CBIO Catalyst Biosciences Inc

PROPOSAL ONE — TO AUTHORIZE THE BOARD, IN ITS DISCRETION, TO FILE AN AMENDMENT TO THE CERTIFICATE OF INCORPORATION, TO EFFECT A REVERSE STOCK SPLIT OF OUR OUTSTANDING COMMON STOCK AT A RATIO OF AT LEAST ONE-FOR-FIVE AND UP TO ONE-FOR-FIFTEEN

We believe it is advisable and in the best interests of the Company and its stockholders to authorize our Board, in its discretion at any time prior to June 30, 2017, to effect a reverse stock split of the Company’s outstanding common stock at a ratio of at least one-for-five and up to one-for-fifteen, by filing an amendment to our Certificate of Incorporation effective the same, with the timing of such amendment, if it is to be implemented at all, and the specific reverse split exchange ratio to be effected being determined in the sole discretion of our Board (the “Reverse Stock Split”).

Although we are asking our stockholders to vote on a range of proposed reverse split ratios, only one, if any, of such ratios will be effected within the range approved by our stockholders. Our Board believes that stockholder approval of an amendment within the proposed reverse split ratio ranges granting it the discretion to approve the specific ratio to be effected, rather than approval of only one exchange ratio at this time, provides our Board with sufficient flexibility to react to then-current market conditions and, therefore, is in our best interests and those of our stockholders.

If our stockholders approve the amendment, no further action by our stockholders will be required either to implement or to abandon the Reverse Stock Split, and our Board (or a committee designated by the Board) will have the sole discretion to elect, as it determines to be in our best interests and the best interests of our stockholders, whether and when to effect the Reverse Stock Split, and to determine the reverse split ratio of at least one-for-five and up to one-for-fifteen, at any time before June 30, 2017. In determining a reverse split ratio, our Board or its committee may consider, among other things, factors such as (i) the historical trading price and trading volume of our common stock; (ii) the number of shares of common stock outstanding; (iii) the then-prevailing trading price and trading volume of our common stock and the anticipated impact of the Reverse Stock Split on the trading market for our common stock; and (iv) prevailing general market and economic conditions. If our Board or its committee were to effect the Reverse Stock Split, we would notify our stockholders of the effectiveness of the split by issuing a press release.

The full text of the form of proposed amendment of our Certificate of Incorporation is attached to this Proxy Statement as Appendix A. If approved by our stockholders and following such approval our Board determines that effecting the Reverse Stock Split is in our best interests and those of our stockholders, the Reverse Stock Split will become effective as of 5:00 p.m., Eastern Time on the date of filing of such amendment with the Secretary of State of the State of Delaware. The amendment filed will indicate the reverse split ratio approved by our stockholders and selected by our Board. Only one such amendment will be filed, if at all.

Although we presently intend to effect the Reverse Stock Split, our Board reserves the right, notwithstanding our stockholders’ approval of the proposed amendment at the Special Meeting, to abandon it at any time without further action by our stockholders before the amendment is filed with the Secretary of State of the State of Delaware. Our Board may consider a variety of factors in determining whether or not to proceed with the proposed amendment, including overall trends in the stock market, recent changes and anticipated trends in the per share market price of our common stock, business developments, and our actual and projected financial performance. As discussed more fully below, our Board may decide to abandon the filing of the proposed amendment. If our Board fails to implement the Reverse Stock Split prior to June 30, 2017, stockholder approval again would be required prior to implementing any future reverse stock split.

Purpose and Background of the Reverse Stock Split

On November 29, 2016, the Company received a letter from Nasdaq stating that the minimum bid price of the Company’s common stock has been below $1.00 per share for 30 consecutive business days and that the Company therefore is not in compliance with the minimum bid price requirement for continued listing set forth

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in Nasdaq Marketplace Rule 5550(a)(2). The Company has been provided 180 calendar days to regain compliance with the minimum bid price requirement. To regain compliance, the closing bid price of the Company’s common stock must meet or exceed $1.00 per share for at least ten consecutive business days during this 180-day grace period. We expect that the Reverse Stock Split will increase the price per share of our common stock above the $1.00 per share minimum market price and facilitate compliance with the requirements for continued listing on Nasdaq. However, there can be no assurance that the Reverse Stock Split will have that effect, initially or in the future, or that it will enable us to maintain our listing of our common stock on Nasdaq.

