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. )
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Definitive
Proxy Statement
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Definitive
Additional Materials
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Soliciting
Material Pursuant to §240.14a-12
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Protagenic
Therapeutics, Inc.
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(Name
of Registrant as Specified In Its Charter)
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(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
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Protagenic
Therapeutics, Inc.
149
Fifth Avenue, Suite 500
New
York, NY 10010
June
13, 2018
Dear
Fellow Stockholder:
You
are cordially invited to the Annual Meeting of Stockholders of Protagenic Therapeutics, Inc. (the “
Annual Meeting
”)
to be held on July 23, 2018, at 11:00 a.m., Eastern Time. The Annual Meeting will be our first completely virtual meeting of stockholders.
The virtual nature of the Annual Meeting will enable us to increase stockholder accessibility while improving meeting efficiency
and reducing costs. The online meeting will begin promptly at 11:00 a.m., Eastern Time.
The
matters to be considered and voted upon at the Annual Meeting are described in the Notice of Annual Meeting of Stockholders and
the Proxy Statement that accompany this letter.
It
is very important that your shares be represented and voted at the Annual Meeting. Please read the attached Proxy Statement and
vote your shares as soon as possible.
If
you have any questions or need assistance in voting your shares, please call our Chief Financial Officer, Dr. Alexander K. Arrow,
at 213-260-4342.
Thank
you for your continued support.
Sincerely
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/s/
Garo H. Armen
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Garo
H. Armen
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Chairman
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Protagenic
Therapeutics, Inc.
149
Fifth Avenue, Suite 500
New
York, NY 10010
NOTICE
OF VIRTUAL ANNUAL MEETING OF STOCKHOLDERS
To
be held on July 23, 2018
The
Annual Meeting of the stockholders of Protagenic Therapeutics, Inc., a Delaware corporation (the “Company”), will
be held at 11:00 a.m., on July 23, 2018. The annual meeting will be completely virtual. If you plan to participate in the virtual
meeting, please see the instructions under “How can I attend the Annual Meeting?” on page 2 of this Proxy Statement.
Stockholders will be able to listen, vote, and submit questions from their home or from any remote location that has internet
connectivity. Stockholders may only participate online by logging in at
www.virtualshareholdermeeting.com/PTIX2018
. The
annual meeting will be held for the following purposes:
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To
elect five director nominees to serve as directors until the next annual meeting of stockholders;
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To
ratify the appointment of MaloneBailey, LLP as our independent registered public accounting firm for the year ending December
31, 2018;
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To
participate in an advisory vote to approve the compensation of the named executive officers;
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To
participate in an advisory vote to determine the frequency at which our stockholders will be asked to approve the compensation
of the named executive officers; and
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To
consider any other matters that may properly come before the Annual Meeting.
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Only
stockholders of record at the close of business on May 31, 2018 are entitled to receive notice of and to vote at the Annual Meeting
or any postponement or adjournment thereof.
Your
vote is important. Whether you plan to attend the Annual Meeting or not, you may vote your shares over the Internet or by requesting
a printed copy of the proxy materials and marking, signing, dating and mailing the proxy card in the envelope provided. If you
attend the Annual Meeting and prefer to vote at the meeting, you may do so even if you have already voted your shares. You may
revoke your proxy in the manner described in the Proxy Statement at any time before it has been voted at the Annual Meeting.
BY
ORDER OF THE BOARD OF DIRECTORS
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/s/
Alexander K. Arrow
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Alexander
K. Arrow
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Chief
Financial Officer and Secretary
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New
York, New York
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June
13, 2018
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IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON JULY 23, 2018
This
proxy statement, this notice of annual meeting, our Annual Report for the fiscal year ended December 31, 2017 and a form
of proxy are all available free of charge on the following website: http://protagenic.com/investors/events-proxies/.
Under
Securities and Exchange Commission rules, we are providing access to our proxy materials by notifying you of the availability
of our proxy materials on the Internet.
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Table
of Contents
PROTAGENIC
THERAPEUTICS, INC.
149
FIFTH AVENUE, SUITE 500
NEW
YORK, NY 10010
PROXY
STATEMENT
FOR
VIRTUAL
ANNUAL MEETING OF STOCKHOLDERS
To
be Held on July 23, 2018
This
proxy statement contains information related to the Annual Meeting of Stockholders of Protagenic Therapeutics, Inc. (the “
Company
”),
to be held on July 23, 2018 at 11 a.m. Eastern Time. The annual meeting will be completely virtual. The annual meeting shall be
held at such other time and place to which the Annual Meeting may be adjourned or postponed. If you plan to participate in the
virtual meeting, please see the instructions under “How can I attend the Annual Meeting?” on page 2 of this Proxy
Statement. Stockholders will be able to listen, vote, and submit questions from their home or from any remote location that has
internet connectivity. Stockholders may only participate online by logging in at
www.virtualshareholdermeeting.com/PTIX2018
.
The enclosed proxy is solicited by the Board of Directors of Protagenic Therapeutics, Inc. (the “
Board
”).
In
accordance with the “e-proxy” rules approved by the Securities and Exchange Commission (“
SEC
”)
and in connection with the solicitation of proxies by our Board of Directors, on or about June 13, 2018 we first sent a Notice
of Internet Availability of Proxy Materials and provided access to our proxy materials (consisting of this proxy statement, our
Annual Report on Form 10-K for the year ended December 31, 2017 and a form of proxy) over the internet to each stockholder entitled
to vote at the Annual Meeting. We intend to mail to requesting stockholders full sets of our proxy materials (consisting of this
proxy statement, our Annual Report on Form 10-K for the year ended December 31, 2017 and a form of proxy) within three to five
days from the date of receipt of such request.
ABOUT
THE MEETING
Why
are we calling this Annual Meeting?
We
are calling the Annual Meeting to seek the approval of our stockholders:
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o
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To
elect five director nominees to serve as directors until the next annual meeting of stockholders;
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o
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To
ratify the appointment of MaloneBailey, LLP as our independent registered public accounting firm for the year ending December
31, 2018;
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o
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To
participate in an advisory vote to approve the compensation of the named executive officers as disclosed in the proxy statement;
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o
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To
participate in an advisory vote to determine the frequency at which our stockholders will be asked to approve the compensation
of the named executive officers; and
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o
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To
consider any other matters that may properly come before the Annual Meeting.
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What
are the Board’s recommendations?
Our
Board believes that the election of the director nominees identified herein, the appointment of MaloneBailey, LLP as our independent
registered public accounting firm for the year ending December 31, 2018 and approval of the non-binding “Say on Pay”
advisory proposal regarding executive compensation are advisable and in the best interests of the Company and its stockholders
and recommends that you vote FOR these proposals. The Board believes that holding the non-binding “Say on Pay” vote
every three years is advisable and in the best interests of the Company and its stockholders and recommends that you vote FOR
a frequency of “every three years” regarding how frequently the Company should seek a “Say on Pay” advisory
vote.
Why
did I receive a notice in the mail regarding the Internet availability of the proxy materials instead of a paper copy of the proxy
materials?
In
accordance with rules adopted by the Securities and Exchange Commission (the “
SEC
”), we have elected to furnish
to our stockholders this Proxy Statement and our Fiscal 2017 Annual Report by providing access to these documents on the Internet
rather than mailing printed copies. Accordingly, a Notice of Internet Availability of Proxy Materials (the “
Notice
”)
is being mailed to our stockholders of record and beneficial owners which will direct stockholders to a website where they can
access our proxy materials and view instructions on how to vote online or by telephone. If you would prefer to receive a paper
copy of our proxy materials, please follow the instructions included in the Notice.
Who
is entitled to vote at the meeting?
Only
stockholders of record at the close of business on the record date, May 31, 2018, are entitled to receive notice of the Annual
Meeting and to vote the shares of common stock that they held on that date at the meeting, or any postponement or adjournment
of the meeting. Holders of our common stock are entitled to one vote per share on each matter to be voted upon. Under the terms
of our Series B Preferred Stock, holders who notify the Company in writing can elect to limit the conversion of, and entitlement
to vote, such holder’s Series B Preferred Stock so that such holder’s beneficial ownership of common stock does not
exceed 9.99% of the total number of shares of common stock issued and outstanding after giving effect to any conversion (or deemed
conversion for voting purposes) of their Series B Preferred Stock and other securities convertible into or exercisable for common
stock (the “
Beneficial Ownership Cap
”). Our issued and outstanding Series B Preferred Stock is held by one
holder that has made such election and, therefore, none of our Series B Preferred Stock will be entitled to vote at the Annual
Meeting.
As
of the record date, we had 10,261,419 outstanding shares of common stock and 872,766 outstanding shares of Series B Preferred
Stock (all of which are subject to the Beneficial Ownership Cap and will not be entitled to vote at the Annual Meeting).
How
can I attend the Annual Meeting?
Stockholders
as of the record date and/or their authorized representatives are permitted to attend our Annual Meeting. The Annual Meeting will
be conducted entirely over an internet website, at the following address:
www.virtualshareholdermeeting.com/PTIX2018
. Hosting
a virtual meeting enables increased stockholder attendance and participation because stockholders can participate from any location.
You may attend the Annual Meeting, vote and submit a question during the Annual Meeting by visiting
www.virtualshareholdermeeting.com/PTIX2018
and using your 16-digit control number, located on the Notice and the proxy card, to enter the meeting.
What
constitutes a quorum?
The
presence at the Annual Meeting, in person or by proxy, of the holders of a majority of our common stock outstanding on the record
date, as a single class, will constitute a quorum for our meeting. Signed proxies received but not voted and broker non-votes
will be included in the calculation of the number of shares considered to be present at the meeting.
How
do I vote?
You
can vote on matters that come before the Annual Meeting via the Internet by following the instructions in the Notice or by submitting
your proxy card by mail. If you would prefer to vote by mail, please follow the instructions included in the Notice to receive
a paper copy of our proxy materials.
If
you are a stockholder of record, to submit your proxy by mail or via the Internet, follow the instructions on the proxy card.
If you hold your shares in street name, you may vote via the Internet as instructed by your broker, bank or other nominee.
Your
shares will be voted as you indicate on your proxy card. If you vote your proxy but you do not indicate your voting preferences,
and with respect to any other matter that properly comes before the meeting, the individuals named on the proxy card will vote
your shares FOR the matters submitted at the meeting, or if no recommendation is given, in their own discretion.
If
you attend the Annual Meeting you should follow the instructions at
www.virtualshareholdermeeting.com/PTIX2018
in order
to vote or submit questions during the meeting, even if you have voted your shares by proxy.
What
if I vote and then change my mind?
You
may revoke your proxy at any time before it is exercised by:
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filing
with the Secretary of the Company a notice of revocation;
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sending
in another duly executed proxy bearing a later date; or
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attending
the meeting and casting your vote in person.
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For
purposes of submitting your vote online, you may change your vote until 11:59 p.m., Eastern Time on July 22, 2018. After this
deadline, the last vote submitted will be the vote that is counted.
What
is the difference between holding shares as a stockholder of record and as a beneficial owner?
Many
of our stockholders hold their shares through a stockbroker, bank or other nominee rather than directly in their own name. As
summarized below, there are some distinctions between shares held of record and those owned beneficially.
Stockholder
of Record
If
your shares are registered directly in your name with our transfer agent, American Stock Transfer and Trust Company, LLC, you
are considered, with respect to those shares, the stockholder of record. As the stockholder of record, you have the right to grant
your voting proxy directly to us or to vote in person at the Annual Meeting.
Beneficial
Owner
If
your shares are held in a stock brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares
held in street name, and these proxy materials are being forwarded to you by your broker, bank or nominee which is considered,
with respect to those shares, the stockholder of record. As the beneficial owner, you have the right to direct your broker as
to how to vote and are also invited to attend the Annual Meeting. However, because you are not the stockholder of record, you
may not vote these shares in person at the Annual Meeting unless you obtain a signed proxy from the record holder giving you the
right to vote the shares. If you do not vote your shares or otherwise provide the stockholder of record with voting instructions,
your shares may constitute broker non-votes. The effect of broker non-votes is more specifically described in “
What vote
is required to approve each proposal
?” below.
What
vote is required to approve each proposal?
The
holders of a majority of our common stock outstanding on the record date must be present, in person or by proxy, at the Annual
Meeting in order to have the required quorum for the transaction of business. Pursuant to Delaware corporate law, abstentions
and broker non-votes will be counted for the purpose of determining whether a quorum is present.
Assuming
that a quorum is present, the following votes will be required:
1.
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With
respect to the first proposal (election of directors), directors are elected by a plurality of the votes present in person
or represented by proxy and entitled to vote, and the director nominees who receive the greatest number of votes at the Annual
Meeting (up to the total number of directors to be elected) will be elected.
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2.
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With
respect to the proposal to ratify the appointment of MaloneBailey, LLP , the affirmative vote of a majority of the total votes
cast on these proposals, in person or by proxy, is required to approve this proposal.
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3.
