| | failure of securities analysts to maintain coverage of us, changes in financial estimates by securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors; |
| | the financial projections we may provide to the public, any changes in those projections or our failure to meet those projections; |
| | announcements by us or our competitors of new products or services; |
| | the publics reaction to our press releases, other public announcements and filings with the SEC; |
| | rumors and market speculation involving us or other companies in our industry; |
| | actual or anticipated changes in our operating results or fluctuations in our operating results; |
| | actual or anticipated developments in our business, our competitors businesses or the competitive landscape generally; |
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| | litigation involving us, our industry or both, or investigations by regulators into our operations or those of our competitors; |
| | developments or disputes concerning our intellectual property or other proprietary rights; |
| | announced or completed acquisitions of businesses or technologies by us or our competitors; |
| | new laws or regulations or new interpretations of existing laws or regulations applicable to our business; |
| | changes in accounting standards, policies, guidelines, interpretations or principles; |
| | any significant change in our management; and |
| | general economic conditions and slow or negative growth of our markets. |
In addition, in the past, following periods of volatility in the overall market and the market price of a particular companys securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our managements attention and resources.
Because we became public by means of a reverse merger we may not be able to attract the attention of brokerage firms.
Additional risks may exist since we became public through a reverse merger. Securities analysts of brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on our behalf in the future.
FINRA sales practice requirements may also limit your ability to buy and sell our Common Stock, which could depress the price of our shares.
FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customers financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our shares once publicly traded, have an adverse effect on the market for our shares, and thereby depress our share price.
Compliance with the reporting requirements of federal securities laws can be expensive.
We are a public reporting company in the United States, and accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports
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to stockholders are substantial. In addition, we will incur substantial expenses in connection with the preparation of the Registration Statement and related documents with respect to the registration of resales of the Common Stock issued to former Protagenic stockholders in the Merger.
Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of its business and its ability to obtain or retain listing of our Common Stock.
We may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.
Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individuals independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and our ability to obtain or retain listing of our shares of Common Stock on any stock exchange (assuming we elect to seek and are successful in obtaining such listing) could be adversely affected.
We may have undisclosed liabilities and any such liabilities could harm our revenues, business, prospects, financial condition and results of operations.
Even though our pre-merger assets and liabilities were transferred in the split-off of MomSpot LLC and 29 wholly-owned subsidiaries, we may be liable for any or all of such liabilities. Any such liabilities that survived the Merger could harm our revenues, business, prospects, financial condition and results of operations upon our acceptance of responsibility for such liabilities.
The transfer of our membership interests in MomSpot LLC, 29 of our wholly-owned subsidiaries and associated assets and liabilities will result in taxable income to us in an amount equal to the difference between the fair market value of the assets transferred and the pre-merger tax basis of the assets. Any gain recognized, to the extent not offset by our net operating loss carryforward, if any, will be subject to federal income tax at regular corporate income tax rates.
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If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our stock.
We must maintain effective internal controls to provide reliable financial reports and detect fraud. We have been assessing our internal controls to identify areas that need improvement. We are in the process of implementing changes to internal controls, but have not yet completed implementing these changes. Failure to implement these changes to our internal controls or any others that it identifies as necessary to maintain an effective system of internal controls could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our stock.
The price of our Common Stock may become volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our Common Stock is likely to be highly volatile and could fluctuate in response to factors such as:
| | actual or anticipated variations in our operating results; |
| | announcements of developments by us or our competitors; |
| | the timing of IDE and/or NDA approval, the completion and/or results of our clinical trials |
| | regulatory actions regarding our products |
| | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
| | adoption of new accounting standards affecting our industry; |
| | additions or departures of key personnel; |
| | introduction of new products by us or our competitors; |
| | sales of our Common Stock or other securities in the open market; and |
| | other events or factors, many of which are beyond our control. |
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a companys securities, securities class action litigation has often been initiated against such a company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our managements attention and resources, which could harm our business and financial condition.
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Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our Common Stock.
In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may also issue additional shares of our Common Stock or other securities that are convertible into or exercisable for our Common Stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of Common Stock may create downward pressure on the trading price of our Common Stock. There can be no assurance that the we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our Common Stock is currently quoted on the OTC Markets PINK.
There are currently outstanding a significant number of our securities that have full-ratchet anti-dilution protection, which could cause significant dilution to stockholders.
There are currently outstanding 2,775,000 shares of Series B Preferred Stock, which were purchased by investors in our Private Offering. Following the Reverse Split, these shares will represent a significant percentage of our issued and outstanding Common Stock. The Private Offering investors received full rachet anti-dilution protection, which provides the holders of the securities purchased in the Private Offering the right to receive additional shares of Common Stock during a period (the Protection Period) terminating in February, 2018. These rights will be triggered upon the issuance by us during the Protection Period of Common Stock (or Common Stock equivalents) at a price of lower than $1.25 per share. If such full-ratchet anti-dilution rights are triggered, significant dilution could occur to stockholders, and could occur with us receiving little or no consideration for the resulting issuance of our Common Stock.
Our Common Stock is controlled by insiders
Our officers and directors beneficially own approximately 29% of our outstanding shares of Common Stock, after giving effect to the Reverse Split. Such concentrated control of our Common Stock may adversely affect the price of our Common Stock. Investors who acquire our Common Stock may have no effective voice in the management of our operations. Sales by our insiders or affiliates, along with any other market transactions, could affect the market price of our Common Stock.
We do not intend to pay dividends for the foreseeable future.
We have paid no dividends on our Common Stock to date and it is not anticipated that any dividends will be paid to holders of our Common Stock in the foreseeable future. While our future dividend policy will be based on the operating results and capital needs of our business, it is currently anticipated that any earnings will be retained to finance our future expansion and for the implementation of our business plan. As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment.
Our certificate of incorporation allows for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our Common Stock.
Our board of directors has the authority to issue shares of our preferred stock, with such relative rights and preferences as the board of directors may determine, without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation and the right to receive dividend payments before dividends are distributed to the holders of Common Stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our Common Stock or that is convertible into our Common Stock, which could decrease the relative voting power of our Common Stock or result in dilution to our existing stockholders.
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In addition, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, or DGCL, which may, unless certain criteria are met, prohibit large stockholders, in particular those owning 15% or more of the voting rights on our Common Stock, from merging or combining with us for a prescribed period of time.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following managements discussion and analysis should be read in conjunction with Protagenics historical financial statements and the related notes. This Managements Discussion and analysis contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words believe, plan, intend, anticipate, target, estimate, expect and the like, and/or future tense or conditional constructions (will, may, could, should, etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements in this Current Report. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Current Report.
As the result of the Transactions and the change in our business and operations from a shell company to a biotechnology company, a discussion of the past financial results of Predecessor is not pertinent, and the financial results of Protagenic, the accounting acquirer, are considered our financial results on a historical and going-forward basis.
Managements Discussion and Analysis of Financial Condition and Results of Operations
The discussion and analysis of our financial condition and results of operations are based on Protagenics financial statements, which Protagenic has prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires Protagenic to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, Protagenic evaluates such estimates and judgments, including those described in greater detail below. Protagenic bases its estimates on historical experience and on various other factors that Protagenic believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Critical Accounting Policies
Our financial statements, which appear at Item 9.01(a) of this Current Report, have been prepared in accordance with accounting principles generally accepted in the United States, which require that we make certain assumptions and estimates and, in connection therewith, adopt certain accounting policies. Our significant accounting policies are set forth in Note 1 to our financial statements. Of those policies, we believe that the policies discussed below may involve a higher degree of judgment and may be more critical to an accurate reflection of our financial condition and results of operations.
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Revenue Recognition
No revenues were recognized in 2014 or 2015. Revenues will be recognized in accordance with U.S. generally accepted accounting principles, when earned and realizable.
Allowance for Doubtful Accounts
Our accounts receivable balance, net of allowance for doubtful accounts was negligible as of September 30, 2015 and 2014. The Company did not record allowance for doubtful accounts during the period of comparison. After the Company begins generating revenue, the allowance for doubtful accounts will henceforth be based on our assessment of the experience, credit quality, age of the accounts receivable balances, and current economic conditions that may affect a customers ability to pay.
Stock-Based Compensation
Valuation of Stock-Based Compensation
Stock-based compensation expense consists of expenses for the granting of shares, stock options and issuance of warrants periodically by the company. Stock-based compensation cost is measured at each grant date, based on the fair value of the award using the Black Scholes Merton option pricing model (Black Scholes) when third party valuation is not available and are recognized as an operating expense on the straight-line basis over the vesting period, if applicable. Any unvested shares are re-measured at the end of each reporting period and adjusted accordingly, if material. All of the Companys stock-based compensation is accounted for as an equity instrument. Stock based compensation totaled $172,630 in the nine months ended September 30, 2015, which is nearly a 200% increase from the $59,618 recorded in the nine months ended September 30, 2014. Management expects that stock-based compensation expense will continue to rise as the Company grows and issues additional stock options, although at a lower rate of growth than it did from 2014 to 2015.
Results of Operations
Overview
Protagenic was organized in Delaware in September 2004. Activities since Protagenics inception have been devoted primarily to benchtop scientific product development, raising capital, and building infrastructure. Protagenic did not, as of that date, realize revenues from its planned principal operations. Accordingly, the Company is considered to be in the development stage.
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Comparison of the nine months ended September 30, 2015 and September 30, 2014
Revenues
No material revenues were recorded in the nine months ended September 30, 2014 nor in the nine months ended September 30, 2015. Accordingly, the Company is considered to be in the development stage and activities primarily include product development, raising capital, and building infrastructure. Management does not expect the Company to generate any revenue for at least the next three years, during which time drug development will continue toward the goal of commercializing the Companys first product.