We believe that effecting the Reverse Stock Split may make our common stock more attractive to certain types of investors, including institutional investors and institutional funds, which could improve the Company’s overall liquidity. On January 9, 2017, the closing price of our common stock, which is currently traded on Nasdaq, was $0.65. A number of institutional investors, investment funds and other members of the investing public may be reluctant to invest, and in some cases may be prohibited from investing, in lower-priced stocks, and brokerage firms may be reluctant to recommend lower-priced stocks, which some view as unduly speculative in nature, to their clients. By effecting the Reverse Stock Split, we believe that the per share price of our common stock may increase to a level that would be viewed more favorably by these classes of potential investors. Further, investors may be dissuaded from purchasing lower-priced stocks because the brokerage commissions, as a percentage of the total transaction, tend to be higher for such stocks. The potential for a higher stock price after the Reverse Stock Split is effected may help to reduce this concern. The Reverse Stock Split could also help increase analyst and broker interest in our common stock as such parties’ internal policies and practices can discourage or prohibit them from following or recommending companies with lower stock prices. The combination of increased interest from certain types of investors, lower transaction costs and additional analyst and broker interest could have the effect of improving the trading liquidity of our common stock, which would benefit our stockholders. However, the possibility also exists that liquidity may be adversely affected by the reduced number of shares which would be outstanding if the Reverse Stock Split is effected, particularly if the price per share of our common stock declines after the Reverse Stock Split is effected.

Additionally, the Reverse Stock Split would reduce the number of shares of our common stock issued and outstanding without reducing the total number of authorized shares of common stock. As a result, the Company would have a larger number of authorized but unissued shares from which to issue additional shares of common stock, or securities convertible or exercisable into shares of common stock, in the future. In light of the number of currently outstanding shares of common stock, we believe that increasing the number of authorized and unissued shares is in the best interests of the Company and its stockholders in order to allow the Company to meet its current and future capital and other needs which may include, without limitation, the issuance of additional equity or convertible debt securities (i) to raise additional capital, (ii) to acquire another company or its assets, (iii) to establish strategic relationships with corporate partners, or (iv) to pursue other capital-raising or strategic transactions. We do not currently have any plans, proposals or arrangements to issue for any purpose, including future acquisitions or financings, any of the newly available authorized shares of common stock resulting from a change in the authorized shares.

We further believe that a higher stock price could help us attract and retain employees and other service providers. We believe that some potential employees and service providers are less likely to work for a company with a low stock price, regardless of the size of the company’s market capitalization. If the Reverse Stock Split successfully increases the per share price of our common stock, we believe this increase will enhance our ability to attract and retain employees and service providers. We hope that the decrease in the number of shares of our outstanding common stock as a consequence of the Reverse Stock Split, and the anticipated increase in the price per share, will encourage greater interest in our common stock by the financial community and the investing public, help us attract and retain employees and other service providers, and possibly promote greater liquidity for our stockholders with respect to those shares presently held by them.

There can be no assurance that the Reverse Stock Split will achieve any of the desired results initially or in the future. There also can be no assurance that the price per share of our common stock immediately after the

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Reverse Stock Split will increase proportionately with the Reverse Stock Split, or that any increase will be sustained for any period of time. The price per share of our common stock is a function of our business performance and other factors, some of which may be unrelated to the number of shares outstanding.

The proposed Reverse Stock Split is not intended to be an anti-takeover device or a “going private” transaction.

The Reverse Stock Split May Not Result in an Increase in the Per Share Price of Our Common Stock; There Are Other Risks Associated with the Reverse Stock Split

We cannot predict whether the Reverse Stock Split will increase the market price for our common stock. The history of similar stock split combinations for companies in like circumstances is varied. There is no assurance that:

The market price of our common stock will also be based on our performance and other factors, some of which are unrelated to the number of shares outstanding. If the Reverse Stock Split is effected and the market price of our common stock declines, the percentage decline as an absolute number and as a percentage of our overall market capitalization may be greater than would occur in the absence of the Reverse Stock Split. Additionally, the liquidity of our common stock could be adversely affected by the reduced number of shares that would be outstanding after the implementation of the Reverse Stock Split.

Principal Effects of the Reverse Stock Split on the Market for our Common Stock

On January 9, 2017, the closing price for our common stock on Nasdaq was $0.65 per share. By decreasing the number of shares of common stock outstanding without altering the aggregate economic interest represented by the shares, we believe the market price will be increased. The greater the market price rises above $1.00 per shares, the less risk there will be that we will fail to satisfy the requirements for continuing to list our common stock on Nasdaq. However, there can be no assurance that the market price of the common stock will rise to or maintain any particular level or that we will at all times be able to meet the requirements for maintaining the listing of our common stock on Nasdaq.