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With
respect to the non-binding advisory proposal regarding executive compensation, the affirmative vote of a majority of the total
votes cast on this proposal, in person or by proxy, will reflect the advice of the stockholders. The approval, on an advisory
basis, of the compensation paid to the named executive officers, commonly known as a “Say on Pay” vote, is an
advisory vote mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act. This means that while we ask stockholders
to approve the compensation paid to our named executive officers, it is not an action that requires stockholder approval,
and stockholders are not voting to approve or disapprove the Board’s recommendation with respect to this proposal.
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4.
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With
respect to the non-binding advisory vote on the frequency with which we will conduct a non-binding advisory vote regarding
executive compensation, or the “Say on Pay Frequency” vote, such frequency will be determined by a plurality
of the votes cast, which means that the option receiving the highest number of votes will be determined to be the preferred
frequency.
Both
the “Say on Pay and “Say on Pay Frequency” votes are advisory votes and are non-binding on the Board,
although the Board and the Compensation Committee welcome the input of the stockholders on the Company’s compensation
policies and will take the advisory votes into account in making determinations concerning executive compensation.
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5.
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Any
other proposal that might properly come before the Annual Meeting will require the affirmative vote of a majority of the votes
cast by the holders of all of the shares of stock present or represented and voting on such matter at the meeting in order
to be approved, except when a different vote is required by law, our certificate of incorporation or our Bylaws.
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Abstentions
and broker non-votes with respect to any matter will be counted as present and entitled to vote on that matter for purposes of
establishing a quorum. A broker non-vote will not have any effect on a proposal where the requirement for approval is the affirmative
vote of the majority of votes cast by the holders of all of the shares present in person or represented by proxy at the meeting
and entitled to vote on such matter, while abstentions will be treated as a vote against such proposal. Accordingly, broker non-votes
will not have any effect on Proposals 2 and 3 while abstentions will be treated as votes against Proposals 2 and 3. Neither abstentions
nor broker non-votes will have any effect on Proposal 1 or 4.
Holders
of the common stock and Series B Preferred Stock will not have any dissenters’ rights of appraisal in connection with any
of the matters to be voted on at the meeting.
What
are “broker non-votes”?
If
you are a beneficial owner of shares registered in the name of your broker, bank or other agent, your shares are held by your
broker, bank or other agent as your nominee, or in “street name,” and you will need to obtain a proxy form from the
organization that holds your shares and follow the instructions included on that form regarding how to instruct the organization
to vote your shares. If you do not give instructions to your broker, bank or other agent, it can vote your shares with respect
to “discretionary” items but not with respect to “non-discretionary” items. Discretionary items are proposals
considered routine under the rules of various national securities exchanges, and, in the absence of your voting instructions,
your broker, bank or other agent may vote your shares held in street name on such proposals. Non-discretionary items are proposals
considered non-routine under the rules of various national securities exchanges, and, in the absence of your voting instructions,
your broker, bank or other agent may not vote your shares held in street name on such proposals and the shares will be treated
as broker non-votes. The only routine matter to be considered at the Annual Meeting is the ratification of the appointment of
the Company’s independent registered public accountants (Proposal 2). Proposals 1, 3 and 4 are considered non-routine matters
under the applicable rules. If you do not give your broker specific instructions, the broker may not vote your shares on Proposal
1, Proposal 3 and Proposal 4 and therefore there may be broker non-votes on Proposal 1, Proposal 3 and Proposal 4. Proposal 2
involves a matter we believe to be routine and thus if you do not give instructions to your broker, the broker may vote your shares
in its discretion on Proposal 2 and therefore no broker non-votes are expected to exist in connection with Proposal 2.
How
are we soliciting this proxy?
We
are soliciting this proxy on behalf of our Board and will pay all expenses associated therewith. Some of our officers, directors
and other employees also may, but without compensation other than their regular compensation, solicit proxies by further mailing
or personal conversations, or by telephone, facsimile or other electronic means.
We
will also, upon request, reimburse brokers and other persons holding stock in their names, or in the names of nominees, for their
reasonable out-of-pocket expenses for forwarding proxy materials to the beneficial owners of the capital stock and to obtain proxies.
PROPOSAL
1: TO ELECT FIVE DIRECTORS TO SERVE UNTIL THE NEXT ANNUAL MEETING AND UNTIL THEIR SUCCESSORS HAVE BEEN DULY ELECTED AND QUALIFIED
Our
Board is currently composed of five directors. Vacancies on the Board may be filled only by persons elected by a majority of the
remaining directors. A director elected by the Board to fill a vacancy, including vacancies created by an increase in the number
of directors, shall serve for the remainder of the full term of that director for which the vacancy was created and until the
director’s successor is duly elected and qualified.
Each
of the nominees listed below is currently one of our directors. If elected at the Annual Meeting, each of these nominees would
serve until the next annual meeting and until his or her successor has been duly elected and qualified, or, if sooner, until the
director’s death, resignation or removal.
Directors
are elected by a plurality of the votes of the holders of shares present in person or represented by proxy and entitled to vote
on the election of directors. Abstentions and broker non-votes will not be treated as a vote for or against any particular director
nominee and will not affect the outcome of the election. Stockholders may not vote, or submit a proxy, for a greater number of
nominees than the five nominees named below. The director nominees receiving the highest number of affirmative votes will be elected.
Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the five director
nominees named below. If any director nominee becomes unavailable for election as a result of an unexpected occurrence, shares
that would have been voted for that nominee will instead be voted for the election of a substitute nominee proposed by our Board.
Each person nominated for election has agreed to serve if elected. Our management has no reason to believe that any nominee will
be unable to serve.
On
June 20, 2017, Gregory K. Ekizian, who was a director and the Chairman of the Audit Committee of the Company’s Board, notified
the Company that he was resigning from the Board effective immediately. Mr. Ekizian’s resignation is due to compliance with
restrictions imposed upon him by a new position he has taken with an unrelated company. On July 25, 2017, the Board, upon the
recommendation of its Nominating and Corporate Governance Committee, appointed Brian Corvese to the Board, to fill the vacancy
created by the resignation of Gregory K. Ekizian. The Board has determined that Mr. Corvese is an “independent director”
as defined in the Nasdaq Listing Rules. Mr. Corvese was appointed as chair to the Company’s Audit Committee, which he will
chair, and to serve on the Company’s Compensation Committee. In connection with his appointment to the Audit Committee,
the Board found that Mr. Corvese qualifies as an “audit committee financial expert,” as defined in the Nasdaq listing
rules.
Nominees
for Election Until the Next Annual Meeting
The
following sets forth certain information with respect to each of our directors who are up for election or re-election at the 2018
Annual Meeting:
Name
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Age
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Position(s)
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Garo
H. Armen
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65
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Executive
Chairman of the Board of Directors
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Robert
B. Stein
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67
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Director
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Khalil
Barrage
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53
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Director
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Brian
J. Corvese
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60
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Director
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Joshua
Silverman
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48
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Director
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Garo
H. Armen, PhD, Executive Chairman,
is one of our founders and joined us in September 2004. Garo H. Armen is Chairman and Chief
Executive Officer of Agenus Inc., a biotechnology company he co-founded in 1994. From mid-2002 through 2004, he also served as
Chairman of the Board of the biopharmaceutical company Elan Corporation, plc, which he successfully restructured. Prior to Agenus
Inc., Dr. Armen established Armen Partners, a money management firm specializing in biotechnology and pharmaceutical companies
and was the architect of the widely publicized creation of the Immunex Lederle oncology business in 1993. Earlier, he was a senior
vice president of research at Dean Witter Reynolds, having begun his career on Wall Street as an analyst and investment banker
at EF Hutton. In 2002, Dr. Armen founded the Children of Armenia Fund, a nonprofit organization dedicated to significantly rebuilding
and revitalizing impoverished rural Armenian towns to provide immediate and sustainable benefits to children and youth. He received
the Ellis Island Medal of Honor in 2004 for his humanitarian efforts, and received the Sabin Humanitarian Award from the Sabin
Vaccine Institute in 2006 for his achievements in biotechnology and progressing medical research. Dr. Armen was also the Ernst
& Young 2002 New York City Biotechnology Entrepreneur of the Year, and received a Wings of Hope Award in 2005 from The Melanoma
Research Foundation for his ongoing commitment to the melanoma community. Dr. Armen received a PhD in physical chemistry from
the Graduate Center, City University of New York, after which he worked as a research fellow at Brookhaven National Laboratories
in Long Island, NY.
Khalil
Barrage, Director
, joined us in July, 2007. Mr. Khalil Barrage has served as a Managing Director of The Invus Group, LLC since
2003, in charge of the Public Equities Group that he set up in September 2003. Invus manages over $3B of capital, with a primary
focus is on private equity investments, biotechnology and health care. In addition, Invus manages a fund-of-funds liquid alternative
investment and, most recently, the newly established public equities portfolio activity. Mr. Barrage is a value investor. He started
his career in 1988 with The Olayan Group, a multibillion private group. He was in charge of the group’s U.S. public equities
portfolio, overseeing more than $2 billion of assets. Mr. Barrage holds a BA from American University of Beirut.
Robert
B. Stein, PhD. MD, Director
, joined us effective the closing of the Merger in February, 2016. Dr. Robert B. Stein is Chief
Scientific Officer of Agenus Inc. Dr. Robert B. Stein leads Agenus’ Research, Preclinical Development and Translational
Medicine functions. He helps shape clinical development strategy for vaccines and adjuvants. Additionally, he’s leading
integration of the 4-Antibody acquisition, which includes the company’s fully human antibody drug discovery and optimization
technology platform, and portfolio of immune checkpoint antibody programs. Over his 30 years of experience in the biopharmaceutical
industry he played a pivotal role in bringing to the market Sustiva
®
, Fablyn
®
, Viviant
®
,
PanRetin
®
, TargRetin
®
, Promacta
®
and Eliquis
®
. Prior to joining Agenus,
he held executive management positions at Ligand Pharmaceuticals, DuPont Merck, Incyte Pharmaceuticals, Roche Palo Alto and KineMed.
Dr. Stein began his career at Merck, Sharp and Dohme. He holds an MD and a PhD in Physiology & Pharmacology from Duke University.
Dr. Stein filed a personal voluntary bankruptcy petition under Chapter 7 in August of 2012 and the bankruptcy was discharged in
May 2013.
Joshua
Silverman, Director
, joined us effective the closing of the Merger in February 2016. Mr. Silverman is the Co–founder
and Managing Member of Parkfield Funding LLC, and is a former Principal and Managing Partner of Iroquois Capital Management, LLC.
Mr. Silverman served as Co–Chief Investment Officer of Iroquois from 2003 until July 2016. From 2000 to 2003, Mr. Silverman
served as Co–Chief Investment Officer of Vertical Ventures, LLC, a merchant bank. He also serves as the Chairman of the
Board of Neurotrope, Inc. (Nasdaq: NTRP). Prior to forming Iroquois, Mr. Silverman was a Director of Joele Frank, a boutique consulting
firm specializing in mergers and acquisitions. Previously, Mr. Silverman served as Assistant Press Secretary to The President
of The United States. Mr. Silverman received his B.A. from Lehigh University in 1992. In the past five years, Mr. Silverman has
served as a director of MGT Capital Investments, Inc. and National Holdings Corporation, and in 2016, became a director of WPCS
International, Inc.
Brian
J. Corvese, Director
, joined us on July 28, 2017, filling the open board seat vacated by Gregory H. Ekizian. Since 1999, Mr.
Corvese has been the President and Founder of Vencor Capital (“Vencor”), a private equity firm with telecommunications
and technology investments in the Middle East and Mediterranean regions. Prior to working at Vencor, Mr. Corvese worked on investments
in the U.S. and global equity markets as a Managing Director and partner at Soros Fund Management, the largest hedge fund in the
world at the time. From 1988 to 1996, Mr. Corvese was a partner at Chancellor Capital Management (“Chancellor”), a
$25 billion money management firm. While at Chancellor, Mr. Corvese was a Portfolio Manager with responsibility for investments
made in basic industries, restructurings, and special situations, corporate governance investments, as well as founded and managed
his own hedge fund. From 1981 to 1988, Mr. Corvese was with Drexel Burnham Lambert (“Drexel”) as an equity analyst
following the chemical and specialty chemical industries and participated in a significant number of merger and acquisition activities.
While at Drexel, Mr. Corvese was a member of the top chemical and specialty chemical research team, as ranked by Institutional
Investor. Mr. Corvese currently serves on the board of directors of Agenus Inc. and the National Telecommunications Corporation,
based in Cairo, Egypt. Mr. Corvese earned degrees in finance and political science from The University of Rhode Island and attended
New York University Graduate School. With over 30 years of experience in the financial industry, Mr. Corvese brings substantial
financial expertise to our Board.
Family
Relationships
There
are no family relationships between or among the directors, executive officers or persons nominated or chosen by our stockholders
or us to become directors or executive officers.