Operating Expenses
Overview
Operating and Administrative expenses increased from $234,145 in the nine months ended September 30, 2014 to $356,603 in the nine months ended September 30, 2015. The increase of $122,458 is primarily due to the higher level of stock compensation expense, as more option grants occurred in 2015 than in 2014. Many other expense accounts actually decreased rather than increased during this time, as the benchtop research was relatively slow in 2015 due to limitation of available operating funds. Salaries, legal fees, and direct R&D expenses were all slightly less in the nine months ended September 30, 2015 than in the nine months ended September 30, 2014. Management expects this trend to reverse in 2016, as the Company will begin spending from the proceeds of its expected equity financing, and begin a more expensive phase of its drug development, including preclinical efficacy testing and toxicology testing in 2016.
Research and Development Expenses
Research and development expenses decreased from $161,936 in the nine months ended September 30, 2014 to $151,812 in the nine months ended September 30, 2015. This decrease was primarily the result of a relatively constrained level of benchtop drug mechanism testing during 2015, influenced by the Companys constrained operating budget. The decrease would have been even greater if it had not been for a concomitant reduction in the level of R&D rebates the Company received from the Canadian government, which decreased from $78,366 in rebates in the nine months ended September 30, 2015 to just $8,630 in rebates in the nine months ended September 30, 2014. Patent filing expenses dropped significantly from $60,434 in the nine months ended September 30, 2015 to just $17,482 in the nine months ended September 30, 2015. This was because the only patent-related legal expenses the company incurred in the nine months ended September 30, 2015 were from responding to USPTO office actions. Management expects that the Company is likely to file new patent applications in 2016 and 2017, and hence patent legal expense is likely to rise and may surpass its 2014 level.
General and Administrative Expenses
For the nine months ended September 30, 2014 and 2015, general and administrative expenses are included in research and development expenses. All costs incurred can be attributed to the planned principal operations of product development, raising capital, and building infrastructure. Management may separate out G&A expenses in 2016 and 2017, especially if new personnel are hired consistent with the Companys financial regulatory and filings obligations as a publicly-traded entity.
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Interest Expense
Interest expense was negligible for the nine months ended September 30, 2014. For the nine months ended September 30, 2015, the Company incurred interest expense of $3,537, from interest on a loan made to the Company by the Companys co-founder and Chairman, Dr. Garo H. Armen, Management expects that in 2016 and thereafter, interest expense will return to being negligible, as it intends to pay off the loan to Dr. Armen, and refrain from taking on any additional debt, funding operations instead with the proceeds of equity capital financings.
Financial Resources and Liquidity
The Company had limited financial resources during both the nine months ended September 30, 2014 and the nine months ended September 30, 2015. Cash and cash equivalents of just $22,733 on September 30, 2014 and $41,867 on September 30, 2015 was not sufficient working capital to fund the ongoing preclinical testing necessary to make significant progress toward preparing for a Phase I clinical trial of the Companys main drug product. Moreover, the Companys sparse needs for an operating structure exceeded its ability to fund operations beyond the minimal corporate structure kept in place during both of these time periods, sufficient to keep some benchtop drug mechanism testing going, but not sufficient to stay current with all of the Companys scientist consultants, legal counsel, and accountants. As a result, the Company borrowed funds from its co-founder and Chairman (accumulating debt payable to this stockholder of $217,686 by September 30, 2015), and even after deploying these funds, had accumulated an A/P balance of $150,823 by September 30, 2015.
Comparison of the years ended December 31, 2014 and December 31, 2013
Revenues
No material revenues were recorded in the year ended December 31, 2014 nor in the year ended December 31, 2013. Accordingly, the Company is considered to be in the development stage and activities primarily include product development, raising capital, and building infrastructure. Management does not expect the Company to generate any revenue for at least the next three years, during which time drug development will continue toward the goal of commercializing the Companys first product.
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Operating Expenses
Overview
Operating and Administrative expenses decreased from $931,228 in the year ended December 31, 2013 to $292,100 in the year ended December 31, 2014. The increase of some $639,128 is primarily due to the higher level of stock compensation expense incurred in 2013, as 2013 was a year in which more option grants occurred than in 2014. Direct research and development expenditures decreased during this time, from $178,018 in 2013 to $67,270 in 2014, driven down by the completion of various mechanistic tests in 2013. Management expects to increase R&D spending significantly in 2016, as the Company will begin spending from the proceeds of its expected equity financing, and begin a more expense phase of its drug development, including preclinical efficacy testing and toxicology testing in mid-2016.
Research and Development Expenses
Research and development expenses decreased from $290,958 in the year ended December 31, 2013 to $191,069 in the year ended December 31, 2014. This decrease was primarily the result of a relatively reduced level of benchtop drug mechanism testing during 2014, influenced by the Companys accomplishment of certain mechanistic test in 2013, coupled with an ongoing need to conserve operating funds. Patent filing expenses increased from $25,500 in 2013 to $60,434 in 2014, because of a new patent application written and filed in July 2014. Management expects that the Company is likely to file new patent applications in 2016 and 2017, and hence patent legal expense is likely to rise and may surpass its 2014 level.
General and Administrative Expenses
For the years ended December 31, 2013 and 2014, general and administrative expenses were included in research and development expenses. All costs incurred can be attributed to the planned principal operations of product development, raising capital, and building infrastructure. Management may separate out G&A expenses in 2016 and 2017, especially if new personnel are hired consistent with the Companys financial regulatory and filings obligations as a publicly traded entity.
Interest Expense
Interest expense was negligible for the year ended December 31, 2014. For the year ended December 31, 2013, the Company incurred interest expense of $3,282, from interest on a loan made to the Company by the Companys co-founder and Chairman, Dr. Garo H. Armen. Management expects that in 2016 and thereafter, interest expense will return to being negligible, as it intends to pay off the loan to Dr. Armen, and refrain from taking on any additional debt, funding operations instead with the proceeds of equity capital financings.
Financial Resources and Liquidity
The Company had limited financial resources during both the year ended December 31, 2013 and the year ended December 31, 2014. Cash and cash equivalents of $155,983 on December 31, 2013 and $22,733 on December 31, 2014 was not sufficient working capital to give the Company the flexibility to fund the ongoing preclinical testing of its lead drug candidate while making necessary investments in the companys future operating structure. The Companys sparse needs for an operating structure exceeded its ability to fund operations beyond the minimal corporate structure kept in place during both of these years, sufficient to keep some benchtop drug mechanism testing going, but not sufficient to stay current with all of the Companys scientist consultants, legal counsel, and accountants. Management believes that the Company will have significantly more working capital during 2016-2017, due to the anticipated proceeds of one or more equity financings.
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We rent office space in Canada for $430 per month on a month to month basis. These facilities are adequate for our current needs. As well, our Chairman provides us with the use of an office in New York City at no charge.
SECURITY OWNERSHIP OF CERTAIN STOCKHOLDERS AND MANAGEMENT
The following table sets forth certain information regarding our common stock beneficially owned on February 12, 2016, immediately following the initial closing, for (i) each stockholder known to be the beneficial owner of more than 5% of our outstanding Common Stock, (ii) each executive officer and director, and (iii) all executive officers and directors as a group, on a pro forma basis to reflect the transactions contemplated by the Merger Agreement and the Private Offering. In general, a person is deemed to be a beneficial owner of a security if that person has or shares the power to vote or direct the voting of such security, or the power to dispose or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which the person has the right to acquire beneficial ownership within 60 days, through the exercise of a warrant or stock option, conversion of a convertible security or otherwise. The table assumes (i) a total of 150,170,843,633 and 9,711,173 shares of our common stock outstanding as of February 12, 2016, on a pre- and post- Reverse Split basis, respectively, and on an as-converted-to-Common Stock basis, accounting for the conversion of the Series B Preferred Stock issued in the Transactions (on the basis of 15,463.7183 shares of Common Stock per share of Series B Preferred Stock and assuming that the Springing Blocker will not apply to any holder of Series B Preferred Stock) and (ii) that all shares that may be subject to appraisal rights have been issued to those persons eligible to receive such shares. All numbers in the footnotes give effect to the Reverse Split. Unless otherwise noted below the address of each person identified is c/o Atrinsic, Inc., 149 Fifth Avenue, Suite 500, New York, NY 10010.
