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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of Earliest Event Reported): February 12, 2016

 

 

ATRINSIC, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   000-51353   06-1390025

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

149 Fifth Avenue, Suite 500, New York, NY                 10010            
(Address of principal executive offices)     (Zip Code)

212-994-8200

(Registrant’s telephone number, including area code)

65 Atlantic Avenue, Boston, Massachusetts 02110

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This current report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to anticipated future events, future results of operations or future financial performance. These forward-looking statements include, but are not limited to, statements relating to our ability to raise sufficient capital to finance our planned operations, market acceptance of our technology and product offerings, our ability to attract and retain key personnel, our ability to protect our intellectual property, and estimates of our cash expenditures for the next 12 to 36 months. In some cases, you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “should,” “intends,” “expects,” “plans,” “goals,” “projects,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue” or the negative of these terms or other comparable terminology.

These forward-looking statements are only predictions, are uncertain and involve substantial known and unknown risks, uncertainties and other factors which may cause our (or our industry’s) actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. The “Risk Factors” section of this current report sets forth detailed risks, uncertainties and cautionary statements regarding our business and these forward-looking statements.

We cannot guarantee future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements, which speak only as of the date that they were made. These cautionary statements should be considered with any written or oral forward-looking statements that we may issue in the future. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to reflect actual results, later events or circumstances or to reflect the occurrence of unanticipated events.

EXPLANATORY NOTE

On February 12, 2016, Protagenic Acquisition Corp. (“ Acquisition Corp. ”), a wholly-owned subsidiary of Atrinsic, Inc., a Delaware corporation (“ Atrinsic ”), merged (the “ Merger ”) with and into Protagenic Therapeutics, Inc. a Delaware corporation (“ Protagenic ”). Protagenic was the surviving corporation of that Merger. As a result of the Merger, Atrinsic acquired the business of Protagenic and will continue the existing business operations of Protagenic as a wholly-owned subsidiary.

As used in this Current Report, the terms the “ Company ”, “we ,” “ us ,” and “ our ” refer to Atrinsic and its wholly-owned subsidiary Protagenic, after giving effect to the Merger, unless otherwise stated or the context clearly indicates otherwise. The term “ Predecessor ” refers to Atrinsic, Inc., before giving effect to the Merger; and the term “ Protagenic ” refers to Protagenic Therapeutics, Inc., before giving effect to the Merger.

This Current Report contains summaries of the material terms of various agreements executed in connection with the transactions described herein. The summaries of these agreements are subject to, and are qualified in their entirety by, reference to these agreements, all of which are incorporated herein by reference.

 

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This current report is being filed in connection with a series of transactions consummated by the Company and certain related events and actions taken by the Company.

This current report responds to the following items on Form 8-K:

 

Item 1.01    Entry into a Material Definitive Agreement
Item 2.01    Completion of Acquisition or Disposition of Assets
Item 3.02    Unregistered Sales of Equity Securities
Item 5.01    Changes in Control of the Registrant
Item 5.02    Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Item 5.03    Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
Item 5.06    Change in Shell Company Status
Item 9.01    Financial Statements and Exhibits

 

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TABLE OF CONTENTS

 

Item 1.01.  

Entry into a Material Definitive Agreement

     5   
Item 2.01.  

Completion of Acquisition or Disposition of Assets

     5   
 

The Merger and Related Transactions

     5   
 

Description of Business

     12   
 

Risk Factors and Special Considerations

     27   
 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     49   
 

Description of Property

     54   
 

Security Ownership of Certain Stockholders and Management

     54   
 

Directors and Executive Officers

     57   
 

Scientific and Clinical Advisory Board

     64   
 

Certain Relationships and Related Transactions

     72   
 

Description of Capital Stock

     73   
 

Market for Common Equity and Related Stockholder Matters

     77   
 

Legal Proceedings

     78   
 

Recent Sales of Unregistered Securities

     78   
 

Indemnification of Officers and Directors

     79   
 

Part F/S

     79   
 

Index To Exhibits

     80   
 

Description of Exhibits

     80   
Item 3.02  

Unregistered Sales of Equity Securities

     80   
Item 5.01  

Changes in Control of the Registrant

     80   
Item 5.02  

Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

     80   
Item 5.03  

Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year

     80   
Item 5.06  

Change in Shell Company Status

     80   
Item 9.01  

Financial Statements and Exhibits

     81   

 

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Item 1.01. Entry into a Material Definitive Agreement

On February 12, 2016, we entered into an Agreement and Plan of Merger and Reorganization, which we refer to in this Current Report as the “ Merger Agreement ”, and completed the Merger. For a description of the Merger and the material agreements entered into in connection with the Merger, please see the disclosures set forth in Item 2.01 to this Current Report, which disclosures are incorporated into this item by reference.

 

Item 2.01. Completion of Acquisition or Disposition of Assets

THE MERGER AND RELATED TRANSACTIONS

The Merger

On February 12, 2016 (which we refer to as the “ Closing Date ”), Predecessor, Protagenic and Acquisition Corp. entered into the Merger Agreement and completed the Merger. Before their entry into the Merger Agreement, no material relationship existed between Predecessor (or its Acquisition Corp. subsidiary) and Protagenic. A copy of the Merger Agreement is attached as Exhibit 2.1 to this Current Report and is incorporated herein by reference.

Pursuant to the Merger Agreement, on the Closing Date, Acquisition Corp., a wholly-owned subsidiary of Predecessor, merged with and into Protagenic, with Protagenic remaining as the surviving entity. Predecessor acquired the business of Protagenic pursuant to the Merger and will continue the existing business operations of Protagenic as a wholly-owned subsidiary.

Simultaneously with the Merger, on the Closing Date all of the issued and outstanding shares of Protagenic common stock converted, on a 1 for 1 basis, into shares of the Company’s Series B Preferred Stock, par value $0.000001 per share (“ Series B Preferred Stock ”) (assuming no exercise of dissenters’ rights by any former Protagenic stockholder). Also on the Closing Date, all of the issued and outstanding options to purchase shares of Protagenic common stock, and all of the issued and outstanding warrants to purchase shares of Protagenic common stock, converted, on a 1 for 1 basis, into options (the “ New Options ”) and new warrants (the “ New Warrants ”) respectively, to purchase shares of our Series B Preferred Stock. The New Options will be administered under Protagenic’s 2006 Employee, Director and Consultant Stock Plan (the “ 2006 Plan ”), which the Company assumed and adopted on the Closing Date in connection with the Merger.

On the Closing Date, (i) the former Protagenic common stock was exchanged for the right to receive 6,612,838 shares of Series B Preferred Stock (assuming no exercise of dissenters’ rights by any former Protagenic stockholder); (ii) New Options to purchase 1,707,744 shares of Series B Preferred granted under the 2006 Plan, having an average exercise price of approximately $0.66 per share, were issued to optionees pursuant to the assumption of the 2006 Plan; (iii) the holders of options to purchase Predecessor common stock were issued options (“ Predecessor Options ”) to purchase 17,784 shares of Series B Preferred Stock at $1.25 per share; (iv) New Warrants to purchase 3,403,367 shares of Series B Preferred Stock at an average exercise price of approximately $1.01 per share were issued to holders of Protagenic warrants; and (iv) 2,775,000 shares of Series B Preferred Stock were issued to investors at a purchase price of $1.25 per share in the Private Offering, as defined below. In addition, warrants (“ Predecessor Warrants ”) to purchase 295,945 shares of Series B Preferred Stock at $1.25 per share were issued to Strategic Bio Partners, LLC, the designee (the “Designee”) of the holders of the Predecessor’s debt in consideration of the cancellation of such debt, and Placement Agent Warrants, as such term is defined below, to purchase 295,945 shares of Series B

 

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Preferred Stock were issued to the Placement Agent of the Private Offering. The common stockholders of Predecessor before the Merger retained 400,000,000 shares of our common stock, par value $0.000001 per share (the “ Common Stock ”) (which would become 25,867 shares of Common Stock upon the effectiveness of the Reverse Split, as defined below). In addition, upon the effectiveness of the Merger, the holders of the Predecessor’s Series A Preferred Stock exchanged all of the issued and outstanding Series A Preferred Stock for an aggregate of 297,468 shares of Series B Preferred Stock (which would become 297,468 shares of Common Stock upon the effectiveness of the Reverse Split). These shares were issued to the Designee.

The Merger Agreement contains customary representations, warranties and covenants of Predecessor, Protagenic, and, as applicable, Acquisition Corp., for like transactions.

The rights attendant to our Series B Preferred Stock are set forth in a certificate of designations, preferences and rights as filed with the Secretary of State of the State of Delaware (the “ Certificate of Designations ”). Pursuant to the Certificate of Designations, each share of Series B Preferred Stock will immediately and automatically, except as set out below, convert into one share of Common Stock at such time that we file an amendment to our certificate of incorporation effecting a one-for-15,463.7183 reverse stock split (the “ Reverse Split ”) of our Common Stock so that we have a sufficient number of authorized and unissued shares of our Common Stock to permit the conversion of all outstanding shares of our Series B Preferred Stock into our Common Stock. Under the Certificate of Designations, Series B Preferred Stock will not convert (i) to the extent (but only to the extent) a Series B Preferred Stock holder would beneficially own greater than 9.99% of our common stock (the “ Springing Blocker ”) and (ii) such holder has notified the Company in writing that it wants the Springing Blocker to apply to such holder. Accordingly, after giving effect to the Merger and the Reverse Split and assuming that all shares reserved for dissenting shares are eventually issued, the former stockholders of Protagenic will own approximately 6,612,838 shares of our Common Stock on an as-converted basis, investors in the Private Offering will own approximately 2,775,000 shares of Common Stock and the Predecessor’s stockholders (including those who formerly held Series A Preferred Stock but excluding any securities purchased by such persons in the Private Offering) will own approximately 323,335 shares of Common Stock.

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. As such, immediately following the Closing, Protagenic’s former stockholders (including the investors in the Private Offering, as such term is defined below) and our existing stockholders (including the investors in the Private Offering, as such term is defined below) held approximately 80% and 20%, respectively, of the total combined voting power of all classes of our stock entitled to vote.

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.

 

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The Certificate of Designations is listed as Exhibit 3.2 to this Current Report and is incorporated herein by reference.

The Merger will be treated as a recapitalization of the Company for financial accounting purposes. The historical financial statements of Predecessor before the Merger will be replaced with the historical financial statements of Protagenic before the Merger in all future filings with the Securities and Exchange Commission (the “ SEC ”).

Following the Closing Date, our board of directors consists of five members. Four of these directors were designated by the former stockholders of Protagenic, and one of these directors was to be designated by the Designee. In keeping with the foregoing, on the Closing Date, Edward Gildea and Jonathan Schechter, the directors of Predecessor before the Merger, appointed five new directors to fill vacancies on the board of directors. Mr. Schecter and Mr. Gildea thereafter resigned effective the Closing Date. The appointment of Garo H. Armen, Khalil Barrage, Robert B. Stein, Gregory H. Ekizian and Josh Silverman as directors was effective immediately. Also on the Closing Date, Mr. Gildea and David Horin, the officers of Predecessor, resigned and new executive officers designated by Protagenic were appointed. Our officers and directors as of the Closing Date are further identified in this Current Report under the heading “Directors and Executive Officers.”

In connection with the Merger, we assumed and adopted the 2006 Plan, and as described above option holders under that plan will be granted New Options to purchase Series B Preferred Stock. Following the effectiveness of the Reverse Split, all outstanding options will automatically and immediately convert into options to purchase Common Stock on a post-Reverse Split basis, and any options granted thereafter will be to purchase shares of Common Stock.

The parties have taken all actions necessary to ensure that the Merger is treated as a tax free exchange under Section 368(a) of the Internal Revenue Code of 1986, as amended.

The issuance of shares of Series B Preferred Stock to holders of Protagenic’s capital stock in connection with the Merger was not registered under the Securities Act of 1933, as amended (the “ Securities Act ”), in reliance upon the exemption from registration provided by Section 4(a)(2) of the Securities Act and Regulation D promulgated by the SEC under that section, which exempts transactions by an issuer not involving any public offering. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirement.

The Private Offering

Concurrently with the closing of the Merger, we conducted the first closing of an offering (the “ Private Offering ”) of 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

 

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amount, $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 $150,000 consisted of the conversion of Predecessor debt (inclusive of accrued but unpaid interest) held by shareholders of the Predecessor which was incurred to pay expenses of the Transactions, as defined below, incurred by or on behalf of the Predecessor.

Investors in the Private Offering received “full ratchet” anti-dilution protections, containing provisions customary for transactions similar to the Private Offering, for a period of two years from the initial closing of the Private Offering.

We paid the Placement Agent (the name of which will be disclosed on a subsequent Current Report on Form 8-K) for the Private Offering a commission of 10% of the funds raised in the Private Offering form investors introduced by the Placement Agent. In addition, the Placement Agent received $15,000 to reimburse it for its expenses in the Private Offering as well as warrants (the “ Placement Agent Warrants ”) to purchase a number of shares of Series B Preferred Stock equal to 10% of the shares of Series B Preferred Stock sold to investors in the Private Offering who were introduced by the Placement Agent. The Placement Agent Warrants, which contain a “cashless exercise” provision, are exercisable for a period of five years from the initial closing of the Private Offering at a price of $1.25 per share. As a result of the foregoing arrangement, at the initial closing of the Private Offering, the Placement Agent (including its sub agents) was paid commissions and expenses of $50,000 and was issued Placement Agent Warrants to purchase 28,000 shares of Series B Preferred Stock.

Following the final closing of the Private Offering, we have agreed to register with the Securities and Exchange Commission for resale the shares of Common Stock underlying the Series B Preferred Stock (i) sold in the Private Offering or (ii) underlying the Placement Agent Warrants.

Debt Exchange

Simultaneous with the Merger and the Private Offering, holders of $665,000 of our debt exchanged such debt for five-year warrants (the “ Predecessor Warrants ”) to purchase 295,945 shares of Series B Preferred Stock at $1.25 per share.

The form of the Predecessor Warrant issued in the Transactions, as defined below, is attached as Exhibit 4.2 to this Current Report and is incorporated herein by reference.

Exemptions from Registration

The issuance of (i) shares of Series B Preferred Stock in the Private Offering, (ii) the Predecessor Warrants, New Warrants and Placement Agent Warrants (including the shares of Series B Preferred Stock underlying such warrants) in the Transactions and (iii) New Options and Predecessor Option (including the shares of Series B Preferred Stock underlying such Options) was exempt from registration under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D as promulgated by the SEC. In the Offering and the Transactions, no general solicitation was made by us or Protagenic or any person acting on our or Protagenic’s behalf. The shares of Series B Preferred Stock, Predecessor Warrants, New Warrants, Placement Agent Warrants, Predecessor Options and New Options were issued pursuant to transfer restrictions, and the certificates for such securities contain appropriate legends stating that such securities are not registered under the Securities Act and may not be offered or sold absent registration or an exemption from registration.

 

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The Merger, the Private Offering and the related transactions are collectively referred to in this Current Report as the “ Transactions .”

The Reverse Split

We intend to effectuate a 1-for-15,463.7183 Reverse Split which, except as set out below, will trigger the automatic conversion of our Series B Preferred Stock into our Common Stock. As a result of the Reverse Split, each share of our Series B Preferred Stock will convert into approximately one share of our Common Stock. Upon the effectiveness of the Reverse Split, the 9,685,306 outstanding shares of our Series B Preferred Stock (which is currently held by the former Protagenic stockholders, the investors in the Private Offering and the Designee) will immediately and automatically convert into 9,685,306 shares of our common stock (accounting for the Reverse Split ratio). Under the terms of the Series B Preferred Stock, Series Preferred B Stock will not convert into our Common Stock (i) to the extent (but only to the extent) such conversion for a Series B Preferred Stock holder would violate the Springing Blocker and (ii) such holder has notified the Company in writing that it wants the Springing Blocker to apply to such holder. Any Series B Preferred Stock not converted as a result of this provision would automatically convert into Common Stock as soon as such conversion would not violate the Springing Blocker. Our Series B Preferred Stock will cease to be designated as a separate series of our preferred stock when all of such shares have converted into shares of our Common Stock. Our existing common stockholders will, following the Reverse Split, own approximately 25,867 shares of our Common Stock.

In connection with the Reverse Split, our board of directors may, in its discretion, provide special treatment to certain of our stockholders to preserve round lot holders (i.e., holders owning at least 100 shares prior to the Reverse Split) after the Reverse Split. Our board of directors may elect, in its discretion, to provide such special treatment to the record holders of our common stock only on a per certificate basis or more generally to the beneficial holders of our Common Stock. For example, if our board determines to provide such special treatment to record holders only, the record holders of our Common Stock holding a certificate representing 1,546,371 or fewer shares of Common Stock but at least 100 shares of Common Stock would receive 100 shares of Common Stock after the Reverse Split with respect to each such certificate, and record holders holding a certificate representing less than 100 shares of our Common Stock would not be affected and would continue to hold a certificate representing the same number of shares as such stockholders held before the Reverse Split. In the alternative, if our board determines to provide such special treatment to beneficial holders generally, the beneficial holders of our common stock beneficially holding 1,546,371 or fewer shares of our common stock but at least 100 shares of our common stock would receive 100 shares of our common stock after the Reverse Split, and persons beneficially holding less than 100 shares of our common stock would not be affected by the Reverse Split and would continue to hold the same number of shares as such stockholders held before the Reverse Split. The terms and conditions of special treatment afforded to our stockholders to preserve round lot stockholders, if any, including the record dates for determining which stockholders may be eligible for such special treatment, will be established in the discretion of our board of directors.

 

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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.

Split-Off Agreements

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 the Company’s membership interests in MomSpot LLC to B.E. Global LLC, an entity that prior to the sale owned a 49% membership interest in MomSpot 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.

Immediately after the closing of the Merger, we split off all of our equity interest in 29 wholly-owned subsidiaries. The split-off was accomplished through the sale of all equity interests in these wholly-owned subsidiaries to Quintel Holdings, Inc. via a split off agreement, a copy of which is attached as Exhibit 10.8 to this Current Report and is incorporated herein by reference.

Current Ownership

Immediately 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;

 

    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;

 

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    Predecessor Warrants to purchase 295,945 shares of Series B Preferred Stock at an exercise price of $1.25 per share issued to 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.

Accounting Treatment; Change of Control

The Merger is being accounted for as a “reverse merger,” and Protagenic is deemed to be the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Merger will be those of Protagenic, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of Protagenic, historical operations of Protagenic and operations of Protagenic from the Closing Date of the Merger. Except as described in the previous paragraphs, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our board of directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company. Further, as a result of the issuance of the shares of Series B Preferred Stock pursuant to the Merger, a change in control of the Company occurred as of the date of consummation of the Merger.

 

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DESCRIPTION OF BUSINESS

Immediately following the Merger, the business of Protagenic became our business.

Overview

We are a privately held Delaware corporation specializing in the discovery and development of therapeutics to treat central nervous system (CNS) disorders. Our mission is to provide safe and effective treatments for mood, anxiety, depression and neurodegenerative disorders by using novel peptide-base, brain active therapeutics. Our strategy is to develop, test and obtain regulatory approval for various applications of these brain active therapeutics.

Our current business model is designed around the further development of these applications, and to obtain the required regulatory approvals to allow for the commercialization of our neuropeptide-based applications and products (see “Governmental Regulation” below). If approval is obtained, we expect to begin our sales efforts and anticipate generating revenue through both licensing and direct sales of our products. We believe that we can establish and subsequently strengthen our market position in the following ways: (i) working to obtain FDA approval of current and future neuropeptide applications; (ii) investigating foreign markets for the use of our current and future products; (iii) securing relationships with strong partners in our field; (iv) entering into license agreements, strategic partnerships and joint ventures for our various applications; and, (v) continuing our current research into improving our processes, reducing costs and developing new and innovative applications.

We intend to advance PT00114 through Investigational New Drug (IND)-enabling studies, and enter PT00114 into clinical proof-of-concept studies in Treatment-Resistant Depression (TRD) and/or Post-Traumatic Stress Disorder (PTSD) (anticipated clinical start: 2017-2018).

Mood and Anxiety Disorders

An estimated 340 million people worldwide and 40-60 million people in the United States alone suffer from mental disorders including Major Depressive Disorder (MDD), Bipolar Disorder and various Anxiety Disorders. The global sales of anxiolytic and antidepressant drugs were US $69 billion in 2013 and are projected to grow to nearly $77.1 billion by 2018 (BCC Research). Yet, up to one-half of mood disorder patients are unresponsive to current treatments and about two thirds experience side effects . Efficacy of therapy is challenged by non-compliance during the weeks to months required to achieve therapeutic benefit in combination with daily dosing requirements. Major targets in this space include TRD and PTSD, both indications which are highly resistant to available therapies.

TRD is the type of MDD that does not respond to standard courses of antidepressant medication. Stress plays a significant role in this illness that affects as many as half of people diagnosed with depression. Patients suffering with TRD are at greater risk of hospitalization for their psychiatric illness and are more likely to abuse drugs and alcohol. These patients have a lower long-term quality of life and are at increased risk of attempting suicide. As a last resort, this disease is currently managed by invasive treatment, primarily electroconvulsive therapy (ECT). However, the ECT treatment’s side effects and high cost prevent millions of people from taking advantage of it.

 

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PTSD affects an estimated 7.7 million adults (3.5%) in the US, with a disproportionately high prevalence in war veterans. Therapeutic approaches include cognitive therapy in combination with antidepressants, such as selective serotonin reuptake inhibitors (SSRIs). In addition to the vulnerabilities noted above for antidepressant-related treatments, PTSD patients often present with co-morbidities such as addictions or dependencies, which make therapeutic case management difficult.

Protagenic Research

PT00114 is the first known example of a new class of brain-targeted therapies based on a newly-described and highly conserved family of neuropeptides that regulate stress-induced mood and addictive behaviors. PT00114 is believed to act via a novel mechanism of action and is therefore expected to provide an extremely attractive therapeutic and commercial profile, especially for those patients who are not fully responsive to or compliant with current interventions. Based on preclinical data, we believe that PT00114 is well differentiated from other drug candidates on the basis of having: Dual activity on stress- and addiction-related pathways (as present in TRD and PTSD); Blood-brain barrier permeability; Rapid onset of action and long duration of therapeutic effects; Restoration of normalcy in stress, anxiety and addiction disorders; No adverse effects with little to no accumulation; Good safety and tolerability profiles; Convenient dosing route and schedule; High potency/low dose; and, Ease of chemical synthesis.

We believe that optimal cellular energy metabolism is fundamental to the biology of the brain, and clinical manifestation of aberrant energy metabolism often manifests in debilitating neurological disorders. PT00114’s ability in preclinical models to enhance glucose mobilization and utilization in the brain, maintain energy homeostasis, inhibit stress-related pathways and protect cells from oxidative damage suggests potential therapeutic benefits in a range of indications involving both acute and chronic neurological injury. Potential applications include traumatic brain injury, stroke recovery, and neurodegenerative diseases such as Alzheimer’s disease, Parkinson’s disease and ALS, among others.

Technology

PT00114 is a synthetic form of the natural peptide sequence TCAP-1.

TCAP-1 was discovered in a genome-wide search for proteins related to corticotropin releasing factor (CRF), a key brain peptide hormone in stress response. While TCAP-1 counteracts stress, it does so by a non-CRF receptor pathway and unlike direct CRF antagonists it does not exhibit negative effects in animal models studied to date.

PT00114 inhibits stress and stress (CRF)-induced actions in clinically-relevant gold-standard animal models of anxiety, depression and addiction at concentrations several magnitudes below current front-line therapeutics. These beneficial effects are maintained for as long as three weeks after treatment. PT00114 promotes neuronal process development, spine density, axon fasciculation and branching in neurons.

 

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PT00114 crosses the blood brain barrier and concentrates in regions of the brain associated with the regulation of mood disorders. Preliminary toxicity assessment (non-GLP) indicates no clear or significant adverse effects, although further toxicity testing is required.

PT00114 is highly soluble and shows excellent stability in several storage conditions. The initial dosage form is intended as a subcutaneous injection but is also amenable to other routes of administration.

Business plan / Proposed next steps

Pursue Strategic Partnership

 

    Secure a collaboration with a pharma/biopharma company with a presence in neurological and psychiatric diseases and/or addiction

Q1 2016-Q4 2018

Strategic Marketing & Clinical/Regulatory Planning

 

    Seek validation of target product profile(s) and clinical trial design(s)

Q1-Q3 2018

Process Development and Manufacturing

 

    Pursue cGMP synthesis of PT00114

Q1 2016-Q2 2017

Preclinical Safety & Toxicology

 

    Conduct preclinical studies for IND readiness

Q2016 - Q4 2017

Compile and File IND

Q2 Q3 2018

Initiate Phase 1 Clinical Studies

Q3 2018 – Q4 2019

Technology License Agreement

On July 21, 2005, we entered into a Technology License Agreement (as thereafter amended on February 18, 2015, the “ License Agreement ”) with the Governing Council of the University of Toronto (“ UT ”) pursuant to which UT agreed to license to us patent rights and other intellectual property, including improvements and modifications, related to PT00114, among other things (the “ Technologie s”). The License Agreement was amended on February 18, 2015.

Pursuant to the License Agreement, we obtained an exclusive worldwide license to make, have made, use, sell and import products based upon the Technologies, or to sublicense the Technologies in accordance with the terms of the License Agreement. In consideration, we agreed to pay to UT a royalty payment of 2.5% of net sales of any product based on the

 

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Technologies. If we elect to sublicense any rights under the License Agreement, we agreed to pay to UT ten percent (10%) of any up-front sub-license fees for any sublicenses that occur on or after September 9, 2006, and, on behalf of the sub-licensee, 2.5% of net sales by the sub-licensee of all products based on the Technologies. In the event we fail to provide UT with semi-annual reports on our progress or fail to continue to make reasonable commercial efforts towards obtaining regulatory approval for products based on the Technologies, UT may convert our exclusive license into a non-exclusive one. Interest on any amounts owed under the License Agreement is 3% per annum. All intellectual property rights resulting from the Technologies or improvements thereon will remain the property of the owners, and/or David A. Lovejoy, and/or the UT, as the case may be. We have the ability under the License Agreement to file, prosecute and maintain patents based on the Technologies and have agreed to pay all out-of-pocket filing, prosecution and maintenance expenses in connection with any patents relating to the Technologies. In the case of infringement upon any patents relating to the Technologies, we may elect, at our own expense, to bring a cause of action asserting such infringement. In such a case, after deducting any legal expenses we may incur, any settlement proceeds will be subject to the 2.5% royalty payment owed to UT under the License Agreement. The License Agreement will terminate, unless terminated earlier for cause, a breach of a material covenant or other reasons detailed in the License Agreement, upon the expiration or invalidity of the last issued patents based on the Technologies.

To further develop the Technologies and use of their applications, and in connection with the License Agreement, we, together with our subsidiary Protagenic Therapeutics Canada (2006), Inc., have entered into a series of successive Sponsored Research Agreements (the “ Sponsored Research Agreements ”) with UT. The Sponsored Research Agreements provide that we are entitled to receive an exclusive or non-exclusive license (at our preference) to the intellectual property arising out of the research project. The first Sponsored Research Agreement was dated December 4, 2004, and like the subsequent Sponsored Research Agreements, it had a yearly term and obligated us to pay a certain amount to fund research and development activities by Professor David A. Lovejoy and UT relating to the Technologies. After the end of each yearly term, the parties entered into successive Sponsored Research Agreements. The research plan and budget has varied from year to year per certain of the Sponsored Research Agreements.

We entered into a Sponsored Research Agreement with UT on April 1, 2014. We subsequently entered into an agreement made effective April 1, 2015 to extend that agreement to March 31, 2016.

Sales and Marketing

We currently have no sales, marketing or distribution capabilities. In order to commercially market PT00114 and any product candidates we develop in the future, we would either need to develop an internal sales team and marketing department or collaborate with third parties who have sales and marketing capabilities.

 

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Manufacturing

We currently do not own any manufacturing facilities, nor have we entered into any agreements with contract manufacturer for the production of PT00114. Currently we synthesize all the PT00114 we use in our development activities.

Competition

The pharmaceutical and biotechnology industries are highly competitive and characterized by rapidly evolving technology and intense research and development efforts. We expect to compete with companies, including major international pharmaceutical companies, and other institutions that have substantially greater financial, research and development, marketing and sales capabilities and have substantially greater experience in undertaking preclinical and clinical testing of products, obtaining regulatory approvals and marketing and selling biopharmaceutical products. We will face competition based on, among other things, product efficacy and safety, the timing and scope of regulatory approvals, product ease of use and price.

In particular, the market for antidepressant drugs is highly competitive as it is the largest growing segment of the central nervous system (CNS) pharmaceutical sector. In 2006 global sales of antidepressants peaked at US$22 billion capitalizing on the serendipitous discoveries of serotonin selective reuptake inhibitors (SSRI), serotonin/norepinephrine reuptake inhibitors (SNRI) and older mononamine oxidase inhibitor technologies. However, 38% of major depressive disorder (MDD) patients that do not respond to the current antidepressant medications constitute a separate group of treatment resistant depression (TRD). Despite a large patient population and current treatments that leave much room for improvement, the developmental pipelines are sparse and few novel candidates are in development. The serendipitous discoveries of current drug classes, side effects and lack of efficacy have led to shrinkage or extinction of many pharma or small biotech neuroscience research programs. It is in this TRD market that we intend to launch PT00114.

Set forth below is a discussion of competitive factors for each of the current drug classes commercially available for TRD, and the competitive advantages that we believe PT00114 may offer.

Opioid receptor modulators

Opioid receptor modulators have the potential to be non-addictive therapeutic drugs for TRD. Competitors include ALKS 5461 (from Alkermes) is a fixed combination of buprenorphine and samidorphan being developed as a therapy for TRD. Buprenorphine is a mu opioid receptor partial agonist as well as an antagonist of the kappa-opioid receptor (KOR), while samidorphan is an antagonist of mu opioid receptors that essentially works to block the buprenorphine from binding to the mu-receptor. The combination of these mechanisms may result in attenuation of the mu agonist effects of buprenorphine, potentially making this a non-addictive therapy. ALKS 5461 is in phase 3 as a once-daily therapy administered as a sublingual tablet. It is well tolerated and treatment effects were evident after one week of dosing. We believe that our competitive advantage is that PT00114 targets different receptor system therefore it is not likely to have a clinical overlap with opioid receptor modulators.

 

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Antipsychotics with antidepressant effects (dopamine receptor modulators )

Brexpiprazole (from Otsuka) is a dopamine (D2 receptor) partial stimulator (agonist) approved as an oral adjunctive TRD therapy. Its side effects include suicidal risk, weight gain and restlessness. Cariprazine (from Gedeon Richter) is an oral dopamine D2 and D3 receptor antagonist approved for schizophrenia and bipolar disorder in development for TRD. The most common side effects reported were extrapyramidal symptoms, the urge to move (akathisia), indigestion (dyspepsia), vomiting, drowsiness (somnolence) and restlessness. We believe that our competitive advantage is that PT00114, due to its low toxicity profile, will be clinically preferable to these antipsychotic drugs.

Ketamine-like TRD drugs

Drugs that act in a mechanism similar to Ketamine, such as Esketamine nasal spray (from Johnson and Johnson) is the S(+) enantiomer of the drug ketamine acts primarily as a non-competitive NMDA receptor antagonist, but is also a dopamine reuptake inhibitor. As of July 2014, it is in phase II clinical trials for treatment-resistant depression (TRD). This class of candidates is generating a lot of excitement but uncertainty due to their use history will be a compounding factor. We believe that our competitive advantage is that the toxicity profile is likely to be less favorable when compared with PT00114.

NMDA receptor modulators

The N-methyl-D-aspartate (or “NMDA”) receptor is a molecule that appears on the surface of neurons. When “activated” by a drug that binds with it, the NMDA receptor is a potential natural way to counteract TRD. A drug called GLYX 13, an amidated tetrapeptide (with the amino acid sequence Thr-Pro-Pro-Thr-NH2) is a glycine-site functional partial agonist of the NMDA receptor discovered at Northwestern University, now being developed by Naurex/Allergan, in Phase 3 U.S. clinical trials. It will be administered by intravenous injection and has a rapid onset. Phase 2 results have shown that GLYX 13 treatment reduces depression scores in patients with TRD, with no psychotomimetic side effects common to other NMDA receptor modulators. The major peptide candidate in this group GLYX13 shows a better tolerance profile and even IV dosing once weekly is not a deterrent enough in the clinic so PT00114 peptide with possible subcutaneous delivery would be a much more preferable clinical option. The development of the tetrapeptide and entry into the trials demonstrated room and willingness to accept peptide based therapies in TRD. More candidates are expected to come from this therapeutic class that may present a competitive challenge for PT00114.

Another of Naurex’s small molecule candidates, NRX-1074, is an orally active therapy based on GLYX13, in preclinical stages. L-4-Chlorokynurenine, AV-101 (from VistaGen Therapeutics) is a fast acting, orally active small molecule glycine binding site NMDA receptor antagonist. A NIH-funded phase 2 trial in major depressive disorder has been initiated in the US. CERC-301 (Cerecor) is an orally-active, selective NMDA receptor subunit 2B (NR2B) antagonist which is in phase 2 an adjunctive therapy for TRD. We believe PT00114 will be able to compete against each of these drugs based on its core advantages.

 

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In general the competitive advantages of TCAP (PT00114) are:

 

  1. PT00114, once in a patient, had a rapid onset of action (efficacy in animal anxiety and depression models) compared with other TRD drugs which may take longer to take effect.

 

  2. PT00114’s effects are long lasting and potent (single 1-10 nmole/kg dose lasts up to one week for glucose/insulin blood-based biomarkers)

 

  3. PT00114 is rapidly cleared from the patient’s bloodstream (its “half life” is 5-10min if given intravenously (IV), 20-30 minutes if given subcutanesouly (SC)

 

  4. PT00114 naturally crosses the blood brain barrier, while certain other TRD drugs do not naturally do that and therefore must be given at higher doses so that any of them make it into the patient’s brain.

 

  5. PT00114 is an L-isomer, a naturally modified peptide (by way of pyroGlu, amidation) therefore liver toxicity is not anticipated – resulting in a potentially superior toxicity profile

 

  6. PT00114 is soluble, it can be easily formulated with clinical excipients, and it is stable when lyophilized, making it easy to package into a drug pill form.

 

  7. PT00114 will be manufactured by standard solid phase chemistry, which is less expensive than manufacturing processes required by other TRD drugs.

 

  8. It counteracts the stress effects associated with corticotropin releasing factor (CRF), a mechanism of action not yet known among today’s commercially-available TRD drugs.

 

  9. It increases glucose import into brain cells, thus it is potentially effective against diabetes associated depression and anxiety disorders

 

  10. It increases energy metabolism likely by mitochondrial activation in brain cells

Although we believe PT00114’s advantages will allow it to compete effectively against other antidepressant drugs in the TRD market, many of our competitors and potential competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to our programs or advantageous to our business.

Intellectual Property

We believe that patents, trademarks, copyrights and other proprietary rights are important to our business. We also rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We seek to protect our intellectual property rights by a variety of means, including obtaining patents, maintaining trade secrets and proprietary know-how, and technological innovation to operate without infringing on the proprietary rights of others and to prevent others from infringing on our proprietary rights. Our policy is to seek to protect our proprietary position by, among other methods, actively seeking patent protection in the United States and foreign countries.

 

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As of October, 2015, we have four patents issued by the Governments of the United States, Canada, European Union and Australia and two patent applications pending worldwide including US. The patent applications were made in the name of Dr. David A. Lovejoy and inventors, but the Company’s exclusive, worldwide rights to such patent applications are included in the License Agreement with UT.

Our success will depend in part on our ability to maintain our proprietary position through effective patent claims and their enforcement against our competitors. Although we believe our patent applications provide a competitive advantage, the patent positions of companies like ours are generally uncertain and involve complex legal and factual questions. We do not know whether any of our patent applications will result in the issuance of any patents. Those patents that may be issued in the future or those acquired by us may be challenged, invalidated or circumvented, and the rights granted under any issued patent may not provide us with proprietary protection or competitive advantages against competitors with similar technology. In particular, we do not know if competitors will be able to design variations on our treatment methods to circumvent our current and anticipated patent claims. Furthermore, competitors may independently develop similar technologies or duplicate any technology developed by us. Because of the extensive time required for the development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized or marketed, any related patent claim may expire or remain in force for only a short period following commercialization, thereby reducing the advantage of the patent.

We also rely upon trade secrets, confidentiality agreements, proprietary know-how and continuing technological innovation to remain competitive, especially where we do not believe patent protection is appropriate or obtainable. We continue to seek ways to protect our proprietary technology and trade secrets, including entering into confidentiality or license agreements with our employees and consultants, and controlling access to and distribution of our technologies and other proprietary information. While we use these and other reasonable security measures to protect our trade secrets, our employees or consultants may unintentionally or willfully disclose our proprietary information to competitors.

Our commercial success will depend in part on our ability to operate without infringing upon the patents and proprietary rights of third parties. It is uncertain whether the issuance of any third party patents would require us to alter our products or technology, obtain licenses or cease certain activities. Our failure to obtain a license to technology that we may require to discover, develop or commercialize our future products may have a material adverse impact on us. One or more third-party patents or patent applications may conflict with patent applications to which we have rights. Any such conflict may substantially reduce the coverage of any rights that may issue from the patent applications to which we have rights. If third parties prepare and file patent applications in the United States that also claim technology to which we have rights, we may have to participate in interference proceedings in the USPTO to determine priority of invention.

 

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We may collaborate in the future with other entities on research, development and commercialization activities. Disputes may arise about inventorship and corresponding rights in know-how and inventions resulting from the joint creation or use of intellectual property by us and our subsidiaries, collaborators, partners, licensors and consultants. As a result, we may not be able to maintain our proprietary position.

We currently control the following intellectual property:

 

Title

  

Country

  

Status

  

Issue Date

1. Teneurin C-Terminal

Associated Peptides (TCAP) and

Methods and uses thereof.

Serial # 10/510,959

   United States   

Patent

issued

   01/03/2012

2. Teneurin C-Terminal

Associated Peptides (TCAP) and

Methods and uses thereof.

Serial # 2003221575.

   Australia   

Patent

issued

   09/23/2011

3. Teneurin C-Terminal

Associated Peptides (TCAP) and

Methods and uses thereof.

Serial # 2,482,810.

   Canada   

Patent

issued

   06/10/2014

4. Teneurin C-Terminal

Associated Peptides (TCAP) and

Methods and uses thereof.

Serial # 03717086.7

  

European Union.

Validated in France,

Germany and Great Britain.

  

Patent

issued

   03/12/2014

5. A Method for Regulating

Neurite Growth: Application.

Serial # 60/783,821

   United States    Pending    Filed: 03/21/2006

6. Method for Modulating

Glucose Transport Using

Teneurin C-Terminal Associated

Peptide (TCAP). Serial #

62/026,346

   United States    Pending    N/A

In the future we may file additional patent applications based on proprietary formulations and novel compounds.

 

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Governmental Regulation

Our technologies are subject to extensive government regulation, principally by the U.S. Food and Drug Administration (the “ FDA ”) and state and local authorities in the United States and by comparable agencies in foreign countries. Governmental authorities in the United States extensively regulate the preclinical and clinical testing, safety, efficacy, research, development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution, among other things, of pharmaceutical products under various federal laws including the Federal Food, Drug and Cosmetic Act, or FFDCA, and under comparable laws by the states and in most foreign countries.

Domestic Regulation

In the United States, the FDA, under the FFDCA, the Public Health Service Act and other federal statutes and regulations, subject pharmaceutical and biologic products to rigorous review. If we do not comply with applicable requirements, we may be fined, the government may refuse to approve our marketing applications or allow us to manufacture or market our products or product candidates, and we may be criminally prosecuted. The FDA also has the authority to discontinue or suspend manufacture or distribution, require a product withdrawal or recall or revoke previously granted marketing authorizations, if we fail to comply with regulatory standards or if we encounter problems following initial marketing.

FDA Approval Process

To obtain approval of a new product from the FDA, we must, among other requirements, submit data demonstrating the product’s safety and efficacy as well as detailed information on the manufacture and composition of the product candidate. In most cases, this entails extensive laboratory tests and preclinical and clinical trials. This testing and the preparation of necessary applications and processing of those applications by the FDA are expensive and typically take many years to complete. The FDA may deny our applications or may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may develop. The FDA also may require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounter problems following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the period during which we will have the exclusive right to exploit the products or technologies.

The process required by the FDA before a new drug or biologic may be marketed in the United States generally involves the following:

 

    completion of preclinical laboratory tests or trials and formulation studies;

 

    submission to the FDA of an IND for a new drug or biologic, which must be accepted by FDA before human clinical trials may begin;

 

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    performance of adequate and well-controlled human clinical trials to establish the safety and efficacy of the proposed drug or biologic for its intended use; and,

 

    submission and approval of a New Drug Application, or NDA, for a drug, or a Biologic License Application, or BLA, for a biologic.

Preclinical tests include laboratory evaluation of product chemistry formulation and stability, as well as studies to evaluate toxicity. The results of preclinical testing, together with manufacturing information and analytical data, are submitted to the FDA as part of an IND application. The FDA requires a 30-day waiting period after the filing of each IND application before clinical trials may begin, in order to ensure that human research subjects will not be exposed to unreasonable health risks. At any time during this 30-day period or at any time thereafter, the FDA may halt proposed or ongoing clinical trials, or may authorize trials only on specified terms. The IND application process may become extremely costly and substantially delay development of our products. Moreover, positive results of preclinical tests will not necessarily indicate positive results in clinical trials.

The sponsor typically conducts human clinical trials in three sequential phases, which may overlap. These phases generally include the following:

Phase I: The product is usually first introduced into healthy humans or, on occasion, into patients, and is tested for safety, dosage tolerance, absorption, distribution, excretion and metabolism.

Phase II: The product is introduced into a limited patient population to:

 

    assess its efficacy in specific, targeted indications;

 

    assess dosage tolerance and optimal dosage; and

 

    identify possible adverse effects and safety risks.

Phase III: These are commonly referred to as pivotal studies. If a product is found to have an acceptable safety profile and to be potentially effective in Phase II clinical trials, new clinical trials will be initiated to further demonstrate clinical efficacy, optimal dosage and safety within an expanded and diverse patient population at geographically-dispersed clinical study sites.

If the FDA does ultimately approve the product, it may require post-marketing testing, including potentially expensive Phase IV studies, to monitor its safety and effectiveness.

Clinical trials must meet requirements for Institutional Review Board, or IRB, oversight, informed consent and the FDA’s Good Clinical Practices. Prior to commencement of each clinical trial, the sponsor must submit to the FDA a clinical plan, or protocol, accompanied by the approval of the committee responsible for overseeing clinical trials at one of the clinical trial sites. The FDA and the IRB at each institution at which a clinical trial is being performed may order the temporary or permanent discontinuation of a clinical trial at any time if it believes that the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients.

 

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The sponsor must submit to the FDA the results of the preclinical and clinical trials, together with, among other things, detailed information on the manufacturing and composition of the product, in the form of an NDA, or, in the case of a biologic, a BLA. Once the submission has been accepted for filing, the FDA has 180 days to review the application and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification. The FDA may refer the BLA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved, but the FDA is not bound by the recommendation of an advisory committee.