Voting
Agreement
On
February 12, 2016, the Company and certain of its stockholders (currently representing approximately 43% of the Company’s
issued and outstanding common stock), including Messrs. Armen, Arrow and Ekizian and Strategic Bio Partners, LLC, entered into
a voting agreement whereby these stockholders agreed to vote in favor of setting and maintaining the size of the Board at five
directors (unless increased by the Board), the election of one director designated by Strategic Bio Partners, LLC and the election
of four directors designated by Mr. Garo (so long as Mr. Garo is an officer or director of the Company). The term of the voting
agreement runs until February 12, 2019 unless terminated earlier by a vote of at least 90% of the stockholders party to the agreement
or the consummation of a firm commitment underwritten public offering of the Company’s common stock resulting in proceeds
to the Company of at least $20 million.
Involvement
in Certain Legal Proceedings
To
our knowledge, during the past ten years, none of our directors, executive officers, promoters, control persons, or nominees has:
been
convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor
offenses);
Except
as set forth above with respect to Dr. Stein, had any bankruptcy petition filed by or against the business or property of the
person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either
at the time of the bankruptcy filing or within two years prior to that time;
been
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction
or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement
in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or
to be associated with persons engaged in any such activity;
been
found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
been
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged
violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions
or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution,
civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation
prohibiting mail or wire fraud or fraud in connection with any business entity; or
been
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the
Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over
its members or persons associated with a member.
CORPORATE
GOVERNANCE
Code
of Business Conduct and Ethics
On
February 24, 2017, we adopted a written Code of Business Conduct and Ethics. Guidelines on Significant Governance Issues, and
Process for Security Holder Communications with Directors. A copy of these codes are posted under the “Corporate Governance”
subtab under the “Investors” tab in our website, which is located at
http://protagenic.com/investors/corporate-governance
.
Board
Committees
Our
board of directors has established four standing committees: an Audit Committee, a Compensation Committee, a Nominating and Corporate
Governance Committee and a Science Committee. Each of these committees will operate under a charter that has been approved by
our board of directors.
Audit
Committee.
The Audit Committee oversees and monitors our financial reporting process and internal control system, reviews
and evaluates the audit performed by our registered independent public accountants and reports to the Board any substantive issues
found during the audit. The Audit Committee is directly responsible for the appointment, compensation and oversight of the work
of our registered independent public accountants. The Audit Committee reviews and approves all transactions with affiliated parties.
The Audit Committee is comprised of two or more independent directors who shall be appointed annually and subject to removal by
the Board at any time. Each member of the Audit Committee shall meet the independence requirements of The NASDAQ Stock Market,
LLC, and SEC regulations, as well as any other applicable requirements. On June 20, 2017, Gregory K. Ekizian, a director of the
Company and the Chairman of the Audit Committee of the Company’s Board of Directors, notified the Company that he was resigning
from the Board effective immediately. On July 25, 2017, our Board appointed Brian Corvese to the Audit Committee, whom meets the
independence requirements. In addition, the Board also designated Brian Corvese as an “audit committee financial expert,”
as that term is defined by the NASDAQ Listing Rules and SEC regulations.
Compensation
Committee.
The Compensation Committee provides advice and makes recommendations to the board in the areas of employee salaries,
benefit programs and director compensation. The Compensation Committee also reviews the compensation of our President, Chief Executive
Officer, and other officers and makes recommendations in that regard to the board as a whole. The Compensation Committee is comprised
on three or more directors who shall be appointed annually and subject to removal by the Board at any time. The Compensation Committee
must have at least two members, and must consist solely of independent directors. Our Board appointed Messrs. Barrage (Committee
Chairperson) and Corvese, and Dr. Stein to the Compensation Committee, all of whom are independent
Nominating
and Corporate Governance Committee.
The Nominating and Corporate Governance Committee nominates individuals to be elected
to the full board by our stockholders. The Nominating and Corporate Governance Committee determines the slate of director nominees
for election to the Board, to identify and recommend candidates to fill vacancies occurring between annual stockholder meetings,
to review the Company’s policies and programs that relate to matters of corporate responsibility, including public issues
of significance to the Company and its stockholders. The Nominating and Corporate Governance Committee is comprised of three or
more directors who shall be appointed annually and subject to removal by the Board at any time. Each member of the Nominating
and Corporate Governance Committee may or may not meet the independence requirements of The NASDAQ Stock Market, LLC and SEC regulations.
On March 25, 2016, our Board appointed Messrs. Silverman (Committee Chairperson), and Drs. Armen and Stein to the Nominating and
Corporate Governance Committee.
Science
Committee
The Science Committee meets regularly to review the strategic direction being taken by Management with respect to
developing the Company’s scientific assets. A key function of the Science Committee is to ensure that the Company is targeting
disease indications for its drug candidates that take full advantage of the drug candidates’ potential, within the constraints
of the working capital available to the Company. This process is expected to continually necessitate difficult choices concerning
how many disease targets to pursue. The Science Committee is directly responsible for the appointment, compensation and oversight
of the Company’s top scientific staff. The Science Committee reviews and approves all major contractual agreements with
contract research organizations. The Science Committee is comprised of two or more directors appointed annually and subject to
removal by the Board at any time. On May 9, 2017, our Board appointed Drs. Stein (Committee Chairperson) and Armen and Mr. Silverman
to the Science Committee.
Director
Independence
We
are not currently listed on any national securities exchange or in an inter-dealer quotation system that has a requirement that
the Board of Directors be independent. However, in evaluating the independence of our members and the composition of the committees
of our Board of Directors, our Board utilizes the definition of “independence” as that term is defined by applicable
listing standards of the NASDAQ Stock Market and SEC rules, including the rules relating to the independence standards of an audit
committee and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.
Our
Board of Directors expects to continue to evaluate its independence standards and whether and to what extent the composition of
the Board and its committees meets those standards. We ultimately intend to appoint such persons to our Board and committees of
our Board as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange.
Therefore, we intend that a majority of our directors will be independent directors of which at least one director will qualify
as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by
the SEC.
We
believe that Messrs. Barrage, Corvese, and Silverman are each an “independent” director as that term is defined by
the NASDAQ Stock Market, Inc. Marketplace Rules and SEC Regulations. In addition, the Board also designated Brian Corvese as an
“audit committee financial expert,” as that term is defined by the NASDAQ Listing Rules and SEC regulations.
With
regard to Mr. Silverman’s independent status, the Board considered the fact that he is an ex-CEO of one of the institutional
funds (Iroquois Asset Management) that is a 50% owner of a limited liability company which owns just under 10% of the Company’s
common stock. The Board noted that Mr. Silverman is no longer the CEO of Iroquois Asset Management, and as such, he does not represent
a major single stockholder.
With
regard to Mr. Corvese’s independent status, the Board considered the fact that he has no business relationship with the
Company.
With
regard to Mr. Barrage’s independent status, the Board considered the fact that he has no business relationship with the
Company.
Dr.
Stein, a member of the Nominating and Corporate Governance and Science Committees, is not considered “independent.”
Our
principal offices are located at 149 Fifth Avenue, Suite 500, New York, New York 10010, in a conference room of Agenus, Inc. We
utilize our principal office for quarterly board meetings and our annual stockholder meeting on a month to month basis at a nominal
value. Dr. Armen, our Executive Chairman, is also the Chairman and Chief Executive Officer of Agenus, Inc.
Limitation
of Directors Liability and Indemnification
The
Delaware General Corporation Law authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability
of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our certificate
of incorporation limits the liability of our directors to the fullest extent permitted by Delaware law.
We
have director and officer liability insurance to cover liabilities our directors and officers may incur in connection with their
services to us, including matters arising under the Securities Act. Our certificate of incorporation and bylaws also provide that
we will indemnify our directors and officers who, by reason of the fact that he or she is one of our officers or directors of
our Company, is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative related to
their board role with the Company.
We
have entered into indemnification agreements with each of our directors and executive officers. It is anticipated that future
directors and officers will enter into an Indemnification Agreement with us in substantially similar form. The Indemnification
Agreement provides, among other things, that we will indemnify and hold harmless each person subject to an Indemnification Agreement
(each, an “Indemnified Party”) to the fullest extent permitted by applicable law from and against all losses, costs,
liabilities, judgments, penalties, fines, expenses and other matters that may result or arise in connection with such Indemnified
Party serving in his or her capacity as a director of ours or serving at our direction as a director, officer, employee, fiduciary
or agent of another entity. The Indemnification Agreement further provides that, upon an Indemnified Party’s request, we
will advance expenses to the Indemnified Party to the fullest extent permitted by applicable law. Pursuant to the Indemnification
Agreement, an Indemnified Party is presumed to be entitled to indemnification and we have the burden of proving otherwise. The
Indemnification Agreement also requires us to maintain in full force and effect directors’ liability insurance on the terms
described in the Indemnification Agreement. If indemnification under the Indemnification Agreement is unavailable to an Indemnified
Party for any reason, we, in lieu of indemnifying the Indemnified Party, will contribute to any amounts incurred by the Indemnified
Party in connection with any claim relating to an indemnifiable event in such proportion as is deemed fair and reasonable in light
of all of the circumstances to reflect the relative benefits received or relative fault of the parties in connection with such
event.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment of expenses incurred or paid by
a director, officer or controlling person in a successful defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being registered, we will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to the court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication
of such issue.
There
is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification
will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such
indemnification.
Stockholder
nominations for directorships
Stockholders
may recommend individuals to the Nominating and Corporate Governance Committee for consideration as potential director candidates
by submitting their names and background to the Secretary of the Company at the address set forth below under “Stockholder
Communications” in accordance with the provisions set forth in our bylaws. All such recommendations will be forwarded to
the Nominating and Corporate Governance Committee, which will review and only consider such recommendations if appropriate biographical
and other information is provided, including, but not limited to, the items listed below, on a timely basis. All security holder
recommendations for director candidates must be received by the Company in the timeframe(s) set forth under the heading “Stockholder
Proposals” below.
●
|
the
name and address of record of the security holder;
|
|
|
●
|
a
representation that the security holder is a record holder of the Company’s securities, or if the security holder is
not a record holder, evidence of ownership in accordance with Rule 14a-8(b)(2) of the Securities Exchange Act of 1934;
|
|
|
●
|
the
name, age, business and residential address, educational background, current principal occupation or employment, and principal
occupation or employment for the preceding five (5) full fiscal years of the proposed director candidate;
|
|
|
●
|
a
description of the qualifications and background of the proposed director candidate and a representation that the proposed
director candidate meets applicable independence requirements;
|
|
|
●
|
a
description of any arrangements or understandings between the security holder and the proposed director candidate; and
|
|
|
●
|
the
consent of the proposed director candidate to be named in the proxy statement relating to the Company’s annual meeting
of stockholders and to serve as a director if elected at such annual meeting.
|
Assuming
that appropriate information is provided for candidates recommended by stockholders, the Nominating and Corporate Governance Committee
will evaluate those candidates by following substantially the same process, and applying substantially the same criteria, as for
candidates submitted by members of the Board or other persons, as described above and as set forth in its written charter.
Stockholder
Communications
Our
Board will give appropriate attention to written communications that are submitted by stockholders, and will respond if and as
appropriate. Absent unusual circumstances or as contemplated by committee charters, and subject to advice from legal counsel,
the Secretary of the Company is primarily responsible for monitoring communications from stockholders and for providing copies
or summaries of such communications to the Board as he considers appropriate.
Communications
from stockholders will be forwarded to all directors if they relate to important substantive matters or if they include suggestions
or comments that the Secretary considers to be important for the Board to know. Communication relating to corporate governance
and corporate strategy are more likely to be forwarded to the Board than communications regarding personal grievances, ordinary
business matters, and matters as to which the Company tends to receive repetitive or duplicative communications.
Stockholders
who wish to send communications to the Board should address such communications to: The Board of Directors, Protagenic Therapeutics,
Inc., 149 Fifth Avenue, Suite 500, New York, NY 10010.
Executive
Officers
EXECUTIVE
COMPENSATION
The
following table sets forth information regarding each element of compensation that we paid or awarded to our named executive officers
and for fiscal years ended December 31, 2017 and 2016.
Summary
Compensation Table
Name
and Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
|
Deferred
Compensation ($)
|
|
|
All
Other Compensation ($)
|
|
|
Total
Compensation ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Garo H.
Armen, Chairman
|
|
|
2017
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
312,500
|
(3)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
312,500
|
|
|
|
|
2016
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
580,000
|
(1)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
$
|
580,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert Ziroyan, Chief
Operating Officer and Interim President (6)
|
|
|
2017
|
|
|
$
|
13,168
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
13,168
|
|
|
|
|
2016
|
|
|
$
|
16,861
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
2,869
|
(2)
|
|
$
|
19,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alexander K. Arrow,
Chief Financial Officer
|
|
|
2017
|
|
|
$
|
125,000
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
93,750
|
(4)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
N/A
|
|
|
$
|
218,750
|
|
|
|
|
2016
|
|
|
$
|
106,552
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
277,400
|
(5)
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
N/A
|
|
|
$
|
383,952
|
|
(1)
We use the Black-Scholes option pricing model to value the options granted. On April 15, 2016, Dr. Armen was granted 500,000 options
(exercise price of $1.25/option) which had vested by December 31, 2016 valued at U.S. $1.16 each at December 31, 2016.