| Shares Beneficially Owned | ||||||||||||
| Name and address of Beneficial Owner |
Amount of Beneficial Ownership (Pre-Reverse Split) |
Amount of Beneficial Ownership (Post-Reverse Split) |
Percent of Beneficial Ownership |
|||||||||
| Garo H. Armen(1) |
57,821,440,628 | 3,739,168 | (2) | 34.1 | % | |||||||
| Robert B. Stein(1) |
701,032,205 | 50,010 | (3) | * | ||||||||
| Khalil Barrage(1) |
773,185,915 | 50,000 | * |
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| Shares Beneficially Owned | ||||||||||||
| Name and address of Beneficial Owner |
Amount of Beneficial Ownership (Pre-Reverse Split) |
Amount of Beneficial Ownership (Post-Reverse Split) |
Percent of Beneficial Ownership |
|||||||||
| Robert Ziroyan(1 |
3,865,929,575 | 250,000 | (4) | 1.3 | % | |||||||
| Alexander Arrow(1) |
927,823,098 | 65,556 | (5) | * | ||||||||
| Larry N. Feinberg 808 North St., Greenwich, CT 06831 |
12,370,974,640 | 800,000 | (6) | 7.8 | % | |||||||
| Gregory H. Ekizian(1) |
9,278,230,980 | 600,000 | (7) | 5.9 | % | |||||||
| David A. Lovejoy |
8,928,055,079 | 586,274 | (8) | 5.8 | % | |||||||
| Josh Silverman(1) |
0 | 0 | ||||||||||
| Hudson Bay Capital Management LP. (9) |
33,918,320,748 | 2,193,413 | (10) | 9.99 | % | |||||||
| All directors and executive officers as a group (7 persons) (11) |
73,525,867,167 | 4,754,734 | 40.8 | % |
| (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 2,235,801 shares held in the name of Mr. Armen and 250,000 shares held in the name of the Garo H. Armen IRA, as to which Mr. Armen has sole voting and dispositive power. |
| (3) | Represents options to purchase 50,010 shares at an exercise price of $1.25 per share. Does not include options to purchase 149,990 shares, which vest in monthly increment of 1.667% from May, 2016 through January, 2020. |
| (4) | Represents options to purchase: 75,000 shares of Common Stock at an exercise price of $1.25 per share; and 175,000 shares of Common Stock at an exercise price of $1.00 per share. |
| (5) | Includes options to purchase 5,556 shares at $1.25 per share. Does not include options to purchase 94,444 shares of Common Stock. |
| (6) | Includes warrants to purchase 600,000 shares of Common Stock at an exercise price of $1.00 per share. |
| * | Less than 1% |
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| (7) | Includes warrants to purchase 375,000 shares of Common Stock at an exercise price of $1.00 per share. Includes 125,000 shares held in the name of the Gregory H. Ekizian Revocable Trust and 100,000 shares and 300,000 warrants held in the name of Pensco Trust Company fbo Gregory H. Ekizian, as to which Mr. Ekizian has sole voting and dispositive power. |
| (8) | Includes options to purchase: 208,299 shares of Common Stock at an exercise price of $0.228 per share; and 229,175 shares of Common Stock at an exercise price of $1.00 per share. Does not include options to purchase 45,825 shares of Common Stock which vest in equal monthly increments from May 2016 through March 2017. |
| (9) | Hudson Bay Capital Management LP, the manager by designation of Strategic Bio Partners, LLC, has voting and investment power over these securities. Sander Gerber is the managing member of Hudson Bay Capital GP LLC, which is the general partner of Hudson Bay Capital Management LP. Each of Strategic Bio Partners, LLC and Sander Gerber disclaims beneficial ownership over these securities. |
| (10) | Consists of shares of Common Stock issuable upon conversion of the Series B Preferred Stock and shares of Common Stock issuable upon exercise of Predecessor Warrants held by such beneficial owner, but excludes the number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock or exercise of the Predecessor Warrants that are subject to the Beneficial Ownership Cap limitation pursuant to which the holder thereof does not have the right to convert Series B Preferred Stock or exercise 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 holders 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. |
| (11) | Includes warrants to purchase 1,628,367 shares of Common Stock and options to purchase 305,556 shares of Common Stock. |
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Changes in Control
We are not aware of any or a party to arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change of control.
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are our executive officers, non-executive officers and directors and hold the positions set forth opposite their name. Messrs. Stein and Barrage will commence serving as directors ten days after the filing of this Current Report with the SEC.
| Name |
Age |
Position(s) | ||||
| Garo Armen |
62 | Executive Chairman of the Board of Directors | ||||
| Robert B. Stein |
65 | Director | ||||
| Khalil Barrage |
51 | Director | ||||
| Gregory H. Ekizian |
52 | Director | ||||
| Robert Ziroyan |
42 | Chief Operating Officer, Interim President | ||||
| Alexander Arrow |
44 | Chief Financial Officer | ||||
| Josh Silverman |
45 | Director |
Garo H. Armen, PhD,Chairman of the Board of Directors, 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 directors 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
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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 groups US 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, hes leading integration of the 4-Antibody acquisition, which includes the companys 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.
Gregory H. Ekizian, CFA Director, joined us effective the closing of the Merger in February, 2016. Mr. Ekizian is presently a private investor. From 2012 to 2014 Mr. Ekizian was associated with Victory Capital Management, serving as the Chief Investment Officer and Lead Portfolio Manager for the Victory Dividend Growth Fund, a strategy which was managed for conservative growth and income across mutual fund and separate accounts. Prior to Victory, he was a private investor from 2009 through 2012. From 1997 through 2009 Mr. Ekizian was the co-leader of the Growth team at Goldman Sachs Asset Management where he served as a Chief Investment Officer and Senior Portfolio Manager. Over his tenure at GSAM, the Growth team grew assets from $2.2 billion to a peak of $29 billion across multiple Growth products. Prior to his service with GSAM, Mr. Ekizian was a principal member in the start-up of Liberty Investment Management in 1994, and as a Senior Portfolio Manager, remained with the firm through its acquisition by Goldman Sachs in 1997. Mr. Ekizian started his investment management career in 1990 at Eagle Asset Management as an analyst covering health care, media, staples and consumer discretionary industries. Mr. Ekizian received a Bachelor of Science in Finance from Lehigh University and MBA from the University of Chicago Graduate School of Business and is a CFA Charterholder.
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Joshua Silverman, Director, joined us effective the closing of the Merger in February 2016. He is the Cofounder, and is a Principal and Managing Partner of Iroquois Capital Management, LLC, the Registered Investment Advisor to Iroquois Capital LP and Iroquois Capital (Offshore) Ltd. (collectively, Iroquois). Mr. Silverman has served as CoChief Investment Officer of Iroquois since inception in 2003. From 2000 to 2003, Mr. Silverman served as CoChief Investment Officer of Vertical Ventures, LLC, a merchant bank. 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 on the following companies that were required to file periodic and current reports with the U.S. Securities and Exchange Commission: MGT Capital Investments, Inc. and National Holdings Corporation. Based on Mr. Silvermans overall background and experience as an executive in the financial industry, Board believes that Mr. Silverman has the requisite experience, qualifications, attributes and skill necessary to serve as a member of the Board.
Dr. Robert Ziroyan, PhD Chief Operating Officer and Interim President. Dr. Robert Ziroyan has more than ten years of advanced experience in project/program management administration and business development. Prior to joining us in 2006, he was the Team Leader for Public-Private Partnerships and Project Coordinator for the United Nations Development Programme in Armenia. Previously, he served as the Chief Technical Advisor/Project Coordinator for the United Nations Office for Project Services; in this role, he was responsible for all aspects of the project management administration and operations, including coordination, supervision, monitoring, contracting, resource mobilization, personnel and financial management. Dr. Ziroyan earned a Master of Science Degree in Management from the Cranfield University, United Kingdom, and PhD from the Agricultural Academy of Armenia. He attended a number of executive training courses, including Harvard University, John F. Kennedy School of Government, Massachusetts, and Center for Professional Innovation and Education, Malvern, Pennsylvania.
Alexander K. Arrow, M.D., CFA Acting Chief Financial Officer. Dr. Arrow joined us as our Acting Chief Financial Officer upon the closing of the Merger. Dr. Arrow is and will continue to serve as the Chief Executive officer of Zelegent, Inc., a clinical-stage start-up medical device company preparing to launch the a minimally invasive snoring cessation surgical tool. From January 2015 through the closing of the Merger, 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 BioLx, Inc., a start-up developing an advanced surgical mask capable of protecting its user from more viral particles and other airborne contaminants than conventional masks do, 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
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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, providing research coverage on a wide variety of medical device manufacturers. Dr. Arrow also spent two years 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.
Consultants and Advisors
Dalia Barsyte PhD, Director of Scientific Affairs. Dr. Dalia Barsyte received her PhD in molecular and cellular biology from the University of Manchester, UK. Her postdoctoral training at the University of Manchester and Ontario Cancer Institute, Canada focused on characterizing cellular signaling mechanisms. Dr. Barsyte is an inventor on one of the key Protagenic patents and author of over 50 scientific publications in oncology and neuroscience. Dr. Barsytes scientific interests include exploring chemical biology in therapeutic target validation through peptide or small molecule chemical probe compounds as well as novel in vitro models of disease based on patient derived cell culture.
David A. Lovejoy, PhD,Chief Scientific Advisor, is one of our founders and joined us in September 2004. He holds a PhD in Neuroendocrinology from the University of Victoria (Victoria, BC) and spent three years at the Clayton Foundation Laboratories for Peptide Biology at the Salk Institute (San Diego, CA) as a postdoctoral fellow. Dr. Lovejoy took his first academic appointment at the University of Manchester (Manchester, UK), one of the United Kingdoms top-ranking research universities. He joined the University of Toronto (Toronto, Ontario) in 2000 and is currently Professor of Neuroendocrinology in the Department of Cell and Systems Biology at the University of Toronto. He is the author of more than 210 scientific publications including 3 books in the field and an Associate Editor for a scientific journal and is inventor or co-inventor on all of our intellectual property.
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.
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:
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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.
Board of Directors and Corporate Governance
Our Board of Directors currently is authorized to consist of five members. On the Closing of the Merger, Edward Gildea and Jonathan Schechter, the members of the Board of Directors of Predecessor, appointed four members who were designated as directors by the former stockholders of Protagenic and one director who was designated as a director by the former principal stockholders of Predecessor. Mr. Schecter and Mr. Gildea thereafter resigned. Messrs. Armen, Barrage, Stein, Ekizian and Silverman commenced serving as directors on the Closing Date of the Merger.
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Board Independence and Committees
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.
Additionally, our Board of Directors is expected to appoint an audit committee, governance committee and compensation committee and to adopt charters relative to each such committee.
We believe that Messrs. Barrage and Ekizian are each an independent director as that term is defined by the Nasdaq Stock Market, Inc. Marketplace Rules.
Code of Ethics
We have not adopted a written code of ethics. We intend to adopt a written code of ethics in the future.
Indemnification Agreements
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 Partys 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
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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.
The foregoing description is qualified in its entirety by reference to the form of Indemnification Agreement, which was attached as Exhibit 10.7 to our Registration Statement on Form 10, as filed with the SEC on July 2, 2014.
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SCIENTIFIC AND CLINICAL ADVISORY BOARD
We have enlisted the support of highly qualified and well respected experts and advisors who bring a wealth of academic as well as clinical expertise to us. In addition to David A. Lovejoy, the members of our Scientific and Clinical Advisory Board include:
Sidney H. Kennedy, MD, FRCP (C). Dr. Sidney Kennedy is a Professor of Psychiatry at the University of Toronto and Psychiatrist-in-Chief at University Health Network (comprised of Toronto General, Toronto Western and Princess Margaret hospitals). He completed clinical and research training in psychiatry and psychopharmacology in the United Kingdom and Canada. He was the founding Chair of the Canadian Network for Mood and Anxiety Treatments (CANMAT) and the inaugural chair holder of the Cameron Wilson Chair in Depression Studies at University of Toronto. He has published over 200 peer reviewed papers on related topics and authored several textbooks on Mood Disorders. For his services, we have granted Dr. Kennedy options to purchase (on a post-Reverse Split basis) 30,000 shares of Common Stock at an exercise price of $0.26 per share, which expire on November 1, 2016 and options to purchase 25,000 shares of Common Stock at an exercise price of $1.25 per share, which vest at various dates through March 9, 2017 and which expire on March 1, 2025.