It is possible that our product candidates will not successfully proceed through this approval process or that the FDA will not approve them in any specific period of time, or at all. The FDA may deny or delay approval of applications that do not meet applicable regulatory criteria, or if the FDA determines that the clinical data do not adequately establish the safety and efficacy of the product. Satisfaction of FDA pre-market approval requirements for a new biologic is a process that may take several years and the actual time required may vary substantially based upon the type, complexity and novelty of the product or disease. The FDA reviews these applications and, when and if it decides that adequate data are available to show that the product is both safe and effective and that other applicable requirements have been met, approves the drug or biologic for marketing. Government regulation may delay or prevent marketing of potential products for a considerable period of time and impose costly procedures upon our activities. Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Upon approval, a product candidate may be marketed only for those indications approved in the BLA or NDA and may be subject to labeling and promotional requirements or limitations, including warnings, precautions, contraindications and use limitations, which could materially impact profitability. Once approved, the FDA may withdraw the product approval if compliance with pre- and post-market regulatory standards is not maintained or if safety, efficacy or other problems occur after the product reaches the marketplace.

The FDA may, during its review of an NDA or BLA, ask for additional test data. If the FDA does ultimately approve the product, it may require post-marketing testing, including potentially expensive Phase IV studies, to monitor the safety and effectiveness of the product. In addition, the FDA may, in some circumstances, impose restrictions on the use of the product, which may be difficult and expensive to administer and may require prior approval of promotional materials.

Ongoing FDA Requirements

Before approving an NDA or BLA, the FDA will inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities are in compliance with the FDA’s current Good Manufacturing Practices, or cGMP, requirements which govern the manufacture, holding and distribution of a product. Manufacturers of biologics

 

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also must comply with the FDA’s general biological product standards. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the cGMP requirements. Manufacturers must continue to expend time, money and effort in the areas of production, quality control, record keeping and reporting to ensure full compliance with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing, seizure of product, voluntary recall of product, withdrawal of marketing approval or civil or criminal penalties. Adverse experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or market removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems concerning safety or efficacy of the product occur following approval.

The labeling, advertising, promotion, marketing and distribution of a drug or biologic product also must be in compliance with FDA and FTC requirements which include, among others, standards and regulations for direct-to-consumer advertising, industry-sponsored scientific and educational activities, and promotional activities involving the internet. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a Warning Letter directing the company to correct deviations from regulatory standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA and enforcement actions that can include seizures, injunctions and criminal prosecution.

Manufacturers are also subject to various laws and regulations governing laboratory practices, the experimental use of animals and the use and disposal of hazardous or potentially hazardous substances in connection with their research. In each of the above areas, the FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or delay issuance of approvals, seize or recall products and deny or withdraw approvals.

HIPAA Requirements

Other federal legislation may affect our ability to obtain certain health information in conjunction with our research activities. The Health Insurance Portability and Accountability Act of 1996, or HIPAA, mandates, among other things, the adoption of standards designed to safeguard the privacy and security of individually identifiable health information. In relevant part, the U.S. Department of Health and Human Services, or HHS, has released two rules to date mandating the use of new standards with respect to such health information. The first rule imposes new standards relating to the privacy of individually identifiable health information. These standards restrict the manner and circumstances under which covered entities may use and disclose protected health information so as to protect the privacy of that information. The second rule released by HHS establishes minimum standards for the security of electronic health information. While we do not believe we are directly regulated as a covered entity under HIPAA, the HIPAA standards impose requirements on covered entities conducting research activities regarding the use and disclosure of individually identifiable health information collected in the course of conducting the research. As a result, unless they meet these HIPAA requirements, covered entities conducting clinical trials for us may not be able to share with us any results from clinical trials that include such health information.

 

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In addition to the statutes and regulations described above, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other present and potential future federal, state and local regulations.

Research and Development

Our research and development efforts with respect to the formulations of PT00114 as our first potential product are exclusively conducted under premises of UT, Ontario, Canada. Much of our scientific research and discovery work is performed by Dr. David A. Lovejoy, our Chief Science Advisor and Dr. Dalia Barsyte, Director of Scientific Affairs with the aid and assistance of our Scientific Advisory Board. These activities are funded by us under our Sponsored Research agreements with UT. We intend in the future to raise capital in distinct phases, matched to relevant scientific developments. The Company has financed completion of its preclinical proof of principle studies and the solidification of its intellectual property position through private offerings of its securities. In addition, the proceeds of bridge loans from the Company’s Chairman were used to fund research, development and the general operating activities of the Company. We anticipate that we will require additional financing through IND-enabling studies, and to support entry into clinical proof-of-concept studies in Treatment-Resistant Depression (TRD) and/or Post-Traumatic Stress Disorder (PTSD). As we develop new product candidates, we may be required to conduct additional scientific, preclinical and as well as clinical studies. We currently have no commitments to provide us with any such additional funding.

We incurred approximately $89,189 for research and development activities for the nine months ended September 30, 2015, respectively, and for the years ended December 31, 2014 and 2013, we incurred $67,270and $178,018, respectively. These expenses include cash and non-cash expenses relating to the development of our programs for PT00114.

The Company derives income from scientific research and experimental development tax credits/and or refunds issued by the Canada Revenue Agency for qualified expenditures. The credits are recognized when the refund is issued. The amounts received are reinvested into the Company’s scientific research, experimental development and operational works conducted in Canada.

Subsidiary

Protagenic Therapeutics Canada (2006) Inc. (“ PTI Canada ”) was incorporated in 2006 in the Province on Ontario, Canada. PTI Canada is a wholly-owned subsidiary of Protagenic. It provides operational support and assistance for the implementation of corporate and operational activities conducted in Canada. It also oversees and supports research and development activities conducted under auspices of UT. PTI Canada has three directors: Garo H. Armen, Robert Ziroyan and Hartoun Hartounian. Robert Ziroyan is also the President and Secretary-Treasurer of PTI Canada. PTI Canada also benefits through tax incentive programs provided by the governments of Canada and the Province of Ontario. We derived income from Canadian research and development tax credits of $8,630 for the nine months ended September 30, 2015, and for the years ended December 31, 2014 and 2013 we derived income of $78,366 and $46,355, respectively.

 

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Employees

We currently have one full-time employee. We also engage consultants and temporary employees from time to time to provide services that relate to our research and development activities as well as for general administrative and accounting services. We believe that our current personnel are capable of meeting our operating requirements in the near term. We expect that as our business grows we may hire additional personnel to handle the increased demands on our operations, preclinical and clinical activities.

Legal Proceedings

From time to time we may be named in claims arising in the ordinary course of business. Currently, no legal proceedings, government actions, administrative actions, investigations or claims are pending against us or involve us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business and financial condition.

We anticipate that we will expend significant financial and managerial resources in the defense of our intellectual property rights in the future if we believe that our rights have been violated. We also anticipate that we will expend significant financial and managerial resources to defend against claims that our products and services infringe upon the intellectual property rights of third parties.

Available Information

We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”). Reports filed with the SEC pursuant to the Exchange Act, including annual and quarterly reports, and other reports we file, can be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Investors may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Investors can request copies of these documents upon payment of a duplicating fee by writing to the SEC. The reports we file with the SEC are also available on the SEC’s website (http://www.sec.gov).

 

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RISK FACTORS AND SPECIAL CONSIDERATIONS

This Report contains forward-looking statements.

Information provided in this Current Report may contain forward-looking statements which reflect management’s current view with respect to future events, the viability or efficacy of our products and our future performance. Such forward-looking statements may include projections with respect to market size and acceptance, revenues and earnings, marketing and sales strategies and business operations, as well as efficacy of our products.

We operate in a highly competitive and highly regulated business environment. Our business can be expected to be affected by government regulation, economic, political and social conditions, business’ response to new and existing products and services, technological developments and the ability to obtain and maintain patent and/or other intellectual property protection for our products and intellectual property. Our actual results could differ materially from management’s expectations because of changes both within and outside of our control. Due to such uncertainties and the risk factors set forth in this Current Report, prospective investors are cautioned not to place undue reliance upon such forward-looking statements.

Risks Related to our Discovery, Development and Commercialization of New Medicines

Our results to date provide no basis for predicting whether any of our product candidates will be safe or effective, or receive regulatory approval .

The Company’s proprietary portfolio of five new neuropeptide hormones are in various stages of research and preclinical evaluation and their risk of failure is high. It is impossible to predict when or if any of our neuropeptide hormones will prove effective or safe in humans or will receive regulatory approval. These compounds may not demonstrate in patients the chemical and pharmacological properties ascribed to them in laboratory studies, and they may interact with human biological systems or other drugs in unforeseen, ineffective or harmful ways. If we are unable to discover or successfully develop drugs that are effective and safe in humans, we will not have a viable business.

We may not be able to initiate and complete preclinical studies and clinical trials for our product candidates which could adversely affect our business .

We must successfully initiate and complete extensive preclinical studies and clinical trials for our product candidates before we can receive regulatory approval. Preclinical studies and clinical trials are expensive and will take several years to complete and may not yield results that support further clinical development or product approvals. Conducting clinical studies for any of our drug candidates for approval in the United States requires filing an IND and reaching agreement with the FDA on clinical protocols, finding appropriate clinical sites and clinical investigators, securing approvals for such studies from the independent review board at each such site, manufacturing clinical quantities of drug candidates, supplying drug product to clinical sites and enrolling sufficient numbers of participants. We cannot guarantee that we will be able to successfully accomplish all of the activities necessary to initiate and complete clinical trials.

 

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As a result, our preclinical studies and clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approvals or successfully commercialize our products.

None of our product candidates has received regulatory approvals. If we are unable to obtain regulatory approvals to market one or more of our product candidates, our business may be adversely affected .

All of our product candidates are in early stages of development, and we do not expect our product candidates to be commercially available for several years, if at all. Our product candidates are subject to strict regulation by regulatory authorities in the United States and in other countries. We cannot market any product candidate until we have completed all necessary preclinical studies and clinical trials and have obtained the necessary regulatory approvals. We do not know whether regulatory agencies will grant approval for any of our product candidates. Even if we complete preclinical studies and clinical trials successfully, we may not be able to obtain regulatory approvals or we may not receive approvals to make claims about our products that we believe to be necessary to effectively market our products. Data obtained from preclinical studies and clinical trials are subject to varying interpretations that could delay, limit or prevent regulatory approval, and failure to comply with regulatory requirements or inadequate manufacturing processes are examples of other problems that could prevent approval. In addition, we may encounter delays or rejections due to additional government regulation from future legislation, administrative action or changes in the FDA policy. Even if the FDA approves a product, the approval will be limited to those indications covered in the approval.

Outside the United States, our ability to market any of our potential products is dependent upon receiving marketing approvals from the appropriate regulatory authorities. These foreign regulatory approval processes include all of the risks associated with the FDA approval process described above. If we are unable to receive regulatory approvals, we will be unable to commercialize our product candidates, and our business may fail.

We may not be able to gain market acceptance of our product candidates, which would prevent us from becoming profitable .

We cannot be certain that any of our product candidates will gain market acceptance among physicians, patients, healthcare payers, pharmaceutical companies or others. Demonstrating the safety and efficacy of our product candidates and obtaining regulatory approvals will not guarantee future revenue. Sales of medical products largely depend on the reimbursement of patients’ medical expenses by government healthcare programs and private health insurers. Governments and private insurers closely examine medical products to determine whether they should be covered by reimbursement and if so, the level of reimbursement that will apply. We cannot be certain that third party payers will sufficiently reimburse sales of our products, or enable us to sell our products at profitable prices. Similar concerns could also limit the reimbursement amounts that health insurers or government agencies in other countries are prepared to pay for our products. In many countries where we plan to market our products, including Europe and Canada, the pricing of prescription drugs is controlled by the government or regulatory agencies. Regulatory agencies in these countries could determine that the pricing for our products should be based on prices of other commercially available drugs for the same

 

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disease, rather than allowing us to market our products at a premium as new drugs. Sales of medical products also depend on physicians’ willingness to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost-effective. We cannot predict whether physicians, other healthcare providers, government agencies or private insurers will determine that our products are safe, therapeutically effective and cost effective relative to competing treatments.

We may not be able to manufacture our product candidates in clinical or commercial quantities, which would prevent us from commercializing our product candidates .

To date, our product candidates have been manufactured in small quantities by us and third party manufacturers for preclinical studies. If any of our product candidates is approved by the FDA or other regulatory agencies for commercial sale, we will need to manufacture it in larger quantities and we intend to use third party manufacturers for commercial quantities. Our third party manufacturers may not be able to successfully increase the manufacturing capacity for any of our product candidates in a timely or efficient manner, or at all. If we are unable to successfully increase the manufacturing capacity for a product candidate, the regulatory approval or commercial launch of that product candidate may be delayed or there may be a shortage in the supply of the product candidate. Our failure or the failure of our third party manufacturers to comply with the FDA’s good manufacturing practices and to pass inspections of the manufacturing facilities by the FDA or other regulatory agencies could seriously harm our business.

We may not be able to obtain and maintain the third party relationships that are necessary to develop, commercialize and manufacture some or all of our product candidates .

We expect to depend on collaborators, partners, licensees, clinical research organizations, manufacturers and other third parties to support our discovery efforts, to formulate product candidates, to conduct clinical trials for some or all of our product candidates, to manufacture clinical and commercial scale quantities of our product candidates and products and to market, sell, and distribute any products we successfully develop.

We cannot guarantee that we will be able to successfully negotiate agreements for or maintain relationships with collaborators, partners, licensees, clinical investigators, manufacturers and other third parties on favorable terms, if at all. If we are unable to obtain or maintain these agreements, we may not be able to clinically develop, formulate, manufacture, obtain regulatory approvals for or commercialize our product candidates, which will in turn adversely affect our business.

We expect to expend substantial management time and effort to enter into relationships with third parties and, if we successfully enter into such relationships, to manage these relationships. In addition, substantial amounts of our expenditures will be paid to third parties in these relationships. However, we cannot control the amount or timing of resources our contract partners will devote to our research and development programs, product candidates or potential product candidates, and we cannot guarantee that these parties will fulfill their obligations to us under these arrangements in a timely fashion, if at all.

 

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We have no experience in sales, marketing and distribution and may have to enter into agreements with third parties to perform these functions, which could prevent us from successfully commercializing our product candidates .

We currently have no sales, marketing or distribution capabilities. To commercialize our product candidates, we must either develop our own sales, marketing and distribution capabilities, which will be expensive and time consuming, or make arrangements with third parties to perform these services for us. If we decide to market any of our products on our own, we will have to commit significant resources to developing a marketing and sales force and supporting distribution capabilities. If we decide to enter into arrangements with third parties for performance of these services, we may find that they are not available on terms acceptable to us, or at all. If we are not able to establish and maintain successful arrangements with third parties or build our own sales and marketing infrastructure, we may not be able to commercialize our product candidates which would adversely affect our business and financial condition.

We may fail to select or capitalize on the most scientifically, clinically or commercially promising or profitable product candidates .

We have limited technical, managerial and financial resources to determine which of our product candidates should proceed to initial clinical trials, later stage clinical development and potential commercialization. We may make incorrect determinations. Our decisions to allocate our research and development, management and financial resources toward particular product candidates or therapeutic areas may not lead to the development of viable commercial products and may divert resources from better opportunities. Similarly, our decisions to delay or terminate drug development programs may also be incorrect and could cause us to miss valuable opportunities.

We may not be able to maintain our exclusive worldwide license to use and develop PT00114 which could materially affect our business plan.

On July 31, 2005, we entered into the License Agreement with UT pursuant to which UT agreed to license to us patent rights and other intellectual property related to PT00114, among other things. The Technology License Agreement was amended on February 18, 2015.

Pursuant to the License Agreement, we obtained an exclusive worldwide license to make, have made, use, sell and import products based upon the Technologies, or to sublicense the Technologies in accordance with the terms of the License Agreement. In the event we fail to provide UT with semi-annual reports on our progress or fail to continue to make reasonable commercial efforts towards obtaining regulatory approval for products based on the Technologies, UT may convert our exclusive license into a non-exclusive one. In such a case, we would lose our competitive advantage in the development of treatments based on PT00114.

 

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If we are not able to retain our current senior management team and our scientific advisors or continue to attract and retain qualified scientific, technical and business personnel, our business will suffer .

We are dependent on the members of our management team and our scientific advisors for our business success. An important element of our strategy is to take advantage of the research and development expertise of our current management and to utilize the unique expertise of our scientific advisors. We do not have any employment agreements with our executive officers. The loss of any one of our executive officers or key scientific consultants, including, in particular, Garo Armen, Ph.D., Chairman of the Board, and Dr. David A. Lovejoy, our Chief Scientific Advisor, could result in a significant loss in the knowledge and experience that we, as an organization, possess and could cause significant delays, or outright failure, in the development and further commercialization of our product candidates.

To grow, we will eventually need to hire a significant number of qualified commercial, scientific and administrative personnel. However, there is intense competition for human resources, including management in the technical fields in which we operate, and we may not be able to attract and retain qualified personnel necessary for the successful development and commercialization of our product candidates. Our inability to attract new employees or to retain existing employees could limit our growth and harm our business.

We have not entered into an employment agreement with Dr. David A. Lovejoy, our Chief Scientific Advisor .

Dr. David A. Lovejoy is a key contributor to our Company due to his role in the development of PT00114 and his continued role in the development of our products as our Chief Scientific Advisor. We have not entered into an employment agreement with Dr. Lovejoy. If Dr. Lovejoy elects to discontinue his service as our Chief Scientific Advisor, the development of our products and our overall business plan could be materially affected.

Disputes under key agreements or conflicts of interest with our scientific advisors or clinical investigators could delay or prevent development or commercialization of our product candidates .

Any agreements we have or may enter into with third parties, such as collaboration, license, formulation supplier, manufacturing, clinical research organization or clinical trial agreements, may give rise to disputes regarding the rights and obligations of the parties. Disagreements could develop over rights to ownership or use of intellectual property, the scope and direction of research and development, the approach for regulatory approvals or commercialization strategy. We intend to conduct research programs in a range of therapeutic areas, but our pursuit of these opportunities could result in conflicts with the other parties to these agreements who may be developing or selling pharmaceuticals or conducting other activities in these same therapeutic areas. Any disputes or commercial conflicts could lead to the termination of our agreements, delay progress of our product development programs, compromise our ability to renew agreements or obtain future agreements, lead to the loss of intellectual property rights or result in costly litigation.

We collaborate with outside scientific advisors and collaborators at academic and other institutions that assist us in our research and development efforts. Our scientific advisors are not our employees and may have other commitments that limit their availability to us. If a conflict of interest between their work for us and their work for another entity arises, we may lose their services.

 

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We may encounter difficulties in managing our growth, which could adversely affect our operations .

Our ability to manage our operations and growth effectively depends upon the continual improvement of our procedures, reporting systems, and operational, financial, and management controls. We may not be able to implement improvements in an efficient or timely manner and may discover deficiencies in existing systems and controls. If we do not meet these challenges, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures which in turn may slow our growth or give rise to inefficiencies that would increase our losses.

We may acquire additional technology and complementary businesses in the future. Acquisitions involve many risks, any one of which could materially harm our business, including the diversion of management’s attention from core business concerns, failure to exploit acquired technologies, or the loss of key employees from either our business or the acquired business.

Company Risks

We have a history of losses and expect that losses may continue in the future.

We have generated net losses since we began operations, including $302,481, $936,996 and $394,878 (unaudited) for the years ended December 31, 2014, December 31, 2013 and for the first nine months of 2015, respectively, and as of September 30, 2015 we had an accumulated deficit of $327,792 (unaudited). We have no approved products and have generated no product revenue. We expect that product development, preclinical and clinical programs will increase losses significantly over the next five years. In order to achieve profitability, we will need to generate significant revenue. We cannot be certain that we will generate sufficient revenue to achieve profitability. We anticipate that we will continue to generate operating losses and negative cash flow from operations at least through the end of 2020 or longer. We cannot be certain that we will ever achieve, or if achieved, maintain profitability. If our revenue grows at a slower rate than we anticipate or if our product development, marketing and operating expenses exceed our expectations or cannot be adjusted accordingly, our business, results of operation and financial condition will be materially adversely affected and we may be unable to continue operations.

We will not be able to generate product revenue unless and until one of our product candidates successfully completes clinical trials and receives regulatory approval. As our most advanced product candidates are at an early proof-of-concept stage, we do not expect to receive revenue from any product candidate for the foreseeable future. We may seek to obtain revenue from collaboration or licensing agreements with third parties. We currently have no such agreements which will provide us with material, ongoing future revenue and we may never enter into any such agreements. Even if we eventually generate revenues, we may never be profitable, and if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

 

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There is a substantial doubt about our ability to continue as a going concern.

The report of our independent auditors that accompanies our consolidated financial statements includes an explanatory paragraph indicating there is a substantial doubt about our ability to continue as a going concern, citing our need for additional capital for the future planned expansion of our activities and to service our indebtedness. The inclusion of a going concern explanatory paragraph in the report of our independent auditors will make it more difficult for us to secure additional financing or enter into strategic relationships on terms acceptable to us, if at all, and likely will materially and adversely affect the terms of any financing that we might obtain. Our financial statements do not include any adjustments that may result from the outcome of this uncertainty.

We need to obtain financing in order to continue our operations .

On a prospective basis, we will require both short-term financing for operations and long-term capital to fund our expected growth. We have no existing bank lines of credit and have not established any definitive sources for additional financing. We believe that cash on hand provided by the investors in the Private Offering will be sufficient to meet our short-term financial requirements until February 2017. However, we will require additional funds if we want to fully implement our business plan and proceed with submission of an IND/CTA application. Additional financing may not be available to us, or if available, then it may not be available upon terms and conditions acceptable to us. If adequate funds are not available, then we may be required to delay, reduce or eliminate product development or clinical programs. Our inability to take advantage of opportunities in the industry because of capital constraints may have a material adverse effect on our business and our prospects. If we fail to obtain the capital necessary to fund our operations, we will be unable to advance our development programs and complete our clinical trials.

In addition, our research and development expenses could exceed our current expectations. This could occur for many reasons, including:

 

    some or all of our product candidates fail in clinical or preclinical studies and we are forced to seek additional product candidates;

 

    our product candidates require more extensive clinical or preclinical testing than we currently expect;

 

    we advance more of our product candidates than expected into costly later stage clinical trials;

 

    we advance more preclinical product candidates than expected into early stage clinical trials;

 

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    we are required, or consider it advisable, to acquire or license rights from one or more third parties; or

 

    we determine to acquire or license rights to additional product candidates or new technologies.

While we expect to seek additional funding through public or private financings, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of our financings may be dilutive to, or otherwise adversely affect, holders of our Common Stock. We may also seek additional funds through arrangements with collaborators or other third parties. These arrangements would generally require us to relinquish rights to some of our technologies, product candidates or products, and we may not be able to enter into such agreements, on acceptable terms, if at all. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our development programs, including some or all of our product candidates.

We currently do not have sufficient cash to fully implement our business plan .

We have experienced a lack of adequate capital resources causing us to be unable to fully implement our business plan. We believe that we need to raise or otherwise obtain additional financing beyond the Private Offering in order to satisfy our existing obligations and fully implement our business plan. We do not expect to have positive cash flow until the end of 2020 or longer. If we are not successful in obtaining additional financing, we will not be able to fully implement our business plan and we may not be able to continue our operations.

We have a limited operating history and a history of operating losses, and expect to incur significant additional operating losses.

We began our business in September 2004 and have a limited operating history. Though we have enlisted the assistance of pharmaceutical and academic experts, our lack of experience may cause us to encounter unforeseen problems that could have a material adverse effect on our business and financial condition. As well, there is limited historical financial information upon which to base an evaluation of our performance.

The drug development and approval process is uncertain, time-consuming and expensive.

The process of obtaining and maintaining regulatory approvals for new therapeutic products is lengthy, expensive and uncertain. It also can vary substantially based on the type, complexity, and novelty of the product. We must provide the FDA and foreign regulatory authorities with preclinical and clinical data demonstrating that our products are safe and effective before they can be approved for commercial sale. Clinical development, including preclinical testing, is a long, expensive and uncertain process. It may take us several years to complete our testing, and failure can occur at any stage of testing. Any preclinical or clinical test may fail to produce results satisfactory to the FDA. Preclinical and clinical data can be interpreted in different ways, which could delay, limit or prevent regulatory approval. Negative or

 

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inconclusive results from a preclinical study or clinical trial, adverse medical events during a clinical trial or safety issues resulting from products of the same class of drug could cause a preclinical study or clinical trial to be repeated or a program to be terminated, even if other studies or trials relating to the program are successful.

We have to sustain and further build our intellectual property rights.

If we fail to sustain and further build our intellectual property rights, competitors will be able to take advantage of our research and development efforts to develop competing products. If we are not able to protect our proprietary technology, trade secrets, and know-how, our competitors may use our inventions to develop competing products. Protagenic has obtained worldwide exclusive rights to PT00114 and related technology that was developed at the University of Toronto. The Company currently has four patents issued by the Governments of the United States, Canada, European Union and Australia. Two patent applications are pending. However our patents and patent applications, even if granted, may not protect us against our competitors. Our patent positions, and those of other pharmaceutical and biotechnology companies, are generally uncertain and involve complex legal, scientific and factual questions. The standards which the United States Patent and Trademark Office uses to grant patents, and the standards which courts use to interpret patents, are not always applied predictably or uniformly and can change, particularly as new technologies develop. Consequently, the level of protection, if any, that will be provided by our patents if we attempt to enforce them, and they are challenged, is uncertain. In addition, the type and extent of patent claims that will be issued to us in the future is uncertain. Any patents that are issued may not contain claims that permit us to stop competitors from using similar technology.

In addition to our patentable technology, we also rely on unpatented technology, trade secrets, and confidential information. We may not be able to effectively protect our rights to this technology or information. Other parties may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We generally require each of our employees, consultants, collaborators, and certain contractors to execute a confidentiality agreement at the commencement of an employment, consulting, collaborative, or contractual relationship with us. However, these agreements may not provide effective protection of our technology or information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies.

Our patent position is generally uncertain and involves complex legal and factual questions. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as the laws of the United States, and other biotechnology companies have encountered significant problems in protecting and defending their proprietary rights in foreign jurisdictions. Whether filed in the United States or abroad, our patent applications may be challenged or may fail to result in issued patents. In addition, any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or from developing or commercializing competing products. Furthermore, others may independently develop or commercialize similar or alternative technologies or drugs, or design around our patents. Our patents may be challenged, invalidated or fail to provide us with any competitive advantages. We may not have the funds available to protect our patents or other technology; such protection is costly and can result in further litigation expenses.

 

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If we do not obtain or we are unable to maintain adequate patent or trade secret protection for our products in the United States, competitors could duplicate them without repeating the extensive testing that we will be required to undertake to obtain approval of the products by the FDA. Regardless of any patent protection, under the current statutory framework the FDA is prohibited by law from approving any generic version of any of our products for three years after it has approved our product. Upon the expiration of that period, or if that time period is altered, the FDA could approve a generic version of our product unless we have patent protection sufficient for us to block that generic version. Without sufficient patent protection, the applicant for a generic version of our product would be required only to conduct a relatively inexpensive study to show that its product is bioequivalent to our product and may not have to repeat the studies that we will need to conduct to demonstrate that the product is safe and effective. In the absence of adequate patent protection in other countries, competitors may similarly be able to obtain regulatory approval in those countries of products that duplicate our products.

We have to comply with our obligations in our intellectual property licenses with third parties .

If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business . We are a party the License Agreements with UT under which we receive the right to practice and use important third party patent rights. We may enter into additional licenses in the future. Our existing licenses impose, and we expect future licenses will impose, various diligences, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, the licensor may have the right to terminate the license, in which event we might not be able to market any product that is covered by the licensed patents.

We may need to resort to litigation to enforce or defend our intellectual property rights, including any patents issued to us. If a competitor or collaborator files a patent application claiming technology also invented by us, in order to protect our rights, we may have to participate in an expensive and time consuming interference proceeding before the United States Patent and Trademark Office. We cannot guarantee that our product candidates will be free of claims by third parties alleging that we have infringed their intellectual property rights. Third parties may assert that we are employing their proprietary technologies without authorization and they may resort to litigation to attempt to enforce their rights. Third parties may have or obtain patents in the future and claim that the use of our technology or any of our product candidates infringes their patents. We may not be able to develop or commercialize combination product candidates because of patent protection others have. Our business will be harmed if we cannot obtain a necessary or desirable license, can obtain such a license only on terms we consider to be unattractive or unacceptable, or if we are unable to redesign our product candidates or processes to avoid actual or potential patent or other intellectual property infringement. Obtaining, protecting and defending patent and other intellectual property rights can be expensive and may require us to incur substantial costs, including the diversion of management and technical personnel. An unfavorable ruling in patent or intellectual property litigation could subject us to significant liabilities to third parties, require us to cease developing, manufacturing or selling the affected products or using the affected processes, require us to license the disputed rights from third parties, or result in awards of substantial damages against us.

 

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There can be no assurance that we would prevail in any intellectual property infringement action, will be able to obtain a license to any third party intellectual property on commercially reasonable terms, successfully develop non-infringing alternatives on a timely basis, or license non-infringing alternatives, if any exist, on commercially reasonable terms. Any significant intellectual property impediment to our ability to develop and commercialize our products could seriously harm our business and prospects.

Patent litigation or other litigation in connection with our intellectual property rights may lead to publicity that may harm our reputation and the value of our common stock may decline .

During the course of any patent litigation, there may be public announcements of the results of hearings, motions, and other interim proceedings or developments in the litigation. If securities analysts or investors regard these announcements as negative, the value of our common stock may decline. General proclamations or statements by key public figures may also have a negative impact on the perceived value of our intellectual property.

Protecting and defending against intellectual property claims may have a material adverse effect on our business .

From time to time, we may receive notice that others have infringed on our proprietary rights or that we have infringed on the intellectual property rights of others. There can be no assurance that infringement or invalidity claims will not materially adversely affect our business, financial condition or results of operations. Regardless of the validity or the success of the assertion of claims, we could incur significant costs and diversion of resources in protecting or defending against claims, which could have a material adverse effect on our business, financial condition or results of operations. We may not have the funds or resources available to protect our intellectual property.

Our competitors and potential competitors may develop products and technologies that make ours less attractive or obsolete .

Many companies, universities, and research organizations developing competing product candidates have greater resources and significantly greater experience in financial, research and development, manufacturing, marketing, sales, distribution, and technical regulatory matters than we have. In addition, many competitors have greater name recognition and more extensive collaborative relationships. Our competitors could commence and complete clinical testing of their product candidates, obtain regulatory approvals, and begin commercial-scale manufacturing of their products faster than we are able to for our products. They could develop products that would render our product candidates, and those of our collaborators, obsolete and noncompetitive. If we are unable to compete effectively against these companies, then we may not be able to commercialize our product candidates or achieve a competitive position in the market. This would adversely affect our ability to generate revenues.

 

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Competition in the biotechnology and pharmaceutical industries may result in competing products, superior marketing of other products and lower revenues or profits for us.

There are many companies that are seeking to develop products and therapies for the treatment of mood, anxiety and neurodegenerative disorders. Many of our competitors have substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market technologically superior products. In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA approval for superior products.

Other risks and uncertainties include:

 

    our ability to successfully complete preclinical and clinical development of our products and services

 

    our ability to manufacture sufficient amounts of products for development and commercialization activities

 

    our ability to obtain, maintain and successfully enforce adequate patent and other proprietary rights protection of our products and services

 

    the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services

 

    the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services, including growth projections

 

    market acceptance of our products and services

 

    our ability to identify new patients for our products and services

 

    the accuracy of our information regarding the products and resources of our competitors and potential competitors

 

    the content and timing of submissions to and decisions made by the US Food and Drug Administration (FDA) and other regulatory agencies

 

    our ability to obtain reimbursement for our products and services from third-party payors, and the extent of such coverage

 

    our ability to establish and maintain strategic license, collaboration and distribution arrangements

 

    the continued funding of our collaborations and joint ventures, if any are ultimately established

 

    the possible disruption of our operations due to terrorist activities and armed conflict, including as a result of the disruption of operation of our subsidiaries and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

 

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Positive or timely results from preclinical studies and early clinical trials do not ensure positive or timely results in late stage clinical trials or product approval by the FDA or any other regulatory authority. Product candidates that show positive preclinical or early clinical results often fail in later stage clinical trials. Data obtained from preclinical and clinical activities is susceptible to varying interpretations, which could delay, limit, or prevent regulatory approvals.

We have limited experience in conducting the clinical trials required to obtain regulatory approval. We may not be able to conduct clinical trials at preferred sites, enlist clinical investigators, enroll sufficient numbers of participants, or begin or successfully complete clinical trials in a timely fashion, if at all. Any failure to perform may delay or terminate the trials. Our current clinical trials may be insufficient to demonstrate that our potential products will be active, safe, or effective. Additional clinical trials may be required if clinical trial results are negative or inconclusive, which will require us to incur additional costs and significant delays. If we do not receive the necessary regulatory approvals, we will not be able to generate product revenues and may not become profitable.

The regulatory approval process is costly and lengthy and we may not be able to successfully obtain all required regulatory approvals .

The preclinical development, clinical trials, manufacturing, marketing and labeling of pharmaceuticals are all subject to extensive regulation by numerous governmental authorities and agencies in the United States and other countries. We must obtain regulatory approval for each of our product candidates before marketing or selling any of them. It is not possible to predict how long the approval processes of the FDA or any other applicable federal or foreign regulatory authority or agency for any of our products will take or whether any such approvals ultimately will be granted. The FDA and foreign regulatory agencies have substantial discretion in the drug approval process, and positive results in preclinical testing or early phases of clinical studies offer no assurance of success in later phases of the approval process. Generally, preclinical and clinical testing of products can take many years and require the expenditure of substantial resources, and the data obtained from these tests and trials can be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. If we encounter significant delays in the regulatory process that result in excessive costs, this may prevent us from continuing to develop our product candidates. Any delay in obtaining, or failure to obtain, approvals could adversely affect the marketing of our products and our ability to generate product revenue. The risks associated with the approval process include:

 

    failure of our product candidates to meet a regulatory agency’s requirements for safety, efficacy and quality;

 

    limitation on the indicated uses for which a product may be marketed;

 

    unforeseen safety issues or side effects; and

 

    governmental or regulatory delays and changes in regulatory requirements and guidelines.

 

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Even if we receive regulatory approvals for marketing our product candidates, if we fail to comply with continuing regulatory requirements, we could lose our regulatory approvals, and our business would be adversely affected .

The FDA continues to review products even after they receive initial approval. If we receive approval to commercialize any product candidates, the manufacturing, marketing and sale of these drugs will be subject to continuing regulation, including compliance with quality systems regulations, good manufacturing practices, adverse event requirements, and prohibitions on promoting a product for unapproved uses. Enforcement actions resulting from our failure to comply with government and regulatory requirements could result in fines, suspension of approvals, withdrawal of approvals, product recalls, product seizures, mandatory operating restrictions, criminal prosecution, civil penalties and other actions that could impair the manufacturing, marketing and sale of our potential products and our ability to conduct our business.

Even if we are able to obtain regulatory approvals for any of our product candidates, if they exhibit harmful side effects after approval, our regulatory approvals could be revoked or otherwise negatively impacted, and we could be subject to costly and damaging product liability claims.

Even if we receive regulatory approval for our product candidates, we will have tested them in only a small number of patients during our clinical trials. If our applications for marketing are approved and more patients begin to use our product, new risks and side effects associated with our products may be discovered. As a result, regulatory authorities may revoke their approvals; we may be required to conduct additional clinical trials, make changes in labeling of our product, reformulate our product or make changes and obtain new approvals for our and our suppliers’ manufacturing facilities. We might have to withdraw or recall our products from the marketplace. We may also experience a significant drop in the potential sales of our product if and when regulatory approvals for such product are obtained, experience harm to our reputation in the marketplace or become subject to lawsuits, including class actions. Any of these results could decrease or prevent any sales of our approved product or substantially increase the costs and expenses of commercializing and marketing our product.

Healthcare reform measures could adversely affect our business .

The efforts of governmental and third-party payers to contain or reduce the costs of healthcare may adversely affect the business and financial condition of pharmaceutical companies. In the United States and in foreign jurisdictions there have been, and we expect that there will continue to be, a number of legislative and regulatory proposals aimed at changing the healthcare system. For example, in some countries other than the United States, pricing of prescription drugs is subject to government control, and we expect proposals to implement similar controls in the United States to continue. The pendency or approval of such proposals could result in a decrease in our common stock value or limit our ability to raise capital or to enter into collaborations or license rights to our products.

 

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New federal legislation may increase the pressure to reduce prices of pharmaceutical products paid for by Medicare, which could adversely affect our revenues, if any .

The Medicare Prescription Drug Improvement and Modernization Act of 2003, or MMA, expanded Medicare coverage for drug purchases by the elderly and disabled beginning in 2006. The new legislation uses formularies, preferred drug lists and similar mechanisms that may limit the number of drugs that will be covered in any therapeutic class or reduce the reimbursement for some of the drugs in a class. More recently, the Patient Protection and Affordable Care Act of 2010 also contained certain provisions with the potential to affect pricing of pharmaceutical products.

As a result of the expansion of legislation, including recent healthcare insurance legislation, and the expansion of federal coverage of drug products, we expect that there will be additional pressure to contain and reduce costs. These cost reduction initiatives could decrease the coverage and price that we receive for our products in the future and could seriously harm our business. While the MMA applies only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement systems, and any limits on or reductions in reimbursement that occur in the Medicare program may result in similar limits on or reductions in payments from private payers.

New federal laws or regulations on drug importation could make lower cost versions of our future products available, which could adversely affect our revenues, if any .

The prices of some drugs are lower in other countries than in the United States because of government regulation and market conditions. Under current law, importation of drugs into the United States is generally not permitted unless the drugs are approved in the United States and the entity that holds that approval consents to the importation. Various proposals have been advanced to permit the importation of drugs from other countries to provide lower cost alternatives to the products available in the United States. In addition, the MMA requires the Secretary of Health and Human Services to promulgate regulations for drug reimportation from Canada into the United States under some circumstances, including when the drugs are sold at a lower price than in the United States.

If the laws or regulations are changed to permit the importation of drugs into the United States in circumstances that are currently not permitted, such a change could have an adverse effect on our business by making available lower priced alternatives to our future products.

Failure to obtain regulatory and pricing approvals in foreign jurisdictions could delay or prevent commercialization of our products abroad .

If we succeed in developing any products, we intend to market them in the European Union and other foreign jurisdictions. In order to do so, we must obtain separate regulatory approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval abroad may differ from that required to obtain FDA approval. The foreign regulatory approval process may include all of the risks associated with obtaining FDA approval and

 

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additional risks associated with requirements particular to those foreign jurisdictions where we will seek regulatory approval of our products. We may not obtain foreign regulatory approvals on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. We and our collaborators may not be able to file for regulatory approvals and may not receive necessary approvals to commercialize our products in any market outside the United States. The failure to obtain these approvals could materially adversely affect our business, financial condition and results of operations.

Risks Related to Our Common Stock and Liquidity Risks

Our Common Stock is a “Penny Stock” and subject to specific rules governing its sale to investors

The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to our Common Stock, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination; and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors sell shares of our common stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

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There is no recent trading activity in our Common Stock and there is no assurance that an active market will develop in the future.

Although our Common Stock is currently quoted on the OTC PINK (an interdealer electronic quotation system operated by OTC Markets Group, Inc.) under the symbol “ATRN”, trading of our Common Stock may be extremely sporadic. For example, several days may pass before any shares may be traded. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of our Common Stock. There can be no assurance that a more active market for our Common Stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our Common Stock, and would likely have a material adverse effect on the market price of our Common Stock and on our ability to raise additional capital.

The market price of our Common Stock may be volatile, and you could lose all or part of your investment .

The market price of our Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.

The market price of our Common Stock may fluctuate substantially and will depend on a number of factors many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose all or part of your investment in our Common Stock since you might be unable to sell your shares at or above the price you pay for the shares. Factors that could cause fluctuations in the market price of our Common Stock include, but are not necessarily limited to, the following:

 

    price and volume fluctuations in the overall stock market from time to time;

 

    volatility in the market prices and trading volumes of pharmaceutical and biotechnology stocks;

 

    changes in operating performance and stock market valuations of other pharmaceutical and biotechnology companies generally, or those in our industry in particular;

 

    sales of shares of our Common Stock by us or our stockholders;

 

    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 public’s 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 company’s 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 management’s 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 customer’s 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 individual’s 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 company’s 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 management’s 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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis should be read in conjunction with Protagenic’s historical financial statements and the related notes. This Management’s 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.

Management’s 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 Protagenic’s 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 customer’s 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 Company’s 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 Protagenic’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s main drug product. Moreover, the Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 company’s future operating structure. The Company’s 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 Company’s 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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DESCRIPTION OF PROPERTY

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 holder’s for purposes of Section 13(d) of the Exchange Act, of more than 9.99% of the total number of shares of Common Stock issued and outstanding immediately after giving effect to such conversion or exercise.
(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 group’s 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, he’s leading integration of the 4-Antibody acquisition, which includes the company’s fully human antibody drug discovery and optimization technology platform, and portfolio of immune checkpoint antibody programs. Over his 30 years of experience in the biopharmaceutical industry he played a pivotal role in bringing to the market Sustiva ® , Fablyn ® , Viviant ® , PanRetin ® , TargRetin ® , Promacta ® and Eliquis ® . Prior to joining Agenus he held executive management positions at Ligand Pharmaceuticals, DuPont Merck, Incyte Pharmaceuticals, Roche Palo Alto and KineMed. Dr. Stein began his career at Merck, Sharp and Dohme. He holds an MD and a PhD in Physiology & Pharmacology from Duke University. Dr. Stein filed a personal voluntary bankruptcy petition under Chapter 7 in August of 2012 and the bankruptcy was discharged in May 2013.

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 Co–founder, 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 Co–Chief Investment Officer of Iroquois since inception in 2003. From 2000 to 2003, Mr. Silverman served as Co–Chief 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. Silverman’s 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. Barsyte’s 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 Kingdom’s 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 Party’s request, we will advance expenses to the Indemnified Party to the fullest extent permitted by applicable law. Pursuant to the Indemnification Agreement, an Indemnified Party is presumed to be entitled to indemnification and we have the

 

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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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SCIEN TIFIC 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 Company’s day-to-day activities; providing operational support and assistance to the Company’s 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. Ziroyan’s 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. Ziroyan’s 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. Ziroyan’s 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 grantee’s personal note, for full, partial or no recourse, bearing interest payable not less than annually at market rate on the date of exercise and at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, with or without the pledge of such shares as collateral, or (d) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Administrator, or (e) at the discretion of the Administrator, by any combination of the above methods.

No option may be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime an option may be exercised only by the recipient. The Administrator will determine the extent to which a holder of a stock option may exercise the option following termination of service with us.

 

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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 grantee’s 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 Company’s assets other than a transaction to merely change the state of incorporation (a “ Corporate Transaction ”), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the “ Successor Board ”), shall, as to outstanding options, either (i) make appropriate provision for the continuation of such options by substituting on an equitable basis for the Shares then subject to such options either the consideration payable with respect to the outstanding shares of Common Stock in connection with the Corporate Transaction or

 

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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 Protagenic’s 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.

CE RTAIN 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 Atrinsic’s common stock at an initial conversion price of $5.00 per share (subject to adjustment), at the option of the respective holders. IMF exchanged the Secured Convertible Notes that it held for 147,972 Predecessor Warrants, which Predecessor Warrants were issued to the Designee at the closing of the Merger, and the instruments by which the Secured Convertible Notes were secured were simultaneously terminated.

Transactions relating to Protagenic

Garo H. Armen, our Chairman and principal stockholder, purchased shares of 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.

DESCRIPTION OF CAPITAL STOCK

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 company’s 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 purchaser’s 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 customer’s 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 customer’s 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.