(2)
Represents health benefits, Canada Pension Plan and employment insurance, cell phone and internet reimbursements.
(3)
We use the Black-Scholes option pricing model to value the options granted. On October 16, 2017, Dr. Armen was granted 250,000
options (exercise price of $1.75/option) which had 17,361 shares vested by December 31, 2017 valued at U.S. $1.25 each at December
31, 2017.
(4)
We use the Black-Scholes option pricing model to value the options granted. On October 16, 2017, Dr. Arrow was granted 75,000
options (exercise price of $1.75/option) which had 5,208 shares vested by December 31, 2017 valued at U.S. $1.25 each at December
31, 2017.
(5)
We use the Black-Scholes option pricing model to value the options granted. On February 12, 2016, Dr. Arrow was granted 100,000
options (exercise price of $1.25/option) which had 25,000 options vested by December 31, 2016 valued at US $1.15 each at December
31, 2016. Then, on April 15, 2016, Dr. Arrow was granted 140,000 options (exercise price of $1.25/option) which had 33,057 options
vested by December 31, 2016 valued at U.S. $1.16 each at December 31, 2016.
(6)
Mr. Ziroyan ceased serving as an executive officer effective April 4, 2016. We compensated Mr. Ziroyan as an officer (President
& COO) from January 1, 2016 through April 3, 2016, in the amount of $19,730. We then compensated him as an external consultant
non-officer from April 4, 2016 through December 31, 2016, in the amount of $18,000. Mr. Ziroyan was not granted any options during
2016 or 2017.
Alexander
K. Arrow, M.D., CFA –Chief Financial Officer
. Dr. Arrow became our Chief Financial Officer in February 2016. Dr. Arrow
is also the Chief Executive officer of Zelegent, Inc., a clinical-stage start-up medical device company preparing to launch a
minimally invasive snoring alleviation tool. From January 2015 through December 2015, Dr. Arrow also served as a director and
acting Chief Operating Officer of Neumedicines, Inc., a clinical-stage private biotechnology company developing protein therapeutics
that address unmet clinical and societal needs in Oncology, Hematology and Immunology. Dr. Arrow serves as a director of Gel-e,
Inc., a wound-care company with an FDA-cleared hemostatic patch product, BioLx, Inc., a start-up developing an advanced surgical
mask, and Rindex Medical, Inc., a developmental-stage company, 30% owned by the Cleveland Clinic, which is developing a diagnostic
technology for use in cardiovascular intensive care units. Previously, Dr. Arrow served on the board and was the Chairman of both
the Audit Committee and Compensation Committee of Biolase, Inc. (NASDAQ: BIOL) from July 2010 through February 2014, and served
as the President and Chief Operating Officer of Biolase, Inc. from June 2013 through December 2014. Biolase, Inc. is a medical
device manufacturer and the leading provider of lasers to the global dentistry industry. From July 2012 to June 2013 Dr. Arrow
was the Chief Medical and Strategic Officer of Circuit Therapeutics, Inc., a company seeking to realize commercial potential in
the field of optogenetics. From December 2007 through June 2012, Dr. Arrow was the Chief Financial Officer of Arstasis, Inc.,
a cardiology device manufacturer. From 2002 to 2007, Dr. Arrow headed medical technology equity research at the global investment
bank Lazard Capital markets, LLC. Dr. Arrow spent two years 1999-2001 as Chief Financial Officer of the Patent & License Exchange,
later renamed PLX Systems, Inc., and three years as the publishing life sciences research analyst at Wedbush Morgan Securities.
In 1996, Dr. Arrow was a surgical resident at the UCLA Medical Center. Dr. Arrow received his CFA in 1999. He was awarded an M.D.
from Harvard Medical School in 1996 and a B.A. in Biophysics,
magna cum laude
, from Cornell University in 1992.
Employment
Arrangements with Officers and Directors
Dr.
Alexander Arrow, our Chief Financial Officer, receives base compensation of $125,000 per year for his part-time work for us. In
addition, Dr. Arrow received 100,000 options under the 2006 Plan as a sign-on bonus when he joined us and 140,000 options under
the 2016 plan on April 15, 2016. These options have an exercise price of $1.25 per share, a ten-year term and vest over a three-year
period in 35 monthly installments of 2,778 shares and a final installment of 2,770 shares and 3,889 shares and a final installment
of 3,885 shares, respectively. On October 16, 2017, we granted Dr. Arrow another ten-year option to purchase 75,000 shares of
our common stock at an exercise price of $1.75 per share, which vest in 35 monthly installments of 2,083 shares and a final installment
of2,095. The terms of Dr. Arrow’s option grants also include full vesting acceleration upon a change of control. Drs. Arrow
and Armen are the only currently two executive officers of the Company.
Consultancy
Agreements
Robert
B. Stein, PhD, MD
. We entered into a consulting agreement with Dr. Stein effective January 2015. Dr. Stein is responsible
for providing us with technical and advisory services related to our research and development efforts. The consulting agreement
is effective through January 2020. On January 23, 2015, we granted Dr. Stein ten-year options to purchase 200,000 shares of our
common stock, at an exercise price of $1.25 per share. The options vest in increments of 1.667% per month on the first day of
each calendar month following January, 2015, such that the shares shall be fully vested on January 23, 2020, provided Dr. Stein
remains a consultant to us. On October 16, 2017, we granted Dr. Stein a ten-year grant to purchase another 200,000 shares of our
common stock, at an exercise price of $1.75 per share.
Outstanding
Equity Awards at Fiscal Year End
The
following table summarizes the equity awards made to our named executive officers that were outstanding at December 31, 2017.
Name
|
|
No. of Securities
Underlying
Unexercised
Options (#)
Exercisable
|
|
|
No. of Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
|
|
Option
Exercise
Price
|
|
|
Option
Expiration
Date
|
Garo H. Armen (1)
|
|
|
284,725
|
|
|
|
215,275
|
|
|
$
|
1.25
|
|
|
April 15, 2026
|
Garo H. Armen (2)
|
|
|
17,361
|
|
|
|
232,639
|
|
|
$
|
1.75
|
|
|
October 16, 2027
|
Robert Ziroyan (3)
|
|
|
100,000
|
|
|
|
—
|
|
|
$
|
1.00
|
|
|
March 30, 2021
|
Robert Ziroyan (3)
|
|
|
50,000
|
|
|
|
—
|
|
|
$
|
1.00
|
|
|
March 1, 2024
|
Robert Ziroyan (3)
|
|
|
75,000
|
|
|
|
—
|
|
|
$
|
1.25
|
|
|
March 9, 2025
|
Alexander K. Arrow (4)
|
|
|
58,333
|
|
|
|
41,666
|
|
|
$
|
1.25
|
|
|
February 12, 2026
|
Alexander K. Arrow (4)
|
|
|
79,725
|
|
|
|
60,275
|
|
|
$
|
1.25
|
|
|
April 15, 2026
|
Alexander K. Arrow (5)
|
|
|
5,208
|
|
|
|
69,782
|
|
|
$
|
1.75
|
|
|
October 16, 2027
|
(1)
|
Dr.
Armen was granted a 500,000 share option grant on April 15, 2016.
|
|
|
(2)
|
Dr.
Armen was granted a 250,000 share option grant on October 16, 2017.
|
|
|
(3)
|
Mr.
Ziroyan ceased serving as an executive officer as of April 4, 2016.
|
|
|
(4)
|
Dr.
Arrow was granted a 100,000 share option grant on February 12, 2016, and a 140,000 share option grant on April 15, 2016.
|
|
|
(5)
|
Dr.
Arrow was granted a 75,000 share option grant on October 16, 2017.
|
For
Drs. Armen and Arrow, following a qualified Change of Control, a resignation for Good Reason, or an involuntary termination other
than For Cause, 100% of the executives’ then-unvested options shall become immediately vested.
Director
Compensation
During
the fiscal year ended December 31, 2017 we compensated directors who were not employees of the Company.
Name
|
|
Fees earned or paid in cash
|
|
|
Stock
awards
|
|
|
Option awards (1)
|
|
|
Non-equity incentive plan compensation
|
|
|
Nonqualified deferred compensation earnings
|
|
|
All other compensation
|
|
|
Total
|
|
Garo H. Armen
|
|
|
|
|
|
|
|
|
|
$
|
312,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
312,500
|
|
Khalil Barrage
|
|
|
|
|
|
|
|
|
|
$
|
243,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
243,750
|
|
Joshua Silverman
|
|
|
|
|
|
|
|
|
|
$
|
56,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
56,250
|
|
Robert Stein
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
Brian Corvese
|
|
|
|
|
|
|
|
|
|
$
|
118,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
118,750
|
|
Greg Ekizian
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0
|
|
(1)
|
All
Directors’ option awards were granted under the 2016 Plan on October 16, 2017, except Kahlil Barrage’s options
which were granted on January 1, 2017.
|
Going forward, on April
15 of each fiscal year, each non-employee directors will receive an option under the 2016 Plan to purchase 40,000 shares of common
stock, as well as an option to purchase 5,000 shares for each committee which they chair. No additional options shall be granted
for serving on a committee without being its chair. All options will be granted at fair market value, as defined in the 2016 Plan,
on the date of grant, and will vest over a three-year period in equal monthly installments. Vesting will accelerate in certain
circumstances, such as a change of control of the Company, and unvested options will terminate upon the cessation of an individual’s
service to us as a director.
Non-employee directors
may be reimbursed for their reasonable expenses in attending Board and committee meetings.
We entered into a consulting
agreement with Robert B. Stein, PhD, MD, which is described above.
Equity Compensation Plans
Equity Compensation Plan Information
Plan category
|
|
(a)
No. of securities
to be issued upon exercise of outstanding options, warrants and rights
|
|
|
(b)
Weighted-average exercise price of outstanding options, warrants and rights
|
|
|
(c)
No. of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
|
|
Equity compensation plans approved by security holders
|
|
|
6,453,887
|
|
|
$
|
1.18
|
|
|
|
2,148,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
|
6,453,887
|
|
|
$
|
1.18
|
|
|
|
2,148,300
|
|
In connection with
the consummation of the Merger completed on February 12, 2016, we adopted the pre-merger Protagenic Therapeutics, Inc.’s
2006 Employee, Director and Consultant Stock Plan (the “2006 Plan”). On June 17, 2016, our stockholders adopted our
2016 Equity Compensation Plan and, as a result, we terminated the 2006 Plan. We will not grant any further awards under the 2006
Plan. All outstanding grants under the 2006 Plan will continue in effect in accordance with the terms of the particular grant and
the 2006 Plan.
2006 Employee, Director and Consultant Stock Plan
The following description
of the pertinent terms of the 2006 Plan is a summary and is qualified in its entirety by the full text of the 2006 Plan.
Administration
.
The administrator (the “
Administrator
”) of the 2006 Plan is the Board of Directors, except to the extent
the Board of Directors delegates its authority to the Compensation committee (the “
Committee
”) of the Board,
in which case the Committee shall be the Administrator. Subject to the provisions of the 2006 Plan, the Administrator is authorized
to:
|
a.
|
Interpret
the provisions of the 2006 Plan or of any option or stock grant and to make all rules and determinations which it deems necessary
or advisable for the administration of the 2006 Plan;
|
|
|
|
|
b.
|
Determine
which employees, directors and consultants shall be granted awards;
|
|
|
|
|
c.
|
Determine
the number of Shares for which an award shall be granted;
|
|
|
|
|
d.
|
Specify
the terms and conditions upon which an award may be granted; and
|
|
|
|
|
e.
|
Adopt
any sub-plans applicable to residents of any specified jurisdiction as it deems necessary or appropriate in order to comply
with or take advantage of any tax laws applicable to the us or to 2006 Plan participants or to otherwise facilitate the administration
of the 2006 Plan, which sub-plans may include additional restrictions or conditions applicable to options or shares acquired
upon exercise of options.
|
provided,
however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context
of preserving the tax status under Section 422 of the Code of those options which are designated as ISOs. Subject to the foregoing,
the interpretation and construction by the Administrator of any provisions of the 2006 Plan or of any award granted under it shall
be final.
If
permissible under applicable law, the Board of Directors or the Committee may allocate all or any portion of its responsibilities
and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other
person selected by it. Any such allocation or delegation may be revoked by the Board of Directors or the Committee at any time.
Terms
and Conditions of Options
.
Options granted under the 2006 Plan may be either “incentive stock options” that
are intended to meet the requirements of Section 422 of the Code or “nonqualified stock options” that do not meet
the requirements of Section 422 of the Code. The Administrator will determine the exercise price of options granted under the
2006 Plan. The exercise price of stock options may not be less than the fair market value per share of our common stock on the
date of grant (or 110% of fair market value in the case of incentive stock options granted to a ten-percent stockholder).