Jean-Michel Aubry, MD. Jean-Michel Aubry, MD, is a clinician and researcher and Private Docent at the University of Geneva Medical School, where he teaches Neurosciences. He is head of the Bipolar Program in the Department of Psychiatry. He did his postdoctoral fellowship at the Salk Institute for Biological studies in San Diego, CA. His main research projects focus on the prediction of depressive relapse and on the mode of action of mood stabilizers. He is also coauthor of a recent book on bipolar disorder. For his services, we have granted Dr. Aubry options to purchase (on a post-Reverse Split basis) 30,000 shares of Common Stock at an exercise price of $0.26 per share, which expire on November 1, 2016 and options to purchase 25,000 shares of Common Stock at an exercise price of $1.25 per share, which vest at various dates through March 9, 2017 and which expire on March 1, 2025.
Executive Compensation
The following table sets forth information regarding each element of compensation that we paid or awarded to our named executive officers and for fiscal year ended December 2014 and 2013.
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Summary Compensation Table
| Name and Principal Position |
Year | Salary | Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Deferred Compensation ($) |
All Other Compensation ($) |
Total Compensation ($) | |||||||||
| Garo Armen Chairman |
2014 | N/A | N/A | N/A | N/A | N/A | N/A | $ N/A | ||||||||||
| 2013 | N/A | N/A | N/A | N/A | N/A | N/A $ |
N/A | N/A $ | ||||||||||
| Robert Ziroyan Chief Operating Officer and interim President |
2014 | $88,791 | 0 | 0 | $36,500 (1) | 0 | 0 | $7,548 (2) | $132,858 | |||||||||
| 2013 | $95,238 | 0 | 0 | 0 | 0 | $7,427 (2) | 102,682 |
| (1) | We use the Black-Scholes option pricing model to value the options granted. Please see the notes to our consolidated financial statements included in the Independent Auditors Reports for the year ended December 31, 2014 and 2013 for assumptions applied. 3/1/14 granted 41,667 options (exercise price of $1/option) which vested on 12/31/14 valued at US $ .73 AT 12/31/14. 12/31/14 granted 8,333 options (exercise price of $1/option) which vested on 3/1/15 using a value of US $ .73 AT 12/31/14. |
| (2) | Represents health benefits, Canada Pension Plan and employment insurance, cell phone and internet reimbursements. |
Employment Arrangements with Officers and Directors
Robert Ziroyan had a written employment agreement that runs through December 31, 2015 with our wholly-owned Canadian subsidiary, Protagenic Therapeutics Canada (2006) Inc. His current salary is $98,100 (Canadian) per year (approximately $77,870 US). Mr. Ziroyan is also eligible to receive an annual bonus, which is targeted at 30% of his base salary but which may be adjusted based on his individual performance and our performance as a whole. Mr. Ziroyan is also entitled to participate in a Medical Insurance plan at a cost of $150 per month. We reimburse Mr. Ziroyan up to $510 Canadian per month to cover office rent. Mr. Ziroyan received an option to purchase, on a post-Reverse Split basis, 250,000 shares of Common Stock. 175,000 of these options are exercisable at $1.00 per share, while 75,000 of these options, which vest in March 2016, are exercisable at $1.25 per share. Dr. Ziroyan is working as our Interim President and Chief Operating Officer and as President and Chief Operating Officer for Protagenic Therapeutics Canada 2006, Inc. He is responsible for: providing the administrative, infrastructure and financial support in implementation of the Companys day-to-day activities; providing operational support and assistance to the Companys consultants and researchers; assisting the Company in achieving the project outputs and milestones as per business plan; monitoring the implementation of the Company budget; assisting in monitoring the implementation of the research and development budget; supporting the Directors in maintaining the relations with investors, venture capitalists and the donor community; supporting the Directors in advocating and promoting the project products through public relations; and providing the means of information technology use.
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If we terminate Mr. Ziroyans employment without cause, or if Mr. Ziroyan terminates his employment for good reason, as both such terms are defined in his employment agreement, he is entitled to a lump sum payment of 12 months base salary plus 150% of the higher of his target bonus or his last actual bonus, accelerated vesting of any unvested stock options, continuation of certain benefits for 12 months following termination, gross up payments for Canadian taxes, interest and penalties, and a lump sum payment of $10,000 for outplacement assistance. In the event of a change of control of us, 50% of any unvested options become exercisable as of the date of change of control. If Mr. Ziroyan is terminated or resigns for good reason as a result of a change of control, the remaining 50% vest. If a change of control occurs and, within 18 months, we terminate Mr. Ziroyans employment without cause or Mr. Ziroyan terminates his employment for good reason, he is entitled to a lump sum payment of 18 months base salary plus 150% of the higher of his target bonus or his last actual bonus, accelerated vesting of any unvested stock options, continuation of certain benefits for 12 months following termination, gross up payments for Canadian taxes, interest and penalties, and a lump sum payment of $10,000 for outplacement assistance.
Following the termination of Mr. Ziroyans employment agreement on December 31, 2015, Mr. Ziroyan continued his services to us as an at will employee, at the same salary as set forth in the employment agreement.
Dr. Alexander Arrow, our Acting 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 (on a post-Reverse Split basis) under the 2006 Plan as a sign-on bonus when he joined us. 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.
Consultancy Agreements
Dalia Barsyte PhD, Director of Scientific Affairs. Our subsidiary, Protagenic Therapeutics Canada (2006) Inc., entered into a consulting agreement with Dr. Dalia Barsyte. Dr. Barsyte is responsible for overseeing i) design and development of ELISA assays for measuring TCAP, ii) evaluation of TCAP exposure biomarker assay, iii) development of pipeline peptides, iv) development of clinically compatible formulations for TCAP, as well as all of the bench research and development of formulation and extraction methods. Her consulting agreement is effective through December 2015. She is compensated at the rate of $1,000 (Canadian) per month. As well, we have granted Dr. Barsyte 10,000 shares of our Common Stock and ten-year options to purchase 150,000 shares of our Common Stock. Options to purchase 100,000 shares of Common Stock, at an exercise price of $1.00 per share, have fully vested; the options to purchase the remaining 50,000 shares of Common Stock, at an exercise price of $1.25 per share, will vest in March 2016, provided she remains a consultant to us.
Brandt J. Mandia. Mr. Mandia has provided financial and business advisory services to Protagenic since January 2015. In October 2015 Protagenic entered into a consulting agreement with Mr. Mandia providing for a continuation of these services through December 31, 2015. As consideration for his past and future services, Mr. Mandia has been granted a warrant to purchase, on a post-Reverse Split basis, 250,000 shares of Common Stock, exercisable for an eight year period ending in October, 2023 at an exercise price of $1.25 per share. The warrant has vested in its entirety.
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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. We have granted Dr. Stein ten-year options to purchase, on a post-Reverse Split basis, 200,000 shares of our Common Stock, at an exercise price of $1.25 per share. The options vest in increments of 1.667% per month on the first day of each calendar month following January, 2015, such that the shares shall be fully vested on January 23, 2020, provided Dr. Stein remains a consultant to us.
Outstanding Equity Awards at Fiscal Year End
The following table summarizes the equity awards, calculated on a post-Reverse Split basis, made to our named executive officers that were outstanding at December 31, 2014.
| Name |
No. of Securities Underlying Unexercised Options (#) Exercisable |
No. of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price |
Option Expiration Date |
Number of shares or Units of stock that have not vested(#) |
Market Value of shares or Units of stock that have not vested($) | ||||||||||||||
| Robert Ziroyan |
25,000 | $ | 0.26 | 8/2016 | ||||||||||||||||
| 100,000 | $ | 1.00 | 3/2021 | |||||||||||||||||
| 50,000 | $ | 1.00 | 3/2024 | |||||||||||||||||
| 75,000 | (1) | $ | 1.25 | 3/2025 |
| (1) | The options were granted in March 2015, and vest in March 2016, provided the executive remains employed with us. |
2006 Employee, Director and Consultant Stock Plan
General
As discussed previously, we have adopted the 2006 Plan. The following discussion gives pro forma effect to the Reverse Split.
The general purpose of the 2006 Plan will be to provide a means whereby eligible employees, officers, non-employee directors and other individual service providers develop a sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to our business, thereby advancing our interests and the interests of our stockholders. By means of the 2006 Plan, we will seek to retain the services of such eligible persons and to provide incentives for such persons to exert maximum efforts for our success and the success of our subsidiaries.
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Description of the 2006 Plan
The following description of the principal 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 a 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.
Eligibility. Persons eligible to receive awards under the 2006 Plan include 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.
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Shares Subject to the 2006 Plan. The aggregate number of shares of Common Stock available for issuance in connection with options and awards granted under the 2006 Plan is 2,000,000 shares, subject to customary adjustments for stock splits, stock dividends or similar transactions. Incentive Stock Options may, but need not be, granted with respect to all of the shares available for issuance under the 2006 Plan. If any award granted under the 2006 Plan payable in shares of Common Stock is forfeited, cancelled, returned for failure to satisfy vesting requirements, is otherwise forfeited, 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 2006 Plan.
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 grantees 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 recipients 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.
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The Administrator will determine the extent to which a holder of a stock option may exercise the option following termination of service with us.