LEGAL PROCEEDINGS

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 Atrinsic’s 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 director’s 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 director’s 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.

PART F/S

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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INDEX TO EXHIBITS

See Item 9.01(c) below, which is incorporated by reference herein.

DESCRIPTION OF EXHIBITS

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 State ments and Exhibits.

 

(a) Financial Statements of business acquired

In accordance with Item 9.01(a), Protagenic’s 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
No.

 

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
No.

 

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
No.

 

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*

 

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Exhibit
No.

 

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.

 

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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 Party’s 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 Parent’s 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 Company’s 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”);

(e) the Parent agrees to promptly record in book entry the issuance of the Merger Shares (as defined below) to each Company Stockholder in accordance with Section 1.7;

 

-3-


(f) the Parent shall deliver to the Company (i) evidence that the Parent’s board of directors is authorized to consist of five individuals, (ii) the resignations of one of the individuals who served as a director and all of the individuals who served as officers of the Parent immediately prior to the Closing Date, which resignations shall be effective as of the Effective Time, (iii) evidence of the appointment of four directors, all of whom shall have been designated by the Company, such appointment to be effective as of the Effective Time, and (iv) evidence of the appointment of such executive officers of the Parent to serve immediately upon the Effective Time as shall have been designated by the Company; and

(g) the closing of at least the Minimum Offering of the PPO shall be completed and the proceeds therefrom distributed or wired to the Parent.

1.6 Additional Actions . If at any time after the Effective Time the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments or assurances or any other acts or things are necessary, desirable or proper (a) to vest, perfect or confirm, of record or otherwise, in the Surviving Corporation, its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of either the Company or Acquisition Subsidiary or (b) otherwise to carry out the purposes of this Agreement, the Surviving Corporation and its proper officers and directors or their designees shall be authorized (to the fullest extent allowed under applicable law) to execute and deliver, in the name and on behalf of either the Company or Acquisition Subsidiary, all such deeds, bills of sale, assignments and assurances and do, in the name and on behalf of the Company or Acquisition Subsidiary, all such other acts and things necessary, desirable or proper to vest, perfect or confirm its right, title or interest in, to or under any of the rights, privileges, powers, franchises, properties or assets of the Company or Acquisition Subsidiary, as applicable, and otherwise to carry out the purposes of this Agreement.

1.7 Conversion of Company and Acquisition Subsidiary Securities . At the Effective Time, by virtue of the Merger and without any action on the part of any Party or the holder of any of the following securities:

(a) Each Company Share issued and outstanding immediately prior to the Effective Time other than Dissenting Shares (as defined below) shall be converted into and represent the right to receive (subject to the provisions of Section 1.8) one Series B Preferred Share. An aggregate of approximately 6,612,838 Series B Preferred Shares (assuming no Dissenting Shares) shall be issued to the stockholders of the Company (excluding any Series B Preferred Shares issued in the PPO). In addition, each Company stock option and common stock purchase warrant issued and outstanding immediately prior to the Effective Time shall be converted into and represent the right to receive one option (the “Parent Options”) or one warrant (the “Parent Warrants”), as applicable, to purchase (i) prior to the Reverse Stock Split, one Series B Preferred Share and (ii) after the Reverse Stock Split, one share of Parent Common Stock (on a post Reverse Stock Split basis) and a corresponding number of shares of Series B Preferred Shares (and after the Reverse Stock Split a corresponding number of shares of Parent Common Stock) shall be reserved for issuance upon the exercise of the Parent Options and the Parent Warrants.

 

-4-


(b) Stockholders of record of the Company as of the Closing Date shall be entitled to receive immediately all of the Series B Preferred Shares into which their Company Shares were converted pursuant to this Section 1.7 (the “Merger Shares”).

(c) Each issued and outstanding share of common stock, par value $0.001 per share, of the Acquisition Subsidiary shall be converted into one validly issued, fully paid and nonassessable share of Surviving Corporation Common Stock.

1.8 Dissenting Shares .

(a) For purposes of this Agreement, “Dissenting Shares” means Company Shares held as of the Effective Time by a Company Stockholder who has not voted such Company Shares in favor of the adoption of this Agreement and the Merger, or executed a written consent with respect to such Company Shares approving the adoption of this Agreement and the Merger, and with respect to which appraisal shall have been duly demanded and perfected in accordance with Section 262 of the GCL and shall not have been timely withdrawn or forfeited. Dissenting Shares shall not be converted into or represent the right to receive Series B Preferred Shares unless such Company Stockholder’s right to appraisal shall have ceased in accordance with Section 262 of the GCL. If such Company Stockholder has so forfeited or withdrawn his, her or its right to appraisal of Dissenting Shares, then, (i) as of the occurrence of such event, such holder’s Dissenting Shares shall cease to be Dissenting Shares and shall be converted into and represent the right to receive the Merger Shares issuable in respect of such Company Shares pursuant to Section 1.7, and (ii) promptly following the occurrence of such event, the Parent shall deliver to such Company Stockholder a certificate representing the Merger Shares to which such holder is entitled pursuant to Section 1.7.

(b) The Company shall give the Parent prompt notice of any written demands for appraisal of any Company Shares, withdrawals of such demands, and any other instruments that relate to such demands received by the Company. The Company shall not, except with the prior written consent of the Parent, make any payment with respect to any demands for appraisal of Company Shares or offer to settle or settle any such demands.

1.9 Fractional Shares . No certificates or scrip representing fractional Merger Shares shall be issued to Company Stockholders on the surrender for exchange of certificates that immediately prior to the Effective Time represented Company Shares converted into Merger Shares pursuant to Section 1.07 (“Certificates”) and such Company Stockholders shall not be entitled to any voting rights, rights to receive any dividends or distributions or other rights as a stockholder of the Parent with respect to any fractional Merger Shares that would have otherwise been issued to such Company Stockholders. In lieu of any fractional Merger Shares that would have otherwise been issued, each former Company Stockholder that would have been entitled to receive a fractional Merger Share shall, on proper surrender of such person’s Certificates, receive such whole number of Merger Shares as is equal to the precise number of Merger Shares to which such Company Stockholder would be entitled, rounded up or down to the nearest whole number (with a fractional interest equal to 0.5 rounded upward to the nearest whole number); provided that each such Company Stockholder shall receive at least one Merger Share.

 

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1.10 Company Options and Warrants .

(a) As of the Effective Time, all stock options to purchase Company Shares issued by the Company, whether vested or unvested (the “Company Options”), shall automatically become Parent Options without further action by the holder thereof. Each Parent Option shall constitute an option to acquire (i) prior to the Reverse Stock Split, one Series B Preferred Share and (ii) after the Reverse Stock Split, one share of Parent Common Stock (on a post-Reverse Stock Split basis) (with any fraction resulting from such multiplication to be rounded up to the nearest whole number). The exercise price per share of each Parent Option shall be equal to the exercise price of the Company Option and the terms of such Parent Options shall otherwise remain the same. The Parent Options shall be granted under the Company’s 2006 Employee, Director and Consultant Stock Plan (the “2006 Plan”), which shall be adopted and assumed in writing by the Parent in connection with the Merger, and under the 2006 Plan’s terms, exercisability, vesting schedule, and status as an “incentive stock option” under Section 422 of the Code, if applicable. It is the intention of the Parties that any Company Options intended to be “incentive stock options” under Section 422 of the Code shall remain incentive stock options as Parent Options.

(b) As soon as practicable after the Effective Time, the Parent or the Surviving Corporation shall take appropriate actions to collect the Company Options and the agreements evidencing the Company Options, which shall be deemed to be canceled and shall entitle the holder to exchange the Company Options for Parent Options.

(c) 1,707,744 Series B Preferred Shares shall be reserved for issuance under the 2006 Plan being assumed by Parent at Closing, and shall be issued upon the exercise of the Parent Options in accordance with this Section 1.10.

(d) As of the Effective Time, all warrants to purchase Company Shares issued by the Company, whether vested or unvested (the “Company Warrants”), shall automatically become Parent Warrants without further action by the holder thereof. Each Parent Warrant shall constitute a warrant to acquire (i) prior to the Reverse Stock Split, one Series B Preferred Share and (ii) after the Reverse Stock Split, one share of Parent Common Stock (on a post-Reverse Stock Split basis) (with any fraction resulting from such multiplication to be rounded up to the nearest whole number). The exercise price per share of each Parent Warrant shall be equal to the exercise price of the Company Warrant and the terms of such Parent Warrants shall otherwise remain the same. As of the Effective Time, any and all outstanding Company Warrants to purchase capital stock of the Company, whether vested or unvested, shall be canceled.

(e) As soon as practicable after the Effective Time, the Parent or the Surviving Corporation shall take appropriate actions to collect the Company Warrants and the agreements evidencing the Company Warrants, which shall be deemed to be canceled and shall entitle the holder to exchange the Company Warrants for Parent Warrants.

(f) In the event that any issued and outstanding Company Options or Company Warrants are exercised prior to the Effective Time, the number of outstanding Company Shares shall be increased by the number of Company Shares issued upon exercise of Company Options and Company Warrants, and the number of outstanding Company Options

 

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and Company Warrants shall be reduced by the same number, as applicable. This will result in a decrease in the aggregate number of Series B Preferred Shares reserved for issuance upon exercise of the Parent Options and Parent Warrants, and an increase in the number of Series B Preferred Shares issuable to Company Stockholders at the Effective Time. Accordingly, regardless of the exercise of any Company Options or Company Warrants, the total number of Series B Preferred Shares issuable to Company Stockholders, and, upon exercise, to the holders of Parent Options and Parent Warrants, in connection with the Merger (in accordance with Section 1.7 and this Section 1.10) shall remain constant.

1.11 Certificate of Incorporation and Bylaws .

(a) The certificate of incorporation of the Company in effect immediately prior to the Effective Time shall be the certificate of incorporation of the Surviving Corporation until duly amended or repealed.

(b) The bylaws of the Company in effect immediately prior to the Effective Time shall be the bylaws of the Surviving Corporation until duly amended or repealed.

1.12 No Further Rights . From and after the Effective Time, no Company Shares (other than those held by Parent) shall be deemed to be outstanding, and holders of Certificates shall cease to have any rights with respect thereto, except as provided herein or by law.

1.13 Closing of Transfer Books . At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of Company Shares shall thereafter be made. If, after the Effective Time, Certificates are presented to the Parent or the Surviving Corporation, they shall be cancelled and exchanged for Merger Shares in accordance with Section 1.7, subject to applicable law in the case of Dissenting Shares.

1.14 Exemption From Registration . The Parent and the Company intend that the Series B Preferred Shares to be issued pursuant to Section 1.7 hereof or upon exercise of Parent Options and Parent Warrants granted pursuant to Section 1.10, hereof in each case in connection with the Merger, will be issued in a transaction exempt from registration under the Securities Act, by reason of Section 4(a)(2) of the Securities Act, Rule 701 of the Securities Act and/or Rule 506 of Regulation D promulgated by the U.S. Securities and Exchange Commission (the “SEC”) thereunder (“Regulation D”) and that, except as otherwise disclosed in Section 1.14 of the Disclosure Schedule , as such term is hereinafter defined, all recipients of such Series B Preferred Shares shall be “accredited investors” as such term is defined under Regulation D.

ARTICLE II

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company represents and warrants to the Parent that the statements contained in this Article II are true and correct, except as set forth in the disclosure schedule provided by the Company to the Parent on the date hereof and accepted in writing by the Parent (the “Disclosure Schedule”). The Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article II, and except to the extent that it is clear from the context thereof that such disclosure also applies to any other paragraph, the

 

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disclosures in any paragraph of the Disclosure Schedule shall qualify only the corresponding paragraph in this Article II. For purposes of this Article II, (i) the phrase “to the knowledge of the Company” or any phrase of similar import shall be deemed to refer to the actual knowledge of the executive officers of the Company, as well as any other knowledge which such executive officers would have possessed had they made reasonable inquiry with respect to the matter in question and (ii) all references to the Company shall be deemed to include its wholly-owned subsidiary, Protagenic Therapeutics Canada (2006), Inc., a company organized under the laws of the Province of Ontario (“PCI”), as appropriate.

2.1 Organization, Qualification and Corporate Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company is duly qualified to conduct business and is in good standing under the laws of each jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so qualified or in good standing, individually or in the aggregate, has not had and would not reasonably be expected to have a Company Material Adverse Effect (as defined below). The Company has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Company has furnished or made available to the Parent complete and accurate copies of its certificate of incorporation and bylaws. The Company is not in default under or in violation of any provision of its certificate of incorporation, as amended to date, or its bylaws, as amended to date. For purposes of this Agreement, “Company Material Adverse Effect” means a material adverse effect on the assets, business, condition (financial or otherwise), results of operations or future prospects of the Company and its Subsidiaries, as such term is hereinafter defined, taken as a whole.

2.2 Capitalization . The authorized capital stock of the Company consists of 20,000,000 Company Shares. As of the date of this Agreement and the Closing, there are (i) 6,612,838 Company Shares issued and outstanding; (ii) 1,707,774 Company Options issued and outstanding; and (iii) 3,403,367 Company Warrants issued and outstanding. Section 2.2 of the Disclosure Schedule sets forth a complete and accurate list of (i) all holders of Company Shares, indicating the number of Company Shares held by each holder; and (ii) all holders of Company Options and Company Warrants indicating (A) the number of Company Shares subject to each Company Option and Company Warrant and (B) the exercise price, date of grant, vesting schedule and expiration date for each Company Option or Company Warrant and (iii) all stock option plans and other stock or equity-related plans of the Company. All of the issued and outstanding Company Shares, and all Company Shares that may be issued upon exercise of Company Options or Company Warrants will be (upon issuance in accordance with their terms), duly authorized, validly issued, fully paid, nonassessable and free of all preemptive rights. Other than the Company Options and Company Warrants listed in Section 2.2 of the Disclosure Schedule and except as otherwise discussed in Section 2.2 of the Disclosure Schedule , there are no outstanding or authorized options, warrants, securities, rights, agreements or commitments to which the Company is a party or which are binding upon the Company providing for the issuance or redemption of any of its capital stock. Except as set forth in Section 2.2 of the Disclosure Schedule , there are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Company. Except as set forth in Section 2.2 of the Disclosure Schedule , there are no agreements to which the Company is a party or by which it is bound with respect to the voting (including without limitation voting

 

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trusts or proxies), registration under the Securities Act, or sale or transfer (including without limitation agreements relating to pre-emptive rights, rights of first refusal, co-sale rights or “drag-along” rights) of any securities of the Company. Except as set forth in Section 2.2 of the Disclosure Schedule , to the knowledge of the Company, there are no agreements among other parties to which the Company is not a party and by which it is not bound, with respect to the voting (including without limitation voting trusts or proxies) or sale or transfer (including without limitation agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any securities of the Company. Except as listed in Section 2.2 of the Disclosure Schedule , all of the issued and outstanding Company Shares were issued in compliance with applicable federal and state securities laws.

2.3 Authorization of Transaction . The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder. The execution and delivery by the Company of this Agreement and, subject to the adoption of this Agreement and the approval of the Merger by no less than a majority of the votes represented by the outstanding Company Shares entitled to vote on this Agreement and the Merger (the “Stockholder Approval”), the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company. Without limiting the generality of the foregoing, the board of directors of the Company (i) determined that the Merger is fair and in the best interests of the Company and the Company Stockholders, (ii) adopted this Agreement in accordance with the provisions of the GCL, and (iii) directed that this Agreement and the Merger be submitted to the Company Stockholders for their adoption and approval and resolved to recommend that the Company Stockholders vote in favor of the adoption of this Agreement and the approval of the Merger. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms.

2.4 Noncontravention . Subject to the receipt of Stockholder Approval and the filing of the Certificate of Merger as required by the GCL and the filing of a Form D with the SEC pursuant to Regulation D under the Securities Act, neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby, will (a) conflict with or violate any provision of the certificate of incorporation or bylaws of the Company, as amended to date, (b) require on the part of the Company any filing with, or any permit, authorization, consent or approval of, any court, arbitrational tribunal, administrative agency or commission or other governmental or regulatory authority or agency (a “Governmental Entity”), (c) conflict with, result in a breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any Party the right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Company is a party or by which the Company is bound or to which any of their assets is subject, except for (i) any conflict, breach, default, acceleration, termination, modification or cancellation in any contract or instrument set forth in Section 2.4 of the Disclosure Schedule , for which the Company has obtained a waiver, consent or approval, (ii) any conflict, breach, default, acceleration, termination, modification or cancellation which would not have a Company Material Adverse Effect and would not adversely affect the consummation of the transactions contemplated hereby or (iii) any notice, consent or waiver the absence of which would not have a Company

 

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Material Adverse Effect and would not adversely affect the consummation of the transactions contemplated hereby, (d) result in the imposition of any Security Interest (as defined below) upon any assets of the Company or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its properties or assets. For purposes of this Agreement: “Security Interest” means any mortgage, pledge, security interest, encumbrance, charge or other lien (whether arising by contract or by operation of law), other than (i) mechanic’s, materialmen’s, and similar liens, (ii) liens arising under worker’s compensation, unemployment insurance, social security, retirement, and similar legislation, and (iii) liens on goods in transit incurred pursuant to documentary letters of credit, in each case arising in the Ordinary Course of Business (as defined below) of the Company and not material to the Company; and “Ordinary Course of Business” means the ordinary course of the Company’s business, consistent with past custom and practice (including with respect to frequency and amount).

2.5 Subsidiaries . The Company owns all of the issued and outstanding capital stock of PCI. The Company does not have any other Subsidiaries. For purposes of this Agreement, a “Subsidiary” shall mean any corporation, partnership, joint venture or other entity in which a Party has, directly or indirectly, an equity interest representing 25% or more of the equity securities thereof or other equity interests therein (collectively, the “Subsidiaries”). PCI is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The Company has delivered or made available to the Parent complete and accurate copies of the charter, bylaws or other organizational documents of PCI. PCI is not in default under or in violation of any provision of its charter, bylaws or other organizational documents. All of the issued and outstanding shares of capital stock of PCI are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All shares of PCI are owned by the Company, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), claims, Security Interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Company or PCI is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of any Subsidiary. There are no outstanding stock appreciation, phantom stock or similar rights with respect to PCI. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of PCI. Except as set forth in Section 2.5 of the Disclosure Schedule , the Company does not control directly or indirectly or have any direct or indirect equity participation or similar interest in any corporation, partnership, limited liability company, joint venture, trust or other business association.

2.6 Financial Statements . The Company will provide or make available to the Parent prior to the Closing: (a) the audited consolidated balance sheet of the Company (the “Company Balance Sheet”) at December 31, 2014 and December 31, 2013 (December 31, 2014 hereinafter defined as the “Company Balance Sheet Date”), and the related consolidated statements of operations and comprehensive (loss) income, stockholders’ (deficit) equity, and cash flows for each of the years in the two year period ended December 31, 2014 (together with the Company Balance Sheet, the “Company Year-End Financial Statements”); and (b) the unaudited balance sheet of the Company (the “Company Interim Balance Sheet”) at September 30, 2015 (hereinafter defined as the “Company Interim Balance Sheet Date”) and the related

 

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statement of operations and cash flows for the nine months ended September 30, 2015 (the “Company Interim Financial Statements” and together with the Company Year-End Financial Statements, the “Company Financial Statements”). The Company Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods covered thereby, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of the respective dates thereof and for the periods referred to therein, comply as to form with the applicable rules and regulations of the SEC for inclusion of such Company Financial Statements in the Parent’s filings with the SEC as required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are consistent in all material respects with the books and records of the Company.

2.7 Absence of Certain Changes . Since the Company Interim Balance Sheet Date, and except as set forth in Section 2.7 of the Disclosure Schedule , (a) to the knowledge of the Company, there has occurred no event or development which, individually or in the aggregate, has had, or could reasonably be expected to have in the future, a Company Material Adverse Effect, and (b) the Company has not taken any of the actions set forth below:

(a) issue or sell, or redeem or repurchase, any stock or other securities of the Company or any Company Warrants, Company Options or other rights to acquire any such stock or other securities (except pursuant to the conversion or exercise of convertible securities or Company Options or Company Warrants outstanding on the date hereof), or amend any of the terms of (including without limitation the vesting of) any such convertible securities or Company Options or Company Warrants;

(b) split, combine or reclassify any shares of its capital stock; declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock;

(c) create, incur or assume any indebtedness (including obligations in respect of capital leases) except in the Ordinary Course of Business or in connection with the transactions contemplated by this Agreement; assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity; or make any loans, advances or capital contributions to, or investments in, any other person or entity;

(d) enter into, adopt or amend any Employee Benefit Plan, as such term is defined below, or any employment or severance agreement or arrangement or (except for normal increases in the Ordinary Course of Business for employees who are not Affiliates), increase in any manner the compensation or fringe benefits of, or materially modify the employment terms of, its directors, officers or employees, generally or individually, or pay any bonus or other benefit to its directors, officers or employees;

(e) acquire, sell, lease, license or dispose of any assets or property (including without limitation any shares or other equity interests in or securities of any corporation, partnership, association or other business organization or division thereof), other than purchases and sales of assets in the Ordinary Course of Business;

 

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(f) mortgage or pledge any of its property or assets or subject any such property or assets to any Security Interest;

(g) discharge or satisfy any Security Interest or pay any obligation or liability other than in the Ordinary Course of Business;

(h) amend its charter, by-laws or other organizational documents;

(i) change in any material respect its accounting methods, principles or practices, except insofar as may be required by a generally applicable change in GAAP;

(j) enter into, amend, terminate, take or omit to take any action that would constitute a violation of or default under, or waive any rights under, any material contract or agreement;

(k) institute or settle any Legal Proceeding, as such term is defined below;

(l) take any action or fail to take any action permitted by this Agreement with the knowledge that such action or failure to take action would result in (i) any of the representations and warranties of the Company set forth in this Agreement becoming untrue or (ii) any of the conditions to the Merger set forth in Article V not being satisfied; or

(m) agree in writing or otherwise to take any of the foregoing actions.

2.8 Undisclosed Liabilities . Except as set forth in Section 2.8 of the Disclosure Schedules , the Company does not have any liability (whether known or unknown, whether absolute or contingent, whether liquidated or unliquidated and whether due or to become due), except for (a) liabilities shown on the Company Interim Balance Sheet referred to in Section 2.6, (b) liabilities which have arisen since the Company Interim Balance Sheet Date in the Ordinary Course of Business and (c) contractual and other liabilities incurred in the Ordinary Course of Business which are not required by GAAP to be reflected on a balance sheet.

2.9 Tax Matters .

(a) For purposes of this Agreement, the following terms shall have the following meanings:

(i) “Taxes” means all taxes, charges, fees, levies or other similar assessments or liabilities, including without limitation income, gross receipts, ad valorem, premium, value-added, excise, real property, personal property, sales, use, transfer, withholding, employment, unemployment insurance, social security, business license, business organization, environmental, workers compensation, payroll, profits, license, lease, service, service use, severance, stamp, occupation, windfall profits, customs, duties, franchise and other taxes imposed by the United States of America or any state, local or foreign government, or any agency thereof, or other political subdivision of the United States or any such government, and any interest, fines, penalties, assessments or additions to tax resulting from, attributable to or incurred in connection with any tax or any contest or dispute thereof.

 

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(ii) “Tax Returns” means all reports, returns, declarations, statements or other information required to be supplied to a taxing authority in connection with Taxes.

(b) Each of the Company and PCI has filed all Tax Returns that it was required to file, and all such Tax Returns were complete and accurate in all material respects. The Company has not ever been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary Tax Returns. The Company has paid all Taxes that were due and payable. Any unpaid Taxes of the Company for tax periods through the Company Balance Sheet Date do not exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the Company Balance Sheet. The Company has not had any actual or potential liability for any Tax obligation of any taxpayer (including without limitation any affiliated group of corporations or other entities that included the Company during a prior period). All Taxes that the Company is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Entity.

(c) The Company has delivered or made available to the Parent complete and accurate copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by the Company since the date of the Company’s incorporation in Delaware. No examination or audit of any Tax Return of the Company by any Governmental Entity is currently in progress or, to the knowledge of the Company, threatened or contemplated. The Company has not been informed by any jurisdiction that the jurisdiction believes that the Company was required to file any Tax Return that was not filed. The Company has not waived any statute of limitations with respect to Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency.

(d) The Company: (i) is not a “consenting corporation” within the meaning of Section 341(f) of the Code, and none of the assets of the Company are subject to an election under Section 341(f) of the Code; (ii) has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has not made any payments, is not obligated to make any payments, nor is it a party to any agreement that could obligate it to make any payments that may be treated as an “excess parachute payment” under Section 280G of the Code; (iv) has no actual or potential liability for any Taxes of any person (other than the Company) under Treasury Regulation Section 1.1502-6 (or any similar provision of federal, state, local, or foreign law), or as a transferee or successor, by contract, or otherwise; and (v) has not been required to make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).

(e) None of the assets of the Company: (i) is property that is required to be treated as being owned by any other person pursuant to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately

 

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prior to the enactment of the Tax Reform Act of 1986; (ii) is “tax-exempt use property” within the meaning of Section 168(h) of the Code; or (iii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code.

(f) The Company has not undergone a change in its method of accounting resulting in an adjustment to its taxable income pursuant to Section 481 of the Code.

(g) No state or federal “net operating loss” of the Company determined as of the Closing Date is subject to limitation on its use pursuant to Section 382 of the Code or comparable provisions of state law as a result of any “ownership change” within the meaning of Section 382(g) of the Code or comparable provisions of any state law occurring prior to the Closing Date.

2.10 Assets . The Company owns or leases all tangible assets reasonably necessary for the conduct of its businesses as presently conducted and as presently proposed to be conducted. Except as set forth in Section 2.10 of the Disclosure Schedule , each such tangible asset is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used. No asset of the Company (tangible or intangible) is subject to any Security Interest.

2.11 Owned Real Property . The Company does not own any real property.

2.12 Real Property Leases . Section 2.12 of the Disclosure Schedule lists all real property leased or subleased to or by the Company and lists the term of such lease, any extension and expansion options, and the rent payable thereunder. The Company has delivered or made available to the Parent complete and accurate copies of the leases and subleases listed in Section 2.12 of the Disclosure Schedule . With respect to each lease and sublease listed in Section 2.12 of the Disclosure Schedule :

(a) the lease or sublease is legal, valid, binding, enforceable and in full force and effect;

(b) the lease or sublease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing;

(c) neither the Company nor, to the knowledge of the Company, any other party, is in breach or violation of, or default under, any such lease or sublease, and no event has occurred, is pending or, to the knowledge of the Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or, to the knowledge of the Company, any other party under such lease or sublease;

(d) the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold; and

(e) to the knowledge of the Company, there is no Security Interest, easement, covenant or other restriction applicable to the real property subject to such lease, except for recorded easements, covenants and other restrictions which do not materially impair the current uses or the occupancy by the Company of the property subject thereto.

 

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2.13 Contracts .

(a) Section 2.13 of the Disclosure Schedule lists the following agreements (written or oral) to which the Company is a party as of the date of this Agreement:

(i) any agreement (or group of related agreements) for the lease of personal property from or to third parties providing for lease payments in excess of $35,000 per annum or having a remaining term longer than 12 months;

(ii) any agreement (or group of related agreements) for the purchase or sale of products or for the furnishing or receipt of services (A) which calls for performance over a period of more than one year, (B) which involves more than the sum of $35,000, or (C) in which the Company has granted manufacturing rights, “most favored nation” pricing provisions or exclusive marketing or distribution rights relating to any products or territory or has agreed to purchase a minimum quantity of goods or services or has agreed to purchase goods or services exclusively from a certain party;

(iii) any agreement which, to the knowledge of the Company, establishes a partnership or joint venture;

(iv) any agreement (or group of related agreements) under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness (including capitalized lease obligations) involving more than $35,000 or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible;

(v) any agreement which imposes any current obligation on the Company with respect to confidentiality or noncompetition;

(vi) any employment or consulting agreement;

(vii) any agreement involving any officer, director or stockholder of the Company or any affiliate, as defined in Rule 12b-2 under Exchange Act, thereof (an “Affiliate”);

(viii) any agreement under which the consequences of a default or termination would reasonably be expected to have a Company Material Adverse Effect;

(ix) any agreement which contains any provisions requiring the Company to indemnify any other party thereto (excluding indemnities contained in agreements for the purchase, sale or license of products entered into in the Ordinary Course of Business);

 

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(x) any other agreement (or group of related agreements) either involving more than $35,000 or not entered into in the Ordinary Course of Business; and

(xi) any agreement, other than as contemplated by this Agreement, relating to the sales of securities of the Company to which the Company is a party.

(b) The Company has delivered or made available to the Parent a complete and accurate copy of each agreement listed in Section 2.13 of the Disclosure Schedule . With respect to each agreement so listed, and except as set forth in Section 2.13 of the Disclosure Schedule : (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; and (iii) the Company is not nor, to the knowledge of the Company, is any other party, in breach or violation of, or default under, any such agreement, and no event has occurred, is pending or, to the knowledge of the Company, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Company or, to the knowledge of the Company, any other party under such contract.

2.14 Accounts Receivable . All accounts receivable of the Company reflected on the Company Interim Balance Sheet are valid receivables subject to no setoffs or counterclaims and are current and collectible (within 90 days after the date on which it first became due and payable), net of the applicable reserve for bad debts on the Company Interim Balance Sheet. All accounts receivable reflected in the financial or accounting records of the Company that have arisen since the Company Balance Sheet Date are valid receivables subject to no setoffs or counterclaims and are collectible (within 90 days after the date on which it first became due and payable), net of a reserve for bad debts in an amount proportionate to the reserve shown on the Company Interim Balance Sheet.

2.15 Powers of Attorney . Except as set forth in Section 2.15 of the Disclosure Schedule , there are no outstanding powers of attorney executed on behalf of the Company.

2.16 Insurance . Section 2.16 of the Disclosure Schedule lists each insurance policy (including fire, theft, casualty, general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements) to which the Company is a party. Such insurance policies are of the type and in amounts customarily carried by organizations conducting businesses or owning assets similar to those of the Company. There is no material claim pending under any such policy as to which coverage has been questioned, denied or disputed by the underwriter of such policy. All premiums due and payable under all such policies have been paid, the Company may not be liable for retroactive premiums or similar payments, and the Company is otherwise in compliance in all material respects with the terms of such policies. The Company has no knowledge of any threatened termination of, or material premium increase with respect to, any such policy. Each such policy will continue to be enforceable and in full force and effect immediately following the Effective Time in accordance with the terms thereof as in effect immediately prior to the Effective Time.

 

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2.17 Litigation . As of the date of this Agreement, there is no action, suit, proceeding, claim, arbitration or investigation before any Governmental Entity or before any arbitrator (a “Legal Proceeding”) which is pending or has been threatened in writing against the Company which (a) seeks either damages in excess of $35,000, individually or $70,000 in the aggregate, or (b) if determined adversely to the Company could have, individually or in the aggregate, a Company Material Adverse Effect.

2.18 Employees .

(a) Section 2.18 of the Disclosure Schedule contains a list of all employees of the Company whose annual rate of compensation exceeds $75,000 per year, along with the position and the annual rate of compensation of each such person. Section 2.18 of the Disclosure Schedule contains a list of all employees of, and consultants to, the Company who are a party to a non-competition agreement with the Company; copies of such agreements have previously been delivered to the Parent. To the knowledge of the Company, no key employee or group of employees has any plans to terminate employment with the Company.

(b) The Company is not party to or bound by any collective bargaining agreement, nor has any of them experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. To the knowledge of the Company, no organizational effort has been made or threatened, either currently or within the past two years, by or on behalf of any labor union with respect to employees of the Company. To the knowledge of the Company there are no circumstances or facts which could individually or collectively give rise to a suit based on discrimination of any kind.

2.19 Employee Benefits .

(a) For purposes of this Agreement, the following terms shall have the following meanings:

(i) “Employee Benefit Plan” means any “employee pension benefit plan” (as defined in Section 3(2) of ERISA), any “employee welfare benefit plan” (as defined in Section 3(1) of ERISA), and any other written or oral plan, agreement or arrangement involving direct or indirect compensation, including without limitation insurance coverage, severance benefits, disability benefits, deferred compensation, bonuses, stock options, stock purchase, phantom stock, stock appreciation or other forms of incentive compensation or post-retirement compensation.

(ii) “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

(iii) “ERISA Affiliate” means any entity which is, or at any applicable time was, a member of (1) a controlled group of corporations (as defined in Section 414(b) of the Code), (2) a group of trades or businesses under common control (as defined in Section 414(c) of the Code), or (3) an affiliated service group (as defined under Section 414(m) of the Code or the regulations under Section 414(o) of the Code), any of which includes or included the Company.

 

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(b) Section 2.19(b) of the Disclosure Schedule contains a list of all Employee Benefit Plans that are currently contributed to, by the Company or any ERISA Affiliate. Complete and accurate copies of (i) all Employee Benefit Plans which have been reduced to writing, (ii) written summaries of all unwritten Employee Benefit Plans, (iii) all related trust agreements, insurance contracts and summary plan descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans) all plan financial statements for the last three plan years for each Employee Benefit Plan, have been delivered or made available to the Parent. Each Employee Benefit Plan has been administered in all material respects in accordance with its terms and each of the Company and the ERISA Affiliates has in all material respects met its obligations with respect to such Employee Benefit Plan and has made all required contributions thereto. The Company, each ERISA Affiliate and each Employee Benefit Plan are in compliance in all material respects with the currently applicable provisions of ERISA and the Code and the regulations thereunder (including without limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and Sections 601 through 608 and Section 701 et seq. of ERISA).

(c) To the knowledge of the Company, there are no Legal Proceedings (except claims for benefits payable in the normal operation of the Employee Benefit Plans and proceedings with respect to qualified domestic relations orders) against or involving any Employee Benefit Plan or asserting any rights or claims to benefits under any Employee Benefit Plan that could give rise to any material liability.

(d) All the Employee Benefit Plans that are intended to meet the qualifications under Section 401(a) of the Code have received determination letters from the Internal Revenue Service to the effect that such Employee Benefit Plans meet such qualifications, no such determination letter has been revoked and revocation has not been threatened, and no such Employee Benefit Plan has been amended since the date of its most recent determination letter or application therefor in any respect, and no act or omission has occurred, that would adversely affect its qualification or materially increase its cost. Each Employee Benefit Plan which is required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for compliance with, and satisfies the requirements of, Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year ending prior to the Closing Date.

(e) Neither the Company nor any ERISA Affiliate has ever maintained an Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.

(f) At no time has the Company or any ERISA Affiliate been obligated to contribute to any “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA).

(g) To the knowledge of the Company, there are no material unfunded obligations under any Employee Benefit Plan providing benefits after termination of employment to any employee of the Company (or to any beneficiary of any such employee), including but not limited to retiree health coverage and deferred compensation, but excluding continuation of health coverage required to be continued under Section 4980B of the Code or other applicable law and insurance conversion privileges under state law. The assets of each Employee Benefit Plan which is funded are reported at their fair market value on the books and records of such Employee Benefit Plan.

 

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(h) No act or omission has occurred and no condition exists with respect to any Employee Benefit Plan maintained by the Company or any ERISA Affiliate that would subject the Company or any ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind imposed under ERISA or the Code or (ii) any contractual indemnification or contribution obligation protecting any fiduciary, insurer or service provider with respect to any Employee Benefit Plan.

(i) No Employee Benefit Plan is funded by, associated with or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Code.

(j) Each Employee Benefit Plan is amendable and terminable unilaterally by the Company at any time without liability to the Company as a result thereof and no Employee Benefit Plan, plan documentation or agreement, summary plan description or other written communication distributed generally to employees by its terms prohibits the Company from amending or terminating any such Employee Benefit Plan.

(k) Section 2.19(k) of the Disclosure Schedule discloses each: (i) agreement with any stockholder, director, executive officer or other key employee of the Company (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company of the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee or (C) providing severance benefits or other benefits after the termination of employment of such director, executive officer or key employee; (ii) agreement, plan or arrangement under which any person may receive payments from the Company that may be subject to the tax imposed by Section 4999 of the Code or included in the determination of such person’s “parachute payment” under Section 280G of the Code; and (iii) agreement or plan binding the Company, including without limitation any stock option plan, stock appreciation right plan, restricted stock plan, stock purchase plan, severance benefit plan or Employee Benefit Plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. The accruals for vacation, sickness and disability expenses are accounted for on the Company Interim Balance Sheet and are adequate and materially reflect the expenses associated therewith in accordance with GAAP.

2.20 Environmental Matters .

(a) The Company has complied with all applicable Environmental Laws (as defined below), except for violations of Environmental Laws that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. There is no pending or, to the knowledge of the Company, threatened civil or criminal litigation, written notice of violation, formal administrative proceeding, or investigation, inquiry or information request by any Governmental Entity, relating to any Environmental Law involving the Company. For purposes of this Agreement, “Environmental Law” means any federal, state or local law, statute, rule or regulation or the common law relating to the environment, including without limitation any statute, regulation, administrative decision or

 

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order pertaining to (i) treatment, storage, disposal, generation and transportation of industrial, toxic or hazardous materials or substances or solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater and soil contamination; (iv) the release or threatened release into the environment of industrial, toxic or hazardous materials or substances, or solid or hazardous waste, including without limitation emissions, discharges, injections, spills, escapes or dumping of pollutants, contaminants or chemicals; (v) the protection of wild life, marine life and wetlands, including without limitation all endangered and threatened species; (vi) storage tanks, vessels, containers, abandoned or discarded barrels, and other closed receptacles; (vii) health and safety of employees and other persons; and (viii) manufacturing, processing, using, distributing, treating, storing, disposing, transporting or handling of materials regulated under any law as pollutants, contaminants, toxic or hazardous materials or substances or oil or petroleum products or solid or hazardous waste. As used above, the terms “release” and “environment” shall have the meaning set forth in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended.

(b) Set forth in Section 2.20(b) of the Disclosure Schedule is a list of all documents (whether in hard copy or electronic form) that contain any environmental reports, investigations and audits relating to premises currently or previously owned or operated by the Company (whether conducted by or on behalf of the Company or a third party, and whether done at the initiative of the Company or directed by a Governmental Entity or other third party) which were issued or conducted during the past five years and which the Company has possession of or access to. A complete and accurate copy of each such document has been provided to the Parent.

(c) To the knowledge of the Company, there is no material environmental liability with respect to any solid or hazardous waste transporter or treatment, storage or disposal facility that has been used by the Company.

2.21 Legal Compliance . The Company, and the conduct and operations of its business, is in compliance with each applicable law (including rules and regulations thereunder) of any federal, state, local or foreign government, or any Governmental Entity, except for any violations or defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect.

2.22 Customers . Section 2.22 of the Disclosure Schedule sets forth a list of each customer that accounted for more than 5% of the consolidated revenues of the Company during the last full fiscal year and the amount of revenues accounted for by such customer during such period. No such customer has notified the Company in writing within the past year that it will stop buying services from the Company.

2.23 Permits . Section 2.23 of the Disclosure Schedule sets forth a list of all material permits, licenses, registrations, certificates, orders or approvals from any Governmental Entity (including without limitation those issued or required under Environmental Laws and those relating to the occupancy or use of owned or leased real property) (“Permits”) issued to or held by the Company. Such listed Permits are the only material Permits that are required for the Company to conduct its business as presently conducted except for those the absence of which, individually or in the aggregate, have not had and would not reasonably be expected to have a Company Material Adverse Effect. Each such Permit is in full force and effect and, to the

 

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knowledge of the Company, no suspension or cancellation of such Permit is threatened and, to the knowledge of the Company, there is no reasonable basis for believing that such Permit will not be renewable upon expiration. Each such Permit will continue in full force and effect immediately following the Closing.

2.24 Certain Business Relationships With Affiliates . Except as listed in Section 2.24 of the Disclosure Schedule or as set forth in the Company Financial Statements, no Affiliate of the Company (a) owns any material property or right, tangible or intangible, which is used in the business of the Company, (b) has any claim or cause of action against the Company, or (c) owes any money to, or is owed any money by, the Company. Section 2.24 of the Disclosure Schedule describes any transactions involving the receipt or payment in excess of $20,000 between the Company and any Affiliate thereof which have occurred since January 1, 2013, other than employment agreements.

2.25 Brokers’ Fees . The Company does not have any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement, except as listed in Section 2.25 of the Disclosure Schedule .

2.26 Books and Records . The minute books and other similar records of the Company contain complete and accurate records, in all material respects, of all actions taken at any meetings of the Company’s stockholders, board of directors or any committees thereof and of all written consents executed in lieu of the holding of any such meetings.

2.27 Intellectual Property .

(a) The Company owns, is licensed or otherwise possesses legally enforceable rights to use, license and exploit all issued patents, copyrights, trademarks, service marks, trade names, trade secrets, and registered domain names and all applications for registration therefor (collectively, the “Intellectual Property Rights”) and all computer programs and other computer software, databases, know-how, proprietary technology, formulae, and development tools, together with all goodwill related to any of the foregoing (collectively, the “Intellectual Property”), in each case as is necessary to conduct its business as presently conducted, the absence of which would be considered reasonably likely to result in a Company Material Adverse Effect.

(b) Section 2.27(b) of the Disclosure Schedule sets forth, with respect to all issued patents and all registered copyrights, trademarks, service marks and domain names registered with any Governmental Entity or for which an application for registration has been filed with any Governmental Entity, (i) the registration or application number, the date filed and the title, if applicable, of the registration or application and (ii) the names of the jurisdictions covered by the applicable registration or application. Section 2.27(b) of the Disclosure Schedule identifies each agreement currently in effect containing any ongoing royalty or payment obligations of the Company in excess of $20,000 per annum with respect to Intellectual Property Rights and Intellectual Property that are licensed or otherwise made available to the Company.

(c) Except as set forth on Section 2.27(c) of the Disclosure Schedule , all Intellectual Property Rights that have been registered with any Governmental Entity are valid

 

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and subsisting, except as would not reasonably be expected to have a Company Material Adverse Effect. As of the Effective Time, in connection with such registered Intellectual Property Rights, all necessary registration, maintenance and renewal fees will have been paid and all necessary documents and certificates will have been filed with the relevant Governmental Entities.

(d) The Company is not nor will, as a result of the consummation of the Merger or other transactions contemplated by this Agreement be, in breach in any material respect of any license, sublicense or other agreement relating to the Intellectual Property Rights, or any licenses, sublicenses or other agreements as to which the Company is a party and pursuant to which the Company uses any patents, copyrights (including software), trademarks or other intellectual property rights of or owned by third parties (the “Third Party Intellectual Property Rights”), the breach of which would be reasonably likely to result in a Company Material Adverse Effect.

(e) Except as set forth on Section 2.27(e) of the Disclosure Schedule , the Company has not been named as a defendant in any suit, action or proceeding which involves a claim of infringement or misappropriation of any Third Party Intellectual Property Right and the Company has not received any notice or other communication (in writing or otherwise) of any actual or alleged infringement, misappropriation or unlawful or unauthorized use of any Third Party Intellectual Property. With respect to its marketed products, the Company does not, to its knowledge, infringe any third party intellectual property rights. With respect to its product candidates and products in research or development, after the same are marketed, the Company will not, to its knowledge, infringe any third party intellectual property rights.

(f) To the knowledge of the Company, except as set forth on Section 2.27(f) of the Disclosure Schedule , no other person is infringing, misappropriating or making any unlawful or unauthorized use of any Intellectual Property Rights in a manner that has a material impact on the business of the Company, except for such infringement, misappropriation or unlawful or unauthorized use as would not reasonably be expected to have a Company Material Adverse Effect.