If
on the date of grant the common stock is listed on a stock exchange or national market system, the fair market value will generally
be the closing sale price on the date of grant. If the common stock is not traded on a stock exchange or national market system
on the date of grant, the fair market value will generally be the mean between the bid and the asked price for the common stock
at the close of trading in the over-the-counter market for the trading day on which common stock was traded immediately preceding
the applicable date. If no such prices are available, the fair market value shall be determined in good faith by the Administrator.
No
option intended to qualify as an ISO may be exercisable for more than ten years from the date of grant (five years in the case
of an incentive stock option granted to a ten-percent stockholder). Options granted under the 2006 Plan will be exercisable at
such time or times as the Administrator prescribes at the time of grant. No employee may receive incentive stock options that
first become exercisable in any calendar year in an amount exceeding $100,000.
Generally,
the exercise price of an option may be paid (a) in cash or by certified bank check, (b) at the discretion of the Administrator,
through delivery of shares of our common stock held for at least six months having a fair market value equal to the purchase price,
(c) at the discretion of the Administrator, by delivery of the grantee’s personal note, for full, partial or no recourse,
bearing interest payable not less than annually at market rate on the date of exercise and at no less than 100% of the applicable
Federal rate, as defined in Section 1274(d) of the Code, with or without the pledge of such shares as collateral, or (d) at the
discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm,
and approved by the Administrator, or (e) at the discretion of the Administrator, by any combination of the above methods.
No
option may be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime
an option may be exercised only by the recipient. The Administrator will determine the extent to which a holder of a stock option
may exercise the option following termination of service with us.
The
Administrator will determine the extent to which a holder of a stock option may exercise the option following termination of service
with us.
Effect
of Certain Corporate Transactions
.
If the Company is to be consolidated with or acquired by another entity in a merger,
sale of all or substantially all of the Company’s assets other than a transaction to merely change the state of incorporation
(a “
Corporate Transaction
”), the Administrator or the board of directors of any entity assuming the obligations
of the Company hereunder (the “
Successor Board
”), shall, as to outstanding options, either (i) make appropriate
provision for the continuation of such options by substituting on an equitable basis for the Shares then subject to such options
either the consideration payable with respect to the outstanding shares of common stock in connection with the Corporate Transaction
or securities of any successor or acquiring entity (provided, that, at the discretion of the Administrator, all unvested options
shall be made fully or partially exercisable for purposes of this Subparagraph upon the closing of the Corporate Transaction);
or (ii) upon written notice to the participants, provide that all options must be exercised (either to the extent then exercisable
or, at the discretion of the Administrator, all options being made fully or partially exercisable), within a specified number
of days of the date of such notice, at the end of which period the options shall terminate; or (iii) terminate all options in
exchange for a cash payment equal to the excess of the fair market value of the shares of common stock subject to such options
(either to the extent then exercisable or, at the discretion of the Administrator, all options being made fully or partially exercisable)
over the exercise price thereof.
Tax
Withholding.
As and when appropriate, we shall have the right to require each optionee purchasing shares of common stock
and each grantee receiving an award of shares of common stock under the 2006 Plan to pay any federal, state or local taxes required
by law to be withheld.
2016
Equity Compensation Plan
The
following description of the principal terms of the 2016 Plan is a summary and is qualified in its entirety by the full text of
the 2016 Plan.
Administration
.
The 2016 Plan is administered by the Compensation Committee of our Board of Directors, provided that the entire Board of Directors
may act in lieu of the Compensation Committee on any matter, subject to certain requirements set forth in the 2016 Plan. The Compensation
Committee may grant options to purchase shares of our common stock, stock appreciation rights, stock units, restricted shares
of our common stock, performance shares, performance units, incentive bonus awards, other cash-based awards and other stock-based
awards. The Compensation Committee also has broad authority to determine the terms and conditions of each option or other kind
of award, and adopt, amend and rescind rules and regulations for the administration of the 2016 Plan. Subject to applicable law,
the Compensation Committee may authorize one or more reporting persons (as defined in the 2016 Plan) or other officers to make
awards (other than awards to reporting persons, or other officers whom the Compensation Committee has specifically authorized
to make awards). No awards may be granted under the 2016 Plan on or after the ten-year anniversary of the adoption of the 2016
Plan by our Board of Directors, but awards granted prior to such tenth anniversary may extend beyond that date.
Eligibility
.
Awards may be granted under the 2016 Plan to any person who is an employee, officer, director, consultant, advisor or other
individual service provider of the Company or any subsidiary, or any person who is determined by the Compensation Committee to
be a prospective employee, officer, director, consultant, advisor or other individual service provider of the Company or any subsidiary.
Shares
Subject to the 2016 Plan
.
The aggregate number of shares of common stock proposed to be available for issuance in connection
with options and awards granted under the 2016 Plan is 3,000,000 shares. Incentive Stock Options may, but need not be, granted
with respect to all of the shares available for issuance under the 2016 Plan;
provided
,
however
, that the maximum
aggregate number of shares of common stock which may be issued in respect of Incentive Stock Options (after giving effect to any
increases pursuant to the “evergreen” provisions of the 2016 Plan discussed below) shall not exceed 6,000,000 shares,
subject to adjustment in the event of stock, splits and similar transactions. If any award granted under the 2016 Plan payable
in shares of common stock is forfeited, cancelled, or returned for failure to satisfy vesting requirements, otherwise terminates
without payment being made, or if shares of common stock are withheld to cover withholding taxes on options or other awards, the
number of shares of common stock as to which such option or award was forfeited, or which were withheld, will be available for
future grants under the 2016 Plan.
In
addition, the 2016 Plan contains an “evergreen” provision allowing for an annual increase in the number of shares
of our common stock available for issuance under the 2016 Plan on January 1 of each year during the period beginning January 1,
2017, and ending on (and including) January 1, 2026. The annual increase in the number of shares shall be equal to (i) five point
five percent (5.5%) of the total number of shares of common stock outstanding on December 31st of the preceding calendar year,
or (ii) with respect to shares of common stock which may be issued under the 2016 Plan other than in respect to Incentive Stock
Options, the difference between (x) eighteen percent (18%) of the total number of shares of common stock outstanding on December
31st of the preceding calendar year, and (y) the total number of shares of common stock reserved under the 2016 Plan on December
31st of such preceding calendar year (including shares subject to outstanding awards, issued pursuant to awards or available for
future awards) if such amount is greater than the amount determined in (i) immediately above; provided, however, that our Board
may act prior to the first day of any calendar year to provide that there shall be no increase such calendar year, or that the
increase shall be a lesser number of shares of common stock than would otherwise occur. On January 1, 2017, 564,378 shares of
common stock were added to the 2016 Plan pursuant to this evergreen provision. On January 1, 2018, another 564,378 shares of common
stock were added to the 2016 Plan pursuant to this evergreen provision.
Terms
and Conditions of Options
.
Options granted under the 2016 Plan may be either “incentive stock options” that
are intended to meet the requirements of Section 422 of the Code or “nonqualified stock options” that do not meet
the requirements of Section 422 of the Code. The Compensation Committee will determine the exercise price of options granted under
the 2016 Plan. The exercise price of stock options may not be less than the fair market value, on the date of grant, per share
of our common stock issuable upon exercise of the option (or 110% of fair market value in the case of incentive options granted
to a ten-percent stockholder).
If
on the date of grant the common stock is listed on a stock exchange or national market system, the fair market value shall generally
be the closing sale price as of such date, or if there were no trades recorded on such date, then the most recent date preceding
such date on which trades were recorded. If on the date of grant the common stock is traded in an over-the-counter market, the
fair market will generally be the average of the closing bid and asked prices for the shares of common stock as of such date,
or, if there are no closing bid and asked prices for the shares of common stock on such date, then the average of the bid and
asked prices for the shares of common stock on the most recent date preceding such date on which such closing bid and asked prices
are available. If the common stock is not listed on a national securities exchange or national market system or traded in an over-the-counter
market, the fair market value shall be determined by the Compensation Committee in a manner consistent with Section 409A of the
Code. Notwithstanding the foregoing, if on the date of grant the common stock is listed on a stock exchange or is quoted on a
national market system, or is traded in an over-the-counter market, then solely for purposes of determining the exercise price
of any grant of a stock option or the base price of any grant of a stock appreciation right, the Compensation Committee may, in
its discretion, base fair market value on the last sale before or the first sale after the grant, the closing price on the trading
day before or the trading day of the grant, the arithmetic mean of the high and low prices on the trading day before or the trading
day of the grant, or any other reasonable method using actual transactions of the common stock as reported by the exchange or
market on which the common stock is traded. In addition, the determination of fair market value also may be made using any other
method permitted under Treasury Regulation section 1.409A-1(b)(5)(iv).
No
option may be exercisable for more than ten years from the date of grant (five years in the case of an incentive stock option
granted to a ten-percent stockholder). Options granted under the 2016 Plan will be exercisable at such time or times as the Compensation
Committee prescribes at the time of grant. No employee may receive incentive stock options that first become exercisable in any
calendar year in an amount exceeding $100,000. The Compensation Committee may, in its discretion, permit a holder of a nonqualified
stock option to exercise the option before it has otherwise become exercisable, in which case the shares of our common stock issued
to the recipient will continue to be subject to the vesting requirements that applied to the option before exercise.
Generally,
the option price may be paid in cash or by bank check or such other means as the Compensation Committee may accept. As set forth
in an award agreement or otherwise determined by the Compensation Committee, in its sole discretion, at or after grant, payment
in full or part of the exercise price of an option may be made (a) in the form of shares of common stock that have been held by
the participant for such period as the Compensation Committee may deem appropriate for accounting purposes or otherwise, valued
at the fair market value of such shares on the date of exercise; (ii) by surrendering to the Company shares of common stock otherwise
receivable on exercise of the option; (iii) by a cashless exercise program implemented by the Compensation Committee in connection
with the 2016 Plan; and/or (iv) by such other method as may be approved by the Compensation Committee and set forth in an award
agreement.
No
option may be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime
an option may be exercised only by the recipient or the recipient’s guardian or legal representative. However, the Compensation
Committee may permit the transfer of a nonqualified stock option, share-settled stock appreciation right, restricted stock award,
performance share or share-settled other stock-based award either (a) by instrument to the participant’s immediate family
(as defined in the 2016 Plan), (b) by instrument to an inter vivos or testamentary trust (or other entity) in which the award
is to be passed to the participant’s designated beneficiaries, or (c) by gift to charitable institutions. The Compensation
Committee will determine the extent to which a holder of a stock option may exercise the option following termination of service.
Stock
Appreciation Rights
.
The Compensation Committee may grant stock appreciation rights independent of or in connection with
an option. The Compensation Committee will determine the terms applicable to stock appreciation rights. The base price of a stock
appreciation right will be determined by the Compensation Committee, but will not be less than 100% of the fair market value of
a share of our common stock with respect to the date of grant of such stock appreciation right. The maximum term of any SAR granted
under the 2016 Plan is ten years from the date of grant. Generally, each SAR stock appreciation right will entitle a participant
upon exercise to an amount equal to:
|
●
|
the
excess of the fair market value of a share of common stock on the date of exercise of the stock appreciation right over the
base price of such stock appreciation right, multiplied by
|
|
|
|
|
●
|
the
number of shares as to which such stock appreciation right is exercised.
|
Payment
may be made in shares of our common stock, in cash, or partly in common stock and partly in cash, all as determined by the Compensation
Committee.
Restricted
Stock and Stock Units
.
The Compensation Committee may award restricted common stock and/or stock units under the
2016 Plan. Restricted stock awards consist of shares of stock that are transferred to a participant subject to restrictions that
may result in forfeiture if specified conditions are not satisfied. Stock units confer the right to receive shares of our common
stock, cash, or a combination of shares and cash, at a future date upon or following the attainment of certain conditions specified
by the Compensation Committee. The Compensation Committee will determine the restrictions and conditions applicable to each award
of restricted stock or stock units, which may include performance-based conditions. Dividends with respect to restricted stock
may be paid to the holder of the shares as and when dividends are paid to stockholders or at the times of vesting or other payment
of the restricted stock award. Stock unit awards may be granted with dividend equivalent rights, which may be accumulated and
may be deemed reinvested in additional stock units, as determined by the Compensation Committee in its discretion. If any dividend
equivalents are paid while a stock unit award is subject to restrictions, the dividend equivalents shall be subject to the same
restrictions on transferability as the underlying stock units, unless otherwise set forth in an award agreement. Unless the Compensation
Committee determines otherwise, holders of restricted stock will have the right to vote the shares.
Performance
Shares and Performance Units
.