Principal Effects of the Reverse Stock Split on Common Stock; No Fractional Shares

If approved by our stockholders and implemented by the Board or applicable committee, the principal effect of the Reverse Stock Split will be to reduce the number of issued and outstanding shares of our common stock in accordance with an exchange ratio in the range approved by our stockholders and determined by our Board as set

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forth in this Proposal. The actual effects of the Reverse Stock Split will vary depending on the timing of the Reverse Stock Split and the exchange ratio determined by the Board.

The total number of shares of common stock each stockholder holds will be reclassified automatically into the number of shares of common stock equal to the number of shares of common stock each stockholder held immediately before the Reverse Stock Split divided by the ratio approved by our stockholders and determined by our Board as set forth in this Proposal. If the number of shares of common stock a stockholder holds is not evenly divisible by such ratio, such holder will not receive a fractional share but instead will receive, upon surrender of stock certificates representing such shares of common stock, cash in an amount equal to the fraction of a share that stockholder otherwise would have been entitled to receive multiplied by the last sale price (as adjusted to reflect the Reverse Stock Split) of the Common Stock as last reported on Nasdaq on the trading day before the Reverse Stock Split takes effect. 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. Stockholders should be aware that, under the escheat laws of the various jurisdictions where 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, stockholders otherwise entitled to receive such funds may have to seek to obtain them directly from the state to which they were paid.

The Reverse Stock Split will affect all of our stockholders uniformly and will not affect any such holder’s percentage ownership interests, except to the extent that the Reverse Stock Split results in any such holder owning a fractional share. As described above, stockholders holding fractional shares will be entitled to cash payments in lieu of such fractional shares. Such cash payments will reduce the number of post-split stockholders to the extent there are stockholders presently holding fewer than five to fifteen shares, depending on the exchange ratio selected by our Board. This, however, is not the purpose for which we are proposing to effect the Reverse Stock Split. Common stock issued pursuant to the Reverse Stock Split will remain fully paid and non-assessable. The par value of our common stock would remain unchanged at $0.001 per share.

Upon effectiveness of the Reverse Stock Split, the number of authorized shares of common stock that are not issued or outstanding will increase substantially because the proposed amendment will not reduce the number of authorized shares while it will reduce the number of outstanding shares by one-fifth to one-fifteenth, depending on the exchange ratio selected by our Board. Authorized but unissued shares will be available for issuance, and we may issue such shares in financings or otherwise. The Company currently plans to seek additional financing in order to fund operations. If we issue additional shares, the ownership interest of holders of our common stock may also be diluted. Our future capital needs will be highly dependent on our product development and other business activities and our ability to raise capital through strategic transactions, grants or other means. Thus, any projections of future cash needs and cash flows are subject to substantial uncertainty. If our available funds and cash generated from operations are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities, obtain a line of credit or curtail our existing operations. In addition, from time to time we may evaluate other methods of financing to meet our capital needs on terms that we believe are attractive.

Principal Effects of the Reverse Stock Split on Outstanding Options, Notes and Warrants

As of the record date for the Special Meeting, we had outstanding: (i) $19,401,466 in aggregate principal amount of non-interest bearing redeemable convertible notes (the “Notes”), convertible at the option of each noteholder, into cash or into shares of our common stock at a rate of $9.19 per share; (ii) warrants to purchase 180,954 shares of our common stock at a weighted average exercise price of $9.71 per share (the “Warrants”); and (iii) options to purchase 2,114,849 shares of our common stock at a weighted average exercise price of $8.51 per share (the “Options”).

Under the terms of the Notes, Options and Warrants, when the Reverse Stock Split becomes effective, the number of shares covered by each of them will be automatically reduced by one-fifth to one-fifteenth of the

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number currently covered and the exercise price per share will increase by one-fifth to one-fifteenth, resulting in the same aggregate price being required to be paid therefor upon exercise thereof as was required immediately preceding the Reverse Stock Split. The number of shares reserved for issuance and the award limitations under our 2015 Stock Incentive Plan, as amended and restated effective June 9, 2016, will decrease by one-fifth to one-fifteenth of the number of shares currently included in such plans.

Principal Effects of the Reverse Stock Split on Legal Ability to Pay Dividends

Our Board does not currently have any plans to declare in the foreseeable future any distributions of cash, dividends or other property, and we are not in arrears on any dividends. Therefore, we do not believe that the Reverse Stock Split will have any effect with respect to future distributions, if any, to our stockholders.

Accounting Matters

The Reverse Stock Split will not affect the par value of our common stock. As a result, on the effective date of the Reverse Stock Split, the stated capital on our balance sheet attributable to our common stock will be reduced by one-fifth to one-fifteenth, and the additional paid-in capital account will be credited with the amount by which the stated capital is reduced. The per share net income or loss and net book value of our common stock will be increased because there will be fewer shares of Common Stock outstanding.