2.28 No Disqualification Events . None of the Company, nor, to the knowledge of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the PPO, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale of the securities in the PPO and/or at the Effective Time (each, a “Company Covered Person” and, together, “Company Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a “Disqualification Event” ) . The Company has exercised reasonable care to determine whether any Company Covered Person is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Parent a copy of any disclosures provided thereunder.

2.29 Merger Agreement Current Report . The Company has provided the Parent with a draft of the Merger Agreement Current Report (as defined herein), dated February 12, 2016, that does not contain, as concerns the Company, any untrue statement of a material fact or omit

 

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to state a material fact that would be required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The financial statements of the Company included in such draft Merger Agreement Current Report complied in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto as in effect as of the date of such draft. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except as may be otherwise indicated in such financial statements or the notes thereto) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended.

2.30 Disclosure; Duty to Make Inquiry . To the extent that any of the representations or warranties in this Article II are qualified by “knowledge” or “belief,” the Company represents and warrants that it has made due and reasonable inquiry and investigation concerning the matters to which such representations and warranties relate, including, but not limited to, diligent inquiry by its directors, officers and key personnel.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE

ACQUISITION SUBSIDIARY

Each of the Parent and the Acquisition Subsidiary represents and warrants to the Company that the statements contained in this Article III are true and correct, except as set forth in the disclosure schedule provided by the Parent and the Acquisition Subsidiary to the Company on the date hereof and accepted in writing by the Company (the “Parent Disclosure Schedule”) and as otherwise described in the Parent Reports (as defined herein). The Parent Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Article III, and except to the extent that it is clear from the context thereof that such disclosure also applies to any other paragraph, the disclosures in any paragraph of the Parent Disclosure Schedule shall qualify only the corresponding paragraph in this Article III. For purposes of this Article III, the phrase “to the knowledge of the Parent” or any phrase of similar import shall be deemed to refer to the actual knowledge of the executive officers of the Parent, as well as any other knowledge which such executive officers would have possessed had they made reasonable inquiry with respect to the matter in question.

3.1 Organization, Qualification and Corporate Power . Each of the Parent and Acquisition Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of the Parent and the Acquisition Subsidiary is duly qualified to conduct business and is in good standing under the laws of each jurisdiction in which the nature of its businesses or the ownership or leasing of its properties requires such qualification, except where the failure to be so qualified or in good standing would not have a Parent Material Adverse Effect (as defined below). Each of the Parent and the Acquisition Subsidiary has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. The Parent has furnished or made available to the Company complete and accurate copies of its articles of incorporation and bylaws, and the organizational documents of the Acquisition Subsidiary. Neither the Parent nor the Acquisition Subsidiary is in default under or in violation of any provision of its articles of

 

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incorporation, as amended to date, or its bylaws, as amended to date. For purposes of this Agreement, “Parent Material Adverse Effect” means a material adverse effect on the assets, business, condition (financial or otherwise), results of operations or future prospects of the Parent and its Subsidiaries, taken as a whole.

3.2 Capitalization . The authorized capital stock of the Parent consists of:

(a) 100,000,000,000 shares of Parent Common Stock, of which 400,000,000 shares were issued and outstanding as of the date of this Agreement; and

(b) 5,000,000,000 shares of preferred stock, par value $0.000001 per share, of which 18,000,000 are designated as Series B Preferred Shares (of which 297,468 Series B Preferred Shares are issued and outstanding).

The Parent Common Stock is presently eligible for quotation and trading on the OTC Pink operated by OTC Markets Group and is not subject to any notice of suspension or delisting. The Parent Common Stock is registered under Section 12(g) of the Exchange Act. The Company is required to file periodic reports with the SEC pursuant to the provisions of Section 13(a) of the Exchange Act. All of the issued and outstanding shares of Parent Common Stock are duly authorized, validly issued, fully paid, nonassessable and free of all preemptive rights. Except as contemplated by the Transaction Documentation (as defined in Section 3.3) or described in Section 3.2 of the Parent Disclosure Schedule or in the Parent Reports, and except for the PPO Warrants, there are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Parent is a party or which are binding upon the Parent providing for the issuance or redemption of any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock or similar rights with respect to the Parent. There are no agreements to which the Parent is a party or by which it is bound with respect to the voting (including without limitation voting trusts or proxies), registration under the Securities Act, or sale or transfer (including without limitation agreements relating to pre-emptive rights, rights of first refusal, co-sale rights or “drag-along” rights) of any securities of the Parent. There are no agreements among other parties, to which the Parent is not a party and by which it is not bound, with respect to the voting (including without limitation voting trusts or proxies) or sale or transfer (including without limitation agreements relating to rights of first refusal, co-sale rights or “drag-along” rights) of any securities of the Parent. All of the issued and outstanding shares of Parent Common Stock were issued in compliance with applicable federal and state securities laws. The approximately 6,612,838 Merger Shares to be issued at the Closing pursuant to Section 1.7(a) hereof (assuming no Dissenting Shares), when issued and delivered in accordance with the terms hereof and of the Certificate of Merger, shall be duly and validly issued, fully paid and nonassessable and free of all preemptive rights and will be issued in compliance with applicable federal and state securities laws. Furthermore, the Series B Preferred Shares underlying the Parent Options, New Options, Parent Debt Cancellation Warrants and Parent Warrants have been duly and validly authorized and reserved for issuance, and when issued in accordance with the terms of the Parent Options, New Options, Parent Debt Cancellation Warrants and Parent Warrants shall be duly and validly issued, fully paid and nonassessable and free of all preemptive rights and will be issued in compliance with applicable federal and state securities laws. Immediately after the Effective Time, without giving effect to the Merger but after giving effect to (i) the conversion of 4,600,000,000 shares of Series A Preferred, (ii) the

 

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issuance of 2,680,000 (Minimum Offering) or 3,200,000 (Maximum Offering) Series B Preferred Shares in the PPO, (iii) the cancellation of all outstanding Parent Debt (other than Parent Debt converted in connection with the PPO up to the Expense Cap) for 295,945 Parent Debt Cancellation Warrants and (iv) between 80,000 (Minimum Offering) and 132,000 (Maximum Offering) Parent Warrants to be issued to placement agents upon completion of the PPO, there will be:

 

  (a) 400,000,000 shares of Parent Common Stock issued and outstanding,

 

  (b) no shares of Series A Preferred Stock issued and outstanding,

 

  (c) 2,977,468 (Minimum Offering) or 3,497,468 (Maximum Offering) Series B Preferred Shares issued and outstanding,

 

  (d) 295,945 Parent Debt Cancellation Warrants issued and outstanding;

 

  (e) between 80,000 (Minimum Offering) and 132,000 (Maximum Offering) Parent Warrants outstanding and

 

  (f) 275,000,000 options to purchase shares of Parent Common Stock issued and outstanding.

3.3 Authorization of Transaction . Each of the Parent and the Acquisition Subsidiary has all requisite power and authority to execute and deliver this Agreement and (in the case of the Parent) the MomSpot Split-Off Agreement and the Subsidiaries Split-Off Agreement and to perform its obligations hereunder and thereunder. The execution and delivery by the Parent and the Acquisition Subsidiary of this Agreement and (in the case of the Parent) the MomSpot Split-Off Agreement and the Subsidiaries Split-Off Agreement, and the agreements contemplated hereby and thereby (collectively, the “Transaction Documentation”), and the consummation by the Parent and the Acquisition Subsidiary of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action on the part of the Parent and the Acquisition Subsidiary, respectively. This Agreement has been duly and validly executed and delivered by the Parent and the Acquisition Subsidiary and constitutes a valid and binding obligation of the Parent and the Acquisition Subsidiary, enforceable against them in accordance with its terms.

3.4 Noncontravention . Subject to the filing of the Certificate of Merger and the Parent’s annual report and payment of taxes for the portion of the year in which the Merger occurs, all as required by the GCL, neither the execution and delivery by the Parent or the Acquisition Subsidiary of this Agreement or the Transaction Documentation, nor the consummation by the Parent or the Acquisition Subsidiary of the transactions contemplated hereby or thereby, will (a) conflict with or violate any provision of the articles or certificate of incorporation or bylaws of the Parent or the Acquisition Subsidiary, (b) require on the part of the Parent or the Acquisition Subsidiary any filing with, or permit, authorization, consent or approval of, any Governmental Entity, (c) conflict with, result in breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any Party any right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Parent or the

 

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Acquisition Subsidiary is a party or by which either is bound or to which any of their assets are subject, (d) result in the imposition of any Security Interest upon any assets of the Parent or the Acquisition Subsidiary or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Parent or the Acquisition Subsidiary or any of their properties or assets.

3.5 Subsidiaries .

(a) Except as set out in Section 3.5 of the Parent Disclosure Schedule , Parent has no Subsidiaries other than the Acquisition Subsidiary and MomSpot. Each of the Acquisition Subsidiary and MomSpot is a corporation, in the case of Acquisition Subsidiary, and a limited liability company, in the case of MomSpot, duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Acquisition Subsidiary was formed solely to effectuate the Merger, and it has not conducted any business operations since its organization. The Parent has delivered or made available to the Company complete and accurate copies of the charter, bylaws or other organizational documents of the Acquisition Subsidiary and MomSpot. The Acquisition Subsidiary has no assets other than minimal paid-in capital, it has no liabilities or other obligations, and it is not in default under or in violation of any provision of its charter, bylaws or other organizational documents. All of the issued and outstanding shares of capital stock of the Acquisition Subsidiary are duly authorized, validly issued, fully paid, nonassessable and free of preemptive rights. All shares of the Acquisition Subsidiary are owned by Parent, free and clear of any restrictions on transfer (other than restrictions under the Securities Act and state securities laws), claims, Security Interests, options, warrants, rights, contracts, calls, commitments, equities and demands. There are no outstanding or authorized options, warrants, rights, agreements or commitments to which the Parent or the Acquisition Subsidiary is a party or which are binding on any of them providing for the issuance, disposition or acquisition of any capital stock of the Acquisition Subsidiary. There are no outstanding stock appreciation, phantom stock or similar rights with respect to the Acquisition Subsidiary. There are no voting trusts, proxies or other agreements or understandings with respect to the voting of any capital stock of the Acquisition Subsidiary. The Parent does not control directly or indirectly or have any direct or indirect participation or similar interest in any corporation, partnership or limited liability company, joint venture, trust or business association which is not a Parent Subsidiary.

3.6 Exchange Act Reports . The Parent has furnished or made available to the Company complete and accurate copies, as amended or supplemented, of its (a) Annual Report on Form 10-K for the fiscal year ended June 30, 2014, as filed with the SEC, which contained audited consolidated balance sheets as of June 30, 2014 (Parent) and 2013 (predecessor company), and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the periods from July 12, 2013 to June 30, 2014 (Parent), eleven days ended July 11, 2013 (predecessor company), and the year ended June 30, 2013 (predecessor company); (b) Annual Report on Form 10-K for the fiscal year ended June 30, 2015, as filed with the SEC, which contained audited consolidated balance sheets as of June 30, 2015 (Parent) and 2014 (Parent), and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the year ended June 30, 2015 (Parent), periods from July 12, 2013 to June 30, 2014 (Parent), eleven days ended July 11, 2013 (predecessor company), (c) Registration Statement on Form 10, as filed with the SEC on July 2, 2014, as

 

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well as all amendments thereto, and (d) all other reports filed by the Parent under Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC subsequent to July 2, 2014 (such reports are collectively referred to herein as the “Parent Reports”). The Parent Reports constitute all of the documents required to be filed by the Parent with the SEC, including under Section 13 or subsections (a) or (c) of Section 14 of the Exchange Act, through the date of this Agreement. The Parent Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations thereunder when filed. As of the date hereof, there are no outstanding or unresolved comments in comment letters received from the staff of the SEC with respect to any of the Parent Reports. As of their respective dates, the Parent Reports did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.

3.7 Compliance with Laws . Each of the Parent and its Subsidiaries:

(a) and the conduct and operations of their respective businesses, are in compliance with each applicable law (including rules and regulations thereunder) of any federal, state, local or foreign government, or any Governmental Entity, except for any violations or defaults that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect;

(b) has complied with all federal and state securities laws and regulations, including being current in all of its reporting obligations under such federal and state securities laws and regulations;

(c) has not, and to the knowledge of the Parent, the past and present officers, directors and Affiliates of the Parent have not, been the subject of, nor does any officer or director of the Parent have any reason to believe that Parent or any of its officers, directors or Affiliates will be the subject of, any civil or criminal proceeding or investigation by any federal or state agency alleging a violation of securities laws;

(d) since July 2, 2014, has not been the subject of any voluntary or involuntary bankruptcy proceeding, nor has it been a party to any material litigation;

(e) has not, and to the knowledge of the Parent, the past and present officers, directors and Affiliates have not, been the subject of, nor does any officer or director of the Parent have any reason to believe that the Parent or any of its officers, directors or affiliates will be the subject of, any civil, criminal or administrative investigation or proceeding brought by any federal or state agency having regulatory authority over such entity or person; and

(f) does not have any liabilities, contingent or otherwise other than those set out in the Parent Reports and in Schedule 3.11, and at the Closing will not have any liabilities, contingent or otherwise, including but not limited to notes payable and accounts payable other than those liabilities set out in Section 3.7 of the Parent Disclosure Schedule , and is not a party to any executory agreements.

 

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3.8 Financial Statements; Internal Controls .

(a) The audited financial statements and unaudited interim financial statements of the Parent included in the Parent Reports (collectively, the “Parent Financial Statements”) (i) complied as to form in all material respects with applicable accounting requirements and, as appropriate, the published rules and regulations of the SEC with respect thereto when filed, (ii) were prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby (except as may be indicated therein or in the notes thereto, and in the case of quarterly financial statements, as permitted by Form 10-Q under the Exchange Act), (iii) fairly present the consolidated financial condition, results of operations and cash flows of the Parent as of the respective dates thereof and for the periods referred to therein, and (iv) are consistent with the books and records of the Parent.

(b) The Parent has designed and maintains a system of internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that its management has concluded are not effective. The Parent (i) has designed and maintains disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) to reasonably ensure that material information required to be disclosed by the Parent in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is accumulated and communicated to the Parent’s management as appropriate to allow timely decisions regarding required disclosure and its management has concluded that such disclosure controls and procedures are not effective and (ii) has disclosed to the Parent’s auditors and the Board of Directors of the Parent (and made summaries of such disclosures available to Parent) (A) any significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting that are reasonably likely to adversely affect in any material respect the Parent’s ability to record, process, summarize and report financial information and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Parent’s internal controls over financial reporting. The Parent is in compliance in all material respects with all effective provisions of the Sarbanes-Oxley Act.

(c) Neither the Parent nor any Subsidiary nor, to the knowledge of the Parent, any director, officer, auditor, accountant or representative of the Parent or any Subsidiary has received or otherwise had or obtained knowledge of any substantive complaint, allegation, assertion or claim, whether written or oral, that the Parent or any Subsidiary has engaged in questionable accounting or auditing practices. No current or former attorney representing the Parent or any Subsidiary has reported evidence of a material violation of securities laws, breach of fiduciary duty or similar violation by the Parent or any Subsidiary, or any of their respective officers, directors, employees or agents, to the current Board of Directors of the Parent or any committee thereof or to any current director or executive officer of the Parent.

(d) To the knowledge of the Parent, no employee of the Parent or any Subsidiary has provided or is providing information to any law enforcement agency regarding the commission or possible commission of any crime or the violation or possible violation of any applicable legal requirements of the type described in Section 806 of the Sarbanes-Oxley Act by the Parent or any Subsidiary. Neither the Parent nor any Subsidiary nor, to the knowledge of the Parent, any director, officer, employee, contractor, subcontractor or agent of the Parent or any Subsidiary, has discharged, demoted, suspended, threatened, harassed or in any other manner discriminated against an employee of the Parent or any Parent Subsidiary in the terms and conditions of employment because of any lawful act of such employee described in Section 806 of the Sarbanes-Oxley Act.

 

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3.9 Absence of Certain Changes . Apart from the accumulation of liabilities set out in Section 3.11 of the Parent Disclosure Schedule , since the date of the balance sheet contained in the most recent Parent Report, (a) there has occurred no event or development which, individually or in the aggregate, has had, or could reasonably be expected to have in the future, a Parent Material Adverse Effect and (b) neither the Parent nor the Acquisition Subsidiary has taken any of the actions set forth below:

(a) issue or sell, or redeem or repurchase, any stock or other securities of the Parent or any rights, warrants or options to acquire any such stock or other securities, except as contemplated by, and in connection with, the PPO and the Merger;

(b) split, combine or reclassify any shares of its capital stock; declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, except as contemplated by, and in connection with, this Agreement;

(c) create, incur or assume any indebtedness (including obligations in respect of capital leases); assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person or entity; or make any loans, advances or capital contributions to, or investments in, any other person or entity;

(d) enter into, adopt or amend any Employee Benefit Plan or any employment or severance agreement or arrangement or (except for normal increases in the Ordinary Course of Business for employees who are not Affiliates) increase in any manner the compensation or fringe benefits of, or materially modify the employment terms of, its directors, officers or employees, generally or individually, or pay any bonus or other benefit to its directors, officers or employees, except for the adoption of the 2006 Plan in connection with the Merger;

(e) acquire, sell, lease, license or dispose of any assets or property (including without limitation any shares or other equity interests in or securities of any Parent Subsidiary or any corporation, partnership, association or other business organization or division thereof), except as contemplated by, and in connection with, the MomSpot Split-Off and the Subsidiaries Split-Off;

(f) mortgage or pledge any of its property or assets or subject any such property or assets to any Security Interest;

(g) discharge or satisfy any Security Interest or pay any obligation or liability other than in the Ordinary Course of Business or in the issuance of the Parent Debt Cancellation Warrants;

(h) amend its charter, by-laws or other organizational documents;

(i) change in any material respect its accounting methods, principles or practices, except insofar as may be required by a generally applicable change in GAAP;

 

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(j) enter into, amend, terminate, take or omit to take any action that would constitute a violation of or default under, or waive any rights under, any material contract or agreement;

(k) institute or settle any Legal Proceeding;

(l) take any action or fail to take any action permitted by this Agreement with the knowledge that such action or failure to take action would result in (i) any of the representations and warranties of the Parent and/or the Acquisition Subsidiary set forth in this Agreement becoming untrue in any material respect or (ii) any of the conditions to the Merger set forth in Article V not being satisfied; or

(m) agree in writing or otherwise to take any of the foregoing actions.

3.10 Litigation . Except as disclosed in the Parent Reports and in the “Local Defendant Suit Search” conducted by Corporation Service Company on February 5, 2016, a copy of which is attached hereto as Exhibit C , as of the date of this Agreement, there is no Legal Proceeding which is pending or, to the Parent’s knowledge, threatened against the Parent or any Subsidiary of the Parent.

3.11 Undisclosed Liabilities . None of the Parent and its Subsidiaries has any liabilities other than those set out in the Parent Reports and in Schedule 3.11.

3.12 Tax Matters .

(a) Each of the Parent and the Subsidiaries has filed all Tax Returns that it was required to file, and all such Tax Returns were complete and accurate in all material respects. Neither the Parent nor any Subsidiary is or has ever been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary Tax Returns, other than a group of which only the Parent and the Subsidiaries are or were members. Each of the Parent and the Parent Subsidiaries has paid on a timely basis all Taxes that were due and payable. Any unpaid Taxes of the Parent and the Parent Subsidiaries for tax periods through the date of the balance sheet contained in the most recent Parent Report do not exceed the accruals and reserves for Taxes (excluding accruals and reserves for deferred Taxes established to reflect timing differences between book and Tax income) set forth on such balance sheet. Except as set out in Section 3.7 of the Parent Disclosure Schedules , neither the Parent nor any Parent Subsidiary has any actual or potential liability for any Tax obligation of any taxpayer (including without limitation any affiliated group of corporations or other entities that included the Parent or any Parent Subsidiary during a prior period) other than the Parent and the Parent Subsidiaries. All Taxes that the Parent or any Parent Subsidiary is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the proper Governmental Entity.

(b) The Parent has delivered or made available to the Company complete and accurate copies of all federal income Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by the Parent or any Subsidiary since December 31, 2001. No examination or audit of any Tax Return of the Parent or any Parent Subsidiary by any Governmental Entity is currently in progress or, to the knowledge of the Parent, threatened or

 

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contemplated. Except as set out in Section 3.7 of the Parent Disclosure Schedules , neither the Parent nor any Parent Subsidiary has been informed by any jurisdiction that the jurisdiction believes that the Parent or such Subsidiary was required to file any Tax Return that was not filed. Neither the Parent nor any Parent Subsidiary has waived any statute of limitations with respect to Taxes or agreed to an extension of time with respect to a Tax assessment or deficiency.

(c) Neither the Parent nor any Parent Subsidiary: (i) is a “consenting corporation” within the meaning of Section 341(f) of the Code, and none of the assets of the Parent or the Parent Subsidiaries are subject to an election under Section 341(f) of the Code; (ii) has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has made any payments, is obligated to make any payments, or is a party to any agreement that could obligate it to make any payments that may be treated as an “excess parachute payment” under Section 280G of the Code; (iv) has any actual or potential liability for any Taxes of any person (other than the Parent and its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar provision of federal, state, local, or foreign law), or as a transferee or successor, by contract, or otherwise; or (v) is or has been required to make a basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).

(d) None of the assets of the Parent or any Subsidiary: (i) is property that is required to be treated as being owned by any other person pursuant to the provisions of former Section 168(f)(8) of the Internal Revenue Code of 1954, as amended, and in effect immediately prior to the enactment of the Tax Reform Act of 1986; (ii) is “tax-exempt use property” within the meaning of Section 168(h) of the Code; or (iii) directly or indirectly secures any debt the interest on which is tax exempt under Section 103(a) of the Code.

(e) Neither the Parent nor any Subsidiary has undergone a change in its method of accounting resulting in an adjustment to its taxable income pursuant to Section 481 of the Code.

(f) No state or federal “net operating loss” of the Parent determined as of the Closing Date is subject to limitation on its use pursuant to Section 382 of the Code or comparable provisions of state law as a result of any “ownership change” within the meaning of Section 382(g) of the Code or comparable provisions of any state law occurring prior to the Closing Date.

3.13 Assets . MomSpot owns or leases all tangible assets necessary for the conduct of its businesses as presently conducted and as presently proposed to be conducted. Each such tangible asset is free from material defects, has been maintained in accordance with normal industry practice, is in good operating condition and repair (subject to normal wear and tear) and is suitable for the purposes for which it presently is used. No asset of the Parent or MomSpot (tangible or intangible) is subject to any Security Interest.

3.14 Owned Real Property . Neither the Parent nor any Parent Subsidiary owns any real property.

 

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3.15 Real Property Leases . Section 3.15 of the Parent Disclosure Schedule lists all real property leased or subleased to or by the Parent or any Parent Subsidiary and lists the term of such lease, any extension and expansion options, and the rent payable thereunder. The Parent has delivered or made available to the Company complete and accurate copies of the leases and subleases listed in Section 3.15 of the Parent Disclosure Schedule . With respect to each lease and sublease listed in Section 3.15 of the Parent Disclosure Schedule :

(a) the lease or sublease is legal, valid, binding, enforceable and in full force and effect;

(b) the lease or sublease will continue to be legal, valid, binding, enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing;

(c) neither the Parent nor any Parent Subsidiary nor, to the knowledge of the Parent, any other party, is in breach or violation of, or default under, any such lease or sublease, and no event has occurred, is pending or, to the knowledge of the Parent, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Parent or any Parent Subsidiary or, to the knowledge of the Parent, any other party under such lease or sublease;

(d) neither the Parent nor any Parent Subsidiary has assigned, transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold or subleasehold; and

(e) the Parent is not aware of any Security Interest, easement, covenant or other restriction applicable to the real property subject to such lease, except for recorded easements, covenants and other restrictions which do not materially impair the current uses or the occupancy by the Parent or a Parent Subsidiary of the property subject thereto.

3.16 Contracts .

(a) Section 3.16 of the Parent Disclosure Schedule lists the following agreements (written or oral) to which the Parent or any Parent Subsidiary is a party as of the date of this Agreement:

(i) any agreement (or group of related agreements) for the lease of personal property from or to third parties;

(ii) any agreement (or group of related agreements) for the purchase or sale of products or for the furnishing or receipt of services;

(iii) any agreement establishing a partnership or joint venture;

(iv) any agreement (or group of related agreements) under which it has created, incurred, assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness (including capitalized lease obligations) or under which it has imposed (or may impose) a Security Interest on any of its assets, tangible or intangible;

 

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(v) any agreement concerning confidentiality or noncompetition;

(vi) any employment or consulting agreement;

(vii) any agreement involving any current or former officer, director or stockholder of the Parent or any Affiliate thereof;

(viii) any agreement which contains any provisions requiring the Parent or any Parent Subsidiary to indemnify any other party thereto (excluding indemnities contained in agreements for the purchase, sale or license of products entered into in the Ordinary Course of Business);

(ix) any other agreement (or group of related agreements); and

(x) any agreement, other than as contemplated by the PPO, this Agreement, the MomSpot Split-Off and the Subsidiaries Split-Off, relating to the sales of securities of Parent or any Parent Subsidiary to which the Parent or such Subsidiary is a party.

(b) The Parent has delivered or made available to the Company a complete and accurate copy of each agreement listed in Section 3.16 of the Parent Disclosure Schedule . With respect to each agreement so listed: (i) the agreement is legal, valid, binding and enforceable and in full force and effect; (ii) the agreement will continue to be legal, valid, binding and enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing; and (iii) neither the Parent nor any Parent Subsidiary nor, to the knowledge of the Parent, any other party, is in breach or violation of, or default under, any such agreement, and no event has occurred, is pending or, to the knowledge of the Parent, is threatened, which, after the giving of notice, with lapse of time, or otherwise, would constitute a breach or default by the Parent or any Parent Subsidiary or, to the knowledge of the Parent, any other party under such contract.

3.17 Accounts Receivable . All accounts receivable of the Parent reflected on the Parent Reports are valid receivables subject to no setoffs or counterclaims and are current and collectible (within 90 days after the date on which it first became due and payable), net of the applicable reserve for bad debts on the balance sheet contained in the most recent Parent Report. All accounts receivable reflected in the financial or accounting records of the Parent that have arisen since the date of the balance sheet contained in the most recent Parent Report are valid receivables subject to no setoffs or counterclaims and are collectible (within 90 days after the date on which it first became due and payable), net of a reserve for bad debts in an amount proportionate to the reserve shown on the balance sheet contained in the most recent Parent Report.

3.18 Powers of Attorney . Except as set out in the Indemnity Agreement (as defined herein), there are no outstanding powers of attorney executed on behalf of the Parent or any Parent Subsidiary.

 

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3.19 Insurance . Section 3.19 of the Parent Disclosure Schedule lists each insurance policy (including fire, theft, casualty, general liability, workers compensation, business interruption, environmental, product liability and automobile insurance policies and bond and surety arrangements) to which the Parent is a party. Such insurance policies are of the type and in amounts customarily carried by organizations conducting businesses or owning assets similar to those of the Parent and the Parent Subsidiaries. There is no claim pending under any such policy as to which coverage has been questioned, denied or disputed by the underwriter of such policy. All premiums due and payable under all such policies have been paid, the Parent will not be liable for retroactive premiums or similar payments, and the Parent is otherwise in compliance in all material respects with the terms of such policies. The Parent has no knowledge of any threatened termination of, or material premium increase with respect to, any such policy. Each such policy will continue to be enforceable and in full force and effect immediately following the Closing in accordance with the terms thereof as in effect immediately prior to the Closing.

3.20 Warranties . No product or service sold or delivered by the Parent, MomSpot or the Split-Off Subsidiaries is subject to any guaranty, warranty, right of credit or other indemnity.

3.21 Employees .

(a) The Parent Reports contain all material information concerning the employees of Parent.

(b) Neither the Parent nor any Parent Subsidiary is a party to or bound by any collective bargaining agreement, nor have any of them experienced any strikes, grievances, claims of unfair labor practices or other collective bargaining disputes. The Parent has no knowledge of any organizational effort made or threatened, either currently or since the date of organization of the Parent, by or on behalf of any labor union with respect to employees of the Parent or any Parent Subsidiary.

3.22 Employee Benefits .

(a) Section 3.22(a) of the Parent Disclosure Schedule contains a list of all Employee Benefit Plans that are currently contributed to, by the Parent, any Parent Subsidiary or any ERISA Affiliate. Complete and accurate copies of (i) all Employee Benefit Plans which have been reduced to writing, (ii) written summaries of all unwritten Employee Benefit Plans, (iii) all related trust agreements, insurance contracts and summary plan descriptions, and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans) all plan financial statements for the last three plan years for each Employee Benefit Plan, have been delivered or made available to the Parent. Each Employee Benefit Plan has been administered in all material respects in accordance with its terms and each of the Parent, the Parent Subsidiaries and the ERISA Affiliates has in all material respects met its obligations with respect to such Employee Benefit Plan and has made all required contributions thereto. The Parent, each Subsidiary of the Parent, each ERISA Affiliate and each Employee Benefit Plan are in compliance in all material respects with the currently applicable provisions of ERISA and the Code and the regulations thereunder (including without limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and Sections 601 through 608 and Section 701 et seq. of ERISA).

 

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(b) To the knowledge of the Parent, there are no Legal Proceedings (except claims for benefits payable in the normal operation of the Employee Benefit Plans and proceedings with respect to qualified domestic relations orders) against or involving any Employee Benefit Plan or asserting any rights or claims to benefits under any Employee Benefit Plan that could give rise to any material liability.

(c) All the Employee Benefit Plans that are intended to meet the qualifications under Section 401(a) of the Code have received determination letters from the Internal Revenue Service to the effect that such Employee Benefit Plans meet such qualifications, no such determination letter has been revoked and revocation has not been threatened, and no such Employee Benefit Plan has been amended since the date of its most recent determination letter or application therefor in any respect, and no act or omission has occurred, that would adversely affect its qualification or materially increase its cost. Each Employee Benefit Plan which is required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for compliance with, and satisfies the requirements of, Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year ending prior to the Closing Date.

(d) Neither the Parent, any Parent Subsidiary, nor any ERISA Affiliate has ever maintained an Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.

(e) At no time has the Parent, any Parent Subsidiary or any ERISA Affiliate been obligated to contribute to any “multiemployer plan” (as defined in Section 4001(a)(3) of ERISA).

(f) There are no material unfunded obligations under any Employee Benefit Plan providing benefits after termination of employment to any employee of the Parent or any Parent Subsidiary (or to any beneficiary of any such employee), including but not limited to retiree health coverage and deferred compensation, but excluding continuation of health coverage required to be continued under Section 4980B of the Code or other applicable law and insurance conversion privileges under state law. The assets of each Employee Benefit Plan which is funded are reported at their fair market value on the books and records of such Employee Benefit Plan.

(g) To the knowledge of the Parent, no act or omission has occurred and no condition exists with respect to any Employee Benefit Plan maintained by the Parent, any Parent Subsidiary or any ERISA Affiliate that would subject the Parent, any Parent Subsidiary or any ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind imposed under ERISA or the Code or (ii) any contractual indemnification or contribution obligation protecting any fiduciary, insurer or service provider with respect to any Employee Benefit Plan.

(h) No Employee Benefit Plan is funded by, associated with or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Code.

 

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(i) Each Employee Benefit Plan is amendable and terminable unilaterally by the Parent at any time without liability to the Parent as a result thereof and no Employee Benefit Plan, plan documentation or agreement, summary plan description or other written communication distributed generally to employees by its terms prohibits the Parent from amending or terminating any such Employee Benefit Plan.

(j) Section 3.22(j) of the Parent Disclosure Schedule discloses each: (i) agreement with any stockholder, director, executive officer or other key employee of the Parent or any Parent Subsidiary (A) the benefits of which are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Parent or any Parent Subsidiary of the nature of any of the transactions contemplated by this Agreement, (B) providing any term of employment or compensation guarantee or (C) providing severance benefits or other benefits after the termination of employment of such director, executive officer or key employee; (ii) agreement, plan or arrangement under which any person may receive payments from the Parent or any Parent Subsidiary that may be subject to the tax imposed by Section 4999 of the Code or included in the determination of such person’s “parachute payment” under Section 280G of the Code; and (iii) agreement or plan binding the Parent or any Parent Subsidiary, including without limitation any stock option plan, stock appreciation right plan, restricted stock plan, stock purchase plan, severance benefit plan or Employee Benefit Plan, any of the benefits of which will be increased, or the vesting of the benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement. The accruals for vacation, sickness and disability expenses are accounted for on the most recent balance sheet and are adequate and materially reflect the expenses associated therewith in accordance with GAAP.

3.23 Environmental Matters .

(a) Each of the Parent and the Parent Subsidiaries has complied with all applicable Environmental Laws, except for violations of Environmental Laws that, individually or in the aggregate, have not had and would not reasonably be expected to have a Parent Material Adverse Effect. There is no pending or, to the knowledge of the Parent, threatened civil or criminal litigation, written notice of violation, formal administrative proceeding, or investigation, inquiry or information request by any Governmental Entity, relating to any Environmental Law involving the Parent or any Parent Subsidiary.

(b) Set forth in Section 3.23(b) of the Parent Disclosure Schedule is a list of all documents (whether in hard copy or electronic form) that contain any environmental reports, investigations and audits relating to premises currently or previously owned or operated by the Parent or a Parent Subsidiary (whether conducted by or on behalf of the Parent or a Parent Subsidiary or a third party, and whether done at the initiative of the Parent or a Parent Subsidiary or directed by a Governmental Entity or other third party) which were issued or conducted during the past five years and which the Parent has possession of or access to. A complete and accurate copy of each such document has been provided to the Parent.

 

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(c) The Parent is not aware of any material environmental liability of any solid or hazardous waste transporter or treatment, storage or disposal facility that has been used by the Parent or any Parent Subsidiary.

3.24 Permits . Section 3.24 of the Parent Disclosure Schedule sets forth a list of all permits, licenses, registrations, certificates, orders or approvals from any Governmental Entity (including without limitation those issued or required under Environmental Laws and those relating to the occupancy or use of owned or leased real property) (“Parent Permits”) issued to or held by the Parent or any Parent Subsidiary. Such listed Permits are the only Parent Permits that are required for the Parent and the Parent Subsidiaries to conduct their respective businesses as presently conducted. Each such Parent Permit is in full force and effect and, to the knowledge of the Parent, no suspension or cancellation of such Parent Permit is threatened and there is no basis for believing that such Parent Permit will not be renewable upon expiration. Each such Parent Permit will continue in full force and effect immediately following the Closing.

3.25 Certain Business Relationships With Affiliates . No Affiliate of the Parent or of any Parent Subsidiary (a) owns any property or right, tangible or intangible, which is used in the business of the Parent or any Parent Subsidiary, (b) has any claim or cause of action against the Parent or any Parent Subsidiary, or (c) owes any money to, or is owed any money by, the Parent or any Parent Subsidiary. Section 3.25 of the Parent Disclosure Schedule describes any transactions involving the receipt or payment in excess of $1,000 in any fiscal year between the Parent or a Parent Subsidiary and any Affiliate thereof which have occurred or existed since the beginning of the time period covered by the Parent Financial Statements through the date of this Agreement.

3.26 Tax-Free Reorganization .

(a) The Parent (i) is not an “investment company” as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present plan or intention to liquidate the Surviving Corporation or to merge the Surviving Corporation with or into any other corporation or entity, or to sell or otherwise dispose of the stock of the Surviving Corporation which Parent will acquire in the Merger, or to cause the Surviving Corporation to sell or otherwise dispose of its assets, all except in the ordinary course of business or if such liquidation, merger, disposition is described in Section 368(a)(2)(C) or Treasury Regulation Section 1.368-2(d)(4) or Section 1368-2(k); and (iii) has no present plan or intention, following the Merger, to issue any additional shares of stock of the Surviving Corporation or to create any new class of stock of the Surviving Corporation.

(b) The Acquisition Subsidiary is a wholly-owned subsidiary of the Parent, formed solely for the purpose of engaging in the Merger, and will carry on no business prior to the Merger.

(c) Immediately prior to the Merger, the Parent will be in control of Acquisition Subsidiary within the meaning of Section 368(c) of the Code.

 

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(d) The Parent has no present plan or intention to reacquire any of the Merger Shares.

(e) The Acquisition Subsidiary will have no liabilities assumed by the Surviving Corporation and will not transfer to the Surviving Corporation any assets subject to liabilities in the Merger.

(f) The MomSpot Split-Off Agreement will constitute a legally binding obligation between the Parent and MomSpot Buyer prior to the Effective Time; immediately following consummation of the Merger, the Parent will transfer the Membership Interest to MomSpot Buyer in return for payment of the Purchase Price (as such term is defined in the Split-Off Agreement); no property other than the Membership Interest in MomSpot will be distributed by the Parent to MomSpot Buyer in connection with or following the Merger.

(g) The Subsidiaries Split-Off Agreement will constitute a legally binding obligation between the Parent and Subsidiaries Buyer prior to the Effective Time; at the Effective Time, the Parent will transfer all of its equity ownership interests in the Split-Off Subsidiaries to Subsidiaries Buyer as set out in the Subsidiaries Split-Off Agreement; no property other than the equity ownership interests in the Split-Off Subsidiaries will be distributed by the Parent to Subsidiaries Buyer in connection with or following the Merger.

3.27 Split-Off . Immediately after the Effective Time, the Parent will have discontinued all of its business operations which it conducted prior to the Effective Time by closing the transactions contemplated by the MomSpot Split-Off Agreement. Upon the closing of the transactions contemplated by the MomSpot Split-Off Agreement, without giving effect to the Merger, the Parent will have no (i) liabilities, contingent or otherwise, of any kind whatsoever, including but not limited to liabilities in any way related to its pre-Effective Time business operations (except as set out in Section 3.7 of the Parent Disclosure Schedule ) or (ii) subsidiaries, other than the Acquisition Subsidiary.

3.28 Brokers’ Fees . Except as set forth on Section 3.28 of the Parent Disclosure Schedule , neither the Parent nor the Acquisition Subsidiary has any liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.

3.29 Disclosure . No representation or warranty by the Parent contained in this Agreement or in any of the Transaction Documentation, and no statement contained in the any document, certificate or other instrument delivered or to be delivered by or on behalf of the Parent pursuant to this Agreement or therein, contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was or will be made, in order to make the statements herein or therein not misleading.

3.30 Interested Party Transactions . Except for the MomSpot Split-Off Agreement and the Subsidiaries Split-Off Agreement and as set out in Section 3.25 of the Parent Disclosure Schedule , to the knowledge of the Parent, no officer, director or stockholder of Parent or any “affiliate” (as such term is defined in Rule 12b-2 under the Exchange Act) or “associate” (as

 

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such term is defined in Rule 405 under the Securities Act) of any such person currently has or has had, either directly or indirectly, (a) an interest in any person that (i) furnishes or sells services or products that are furnished or sold or are proposed to be furnished or sold by Parent or any Parent Subsidiary or (ii) purchases from or sells or furnishes to Parent or any Parent Subsidiary any goods or services, or (b) a beneficial interest in any contract or agreement to which Parent or any Parent Subsidiary is a party or by which it may be bound or affected. Neither Parent or any Parent Subsidiary has extended or maintained credit, arranged for the extension of credit, or renewed an extension of credit, in the form of a personal loan to or for any director or executive officer (or equivalent thereof) of the Parent or any Parent Subsidiary.

3.31 Duty to Make Inquiry . To the extent that any of the representations or warranties in this Article III are qualified by “knowledge” or “belief,” Parent represents and warrants that it has made due and reasonable inquiry and investigation concerning the matters to which such representations and warranties relate, including, but not limited to, diligent inquiry by its directors, officers and key personnel.

3.32 Accountants . Marcum LLP (“Marcum”), is and has been the Parent’s registered public accounting firm since November 1, 2013 and has audited the financial statements of Parent for each of the years ended June 30, 2014 and 2015. Throughout its engagement by Parent, Marcum has been (a) a registered public accounting firm (as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of 2002), (b) “independent” with respect to Parent within the meaning of Regulation S-X and (c) in compliance with subsections (g) through (l) of Section 10A of the Exchange Act and the related rules of the Commission and the Public Company Accounting Oversight Board. The report of Marcum on the financial statements of Parent for the past fiscal year did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified as to audit scope or accounting principles, although it did express uncertainty as to Parent’s ability to continue as a going concern. During Parent’s most recent fiscal year and the subsequent interim periods, there were no disagreements with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures. None of the reportable events listed in Item 304(a)(1)(iv) of Regulation S-K occurred with respect to Marcum.

3.33 Minute Books . The minute books and other similar records of the Parent and each Parent Subsidiary contain, in all material respects, complete and accurate records of all actions taken at any meetings of directors and stockholders or actions by written consent in lieu of the holding of any such meetings since July 12, 2013 through the date of this Agreement. The Parent has provided true and complete copies of all such minute books, and other similar records to the Company’s representatives.

3.34 Board Action . The Parent’s Board of Directors (a) has unanimously determined that the Merger is advisable and in the best interests of the Parent’s stockholders and is on terms that are fair to such Parent stockholders and (b) has caused the Parent, in its capacity as the sole stockholder of the Acquisition Subsidiary, and the Board of Directors of the Acquisition Subsidiary, to approve the Merger and this Agreement by unanimous written consent.

3.35 No Disqualification Events . None of the Parent, nor, to the knowledge of the Parent, any of its predecessors, any affiliated issuer, any director, executive officer, other

 

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officer of the Parent participating in the PPO or the Merger, any beneficial owner of 20% or more of the Parent’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Parent in any capacity at the time of sale of the securities in the PPO and/or at the Effective Time (each, a “Parent Covered Person” and, together, “Parent Covered Persons”) is subject to a Disqualification Event. The Parent has exercised reasonable care to determine whether any Parent Covered Person is subject to a Disqualification Event. The Parent has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished to the Company a copy of any disclosures provided thereunder.

ARTICLE IV

COVENANTS

4.1 Closing Efforts . Each of the Parties shall use its best efforts, to the extent commercially reasonable (“Reasonable Best Efforts”), to take all actions and to do all things necessary, proper or advisable to consummate the transactions contemplated by this Agreement, including without limitation using its Reasonable Best Efforts to ensure that (i) its representations and warranties remain true and correct in all material respects through the Closing Date and (ii) the conditions to the obligations of the other Parties to consummate the Merger are satisfied.

4.2 Current Reports . As soon as reasonably practicable after the execution of this Agreement, the Parties shall prepare a current report on Form 8-K relating to this Agreement and the transactions contemplated hereby (the “Merger Agreement Current Report”). Each of the Company and Parent shall use its Reasonable Best Efforts to cause the Merger Agreement Current Report to be filed with the SEC within four business days of the execution of this Agreement and to otherwise comply with all requirements of applicable federal and state securities laws.

4.3 Expenses . The costs and expenses (including legal fees and expenses) of the Parent (including the Fund Stockholders) and the Company incurred in connection with this Agreement and the transactions contemplated hereby shall be payable at Closing from the proceeds of the PPO, in the case of the costs and expenses of the Parent, only to the extent such costs and expenses are in excess of the amount of stockholder debt not converted in the PPO. The Parent’s costs and expenses shall not exceed $150,000 in the aggregate (the “Expense Cap”). The Parent’s costs and expenses shall be limited to reasonable costs and expenses actually incurred.

4.4 Split-Offs . The Parent shall take whatever steps are necessary to enable it to effect the Subsidiaries Split-Off at the Effective Time and the MomSpot Split-Off immediately after the Effective Time.