The Compensation Committee may award performance shares and/or performance units
under the 2016 Plan. Performance shares and performance units are awards which are earned during a specified performance period
subject to the attainment of performance criteria, as established by the Compensation Committee. The Compensation Committee will
determine the restrictions and conditions applicable to each award of performance shares and performance units.
Incentive
Bonus Awards
. The Compensation Committee may award Incentive Bonus Awards under the 2016 Plan. Incentive Bonus Awards
may be based upon the attainment of specified levels of Company or subsidiary performance as measured by pre-established, objective
performance criteria determined at the discretion of the Compensation Committee. Incentive Bonus Awards will be paid in cash or
common stock, as set forth in an award agreement.
Other
Stock-Based and Cash-Based Awards
.
The Compensation Committee may award other types of equity-based or cash-based
awards under the 2016 Plan, including the grant or offer for sale of unrestricted shares of our common stock and payment in cash
or otherwise of amounts based on the value of shares of common stock.
Section
162(m) Compliance
. If stock or cash-based awards are intended to satisfy the conditions for deductibility under Section
162(m) of the Code as “performance-based compensation,” the performance criteria will be selected from among the following,
which may be applied to our Company as a whole, any subsidiary or any division or operating unit thereof: (a) pre-tax income;
(b) after-tax income; (c) net income; (d) operating income or profit; (e) cash flow, free cash flow, cash flow return on investment,
net cash provided by operations, or cash flow in excess of cost of capital; (f) earnings per share; (g) return on equity; (h)
return on sales or revenues; (i) return on invested capital or assets; (j) cash, funds or earnings available for distribution;
(k) appreciation in the fair market value of the common stock; (l) operating expenses; (m) implementation or completion of critical
projects or processes; (n) return on investment; (o) total return to stockholders; (p) dividends paid; (q) net earnings growth;
(r) related return ratios; (s) increase in revenues; (t) the Company’s published ranking against its peer group of pharmaceutical
companies based on total stockholder return; (u) net earnings; (v) changes (or the absence of changes) in the per share or aggregate
market price of the common stock; (w) number of securities sold; (x) earnings before or after any one or more of the following
items: interest, taxes, depreciation or amortization, as reflected in the Company’s financial reports for the applicable
period; (y) total revenue growth; (z) economic value created; (aa) operating margin or profit margin; (bb) share price or total
stockholder return; (cc) cost targets, reductions and savings, productivity and efficiencies; (dd) strategic business criteria,
consisting of one or more objectives based on meeting objectively determinable criteria: specified market penetration, geographic
business expansion, progress with research and development activities, investor satisfaction, employee satisfaction, human resources
management, supervision of litigation, information technology, and goals relating to acquisitions, divestitures, joint ventures
and similar transactions, and budget comparisons; (ee) objectively determinable personal or professional objectives, including
any of the following performance goals: the implementation of policies and plans, the negotiation of transactions, the development
of long term business goals, formation of joint ventures, research or development collaborations, and the completion of other
corporate transactions, and (ff) any combination of, or a specified increase or improvement in, any of the foregoing.
At
the end of the performance period established in connection with any award, the Compensation Committee will determine the extent
to which the performance goal or goals established for such award have been attained, and shall determine, on that basis, the
number of performance shares or performance units included in such award that have been earned and as to which payment will be
made. The Compensation Committee will certify in writing the extent to which it has determined that the performance goal or goals
established by it for such award have been attained.
With
respect to awards intended to be performance-based compensation under Section 162(m) of the Code, no participant of the 2016 Plan
may receive in any one fiscal year (a) options or stock appreciation rights relating to more than 1,000,000 shares of our common
stock, and (b) stock units, restricted shares, performance shares, performance units or other stock-based awards that are denominated
in shares of common stock relating to more than 1,000,000 shares of our common stock in the aggregate. The maximum dollar value
payable to any participant for a fiscal year of the Company with respect to stock units, performance units or incentive bonus
awards or other stock-based awards that may be settled in cash or other property (other than common stock) is $1,500,000.
Effect
of Certain Corporate Transactions
.
The Compensation Committee may, at the time of the grant of an award, provide for the
effect of a change in control (as defined in the 2016 Plan) on any award, including (i) accelerating or extending the time periods
for exercising, vesting in, or realizing gain from any award, (ii) eliminating or modifying the performance or other conditions
of an award, (iii) providing for the cash settlement of an award for an equivalent cash value, as determined by the Compensation
Committee, or (iv) such other modification or adjustment to an award as the Compensation Committee deems appropriate to maintain
and protect the rights and interests of participants upon or following a change in control. The Compensation Committee may, in
its discretion and without the need for the consent of any recipient of an award, also take one or more of the following actions
contingent upon the occurrence of a change in control: (a) cause any or all outstanding options and stock appreciation rights
to become immediately exercisable, in whole or in part; (b) cause any other awards to become non-forfeitable, in whole or in part;
(c) cancel any option or stock appreciation right in exchange for a substitute option; (d) cancel any award of restricted stock,
stock units, performance shares or performance units in exchange for a similar award of the capital stock of any successor corporation;
(e) redeem any restricted stock, stock unit, performance share or performance unit for cash and/or other substitute consideration
with a value equal to the fair market value of an unrestricted share of our common stock on the date of the change in control;
(f) cancel any option or stock appreciation right in exchange for cash and/or other substitute consideration based on the value
of our common stock on the date of the change in control
,
and cancel any option or stock appreciation right without any
payment if its exercise price exceeds the value of our common stock on the date of the change in control; (g) cancel any stock
unit or performance unit held by a participant affected by the change in control in exchange for cash and/or other substitute
consideration with a value equal to the fair market value per share of common stock on the date of the change in control, or (h)
make such other modifications, adjustments or amendments to outstanding awards as the Compensation Committee deems necessary or
appropriate.
Amendment,
Termination
.
The 2016 Equity Compensation Plan will remain in effect until March 2026, or, if earlier, when awards have
been granted covering all available shares under the 2016 Plan or the 2016 Plan is otherwise terminated by the Board. The Board
may amend the terms of awards in any manner not inconsistent with the 2016 Plan, provided that no amendment shall adversely affect
the rights of a participant with respect to an outstanding award without the participant’s consent. In addition, our Board
of Directors may at any time amend, suspend, or terminate the 2016 Plan, provided that (i) no such amendment, suspension or termination
shall materially and adversely affect the rights of any participant under any outstanding award without the consent of such participant
and (ii) to the extent necessary and desirable to comply with any applicable law, regulation, or stock exchange rule, the 2016
Plan requires us to obtain stockholder consent. Stockholder approval is required for any plan amendment that increases the number
of shares of common stock available for issuance under the 2016 Plan or changes the persons or classes of persons eligible to
receive awards.
Tax
Withholding.
The Company has the power and right to deduct or withhold, or require a participant to remit to the Company,
the minimum statutory amount to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulations to
be withheld.
Recoupment
Policy
.
Awards granted under the 2016 Plan will be subject to any provisions of applicable law providing for the recoupment
or clawback of incentive compensation, such as provisions imposed pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection
Act; the terms of any Company recoupment, clawback or similar policy in effect at the time of grant of the award; and any recoupment,
clawback or similar provisions that may be included in the applicable award agreement.
Federal
Income Tax Consequences.
The following is a brief summary of the U.S. federal income tax consequences applicable to awards
granted under the 2016 Plan based on the federal income tax laws in effect on the date of this proxy statement. This summary is
not intended to be exhaustive and does not address all matters relevant to a particular participant based on his or her specific
circumstances. The summary expressly does not discuss the income tax laws of any state, municipality, or non-U.S. taxing jurisdiction,
or the gift, estate, excise (including the rules applicable to deferred compensation under Code Section 409A), or other tax laws
other than federal income tax law. The following is not intended or written to be used, and cannot be used, for the purposes of
avoiding taxpayer penalties. Because individual circumstances may vary, the Company advises all participants to consult their
own tax advisor concerning the tax implications of awards granted under the 2016 Plan.
A
recipient of a stock option or stock appreciation right will not have taxable income upon the grant of the stock option or stock
appreciation right. For non-statutory stock options and stock appreciation rights, the participant will recognize ordinary income
upon exercise in an amount equal to the difference between the fair market value of the shares and the exercise price on the date
of exercise. Any gain or loss recognized upon any later disposition of the shares generally will be a capital gain or loss.
The
acquisition of shares upon exercise of an incentive stock option will not result in any taxable income to the participant, except,
possibly, for purposes of the alternative minimum tax. The gain or loss recognized by the participant on a later sale or other
disposition of such shares will either be long-term capital gain or loss or ordinary income, depending upon whether the participant
holds the shares for the legally-required period (two years from the date of grant and one year from the date of exercise). If
the shares are not held for the legally-required period, the participant will recognize ordinary income equal to the lesser of
(i) the difference between the fair market value of the shares on the date of exercise and the exercise price, or (ii) the difference
between the sales price and the exercise price, and the balance of the gain, if any, will be afforded capital gain treatment.
For
awards of stock grants, the participant will not have taxable income upon the receipt of the award (unless the participant elects
to be taxed at the time of the stock is granted rather than when it becomes vested). The stock grants will generally be subject
to tax upon vesting as ordinary income equal to the fair market value of the shares at the time of vesting less the amount paid
for such shares (if any).
A
participant is not deemed to receive any taxable income at the time an award of restricted stock units is granted. When vested
restricted stock units (and dividend equivalents, if any) are settled and distributed, the participant will recognize ordinary
income equal to the amount of cash and/or the fair market value of shares received less the amount paid for such restricted stock
units (if any).
If
the participant is an employee or former employee, the amount a participant recognizes as ordinary income in connection with any
award is subject to withholding taxes (not applicable to incentive stock options) and the Company is allowed a tax deduction equal
to the amount of ordinary income recognized by the participant. In addition, Code Section 162(m) contains special rules regarding
the federal income tax deductibility of compensation paid to the Company’s chief executive officer and to certain of the
Company’s other executive officers. The general rule is that annual compensation paid to any of these specified executives
will be deductible only to the extent that it does not exceed $1,000,000. However, the Company can preserve the deductibility
of certain compensation in excess of $1,000,000 if such compensation qualifies as “performance-based compensation”
by complying with certain conditions imposed by the Code Section 162(m) rules (including the establishment of a maximum number
of shares with respect to which awards may be granted to any one employee during one fiscal year).
Option
Grants and Stock Awards
As
of December 31, 2017, we had outstanding stock options to purchase 3,566,299 shares at an average exercise price of approximately
$1.20 per share. Included in the total outstanding stock options were 0 stock options granted under the 2006 Plan in 2017 and
1,103,000 nonqualified stock options granted under the 2016 Plan in 2017 to our executive officers and others at an exercise price
of $1.25 per share.
All
awards to be made under the 2016 Plan are discretionary, subject to the terms of the 2016 Plan. Therefore, the benefits and amounts
that will be received or allocated under the 2016 Plan are generally not determinable at this time. The equity grant program for
our non-employee directors is described under the Compensation of Directors section in this proxy statement. The following table
summarizes these 2016-2017 awards to our named executive officers under the 2016 Plan, all executive officers and the non-executive
officer employees and consultants.
New
Plan Benefits Table
Name and Position
|
|
|
Number
of Units (options)
|
|
Garo H. Armen, Executive Chairman
|
|
|
750,000
|
(1)
|
Alexander K. Arrow, Chief Financial Officer
|
|
|
215,000
|
(2)
|
Non-Executive Director Group
|
|
|
825,000
|
(3)
|
Non-Executive Officer Employee/Consultant Group
|
|
|
371,300
|
(4)
|
|
(1)
|
These
options vest over three years in monthly installments.
|
|
|
|
|
(2)
|
These
options vest over three years in monthly installments. Dr. Arrow also has an 100,000 option grant made under the 2006 Option
Plan.
|
|
|
|
|
(3)
|
105,000
of these options vest over four years in equal monthly installments, 185,000 of these options vest over two years in equal
monthly installments, 385,000 of these options vest over one and a half years in equal monthly installments and as of December
31, 2017, 58,333 have fully vested.
|
|
|
|
|
(4)
|
371,299
of these options vest over four years in equal monthly installments, 15,000 of these options vest over two years in equal
monthly installments, 10,000 of these options vest over one year in equal monthly installments, and 100,000 of these options
vest over three years in equal monthly installments.
|
REPORT
OF THE AUDIT COMMITTEE*
The
undersigned members of the Audit Committee of the Board of Directors of Protagenic Therapeutics, Inc. (the “
Company
”)
submit this report in connection with the committee’s review of the financial reports for the fiscal year ended December
31, 2017 as follows:
1.
|
The
Audit Committee has reviewed and discussed with management the audited financial statements for the Company for the fiscal
year ended December 31, 2017.
|
|
|
2.
|
The
Audit Committee has discussed with representatives of MaloneBailey, LLP, the independent public accounting firm, the matters
which are required to be discussed with them under the provisions of Auditing Standard No. 16, as amended (
Communications
with Audit Committees
).
|
|
|
3.
|
The
Audit Committee has discussed with MaloneBailey, LLP, the independent public accounting firm for the fiscal year ended December
31, 2017, the auditors’ independence from management and the Company has received the written disclosures and the letter
from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board.
|
In
addition, the Audit Committee considered whether the provision of non-audit services by MaloneBailey, LLP is compatible with maintaining
its independence. In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of
Directors (and the Board of Directors has approved) that the audited financial statements be included in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2017 for filing with the Securities and Exchange Commission.