Restricted Stock. The Administrator may award (a Stock Grant) restricted Common Stock under the 2006 Plan. Each offer of a Stock Grant to a Participant shall state the date prior to which the Stock Grant must be accepted by the 2006 Plan participant, and the principal terms of each Stock Grant shall be set forth in a Stock Grant Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the participant. The Stock Grant Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards:
| (a) | Each Stock Grant Agreement shall state the purchase price (per share), if any, of the Shares covered by each Stock Grant, which purchase price shall be determined by the Administrator but shall not be less than the minimum consideration required by the Delaware General Corporation Law on the date of the grant of the Stock Grant; |
| (b) | Each Stock Grant Agreement shall state the number of Shares to which the Stock Grant pertains; and |
| (c) | Each Stock Grant Agreement shall include the terms of any right of the Company to restrict or reacquire the shares subject to the Stock Grant, including the time and events upon which such reacquisition rights shall accrue and the purchase price therefor, if any. |
A Stock Grant may be accepted by executing the Stock Grant Agreement and delivering it to the Company, together with provision for payment of the full purchase price, if any, for the shares of Common Stock as to which such Stock Grant is being accepted. Payment of the purchase price shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months and having a fair market value equal to the purchase price of the Stock Grant, or (c) at the discretion of the Administrator, by delivery of the grantees personal note, for full or partial recourse as determined by the Administrator, bearing interest payable not less than annually at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (d) at the discretion of the Administrator, by any combination of (a), (b) and (c) above.
The Administrator will determine the extent to which the Company may have a right of repurchase of a Stock Grant 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 Companys 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
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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.
With respect to outstanding Stock Grants, the Administrator or the Successor Board, shall either (i) make appropriate provisions for the continuation of such Stock Grants by substituting on an equitable basis for the shares then subject to such Stock Grants 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; or (ii) upon written notice to the participants, provide that all Stock Grants must be accepted (to the extent then subject to acceptance) within a specified number of days of the date of such notice, at the end of which period the offer of the Stock Grants shall terminate; or (iii) terminate all Stock Grants in exchange for a cash payment equal to the excess of the fair market value of the shares of Common Stock subject to such Stock Grants over the purchase price thereof, if any. In addition, in the event of a Corporate Transaction, the Administrator may waive any or all Company repurchase rights with respect to outstanding Stock Grants.
Amendment, Termination. The 2006 Plan may be amended by the stockholders of the Company. The 2006 Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding awards granted under the 2006 Plan or awards to be granted under the 2006 Plan for favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code, and to the extent necessary to qualify the shares issuable upon exercise or acceptance of any outstanding awards granted, or awards to be granted, under the 2006 Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. Any amendment approved by the Administrator which the Administrator determines is of a scope that requires stockholder approval shall be subject to obtaining such stockholder approval. Any modification or amendment of the 2006 Plan shall not, without the consent of a Participant, adversely affect his or her rights under an award previously granted to him or her.
The 2006 Plan will terminate in March, 2016. The 2006 Plan may be terminated at an earlier date by vote of the shareholders or the Board of Directors of the Company; provided, however, that any such earlier termination shall not affect any awards executed prior to the effective date of such termination.
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.
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Option Grants and Stock Awards
We currently have stock options to purchase 1,707,744 shares at an average exercise price of approximately $0.66 per share issued and outstanding under Protagenics 2006 Plan, which we assumed in connection with the Merger.
2014 Director Compensation
No compensation was earned or paid to any non-employee director for service as a director during 2014.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Predecessor Shareholders
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 sale of all of our membership interests of MomSpot LLC to B.E. Global LLC via a split off agreement, a copy of which is attached as Exhibit 10.6 to this Current Report and is incorporated herein by reference.
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 to two of its shareholders, 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 Atrinsics 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 Common 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.
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During 2013 and 2012, Mr. 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 bore 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, Mr. Armen participated in this capital raise on the same terms as all other investors.
From April 15, 2015 through October 29, 2015, Mr. 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 bore interest at the rate of 10% per annum. These loans and accrued interest thereon, 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.
Effective December 23, 2015, Mr. Armen entered into an additional loan agreement with Protagenic pursuant to which he agreed to loan Protagenic up to $150,000. Any loans under this Agreement bear 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. As of the date of this Current Report on Form 8-K, principal in the amount of $37,628 was outstanding under this agreement.
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.
Authorized Capital Stock
As of February 12, 2016, our authorized capital stock consisted of 100,000,000,000 shares of common stock, par value $0.000001 per share, and 5,000,000,000 shares of blank check preferred stock, par value $0.000001 per share, of which 18,000,000 shares have been designated as Series B Preferred Stock.
Issued and Outstanding Capital Stock
After giving effect to the Transactions, our issued and outstanding securities on the closing of the Transactions is as follows:
| | 400,000,000 shares of Common Stock; |
| | 9,685,306 shares of Series B Preferred Stock; |
| | New Options to purchase 1,707,744 shares of Series B Preferred Stock at an average exercise price of approximately $0.66 per share granted under the 2006 Plan; |
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| | Predecessor Options to purchase 17,784 shares of Series B Preferred Stock at an exercise price of $1.25 per share issued to holders of Atrinsic options; |
| | Predecessor Warrants to purchase 295,945 shares of Series B Preferred Stock at an exercise price of $1.25 per share issued to the Designee of two stockholders of Predecessor in exchange for cancellation of Predecessor debt owed to them; |
| | New Warrants to purchase 3,403,367 shares of Series B Preferred Stock at an average exercise price of approximately $1.01 per share per share issued in exchange for warrants held by Protagenic warrant holders; and |
| | Placement Agent Warrants to purchase 28,000 shares of Series B Preferred Stock at an exercise price of $1.25 per share, issued to the Placement Agent in the Private Offering. |
Description of Common Stock
The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of Common Stock that are present in person or represented by proxy. Except as otherwise provided by law, amendments to the Certificate of Incorporation generally must be approved by a majority of the votes entitled to be cast by all outstanding shares of Common Stock. The Amended and Restated Certificate of Incorporation does not provide for cumulative voting in the election of directors. The Common Stock holders will be entitled to such cash dividends as may be declared from time to time by the Board from funds available. Holders of our Common Stock have no preemptive rights to purchase shares of our Common Stock. The issued and outstanding shares of our Common Stock are not subject to any redemption provisions and are not convertible into any other shares of our capital stock. Upon our liquidation, dissolution or winding up, the Common Stock holders will be entitled to receive pro rata all assets available for distribution to such holders.
Description of Preferred Stock
Pursuant to our Amended and Restated Certificate of Incorporation, we are authorized to issue up to 5,000,000,000 shares of blank check preferred stock, which may be issued from time to time in one or more series upon authorization by the companys board of directors. The board of directors, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges and restrictions applicable to each series of preferred stock.
Series B Preferred Stock
The rights of our Series B Preferred Stock are set forth in the Certificate of Designations. Pursuant to the Certificate of Designations, each share of Series B Preferred Stock will immediately and automatically convert into one share of Common Stock at such time that we file an amendment to our certificate of incorporation effecting the Reverse Split of our Common Stock.
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Prior to the Reverse Stock Split, the Series B Preferred Stock votes together with the Common Stock as a single class, with each share of Series B Preferred Stock having a number of votes equal to that of 15,463.7183 shares of Common Stock. After the Reverse Stock Split, any Series B Preferred Stock which remains outstanding as a result of the Springing Blocker will vote together with the Common Stock as a single class, with each share of Series B Preferred Stock having a number of votes equal to one shares of Common Stock on a post-Reverse Stock Split basis.
In the event of any liquidation, dissolution or winding up of our company, the assets available for distribution to our stockholders will be distributed among the holders of our Series B Preferred Stock and the holders of our Common Stock, pro rata, on an as-converted-to-Common Stock basis. The holders of our Series B Preferred Stock are entitled to dividends in the event that we pay cash or other dividends in property to holders of outstanding shares of our Common Stock, which dividends would be made pro rata, on an as-converted-to-Common Stock basis.
Registration Rights
Promptly, but no later than 120 calendar days from the final closing date of the Offering, the Company shall file a registration statement (on Form S-1, or similar form) with the SEC covering the resale of the shares of Common Stock underlying the Series B Preferred Stock sold in the Offering and underlying the Placement Agent (the Registration Statement). The Company shall use its best efforts to ensure that the Registration Statement is declared effective within 90 calendar days after filing with the SEC.
The Company shall keep the Registration Statement evergreen for one (1) year from the date it is declared effective by the SEC or until Rule 144 of the Securities Act is available to the Offering investors with respect to all of their shares, whichever is earlier.
Description of Predecessor Warrants
After the consummation of the Merger and the simultaneous closing of the other Transaction, there were Predecessor Warrants issued to purchase 295,945 shares of Common Stock held by the Designee. Each Predecessor Warrant entitles the holder to purchase one share of Common Stock at a purchase price of $1.25 during the five (5) year period commencing on the Closing Date.
The Predecessor Warrants, at the option of the holder, may be exercised by cash payment of the exercise price to us. The Predecessor Warrants may also be exercised on a cashless basis.
The exercise price and the number of warrant shares purchasable upon the exercise of the Predecessor Warrants are subject to adjustment upon the occurrence of certain events, including stock dividends, stock splits, combinations and reclassifications of our capital stock. Additionally, an adjustment would be made in the case of a reclassification or exchange,
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consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving corporation) or sale of all or substantially all of the assets of the Company in order to enable holders of the Predecessor Warrants to acquire the kind and number of shares of stock or other securities or property receivable in such event by a holder of the number of shares Common Stock that might otherwise have been purchased upon the exercise of the Predecessor Warrants.
The Predecessor Warrants contain a provision limiting the number of shares of Common Stock that may be acquired upon exercise to the extent necessary to insure that, after giving effect to such exercise, the number of shares of Common Stock then beneficially owned by the holder of the Predecessor Warrants and its affiliates and certain other persons does not exceed 9.99% of the total number of shares of Common Stock of the Company issued and outstanding immediately after giving effect to such exercise.
No fractional shares will be issued upon exercise of the Predecessor Warrants. If, upon exercise of the Predecessor Warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, make a cash payment to the Predecessor Warrant holder with respect to such fractional interest.