Potential Anti-Takeover Effect

The increased proportion of unissued authorized shares to issued shares could, under certain circumstances, have an anti-takeover effect (for example, by permitting issuances that would dilute the stock ownership of a person seeking to effect a change in the composition of our Board or contemplating a tender offer or other transaction for our combination with another company). However, the Reverse Stock Split proposal is not being proposed in response to any effort of which we are aware to accumulate shares of our Common Stock or obtain control of our Company, nor is it part of a plan by management to recommend a series of similar amendments to our Board and stockholders.

Procedure for Effecting the Reverse Stock Split; Exchange of Stock Certificates; Effect on Registered and Beneficial Holders and Registered “Book-Entry” Holders of Common Stock; Payment for Fractional Shares

If our stockholders approve granting our Board the authority to exercise its discretion to effectuate the Reverse Stock Split and if our Board determines that the Reverse Stock Split is in the best interests of the Company, we will file the proposed amendment to the Certificate of Incorporation with the Secretary of State of the State of Delaware. The Reverse Stock Split will become effective at 5:00 p.m., Eastern Time on the date of filing of such amendment which we refer to as the “effective time.” Beginning at the effective time, each certificate representing outstanding pre-reverse stock split shares of common stock will be deemed for all corporate purposes to evidence ownership of post-reverse stock split shares of common stock.

We will appoint American Stock Transfer & Trust Company, LLC as exchange agent for our stockholders in connection with the Reverse Stock Split (the “Transfer Agent”). We will deposit with the Transfer Agent, as soon as practicable after the effective time, cash in an amount equal to the value of the estimated aggregate number of fractional shares that will result from the Reverse Stock Split. The funds required to purchase the fractional share interests are available and will be paid from our current cash reserves. Our stockholder list shows that some of the outstanding shares of common stock are registered in the names of clearing agencies and broker nominees. Because we do not know the numbers of shares held by each beneficial owner for whom the clearing agencies and broker nominees are record holders, we cannot predict with certainty the number of fractional shares that will result from the Reverse Stock Split or the total amount we will be required to pay for fractional share interests. However, we do not expect that amount will be material.

As of the record date for the Special Meeting, we had approximately 127 stockholders of record (although we had significantly more beneficial holders). We do not expect the Reverse Stock Split and the payment of cash in lieu of fractional shares to result in a significant reduction in the number of record holders.

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As soon as practicable after the effective time, we will mail a letter of transmittal to each stockholder. Each stockholder will be able to obtain a certificate evidencing its post-Reverse Stock Split shares and, if applicable, cash in lieu of a fractional share only by sending the Transfer Agent its old stock certificate(s), together with the properly executed and completed letter of transmittal and such evidence of ownership of the shares as we may require. Stockholders will not receive certificates for post-Reverse Stock Split shares unless and until their old certificates are surrendered to the Transfer Agent together with the properly completed and executed letter of transmittal and such evidence of ownership of the shares as we may require. Stockholders should not destroy any stock certificates and should not forward their certificates to the Transfer Agent until they receive the letter of transmittal, and they should only send in their certificates with the letter of transmittal. The Transfer Agent will send each stockholder’s new stock certificate and payment in lieu of any fractional share promptly after receipt of that stockholder’s properly completed letter of transmittal and old stock certificate(s). Stockholders will not have to pay any service charges in connection with the exchange of their certificates or the payment of cash in lieu of fractional shares.

Upon the effectiveness of the Reverse Stock Split, shares of common stock held by stockholders that hold their shares through a broker or other nominee will be treated in the same manner as shares held by registered stockholders that hold their shares in their names. Brokers and other nominees that hold shares of common stock will be instructed to effect the Reverse Stock Split for the beneficial owners of such shares. However, those brokers or other nominees may implement different procedures than those to be followed by registered stockholders for processing the Reverse Stock Split. Stockholders whose shares of common stock are held in the name of a broker or other nominee are encouraged to contact their broker or other nominee with any questions regarding the procedure of implementing the Reverse Stock Split with respect to their shares.