4.5 Stock Option Plan . The Board of Directors of Parent shall adopt, prior to or as of the Effective Time, the 2006 Plan, reserving for issuance (a) prior to the Reverse Stock Split, 1,707,744 Series B Preferred Shares and (b) after the Reverse Stock Split, 1,707,744 shares of Parent Common Stock (on a Reverse Stock Split basis).

 

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4.6 Reverse Stock Split . As soon as possible after the Effective Time, but in no event later than 90 days from the final closing of the PPO, the Parent shall (i) enact a reverse stock split (the “Reverse Stock Split”) whereby every 15,463.7183 shares of outstanding Parent common stock shall be exchanged for one share of new Parent common stock and (ii) amend its certificate of incorporation to reduce the number of shares of issued and outstanding common stock (“Authorized Decrease”). Parent shall make all filings and take all steps required by the SEC, GCL and FINRA to enact the Reverse Stock Split and the Authorized Decrease.

ARTICLE V

CONDITIONS TO CONSUMMATION OF MERGER

5.1 Conditions to Each Party’s Obligations . The respective obligations of each Party to consummate the Merger are subject to the satisfaction of the following conditions:

(a) this Agreement and the Merger shall have received the approval of at least 80% of the votes represented by the outstanding Company Shares entitled to vote on this Agreement and the Merger;

(b) the completion of the offer and sale of at least the Minimum Offering of the PPO;

(c) satisfactory completion by Parent and Company of all necessary legal due diligence;

(d) consummation of all required definitive instruments and agreements including, but not limited to, the Merger Agreement, in forms acceptable to the Company and Parent;

(e) the Company and Parent obtaining all necessary board, shareholder, and third party consents;

(f) that there be no injunction or order in effect by any governmental authority prohibiting the Merger;

(g) the Parent shall have approved the creation of the Series B Preferred Shares, and a certificate of designations, preferences and rights (in the Form attached hereto as Exhibit B) for the creation of such Series B Preferred Shares shall have been filed with the Secretary of State of Delaware, with each Series B Preferred Share:

(a) automatically converting into one share of Parent common stock (on a post-Reverse Stock Split basis) upon the occurrence of the Reverse Stock Split;

(b) voting on all matters put to a vote of the holders of common stock, with each Series B Preferred Share carrying a number of votes equal to 15,463.7183 shares of common stock; provided that Series B Preferred Shares that cannot be converted into common stock solely as a result of the Blocker (as defined below), shall have no voting rights;

 

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(c) containing a blocker (the “Blocker”) preventing the automatic conversion of such Series B Preferred Shares that would cause a holder of Series B Preferred Shares to beneficially own more than 9.9% of Parent common stock; provided that such provision shall only apply to those holders of Series B Preferred Shares who expressly state in writing to Parent (which statement may not be revoked for 61 days) that they wish to be subject to the Blocker; and further provided that any Series B Preferred Shares not converted as a result of this provision would (i) have the same liquidation rights as if the Series B Preferred Shares had converted into Parent common stock, (ii) have no voting rights and (iii) automatically convert as soon as such conversion would not violate such Blocker; and

(d) being entitled to receive an amount or value equal to 15,463.7183 times the amount or value to be received by a holder of one share of common stock upon a liquidation or dissolution, prior to the Reverse Stock Split;

(h) Parent shall have entered into exchange agreements with the Designee pursuant to which all Series A Preferred Stock was converted into 297,468 Series B Preferred Shares; and

(i) all principal of, and interest on, the Parent Debt (other than Parent Debt converted in the PPO up to the Expense Cap) shall have been exchanged for 295,945 Parent Debt Cancellation Warrants.

5.2 Conditions to Obligations of the Parent and the Acquisition Subsidiary . The obligation of each of the Parent and the Acquisition Subsidiary to consummate the Merger is subject to the satisfaction (or waiver by the Parent) of the following additional conditions:

(a) the Company shall have obtained (and shall have provided copies thereof to the Parent) all waivers, permits, consents, approvals or other authorizations, and effected all of the registrations, filings and notices, referred to in Section 2.4 of the Disclosure Schedule which are required on the part of the Company, except for any the failure of which to obtain or effect does not, individually or in the aggregate, have a Company Material Adverse Effect or a material adverse effect on the ability of the Parties to consummate the transactions contemplated by this Agreement;

(b) the representations and warranties of the Company set forth in this Agreement (when read without regard to any qualification as to materiality or Material Adverse Effect contained therein) shall be true and correct as of the date of this Agreement and shall be true and correct as of the Effective Time as though made as of the Effective Time (provided, however, that to the extent such representation and warranty expressly relates to an earlier date, such representation and warranty shall be true and correct as of such earlier date), except for any untrue or incorrect representation and warranty that, individually or in the aggregate, does not have a Company Material Adverse Effect or a material adverse effect on the ability of the Parties to consummate the transactions contemplated by this Agreement;

 

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(c) the Company shall have performed or complied in all material respects with its agreements and covenants required to be performed or complied with under this Agreement as of or prior to the Effective Time;

(d) no Legal Proceeding shall be pending wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of any of the transactions contemplated by this Agreement, or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, and no such judgment, order, decree, stipulation or injunction shall be in effect;

(e) the Company shall have delivered to the Parent and the Acquisition Subsidiary a certificate of its Executive Chairman of the Board of Directors of the Company to the effect that each of the conditions specified in clauses (a), (c) and (d) (with respect to the Company’s due diligence of the Parent) of Section 5.1 and clauses (a) through (d) (insofar as clause (d) relates to Legal Proceedings involving the Company) of this Section 5.2 is satisfied in all respects;

(f) the Company shall have delivered to the Parent and the Acquisition Subsidiary: (i) a certified charter document and good standing certificate, each dated as of a date within thirty (30) days prior to the Effective Time from the secretary of state of its jurisdiction of incorporation; (ii) the Bylaws of the Company; (iii) resolutions of the Company’s Board of Directors approving this Agreement and the other Transaction Documentation and the transactions contemplated hereby and thereby, certified by the Executive Chairman of the Board of Directors of the Company, and (iii) resolutions of the Company’s stockholders approving this Agreement and the other Transaction Documentation and the transactions contemplated hereby and thereby, certified by the Executive Chairman of the Board of Directors of the Company; and

(g) the Company shall have provided audited financial statements from an independent accounting firm, qualified to conduct public company audits, for the years ended December 31, 2014 and 2013 and unaudited financial statements for the nine month periods ended September 30, 2015 and 2014.

5.3 Conditions to Obligations of the Company . The obligation of the Company to consummate the Merger is subject to the satisfaction of the following additional conditions:

(a) the Parent shall have obtained (and shall have provided copies thereof to the Company) all of the waivers, permits, consents, approvals or other authorizations, and effected all of the registrations, filings and notices, referred to in Section 3.4 which are required on the part of the Parent, except for any the failure of which to obtain or effect does not, individually or in the aggregate, have a material adverse effect on the ability of the Parties to consummate the transactions contemplated by this Agreement;

(b) the representations and warranties of the Parent set forth in this Agreement (when read without regard to any qualification as to materiality or Material Adverse Effect contained therein) shall be true and correct as of the date of this Agreement and shall be true and correct as of the Effective Time as though made as of the Effective Time (provided, however, that to the extent such representation or warranty expressly relates to an earlier date, such

 

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representation and warranty shall be true and correct as of such earlier date), except for any untrue or incorrect representation and warranty that, individually or in the aggregate, do not have a Parent Material Adverse Effect or a material adverse effect on the ability of the Parties to consummate the transactions contemplated by this Agreement;

(c) each of the Parent and the Acquisition Subsidiary shall have performed or complied with its agreements and covenants required to be performed or complied with under this Agreement as of or prior to the Effective Time;

(d) no material Legal Proceedings shall be pending or threatened against Parent or the Acquisition Subsidiary and no Legal Proceeding shall be pending wherein an unfavorable judgment, order, decree, stipulation or injunction would (i) prevent consummation of any of the transactions contemplated by this Agreement, or (ii) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, and no such judgment, order, decree, stipulation or injunction shall be in effect;

(e) the Parent shall have delivered to the Company a certificate of its Chief Executive Officer to the effect that each of the conditions specified in clauses (b) and (d) (with respect to the Parent’s due diligence of the Company) of Section 5.1 and clauses (a) through (d) (insofar as clause (d) relates to Legal Proceedings involving the Parent and its Subsidiaries) of this Section 5.3 is satisfied in all respects;

(f) each of the Parent and the Acquisition Subsidiary shall have delivered to the Company: (i) a certified charter document and good standing certificate, each dated as of a date within thirty (30) days prior to the Effective Time from the secretary of state of its jurisdiction of incorporation; (ii) the Bylaws of the Parent and the Acquisition Subsidiary; (iii) resolutions of the Parent’s and Acquisition Subsidiary’s Board of Directors approving this Agreement and the other Transaction Documentation and the transactions contemplated hereby and thereby, certified by the Chief Executive Officer of the Parent and the Acquisition Subsidiary; and (iii) resolutions of the Acquisition Subsidiary’s stockholders approving this Agreement and the other Transaction Documentation and the transactions contemplated hereby and thereby, certified by the Chief Executive Officer of the Acquisition Subsidiary;

(g) the Parent shall have delivered to the Company a certificate of its Chief Executive Officer to the effect that the Parent has satisfied in full all payment and other obligations set forth in, and has in all respects fully complied with, the Parent’s Plan of Reorganization under Chapter 11 of the United States Bankruptcy Code on June 15, 2012 (the “Plan of Reorganization”), as such Plan of Reorganization was confirmed by the United States Bankruptcy Court, Southern District of New York;

(h) excluding (i) the Series B Preferred Shares to be issued to investors in the PPO, (ii) the issuance of the Merger Shares to be issued to Company Stockholders, and (iii) the Series B Preferred Shares to be issued to the holders of the Parent Options, the New Options, the Parent Warrants and the Parent Debt Cancellation Warrants (upon the exercise of such options and warrants), (I) 400,000,000 shares of Parent Common Stock shall be issued and outstanding immediately after the Effective Time, (II) no Series A Preferred Shares shall be issued and outstanding immediately after the Effective Time and (III) 297,468 Series B Preferred Shares shall be issued and outstanding immediately after the Effective Time;

 

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(i) the Parent shall have adopted the 2006 Plan;

(j) the Parent shall have filed all required federal and state tax returns for the year ended June 30, 2015, and shall have paid all outstanding amounts owed with respect to its federal and state tax returns for the year ended June 30, 2014;

(k) the Company shall have received a certificate of Parent’s transfer agent and registrar dated one day prior to the Effective Date certifying the number of shares of Parent Common Stock issued and outstanding;

(l) contemporaneously with the closing of the Merger, the Parent and the MomSpot Buyer shall execute the MomSpot Split-Off Agreement, which MomSpot Split-Off shall be effective immediately following the Closing of the Merger;

(m) contemporaneously with the closing of the Merger, the Parent and Subsidiaries Buyer shall execute the Subsidiaries Split-Off Agreement;

(n) contemporaneously with the closing of the Merger, the Parent and each of the Fund Stockholders shall execute the Indemnity Agreement (“Indemnity Agreement”); and

(o) after giving prior effect to the MomSpot Split-Off, the Parent shall have no liabilities (except as set out in Section 3.7 of the Parent Disclosure Schedule ).

ARTICLE VI

INTENTIONALLY OMITTED

ARTICLE VII

MISCELLANEOUS

7.1 Press Releases and Announcements . No Party shall issue any press release or public announcement relating to the subject matter of this Agreement without the prior written approval of the other Parties; provided , however , that any Party may make any public disclosure it believes in good faith is required by applicable law, regulation or stock market rule (in which case the disclosing Party shall use reasonable efforts to advise the other Parties and provide them with a copy of the proposed disclosure prior to making the disclosure).

7.2 No Third Party Beneficiaries . Each of the Parties agrees that each of the Fund Stockholders may rely upon the covenants, representations and warranties set out in Section 4.6 of this Agreement as if such covenant, representation or warranty had been made directly to such Fund Stockholder. Apart from as set out in the prior sentence, this Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns.

7.3 Entire Agreement . This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and supersedes any prior understandings, agreements or representations by or among the Parties, written or oral, with respect to the subject matter hereof.

 

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7.4 Succession and Assignment . This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval of the other Parties; provided that the Acquisition Subsidiary may assign its rights, interests and obligations hereunder to a wholly-owned subsidiary of the Parent.

7.5 Counterparts . This Agreement may be executed in multiple counterparts and delivery may be effected via facsimile or electronic mail, portable document format (PDF) of an originally executed counterpart, each of which shall be deemed original, but all of which taken together shall constitute one and the same instrument duly delivered.

7.6 Headings . The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

7.7 Notices . All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given upon the earlier of actual receipt or: (a) personal delivery to the Party to be notified, (b) upon confirmation of receipt, if sent by electronic mail or facsimile, (c) three days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one Business Day after deposit with a nationally recognized overnight courier, freight prepaid, specifying next Business Day delivery. All communications shall be sent to the Parties at the following addresses (or at such other address for a Party as shall be specified by like notice; provided , however , that notices of a change of address shall be effective only upon delivery of notice in respect thereof):

 

If to the Company or the Parent (subsequent to the Closing):

 

Protagenic Therapeutics, Inc.

149 Fifth Avenue, Suite 500

New York, NY 10010

Attn: Robert Ziroyan, President

Facsimile: 508.734.2177

Email: rziroyan@protagenic.com

  

Copy to (which copy shall not constitute notice hereunder):

 

Meister Seelig & Fein LLP

125 Park Avenue, 7 th Floor

New York, NY 10017

Attn: Mark J. Seelig, Esq.

Facsimile: (646) 539-3655

Email: mjs@msf-law.com

 

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If to the Parent or the Acquisition Subsidiary (prior to the Closing):

 

Atrinsic, Inc.

65 Atlantic Avenue

Boston, Massachusetts 02110

Attn: Edward Gildea, Chief Executive Officer

Facsimile: 508-744-3777

Email: edward.gildea@fisherbroyles.com

  

Copy to (which copy shall not constitute notice hereunder):

 

Sanders Ortoli Vaughn-Flam Rosenstadt LLP

591 Madison Avenue

New York, NY 10022

Attn: William Rosenstadt

Facsimile: (212) 588-0022

Email: wsr@sovrlaw.com

Any Party may give any notice, request, demand, claim or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the Party for whom it is intended. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth.

7.8 Governing Law . This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of laws of any jurisdictions other than those of the State of Delaware.

7.9 Amendments and Waivers . The Parties may mutually amend any provision of this Agreement at any time prior to the Effective Time. No amendment of any provision of this Agreement shall be valid unless the same shall be in writing and signed by all of the Parties. No waiver of any right or remedy hereunder shall be valid unless the same shall be in writing and signed by the Party giving such waiver. No waiver by any Party with respect to any default, misrepresentation or breach of warranty or covenant hereunder shall be deemed to extend to any prior or subsequent default, misrepresentation or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence.

7.10 Severability . Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to limit the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified.

 

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7.11 Submission to Jurisdiction . Each of the Parties (a) submits to the jurisdiction of any state or federal court sitting in the County of New York in the State of New York in any action or proceeding arising out of or relating to this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, and (c) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other Party with respect thereto. Any Party may make service on another Party by sending or delivering a copy of the process to the Party to be served at the address and in the manner provided for the giving of notices in Section 7.7. Nothing in this Section 7.11, however, shall affect the right of any Party to serve legal process in any other manner permitted by law.

7.12 Construction .

(a) The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party.

(b) The parties have participated jointly in negotiating and drafting this Agreement. If an ambiguity or a question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

(c) Any reference to any federal, state, local or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

 

PARENT:
ATRINSIC, INC.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   President and Chief Executive Officer
ACQUISITION SUBSIDIARY:
PROTAGENIC ACQUISITION CORP.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   President and Chief Executive Officer
COMPANY:
PROTAGENIC THERAPEUTICS, INC.
By:  

/s/ Garo H. Armen

Name:   Garo H. Armen
Title:   Chairman

 

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SCHEDULES

to the

AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

DATED AS OF FEBRUARY 12, 2016

AMONG

ATRINSIC, INC., a Delaware corporation,

PROTAGENIC ACQUISITION CORP., a Delaware corporation

AND

PROTAGENIC THERAPEUTICS, INC., a Delaware corporation

 

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These Schedules (the “ Schedules ”) are being delivered by Protagenic Therapeutics, Inc. (the “ Company ”), pursuant to the terms of that Agreement and Plan of Merger and Reorganization (the “ Agreement ”), among Atrinsic, Inc. (the “ Parent ”), Protagenic Acquisition Corp. (the “ Acquisition Subsidiary ”) and the Company.

Capitalized terms used and not otherwise defined herein shall have their respective meanings as set forth in the Agreement. Any summary of or reference to any document herein is qualified in its entirety by the terms of such document (and all agreements, transactions and arrangements referenced in or contemplated thereby), and the terms and provisions of each such document (and all agreements, transactions and arrangements referenced in or contemplated thereby) are incorporated herein by reference.

The section or subsection numbers in the Schedules shall qualify the corresponding section or subsection numbers in the Agreement, provided , however , that any matter set forth in any section or subsection of the Schedules shall be deemed to be referred to and incorporated in all other sections or subsections of the Schedules to which such matter’s application or relevance is reasonably apparent, notwithstanding the omission of a reference or cross-reference thereof.

The Schedules and the information and disclosures contained in the Schedules are intended only to qualify and limit the representations, warranties and covenants of the Company contained in the Agreement and shall not be deemed to expand in any way the scope or effect of any of such representations, warranties or covenants.

Headings in the Schedules are for convenience and reference only and shall not affect the disclosures contained herein. The Schedules may contain items that are not required by the Agreement to be listed herein.

Disclosure of any information herein is not a statement or admission that such information is material or outside of the course of ordinary business, is required to be disclosed herein, reaches any applicable materiality or dollar thresholds or is likely to materially and adversely affect the ability of the Company to perform its obligations under the Agreement or to consummate the transactions contemplated thereby. The fact that any item is disclosed in any section of the Schedules shall not give rise to any implication that the failure to disclose it would result in any breach of any representation or warranty contained in the Agreement. No disclosure in the Schedules relating to any possible breach or violation of any agreement, law, rule or regulation shall be construed as an indication or admission that any such breach or violation actually exists or has occurred. No general disclosure in any section herein shall be limited by any more specific disclosure in either that section or any other section herein.

In disclosing the information set forth in the Schedules, the Company expressly reserves and does not waive any attorney-client privilege associated with such information or any protection afforded by the work-product doctrine with respect to any of the matters disclosed or discussed herein.

 

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Company Disclosure Schedules

Schedule 1.14 – Non-Accredited Investors

Schedule 2.2 – Company Capitalization

Schedule 2.4 – Non-Contravention; Consents

Schedule 2.5 – Subsidiaries

Schedule 2.7 – Absence of Certain Changes

Schedule 2.8 – Undisclosed Liabilities

Schedule 2.10 – Assets

Schedule 2.12 – Real Property Leases

Schedule 2.13 – Contracts

Schedule 2.15 – Powers of Attorney

Schedule 2.16 – Insurance

Schedule 2.18 – Employees

Schedule 2.19(b) – Employee Benefit Plans

Schedule 2.19(k) – Agreements with Stockholders, Directors, Executive Officers or Key Employees

Schedule 2.20(b) - Environmental

Schedule 2.22 – Customers

Schedule 2.23 – Permits

Schedule 2.24 – Business Relationships with Affiliates

Schedule 2.25 – Brokers’ Fees

Schedule 2.27(b) – Intellectual Property – Registrations/Applications and Royalty or Payment Agreements

Schedule 2.27(c) – Registered Intellectual Property Rights

Schedule 2.27(e) – Intellectual Property – Suits, Actions or Proceedings

Schedule 2.27(f) – Intellectual Property – Infringement, Misappropriation, or Unlawful or Unauthorized Uses

 

-3-


Schedule 1.14

Non-Accredited Investors

Non-Accredited Investors:

  1. Arij Al Chawaf
  2. Carol Haggerty
  3. Dalia Barsyte
  4. Denise Belsham
  5. Dhan Chand
  6. Douglas Jaeger
  7. James Rathgeber
  8. Lauren Banjany
  9. Massimo Martinucci
  10. Susan Rotzinger
  11. David A. Lovejoy

Unknown (investors that did not complete and return an investor questionnaire):

  1. Antonio Herandez
  2. Eleanor Gimon
  3. Ewa Lipton
  4. Fabio Migliaccio
  5. Glen S. Abel
  6. Guy C. Collins
  7. Jeremy Cohen
  8. Michele Markowitz
  9. Oweida Orthopedic Assoc 410K Safe Harbor Plan
  10. Remik Hartounian
  11. Richard Edwards (deceased)
  12. Ronnie Bassham
  13. Solomon Evan James
  14. Steven Markowitz
  15. Robert Clauss

 

-4-


Schedule 2.2

Company Capitalization

Shares:

 

    

Name of Shareholder

   Shares  

1

   Alan Young      35,000   

2

   Alexander K. Arrow      60,000   

3

   Antonio Herandez      35,000   

4

   Arij Al Chawaf      5,000   

5

   Barry Lind Revocable Trust      175,000   

6

   Benjamin Raab Trust UAD 06/04/99      30,000   

7

   Brian J. and Debbie M. Keller      25,000   

8

   Brian J. Keller & Debbie M. Keller JT WROS      10,000   

9

   Carmine Sanzo      75,000   

10

   Craig Shapiro      20,000   

11

   Cynthia Qian      5,000   

12

   Dalia Barsyte      10,000   

13

   David Lovejoy      148,800   

14

   Dean Glasser      25,000   

15

   Denis J. Hickey      80,000   

16

   Denise Belsham      25,000   

17

   Douglas Jaeger      25,000   

18

   Eleanor Gimon      244,433   

19

   Ethos Holdings, LLC      100,000   

20

   Ewa Lipton      50,000   

21

   Evan S. Taub      1,500   

22

   Faber, Daeufer & Rosenberg PC      25,000   

23

   Fabio Migliaccio      3,715   

24

   Garo H. Armen IRA      250,000   

25

   Garo H. Armen      1,955,801   

26

   Glenn S. Abel      40,000   

27

   Gregory H. Ekizian Revocable Trust      125,000   

28

   Guy C. Collins      20,000   

29

   James Rathgeber      14,865   

30

   Jeremy Cohen      1,950   

 

-5-


31

   John Moraitis      25,000   

32

   Joseph Donegan      25,000   

33

   Joseph Sorbara      25,000   

34

   Kerry Anne Wentworth      25,000   

35

   Khajak Keledjian      100,000   

36

   Khalil Barrage      50,000   

37

   Larry N. Feinberg      200,000   

38

   Lauren Banjany      2,700   

39

   Lester B. Boetler      105,000   

40

   Levon Capan      25,000   

41

   Louis Sanzo      75,000   

42

   Mark Berg      155,000   

43

   Mark Berg, IRA E*Trade custodian      100,000   

44

   Mark Mazzer      25,000   

45

   Mark T. Hellner      100,000   

46

   Massimo Martinucci      10,000   

47

   Michele Markowitz      6,000   

48

   MSB Family Trust      50,000   

49

   Nicole Berg      167,194   

50

   Oweida Orthopedic Assoc 401K Safe Harbor Plan      40,000   

51

   Patricia Sorbara      6,000   

52

   Paul Sallwasser and Teri Sallwasser, JT WROS      100,000   

53

   Pensco Trust Company, FBO Gregory H. Ekizian      100,000   

54

   Prahalathan Rajasekaran      25,000   

55

   Remik Hartounian      442,194   

56

   Richard Edwards      40,000   

57

   Richard Pashayan      100,000   

58

   Robert Clauss      15,500   

59

   Robert G. Jeffers      25,000   

60

   Robert Petrozzo      30,000   

61

   Ronnie Bassham      50,000   

62

   Sharon Crowder      50,000   

63

   Solomon Evan James      1,500   

64

   Stephen Dinicolantonio      25,000   

 

-6-


65

   Steven Markowitz      25,000   

66

   Susan Rotzinger      35,000   

67

   The Bahr Family Limited Partnership      25,000   

68

   Thomas D Paul      25,000   

69

   Timothy McInerney      100,000   

70

   University of Toronto      271,200   

71

   William Christopher Frasco      1,500   

72

   William Kachioff      187,986   
   Total Outstanding      6,612,838   

Outstanding Warrants :

 

#

   Names    Share
Price
     Date of
Issue:
   Expire Date    Total
Warrants
 

1

     1       Garo H. Armen    $ 1.00       19-May-11    19-May-21      300,000   
     2       Garo H. Armen    $ 1.00       18-Feb-13    18-Feb-23      953,367   
      Sub-Total             $ 1,253,367   

2

     1       Larry N. Feinberg    $ 1.00       6-Jun-11    6-Jun-21      300,000   
     2       Larry N. Feinberg    $ 1.00       27-Mar-13    27-Mar-23      300,000   
      Sub-Total               600,000   

3

     1       Gregory H. Ekizian    $ 1.00       7-Jul-11    7-Jul-21      75,000   

4

     1       Pensco Trust Company, FBO Gregory H. Ekizian    $ 1.00       18-Feb-13    18-Feb-23      300,000   

5

     1       Khajak Keledjian    $ 1.00       28-Mar-13    28-Mar-23      300,000   

6

     1       Carmine Sanzo    $ 1.00       12-Dec-13    12-Dec-23      150,000   

7

     1       Louis Sanzo    $ 1.00       12-Dec-13    12-Dec-23      150,000   

8

     1       Richard Pashayan    $ 1.00       20-Dec-13    20-Dec-23      150,000   

9

     1       Mark Berg    $ 1.25       1-Jan-07    1-Jan-17      100,000   

10

     1       Levon Capan    $ 1.00       20-Feb-13    20-Feb-23      75,000   

11

     1       Brandt J. Mandia    $ 1.25       4-Nov-15    4-Nov-23      187,500   
     2       Brandt J. Mandia    $ 1.25       31-Dec-15    4-Nov-23      62,500   
      Sub-Total               250,000   
     Total      3,403,367   

 

-7-


Outstanding Options :

 

N1

  

N2

  

Option Pool:

   Option Date:    Vesting Date:    Expire Date:    No. of Options  

1

   1    David Lovejoy    Mar 15, 2006    Mar 14, 2010    Mar 15, 2016      208,299   

2

   2    David Lovejoy    Mar 30, 2011    Mar 30, 2011    Mar 30, 2021      100,000   

3

   3    David Lovejoy    Dec 1, 2012    Dec 1, 2013    Dec 1, 2022      25,000   

4

   4    David Lovejoy    Mar 1, 2014    Mar 1, 2017    Mar 1, 2027      150,000   
      Total               483,299   

5

   1    Dalia Barsyte    Mar 30, 2011    Mar 30, 2011    Mar 30, 2021      25,000   

6

   2    Dalia Barsyte    Apr 1, 2012    Apr 1, 2012    Apr 1, 2022      25,000   

7

   3    Dalia Barsyte    Dec 1, 2012    Dec 1, 2012    Dec 1, 2022      25,000   

8

   4    Dalia Barsyte    Mar 1, 2014    Mar 1, 2015    Mar 1, 2024      25,000   

9

   5    Dalia Barsyte    March 9, 2015    March 9, 2016    Mar 1, 2025      50,000   
      Total               150,000   

10

   1    Robert Ziroyan    Aug 1, 2006    Aug 31, 2010    Aug 1, 2016      25,000   

11

   2    Robert Ziroyan    Mar 30, 2011    Mar 30, 2011    Mar 30, 2021      100,000   

12

   3    Robert Ziroyan    Mar 1, 2014    Mar 1, 2015    Mar 1, 2024      50,000   

13

   4    Robert Ziroyan    March 9, 2015    March 9, 2016    March 9, 2025      75,000   
      Total               250,000   

14

   1    Carol Haggerty    Aug 1, 2006    Aug 31, 2010    Aug 1, 2016      25,000   

15

   2    Carol Haggerty    Mar 30, 2011    Mar 30, 2011    Mar 30, 2021      15,000   

16

   3    Carol Haggerty    Mar 1, 2014    Mar 1, 2015    Mar 1, 2024      15,000   

17

   3    Carol Haggerty    March 9, 2015    March 9, 2016    Mar 1, 2025      15,000   
      Total               70,000   

18

   1    Faber Daeufer & Rosenberg PC    Mar 01, 2006    Mar 31, 2008    Mar 1, 2016      104,150   

 

-8-


19

   1    Univ. of Toronto Option    Mar 15, 2006    Mar 31, 2010    Mar 15, 2016      104,150   

20

   2    Univ. of Toronto Option    Apr 1, 2012    Apr 1, 2013    Apr 1, 2022      25,000   
      Total               129,150   

21

   1    Woods Lane Partners    Mar 30, 2011    Mar 30, 2011    Mar 30, 2021      50,000   

22

   1    Kerry Wentworth    Dec 1, 2012    Dec 1, 2012    Dec 1, 2022      25,000   

23

   1    Zephyrbiotech    June 10, 2011    June 10, 2011    June 10, 2021      10,000   

24

   1    Jean-Michel Aubry    Nov 1, 2006    Oct 31, 2009    Nov 1, 2016      30,000   

25

   2    Jean-Michel Aubry    March 9, 2015    March 9, 2017    Mar 1, 2025      25,000   
      Total               55,000   

26

   1    Sidney H. Kennedy    Nov 1, 2006    Oct 31, 2009    Nov 1, 2016      30,000   

27

   2    Sidney H. Kennedy    March 9, 2015    March 9, 2017    Mar 1, 2025      25,000   
      Total               55,000   

28

   1    Susan Rotzinger    Feb 1, 2007    Jun 30, 2009    Feb 1, 2017      21,146   

29

   1    Mayank Patel    Aug 1, 2006    Aug 31, 2010    Aug 1, 2016      5,000   

30

   1    Robert B. Stein    Jan 23, 2015    Jan 23, 2020    Jan 23, 2025      200,000   

31

   1    Mark Findeis    Feb 1, 2015    Feb 1, 2018    Mar 1, 2025      50,000   

32

   1    Dhan Chand    Feb 1, 2015    Feb 1, 2018    Mar 1, 2025      50,000   
  

Sub-Total

           1,707,744   

 

-9-


Schedule 2.4

Non-Contravention; Consents

None.

 

-10-


Schedule 2.5

Subsidiaries

Protagenic Therapeutics Canada (2006) Inc. is a wholly-owned subsidiary of the Company.

 

-11-


Schedule 2.7

Absence of Certain Changes

None.

 

-12-


Schedule 2.8

Undisclosed Liabilities

None.

 

-13-


Schedule 2.10

Assets

None.

 

-14-


Schedule 2.12

Real Property Leases

None.

 

-15-


Schedule 2.13

Contracts

 

(i) None.

 

(ii) None.

 

(iii) None.

 

(iv)     

 

  1. Amendment to the Sponsored Research Agreement, effective April 1, 2015, between the Governing Council of the University of Toronto, Protagenic Therapeutics Canada (2006) Inc. and Protagenic Therapeutics Inc.

 

  2. Employment Agreement, effective January 1, 2014, between Protagenic Therapeutics Canada (2006) Inc. and Dr. Robert Ziroyan. 1

 

(v)     

 

  1. Technology License Agreement, effective July 21, 2005, between The University of Toronto Innovations Foundation and Protagenic Therapeutics, Inc., as amended by that certain First Amendment to Technology License Agreement, effective February 18, 2015, between the Governing Council of the University of Toronto and Protagenic Therapeutics, Inc.

 

  2. Sponsored Research Agreement, effective July 21, 2005, between the Governing Council of the University of Toronto, Protagenic Therapeutics Canada (2006) Inc. and Protagenic Therapeutics Inc., as amended by that certain Amendment to the Sponsored Research Agreement, effective April 1, 2015.

 

  3. Master Contract Services Agreement, effective March 28, 2014, by and between Protagenic Therapeutics, Inc. and Molecular Imaging, Inc.

 

  4. Consulting Agreement, effective November 4, 2015, between Protagenic Therapeutics, Inc. and Brandt J. Mandia.

 

(vi)     

 

  1. Consulting Agreement, as amended, effective January 1, 2015, between Protagenic Therapeutics Canada (2006) Inc. and Dr. Dalia Barsyte. 2

 

  2. Consulting Agreement, effective January 23, 2015, between Protagenic Therapeutics, Inc. and Dr. Robert B. Stein.

 

 

1   This agreement expired on December 31, 2015; however, there is an outstanding balance of CAN$86,655 (approx. US$63,236) due as of December 31, 2015).
2   This agreement expired on December 31, 2015; however, the agreement is in the process of being extended.

 

-16-


  3. Consulting Agreement, effective February 1, 2015, between Protagenic Therapeutics, Inc. and Mark Findeis.

 

  4. Consulting Agreement, effective February 1, 2015, between Protagenic Therapeutics, Inc. and Dr. Dhan Chand.

 

(vii)     

 

  1. Consulting Agreement, as amended, effective January 1, 2015, between Protagenic Therapeutics Canada (2006) Inc. and Dr. Dalia Barsyte. 3

 

  2. Consulting Agreement, effective January 23, 2015, between Protagenic Therapeutics, Inc. and Dr. Robert B. Stein.

 

  3. Nonqualified Stock Option Agreement, effective January 23, 2015, between Protagenic Therapeutics, Inc. and Robert B. Stein.

 

  4. Nonqualified Stock Option Agreement, effective March 15, 2006, between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  5. Nonqualified Stock Option Agreement, effective March 30, 2011, between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  6. Nonqualified Stock Option Agreement, effective Dec 1, 2012 between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  7. Nonqualified Stock Option Agreement, effective Mar 1, 2014 between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  8. Nonqualified Stock Option Agreement, effective Mar 30, 2011 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  9. Nonqualified Stock Option Agreement, effective Apr 1, 2012 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  10. Nonqualified Stock Option Agreement, effective Dec 1, 2012 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  11. Nonqualified Stock Option Agreement, effective Mar 1, 2014 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  12. Nonqualified Stock Option Agreement, effective Mar 9, 2015 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

 

3   This agreement expired on December 31, 2015; however, the agreement is in the process of being extended.

 

-17-


  13. Nonqualified Stock Option Agreement, effective August 1, 2006, between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  14. Nonqualified Stock Option Agreement, effective March 30, 2011, between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  15. Nonqualified Stock Option Agreement, effective Dec 1, 2014 between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  16. Nonqualified Stock Option Agreement, effective Mar 9, 2015 between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  17. Nonqualified Stock Option Agreement, effective Mar 1, 2006 between Protagenic Therapeutics, Inc. and Faber Daeufer & Rosenberg PC.

 

  18. Nonqualified Stock Option Agreement, effective Mar 1, 2006 between Protagenic Therapeutics, Inc. and University of Toronto.

 

  19. Nonqualified Stock Option Agreement, effective Apr 1, 2012 between Protagenic Therapeutics, Inc. and University of Toronto.

 

  20. Nonqualified Stock Option Agreement, effective Dec 1, 2012 between Protagenic Therapeutics, Inc. and Kerry Wentworth.

 

  21. Nonqualified Stock Option Agreement, effective Feb 1, 2007 between Protagenic Therapeutics, Inc. and Susan Rotzinger.

 

  22. Bridge Loan Agreement, effective April 15, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

  23. Bridge Loan Agreement, effective May 28, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

  24. Bridge Loan Agreement, effective July 1, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

  25. Bridge Loan Agreement, effective September 1, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

  26. Bridge Loan Agreement, effective October 29, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

  27. Bridge Loan Agreement, effective December 23, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

-18-


  28. Warrant to Purchase Shares of Common Stock, effective May 19, 2011, issued to Garo H. Armen by Protagenic Therapeutics, Inc.

 

  29. Warrant to Purchase Shares of Common Stock, effective Feb 18, 2013, issued to Garo H. Armen by Protagenic Therapeutics, Inc.

 

  30. Warrant to Purchase Shares of Common Stock, effective Jun 6, 2011, issued to Larry N. Fienberg by Protagenic Therapeutics, Inc.

 

  31. Warrant to Purchase Shares of Common Stock, effective Mar 27, 2013, issued to Larry N. Fienberg by Protagenic Therapeutics, Inc.

 

  32. Warrant to Purchase Shares of Common Stock, effective Jul 07, 2011, issued to Gregory H. Ekizian by Protagenic Therapeutics, Inc.

 

  33. Warrant to Purchase Shares of Common Stock, effective Feb 18, 2013, issued to Pensco Trust Company, FBO Gregory H. Ekizian by Protagenic Therapeutics, Inc.

 

  34. Warrant to Purchase Shares of Common Stock, effective Mar 28, 2013, issued to Khajak Keledjian by Protagenic Therapeutics, Inc.

 

  35. Warrant to Purchase Shares of Common Stock, effective Dec 12, 2013, issued to Carmine Sanzo by Protagenic Therapeutics, Inc.

 

  36. Warrant to Purchase Shares of Common Stock, effective Dec 12, 2013, issued to Louis Sanzo by Protagenic Therapeutics, Inc.

 

  37. Warrant to Purchase Shares of Common Stock, effective December 20, 2013, issued to Richard Pashayan by Protagenic Therapeutics, Inc.

 

  38. Warrant to Purchase Shares of Common Stock, effective January 1, 2007, issued to Mark Berg by Protagenic Therapeutics, Inc.

 

  39. Warrant to Purchase Shares of Common Stock, effective February 20, 2013, issued to Levon Capan by Protagenic Therapeutics, Inc.

 

  40. Warrant to Purchase Shares of Common Stock, effective Nov 4, 2015, issued to Brandt J. Mandia by Protagenic Therapeutics, Inc.

 

  41. Warrant to Purchase Shares of Common Stock, effective Dec 31, 2015, issued to Brandt J. Mandia by Protagenic Therapeutics, Inc.

 

(viii)     

 

  1. Technology License Agreement, effective July 21, 2005, between The University of Toronto Innovations Foundation and Protagenic Therapeutics, Inc., as amended by that certain First Amendment to Technology License Agreement, effective February 18, 2015, between the Governing Council of the University of Toronto and Protagenic Therapeutics, Inc.

 

-19-


(ix)     

 

  1. Technology License Agreement, effective July 21, 2005, between The University of Toronto Innovations Foundation and Protagenic Therapeutics, Inc., as amended by that certain First Amendment to Technology License Agreement, effective February 18, 2015, between the Governing Council of the University of Toronto and Protagenic Therapeutics, Inc.

 

  2. Sponsored Research Agreement, effective July 21, 2005, between the Governing Council of the University of Toronto, Protagenic Therapeutics Canada (2006) Inc. and Protagenic Therapeutics Inc., as amended by that certain Amendment to the Sponsored Research Agreement, effective April 1, 2015.

 

  3. Master Contract Services Agreement, effective March 28, 2014, by and between Protagenic Therapeutics, Inc. and Molecular Imaging, Inc.

 

(x) None.

 

(xi)     

 

  1. Nonqualified Stock Option Agreement, effective March 15, 2006, between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  2. Nonqualified Stock Option Agreement, effective March 30, 2011, between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  3. Nonqualified Stock Option Agreement, effective Dec 1, 2012 between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  4. Nonqualified Stock Option Agreement, effective Mar 1, 2014 between Protagenic Therapeutics, Inc. and David. A Lovejoy.

 

  5. Nonqualified Stock Option Agreement, effective Mar 30, 2011 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  6. Nonqualified Stock Option Agreement, effective Apr 1, 2012 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  7. Nonqualified Stock Option Agreement, effective Dec 1, 2012 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  8. Nonqualified Stock Option Agreement, effective Mar 1, 2014 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

-20-


  9. Nonqualified Stock Option Agreement, effective Mar 9, 2015 between Protagenic Therapeutics, Inc. and Dalia Barsyte.

 

  10. Nonqualified Stock Option Agreement, effective August 1, 2006, between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  11. Nonqualified Stock Option Agreement, effective March 30, 2011, between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  12. Nonqualified Stock Option Agreement, effective Dec 1, 2014 between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  13. Nonqualified Stock Option Agreement, effective Mar 9, 2015 between Protagenic Therapeutics, Inc. and Robert Ziroyan.

 

  14. Nonqualified Stock Option Agreement, effective August 1, 2006, between Protagenic Therapeutics, Inc. and Carol Haggerty.

 

  15. Nonqualified Stock Option Agreement, effective March 30, 2011, between Protagenic Therapeutics, Inc. and Carol Haggerty.

 

  16. Nonqualified Stock Option Agreement, effective Mar 1, 2014 between Protagenic Therapeutics, Inc. and Carol Haggerty.

 

  17. Nonqualified Stock Option Agreement, effective Mar 9, 2015 between Protagenic Therapeutics, Inc. and Carol Haggerty.

 

  18. Nonqualified Stock Option Agreement, effective Mar 1, 2006 between Protagenic Therapeutics, Inc. and Faber Daeufer & Rosenberg PC.

 

  19. Nonqualified Stock Option Agreement, effective Mar 1, 2006 between Protagenic Therapeutics, Inc. and University of Toronto.

 

  20. Nonqualified Stock Option Agreement, effective Apr 1, 2012 between Protagenic Therapeutics, Inc. and University of Toronto.

 

  21. Nonqualified Stock Option Agreement, effective Mar 30, 2011 between Protagenic Therapeutics, Inc. and Woods Lane Partners.

 

  22. Nonqualified Stock Option Agreement, effective Dec 1, 2012 between Protagenic Therapeutics, Inc. and Kerry Wentworth.

 

  23. Nonqualified Stock Option Agreement, effective Jun 10, 2011 between Protagenic Therapeutics, Inc. and Zephyrbiotech.

 

-21-


  24. Nonqualified Stock Option Agreement, effective Nov 1, 2006 between Protagenic Therapeutics, Inc. and Jean-Michel Aubry.

 

  25. Nonqualified Stock Option Agreement, effective Mar 9, 2015 between Protagenic Therapeutics, Inc. and Jean-Michel Aubry.

 

  26. Nonqualified Stock Option Agreement, effective Nov 1, 2006 between Protagenic Therapeutics, Inc. and Sidney H. Kennedy.

 

  27. Nonqualified Stock Option Agreement, effective Mar 9, 2015 between Protagenic Therapeutics, Inc. and Sidney H. Kennedy.

 

  28. Nonqualified Stock Option Agreement, effective Feb 1, 2007 between Protagenic Therapeutics, Inc. and Susan Rotzinger.

 

  29. Nonqualified Stock Option Agreement, effective Aug 1, 2006 between Protagenic Therapeutics, Inc. and Mayank Patel.

 

  30. Nonqualified Stock Option Agreement, effective January 23, 2015, between Protagenic Therapeutics, Inc. and Robert B. Stein.

 

  31. Nonqualified Stock Option Agreement, effective Feb 1, 2015, between Protagenic Therapeutics, Inc. and Mark Findeis.

 

  32. Nonqualified Stock Option Agreement, effective Feb 1, 2015, between Protagenic Therapeutics, Inc. and Dhan Chand.

 

  33. Warrant to Purchase Shares of Common Stock, effective May 19, 2011, issued to Garo H. Armen by Protagenic Therapeutics, Inc.

 

  34. Warrant to Purchase Shares of Common Stock, effective Feb 18, 2013, issued to Garo H. Armen by Protagenic Therapeutics, Inc.

 

  35. Warrant to Purchase Shares of Common Stock, effective Jun 6, 2011, issued to Larry N. Fienberg by Protagenic Therapeutics, Inc.

 

  36. Warrant to Purchase Shares of Common Stock, effective Mar 27, 2013, issued to Larry N. Fienberg by Protagenic Therapeutics, Inc.