New Warrants
There are 3,403,367 New Warrants outstanding, all of which were issued in exchange for warrants held by former Protagenic warrant holders at the Closing Date. The New Warrants are exercisable at an average price of approximately $1.01 per share and expire at various dates from January 1, 2017 through December 20, 2023. The other material terms of the New Warrants are substantially similar to those of the Predecessor Warrants. There was no physical exchange of Protagenic warrants for New Warrants; rather, Protagenic warrants automatically converted into New Warrants in connection with the Transactions, and the New Warrants will automatically represent the right to purchase the same number of shares of our Common Stock following the Reverse Split.
Anti-Takeover Effects of Provisions of Delaware State Law
Anti-takeover provisions in our amended and restated certificate of incorporation and Delaware law could make an acquisition more difficult and could prevent attempts by our stockholders to remove or replace current management.
Anti-takeover provisions of Delaware law and in our certificate of incorporation and our bylaws may discourage, delay or prevent a change in control of our company, even if a change in control would be beneficial to our stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. In particular, under our certificate of incorporation our board of directors may issue up to 5,000,000 shares of preferred stock with rights and privileges that might be senior to our common stock, without the consent of the holders of the common stock. Moreover, without any further vote or action on the part of the stockholders, the board of directors would have the authority to determine the price, rights, preferences, privileges, and restrictions of the preferred stock. This
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preferred stock, if it is ever issued, may have preference over, and harm the rights of, the holders of common stock. Although the issuance of this preferred stock would provide us with flexibility in connection with possible acquisitions and other corporate purposes, this issuance may make it more difficult for a third party to acquire a majority of our outstanding voting stock. Similarly, our authorized but unissued common stock is available for future issuance without stockholder approval.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our Common Stock is currently available for trading in the over-the-counter market and is quoted on the OTC Markets PINK under the symbol ATRN. As of the Closing Date, there was a limited bid history for the Common Stock, because the Common Stock trades on a sporadic basis, if at all.
Trades in our Common Stock may be subject to Rule 15g-9 of the Exchange Act, which imposes requirements on broker/dealers who sell securities subject to the rule to persons other than established customers and accredited investors. For transactions covered by the rule, broker/dealers must make a special suitability determination for purchasers of the securities and receive the purchasers written agreement to the transaction before the sale.
The SEC also has rules that regulate broker/dealer practices in connection with transactions in penny stocks. Penny stocks generally are equity securities with a price of less than $5.00 (other than securities listed on certain national exchanges, provided that the current price and volume information with respect to transactions in that security is provided by the applicable exchange or system). The penny stock rules require a broker/dealer, before effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker/dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker/dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customers account. The bid and offer quotations, and the broker/dealer and salesperson compensation information, must be given to the customer orally or in writing before effecting the transaction, and must be given to the customer in writing before or with the customers confirmation. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for shares of our Common Stock. As a result of these rules, investors may find it difficult to sell their shares.
Holders
As of the date of this filing, there are approximately 334 record holders of our Common Stock.
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Dividend Policy
We have never declared or paid dividends. We do not intend to pay cash dividends on our Common Stock for the foreseeable future, but currently intend to retain any future earnings to fund the development and growth of our business. The payment of dividends if any, on our Common Stock will rest solely within the discretion of our board of directors and will depend, among other things, upon our earnings, capital requirements, financial condition, and other relevant factors.
Transfer Agent
American Stock Transfer & Trust Company, LLC is the transfer agent for our Common Stock.
From time to time, the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on our business and financial condition.
RECENT SALES OF UNREGISTERED SECURITIES
Sales by Protagenic
In 2013, 2011, 2010 and 2007, Protagenic sold a total of 2,223,519 shares of its common stock at a price of $1.00 per share. In 2013 and 2011 each share was accompanied by three warrants to purchase Protagenic common stock, exercisable at $1.00 per share.
The transactions described above were exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D thereunder.
Sales by Our Predecessor, Atrinsic, Inc.
Between February 11, 2014 and December 9, 2015, Atrinsic issued Secured Convertible Notes in the aggregate principal amount of $665,000 to two of its shareholders. 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 Atrinsics common stock at an initial conversion price of $5.00 per share (subject to adjustment), at the option of the respective holders. The Secured Convertible Notes were exchanged for 295,945 Predecessor Warrants simultaneously with the closing of the Merger and the instruments by which they were secured were simultaneously terminated.
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Simultaneously with the closing of the Merger, we held the first closing of the Private Offering. At this closing, we sold 2,775,000 shares of Series B Preferred Stock at a purchase price of $1.25 per share, for which we received total gross consideration of $3,468,750. Of this amount, (i) $350,000 consisted of conversion of outstanding stockholder debt held by Garo H. Armen, our chairmen and a member of our board of directors, inclusive of accrued but unpaid interest and (ii) $150,000 consisted of the conversion of Atrinsic debt (inclusive of accrued but unpaid interest) held by certain pre-Merger shareholders of the Predecessor which was incurred to pay expenses of the Transactions incurred by or on behalf of Atrinsic or these shareholders.
The transactions described above were exempt from registration under Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D thereunder.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the General Corporation Law of the State of Delaware, we may indemnify our directors and officers against liabilities they may incur in such capacities, including liabilities under the Securities Act. Our amended and restated certificate of incorporation provides that, pursuant to Delaware law, our directors shall not be liable for monetary damages for breach of the directors fiduciary duty of care to us and our stockholders. This provision does not eliminate the duty of care, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the directors duty of loyalty to us or our stockholders for acts or omissions not in good faith or involving intentional misconduct or knowing violations of the law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a directors responsibilities under any other law, such as the federal securities laws or state or federal environmental laws.
Our bylaws provide for the indemnification of its directors to the fullest extent permitted by the Delaware General Corporation Law.
We have been advised that in the opinion of the SEC, insofar as indemnification for liabilities arising under the Securities Act may be permitted to its directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event a claim for indemnification against such liabilities (other than the our payment of expenses incurred or paid by a director, officer or controlling person in the 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 a court of appropriate jurisdiction the question of whether such indemnification by the us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Reference is made to the disclosure set forth under Item 9.01 of this Current Report, which disclosure is incorporated herein by reference.
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See Item 9.01(c) below, which is incorporated by reference herein.
See Exhibit Index below and the corresponding exhibits, which are incorporated by reference herein.
| Item 3.02. | Unregistered Sales of Equity Securities. |
The disclosure set forth in Item 2.01 to this Current Report is incorporated into this item by reference.
| Item 5.01. | Changes in Control of the Registrant. |
As a result of the Merger, we experienced a change in control, with the former stockholders of Protagenic acquiring control of us. The disclosure set forth in Item 2.01 to this Current Report is incorporated into this item by reference.
| Item 5.02. | Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers. |
The disclosure set forth in Item 2.01 to this Current Report is incorporated into this item by reference.
| Item 5.03. | Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year. |
On February 12, 2016, concurrent with the Merger, we adopted the fiscal year end of our Protagenic subsidiary, thereby changing our fiscal year end from June 30 to December 31. The audited financial statements for the new fiscal year will be reflected in our Form 10-K for the year ending December 31, 2015.
| Item 5.06. | Change in Shell Company Status. |
The disclosure set forth in Item 2.01 to this Current Report is incorporated into this item by reference. As a result of the completion of the Merger, we believe that we are no longer a shell company, as defined in Rule 405 of the Securities Act and Rule 12b-2 of the Exchange Act.
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| Item 9.01. | Financial Statements and Exhibits. |
| (a) | Financial Statements of business acquired |
In accordance with Item 9.01(a), Protagenics unaudited financial statements as of September 30, 2015 and 2014 and audited financial statements for the years ended December 31, 2014 and 2013 are included with this Current Report as Exhibit 99.1 and are incorporated herein by reference.
| (b) | Pro forma financial information |
In accordance with Item 9.01(b), unaudited pro-forma consolidated financial statements are included with this Current Report as Exhibit 99.2 and are incorporated herein by reference.