Audit
Committee of Protagenic Therapeutics, Inc.
Brian
J. Corvese, Chairperson
Khalil
Barrage
*
|
The
foregoing report of the Audit Committee is not to be deemed “soliciting material” or deemed to be “filed”
with the Securities and Exchange Commission (irrespective of any general incorporation language in any document filed with
the Securities and Exchange Commission) or subject to Regulation 14A of the Securities Exchange Act of 1934, as amended, or
to the liabilities of Section 18 of the Securities Exchange Act of 1934, except to the extent we specifically incorporate
it by reference into a document filed with the Securities and Exchange Commission.
|
STOCK
OWNERSHIP
The
following table summarizes the beneficial owners of more than 5% of the Company’s voting securities and the securities of
the Company beneficially owned by the Company’s directors and officers as of June 12, 2018.
Name and address of
Beneficial Owner
|
|
Amount of
Beneficial
Ownership
|
|
|
Percent of
Beneficial
Ownership
|
|
|
|
|
|
|
|
|
Garo H. Armen
(1)
|
|
|
4,247,299
|
(2)
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
Robert B. Stein
(1)
|
|
|
285,556
|
(3)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Khalil Barrage
(1)
|
|
|
268,750
|
(4)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Alexander K. Arrow
(1)
|
|
|
322,777
|
(5)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Larry N. Feinberg
808 North St.,
Greenwich, CT 06831
|
|
|
800,000
|
(6)
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Brian J. Corvese
(1)
|
|
|
50,139
|
(7)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
David A. Lovejoy
|
|
|
572,562
|
(8)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Josh Silverman
(1)
|
|
|
68,750
|
(9)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Strategic Bio Partners LLC
(10)
777 Third Avenue
30th Floor
New York, NY 10017
|
|
|
2,193,413
|
(11)
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
All directors and executive officers as a group (6 persons)
|
|
|
5,243,271
|
(12)
|
|
|
|
|
*
Less than 1%
(1)
Executive officer and/or director.
(2)
Includes warrants to purchase 1,253,367 shares of common stock at an exercise price of approximately $1.00 per share. Includes
2,296,012 shares held in the name of Dr. Armen and 250,000 shares held in the name of the Garo H. Armen IRA, as to which Dr. Armen
has sole voting and dispositive power. Also includes options to purchase 447,920 shares of common stock at an exercise price of
$1.25 per share. Does not include options to purchase 302,080 shares that are not exercisable within 60 days of the date of this
proxy statement.
(3)
Represents options to purchase 285,556 shares of common stock at an exercise price of $1.25 per share. Does not include options
to purchase 154,444 shares in the aggregate that are not exercisable within 60 days of the date of this proxy statement.
(4)
Includes 50,000 shares of common stock and options to purchase 218,750 shares of common stock at an exercise price of $1.25 per
share. Does not include options to purchase 21,250 shares in the aggregate that are not exercisable within 60 days of the date
of this proxy statement.
(5)
Includes 100,000 shares held in the name of Dr. Arrow and 18,260 shares held in the name of the Alexander K. Arrow IRA, as to
which Dr. Arrow has sole voting and dispositive power. Also includes options to purchase 204,517 shares of common stock at an
exercise price of $1.25 per share. Does not include options to purchase 110,483 shares of common stock in the aggregate that are
not exercisable within 60 days of the date of this proxy statement.
(6)
Includes 200,000 shares of common stock held in the name of Mr. Feinberg and warrants to purchase 600,000 shares of common stock
at an exercise price of $1.00 per share.
(7)
Includes options to purchase 50,139 shares of common stock at an exercise price of $1.75 per share. Does not include options to
purchase 44,861 shares of common stock that are not exercisable within 60 days of the date of this proxy statement.
(8)
Includes 148,800 shares of common stock held in the name of Dr. Lovejoy and options to purchase 423,762 shares of common stock
in the aggregate with an exercise price ranging from $1.00 to $1.25 per share. Does not include options to purchase 109,538 shares
of common stock that are not exercisable within 60 days of the date of this proxy statement.
(9)
Includes options to purchase 68,750 shares of common stock at an exercise price of $1.25 per share. Does not include options to
purchase 21,250 shares of common stock that are not exercisable within 60 days of the date of this proxy statement.
(10)
Hudson Bay Master Fund Ltd. (the “Managing Member”) is the managing member of Strategic Bio Partners, LLC (“SBP”).
Pursuant to SBP’s Limited Liability Company Operating Agreement, the Managing Member has delegated to Hudson Bay Capital
Management LP (“HBC”) full and sole investment discretion and voting control of SBP’s portfolio securities.
Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of HBC. Each of SBP, the Managing
Member and Sander Gerber disclaims beneficial ownership over these securities.
(11)
SBP also holds shares of Series B Preferred Stock convertible into common stock and Predecessor Warrants to purchase common stock.
However, the Series B Preferred and the Predecessor Warrants are subject to a “Beneficial Ownership Cap” limitation
pursuant to which the holder thereof does not have the right to convert Series B Preferred Stock or exercise the Predecessor Warrants
to the extent that such exercise would result in beneficial ownership by the holder thereof, or any of its affiliates and any
other persons or entities whose beneficial ownership of common stock would be aggregated with the holder’s for purposes
of Section 13(d) of the Exchange Act, of more than 9.99% of the total number of shares of common stock issued and outstanding
immediately after giving effect to such conversion or exercise. Disregarding the Beneficial Ownership Cap, SBP would own 2,193,413
shares of common stock, including the shares underlying Series B Preferred Stock and Predecessor Warrants.
(12)
Includes warrants to purchase 1,253,367 shares of common stock and options to purchase 1,275,632 shares of common stock.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Other
than compensation arrangements for our named executive officers and directors, we describe below each transaction or series of
similar transactions, since January 1, 2016, to which we were a party or will be a party, in which:
|
●
|
the
amounts involved exceeded or will exceed $120,000; and
|
|
|
|
|
●
|
any
of our directors, executive officers or holders of more than 5% of our capital stock, or any member of the immediate family
of the foregoing persons, had or will have a direct or indirect material interest.
|
Compensation
arrangements for our named executive officers and directors are described in the section entitled “executive compensation.”
Our
principal offices are located at 149 Fifth Avenue, Suite 500, New York, New York 10010, in a conference room of Agenus, Inc. We
utilize our principal office for quarterly board meetings and our annual stockholder meeting at no cost. Our personnel and consultants
all work remotely, the Company’s basic science laboratory work is conducted in the Lovejoy Lab at the University of Toronto,
and its preclinical efficacy work is conducted at CROs. Hence the Company does not have the need for a day-to-day physical office
location other than a mailing address and conference room facility for meetings. For that reason, the Agenus conference room suits
its purposes without imposing any inconveniences upon Agenus. Dr. Armen, our Executive Chairman, is also the Chairman and Chief
Executive Officer of Agenus Inc.
Transactions
with Predecessor Stockholders
Split-Off
At
the closing of the Merger we had a 51% interest in MomSpot LLC, and the remaining 49% was held by B.E. Global LLC. Barry Eisenberg
is the sole owner of B.E. Global LLC and is the Chief Executive Officer of MomSpot LLC. Immediately after the closing of the Merger,
we split off our 51% membership interests in MomSpot LLC. The split-off was accomplished through the transfer of all of our membership
interests of MomSpot LLC to B.E. Global LLC having nominal value of nominal considerations via a split off agreement.
Secured
Convertible Notes/Predecessor Warrants
Between
February 11, 2014 and December 9, 2015, Atrinsic issued secured convertible promissory notes (the “Secured Convertible Notes”)
in the aggregate principal amount of $665,000 and $35,000 in interest to two of its stockholders, of which Secured Convertible
Notes in the aggregate principal amount of $332,500 were issued to Iroquois Master Fund Ltd. (“IMF”). Josh Silverman,
who became one of our directors upon the closing of the Merger, is an affiliate of IMF. The Secured Convertible Notes, as revised
and amended, had a maturity date of August 31, 2016 and bore interest at the rate of 5.0% per annum, payable at maturity. The
outstanding principal and accrued interest of each Secured Convertible Note was convertible, subject to a 4.99% beneficial ownership
cap), into shares of Atrinsic’s common stock at an initial conversion price of $5.00 per share (subject to adjustment),
at the option of the respective holders. IMF exchanged the Secured Convertible Notes that it held for 147,972 Predecessor Warrants,
which Predecessor Warrants were issued to the Designee at the closing of the Merger, and the instruments by which the Secured
Convertible Notes were secured were simultaneously terminated.
Transactions
Relating to Protagenic
Garo
H. Armen, our Chairman and principal stockholder, purchased shares of Series B Preferred Stock in the Private Offering in exchange
for the cancellation of $350,000 of loans made by him, plus accrued and unpaid interest on these loans.
During
2013 and 2012, Dr. Armen made loans to us in the amount of $310,000. The proceeds of the loans were used to fund research, development
and general operating activity of Protagenic. The loans accrued interest at the rate of 10% per annum. In February 2013, in connection
with a capital raise by Protagenic, the loans and accrued interest thereon, totaling $317,789, were converted into Protagenic
warrants to purchase 953,367 shares of Protagenic common stock at an exercise price of $1.00 per share. Other than with respect
to the payment of the purchase price for the securities by the conversion of debt, Dr. Armen participated in this capital raise
on the same terms as all other investors.
From
April 15, 2015 through October 29, 2015, Dr. Armen made five loans to Protagenic. The proceeds of the loans were used to fund
research, development and general operating activity of Protagenic. The loans accrued interest at the rate of 10% per annum. Principal
and accrued interest on these loans, totaling approximately $350,000, were converted into shares of Series B Preferred Stock in
the Private Offering at a price of $1.25 per share.
On
December 21, 2015, Dr. Alexander K. Arrow purchased 60,000 shares of common stock of Protagenic from Mark Berg at a per share
purchase price equal to $0.50 for an aggregate purchase price of $30,000. In addition, Dr. Arrow purchased 58,260 shares of Series
B Preferred Stock in the Private Offering, on the same terms as all other investors.
Effective
December 23, 2015, Dr. Armen entered into an additional loan agreement with Protagenic pursuant to which he agreed to loan Protagenic
up to $150,000. The loans under this Agreement accrued interest at the rate of 10% per year. The principal and interest on these
loans is convertible into common stock at a price of $1.25 per share. On December 23, 2015, Protagenic borrowed $37,628 of the
$150,000 available Borrowings under the agreement.
Effective
June 17, 2016, the Board of Directors determined that it was in the best interest of the Company to convert the last remaining
portion of debt owed to Dr. Armen into equity, per the terms of the loan agreements. The sum total of remaining debt and accumulated
interest as of December 31, 2017 was $0.
Merger
Transaction
On
February 12, 2016, which we refer to as the Merger Closing Date, Atrinsic, Inc., Protagenic Therapeutics, Inc. and Protagenic
Acquisition Corp., Atrinsic, Inc.’s wholly-owned subsidiary, entered into a merger agreement and completed the merger contemplated
thereby (the “Merger”). Pursuant to the merger agreement, on the Merger Closing Date, Protagenic Acquisition Corp.
merged with and into Protagenic Therapeutics, Inc., with Protagenic Therapeutics, Inc. remaining as the surviving entity and wholly-owned
subsidiary of Atrinsic, Inc. On June 17, 2016, we merged our wholly-owned subsidiary Protagenic Therapeutics, Inc. with and into
the Company and we changed our name from Atrinsic, Inc. to Protagenic Therapeutics, Inc.
Policies
and Procedures for Related Party Transactions
We
have adopted a policy that our executive officers, directors, nominees for election as a director, beneficial owners of more than
5% of any class of our common stock, any members of the immediate family of any of the foregoing persons and any firms, corporations
or other entities in which any of the foregoing persons is employed or is a partner or principal or in a similar position or in
which such person has a 5% or greater beneficial ownership interest, which we refer to collectively as related parties, are not
permitted to enter into a transaction with us without the prior consent of our Board of Directors acting through the audit committee
or, in certain circumstances, the chairman of the audit committee. Any request for us to enter into a transaction with a related
party, in which the amount involved exceeds $100,000 and such related party would have a direct or indirect interest must first
be presented to our audit committee, or in certain circumstances the chairman of our audit committee, for review, consideration
and approval. In approving or rejecting any such proposal, our audit committee, or the chairman of our audit committee, is to
consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable
than terms generally available to an unaffiliated third party under the same or similar circumstances, the extent of the benefits
to us, the availability of other sources of comparable products or services and the extent of the related party’s interest
in the transaction.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR
THE ELECTION OF THE DIRECTOR NOMINEES.