Registered holders of shares of common stock may hold some or all of their shares electronically in book-entry form under the direct registration system for the securities. Those stockholders will not have stock certificates evidencing their ownership of common stock, but generally have a statement reflecting the number of shares registered in their accounts. Stockholders that hold registered shares of Common Stock in book-entry form do not need to take any action to receive new post-Reverse Stock Split shares of common stock (or a cash payment in lieu of any fractional share interest, if applicable). Any such stockholder that is entitled to new post-Reverse Stock Split shares of common stock will automatically receive, at the stockholder’s address of record, a transaction statement indicating the number of shares of common stock held following the implementation of the Reverse Stock Split. If any such stockholder is entitled to a payment in lieu of any fractional share interest, a check will be mailed to the stockholder’s address of record as soon as practicable after the Reverse Stock Split is implemented.

Even if our stockholders approve the Reverse Stock Split, our Board reserves the right to not effect the Reverse Stock Split if in our Board’s opinion it would not be in our best interests or those of our stockholders to effect such Reverse Stock Split.

No Appraisal Rights

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

Federal Income Tax Consequences of the Reverse Stock Split; Rule 144

The following is a summary of certain of the material anticipated federal income tax consequences under current law relating to the Reverse Stock Split. The following discussion does not purport to deal with all aspects of federal income taxation that may be applicable to specific stockholders.

The following description of federal income tax consequences is based on the current provisions of the Internal Revenue Code of 1986, as amended (the “Code”), current and proposed applicable Treasury regulations promulgated thereunder, judicial authority and current administrative rulings and practices as in effect on the date

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of this Proxy Statement. This summary does not take into account possible changes in such laws or interpretations, including amendments to the Code, applicable statutes, regulations and proposed regulations or changes in judicial or administrative rulings, some of which may have retroactive effect. This discussion should not be considered tax or investment advice, and the tax consequences may not be the same for all stockholders. In addition, this discussion does not address the tax treatment of special classes of stockholders, such as banks, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, persons holding common stock as part of a hedge, straddle or other risk reduction, constructive sale or conversion transaction, U.S. expatriates, persons subject to the alternative minimum tax, foreign corporations, foreign estates or trusts and persons who are not citizens or residents of the United States for U.S. tax purposes. This discussion also may not apply to stockholders who acquired their common stock as compensation.

Each stockholder is urged to consult his, her or its own tax advisors to determine particular federal tax consequences to such stockholders of the Reverse Stock Split, as well as the applicability and effect of state, local, foreign and other laws.

The following discussion is limited to certain tax consequences resulting to stockholders of the Company as part of the Reverse Stock Split. Accordingly, holders of options, notes and warrants to purchase the capital stock of the Company should consult their own tax advisors with respect to the tax consequences associated with the Reverse Stock Split.

We believe that, for federal income tax purposes, the Reverse Stock Split will constitute a tax-free recapitalization. Accordingly, we believe that the Reverse Stock Split will not be a taxable transaction to the stockholders or the Company. Each stockholder’s tax basis in his or her shares of the Company’s common stock received in the Reverse Stock Split will be equal to such stockholder’s tax basis in the shares of the Company’s common stock held immediately prior to the effectiveness of the Reverse Stock Split, and his or her holding period of such shares of the Company’s common stock for federal income tax purposes will include the holding period of such shares of the Company’s common stock that were surrendered in connection with the Reverse Stock Split, provided such shares were held as a capital asset at the time of the effectiveness of the Reverse Stock Split.

A stockholder who receives cash in lieu of fractional shares in the Reverse Stock Split should recognize capital gain or loss equal to the difference between the amount of the cash received in lieu of fractional shares and the portion of the stockholder’s adjusted tax basis allocable to the fractional shares unless the distribution of cash is treated as having the effect of a distribution of dividend, in which case the gain will be treated as dividend income to the extent of our current accumulated earnings and profits as calculated for U.S. federal income tax purposes. Stockholders are urged to consult their own tax advisors to determine whether a stockholder’s receipt of cash has the effect of a distribution of a dividend.

Although we believe that the U.S. federal income tax consequences to the Reverse Stock Split will be as described above, the Internal Revenue Service (the “IRS”) is not precluded from taking a contrary position that could have an adverse tax consequence on holders of the Company’s common stock. There can be no assurance that the U.S. federal income tax consequences described above will not be challenged by the IRS or, if challenged, will be decided favorably to the holders of the Company’s common stock.

Under Rule 144 under the Securities Act of 1933, the holding period for the common stock received in connection with the Reverse Stock Split will include the period during which the pre-split common stock was held prior to its surrender.

Required Approval

The consent required to authorize the Company to effect the Reverse Stock Split is the affirmative vote of a majority of the shares of our common stock outstanding on the record date.

THE BOARD RECOMMENDS A VOTE FOR AUTHORIZATION OF THE REVERSE STOCK SPLIT AT A RATIO OF AT LEAST ONE-FOR-FIVE AND UP TO ONE-FOR-FIFTEEN.

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