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| (c) | Exhibits |
| Exhibit |
Description | |
| 2.1 | Agreement and Plan of Merger and Reorganization, dated as of February 12, 2016, by and among Atrinsic, Inc. a Delaware corporation, Protagenic Acquisition Corp., a Delaware corporation and Protagenic Therapeutics, Inc., a Delaware corporation* | |
| 2.2 | Certificate of Merger as filed with the Delaware Secretary of State effective February 12, 2016* | |
| 3.1 | Amended and Restated Certificate of Incorporation of Atrinsic, Inc. (incorporated by reference from Exhibit 3.1(A) to Atrinsic, Inc.s registration statement on Form 10, as filed with the SEC on July 2, 2014 (the Form 10)) | |
| 3.2 | Certificate of Designations, Powers, Preferences and Other Rights of Preferred Stock and Qualifications, Limitations and Restrictions Thereof of Series B Convertible Preferred Stock of Atrinsic, Inc. (incorporated by reference to Exhibit 3.1 to Atrinsic, Inc.s Form 8-K, as filed with the SEC on February 4, 2016) | |
| 3.3 | Certificate of Incorporation, Restated Certificate of Incorporation, Certificate of Amendment of Restated Certificate of Incorporation, Certificate for Renewal and Revival of Charter, Certificate for Renewal and Revival of Charter, and Certificate of Amendment of Restated Certificate of Incorporation, each of Protagenic Therapeutics, Inc., as filed with the Secretary of State of the State of Delaware on September 24, 2004, August 19, 2005, October 26, 2006, March 5, 2007, September 14, 2015 and October 2, 2015, respectively* | |
| 3.4 | Bylaws of Atrinsic, Inc. (incorporated by reference from Exhibit 3.4 to Atrinsic, Inc.s registration statement on Form 10-SB, as filed with the SEC on June 10, 2005) | |
| 3.5 | Bylaws of Protagenic Therapeutics, Inc.* | |
| 4.1 | Form of Warrant of Protagenic Therapeutics, Inc.* | |
| 4.2 | Form of Predecessor Warrant of Atrinsic, Inc.* | |
| 4.3(i) | Warrant of Protagenic Therapeutics, Inc. issued to Garo H. Armen on May 19, 2011.* | |
| 4.3(ii) | Warrant of Protagenic Therapeutics, Inc. issued to Garo H. Armen on February 18, 2013.* |
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| Exhibit |
Description | |
| 4.4(i) | Warrant of Protagenic Therapeutics, Inc. issued to Gregory H. Ekizian on July 7, 2011* | |
| 4.4(ii) | Warrant of Protagenic Therapeutics, Inc. issued to PENSCO Trust Company, FBO Gregory H. Ekizian on February 18, 2013* | |
| 4.5 | Form of Placement Agent Warrant*** | |
| 10.1 | Form of Subscription Agreement, by and between Atrinsic, Inc. and the investors in the Private Offering*** | |
| 10.2 | Placement Agency Agreement*** | |
| 10.3 | Delaware Escrow Agreement, by and between Atrinsic Inc., Depositor and Delaware Trust Company*** | |
| 10.4 | Voting Agreement, effective February 12, 2016, among Atrinsic, Inc., the stockholders of Protagenic Therapeutics, Inc., and Strategic Bio Partners, LLC* | |
| 10.5 | Indemnity Agreement, effective February 12, 2016, among Atrinsic, Inc., Strategic Bio Partners, LLC, and Iroquois Capital Management LLC and Hudson Bay Capital Management LP as guarantors* | |
| 10.6 | Split-Off Agreement, effective February 12, 2016, among Atrinsic, Inc., B.E. Global LLC and MomSpot LLC* | |
| 10.7 | General Release Agreement, effective February 12, 2016, among Atrinsic, Inc., B.E. Global LLC and MomSpot LLC * | |
| 10.8 | Split-Off Agreement, effective February 12, 2016, between Atrinsic, Inc. and Quintel Holdings, Inc.* | |
| 10.9 | General Release Agreement, effective February 12, 2016, between Atrinsic, Inc. and Quintel Holdings, Inc.* | |
| 10.10 | Investor Note Exchange Agreement, effective February 12, 2016, among Atrinsic, Inc. and the investors of Atrinsic, Inc.* | |
| 10.11 | Preferred Stock Exchange Agreement, effective February 12, 2016, among Atrinsic, Inc. and the investors of Atrinsic, Inc.* | |
| 10.12 | Employment Agreement, effective January 1, 2014, between Protagenic Therapeutics Canada (2006) Inc. and Dr. Robert Ziroyan ** |
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| Exhibit |
Description | |
| 10.13 | Consulting Agreement, as amended, between Protagenic Therapeutics Canada (2006) Inc. and Dr. Dalia Barsyte * | |
| 10.14 | Consulting Agreement between Protagenic Therapeutics, Inc. and Brandt J. Mandia* | |
| 10.15 | Consulting Agreement, effective January 23, 2015, between Protagenic Therapeutics, Inc. and Dr. Robert B. Stein** | |
| 10.16 | Protagenic Therapeutics, Inc. 2006 Employee, Director and Consultant Stock Plan** | |
| 10.17 | Form of Nonqualified Stock Option Award Agreement under the 2006 Employee, Director and Consultant Stock Plan ** | |
| 10.18 | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.7 to the Form 10)** | |
| 10.19(i) | Technology License Agreement, effective July 21, 2005, between The University of Toronto Innovations Foundation and Protagenic Therapeutics, Inc.* | |
| 10.19(ii) | First Amendment to Technology License Agreement, effective February 18, 2015, between the Governing Council of the University of Toronto and Protagenic Therapeutics, Inc.* | |
| 10.20(i) | Sponsored Research Agreement, effective April 1, 2014, between the Governing Council of the University of Toronto and Protagenic Therapeutics Canada (2006), Inc., Protagenic Therapeutics, Inc.* | |
| 10.20(ii) | Amendment to the Sponsored Research Agreement, effective April 1, 2015, between the Governing Council of the University of Toronto and Protagenic Therapeutics Canada (2006), Inc., Protagenic Therapeutics, Inc.* | |
| 10.21(i) | Bridge Loan Agreement, effective April 15, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen* | |
| 10.21(ii) | Bridge Loan Agreement, effective May 28, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen* | |
| 10.21(iii) | Bridge Loan Agreement, effective July 1, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen* |
84
| Exhibit |
Description | |
| 10.21(iv) | Bridge Loan Agreement, effective September 1, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen* | |
| 10.21(v) | Bridge Loan Agreement, effective October 29, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen* | |
| 10.21(vi) | Bridge Loan Agreement, effective December 23, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen* | |
| 10.22 | Stock Purchase Agreement, effective December 21, 2015, between Mark Berg and Alexander Arrow* | |
| 21.1 | Subsidiaries of Atrinsic, Inc.* | |
| 99.1 | Audited financial statements of Protagenic Therapeutics, Inc. as of and for the years ended December 31, 2014 and 2013 and unaudited financial statements of Protagenic Therapeutics, Inc. as of September 30, 2015 and for the nine months ended September 30, 2015 and 2014* | |
| 99.2 | Unaudited Pro Forma Condensed Combined Financial Statements for the year ended December 31, 2014 and as of and for the nine months ended September 30, 2015* |
| * | Filed herewith |
| ** | Designates management contracts and compensation plans (and filed herewith, except as expressly stated otherwise) |
| *** | To be filed by Amendment. |
85
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| ATRINSIC, INC. | ||||
| Date: February 12, 2016 | By: | /s/ Garo H. Armen | ||
| Name: Garo H. Armen | ||||
| Title: Chairman |
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
ATRINSIC, INC., a Delaware corporation
PROTAGENIC ACQUISITION CORP., a Delaware corporation
AND
PROTAGENIC THERAPEUTICS, INC., a Delaware corporation
February 12, 2016
TABLE OF CONTENTS
| ARTICLE I: THE MERGER |
2 | |||||
| 1.1 |
The Merger |
2 | ||||
| 1.2 |
Private Placement Offering |
2 | ||||
| 1.3 |
Parent Debt; Preferred Stock; Options |
2 | ||||
| 1.4 |
The Closing |
3 | ||||
| 1.5 |
Actions at the Closing |
3 | ||||
| 1.6 |
Additional Actions |
4 | ||||
| 1.7 |
Conversion of Company Securities |
4 | ||||
| 1.8 |
Dissenting Shares |
5 | ||||
| 1.9 |
Fractional Shares |
5 | ||||
| 1.10 |
Options and Warrants |
6 | ||||
| 1.11 |
Certificate of Incorporation and ByLaws |
7 | ||||
| 1.12 |
No Further Rights |
7 | ||||
| 1.13 |
Closing of Transfer Books |
7 | ||||
| 1.14 |
Exemption From Registration |
7 | ||||
| ARTICLE II: REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
7 | |||||
| 2.1 |
Organization, Qualification and Corporate Power |
8 | ||||
| 2.2 |
Capitalization |
8 | ||||
| 2.3 |
Authorization of Transaction |
9 | ||||
| 2.4 |
Noncontravention |
9 | ||||
| 2.5 |
Subsidiaries |
10 | ||||
| 2.6 |
Financial Statements |
10 | ||||
| 2.7 |
Absence of Certain Changes |
11 | ||||
| 2.8 |
Undisclosed Liabilities |
12 | ||||
| 2.9 |
Tax Matters |
12 | ||||
| 2.10 |
Assets |
14 | ||||
| 2.11 |
Owned Real Property |
14 | ||||
| 2.12 |
Real Property Leases |
14 | ||||
| 2.13 |
Contracts |
15 | ||||
| 2.14 |
Accounts Receivable |
16 | ||||
| 2.15 |
Powers of Attorney |
16 | ||||
| 2.16 |
Insurance |
16 | ||||
| 2.17 |
Litigation |
17 |
i
| 2.18 |
Employees |
17 | ||||
| 2.19 |
Employee Benefits |
17 | ||||
| 2.20 |
Environmental Matters |
19 | ||||
| 2.21 |
Legal Compliance |
20 | ||||
| 2.22 |
Customers and Suppliers |
20 | ||||
| 2.23 |
Permits |
20 | ||||
| 2.24 |
Certain Business Relationships With Affiliates |
21 | ||||
| 2.25 |
Brokers Fees |
21 | ||||
| 2.26 |
Books and Records |
21 | ||||
| 2.27 |
Intellectual Property |
21 | ||||
| 2.28 |
No Disqualification Events |
22 | ||||
| 2.29 |
Merger Agreement Current Report |
22 | ||||
| 2.30 |
Duty to Make Inquiry |
23 | ||||
| ARTICLE III: REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE ACQUISITION SUBSIDIARY |
23 | |||||
| 3.1 |
Organization, Qualification and Corporate Power |
23 | ||||
| 3.2 |
Capitalization |
24 | ||||
| 3.3 |
Authorization of Transaction |
25 | ||||
| 3.4 |
Noncontravention |
25 | ||||
| 3.5 |
Subsidiaries |
26 | ||||
| 3.6 |
Exchange Act Reports |
26 | ||||
| 3.7 |
Compliance with Laws |
27 | ||||
| 3.8 |
Financial Statements; Internal Controls |
28 | ||||
| 3.9 |
Absence of Certain Changes |
29 | ||||
| 3.10 |
Litigation |
30 | ||||
| 3.11 |
Undisclosed Liabilities |
30 | ||||
| 3.12 |
Tax Matters |
30 | ||||
| 3.13 |
Assets |
31 | ||||
| 3.14 |
Owned Real Property |
31 | ||||
| 3.15 |
Real Property Leases |
32 | ||||
| 3.16 |
Contracts |
32 | ||||
| 3.17 |
Accounts Receivable |
33 | ||||
| 3.18 |
Powers of Attorney |
33 | ||||
| 3.19 |
Insurance |
34 | ||||
| 3.20 |
Warranties |
34 |
ii
| 3.21 |
Employees |
34 | ||||
| 3.22 |
Employee Benefits |
34 | ||||
| 3.23 |
Environmental Matters |
36 | ||||
| 3.24 |
Permits |
37 | ||||
| 3.25 |
Certain Business Relationships With Affiliates |
37 | ||||
| 3.26 |
Tax-Free Reorganization |
37 | ||||
| 3.27 |
Split-Off |
38 | ||||
| 3.28 |
Brokers Fees |
38 | ||||
| 3.29 |
Disclosure |
38 | ||||
| 3.30 |
Interested Party Transactions |
38 | ||||
| 3.31 |
Duty to Make Inquiry |
39 | ||||
| 3.32 |
Accountants |
39 | ||||
| 3.33 |
Minute Books |
39 | ||||
| 3.34 |
Board Action |
39 | ||||
| 3.35 |
No Disqualification Events |
39 | ||||
| ARTICLE IV: COVENANTS |
40 | |||||
| 4.1 |
Closing Efforts |
40 | ||||
| 4.2 |
Current Report |
40 | ||||
| 4.3 |
Expenses |
40 | ||||
| 4.4 |
Split-Off |
40 | ||||
| 4.5 |
Stock Option Plan |
40 | ||||
| 4.6 |
Reverse Stock Split |
41 | ||||
| ARTICLE V: CONDITIONS TO CONSUMMATION OF MERGER |
41 | |||||
| 5.1 |
Conditions to Each Partys Obligations |
41 | ||||
| 5.2 |
Conditions to Obligations of the Parent and the Acquisition Subsidiary |
42 | ||||
| 5.3 |
Conditions to Obligations of the Company |
43 | ||||
| ARTICLE VI: INTENTIONALLY OMITTED |
45 | |||||
| ARTICLE VII: MISCELLANEOUS |
45 | |||||
| 7.1 |
Press Releases and Announcements |
45 | ||||
| 7.2 |
No Third Party Beneficiaries |
45 | ||||
| 7.3 |
Entire Agreement |
45 | ||||
| 7.4 |
Succession and Assignment |
46 | ||||
| 7.5 |
Counterparts |
46 | ||||
| 7.6 |
Headings |
46 | ||||
| 7.7 |
Notices |
46 |
iii
| 7.8 |
Governing Law |
47 | ||||
| 7.9 |
Amendments and Waivers |
47 | ||||
| 7.10 |
Severability |
47 | ||||
| 7.11 |
Submission to Jurisdiction |
48 | ||||
| 7.12 |
Construction |
48 | ||||
| EXHIBITS |
||||||
| Exhibit A |
Form of Subsidiaries Split-Off Agreement |
| ||||
| Exhibit B |
Form of MomSpot Spit-Off Agreement |
| ||||
| Exhibit C |
Local Defendant Suit Search conducted by Corporation Service Company on February 5, 2016 |
|
iv
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER (this Agreement), dated as of February 12, 2016, by and among Atrinsic, Inc., a Delaware corporation (the Parent), Protagenic Acquisition Corp., a newly-formed Delaware corporation and a wholly-owned subsidiary of Parent (the Acquisition Subsidiary) and Protagenic Therapeutics, Inc., a Delaware corporation (the Company). The Parent, the Acquisition Subsidiary and the Company are each a Party and referred to collectively herein as the Parties.