 

  37. Warrant to Purchase Shares of Common Stock, effective Jul 07, 2011, issued to Gregory H. Ekizian by Protagenic Therapeutics, Inc.

 

  38. Warrant to Purchase Shares of Common Stock, effective Feb 18, 2013, issued to Pensco Trust Company, FBO Gregory H. Ekizian by Protagenic Therapeutics, Inc.

 

-22-


  39. Warrant to Purchase Shares of Common Stock, effective Mar 28, 2013, issued to Khajak Keledjian by Protagenic Therapeutics, Inc.

 

  40. Warrant to Purchase Shares of Common Stock, effective Dec 12, 2013, issued to Carmine Sanzo by Protagenic Therapeutics, Inc.

 

  41. Warrant to Purchase Shares of Common Stock, effective Dec 12, 2013, issued to Louis Sanzo by Protagenic Therapeutics, Inc.

 

  42. Warrant to Purchase Shares of Common Stock, effective December 20, 2013, issued to Richard Pashayan by Protagenic Therapeutics, Inc.

 

  43. Warrant to Purchase Shares of Common Stock, effective January 1, 2007, issued to Mark Berg by Protagenic Therapeutics, Inc.

 

  44. Warrant to Purchase Shares of Common Stock, effective February 20, 2013, issued to Levon Capan by Protagenic Therapeutics, Inc.

 

  45. Warrant to Purchase Shares of Common Stock, effective Nov 4, 2015, issued to Brandt J. Mandia by Protagenic Therapeutics, Inc.

 

  46. Warrant to Purchase Shares of Common Stock, effective Dec 31, 2015, issued to Brandt J. Mandia by Protagenic Therapeutics, Inc.

 

-23-


Schedule 2.15

Powers of Attorney

None.

 

-24-


Schedule 2.16

Insurance

None.

 

-25-


Schedule 2.18

Employees

 

1. Employee: Robert Ziroyan

Position: Chief Operating Officer

Annual rate of compensation: CAN $98,100 per year (approximately US $77,870 per year)

 

-26-


Schedule 2.19(b)

Employee Benefit Plans

None.

 

-27-


Schedule 2.19(k)

Agreements with Stockholders, Directors, Executive Officers or Key Employees

 

1. Bridge Loan Agreement, effective April 15, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

2. Bridge Loan Agreement, effective May 28, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

3. Bridge Loan Agreement, effective July 1, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

4. Bridge Loan Agreement, effective September 1, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

5. Bridge Loan Agreement, effective October 29, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

6. Bridge Loan Agreement, effective December 23, 2015, between Protagenic Therapeutics, Inc. and Dr. Garo H. Armen.

 

7. Consulting Agreement, as amended, effective January 1, 2015, between Protagenic Therapeutics Canada (2006) Inc. and Dr. Dalia Barsyte. 4

 

8. Consulting Agreement, effective January 23, 2015, between Protagenic Therapeutics, Inc. and Dr. Robert B. Stein.

 

9. Nonqualified Stock Option Agreement, effective March 1, 2014, between Protagenic Therapeutics, Inc. and David A. Lovejoy.

 

10. Amendment to the Sponsored Research Agreement, effective April 1, 2015, between the Governing Council of the University of Toronto, Protagenic Therapeutics Canada (2006) Inc. and Protagenic Therapeutics Inc.

 

 

4   This agreement expired on December 31, 2015; however, the agreement is in the process of being extended.

 

-28-


Schedule 2.20(b)

Environmental

None.

 

-29-


Schedule 2.22

Customers

None.

 

-30-


Schedule 2.23

Permits

None.

 

-31-


Schedule 2.24

Business Relationships with Affiliates

Protagenic Therapeutics Canada (2006) Inc. (“PCI”) was incorporated in 2006 in the Province on Ontario, Canada. PCI is a wholly-owned subsidiary of the Company. It provides operational support and assistance for the implementation of corporate and operational activities conducted in Canada. The Company sent eleven payments (each individual payment was in excess of $35,000) for total amount of $ 645,712.52 to PCI to cover for the costs associated with the research and development carried out in Canada.

 

-32-


Schedule 2.25

Brokers’ Fees

None.

 

-33-


Schedule 2.27(b)

Intellectual Property – Registrations/Applications and Royalty or Payment Agreements

The Company has been issued or has applied for the issuance of the following patents:

 

   

Title of Registration/Application

  

Jurisdictions Covered by
Applicable

Registration/Application

  

Status

  

Issue/Filing
Date

1.  

Teneurin C-Terminal Associated Peptides (TCAP) and Methods and uses thereof.

 

Serial # 10/510,959

   United States    Patent issued    01/03/2012
2.  

Teneurin C-Terminal Associated Peptides (TCAP) and Methods and uses thereof.

 

Serial # 2003221575.

   Australia    Patent issued    09/23/2011
3.  

Teneurin C-Terminal Associated Peptides (TCAP) and Methods and uses thereof.

 

Serial # 2,482,810.

   Canada    Patent issued    06/10/2014
4.  

Teneurin C-Terminal Associated Peptides (TCAP) and Methods and uses thereof.

 

Serial # 03717086.7

  

European Union.

 

Validated in France, Germany and Great Britain.

   Patent issued    03/12/2014
5.   A Method for Regulating Neurite Growth: Application. Serial # 60/783,821    United States    Pending    Filed on: 03/21/2006
6.   Method for Modulating Glucose Transport Using Teneurin C-Terminal Associated Peptide (TCAP). Serial # 62/026,346    United States    Pending   

Filed on:

07/18/2014

 

-34-


Schedule 2.27(c)

Registered Intellectual Property Rights

None.

 

-35-


Schedule 2.27(e)

Intellectual Property – Suits, Actions or Proceedings

None.

 

-36-


Schedule 2.27(f)

Intellectual Property – Infringement, Misappropriation, or Unlawful or Unauthorized Uses

None.

 

-37-


PARENT DISCLOSURE SCHEDULE

February 12, 2016

Pursuant to the Agreement and Plan of Merger and Reorganization dated as of February 12, 2016 (the “ Agreement ”), by and among Atrinsic, Inc. (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”), Parent hereby delivers to the Company this Parent Disclosure Schedule. Capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Agreement.

The headings contained in this Parent Disclosure Schedule are included for convenience only and do not limit the effect of the items and matters disclosed herein. This Parent Disclosure Schedule is arranged in sections corresponding to the numbered sections contained in the Agreement, and the disclosure in any section shall qualify (a) the corresponding section of the Agreement and (b) the other sections of the Agreement, to the extent that it is reasonably apparent from a reading of such disclosure that it also qualifies or applies to such other sections.

The inclusion of any information in this Parent Disclosure Schedule shall not be deemed to be an admission or acknowledgment, in and of itself, that such information is required by the terms of the Agreement to be disclosed, is material, has resulted in or is reasonably likely to result in a Material Adverse Effect.

Except as otherwise specified herein, all information and disclosures in this Parent Disclosure Schedule are as of the date hereof.

 

1


Section 3.2 of the Parent Disclosure Schedule

None.

 

2


Section 3.5 of the Parent Disclosure Schedule

Subsidiaries of Parent other than the Acquisition Subsidiary and MomSpot:

 

  1. Traffix, Inc.

 

  2. Calling Card Co., Inc.

 

  3. NL Corp.

 

  4. Quintel Productions, Inc.

 

  5. Quintel Financial Information Services Inc.

 

  6. Thanksmuch, Inc.

 

  7. Group Lotto, Inc.

 

  8. Traffix Canada, Inc.

 

  9. Txnet Inc.

 

  10. Imatchup.Com., Inc.

 

  11. HMU Services, Inc.

 

  12. Send Traffic, Inc.

 

  13. Hot Rocket Acquisition Corp.

 

  14. Q121, Inc.

 

  15. Creative Direct Marketing, Inc.

 

  16. Quintelco, Inc.

 

  17. Quintel Psychic Zone, Inc.

 

  18. Quintel Hair Products, Inc.

 

  19. Multibuyer, Inc.

 

  20. Quintelcomm, Inc.

 

  21. Quintel Email Inc.

 

  22. Traffx Club Marketing Inc.

 

  23. Traffix Wireless, Inc.

 

  24. Consumer Access Services, Inc.

 

  25. World Web Access, Inc.

 

  26. Prizedistributors.com, Inc.

 

  27. New Motion Mobile Inc.

 

  28. Infiknowledge, ULC

 

  29. EZ Tracks LP

 

  30. Ringtone Channel Pty Ltd.

 

3


Section 3.7 of the Parent Disclosure Schedule

 

     Amount:     

Claimed by:

  

Stated reason:

1.    $ 20,064       Internal Revenue Service    Untimely filed Form 5471 for the years ended December 31, 2011 and December 31, 2012
2.    $ 62,000       NY State Workers’ Compensation Board    Failure to carry required workers’ compensation insurance for the period 7/6/11 to 5/10/12
3.    $ 74,000       NY State Workers’ Compensation Board    Judgment from 2011.

 

4


Section 3.11 of the Parent Disclosure Schedule

The Parent’s liabilities that have accrued since the date of the balance sheet contained in the most recent Parent Report are those set out in Section 3.7 of the Parent Disclosure Schedules.

 

5


Section 3.15 of the Parent Disclosure Schedule

None.

 

6


Section 3.16 of the Parent Disclosure Schedule

(a)(ii)

The Parent has agreements with the following entities for the provision of ongoing services:

 

  1) Marcum LLP, for auditing services;

 

  2) American Stock Transfer & Trust Company, LLC, for transfer agent services; and

 

  3) Clearview Global, for IT services.

(a)(vii)

Other than certain transactions set out in the Transaction Documentation that have been entered into with Iroquois Capital Management, LLC and Hudson Bay Capital Management, LLC, the only agreements to which the Parent is Party as of the date hereof with current or former officers, directors or stockholders are three option agreements by which the Parent granted 275,000,000 options. The form of such agreement was filed as an exhibit to our Registration Statement on Form 10, dated July 2, 2014 and as amended August 18, 2014.

 

7


Section 3.19 of the Parent Disclosure Schedule

None.

 

8


Section 3.22(a) of the Parent Disclosure Schedule

None.

 

9


Section 3.22(j) of the Parent Disclosure Schedule

As disclosed in the Parent Reports, the Company has entered into three agreements by which it has granted 275,000,000 options. The form of such agreement was filed as an exhibit to our Registration Statement on Form 10, dated July 2, 2014 and as amended August 18, 2014.

 

10


Section 3.23(b) of the Parent Disclosure Schedule

None.

 

11


Section 3.24 of the Parent Disclosure Schedule

None.

 

12


Section 3.25 of the Parent Disclosure Schedule

None, except as disclosed in the Parent Reports.

 

13


Section 3.28 of the Parent Disclosure Schedule

Except for obligations to pay any fees or commissions to Katalyst Securities, LLC under a Placement Agency Agreement (or as directed by Katalyst Securities, LLC under such agreement), a copy of which has been provided to the Company, the Parent no other liability or obligation to pay any fees or commissions to any broker, finder or agent with respect to the transactions contemplated by this Agreement.

 

14

Exhibit 2.2

CERTIFICATE OF MERGER

OF

PROTAGENIC ACQUISITION CORP.

a Delaware Corporation

WITH AND INTO

PROTAGENIC THERAPEUTICS, INC.

a Delaware Corporation

Pursuant to Section 251 of the General Corporation Law of the State of Delaware (the “ DGCL ”), the undersigned corporation does hereby certify as follows:

FIRST : The names and states of incorporation of the constituent corporations are Protagenic Acquisition Corp., a Delaware corporation (“ Merger Sub ”), and Protagenic Therapeutics, Inc., a Delaware corporation (the “ Company ”).

SECOND : The Agreement and Plan of Merger, dated as of February 12, 2016 (the “ Agreement ”), by and among Atrinsic, Inc., a Delaware corporation, Merger Sub and the Company (the “ Merger ”), has been approved, adopted, executed and acknowledged by each of the constituent corporations in accordance with Section 251 of the DGCL.

THIRD : The name of the corporation surviving the Merger is Protagenic Therapeutics, Inc. (the “ Surviving Corporation ”).

FOURTH : The Certificate of Incorporation of the Surviving Corporation, as in effect immediately prior to the Merger, shall be the Certificate of Incorporation of the Surviving Corporation.

FIFTH : The Agreement is on file at 149 Fifth Avenue, Suite 500, New York, NY 10010, the place of business of the Surviving Corporation.

SIXTH : A copy of the Agreement will be furnished by the Surviving Corporation on request, without cost, to any stockholder of the constituent corporations.

SEVENTH : The Merger shall be effective as of the time of filing of this Certificate with the office of the Secretary of State of Delaware.


IN WITNESS WHEREOF, the Surviving Corporation has caused this Certificate of Merger to be executed this 12 th day of February, 2016.

 

PROTAGENIC THERAPEUTICS, INC.

By:  

/s/ Garo H. Armen

Name:   Garo H. Armen
Title:   Chairman of the Board of Directors

 

-2-

Exhibit 3.3

CERTIFICATE OF INCORPORATION

OF

PROTAGENIC THERAPEUTICS, INC.

I.

The name of this corporation is: PROTAGENIC THERAPEUTICS, INC.

II.

The address of the corporation’s registered office in the State of Delaware is at 15 East North Street in the City of Dover, County of Kent. The Registered Agent in charge thereof is Incorporating Services, Ltd.

III.

The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

IV.

The total number of shares of capital stock which the corporation shall have authority to issue is 750,000 shares of Common Stock, $0.001 par value per share (“Common Stock”).

V.

The board of directors is authorized to make, alter or repeal the bylaws of this corporation. Election of directors need not be by written ballot.

VI.

The name and mailing address of the incorporator is:

John D. Tishler, Esq.

c/o Sheppard Mullin Richter & Hampton, LLP

12544 High Bluff Drive, Suite 300

San Diego, California 92130-3051

No director of this corporation shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation and its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of Delaware or (iv) for any transaction from which the director derived any improper personal benefit.

 

1


Neither the amendment nor repeal of Article 7, nor the adoption of any provision of the certificate of incorporation inconsistent with Article 7, shall eliminate or reduce the effect of Article 7 in respect of any matter occurring, or any cause of action, suit or claim that, but for Article 7 would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

I, JOHN D. TISHLER, for the purpose of forming a corporation pursuant to the General Corporation Law of Delaware, do make, file and record this certificate, and do certify that the facts herein stated are true; and I have accordingly hereunto set my hand.

Dated: September 22, 2004

State of California

County of San Diego

 

/s/ John D. Tishler

JOHN D. TISHLER, Incorporator

 

2


RESTATED CERTIFICATE OF INCORPORATION

OF

PROTAGENIC THERAPEUTICS, INC.

Protagenic Therapeutics, Inc., a Delaware corporation (the “Corporation”), hereby certifies that:

1. The name of the Corporation is Protagenic Therapeutics, Inc. The date of filing its original Certificate of Incorporation with the Secretary of State was September 24, 2004.

2. This Restated Certificate of Incorporation of the Corporation attached hereto as Exhibit A, which is incorporated herein by this reference, and which restates, integrates and further amends the provisions of the Certificate of Incorporation of this Corporation as previously amended or supplemented, has been duly adopted by the Corporation’s Board of Directors and a majority of the stockholders in accordance with Sections 242 and 245 of the Delaware General Corporation Law, with the approval of the Corporation’s stockholders having been given by written consent without a meeting in accordance with Section 228 of the Delaware General Corporation Law.

IN WITNESS WHEREOF, said Corporation has caused this Restated Certificate of Incorporation to be signed by its duly authorized officer and the foregoing facts stated herein are true and correct.

 

Dated: August 18, 2005    PROTAGENIC THERAPEUTICS, INC.
   By:  

/s/ Haro Hartounian

     Haro Hartounian
     Assistant Secretary


Exhibit A

RESTATED CERTIFICATE OF INCORPORATION

OF

PROTAGENIC THERAPEUTICS, INC.

I.

The name of this corporation is: PROTAGENIC THERAPEUTICS, INC.

II.

The address of the corporation’s registered office in the State of Delaware is at 15 East North Street in the City of Dover, County of Kent. The Registered Agent in charge thereof is Incorporating Services, Ltd.

III.

The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

IV.

The total number of shares of capital stock which the corporation shall have authority to issue is 10,000,000 shares of Common Stock, $0.001 par value per share (“Common Stock”). Effective at the time of filing with the Secretary of State of the State of Delaware of this Restated Certificate of Incorporation, each share of the Corporation’s Common Stock issued and outstanding shall automatically and without any action on the part of the respective holders thereof, be split into a number of shares of Common Stock of the Corporation obtained by multiplying each such share by the following fraction: 4/3.

V.

The board of directors is authorized to make, alter or repeal the bylaws of this corporation. Election of directors need not be by written ballot.

VI.

No director of this corporation shall be liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation and its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (i ii) under Section 174 of the General Corporation Law of Delaware or (iv) for any transaction from which the director derived any improper personal benefit.

 

-1-


Neither the amendment nor repeal of Article VI, nor the adoption of any provision of the certificate of incorporation inconsistent with Article VI, shall eliminate or reduce the effect of Article VI in respect of any matter occurring, or any cause of action, suit or claim that, but for Article VI would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

 

-2-


CERTIFICATE OF AMENDMENT

OF

RESTATED CERTIFICATE OF INCORPORATION

OF

PROTAGENIC THERAPEUTICS, INC.

Protagenic Therapeutics, Inc. (the “Company”), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify:

FIRST: That by written consent of the director of the Company, the following resolution was duly adopted setting forth a proposed amendment to the Restated Certificate of Incorporation of the Company, as filed on August 19, 2005, declaring said amendment to be advisable:

 

  RESOLVED : that the Restated Certificate of Incorporation of this corporation be amended by adding to the Article thereof numbered “IV” so that, at the end of said Article, the following shall be included:

Effective upon the filing of this Certificate of Amendment of the Restated Certificate of Incorporation (the “Certificate of Amendment”), with the Secretary of State of the State of Delaware each one (1) share of the Company’s Common Stock issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be split into that number of shares of Common Stock of the Company obtained by multiplying each such share by 3.471652721. No fractional shares shall be issued in connection therewith, and each stockholder otherwise entitled to receive a fractional share shall receive the next lower whole number of shares of Common Stock.

SECOND: That thereafter, pursuant to said resolution of its board of directors, the amendment was duly adopted by written consent of the stockholders of the Company.

THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, the Company has caused this certificate to be signed by Haro Hartounian, its Assistant Secretary, this 25 day of October, 2006.

 

/s/ Haro Hartounian

Haro Hartounian, Assistant Secretary

 


STATE OF DELAWARE

CERTIFICATE FOR RENEWAL

AND REVIVAL OF CHARTER

The corporation organized under the laws of Delaware, the charter of which was forfeited for failure to obtain a registered agent, now desires to procure a restoration, renewal and revival of its charter, and hereby certifies as follows:

 

  1. The name of this corporation is Protagenic Therapeutics, Inc.

 

  2. Its registered office in the State of Delaware is located at 615 South DuPont Highway , City of Dover Zip Code 19901 County of Kent the name of its registered agent is National Corporate Research, Ltd.

 

  3. The date the Certificate of Incorporation was filed in Delaware was September 24, 2004.

 

  4. The date when restoration, renewal, and revival of the charter of this company is to commence is the 11th day of January, 2007, same being prior to the date of the expiration of the charter. This renewal and revival of the charter of this corporation is to be perpetual.

 

  5. This corporation was duly organized and carried on the business authorized by its charter until the 12th day of January A.D. 2007, at which time its charter became inoperative and forfeited for failure to obtain a registered agent and this certificate for renewal and revival is filed by authority of the duly elected directors of the corporation in accordance with the laws of the State of Delaware.

IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312 of the General Corporation Law of the State of Delaware, as amended, providing for the renewal, extension and restoration of charters the last and acting authorized officer hereunto set his/her hand to this certificate this 5th day of March A.D. 2007.

 

By:  

/s/ Hartoun Hartounian

  Authorized Officer
Name:  

Hartoun Hartounian

  Print or Type
Title:   President


STATE OF DELAWARE

CERTIFICATE FOR RENEWAL

AND REVIVAL OF CHARTER

The corporation organized under the laws of Delaware, the charter of which was forfeited for failure to obtain a registered agent, now desires to procure a restoration, renewal and revival of its charter, and hereby certifies as follows:

 

  1. The name of this corporation is Protagenic Therapeutics, Inc.

 

  2. Its registered office in the State of Delaware is located at 1679 S Dupont Hwy., Ste 100 Street, City of Dover Zip Code 19901 County of Kent the name of its registered agent is Registered Agent Solutions, Inc.

 

  3. The date the Certificate of Incorporation was filed in Delaware was SEPTEMBER 24, 2004.

 

  4. The date when restoration, renewal, and revival of the charter of this company is to commence is the 6 day of AUGUST same being prior to the date of the expiration of the charter. This renewal and revival of the charter of this corporation is to be perpetual.

 

  5. This corporation was duly organized and carried on the business authorized by its charter until the 7 day of AUGUST A.D. 2015, at which time its charter became inoperative and forfeited for failure to obtain a registered agent and this certificate for renewal and revival is filed by authority of the duly elected directors of the corporation in accordance with the laws of the State of Delaware.

IN TESTIMONY WHEREOF , and in compliance with the provisions of Section 312 of the General Corporation Law of the State of Delaware, as amended, providing for the renewal, extension and restoration of charters the last and acting authorized officer hereunto set his/her hand to this certificate this 14 day of September A.D. 2015.

 

By:  

/s/ Robert Ziroyan

  Authorized Officer
Name:  

Robert Ziroyan

  Print or Type
Title:   President & COO


CERTIFICATE OF AMENDMENT OF

THE RESTATED CERTIFICATE OF INCORPORATION

OF PROTAGENIC THERAPEUTICS, INC.

Protagenic Therapeutics, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”),

DOES HEREBY CERTIFY:

FIRST: That the name of this corporation is Protagenic Therapeutics, Inc. (the “Corporation”) and that this Corporation was originally incorporated pursuant to the General Corporation Law on September 24, 2004 under the name Protagenic Therapeutics, Inc.

SECOND: That by unanimous written consent, the Board of Directors of the Corporation adopted resolutions setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, declaring said amendment to be advisable and in the best interests of the Corporation and its stockholders and authorizing the appropriate officers of the Corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment is substantially as follows:

The first sentence of Article IV is hereby amended to read in full as follows:

The total number of shares of capital stock which the corporation shall have authority to issue is 20,000,000 shares of Common Stock, $0.001 par value per share (“ Common Stock ”).

THIRD: That thereafter said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law by written consent of the stockholders holding the requisite number of shares required by statute given in accordance with and pursuant to Section 228 of the General Corporation Law of the State of Delaware.


IN WITNESS WHEREOF, this Certificate of Amendment of the Restated Certificate of Incorporation has been executed by a duly authorized officer of this Corporation on this 29 day of SEPTEMBER, 2015.

 

PROTAGENIC THERAPEUTICS, INC.
By:  

/s/ Robert Ziroyan

Name:   Robert Ziroyan
Title:   President and Chief Operating Officer

[Signature Page to Certificate of Amendment of the

Restated Certificate of Incorporation of Protagenic Therapeutics, Inc.]

Exhibit 3.5

BYLAWS

OF

PROTAGENIC THERAPEUTICS, INC.,

a Delaware corporation

ARTICLE I

STOCKHOLDERS

Section 1: Annual Meeting .

An annual meeting of the stockholders, for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting, shall be held at such place, on such date, and at such time as the Board of Directors shall each year fix, which date shall be within thirteen (13) months of the last annual meeting of stockholders or, if no such meeting has been held, the date of incorporation.

Section 2: Special Meetings .

Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by the Board of Directors or the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. At any time or times that the Corporation is subject to Section 2115(b) of the California General Corporation Law (“CGCL”), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders as set forth in Article II, Section 2 herein.

Section 3: Notice of Meetings .

Written notice of the place, date, and time of all meetings of the stockholders shall be given, not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation).

When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed. or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

 

-1-


Section 4: Quorum .

At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger number may be required by law. Where a separate vote by a class or classes is required, a majority of the shares of such class or classes present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.

If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time.

Section 5: Organization .

Such person as the Board of Directors may have designated or, in the absence of such a person, the chief executive officer of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints.

Section 6: Conduct of Business .

The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him or her in order. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

Section 7: Proxies and Voting .

At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.

All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The Corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a

 

-2-


written report thereof. The Corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting.

All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively.

Section 8: Stock List .

A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held.

The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them.

Section 9: Consent of Stockholders in Lieu of Meeting .

Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation’s registered office shall be made by hand or by certified or registered mail, return receipt requested.

Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated consent is delivered to the Corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Corporation in the manner prescribed in the first paragraph of this Section.

 

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ARTICLE II

BOARD OF DIRECTORS

Section 1: Number and Term of Office .

The number of directors who shall constitute the whole Board shall be such number as the Board of Directors shall from time to time have designated, except that in the absence of any such designation, such number shall be one (l). Each director shall be elected for a term of one year and until his or her successor is elected and qualified, except as otherwise provided herein or required by law.

Whenever the authorized number of directors is increased between annual meetings of the stockholders, a majority of the directors then in office shall have the power to elect such new directors for the balance of a term and until their successors are elected and qualified. Any decrease in the authorized number of directors shall not become effective until the expiration of the term of the directors then in office unless, at the time of such decrease, there shall be vacancies on the board which are being eliminated by the decrease.

No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the Corporation is subject to Section 2115(b) of the CGCL. During such time or times that the Corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholder’s votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder’s shares are otherwise entitled, or distribute the stockholder’s votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder’s votes unless (a) the names of such candidate or candidates have been placed in nomination prior to the voting and (b) the stockholder has given notice at the meeting, prior to the voting, of such stockholder’s intention to cumulate such stockholder’s votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.

Section 2: Vacancies .

If the office of any director becomes vacant by reason of death, resignation, disqualification, removal or other cause, a majority of the directors remaining in office, although less than a quorum, may elect a successor for the unexpired term and until his or her successor is elected and qualified.

 

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At any time or times that the Corporation is subject to §2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then

(i) any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or

(ii) the Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of the stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL, the term of office of any director shall terminate upon that election of a successor.

Section 3: Removal .

Subject to any limitations imposed by applicable law and the Certificate of Incorporation (and assuming the Corporation is not subject to Section 2115 of the CGCL), the Board of Directors or any director may be removed from office at any time (i) with cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the Corporation entitled to vote at an election of directors or (ii) without cause by the affirmative vote of the holders of a majority of the voting power of all then-outstanding shares of voting stock of the Corporation, entitled to vote at an election of directors.

During such time or times that the Corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director’s removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director’s most recent election were then being elected.

Section 4: Regular Meetings .

Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required.

Section 5: Special Meetings .

Special meetings of the Board of Directors may be called by one-third (1/3) of the directors then in office (rounded up to the nearest whole number) or by the chief executive officer and shall be held at such place, on such date, and at such time as they or he or she shall fix. Notice of the place, date, and time of each such special meeting shall be given each

 

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director by whom it is not waived by mailing written notice not less than five (5) days before the meeting or by telegraphing or telexing or by facsimile transmission of the same not less than twenty-four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

Section 6: Quorum .

At any meeting of the Board of Directors, a majority of the total number of the whole Board shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof.

Section 7: Participation in Meetings By Conference Telephone .

Members of the Board of Directors, or of any committee thereof, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting.

Section 8: Conduct of Business .

At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors.

Section 9: Powers .

The Board of Directors may, except as otherwise required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power:

(1) To declare dividends from time to time in accordance with law;

(2) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine;

(3) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non-negotiable, secured or unsecured, and to do all things necessary in connection therewith;

(4) To remove any officer of the Corporation with or without cause, and from time to time to devolve the powers and duties of any officer upon any other person for the time being;

 

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(5) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents;

(6) To adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine;

(7) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees and agents of the Corporation and its subsidiaries as it may determine; and.

(8) To adopt from time to time regulations, not inconsistent with these By-laws, for the management of the Corporation’s business and affairs.

Section 10: Compensation of Directors .

Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including, without limitation, their services as members of committees of the Board of Directors.

ARTICLE III

COMMITTEES

Section 1: Committees of the Board of Directors .

The Board of Directors, by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt a certificate of ownership and merger pursuant to Section 253 of the Delaware General Corporation Law 9 if the resolution which designates the committee or a supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his or her place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member.

Section 2. Conduct of Business .

Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings;

 

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one-third (1/3) of the members shall constitute a quorum unless the committee shall consist of one (l) or two (2) members, in which event one (l) member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting K all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee.

ARTICLE IV

OFFICERS

Section 1: Generally .

The officers of the Corporation shall consist of a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, an Assistant Secretary and a Treasurer. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, and such other officers and agents with such powers and duties as it shall deem necessary. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person.

Section 2: Chief Executive Officer .

Subject to the control of the Board of Directors and such supervisory powers, if any, as may be given by the Board of Directors, the powers and duties of the Chief Executive Officer of the Corporation are:

(1) To act as the general manager and, subject to the control of the Board of Directors, to have general supervision, direction and control of the business and affairs of the Corporation;

(2) To preside at all meetings of the stockholders;

(3) To call meetings of the shareholders to be held at such times and, subject to the limitations prescribed by law or by these By-laws, at such places as he or she shall deem proper; and

(4) To affix the signature of the Corporation to all deeds, conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and other papers and instruments in writing which have been authorized by the Board of Directors or which, in the judgment of the Chief Executive Officer, should be executed on behalf of the Corporation; to sign certificates for shares of stock of the Corporation; and, subject to the direction of the Board of Directors, to have general charge of the property of the Corporation and to supervise all officers, agents and employees of the Corporation.

 

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Section 3: Chairman of the Board . The Chairman of the Board shall have the power to preside at all meetings of the Board of Directors, to sign certificates for shares of stock of the Corporation, and shall have such other powers and duties as provided in these Bylaws and as the Board of Directors may from time to time prescribe.

Section 4: President .

The President shall be the chief executive officer of the Corporation unless the Board of Directors shall have designated another officers as the Chief Executive Officer of the Corporation. Subject to the provisions of these By-laws and to the direction of the Board of Directors, and subject to the supervisory powers of the Chief Executive Officer (if the Chief Executive Officer is an officer other than the President), he or she shall have the responsibility for the general management and control of the business and affairs of the Corporation and the general supervision and direction of all of the officers, employees and agents of the Corporation (other than the Chief Executive Officer, if the Chief Executive Officer is an officer other than the President) and shall perform all duties and have all powers that are commonly incident to the office of President or that are delegated to the President by the Board of Directors.

Section 5: Vice President .

Each Vice President shall have such powers and duties as may be delegated to him or her by the Board of Directors. One (1) Vice President shall be designated by the Board to perform the duties and exercise the powers of the President in the event of the President’s absence or disability.

Section 6: Treasurer .

The Treasurer shall have the responsibility for maintaining the financial records of the Corporation. He or she shall make such disbursements of the funds of the Corporation as are authorized and shall render from time to time an account of all such transactions and of the financial condition of the Corporation. The Treasurer shall also perform such other duties as the Board of Directors may from time to time prescribe.

Section 7: Secretary .

The Secretary shall issue all authorized notices for, and shall keep minutes of, all meetings of the stockholders and the Board of Directors. He or she shall have charge of the corporate books and shall perform such other duties as the Board of Directors may from time to time prescribe.

 

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Section 8: Assistant Secretary . The Assistant Secretary shall have the power to sign certificates for shares of stock of the Corporation, and shall have such other powers and duties as provided in these By-laws and as the Board of Directors may from time to time prescribe.

Section 9: Delegation of Authority .

The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.

Section 10: Removal .

Any officer of the Corporation may be removed at any time, with or without cause, by the Board of Directors.

Section 11: Action with Respect to Securities of Other Corporations .

Unless otherwise directed by the Board of Directors, the President or any officer of the Corporation authorized by the President shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of Stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation.

ARTICLE V

STOCK

Section l: Certificates of Stock .

Each stockholder shall be entitled to a certificate signed by, or in the name of the Corporation by, the President or a Vice President, and by the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any or all of the signatures on the certificate may be by facsimile.

Section 2: Transfers of Stock .

Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 4 of Article V of these By-laws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor.

Section 3: Record Date .

In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders, or to receive payment of any dividend or other

 

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distribution or allotment of any rights or to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date on which the resolution fixing the record date is adopted and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for such other action as hereinbefore described; provided, however, that if no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, and, for determining stockholders entitled to receive payment of any dividend or other distribution or allotment of rights or to exercise any rights of change, conversion or exchange of stock or for any other purpose, the record date shall be at the close of business on the day on which the Board of Directors adopts a resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall be not more than ten (10) days after the date upon which the resolution fixing the record date is adopted. If no record date has been fixed by the Board of Directors and no prior action by the Board of Directors is required by the Delaware General Corporation Law, the record date shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation in the manner prescribed by Article 1, Section 9 hereof. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by the Delaware General Corporation Law with respect to the proposed action by written consent of the stockholders, the record date for determining stockholders entitled to consent to corporate action in writing shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

Section 4: Lost, Stolen or Destroyed Certificates .

In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity.

Section 5: Regulations .

The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish.

 

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ARTICLE VI

NOTICES

Section 1: Notices .

Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram or mailgram. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by telegram or mailgram, shall be the time of the giving of the notice.

Section 2: Waivers .

A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver.

ARTICLE VII

MISCELLANEOUS

Section 1: Notices .

In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

Section 2: Corporate Seal .

The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Treasurer or by an Assistant Secretary or Assistant Treasurer.

Section 3 Reliance upon Books, Reports and Records .

Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation and upon such information, opinions, reports or statements presented to the

 

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Corporation by any of its officers or employees, or committees of the Board of Directors so designated, or by any other person as to matters which such director or committee member reasonably believes are within such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of the corporation.

Section 4: Fiscal Year .

The fiscal year of the Corporation shall be as fixed by the Board of Directors.

Section 5: Time Periods .

In applying any provision of these By-laws which requires that an act be done or not be done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

ARTICLE VIII

INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES

AND OTHER AGENTS

Section 1: Indemnification - Third Party Proceedings .

The Corporation shall indemnify any person (the “Indemnitee”) who is or was a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Corporation to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a director or officer of the Corporation, or any subsidiary of the Corporation, and the Corporation may indemnify a person who is or was a party or is threatened to be made a party to any proceeding (other than an action by or in the right of the Corporation to procure a judgment in its favor) by reason of the fact that such person is or was an employee or other agent of the Corporation (the “Indemnitee Agent”) by reason of any action or inaction on the part of Indemnitee or Indemnitee Agent while an officer, director or agent or by reason of the fact that Indemnitee or Indemnitee Agent is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including subject to Section 8.19, attorneys’ fees and any expenses of establishing a right to indemnification pursuant to this Article VIII or under Delaware law), judgments, fines, settlements (if such settlement is approved in advance by the Corporation, which approval shall not be unreasonably withheld) and other amounts actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection with such proceeding if Indemnitee or Indemnitee Agent acted in good faith and in a manner Indemnitee or Indemnitee Agent reasonably believed to be in or not opposed to the best interests of the Corporation and, in the case of a criminal proceeding, if Indemnitee or Indemnitee Agent had no reasonable cause to believe Indemnitee’s or Indemnitee Agent’s conduct was unlawful. The termination of any proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that Indemnitee or Indemnitee Agent did not act in good faith and in a manner which Indemnitee or

 

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Indemnitee Agent reasonably believed to be in or not opposed to the best interests of the Corporation, or with respect to any criminal proceedings, would not create a presumption that Indemnitee or Indemnitee Agent had reasonable cause to believe that Indemnitee’s or Indemnitee Agent’s conduct was unlawful.

Section 2 : Indemnification - Proceedings by or in the Right of the Corporation .

The Corporation shall indemnify Indemnitee and may indemnify Indemnitee Agent if Indemnitee, or Indemnitee Agent, as the case may be, was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Corporation or any subsidiary of the Corporation to procure a Judgment in its favor by reason of the fact that Indemnitee or Indemnitee Agent is or was a director, officer, employee or other agent of the Corporation, or any subsidiary of the Corporation, by reason of any action or inaction on the part of Indemnitee or Indemnitee Agent while an officer, director or agent or by reason of the fact that Indemnitee or Indemnitee Agent is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including subject to Section 8.19, attorneys’ fees and any expenses of establishing a right to indemnification pursuant to this Article VIII or under Delaware law) and, to the fullest extent permitted by law, amounts paid in settlement, in each case to the extent actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection with the defense or settlement of the proceeding if Indemnitee or Indemnitee Agent acted in good faith and in a manner Indemnitee or Indemnitee Agent believed to be in or not opposed to the best interests of the Corporation and its stockholders, except that no indemnification shall be made with respect to any claim, issue or matter to which Indemnitee or Indemnitee Agent shall have been adjudged to have been liable to the Corporation in the performance of Indemnitee’s or Indemnitee Agent’s duty to the Corporation and its stockholders, unless and only to the extent that the court in which such proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee or Indemnitee Agent is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine.

Section 3: Successful Defense on Merits .

To the extent that Indemnitee or Indemnitee Agent without limitation has been successful on the merits in defense of any proceeding referred to in Sections 8.1 or 8.2 above, or in defense of any claim, issue or matter therein, the Corporation shall indemnify Indemnitee or Indemnitee Agent against expenses (including attorneys’ fees) actually and reasonably incurred by Indemnitee or Indemnitee Agent in connection therewith.

Section 4. Certain Terms Defined .

For purposes of this Article VIII, references to “other enterprises” shall include employee benefit plans, references to “fines shall include any excise taxes assessed on Indemnitee or Indemnitee Agent with respect to an employee benefit plan, and references to “proceeding” shall include any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative. References to “Corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or

 

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surviving corporation, so that any person who is or was a director, officer, employee, or other agent of such a constituent corporation or who, being or having been such a director, officer, employee or other agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VIII with respect to the resulting or surviving corporation as such person would if he or she had served the resulting or surviving corporation in the same capacity.

Section 5: Advancement of Expenses .

The Corporation shall advance all expenses incurred by Indemnitee and may advance all or any expenses incurred by Indemnitee Agent in connection with the investigation, defense, settlement (excluding amounts actually paid in settlement of any action, suit or proceeding) or appeal of any civil or criminal action, suit or proceeding referenced in Sections 8.1 or 8.2 hereof. Indemnitee or Indemnitee Agent hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall be determined ultimately that Indemnitee or Indemnitee Agent is not entitled to be indemnified by the Corporation as authorized hereby. The advances to be made hereunder shall be paid by the Corporation (i) to Indemnitee within twenty (20) days following delivery of a written request therefor by Indemnitee to the Corporation; and (ii) to Indemnitee Agent within twenty (20) days following the later of a written request therefor by Indemnitee Agent to the Corporation and determination by the Corporation to advance expenses to Indemnitee Agent pursuant to the Corporation’s discretionary authority hereunder.

Section 6: Notice of Claim .

Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Article VIII, and Indemnitee Agent shall, as a condition precedent to his or her ability to be indemnified under this Article VIII, give the Corporation notice in writing as soon as practicable of any claim made against Indemnitee or Indemnitee Agent, as the case may be, for which indemnification will or could be sought under this Article VIII. Notice to the Corporation shall be directed to the secretary of the Corporation at the principal business office of the Corporation (or such other address as the Corporation shall designate in writing to Indemnitee). In addition, Indemnitee or Indemnitee Agent shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee s or Indemnitee Agent’s power.

Section 7: Enforcement Rights .

Any indemnification provided for in Sections 8.1 or 8.2 or 8.3 shall be made no later than sixty (60) days after receipt of the written request of Indemnitee. If a claim or request under this Article VIII, under any statute, or under any provision of the Corporation’s Articles of Incorporation providing for indemnification is not paid by the Corporation, or on its behalf, within sixty (60) days after written request for payment thereof has been received by the Corporation, Indemnitee may, but need not, at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or request, and subject to Section 8.19, Indemnitee shall also be entitled to be paid for the expenses (including attorneys’ fees) of bringing such action. It shall be a defense to any such action (other than an action brought to

 

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enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Corporation to indemnify Indemnitee for the amount clamed, but the burden of proving such defense shall be on the Corporation, and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 8.5 unless and until such defense may be finally adjudicated by court order or judgment for which no further right of appeal exists. The parties hereto intend that if the Corporation contests Indemnitee s right to indemnification, the question of Indemnitee’s right to indemnification shall be a decision for the court, and no presumption regarding whether the applicable standard has been met will arise based on any determination or lack of determination of such by the Corporation (including its Board or any subgroup thereof, independent legal counsel or its stockholders). The board of directors may, in its discretion, provide by resolution for similar or identical enforcement rights for any Indemnitee Agent.

Section 8: Assumption of Defense .

In the event the Corporation shall be obligated to pay the expenses of any proceeding against the Indemnitee or Indemnitee Agent, as the case may be, the Corporation, if appropriate, shall be entitled to assume the defense of such proceeding with counsel approved by Indemnitee or Indemnitee Agent, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee or Indemnitee Agent of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee or Indemnitee Agent and the retention of such counsel by the Corporation, the Corporation will not be liable to Indemnitee or Indemnitee Agent under this Article VIII for any fees of counsel subsequently incurred by Indemnitee or Indemnitee Agent with respect to the same proceeding, unless (i) the employment of counsel by Indemnitee or Indemnitee Agent is authorized by the Corporation, (ii) Indemnitee or Indemnitee Agent shall have reasonably concluded that there may be a conflict of interest of such counsel retained by the Corporation between the Corporation and Indemnitee or Indemnitee Agent in the conduct of such defense, or (iii) the Corporation ceases or terminates the employment of such counsel with respect to the defense of such proceeding, in any of which events then the fees and expenses of Indemnitee’s or Indemnitee Agent’s counsel shall be at the expense of the Corporation. At all times, Indemnitee or Indemnitee Agent shall have the right to employ other counsel in any such proceeding at Indemnitee’s or Indemnitee Agent’s expense.

Section 9: Approval of Expenses .

No expenses for which indemnity shall be sought under this Article VIII, other than those in respect of judgments and verdicts actually rendered, shall be incurred without the prior consent of the Corporation, which consent shall not be unreasonably withheld.

Section 10: Subrogation .

In the event of payment under this Article VIII, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Indemnitee or Indemnitee Agent, who shall do all things that may be necessary to secure such rights, including the execution of such documents necessary to enable the Corporation effectively to bring suit to enforce such rights.

 

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Section 11: Exceptions .

Notwithstanding any other provision herein to the contrary, the Corporation shall not be obligated pursuant to this Article VIII:

(a) Excluded Acts . To indemnify Indemnitee (i) as to circumstances in which indemnity is expressly prohibited pursuant to Delaware law, or (ii) for any acts or omissions or transactions from which a director may not be relieved of liability pursuant to Delaware law; or

(b) Claims Initiated by Indemnitee . To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Article VIII or any other statute or law or as otherwise required under the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Corporation in specific cases if the board of directors has approved the initiation or bringing of such suit; or

(c) Lack of Good Faith . To indemnify Indemnitee for any expenses incurred by the Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Article VIII, if a court of competent jurisdiction determines that such proceeding was not made in good faith or was frivolous; or

(d) Insured Claims . To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers’ and directors’ liability insurance maintained by the Corporation; or

(e) Claims Under Section 16(b) . To indemnify Indemnitee for expenses and the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.

Section 12: Partial Indemnification .

If Indemnitee is entitled under any provision of this Article VIII to indemnification by the Corporation for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred by the Indemnitee in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.

 

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Section 13: Coverage .

