing of the amendment, all the old common stock will be converted into new common stock as set forth in the amendment. Beginning on the effective time of the Reverse Split, each certificate representing pre-Reverse Split shares will be deemed for all corporate purposes to evidence ownership of post-Reverse Split shares.

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        After the effective time of the Reverse Split, our common stock will have a new Committee on Uniform Securities Identification Procedures (CUSIP) number, which is a number used to identify our equity securities, and stock certificates with the older CUSIP number will need to be exchanged for shares of common stock with the new CUSIP number by following the procedures described below. However, until such exchange is made, the old stock certificates will automatically represent the new, post-split number of shares. After the Reverse Split, we will continue to file periodic reports and comply with other requirements of the Exchange Act.

        As soon as practicable after the effective time of the Reverse Split, stockholders will be notified that the Reverse Split has been effected. Some stockholders hold their shares of common stock in certificate form or a combination of certificate and book-entry form. Our transfer agent, Continental Stock Transfer & Trust Company, will act as exchange agent for purposes of implementing the exchange of stock certificates, if applicable. If you are a stockholder holding pre-split shares in certificate form, you will receive a transmittal letter from our transfer agent as soon as practicable after the effective time of the Reverse Split. The transmittal letter will be accompanied by instructions specifying how you can exchange your certificate representing the pre-split shares of our common stock for a statement of holding. When you submit your certificate representing the pre-split shares of our common stock, your post-split shares of our common stock will be held electronically in book-entry form in the Direct Registration System. This means that, instead of receiving a new stock certificate, you will receive a statement of holding that indicates the number of post-split shares you own in book-entry form. We will no longer issue physical stock certificates unless you make a specific request for a share certificate representing your post-Reverse Split ownership interest.

        STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.

Fractional Shares

        No fractional shares will be issued in connection with the Reverse Split. Instead, the Company will issue one full share of the post-Reverse Split common stock to any stockholder of record who would have been entitled to receive a fractional share as a result of the process. Each common stockholder will hold the same percentage of the outstanding common stock immediately following the Reverse Split as that stockholder did immediately prior to the Reverse Split, except for minor adjustment due to the additional net share fraction that will need to be issued as a result of the treatment of fractional shares.

Criteria to be Used for Decision to Apply the Reverse Split

        In the event that approval for the Reverse Split is obtained, the Board will be authorized to proceed with the Reverse Split. If our stock closes at a bid price equal to or greater than $1.00 for the ten business days prior to the Special Meeting, our board of directors may delay its decision to execute the Reverse Split indefinitely. In that case, if at any time during the 12-month period following the Special Meeting the stock price falls below $1.00 for a 30-day period and therefore fails to comply with the applicable NASDAQ Capital Market minimum listing requirements, then the Reverse Split may be executed as a cure for this condition.

No Dissenter's Rights

        Under the Delaware General Corporation Law, our stockholders are not entitled to dissenter's rights with respect to our proposed amendment to our Certificate of Incorporation to effect the Reverse Split and we will not independently provide our stockholders with any such right.

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Federal Income Tax Consequences of the Reverse Split

        The following summary of the federal income tax consequences of the Reverse Split is based on current law, including the Internal Revenue Code of 1986, as amended, and is for general information only. The tax treatment of a stockholder may vary depending upon the particular facts and circumstances of such stockholder, and the discussion below may not address all the tax consequences for a particular stockholder. For example, foreign, state and local tax consequences are not discussed below. Accordingly, each stockholder should consult his or her tax adviser to determine the particular tax consequences to him or her of a Reverse Split, including the application and effect of federal, state, local and/or foreign income tax and other laws.

        Generally, a reverse stock split will not result in the recognition of gain or loss for federal income tax purposes. The adjusted basis of the new shares of common stock will be the same as the adjusted basis of the common stock exchanged for such new shares. The holding period of the new, post-Reverse Split shares of the common stock resulting from implementation of the Reverse Split will include the stockholder's respective holding periods for the pre-Reverse Split shares.

Vote Required

        The affirmative vote of a majority of the outstanding shares of our common stock on the record date will be required to approve the Reverse Stock Split Proposal.

Recommendation

        The Board unanimously recommends that stockholders vote "FOR" this proposal.

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