WHEREAS, this Agreement contemplates a merger of the Acquisition Subsidiary with and into the Company, with the Company remaining as the surviving entity after the merger (the Merger), whereby the stockholders of the Company will receive Series B preferred stock, par value $0.000001 per share (the Series B Preferred Shares), in exchange for their capital stock of the Company;
WHEREAS, simultaneously with the closing of the Merger, the Parent shall complete a private placement (the PPO) of a minimum (the Minimum Offering) of 2,680,000 Series B Preferred Shares, and a maximum (the Maximum Offering) of 3,200,000 Series B Preferred Shares, at the purchase price of $1.25 per share, resulting in aggregate gross proceeds (the PPO Proceeds) (as further discussed below) of $3,350,000 (assuming the Minimum Offering is sold) or $4,000,000 (assuming the Maximum Offering is sold), of which PPO:
| (i) | 1,600,000 Series B Preferred Shares shall be placed with an entity (the Designee) which is a designee of two of Parents security holders (the Fund Stockholders). The Designee is an accredited investor, as such term is defined by Rule 501 of regulation D under the Securities Act of 1933, as amended (the Securities Act). This transaction shall result in aggregate gross proceeds of $2,000,000, of which up to $150,000 may consist of the conversion of outstanding Parent stockholder debt (inclusive of accrued but unpaid interest) incurred to pay Transaction-related expenses (up to the Expense Cap, as hereinafter defined) incurred by or on behalf of Parent or the Fund Stockholders; |
| (ii) | 1,080,000 Series B Preferred Shares (Minimum Offering) or up to 1,600,000 Series B Preferred Shares (Maximum Offering) shall be placed by or with the assistance of the Companys principal stockholder with certain accredited investors at the purchase price equal to $1.25 per share, resulting in minimum gross proceeds of $1,350,000 or maximum gross proceeds of $2,000,000, of which up to $350,000 may consist of the conversion of outstanding Company stockholder debt (inclusive of accrued but unpaid interest). The Maximum Offering may be increased by up to 1,200,000 Series B Shares, resulting in additional gross proceeds of up to $1,500,000; and |
| (iii) | provided at least the Minimum Offering is closed simultaneously with the closing of the Merger, the Parent may continue to sell Series B Preferred Shares subsequent to such closing, up to the Maximum Offering; |
WHEREAS, contemporaneous with the Merger, the Parent shall split-off those subsidiaries listed in Section 3.5 of the Parent Disclosure Schedule (the Split-Off Subsidiaries) through the sale of its equity ownership of the Split-Off Subsidiaries (the Subsidiaries Split-Off) upon the terms and conditions of a split-off agreement by and among the Parent and Quintel Holdings, Inc. (the Subsidiaries Buyer), substantially in the form of Exhibit A attached hereto (the Subsidiaries Split-Off Agreement);
WHEREAS, immediately following the Merger, the Parent shall split-off its 51% controlling interest (the Membership Interest) in Momspot, LLC, a Delaware limited liability company (MomSpot), through the sale of its Membership Interest in MomSpot (the MomSpot Split-Off) upon the terms and conditions of a split-off agreement by and among the Parent, B.E. Global LLC (the MomSpot Buyer), the Company and MomSpot, substantially in the form of Exhibit B attached hereto (the MomSpot Split-Off Agreement); and
WHEREAS, the Parent, the Acquisition Subsidiary, and the Company desire that the Merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code) and, therefore, the holders of equity securities of the Company will recognize gain only to the extent that property other than the Series B Preferred Shares is received.
NOW, THEREFORE, in consideration of the representations, warranties and covenants herein contained, and for other good and valuable consideration the receipt, adequacy and sufficiency of which are hereby acknowledged, the Parties hereto, intending legally to be bound, agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this Agreement, the Acquisition Subsidiary shall merge with and into the Company at the Effective Time (as defined below). From and after the Effective Time, the separate corporate existence of the Acquisition Subsidiary shall cease and the Company shall continue as the surviving corporation in the Merger (the Surviving Corporation). The Effective Time shall be the time at which the Certificate of Merger (the Certificate of Merger) and other appropriate or required documents prepared and executed in accordance with the relevant provisions of the Delaware General Corporation Law (the GCL) are filed with the Secretary of State of Delaware. The Merger shall have the effects set forth in the applicable provisions of the GCL, including Sections 251, 259, 260 and 261 of the GCL.
1.2 Private Placement Offering. In conjunction with the closing of the Merger, Parent shall complete the PPO. The closing of the Merger and the closing of the PPO will occur simultaneously and each will be a condition of the other.
1.3 Parent Debt; Preferred Stock; Options.
(a) As of the date of this Agreement, the Parent has issued secured debt (the Parent Debt) in the aggregate principal amount of $560,000, all of which is held by the Fund
-2-
Stockholders. In conjunction with, and as a condition to, the closing of the Merger, all principal of, and interest on, the Parent Debt (other than Parent Debt converted in the PPO up to the Expense Cap) shall be forgiven or otherwise extinguished in exchange for the issuance to the Designee of 295,945 5-year purchase warrants for Series B Preferred Shares (the Parent Debt Cancellation Warrants) exercisable at $1.25 per Series B Preferred Share.
(b) The Parent has issued and outstanding 4,600,000,000 shares of Series A Stock, par value $0.000001 per shares (the Series A Preferred), all of which is held by the Fund Stockholders. Prior to the Effective Date, all of such Series A Preferred will be exchanged for 297,468 Series B Preferred Shares, which will be issued to the Designee.
(c) Parent has issued and outstanding 275,000,000 options (the Parent Options) to purchase shares of common stock, par value $0.000001 per share. As soon as practicable after the Effective Time, the Parent or the Surviving Corporation shall take appropriate action to collect the agreements evidencing the Parent Options, which shall be deemed cancelled and shall be replaced by option agreements (the New Options) to purchase an aggregate of 17,784 Series B Preferred Shares at an exercise price of $1.25 per Series B Preferred Share.
1.4 The Closing. The closing of the transactions contemplated by this Agreement (the Closing) shall take place at the offices of Meister Seelig & Fein LLP in New York, New York commencing at 10:00 a.m. local time on the date hereof, or, if all of the conditions to the obligations of the Parties to consummate the transactions contemplated hereby have not been satisfied or waived by such date, on such mutually agreeable later date as soon as practicable (and in any event not later than three (3) business days) after the satisfaction or waiver of all conditions (excluding the delivery of any documents to be delivered at the Closing by any of the Parties) set forth in Article V hereof (the Closing Date).
1.5 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Parent and the Acquisition Subsidiary the various certificates, instruments and documents referred to in Section 5.2;
(b) the Parent and the Acquisition Subsidiary shall deliver to the Company the various certificates, instruments and documents referred to in Section 5.3;
(c) the Surviving Corporation shall file the Certificate of Merger with the Secretary of State of the State of Delaware;
(d) each of the stockholders of record of the Company immediately prior to the Effective Time (collectively, the Company Stockholders) shall, if requested by the Parent, deliver to the Parent the certificate(s) representing his, her or its shares of Company common stock, par value $0.001 per share (the Company Shares);