This Article VIII shall, to the extent permitted by law, apply to acts or omissions of (i) Indemnitee which occurred prior to the adoption of this Article VIII if Indemnitee was a director or officer of the Corporation or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, at the time such act or omission occurred; and (ii) Indemnitee Agent which occurred prior to the adoption of this Article VIII if Indemnitee Agent was an employee or other agent of the Corporation or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise at the time such act or omission occurred. All rights to indemnification under this Article VIII shall be deemed to be provided by a contract between the Corporation and the Indemnitee in which the Corporation hereby agrees to indemnify Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the Corporation’s Certificate of Incorporation, these Bylaws or by statute. Any repeal or modification of these Bylaws, the Delaware General Corporation Law or any other applicable law shall not affect any rights or obligations then existing under this Article VIII. The provisions of this Article VIII shall continue as to Indemnitee and Indemnitee Agent for any action taken or not taken while serving in an indemnified capacity even though the Indemnitee or Indemnitee Agent may have ceased to serve in such capacity at the time of any action, suit or other covered proceeding. This Article VIII shall be binding upon the Corporation and its successors and assigns and shall inure to the benefit of Indemnitee and Indemnitee Agent and Indemnitee’s and Indemnitee Agent’s estate, heirs, legal representatives and assigns.

Section 14: Non-Exclusivity

Nothing herein shall be deemed to diminish or otherwise restrict any rights to which Indemnitee or Indemnitee Agent may be entitled under the Corporation’s Certificate of Incorporation, these Bylaws, any agreement, any vote of stockholders or disinterested directors, or under the laws of the State of Delaware.

Section 15. Severability .

Nothing in this Article VII is intended to require or shall be construed as requiring the Corporation to do or fail to do any act in violation of applicable law. If this Article VIII or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee or Indemnitee Agent to the fullest extent permitted by any applicable portion of this Article VIII that shall not have been invalidated.

Section 16: Mutual Acknowledgement .

Both the Corporation and Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit the Corporation from indemnifying its directors and officers under this Article VIII or otherwise. Indemnitee understands and acknowledges that the Corporation has undertaken or may be required in the future to undertake with the Securities and Exchange Commission to submit the question of indemnification to a court in certain circumstances for a determination of the Corporation’s right under public policy to indemnify Indemnitee.

 

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Section 17: Officer and Director Liability Insurance .

The Corporation shall, from time to time, make the good faith determination whether or not it is practicable for the Corporation to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Corporation with coverage for losses from wrongful acts, or to ensure the Corporation s performance of its indemnification obligations under this Article VIII. Among other considerations, the Corporation will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. Notwithstanding the foregoing, the Corporation shall have no obligation to obtain or maintain such insurance if the Corporation determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a subsidiary or parent of the Corporation.

Section 18: Notice to Insurers .

If, at the time of the receipt of a notice of a claim pursuant to Section 8.6 hereof, the Corporation has director and officer liability insurance in effect, the Corporation shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Corporation shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.

Section 19: Attorneys’ Fees .

In the event that any action is instituted by Indemnitee under this Article VIII to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys’ fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that the action was not instituted in good faith or was frivolous. In the event of an action instituted by or in the name of the Corporation under this Article VIII, or to enforce or interpret any of the terms of this Article VIII, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys’ fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee’s counterclaims and cross-claims made in such action), unless as a part of such action the court determines that Indemnitee’s defenses to such action were not made in good faith or were frivolous. The board of directors may, in its discretion, provide by resolution for payment of such attorneys’ fees to any Indemnitee Agent.

Section 20: Notice .

All notices, requests, demands and other communications under this Article VIII shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the addressee, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked.

 

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ARTICLE IX

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 1: Right to Indemnification .

Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a “proceeding”), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an “indemnitee”), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be Indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this Article VIII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation.

Section 2: Right to Advancement of Expenses .

The right to indemnification conferred in Section I of this Article VIII shall include the right to be paid by the Corporation the expenses (including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an “advancement of expenses”); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an “undertaking”), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a “final adjudication”) that such indemnitee is not entitled to be indemnified for such expenses under this Section 2 or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 of this Article VIII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators.

 

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Section 3: Right of Indemnitee to Bring Suit .

If a claim under Section 1 or 2 of this Article VIII is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article VIII or otherwise shall be on the Corporation.

Section 4: Non-Exclusivity of Rights .

The rights to indemnification and to the advancement of expenses conferred in this Article VIII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation’s Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.

Section 5. Insurance .

The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

 

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Section 6: Indemnification of Employees and Agents of the Corporation .

The Corporation may, to the extent authorized from time to time the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article VIII with respect to the indemnification and advancement of expenses of directors and officers of the Corporation.

ARTICLE X

AMENDMENTS

These Bylaws may be amended or repealed by the Board of Directors at any meeting or by the stockholders at any meeting.

ARTICLE XI

ANNUAL MEETING

Subject to the provisions of paragraph (b) of this Bylaw, the Board of Directors shall cause an annual report to be sent to each stockholder of the Corporation not later than one hundred twenty (120) days after the close of the Corporation’s fiscal year. Such report shall include a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year, accompanied by any report thereon of independent accounts or, if there is no such report, the certificate of an authorized officer of the Corporation that such statements were prepared without audit from the books and records of the Corporation. When there are more than 100 stockholders of record of the Corporation’s shares, as determined by Section 605 of the CGCL, additional information as required by Section 1501 (b) of the CGCL shall also be contained in such report, provided that if the Corporation has a class of securities registered under Section 12 of the 1934 Act, that Act shall take precedence. Such report shall be sent to stockholders at least fifteen (15) days prior to the next annual meeting of stockholders after the end of the fiscal year to which it relates.

If and so long as there are fewer than 100 holders of record of the Corporation’s shares, the requirement of sending of an annual report to the stockholders of the Corporation is hereby expressly waived.

 

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Exhibit 4.1

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

Date of Issuance    Void after
                     , 20                                  , 20     

WARRANT TO PURCHASE SHARES OF COMMON STOCK

For the purchase price of $          per share (the “Warrant Price”) the receipt and sufficiency of which is hereby acknowledged, this Warrant is issued to                      (the “Holder”) by PROTAGENIC THERAPEUTICS, INC. , a Delaware corporation (the “Company”).

1. Purchase of Shares .

(a) Number of Shares . Subject to the terms and conditions set forth herein, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder in writing), to purchase from the Company up to                      (                      ) fully paid and nonassessable shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”).

(b) Exercise Price . The exercise price for the shares of Common Stock issuable pursuant to this Section 1 (the “Shares”) shall be $          per share (the “Exercise Price”). The Shares and the Exercise Price shall be subject to adjustment pursuant to Section 9 hereof.

2. Vesting; Exercise Period .

(a) This Warrant shall (i) be immediately exercisable as to                  shares and (ii) become exercisable as to the remaining                   shares subject to this Warrant on                      , 20          . Shares as to which this Warrant may be exercised at any time are sometimes referred to herein as “Vested Shares.”

(b) This Warrant shall be exercisable, in whole or in part, as to Vested Shares only, during the term commencing on                      , 20          and ending at 5:00 p.m., New York time, on                      , 20          (the “Exercise Period”), after which time this Warrant shall become void and of no value; provided , however , that in the event of (a) the consummation of the Company’s sale of its Common Stock or other securities pursuant to a registration statement under the Securities Act of 1933, as amended (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction), (b) the closing of the Company’s sale or transfer of


all or substantially all of its assets, or (c) the closing of the acquisition of the Company by another entity by means of merger, consolidation or other transaction or series of related transactions, resulting in the exchange of the outstanding shares of the Company’s capital stock such that the stockholders of the Company prior to such transaction own, directly or indirectly, less than 50% of the voting power of the surviving entity, this Warrant shall, on the date of such event, no longer be exercisable and become null and void. In the event of a proposed transaction of the kind described above, the Company shall notify the holder of the Warrant at least fifteen (15) days prior to the consummation of such event or transaction and shall provide the Holder with a description of the proposed terms and conditions of such transaction, including the amount and form of consideration to be received for each share of the Company’s capital stock. In addition, this Warrant shall terminate, as to shares which are not Vested Shares, upon the termination of the Consulting Agreement, of even date herewith, between Consultant and the Company.

(c) The right of exercise shall be cumulative so that to the extent this Warrant is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all unpurchased Vested Shares until the earlier of the termination of the Exercise Period or the earlier termination of this Warrant under section 2(b) hereof.

3. Method of Exercise .

(a) While this Warrant remains outstanding and exercisable in accordance with Section 2 above, the Holder may exercise, in whole or in part, the purchase rights evidenced hereby. Such exercise shall be effected by:

(i) the surrender of the Warrant, together with a duly executed copy of the Notice of Exercise attached hereto, to the Secretary of the Company at its principal office (or at such other place as the Company shall notify the Holder in writing); and

(ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant is surrendered to the Company as provided in Section 3 (a) above. At such time, the person or persons in whose name or names any certificate for the Shares shall be issuable upon such exercise as provided in Section 3(c) below shall be deemed to have become the holder or holders of record of the Shares represented by such certificate.

(c) As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within twenty (20) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of Shares to which such Holder shall be entitled, and

 

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(ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Shares equal to the number of such Shares described in this Warrant minus the number of such Shares purchased by the Holder upon all exercises made in accordance with Section 3(a) above or Section 4 below.

(d) Notwithstanding the provisions of Section 2, if the holder has not exercised this Warrant prior to the closing of a Corporate Transaction or an Initial Public Offering, this Warrant shall automatically be deemed to be exercised in full in the manner set forth in Section 4, without any further action on behalf of the Holder immediately prior to such closing.

4. Net Exercise . In lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election (a “Net Exercise”). A Holder who Net Exercises shall have the rights described in Sections 3(b) and 3(c) hereof, and the Company shall issue to such Holder a number of Shares computed using the following formula:

 

   X=    Y (A – B)   
     A   

Where

 

  X= The number of Shares to be issued to the Holder.

 

  Y= The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).

 

  A= The fair market value of one (1) Share (at the date of such calculation).

 

  B= The Exercise Price (as adjusted to the date of such calculation).

For purposes of this Section 4, the fair market value of a Share shall mean the average of the closing prices of the Shares (or equivalent shares of Common Stock underlying this Warrant) quoted in the over-the-counter market in which the Shares (or equivalent shares of Common Stock underlying the Warrant) are traded or the closing price quoted on any exchange or electronic securities market on which the Shares (or equivalent shares of Common Stock underlying the Warrant) are listed, whichever is applicable, as published in The Wall Street Journal for the thirty (30) trading days prior to the date of determination of fair market value (or such shorter period of time during which such Shares were traded over-the-counter or on such exchange). In the event that this Warrant is exercised pursuant to this Section 4 in connection with the Initial Public Offering, the fair market value per Share shall be the per share offering price to the public of the Initial Public Offering. If the Shares are not traded on the over-the-counter market, an exchange or an electronic securities market, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s Board of Directors.

 

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5. Representations and Warranties of the Company . In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder that:

(a) Organization, Good Standing, and Qualification . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

(b) Authorization . Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights, all corporate action has been taken on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Warrant. The Company has taken all corporate action required to make all the obligations of the Company reflected in the provisions of this Warrant the valid and enforceable obligations they purport to be. The issuance of this Warrant will not be subject to preemptive rights of any stockholders of the Company. The Company has authorized sufficient shares of Common Stock to allow for the exercise of this Warrant.

(c) Compliance with Other Instruments . The authorization, execution and delivery of the Warrant will not constitute or result in a material default or violation of any law or regulation applicable to the Company or any material term or provision of the Company’s current Certificate of Incorporation or bylaws, or any material agreement or instrument by which it is bound or to which its properties or assets are subject.]

(d) Valid Issuance of Common Stock . The Shares, when issued, sold, and delivered in accordance with the terms of the Warrants for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations and warranties of the Holders in this Warrant, will be issued in compliance with all applicable federal and state securities laws.

6. Representations and Warranties of the Holder . In connection with the transactions provided for herein, the Holder hereby represents and warrants to the Company that:

(a) Authorization . Holder represents that it has full power and authority to enter into this Warrant. This Warrant constitutes the Holder’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(b) Purchase Entirely for Own Account . The Holder acknowledges that this Warrant is entered into by the Holder in reliance upon such Holder’s representation to the Company that the Warrant and the Shares , and the Common Stock issuable upon conversion of

 

4


the Shares (collectively, the “Securities”) will be acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in or otherwise distributing the same. By acknowledging this Warrant, the Holder further represents that the Holder does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(c) Disclosure of Information . The Holder acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

(d) Investment Experience . The Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.

(e) Accredited Investor . The Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Act.

(f) Restricted Securities . The Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, each Holder represents that it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Act (“Rule 144”), and understands the resale limitations imposed thereby and by the Act.

(g) Further Limitations on Disposition . Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Shares unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of this Warrant, including, without limitation, this Section 6, Section 22, and:

(i) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii) the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the

 

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Company, that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in extraordinary circumstances.

(h) Legends . It is understood that the Securities may bear the following legend:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”

7. State Commissioners of Corporations . THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

8. Covenants of the Company .

(a) Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters and stock dividends) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

(b) Covenants as to Exercise Shares . The Company covenants and agrees that all Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance in accordance with the terms hereof, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

 

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(c) No Impairment . Except and to the extent waived or consented to by the Holder or as otherwise permitted under the terms hereof, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

9. Adjustment of Exercise Price and Number of Shares . The number and kind of Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances . If the Company shall at any time after the issuance but prior to the expiration of this Warrant subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Preferred Stock or Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price payable per share, but the aggregate Exercise Price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 9(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 9(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

 

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10. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

11. No Stockholder Rights . Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as otherwise provided in this Warrant, such Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

12. Transfer of Warrant . Subject to compliance with applicable federal and state securities laws and any other contractual restrictions between the Company and the Holder contained herein, this Warrant and all rights hereunder are transferable in whole or in part by the Holder to any person or entity upon written notice to the Company. Within a reasonable time after the Company’s receipt of an executed Assignment Form in the form attached hereto, the transfer shall be recorded on the books of the Company upon the surrender of this Warrant, properly endorsed, to the Company at its principal offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the new holders one (1) or more appropriate new warrants.

13. Governing Law . This Warrant shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents, made and to be performed entirely within the State of New York.

14. Successors and Assigns . The terms and provisions of this Warrant and the Purchase Agreement shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

15. Titles and Subtitles . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

16. Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 16):

If to the Company:

PROTAGENIC THERAPEUTICS, INC.

149 5th Avenue, Suite 500,

New York, NY 10010

 

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If to Holder:

At the addresses shown on the signature pages hereto.

17. Assumption of Warrant . If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be a Corporate Transaction, then, as a part of such transaction, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from Corporate Transaction which a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such Corporate Transaction if this Warrant had been exercised immediately before such Corporate Transaction, all subject to further adjustment as provided in this Section 17; and, in any such case, appropriate adjustment (as determined by the Company’s Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the number of Warrant Shares of the Holder is entitled to purchase) shall thereafter by applicable, as nearly as possible, in relation to any shares of Preferred Stock or other securities or other property thereafter deliverable upon the exercise of this Warrant.

18. Finder’s Fee . Each party represents that it neither is or will be obligated for any finder’s fee or commission in connection with this transaction. The Holder agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Holder or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless the Holder from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

19. Expenses . If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

20. Entire Agreement; Amendments and Waivers . This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Nonetheless, any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder; or if this Warrant has been assigned in part, by the holders or rights to purchase a majority of the shares originally issuable pursuant to this Warrant.

 

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21. Severability . If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

22. “Market Stand-Off” Agreement . The Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Public Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Company’s capital stock acquired through the exercise of this Warrant, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Company’s capital stock acquired through the exercise of this Warrant, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of securities, in cash or otherwise. The foregoing provisions of this Section shall apply to the Company’s Initial Public Offering, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement and shall only be applicable to the Holder if all officers, directors and greater than five percent (5%) stockholders of the Company enter into similar agreements. The underwriters in connection with the Company’s Initial Public Offering are intended third party beneficiaries of this Section and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s Initial Public Offering that are consistent with this Section 22 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, if (i) during the last seventeen (17) days of the one hundred eighty (180)-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (ii) prior to the expiration of the one hundred eighty (180)-day restricted period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the one hundred eighty (180)-day period, the restrictions imposed by this Section 22 shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

 

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Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 22):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

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IN WITNESS WHEREOF, the parties have executed this Warrant as of the date first written above.

 

  PROTAGENIC THERAPEUTICS, INC.
  By:    
    Garo H. Armen
    Chairman
Address:  

162 5 th Avenue, Suite 900

New York, NY 10010

ACKNOWLEDGED AND AGREED:

 

HOLDER
 

 

[Name]

 

Address:    
   
   

 

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NOTICE OF EXERCISE

PROTAGENIC THERAPEUTICS, INC.

Attention: Corporate Secretary

The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant, as follows:

 

  q                  shares of Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment in cash of the Exercise Price of such Shares in full, together with all applicable transfer taxes, if any.

 

  q Net Exercise the attached Warrant with respect to                  Shares.

The undersigned hereby represents and warrants that Representations and Warranties in Section 7 hereof are true and correct as of the date hereof.

 

      HOLDER:
Date:           By:    
    Address:    
       
       
Name in which shares should be registered:        
         

 

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ASSIGNMENT FORM

(To assign the foregoing Warrant, execute this form and supply required information. Do not use this form to purchase shares.)

F OR V ALUE R ECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:     
   (Please Print)
Address:     
   (Please Print)
Dated:           
Holder’s Signature:        
Holder’s Address:        

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should provide proper evidence of authority to assign the foregoing Warrant.

 

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Exhibit 4.2

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

Date of Issuance      Void after   
February [    ], 2016      February     , 2021   

WARRANT TO PURCHASE SHARES OF SERIES B PREFERRED STOCK OR COMMON STOCK

For the purchase price of $1.25 per share (the “Warrant Price”) the receipt and sufficiency of which is hereby acknowledged, this Warrant is issued to                       (the “Holder”) by ATRINSIC, INC. , a Delaware corporation (the “Company”).

1. Purchase of Shares .

(a) Number of Shares . Subject to the terms and conditions set forth herein, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder in writing), to purchase from the Company up to 295,945 fully paid and nonassessable shares (the “Shares”) of (i) prior to the Reverse Stock Split (as defined in the Certificate of Designations, Powers, Preferences and Other Rights of Preferred Stock and Qualifications, Limitations and Restrictions for the Company’s Series B Convertible Preferred Stock, par value $0.000001 per share (the “Series B Shares”)) the Company’s Series B Shares and/or (ii) after the Reverse Stock Split, the Company’s common stock, par value $0.000001 per share (the “Common Stock”).

(b) Exercise Price . The exercise price for the Series B Shares and/or the shares of Common Stock issuable pursuant to this Section 1 (the “Shares”) shall be $1.25 per share (the “Exercise Price”). The Shares and the Exercise Price shall be subject to adjustment pursuant to Section 9 hereof.

2. Vesting; Exercise Period .

(a) Subject to the Beneficial Ownership Cap, as defined below, this Warrant shall be immediately exercisable.

(b) This Warrant shall be exercisable, in whole or in part, during the term commencing on February [    ], 2016 and ending at 5:00 p.m., New York time, on February [    ], 2021 (the “Exercise Period”), after which time this Warrant shall become void and of no value.


(c) The right of exercise shall be cumulative so that to the extent this Warrant is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, until the earlier of the termination of the Exercise Period or the earlier termination of this Warrant under section 2(b) hereof.

3. Method of Exercise .

(a) Upon the exercise of this Warrant in compliance with the provisions of this Section 3, subject to any limitation pursuant to Section 22 below, the Company shall promptly issue and cause to be delivered to the Holder a certificate for the Shares purchased by the Holder. Each exercise of this Warrant shall be effective immediately prior to the close of business on the date (the “Date of Exercise”) that the conditions set forth in this Section 3 have been satisfied, as the case may be. On the first Business Day following the date on which the Company has received each of the Notice of Exercise and the aggregate Exercise Price (or notice of a Net Exercise in accordance with Section 4 (the “Exercise Delivery Documents”), the Company shall transmit an acknowledgment of receipt of the Exercise Delivery Documents to the Company’s transfer agent (the “Transfer Agent”). On or before the third Trading Day following the date on which the Company has received all of the Exercise Delivery Documents (the “Share Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and dispatch by overnight courier to the address as specified in the Notice of Exercise, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. The Holder shall not be required to deliver the original of this Warrant in order to effect an exercise hereunder. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Shares. As used in this Warrant, (x) “Business Day” means any day other than Saturday, Sunday or any other day on which commercial banks in the City of New York, New York, are authorized or required by law or executive order to close; and (y) “Trading Day” means any day on which the Common Stock is traded (or available for trading) on its principal trading market.

(b) This Warrant shall be exercisable, either in its entirety or, from time to time, for part only of the number of Shares referenced by this Warrant. If this Warrant is submitted in connection with any exercise pursuant to Section 3 and the number of Shares represented by this Warrant submitted for exercise is greater than the actual number of Shares being acquired upon such an exercise, then the Company shall as soon as practicable and in no event later than five (5) Business Days after any exercise and at its own expense, issue a new Warrant of like tenor representing the right to purchase the number of Shares purchasable immediately prior to such exercise under this Warrant, less the number of Shares with respect to which this Warrant is exercised.

4. Net Exercise . In lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by

 

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surrender of this Warrant at the principal office of the Company together with notice of such election (a “Net Exercise”). A Holder who Net Exercises shall have the rights described in Sections 3(b) and 3(c) hereof, and the Company shall issue to such Holder a number of Shares computed using the following formula:

 

X   =  

Y (A - B)

  
    A   

Where

 

X   =    The number of Shares to be issued to the Holder.
Y   =    The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).
A   =    The fair market value of one (1) Share (at the date of such calculation).
B   =    The Exercise Price (as adjusted to the date of such calculation).

For purposes of this Section 4, the fair market value of a Share shall mean the average of the closing prices of the Shares (or equivalent shares of Common Stock underlying this Warrant) quoted in the over-the-counter market in which the Shares (or equivalent shares of Common Stock underlying the Warrant) are traded or the closing price quoted on any exchange or electronic securities market on which the Shares (or equivalent shares of Common Stock underlying the Warrant) are listed, whichever is applicable, as published in The Wall Street Journal for the thirty (30) trading days prior to the date of determination of fair market value (or such shorter period of time during which such Shares were traded over-the-counter or on such exchange). In the event that this Warrant is exercised pursuant to this Section 4 in connection with an initial public offering described in Section 2(b)(i) (an “Initial Public Offering”), fair market value per Share shall be the higher of (i) the fair market value determined in the preceding sentence or (ii) the per share offering price to the public of the Initial Public Offering. If the Shares are not traded on the over-the-counter market, an exchange or an electronic securities market, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s Board of Directors.

5. Representations and Warranties of the Company . In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder that:

(a) Organization, Good Standing, and Qualification . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

 

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(b) Authorization . Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights, all corporate action has been taken on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Warrant. The Company has taken all corporate action required to make all the obligations of the Company reflected in the provisions of this Warrant the valid and enforceable obligations they purport to be. The issuance of this Warrant will not be subject to preemptive rights of any stockholders of the Company. The Company has authorized sufficient shares of Series B Shares and, following the Reverse Stock Split, Common Stock, to allow for the exercise of this Warrant.

(c) Compliance with Other Instruments . The authorization, execution and delivery of the Warrant will not constitute or result in a material default or violation of any law or regulation applicable to the Company or any material term or provision of the Company’s current Certificate of Incorporation or bylaws, or any material agreement or instrument by which it is bound or to which its properties or assets are subject.

(d) Valid Issuance of Common Stock . The Shares, when issued, sold, and delivered in accordance with the terms of the Warrants for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations and warranties of the Holders in this Warrant, will be issued in compliance with all applicable federal and state securities laws.

6. Representations and Warranties of the Holder . In connection with the transactions provided for herein, the Holder hereby represents and warrants to the Company that:

(a) Authorization . Holder represents that it has full power and authority to enter into this Warrant. This Warrant constitutes the Holder’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(b) Purchase Entirely for Own Account . The Holder acknowledges that this Warrant is entered into by the Holder in reliance upon such Holder’s representation to the Company that the Warrant, the Shares, and the Common Stock issuable upon conversion of the Series B Shares (collectively, the “Securities”) will be acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in or otherwise distributing the same. By acknowledging this Warrant, the Holder further represents that the Holder does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(c) Disclosure of Information . The Holder acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

 

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(d) Investment Experience . The Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.

(e) Accredited Investor . The Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Act.

(f) Restricted Securities . The Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, each Holder represents that it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Act (“Rule 144”), and understands the resale limitations imposed thereby and by the Act.

(g) Legends . It is understood that the Securities may bear the following legend:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”

7. State Commissioners of Corporations . THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

8. Covenants of the Company .

(a) Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof

 

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who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters and stock dividends) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

(b) Covenants as to Shares . The Company covenants and agrees that all Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance in accordance with the terms hereof, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of Shares to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued Shares shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Shares to such number of Shares as shall be sufficient for such purposes.

(c) No Impairment . Except and to the extent waived or consented to by the Holder or as otherwise permitted under the terms hereof, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

9. Adjustment of Exercise Price and Number of Shares . The number and kind of Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances . If the Company shall at any time after the issuance but prior to the expiration of this Warrant subdivide its Shares, by split-up or otherwise, or combine its Shares, or issue additional shares of its Series B Shares or Common Stock as a dividend with respect to any shares of its Common Stock or Series B Shares, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price payable per share, but the aggregate Exercise Price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 9(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 9(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be

 

6


made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

(d) Distributions of Assets . Excluding any dividend or distribution in which an adjustment is made pursuant to Section 9(a) or (b) above, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property, options, evidence of indebtedness or any other assets by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Beneficial Ownership Cap, as defined below) immediately before the date on which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, that, to the extent that the Holder’s right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Cap, then the Holder shall not be entitled to participate in such Distribution to the extent of the Beneficial Ownership Cap (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Distribution (and beneficial ownership) to the extent of any such excess) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Cap, at which time or times the Holder shall be granted such Distribution (and any Distributions declared or made on such initial Distribution or on any subsequent Distribution held similarly in abeyance) to the same extent as if there had been no such limitation.

(e) Purchase Rights . Except to the extent of any adjustment to this Warrant or Distribution made to the Holder, as applicable, pursuant to Section 9(a), (b) or (d) above, if at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class

 

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of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations or restrictions on exercise of this Warrant, including without limitation, the Beneficial Ownership Cap) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issuance or sale of such Purchase Rights (provided, however, that, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Cap, then the Holder shall not be entitled to participate in such Purchase Right to the extent of the Beneficial Ownership Cap (and shall not be entitled to beneficial ownership of such shares of Common Stock as a result of such Purchase Right (and beneficial ownership) to the extent of any such excess) and such Purchase Right to such extent shall be held in abeyance for the benefit of the Holder until such time or times, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Cap, at which time or times the Holder shall be granted such right (and any Purchase Right granted, issued or sold on such initial Purchase Right or on any subsequent Purchase Right held similarly in abeyance) to the same extent as if there had been no such limitation.

10. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

11. No Stockholder Rights . Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as otherwise provided in this Warrant, such Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

12. Transfer of Warrant . Subject to compliance with applicable federal and state securities laws and any other contractual restrictions between the Company and the Holder contained herein, this Warrant and all rights hereunder are transferable in whole or in part by the Holder to any person or entity upon written notice to the Company. Within a reasonable time after the Company’s receipt of an executed Assignment Form in the form attached hereto, the transfer shall be recorded on the books of the Company upon the surrender of this Warrant, properly endorsed, to the Company at its principal offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the new holders one (1) or more appropriate new warrants.

13. Governing Law . This Warrant shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents, made and to be performed entirely within the State of New York.

 

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14. Successors and Assigns . The terms and provisions of this Warrant shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

15. Titles and Subtitles . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

16. Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 16):

If to the Company:

ATRINSIC, INC.

149 5th Avenue, Suite 500,

New York, NY 10010

If to Holder:

At the addresses shown on the signature pages hereto.

17. Assumption of Warrant . If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be a Fundamental Transaction, as defined below, then, as a part of such transaction, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from the Fundamental Transaction which a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such Fundamental Transaction if this Warrant had been exercised immediately before such Fundamental Transaction, all subject to further adjustment as provided in this Section 17; and, in any such case, appropriate adjustment (as determined by the Company’s Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of the Holder to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the number of Shares the Holder is entitled to purchase) shall thereafter by applicable, as nearly as possible, in relation to any Shares or other securities or other property thereafter deliverable upon the exercise of this Warrant. For the purposes of this agreement (x) “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and a government or any department or agency thereof and (y) “Fundamental Transaction” means that the Company shall, directly or indirectly, in one or more related transactions, (i) consolidate or merge with or into (whether or not the Company is the surviving

 

9


corporation) another Person, or (ii) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company to another Person, or (iii) allow another Person to make a purchase offer, tender offer or exchange offer that is accepted by the holders of more than the 50% of the Company’s outstanding voting securities (but excluding any voting securities held by the Person or Persons making or party to, or any Person(s) associated or affiliated with such Person or Persons making or party to, such purchase offer, tender offer or exchange offer), or (iv) enter into a stock purchase agreement or other agreement to effect any other business combination (including, without limitation, a reorganization, recapitalization or spin-off) with another Person or Persons, whereby more than 50% of the Company’s outstanding voting securities are acquired by such Person or Persons (excluding any voting securities of the Company held by such Person or Persons making or party to, or any Person(s) associated or affiliated with such Person or Persons making or party to, such stock purchase agreement or other agreement to effect such other business combination), or (v) changed the members constituting its Board of Directors such that the individuals who constituted the Board of Directors on the date of issuance of this Warrant or other governing body of the Company (together with any new directors whose election to such Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of 66 2 / 3 % of the directors then still in office who were either directors on the Subscription Date or whose election or nomination for election was previously so approved), cease for any reason to constitute a majority of such Board of Directors then in office, or (vi) reorganize, recapitalize or reclassify its Common Stock.

18. Finder’s Fee . Each party represents that it neither is nor will be obligated for any finder’s fee or commission in connection with this transaction.

19. Expenses . If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

20. Entire Agreement; Amendments and Waivers . This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Nonetheless, any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder; or if this Warrant has been assigned in part, by the holders or rights to purchase a majority of the Shares originally issuable pursuant to this Warrant.

21. Severability . If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms

22. Limitation on Beneficial Ownership . Except as provided otherwise in this Section, the number of Shares that may be acquired upon the exercise of this Warrant shall be limited to the extent necessary to ensure that, after giving effect to such exercise, the number of shares of Common Stock then beneficially owned by the Holder and its Affiliates and any other

 

10


persons or entities whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including shares held by any “group” of which the Holder is a member, but, for avoidance of doubt, excluding shares of Common Stock issuable upon conversion or exercise of securities or rights to acquire securities that have limitations on the right to convert, exercise or purchase similar to the limitation set forth herein) 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 conversion (or deemed conversion for voting purposes) (the “Beneficial Ownership Cap”). For purposes hereof, “group” has the meaning set forth in Section 13(d) of the Exchange Act and applicable regulations of the Securities and Exchange Commission, and the percentage held by the Holder shall be determined in a manner consistent with the provisions of Section 13(d) of the Exchange Act. As used herein, the term “Affiliate” means any person or entity that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a person or entity, as such terms are used in and construed under Rule 144 under the Securities Act. With respect to the Holder, any investment fund or managed account that is managed on a discretionary basis by the same investment manager as the Holder will be deemed to be an Affiliate of the Holder. This paragraph shall be construed and administered in such manner as shall be consistent with the intent of the first sentence of this paragraph. Any provision hereof which would require a result that is not consistent with such intent shall be deemed severed herefrom and of no force or effect with respect to the exercise contemplated by this Warrant.

For purposes of the foregoing, the number of shares of Common Stock beneficially owned by the Holder and its affiliates shall include the number of shares of Common Stock issuable upon exercise of the Warrants, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted shares of Series B Shares beneficially owned by the Holder or any of its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained in this Section beneficially owned by the Holder or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 22, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act. For purposes of this Section, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, or Form 8-K, as the case may be, (2) a more recent public announcement by the Company, or (3) any other notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written request of any the Holder, the Company shall within two (2) business days following the receipt of such notice, confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the exercise of the Warrant (or portion thereof being exercised) by the Holder and its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported.

The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section to correct this Section (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.

 

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[signature page follows]

 

12


IN WITNESS WHEREOF, the parties have executed this Warrant as of the date first written above.

 

ATRINSIC, INC.
By:  

 

  Garo H. Armen
  Chairman
Address:   162 5 th Avenue, Suite 900
  New York, NY 10010

 

ACKNOWLEDGED AND AGREED:
HOLDER

 

[                                ]

Address: [                                ]

 

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EXHIBIT A

NOTICE OF EXERCISE

ATRINSIC, INC.

Attention: Corporate Secretary

The undersigned registered holder of Warrants to Purchase Shares of Series B Preferred Stock or Common Stock hereby elects to purchase, pursuant to the provisions of the Warrant, as follows:

 

  ¨                  Shares pursuant to the terms of the attached Warrant, and tenders herewith payment in cash of the Exercise Price of such Shares in full, together with all applicable transfer taxes, if any.

 

  ¨ Net Exercise the attached Warrant with respect to                  Shares.

The undersigned hereby represents and warrants that Representations and Warranties in Section 7 hereof are true and correct as of the date hereof.

The Company shall deliver to undersigned, or its designee or agent as specified below,                  shares of Common Stock in accordance with the terms of the Warrant. Delivery shall be made to the undersigned, or for its benefit, as follows:

¨ Check here if requesting delivery as a certificate to the following name and to the following address:

 

Issue to:   

 

  

 

  

 

¨ Check here if requesting delivery by Deposit/Withdrawal at Custodian as follows:

 

DTC Participant:   

 

DTC Number:   

 

Account Number:   

 

 

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Date:                       ,

 

Name of Registered Holder
By:  

 

Name:  
Title:  

 

Tax ID:  

 

Facsimile:  

 

E-mail Address:  

 

 

 

 

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EXHIBIT B

ASSIGNMENT FORM

 

 

(To assign the foregoing Warrant, execute

this form and supply required information.

Do not use this form to purchase shares.)

  

F OR V ALUE R ECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:   

 

  
   (Please Print)   
Address:   

 

  
   (Please Print)   
Dated:                        
Holder’s      
Signature:   

 

  
Holder’s      
Address:   

 

  

NOTE : The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should provide proper evidence of authority to assign the foregoing Warrant.

 

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Exhibit 4.3(i)

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

Date of Issuance       Void after
May 19, 2011       May 19, 2021

WARRANT TO PURCHASE SHARES OF COMMON STOCK

For the purchase price of $1.00 per share (the “Warrant Price”) the receipt and sufficiency of which is hereby acknowledged, this Warrant is issued to GARO H. ARMEN (the “Holder”) by PROTAGENIC THERAPEUTICS, INC. , a Delaware corporation (the “Company”).

1. Purchase of Shares .

(a) Number of Shares . Subject to the terms and conditions set forth herein, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder in writing), to purchase from the Company up to 300,000 (three hundred thousand) fully paid and nonassessable shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”).

(b) Exercise Price . The exercise price for the shares of Common Stock issuable pursuant to this Section 1 (the “Shares”) shall be $1.00 per share (the “Exercise Price”). The Shares and the Exercise Price shall be subject to adjustment pursuant to Section 9 hereof.

2. Exercise Period . This Warrant shall be exercisable, in whole or in part, during the term commencing on May 19, 2011 and ending at 5:00 p.m., New York time, on May 19, 2021 (the “Exercise Period”); provided , however , that this Warrant shall no longer be exercisable and become null and void upon the consummation of any “Termination Event” defined as (a) the consummation of the Company’s sale of its Common Stock or other securities pursuant to a registration statement under the Securities Act of 1933, as amended (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction) and (b) the consummation of a Liquidation Event, as such term is defined in the Company’s current Amended and Restated Certificate of Incorporation on file with the Secretary of State of the State of Delaware. For purposes of this Warrant, any of the transactions described in subsection (b) shall be referred to herein as a “Corporate Transaction”). In the event of a Termination Event, the Company shall notify the Holder at least ten (10) days prior to the consummation of such Termination Event.


3. Method of Exercise .

(a) While this Warrant remains outstanding and exercisable in accordance with Section 2 above, the Holder may exercise, in whole or in part, the purchase rights evidenced hereby. Such exercise shall be effected by:

(i) the surrender of the Warrant, together with a duly executed copy of the Notice of Exercise attached hereto, to the Secretary of the Company at its principal office (or at such other place as the Company shall notify the Holder in writing); and

(ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant is surrendered to the Company as provided in Section 3 (a) above. At such time, the person or persons in whose name or names any certificate for the Shares shall be issuable upon such exercise as provided in Section 3(c) below shall be deemed to have become the holder or holders of record of the Shares represented by such certificate.

(c) As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within twenty (20) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of Shares to which such Holder shall be entitled, and

(ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Shares equal to the number of such Shares described in this Warrant minus the number of such Shares purchased by the Holder upon all exercises made in accordance with Section 3(a) above or Section 4 below.

(d) Notwithstanding the provisions of Section 2, if the holder has not exercised this Warrant prior to the closing of a Corporate Transaction or an Initial Public Offering, this Warrant shall automatically be deemed to be exercised in full in the manner set forth in Section 4, without any further action on behalf of the Holder immediately prior to such closing.

4. Net Exercise . In lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election (a “Net Exercise”). A Holder who Net Exercises shall have the rights described in Sections 3(b) and 3(c) hereof, and the Company shall issue to such Holder a number of Shares computed using the following formula:

 

2


X =     Y (A - B)      
  A  

Where

 

  X =   The number of Shares to be issued to the Holder.
  Y =   The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).
  A =   The fair market value of one (1) Share (at the date of such calculation).
  B =   The Exercise Price (as adjusted to the date of such calculation).

For purposes of this Section 4, the fair market value of a Share shall mean the average of the closing prices of the Shares (or equivalent shares of Common Stock underlying this Warrant) quoted in the over-the-counter market in which the Shares (or equivalent shares of Common Stock underlying the Warrant) are traded or the closing price quoted on any exchange or electronic securities market on which the Shares (or equivalent shares of Common Stock underlying the Warrant) are listed, whichever is applicable, as published in The Wall Street Journal for the thirty (30) trading days prior to the date of determination of fair market value (or such shorter period of time during which such Shares were traded over-the-counter or on such exchange). In the event that this Warrant is exercised pursuant to this Section 4 in connection with the Initial Public Offering, the fair market value per Share shall be the per share offering price to the public of the Initial Public Offering. If the Shares are not traded on the over-the-counter market, an exchange or an electronic securities market, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s Board of Directors.

5. Representations and Warranties of the Company . In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder that:

(a) Organization, Good Standing, and Qualification . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

(b) Authorization . Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights, all corporate action has been taken on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Warrant. The Company has taken all corporate action required to make all the obligations of the Company reflected in the provisions of this Warrant the valid and enforceable obligations they purport to be. The issuance of this Warrant will not be subject to preemptive rights of any stockholders of the Company. The Company has authorized sufficient shares of Common Stock to allow for the exercise of this Warrant.

 

3


(c) Compliance with Other Instruments . The authorization, execution and delivery of the Warrant will not constitute or result in a material default or violation of any law or regulation applicable to the Company or any material term or provision of the Company’s current Certificate of Incorporation or bylaws, or any material agreement or instrument by which it is bound or to which its properties or assets are subject.]

(d) Valid Issuance of Common Stock . The Shares, when issued, sold, and delivered in accordance with the terms of the Warrants for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations and warranties of the Holders in this Warrant, will be issued in compliance with all applicable federal and state securities laws.

6. Representations and Warranties of the Holder . In connection with the transactions provided for herein, the Holder hereby represents and warrants to the Company that:

(a) Authorization . Holder represents that it has full power and authority to enter into this Warrant. This Warrant constitutes the Holder’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(b) Purchase Entirely for Own Account . The Holder acknowledges that this Warrant is entered into by the Holder in reliance upon such Holder’s representation to the Company that the Warrant and the Shares , and the Common Stock issuable upon conversion of the Shares (collectively, the “Securities”) will be acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in or otherwise distributing the same. By acknowledging this Warrant, the Holder further represents that the Holder does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(c) Disclosure of Information . The Holder acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

(d) Investment Experience . The Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.

 

4


(e) Accredited Investor . The Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Act.

(f) Restricted Securities . The Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, each Holder represents that it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Act (“Rule 144”), and understands the resale limitations imposed thereby and by the Act.

(g) Further Limitations on Disposition . Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Shares unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of this Warrant, including, without limitation, this Section 6, Section 22, and:

(i) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii) the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in extraordinary circumstances.

(h) Legends . It is understood that the Securities may bear the following legend:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”

7. State Commissioners of Corporations . THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE

 

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ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

8. Covenants of the Company .

(a) Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters and stock dividends) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

(b) Covenants as to Exercise Shares . The Company covenants and agrees that all Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance in accordance with the terms hereof, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

(c) No Impairment . Except and to the extent waived or consented to by the Holder or as otherwise permitted under the terms hereof, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

9. Adjustment of Exercise Price and Number of Shares . The number and kind of Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances . If the Company shall at any time after the issuance but prior to the expiration of this Warrant subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Preferred Stock or Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately

 

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increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price payable per share, but the aggregate Exercise Price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 9(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 9(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

10. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

11. No Stockholder Rights . Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as otherwise provided in this Warrant, such Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

12. Transfer of Warrant . Subject to compliance with applicable federal and state securities laws and any other contractual restrictions between the Company and the Holder contained herein, this Warrant and all rights hereunder are transferable in whole or in part by the Holder to any person or entity upon written notice to the Company. Within a reasonable time after the Company’s receipt of an executed Assignment Form in the form attached hereto, the transfer shall be recorded on the books of the Company upon the surrender of this Warrant,

 

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properly endorsed, to the Company at its principal offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the new holders one (1) or more appropriate new warrants.

13. Governing Law . This Warrant shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents, made and to be performed entirely within the State of New York.

14. Successors and Assigns . The terms and provisions of this Warrant and the Purchase Agreement shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

15. Titles and Subtitles . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

16. Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 16):

If to the Company:

PROTAGENIC THERAPEUTICS, INC.

149 5th Avenue, Suite 500,

New York, NY 10010

If to Holder:

At the addresses shown on the signature pages hereto.

17. Assumption of Warrant . If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be a Corporate Transaction, then, as a part of such transaction, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from Corporate Transaction which a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such Corporate Transaction if this Warrant had been exercised immediately before such Corporate Transaction, all subject to further adjustment as provided in this Section 17; and, in any such case, appropriate adjustment (as determined by the Company’s Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of

 

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the Holder to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the number of Warrant Shares of the Holder is entitled to purchase) shall thereafter by applicable, as nearly as possible, in relation to any shares of Preferred Stock or other securities or other property thereafter deliverable upon the exercise of this Warrant.

18. Finder’s Fee . Each party represents that it neither is or will be obligated for any finder’s fee or commission in connection with this transaction. The Holder agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Holder or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless the Holder from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

19. Expenses . If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

20. Entire Agreement; Amendments and Waivers . This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Nonetheless, any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder; or if this Warrant has been assigned in part, by the holders or rights to purchase a majority of the shares originally issuable pursuant to this Warrant.