PROPOSAL
2: RATIFY THE APPOINTMENT OF MALONEBAILEY, LLP AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER
31, 2018
On
May 18, 2017, we engaged MaloneBailey LLP (“Malone”) as our principal independent registered public accounting firm,
and effective May 18, 2017, we dismissed Marcum LLP (“Marcum”) as Protagenic Therapeutics, Inc.’s principal
independent registered public accounting firm. The decision to dismiss Marcum and to appoint Malone was approved by our board
of directors.
Marcum’s
report on our financial statements for the fiscal years ended December 31, 2016 and 2015 did not contain an adverse opinion or
disclaimer of opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles.
During
Protagenic Therapeutics’ two most recent fiscal years ended December 31, 2017 and 2016, there were no reportable events
as described in Item 304(a)(1)(v) of Regulation S-K between the Company and Marcum or Malone, as applicable, 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 the accountant, would have caused the accountant to make reference to the subject matter of the
disagreements in connection with its reports on the consolidated financial statements for such fiscal years, or (2) reportable
events, except that Marcum advised the Company of a material weakness related to difficulty in accounting for complex accounting
transactions due to an insufficient number of accounting personnel with experience in that area and limited segregation of duties
within the Company’s accounting and financial reporting functions.
During
our two most recent fiscal years ended December 31, 2017 and 2016, we have not consulted with Malone regarding either the application
of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be
rendered on our financial statements, nor has Malone provided to us a written report or oral advice that Malone concluded was
an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue. In addition,
during such periods, we have not consulted with Malone regarding any matter that was either the subject of a disagreement (as
defined in Item 304(a)(1)(iv) and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation
S-K).
The
Audit Committee has appointed MaloneBailey, LLP as our independent registered public accounting firm to audit the financial statements
of the Company for the fiscal year ending December 31, 2018, and has further directed that management submit their selection of
independent registered public accounting firm for ratification by our stockholders at the Annual Meeting. Neither the accounting
firm nor any of its members has any direct or indirect financial interest in or any connection with us in any capacity other than
as public registered accounting firm. Representative(s) of Malone are expected to be available by phone to respond to appropriate
questions at the Annual Meeting.
Although
stockholder ratification of the selection of Malone as our independent registered public accounting firm is not required by our
Bylaws or otherwise, the Audit Committee believes it appropriate as a matter of policy to request that stockholders ratify the
selection of our independent registered public accounting firm. In the event the stockholders do not ratify the appointment of
Malone, the Audit Committee will reconsider its appointment. In addition, even if the stockholders ratify the appointment of Malone,
the Audit Committee may in its discretion appoint a different independent public accounting firm at any time if the Audit Committee
determines that a change is in the best interests of us and our stockholders.
Principal
Accountant Fees and Services
The
following table sets forth the fees for services provided and reasonably expected to be billed by Malone Bailey LLP. The following
is a summary of the fees billed to the Company for professional services rendered for the fiscal years ended December 31, 2017
and 2016.
|
|
Fiscal Year 2017
|
|
|
Fiscal Year 2016
|
|
Audit fees
|
|
$
|
30,000
|
|
|
$
|
-
|
|
Audit-related fees
|
|
$
|
-
|
|
|
$
|
-
|
|
Tax Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
All other fees
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,000
|
|
|
$
|
-
|
|
The
following table sets forth the fees for services provided and reasonably expected to be billed by Marcum LLP. The following is
a summary of the fees billed to the Company for professional services rendered for the fiscal years ended December 31, 2017 and
2016.
|
|
Fiscal Year 2017
|
|
|
Fiscal Year 2016
|
|
Audit fees
|
|
$
|
17,500
|
|
|
$
|
88,500
|
|
Audit-related fees
|
|
$
|
-
|
|
|
$
|
15,458
|
|
Tax Fees
|
|
$
|
-
|
|
|
$
|
-
|
|
All other fees
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
17,500
|
|
|
$
|
103,958
|
|
Audit
Fees:
For the fiscal years ended December 31, 2017 and 2016, the aggregate audit fees billed by our independent auditors were
for professional services rendered for audits and quarterly reviews of our consolidated financial statements, and assistance with
reviews of registration statements and documents filed with the SEC.
Audit-Related
Fees:
Audit-related fees are for assurance and other activities not explicitly related to the audit of our financial statements.
Tax
Fees:
For the fiscal years ended December 31, 2017 and 2016, there were no tax fees, respectively.
All
Other Fees:
For the fiscal years ended December 31, 2017 and 2016, there were $0 and $0, respectively
Audit
Committee Pre-Approval Policies and Procedures.
The Audit Committee oversees and monitors our financial reporting process
and internal control system, reviews and evaluates the audit performed by our registered independent public accountants and reports
to the Board any substantive issues found during the audit. The Audit Committee is directly responsible for the appointment, compensation
and oversight of the work of our registered independent public accountants. The Audit Committee convenes on a quarterly basis
to approve each quarterly filing, and an annual basis to review the engagement of the Company’s external auditor.
The
Audit Committee has considered whether the provision of Audit-Related Fees, Tax Fees, and all other fees as described above is
compatible with maintaining Marcum LLP’s and Malone Bailey LLP’s independence and has determined that such services
for fiscal years 2016 and 2017, respectively, were compatible. All such services were approved by the Audit Committee pursuant
to Rule 2-01 of Regulation S-X under the Exchange Act to the extent that rule was applicable.
THE
BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE
FOR
THE RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM.
Proposal
3: NON-BINDING “SAY ON PAY” ADVISORY PROPOSAL REGARDING EXECUTIVE COMPENSATION
As
required by Section 14A of the Securities Exchange Act of 1934, we are providing our stockholders with the opportunity to cast
a non-binding advisory vote on the compensation of our named executive officers, as disclosed pursuant to Item 402 of Regulation
S-K, including the compensation tables and narrative discussion beginning on page 11 of this proxy statement. We believe that
it is appropriate to seek the views of our stockholders on the design and effectiveness of the Company’s executive compensation
program.
Our
executive compensation policy is intended to further our interests, as well as those of our stockholders, by encouraging growth
of our business through securing, retaining and motivating executives of a high caliber who possess the skills necessary for our
development and growth. We believe that it achieves these goals by (i) offering competitive base salaries to the named executive
officers and (ii) offering the named executive officers participation in equity compensation plans.
Our
Board of Directors encourages our stockholders to approve the following resolution:
RESOLVED,
that the compensation paid to the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K,
including the compensation tables and narrative discussion, is hereby APPROVED.
As
an advisory vote, this proposal is not binding upon the Company. However, the Compensation Committee, which is responsible for
designing and administering our executive compensation program, values the opinions expressed by stockholders in their vote on
this proposal, and therefore will take such vote into consideration when evaluating our compensation programs and practices applicable
to the named executive officers.
Vote
Required and Recommendation
This
vote is advisory and not binding on the Company. The affirmative vote of the holders of a majority of the outstanding shares of
our common stock represented in person or by proxy at the Annual Meeting is required to approve the compensation paid to our named
executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the compensation tables and narrative discussion.
THE
BOARD RECOMMENDS THAT STOCKHOLDERS VOTE
FOR
THE APPROVAL OF THE NON-BINDING ADVISORY PROPOSAL REGARDING EXECUTIVE COMPENSATION
AS DESCRIBED IN THIS PROPOSAL 3.
Proposal
4: NON-BINDING ADVISORY PROPOSAL ON
APPROVAL
OF “SAY-ON-PAY FREQUENCY” TO DETERMINE THE FREQUENCY OUR STOCKHOLDERS WILL BE ASKED TO APPROVE THE COMPENSATION OF
OUR NAMED EXECUTIVE OFFICERS
In
accordance with the changes to Section 14A of the Securities Exchange Act, as amended, which were made pursuant to the Dodd-Frank
Wall Street Reform and Consumer Protection Act, we are providing our stockholders with the opportunity to cast a non-binding advisory
vote regarding the frequency of “Say-on-Pay” votes. Applicable rules require public companies to submit this proposal
to their stockholders at least every six years. We submitted the “Say on Pay” vote to our stockholders at our 2017
Annual Meeting and this is the first time we hold the vote on frequency of the “Say on Pay” votes.
The
Board of Directors believes that it is in the best interest of the Company and its stockholders that a “Say-on-Pay”
vote be held every three years. We believe that this frequency is appropriate for several reasons. An advisory vote on executive
compensation held every three years would enable our stockholders to timely express their views on the Company’s executive
compensation program and enable the Board and the Compensation Committee to determine current stockholder sentiment while maintaining
the amount of proposals to be introduced at each annual meeting at a minimum. Our executive compensation programs are designed
to promote long-term connection between pay and performance and, although the Board recognizes that executive compensation disclosures
are made annually, the Board believes that holding such proposal for a vote more frequently would not be efficient or have a significant
impact.
Although
this advisory vote regarding the frequency of “Say-on-Pay” votes is non-binding on the Board, the Board and the Compensation
Committee will review the voting results and take them into consideration when deciding how often to conduct future “Say-on-Pay”
stockholder advisory votes. In addition, in the event the Company makes a material change to its executive compensation policies
affecting named executive officers and a “Say-on-Pay” vote is not otherwise scheduled for the first year to which
such change will be disclosed in the proxy statement, then the Company intends to accelerate the “Say-on-Pay” voting
schedule and conduct a “Say-on-Pay” vote for that year. The Board will disclose its position on the frequency of future
advisory votes on executive compensation in the investor relations section of our website at
www.protagenic.com
.
If
the stockholders agree with the Board of Directors recommendation regarding the frequency of “Say-on-Pay” proposals,
the next “Say-on-Pay” proposal (after the proposal contained in this proxy statement as Proposal No. 3) would be included
in the proxy statement relating to our 2021 Annual Meeting of Stockholders.
Vote
Required and Recommendation
This
vote is advisory and not binding on the Company. Although the Board recommends a “say-on-pay” vote every three years,
stockholders will be able to specify one of the following four choices for this proposal on the proxy card: one year, two years,
three years or abstain from voting. Stockholders are not voting to approve or disapprove of the Board’s recommendation.
In
the absence of a majority of votes cast in support of any one frequency, the option of one year, two years, or three years that
receives the greatest number of votes will be considered the frequency selected by our stockholders.
Unless
otherwise instructed, the proxies will vote for the “3 years” frequency alternative.
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR “3 YEARS” AS THE FREQUENCY OUR STOCKHOLDERS WILL BE ASKED TO APPROVE THE
COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS.
STOCKHOLDER
PROPOSALS
Any
stockholder who intends to present a proposal at the 2019 Annual Meeting of Stockholders for inclusion in the Company’s
Proxy Statement and Proxy form relating to such Annual Meeting must submit such proposal to the Company at its principal executive
offices, as set forth above, by April 24, 2019. In addition, in the event a stockholder proposal is not received by the Company
by April 24, 2019, the Proxy to be solicited by the Board of Directors for the 2019 Annual Meeting will confer discretionary authority
on the holders of the Proxy to vote the shares if the proposal is presented at the 2019 Annual Meeting without any discussion
of the proposal in the Proxy Statement for such meeting.
SEC
rules and regulations provide that if the date of the Company’s 2019 Annual Meeting is advanced or delayed more than 30
days from the date of the 2018 Annual Meeting (which for purposes of this discussion, shall be deemed to be the date of this Annual
Meeting), stockholder proposals intended to be included in the proxy materials for the 2019 Annual Meeting must be received by
the Company within a reasonable time before the Company begins to print and mail the proxy materials for the 2019 Annual Meeting.
Upon determination by the Company that the date of the 2019 Annual Meeting will be advanced or delayed by more than 30 days from
the date of this Annual Meeting, the Company will disclose such change in the earliest possible Quarterly Report on Form 10-Q.
WHERE
YOU CAN FIND ADDITIONAL INFORMATON
We
are subject to the reporting requirements of the Exchange Act, and file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s
public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You can request copies of these documents by writing
to the SEC and paying a fee for the copying cost. Please call the SEC at 1-800-SEC-0330 for more information about the operation
of the public reference room. SEC filings are also available at the SEC’s web site at
http://www.sec.gov
.
We
also maintain a website at
www.protagenic.com
, through which you can access our SEC filings. The information set forth
on, or accessible from, our website is not part of this proxy statement.
OTHER
MATTERS
As
of the date of this proxy statement, the Board knows of no other matters that may come before the Annual Meeting. However, if
any matters other than those referred to herein should be presented properly for consideration and action at the Annual Meeting,
or any adjournment or postponement thereof, the proxies will be voted with respect thereto in accordance with the best judgment
and in the discretion of the proxy holders.
The
above notice and proxy statement are sent by order of the Board of Directors.
|
/s/
Alexander K.Arrow
|
|
|
Alexander
K. Arrow
|
|
|
Chief
Financial Officer and Secretary
|
|
|
|
|
|
June
13, 2018
|
|