21. Severability . If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

22. “Market Stand-Off” Agreement . The Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Public Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Company’s capital stock acquired through the exercise of this Warrant, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Company’s capital stock acquired through the exercise of this Warrant, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of securities, in cash or otherwise. The foregoing provisions of this Section shall apply to the Company’s Initial Public Offering, shall not apply to the sale of any shares to an underwriter pursuant to an

 

9


underwriting agreement and shall only be applicable to the Holder if all officers, directors and greater than five percent (5%) stockholders of the Company enter into similar agreements.] The underwriters in connection with the Company’s Initial Public Offering are intended third party beneficiaries of this Section and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s Initial Public Offering that are consistent with this Section 22 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, if (i) during the last seventeen (17) days of the one hundred eighty (180)-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (ii) prior to the expiration of the one hundred eighty (180)-day restricted period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the one hundred eighty (180)-day period, the restrictions imposed by this Section 22 shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 22):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

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IN WITNESS WHEREOF, the parties have executed this Warrant as of the date first written above.

 

PROTAGENIC THERAPEUTICS, INC.
By:  

/s/ Robert Ziroyan

  President & Chief Operating Officer
Address:   149 5th Avenue, Suite 500,
  New York, NY 10010, U.S.A.

 

ACKNOWLEDGED AND AGREED:
HOLDER
By:  

/s/ Garo H. Armen

  GARO H. ARMEN
  [Insert Title]

Address:

 

149 5 th Ave, Ste 500

NY, NY 10010

 

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NOTICE OF EXERCISE

PROTAGENIC THERAPEUTICS, INC.

Attention: Corporate Secretary

The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant, as follows:

 

  ¨                     shares of Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment in cash of the Exercise Price of such Shares in full, together with all applicable transfer taxes, if any.

 

  ¨ Net Exercise the attached Warrant with respect to                     Shares.

The undersigned hereby represents and warrants that Representations and Warranties in Section 7 hereof are true and correct as of the date hereof.

 

                                       HOLDER:
Date:                                                                                                                                     By:  

 

                                  Address:  

 

   

 

Name in which shares should be registered:    

 

                                                                                            

 

 

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ASSIGNMENT FORM

(To assign the foregoing Warrant, execute

this form and supply required information.

Do not use this form to purchase shares.)

F OR V ALUE R ECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  

 

  (Please Print)
Address:  

 

  (Please Print)
Dated:  

 

Holder’s  
Signature:  

 

Holder’s  
Address:  

 

NOTE : The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should provide proper evidence of authority to assign the foregoing Warrant.

 

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Exhibit 4.3(ii)

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

Date of Issuance    Void after
February 18, 2013    February 18, 2023

WARRANT TO PURCHASE SHARES OF COMMON STOCK

For the purchase price of $1.00 per share (the “Warrant Price”) the receipt and sufficiency of which is hereby acknowledged, this Warrant is issued to GARO H. ARMEN (the “Holder”) by PROTAGENIC THERAPEUTICS, INC. , a Delaware corporation (the “Company”).

1. Purchase of Shares .

(a) Number of Shares . Subject to the terms and conditions set forth herein, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder in writing), to purchase from the Company up to 953,367 (nine hundred thousand and three hundred sixty seven) fully paid and nonassessable shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”).

(b) Exercise Price . The exercise price for the shares of Common Stock issuable pursuant to this Section 1 (the “Shares”) shall be $1.00 per share (the “Exercise Price”). The Shares and the Exercise Price shall be subject to adjustment pursuant to Section 9 hereof.

2. Exercise Period . This Warrant shall be exercisable, in whole or in part, during the term commencing on February 18, 2013 and ending at 5:00 p.m., New York time, on February 18, 2023 (the “Exercise Period”); provided , however , that this Warrant shall no longer be exercisable and become null and void upon the consummation of any “Termination Event” defined as (a) the consummation of the Company’s sale of its Common Stock or other securities pursuant to a registration statement under the Securities Act of 1933, as amended (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction) and (b) the consummation of a Liquidation Event, as such term is defined in the Company’s current Amended and Restated Certificate of Incorporation on file with the Secretary of State of the State of Delaware. For purposes of this Warrant, any of the transactions described in subsection (b) shall be referred to herein as a “Corporate Transaction”). In the event of a Termination Event, the Company shall notify the Holder at least ten (10) days prior to the consummation of such Termination Event.


3. Method of Exercise .

(a) While this Warrant remains outstanding and exercisable in accordance with Section 2 above, the Holder may exercise, in whole or in part, the purchase rights evidenced hereby. Such exercise shall be effected by:

(i) the surrender of the Warrant, together with a duly executed copy of the Notice of Exercise attached hereto, to the Secretary of the Company at its principal office (or at such other place as the Company shall notify the Holder in writing); and

(ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant is surrendered to the Company as provided in Section 3 (a) above. At such time, the person or persons in whose name or names any certificate for the Shares shall be issuable upon such exercise as provided in Section 3(c) below shall be deemed to have become the holder or holders of record of the Shares represented by such certificate.

(c) As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within twenty (20) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of Shares to which such Holder shall be entitled, and

(ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Shares equal to the number of such Shares described in this Warrant minus the number of such Shares purchased by the Holder upon all exercises made in accordance with Section 3(a) above or Section 4 below.

(d) Notwithstanding the provisions of Section 2, if the holder has not exercised this Warrant prior to the closing of a Corporate Transaction or an Initial Public Offering, this Warrant shall automatically be deemed to be exercised in full in the manner set forth in Section 4, without any further action on behalf of the Holder immediately prior to such closing.

4. Net Exercise . In lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election (a “Net Exercise”). A Holder who Net Exercises shall have the rights described in Sections 3(b) and 3(c) hereof, and the Company shall issue to such Holder a number of Shares computed using the following formula:

 

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X =     Y (A - B)      
  A  

Where

 

  X =    The number of Shares to be issued to the Holder.
  Y =    The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).
  A =    The fair market value of one (1) Share (at the date of such calculation).
  B =    The Exercise Price (as adjusted to the date of such calculation).

For purposes of this Section 4, the fair market value of a Share shall mean the average of the closing prices of the Shares (or equivalent shares of Common Stock underlying this Warrant) quoted in the over-the-counter market in which the Shares (or equivalent shares of Common Stock underlying the Warrant) are traded or the closing price quoted on any exchange or electronic securities market on which the Shares (or equivalent shares of Common Stock underlying the Warrant) are listed, whichever is applicable, as published in The Wall Street Journal for the thirty (30) trading days prior to the date of determination of fair market value (or such shorter period of time during which such Shares were traded over-the-counter or on such exchange). In the event that this Warrant is exercised pursuant to this Section 4 in connection with the Initial Public Offering, the fair market value per Share shall be the per share offering price to the public of the Initial Public Offering. If the Shares are not traded on the over-the-counter market, an exchange or an electronic securities market, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s Board of Directors.

5. Representations and Warranties of the Company . In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder that:

(a) Organization, Good Standing, and Qualification . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

(b) Authorization . Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights, all corporate action has been taken on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Warrant. The Company has taken all corporate action required to make all the obligations of the Company reflected in the provisions of this Warrant the valid and enforceable obligations they purport to be. The issuance of this Warrant will not be subject to preemptive rights of any stockholders of the Company. The Company has authorized sufficient shares of Common Stock to allow for the exercise of this Warrant.

 

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(c) Compliance with Other Instruments . The authorization, execution and delivery of the Warrant will not constitute or result in a material default or violation of any law or regulation applicable to the Company or any material term or provision of the Company’s current Certificate of Incorporation or bylaws, or any material agreement or instrument by which it is bound or to which its properties or assets are subject.]

(d) Valid Issuance of Common Stock . The Shares, when issued, sold, and delivered in accordance with the terms of the Warrants for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations and warranties of the Holders in this Warrant, will be issued in compliance with all applicable federal and state securities laws.

6. Representations and Warranties of the Holder . In connection with the transactions provided for herein, the Holder hereby represents and warrants to the Company that:

(a) Authorization . Holder represents that it has full power and authority to enter into this Warrant. This Warrant constitutes the Holder’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(b) Purchase Entirely for Own Account . The Holder acknowledges that this Warrant is entered into by the Holder in reliance upon such Holder’s representation to the Company that the Warrant and the Shares , and the Common Stock issuable upon conversion of the Shares (collectively, the “Securities”) will be acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in or otherwise distributing the same. By acknowledging this Warrant, the Holder further represents that the Holder does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(c) Disclosure of Information . The Holder acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

(d) Investment Experience . The Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.

 

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(e) Accredited Investor . The Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Act.

(f) Restricted Securities . The Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, each Holder represents that it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Act (“Rule 144”), and understands the resale limitations imposed thereby and by the Act.

(g) Further Limitations on Disposition . Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Shares unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of this Warrant, including, without limitation, this Section 6, Section 22, and:

(i) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii) the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in extraordinary circumstances.

(h) Legends . It is understood that the Securities may bear the following legend:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”

7. State Commissioners of Corporations . THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE

 

5


ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

8. Covenants of the Company .

(a) Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters and stock dividends) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

(b) Covenants as to Exercise Shares . The Company covenants and agrees that all Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance in accordance with the terms hereof, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

(c) No Impairment . Except and to the extent waived or consented to by the Holder or as otherwise permitted under the terms hereof, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

9. Adjustment of Exercise Price and Number of Shares . The number and kind of Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances . If the Company shall at any time after the issuance but prior to the expiration of this Warrant subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Preferred Stock or Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately

 

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increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price payable per share, but the aggregate Exercise Price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 9(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 9(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

10. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

11. No Stockholder Rights . Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as otherwise provided in this Warrant, such Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

12. Transfer of Warrant . Subject to compliance with applicable federal and state securities laws and any other contractual restrictions between the Company and the Holder contained herein, this Warrant and all rights hereunder are transferable in whole or in part by the Holder to any person or entity upon written notice to the Company. Within a reasonable time after the Company’s receipt of an executed Assignment Form in the form attached hereto, the transfer shall be recorded on the books of the Company upon the surrender of this Warrant,

 

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properly endorsed, to the Company at its principal offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the new holders one (1) or more appropriate new warrants.

13. Governing Law . This Warrant shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents, made and to be performed entirely within the State of New York.

14. Successors and Assigns . The terms and provisions of this Warrant and the Purchase Agreement shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

15. Titles and Subtitles . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

16. Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 16):

If to the Company:

PROTAGENIC THERAPEUTICS, INC.

149 5th Avenue, Suite 500,

New York, NY 10010

If to Holder:

At the addresses shown on the signature pages hereto.

17. Assumption of Warrant . If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be a Corporate Transaction, then, as a part of such transaction, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from Corporate Transaction which a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such Corporate Transaction if this Warrant had been exercised immediately before such Corporate Transaction, all subject to further adjustment as provided in this Section 17; and, in any such case, appropriate adjustment (as determined by the Company’s Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of

 

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the Holder to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the number of Warrant Shares of the Holder is entitled to purchase) shall thereafter by applicable, as nearly as possible, in relation to any shares of Preferred Stock or other securities or other property thereafter deliverable upon the exercise of this Warrant.

18. Finder’s Fee . Each party represents that it neither is or will be obligated for any finder’s fee or commission in connection with this transaction. The Holder agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Holder or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless the Holder from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

19. Expenses . If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

20. Entire Agreement; Amendments and Waivers . This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Nonetheless, any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder; or if this Warrant has been assigned in part, by the holders or rights to purchase a majority of the shares originally issuable pursuant to this Warrant.

21. Severability . If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

22. “Market Stand-Off” Agreement . The Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Public Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Company’s capital stock acquired through the exercise of this Warrant, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Company’s capital stock acquired through the exercise of this Warrant, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of securities, in cash or otherwise. The foregoing provisions of this Section shall apply to the Company’s Initial Public Offering, shall not apply to the sale of any shares to an underwriter pursuant to an

 

9


underwriting agreement and shall only be applicable to the Holder if all officers, directors and greater than five percent (5%) stockholders of the Company enter into similar agreements.] The underwriters in connection with the Company’s Initial Public Offering are intended third party beneficiaries of this Section and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s Initial Public Offering that are consistent with this Section 22 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, if (i) during the last seventeen (17) days of the one hundred eighty (180)-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (ii) prior to the expiration of the one hundred eighty (180)-day restricted period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the one hundred eighty (180)-day period, the restrictions imposed by this Section 22 shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 22):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

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IN WITNESS WHEREOF, the parties have executed this Warrant as of the date first written above.

 

PROTAGENIC THERAPEUTICS, INC.
By:  

/s/ Robert Ziroyan

  President & Chief Operating Officer
Address:   149 5th Avenue, Suite 500,
  New York, NY 10010, U.S.A.

 

ACKNOWLEDGED AND AGREED:
HOLDER
By:  

/s/ Garo H. Armen

  GARO H. ARMEN
  [Insert Title]
Address:   149 5 th Avenue Ste 500
  NY, NY 10010

 

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NOTICE OF EXERCISE

PROTAGENIC THERAPEUTICS, INC.

 

Attention: Corporate Secretary

The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant, as follows:

 

  ¨                     shares of Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment in cash of the Exercise Price of such Shares in full, together with all applicable transfer taxes, if any.

 

  ¨ Net Exercise the attached Warrant with respect to                     Shares.

The undersigned hereby represents and warrants that Representations and Warranties in Section 7 hereof are true and correct as of the date hereof.

 

                                     HOLDER:
Date:                                                                                                                                     By:  

 

                                  Address:  

 

   

 

Name in which shares should be registered:    

 

                                                                                            

 

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ASSIGNMENT FORM

(To assign the foregoing Warrant, execute

this form and supply required information.

Do not use this form to purchase shares.)

F OR V ALUE R ECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  

 

  (Please Print)
Address:  

 

  (Please Print)
Dated:  

 

Holder’s  
Signature:  

 

Holder’s  
Address:  

 

NOTE : The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should provide proper evidence of authority to assign the foregoing Warrant.

 

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Exhibit 4.4(i)

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

Date of Issuance    Void after

July 7, 2011

   July 7, 2021

WARRANT TO PURCHASE SHARES OF COMMON STOCK

For the purchase price of $1.00 per share (the “Warrant Price”) the receipt and sufficiency of which is hereby acknowledged, this Warrant is issued to GREGORY H. EKIZIAN (the “Holder”) by PROTAGENIC THERAPEUTICS, INC. , a Delaware corporation (the “Company”).

1. Purchase of Shares .

(a) Number of Shares . Subject to the terms and conditions set forth herein, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder in writing), to purchase from the Company up to 75,000 (seventy five thousand) fully paid and nonassessable shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”).

(b) Exercise Price . The exercise price for the shares of Common Stock issuable pursuant to this Section 1 (the “Shares”) shall be $1.00 per share (the “Exercise Price”). The Shares and the Exercise Price shall be subject to adjustment pursuant to Section 9 hereof.

2. Exercise Period . This Warrant shall be exercisable, in whole or in part, during the term commencing on July 7, 2011 and ending at 5:00 p.m., New York time, on July 7, 2021 (the “Exercise Period”); provided , however , that this Warrant shall no longer be exercisable and become null and void upon the consummation of any “Termination Event” defined as (a) the consummation of the Company’s sale of its Common Stock or other securities pursuant to a registration statement under the Securities Act of 1933, as amended (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction) and (b) the consummation of a Liquidation Event, as such term is defined in the Company’s current Amended and Restated Certificate of Incorporation on file with the Secretary of State of the State of Delaware. For purposes of this Warrant, any of the transactions described in subsection (b) shall be referred to herein as a “Corporate Transaction”). In the event of a Termination Event, the Company shall notify the Holder at least ten (10) days prior to the consummation of such Termination Event.

 


3. Method of Exercise .

(a) While this Warrant remains outstanding and exercisable in accordance with Section 2 above, the Holder may exercise, in whole or in part, the purchase rights evidenced hereby. Such exercise shall be effected by:

(i) the surrender of the Warrant, together with a duly executed copy of the Notice of Exercise attached hereto, to the Secretary of the Company at its principal office (or at such other place as the Company shall notify the Holder in writing); and

(ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant is surrendered to the Company as provided in Section 3 (a) above. At such time, the person or persons in whose name or names any certificate for the Shares shall be issuable upon such exercise as provided in Section 3(c) below shall be deemed to have become the holder or holders of record of the Shares represented by such certificate.

(c) As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within twenty (20) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of Shares to which such Holder shall be entitled, and

(ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Shares equal to the number of such Shares described in this Warrant minus the number of such Shares purchased by the Holder upon all exercises made in accordance with Section 3(a) above or Section 4 below.

(d) Notwithstanding the provisions of Section 2, if the holder has not exercised this Warrant prior to the closing of a Corporate Transaction or an Initial Public Offering, this Warrant shall automatically be deemed to be exercised in full in the manner set forth in Section 4, without any further action on behalf of the Holder immediately prior to such closing.

4. Net Exercise . In lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election (a “Net Exercise”). A Holder who Net Exercises shall have the rights described in Sections 3(b) and 3(c) hereof, and the Company shall issue to such Holder a number of Shares computed using the following formula:

 

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X =     Y (A - B)      
  A  

Where

 

  X =    The number of Shares to be issued to the Holder.
  Y =    The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).
  A =    The fair market value of one (1) Share (at the date of such calculation).
  B =    The Exercise Price (as adjusted to the date of such calculation).

For purposes of this Section 4, the fair market value of a Share shall mean the average of the closing prices of the Shares (or equivalent shares of Common Stock underlying this Warrant) quoted in the over-the-counter market in which the Shares (or equivalent shares of Common Stock underlying the Warrant) are traded or the closing price quoted on any exchange or electronic securities market on which the Shares (or equivalent shares of Common Stock underlying the Warrant) are listed, whichever is applicable, as published in The Wall Street Journal for the thirty (30) trading days prior to the date of determination of fair market value (or such shorter period of time during which such Shares were traded over-the-counter or on such exchange). In the event that this Warrant is exercised pursuant to this Section 4 in connection with the Initial Public Offering, the fair market value per Share shall be the per share offering price to the public of the Initial Public Offering. If the Shares are not traded on the over-the-counter market, an exchange or an electronic securities market, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s Board of Directors.

5. Representations and Warranties of the Company . In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder that:

(a) Organization, Good Standing, and Qualification . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

(b) Authorization . Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights, all corporate action has been taken on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Warrant. The Company has taken all corporate action required to make all the obligations of the Company reflected in the provisions of this Warrant the valid and enforceable obligations they purport to be. The issuance of this Warrant will not be subject to preemptive rights of any stockholders of the Company. The Company has authorized sufficient shares of Common Stock to allow for the exercise of this Warrant.

 

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(c) Compliance with Other Instruments . The authorization, execution and delivery of the Warrant will not constitute or result in a material default or violation of any law or regulation applicable to the Company or any material term or provision of the Company’s current Certificate of Incorporation or bylaws, or any material agreement or instrument by which it is bound or to which its properties or assets are subject.]

(d) Valid Issuance of Common Stock . The Shares, when issued, sold, and delivered in accordance with the terms of the Warrants for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations and warranties of the Holders in this Warrant, will be issued in compliance with all applicable federal and state securities laws.

6. Representations and Warranties of the Holder . In connection with the transactions provided for herein, the Holder hereby represents and warrants to the Company that:

(a) Authorization . Holder represents that it has full power and authority to enter into this Warrant. This Warrant constitutes the Holder’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(b) Purchase Entirely for Own Account . The Holder acknowledges that this Warrant is entered into by the Holder in reliance upon such Holder’s representation to the Company that the Warrant and the Shares , and the Common Stock issuable upon conversion of the Shares (collectively, the “Securities”) will be acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in or otherwise distributing the same. By acknowledging this Warrant, the Holder further represents that the Holder does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(c) Disclosure of Information . The Holder acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

(d) Investment Experience . The Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.

 

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(e) Accredited Investor . The Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Act.

(f) Restricted Securities . The Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, each Holder represents that it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Act (“Rule 144”), and understands the resale limitations imposed thereby and by the Act.

(g) Further Limitations on Disposition . Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Shares unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of this Warrant, including, without limitation, this Section 6, Section 22, and:

(i) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii) the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in extraordinary circumstances.

(h) Legends . It is understood that the Securities may bear the following legend:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”

7. State Commissioners of Corporations . THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE

 

5


ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

8. Covenants of the Company .

(a) Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters and stock dividends) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

(b) Covenants as to Exercise Shares . The Company covenants and agrees that all Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance in accordance with the terms hereof, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

(c) No Impairment . Except and to the extent waived or consented to by the Holder or as otherwise permitted under the terms hereof, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

9. Adjustment of Exercise Price and Number of Shares . The number and kind of Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances . If the Company shall at any time after the issuance but prior to the expiration of this Warrant subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Preferred Stock or Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately

 

6


increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price payable per share, but the aggregate Exercise Price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 9(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 9(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

10. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

11. No Stockholder Rights . Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as otherwise provided in this Warrant, such Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

12. Transfer of Warrant . Subject to compliance with applicable federal and state securities laws and any other contractual restrictions between the Company and the Holder contained herein, this Warrant and all rights hereunder are transferable in whole or in part by the Holder to any person or entity upon written notice to the Company. Within a reasonable time after the Company’s receipt of an executed Assignment Form in the form attached hereto, the transfer shall be recorded on the books of the Company upon the surrender of this Warrant,

 

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properly endorsed, to the Company at its principal offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the new holders one (1) or more appropriate new warrants.

13. Governing Law . This Warrant shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents, made and to be performed entirely within the State of New York.

14. Successors and Assigns . The terms and provisions of this Warrant and the Purchase Agreement shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

15. Titles and Subtitles . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

16. Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 16):

If to the Company:

PROTAGENIC THERAPEUTICS, INC.

149 5th Avenue, Suite 500,

New York, NY 10010

If to Holder:

At the addresses shown on the signature pages hereto.

17. Assumption of Warrant . If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be a Corporate Transaction, then, as a part of such transaction, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from Corporate Transaction which a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such Corporate Transaction if this Warrant had been exercised immediately before such Corporate Transaction, all subject to further adjustment as provided in this Section 17; and, in any such case, appropriate adjustment (as determined by the Company’s Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of

 

8


the Holder to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the number of Warrant Shares of the Holder is entitled to purchase) shall thereafter by applicable, as nearly as possible, in relation to any shares of Preferred Stock or other securities or other property thereafter deliverable upon the exercise of this Warrant.

18. Finder’s Fee . Each party represents that it neither is or will be obligated for any finder’s fee or commission in connection with this transaction. The Holder agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Holder or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless the Holder from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

19. Expenses . If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

20. Entire Agreement; Amendments and Waivers . This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Nonetheless, any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder; or if this Warrant has been assigned in part, by the holders or rights to purchase a majority of the shares originally issuable pursuant to this Warrant.

21. Severability . If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

22. “Market Stand-Off” Agreement . The Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Public Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Company’s capital stock acquired through the exercise of this Warrant, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Company’s capital stock acquired through the exercise of this Warrant, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of securities, in cash or otherwise. The foregoing provisions of this Section shall apply to the Company’s Initial Public Offering, shall not apply to the sale of any shares to an underwriter pursuant to an

 

9


underwriting agreement and shall only be applicable to the Holder if all officers, directors and greater than five percent (5%) stockholders of the Company enter into similar agreements.] The underwriters in connection with the Company’s Initial Public Offering are intended third party beneficiaries of this Section and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s Initial Public Offering that are consistent with this Section 22 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, if (i) during the last seventeen (17) days of the one hundred eighty (180)-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (ii) prior to the expiration of the one hundred eighty (180)-day restricted period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the one hundred eighty (180)-day period, the restrictions imposed by this Section 22 shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 22):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

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IN WITNESS WHEREOF, the parties have executed this Warrant as of the date first written above.

 

PROTAGENIC THERAPEUTICS, INC.

By:

 

/s/ Robert Ziroyan

 

President & Chief Operating Officer

Address:

  149 5th Avenue, Suite 500,
 

New York, NY 10010, U.S.A.

 

ACKNOWLEDGED AND AGREED:

HOLDER  
By:  

/s/ Gregory H. Ekizian

 

 

  [Insert Title]
Address:   1902 South Ardsley Street
  Tampa, Fl 33629

 

 

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NOTICE OF EXERCISE

PROTAGENIC THERAPEUTICS, INC.

Attention: Corporate Secretary

The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant, as follows:

 

  ¨                     shares of Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment in cash of the Exercise Price of such Shares in full, together with all applicable transfer taxes, if any.

 

  ¨ Net Exercise the attached Warrant with respect to                     Shares.

The undersigned hereby represents and warrants that Representations and Warranties in Section 7 hereof are true and correct as of the date hereof.

 

                                     HOLDER:
Date:                                                                                                                                     By:  

 

                                  Address:  

 

   

 

Name in which shares should be registered:    

 

                                                                                            

 

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ASSIGNMENT FORM

(To assign the foregoing Warrant, execute

this form and supply required information.

Do not use this form to purchase shares.)

F OR V ALUE R ECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  

 

  (Please Print)
Address:  

 

  (Please Print)
Dated:  

 

Holder’s  
Signature:  

 

Holder’s  
Address:  

 

NOTE : The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should provide proper evidence of authority to assign the foregoing Warrant.

 

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Exhibit 4.4(ii)

THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.

 

Date of Issuance    Void after
February 18, 2013    February 18, 2023

WARRANT TO PURCHASE SHARES OF COMMON STOCK

For the purchase price of $1.00 per share (the “Warrant Price”) the receipt and sufficiency of which is hereby acknowledged, this Warrant is issued to PENSCO Trust Company FBO GREGORY H. EKIZIAN (the “Holder”) by PROTAGENIC THERAPEUTICS, INC. , a Delaware corporation (the “Company”).

1. Purchase of Shares .

(a) Number of Shares . Subject to the terms and conditions set forth herein, the Holder is entitled, upon surrender of this Warrant at the principal office of the Company (or at such other place as the Company shall notify the Holder in writing), to purchase from the Company up to 300,000 (three hundred thousand) fully paid and nonassessable shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”).

(b) Exercise Price . The exercise price for the shares of Common Stock issuable pursuant to this Section 1 (the “Shares”) shall be $1.00 per share (the “Exercise Price”). The Shares and the Exercise Price shall be subject to adjustment pursuant to Section 9 hereof.

2. Exercise Period . This Warrant shall be exercisable, in whole or in part, during the term commencing on February 18, 2013 and ending at 5:00 p.m., New York time, on February 18, 2023 (the “Exercise Period”); provided , however , that this Warrant shall no longer be exercisable and become null and void upon the consummation of any “Termination Event” defined as (a) the consummation of the Company’s sale of its Common Stock or other securities pursuant to a registration statement under the Securities Act of 1933, as amended (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction) and (b) the consummation of a Liquidation Event, as such term is defined in the Company’s current Amended and Restated Certificate of Incorporation on file with the Secretary of State of the State of Delaware. For purposes of this Warrant, any of the transactions described in subsection (b) shall be referred to herein as a “Corporate Transaction”). In the event of a Termination Event, the Company shall notify the Holder at least ten (10) days prior to the consummation of such Termination Event.


3. Method of Exercise .

(a) While this Warrant remains outstanding and exercisable in accordance with Section 2 above, the Holder may exercise, in whole or in part, the purchase rights evidenced hereby. Such exercise shall be effected by:

(i) the surrender of the Warrant, together with a duly executed copy of the Notice of Exercise attached hereto, to the Secretary of the Company at its principal office (or at such other place as the Company shall notify the Holder in writing); and

(ii) the payment to the Company of an amount equal to the aggregate Exercise Price for the number of Shares being purchased.

(b) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant is surrendered to the Company as provided in Section 3 (a) above. At such time, the person or persons in whose name or names any certificate for the Shares shall be issuable upon such exercise as provided in Section 3(c) below shall be deemed to have become the holder or holders of record of the Shares represented by such certificate.

(c) As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within twenty (20) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct:

(i) a certificate or certificates for the number of Shares to which such Holder shall be entitled, and

(ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Shares equal to the number of such Shares described in this Warrant minus the number of such Shares purchased by the Holder upon all exercises made in accordance with Section 3(a) above or Section 4 below.

(d) Notwithstanding the provisions of Section 2, if the holder has not exercised this Warrant prior to the closing of a Corporate Transaction or an Initial Public Offering, this Warrant shall automatically be deemed to be exercised in full in the manner set forth in Section 4, without any further action on behalf of the Holder immediately prior to such closing.

4. Net Exercise . In lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being exercised) by surrender of this Warrant at the principal office of the Company together with notice of such election (a “Net Exercise”). A Holder who Net Exercises shall have the rights described in Sections 3(b) and 3(c) hereof, and the Company shall issue to such Holder a number of Shares computed using the following formula:

 

2


X =     Y (A - B)      
  A  

Where

 

   X   =    The number of Shares to be issued to the Holder.
   Y   =    The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation).
   A   =    The fair market value of one (1) Share (at the date of such calculation).
   B   =    The Exercise Price (as adjusted to the date of such calculation).

For purposes of this Section 4, the fair market value of a Share shall mean the average of the closing prices of the Shares (or equivalent shares of Common Stock underlying this Warrant) quoted in the over-the-counter market in which the Shares (or equivalent shares of Common Stock underlying the Warrant) are traded or the closing price quoted on any exchange or electronic securities market on which the Shares (or equivalent shares of Common Stock underlying the Warrant) are listed, whichever is applicable, as published in The Wall Street Journal for the thirty (30) trading days prior to the date of determination of fair market value (or such shorter period of time during which such Shares were traded over-the-counter or on such exchange). In the event that this Warrant is exercised pursuant to this Section 4 in connection with the Initial Public Offering, the fair market value per Share shall be the per share offering price to the public of the Initial Public Offering. If the Shares are not traded on the over-the-counter market, an exchange or an electronic securities market, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company from authorized but unissued Shares, as such prices shall be determined in good faith by the Company’s Board of Directors.

5. Representations and Warranties of the Company . In connection with the transactions provided for herein, the Company hereby represents and warrants to the Holder that:

(a) Organization, Good Standing, and Qualification . The Company is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

(b) Authorization . Except as may be limited by applicable bankruptcy, insolvency, reorganization or similar laws relating to or affecting the enforcement of creditors’ rights, all corporate action has been taken on the part of the Company, its officers, directors, and stockholders necessary for the authorization, execution and delivery of this Warrant. The Company has taken all corporate action required to make all the obligations of the Company reflected in the provisions of this Warrant the valid and enforceable obligations they purport to be. The issuance of this Warrant will not be subject to preemptive rights of any stockholders of the Company. The Company has authorized sufficient shares of Common Stock to allow for the exercise of this Warrant.

 

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(c) Compliance with Other Instruments . The authorization, execution and delivery of the Warrant will not constitute or result in a material default or violation of any law or regulation applicable to the Company or any material term or provision of the Company’s current Certificate of Incorporation or bylaws, or any material agreement or instrument by which it is bound or to which its properties or assets are subject.]

(d) Valid Issuance of Common Stock . The Shares, when issued, sold, and delivered in accordance with the terms of the Warrants for the consideration expressed therein, will be duly and validly issued, fully paid and nonassessable and, based in part upon the representations and warranties of the Holders in this Warrant, will be issued in compliance with all applicable federal and state securities laws.

6. Representations and Warranties of the Holder . In connection with the transactions provided for herein, the Holder hereby represents and warrants to the Company that:

(a) Authorization . Holder represents that it has full power and authority to enter into this Warrant. This Warrant constitutes the Holder’s valid and legally binding obligation, enforceable in accordance with its terms, except as may be limited by (i) applicable bankruptcy, insolvency, reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights and (ii) laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

(b) Purchase Entirely for Own Account . The Holder acknowledges that this Warrant is entered into by the Holder in reliance upon such Holder’s representation to the Company that the Warrant and the Shares , and the Common Stock issuable upon conversion of the Shares (collectively, the “Securities”) will be acquired for investment for the Holder’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Holder has no present intention of selling, granting any participation in or otherwise distributing the same. By acknowledging this Warrant, the Holder further represents that the Holder does not have any contract, undertaking, agreement, or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to the Securities.

(c) Disclosure of Information . The Holder acknowledges that it has received all the information it considers necessary or appropriate for deciding whether to acquire the Securities. The Holder further represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Securities.

(d) Investment Experience . The Holder is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Securities. If other than an individual, the Holder also represents it has not been organized solely for the purpose of acquiring the Securities.

 

4


(e) Accredited Investor . The Holder is an “accredited investor” within the meaning of Rule 501 of Regulation D, as presently in effect, as promulgated by the Securities and Exchange Commission (the “SEC”) under the Act.

(f) Restricted Securities . The Holder understands that the Securities are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances. In this connection, each Holder represents that it is familiar with Rule 144, as presently in effect, as promulgated by the SEC under the Act (“Rule 144”), and understands the resale limitations imposed thereby and by the Act.

(g) Further Limitations on Disposition . Without in any way limiting the representations set forth above, the Holder further agrees not to make any disposition of all or any portion of the Shares unless and until the transferee has agreed in writing for the benefit of the Company to be bound by the terms of this Warrant, including, without limitation, this Section 6, Section 22, and:

(i) there is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or

(ii) the Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Company, the Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in extraordinary circumstances.

(h) Legends . It is understood that the Securities may bear the following legend:

“THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”

7. State Commissioners of Corporations . THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE

 

5


ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.

8. Covenants of the Company .

(a) Notices of Record Date . In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in previous quarters and stock dividends) or other distribution, the Company shall mail to the Holder, at least ten (10) days prior to such record date, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.

(b) Covenants as to Exercise Shares . The Company covenants and agrees that all Shares that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance in accordance with the terms hereof, be validly issued and outstanding, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issuance thereof. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved, free from preemptive rights, a sufficient number of shares of Common Stock to provide for the exercise of the rights represented by this Warrant. If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock shall not be sufficient to permit exercise of this Warrant, the Company will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes.

(c) No Impairment . Except and to the extent waived or consented to by the Holder or as otherwise permitted under the terms hereof, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment.

9. Adjustment of Exercise Price and Number of Shares . The number and kind of Shares purchasable upon exercise of this Warrant and the Exercise Price shall be subject to adjustment from time to time as follows:

(a) Subdivisions, Combinations and Other Issuances . If the Company shall at any time after the issuance but prior to the expiration of this Warrant subdivide its Common Stock, by split-up or otherwise, or combine its Common Stock, or issue additional shares of its Preferred Stock or Common Stock as a dividend with respect to any shares of its Common Stock, the number of Shares issuable on the exercise of this Warrant shall forthwith be proportionately

 

6


increased in the case of a subdivision or stock dividend, or proportionately decreased in the case of a combination. Appropriate adjustments shall also be made to the Exercise Price payable per share, but the aggregate Exercise Price payable for the total number of Shares purchasable under this Warrant (as adjusted) shall remain the same. Any adjustment under this Section 9(a) shall become effective at the close of business on the date the subdivision or combination becomes effective, or as of the record date of such dividend, or in the event that no record date is fixed, upon the making of such dividend.

(b) Reclassification, Reorganization and Consolidation . In case of any reclassification, capital reorganization or change in the capital stock of the Company (other than as a result of a subdivision, combination or stock dividend provided for in Section 9(a) above), then, as a condition of such reclassification, reorganization or change, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Holder, so that the Holder shall have the right at any time prior to the expiration of this Warrant to purchase, at a total price equal to that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities or property receivable in connection with such reclassification, reorganization or change by a holder of the same number and type of securities as were purchasable as Shares by the Holder immediately prior to such reclassification, reorganization or change. In any such case appropriate provisions shall be made with respect to the rights and interest of the Holder so that the provisions hereof shall thereafter be applicable with respect to any shares of stock or other securities or property deliverable upon exercise hereof, and appropriate adjustments shall be made to the Exercise Price per Share payable hereunder, provided the aggregate Exercise Price shall remain the same.

(c) Notice of Adjustment . When any adjustment is required to be made in the number or kind of shares purchasable upon exercise of the Warrant, or in the Exercise Price, the Company shall promptly notify the Holder of such event and of the number of Shares or other securities or property thereafter purchasable upon exercise of this Warrant.

10. No Fractional Shares or Scrip . No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant, but in lieu of such fractional shares the Company shall make a cash payment therefor on the basis of the Exercise Price then in effect.

11. No Stockholder Rights . Prior to exercise of this Warrant, the Holder shall not be entitled to any rights of a stockholder with respect to the Shares, including (without limitation) the right to vote such Shares, receive dividends or other distributions thereon, exercise preemptive rights or be notified of stockholder meetings, and, except as otherwise provided in this Warrant, such Holder shall not be entitled to any stockholder notice or other communication concerning the business or affairs of the Company.

12. Transfer of Warrant . Subject to compliance with applicable federal and state securities laws and any other contractual restrictions between the Company and the Holder contained herein, this Warrant and all rights hereunder are transferable in whole or in part by the Holder to any person or entity upon written notice to the Company. Within a reasonable time after the Company’s receipt of an executed Assignment Form in the form attached hereto, the transfer shall be recorded on the books of the Company upon the surrender of this Warrant,

 

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properly endorsed, to the Company at its principal offices, and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. In the event of a partial transfer, the Company shall issue to the new holders one (1) or more appropriate new warrants.

13. Governing Law . This Warrant shall be governed by and construed under the laws of the State of New York as applied to agreements among New York residents, made and to be performed entirely within the State of New York.

14. Successors and Assigns . The terms and provisions of this Warrant and the Purchase Agreement shall inure to the benefit of, and be binding upon, the Company and the holders hereof and their respective successors and assigns.

15. Titles and Subtitles . The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant.

16. Notices . All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the following addresses (or at such other addresses as shall be specified by notice given in accordance with this Section 16):

If to the Company:

PROTAGENIC THERAPEUTICS, INC.

149 5th Avenue, Suite 500,

New York, NY 10010

If to Holder:

At the addresses shown on the signature pages hereto.

17. Assumption of Warrant . If at any time while this Warrant, or any portion thereof, is outstanding and unexpired there shall be a Corporate Transaction, then, as a part of such transaction, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, during the period specified herein and upon payment of the Exercise Price then in effect, the number of shares of stock or other securities or property of the successor corporation resulting from Corporate Transaction which a holder of the shares deliverable upon exercise of this Warrant would have been entitled to receive in such Corporate Transaction if this Warrant had been exercised immediately before such Corporate Transaction, all subject to further adjustment as provided in this Section 17; and, in any such case, appropriate adjustment (as determined by the Company’s Board of Directors) shall be made in the application of the provisions herein set forth with respect to the rights and interests thereafter of

 

8


the Holder to the end that the provisions set forth herein (including provisions with respect to changes in and other adjustments of the number of Warrant Shares of the Holder is entitled to purchase) shall thereafter by applicable, as nearly as possible, in relation to any shares of Preferred Stock or other securities or other property thereafter deliverable upon the exercise of this Warrant.

18. Finder’s Fee . Each party represents that it neither is or will be obligated for any finder’s fee or commission in connection with this transaction. The Holder agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Holder or any of its officers, partners, employees or representatives is responsible. The Company agrees to indemnify and hold harmless the Holder from any liability for any commission or compensation in the nature of a finder’s fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

19. Expenses . If any action at law or in equity is necessary to enforce or interpret the terms of this Warrant, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

20. Entire Agreement; Amendments and Waivers . This Warrant and any other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. Nonetheless, any term of this Warrant may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the Holder; or if this Warrant has been assigned in part, by the holders or rights to purchase a majority of the shares originally issuable pursuant to this Warrant.

21. Severability . If any provision of this Warrant is held to be unenforceable under applicable law, such provision shall be excluded from this Warrant and the balance of the Warrant shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

22. “Market Stand-Off” Agreement . The Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Public Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of the Company’s capital stock acquired through the exercise of this Warrant, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Company’s capital stock acquired through the exercise of this Warrant, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of securities, in cash or otherwise. The foregoing provisions of this Section shall apply to the Company’s Initial Public Offering, shall not apply to the sale of any shares to an underwriter pursuant to an

 

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underwriting agreement and shall only be applicable to the Holder if all officers, directors and greater than five percent (5%) stockholders of the Company enter into similar agreements.] The underwriters in connection with the Company’s Initial Public Offering are intended third party beneficiaries of this Section and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s Initial Public Offering that are consistent with this Section 22 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Notwithstanding the foregoing, if (i) during the last seventeen (17) days of the one hundred eighty (180)-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (ii) prior to the expiration of the one hundred eighty (180)-day restricted period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the one hundred eighty (180)-day period, the restrictions imposed by this Section 22 shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 22):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

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IN WITNESS WHEREOF, the parties have executed this Warrant as of the date first written above.

 

PROTAGENIC THERAPEUTICS, INC.
By:  

/s/ Robert Ziroyan

  President & Chief Operating Officer
Address:  

149 5th Avenue, Suite 500,

New York, NY 10010

 

ACKNOWLEDGED AND AGREED: To Receipt of Document:
HOLDER
By:  

/s/ [illegible]

  Supervisor
  [Insert Title]
Address:   1560 Broadway Suite 400
  Denver CO 80202
 

 

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NOTICE OF EXERCISE

PROTAGENIC THERAPEUTICS, INC.

 

Attention: Corporate Secretary

The undersigned hereby elects to purchase, pursuant to the provisions of the Warrant, as follows:

 

  ¨                     shares of Common Stock pursuant to the terms of the attached Warrant, and tenders herewith payment in cash of the Exercise Price of such Shares in full, together with all applicable transfer taxes, if any.

 

  ¨ Net Exercise the attached Warrant with respect to                     Shares.

The undersigned hereby represents and warrants that Representations and Warranties in Section 7 hereof are true and correct as of the date hereof.

 

                                   HOLDER:
Date:                                                                                                                             By:  

 

                                  Address:  

 

   

 

Name in which shares should be registered:    

 

                                                                                            

 

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ASSIGNMENT FORM

(To assign the foregoing Warrant, execute

this form and supply required information.

Do not use this form to purchase shares.)

F OR V ALUE R ECEIVED , the foregoing Warrant and all rights evidenced thereby are hereby assigned to

 

Name:  

 

  (Please Print)
Address:  

 

  (Please Print)
Dated:  

 

Holder’s  
Signature:  

 

Holder’s  
Address:  

 

NOTE : The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant. Officers of corporations and those acting in a fiduciary or other representative capacity should provide proper evidence of authority to assign the foregoing Warrant.

 

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Exhibit 10.4

VOTING AGREEMENT

This VOTING AGREEMENT (this “ Agreement ”) is entered into as of February 12, 2016 (the “ Effective Date ”) by and among Atrinsic, Inc., a Delaware corporation (the “ Company ”), the parties listed as stockholders of Protagenic Therapeutics, Inc. (the “ Protagenic Therapeutics Stockholders ”) on the signature pages hereto, and Strategic Bio Partners, LLC (“Strategic”), each such person a “ Stockholder ” and collectively, the “ Stockholders ”.

W I T N E S S E T H:

WHEREAS , as of the date hereof, each Stockholder holds and is entitled to vote (or to direct the voting of) shares of (i) common stock, par value $0.000001 per share of the Company (the “ Common Stock ”), and/or (ii) shares of Series B preferred stock, par value $0.000001 per share, of the Company (the “ Series B Shares ”, and together with the Common Stock, the “ Voting Shares ”), of the Company (such Voting Shares, together with any other Voting Shares the voting power of which is acquired by such Stockholders during the period from the date hereof through the date on which this Agreement is terminated in accordance with its terms (such period, the “ Voting Period ”), are collectively referred to herein as the “ Subject Shares ”);

WHEREAS , the Company has entered into an Agreement and Plan of Merger with Protagenic Therapeutics, Inc., a Delaware corporation (“ Protagenic ”), pursuant to which a newly organized, wholly-owned subsidiary of the Company has merged with and into Protagenic, with Protagenic remaining as the surviving entity and a wholly-owned subsidiary of the Company (the “ Merger ”);

WHEREAS , simultaneously with the Merger and to provide the capital required by the Company for working capital and other purposes, the Company has offered Series B Shares to investors in a private placement transaction (the “ PPO ”) in compliance with Rule 506 of Regulation D of the Securities Act of 1933, as amended;

WHEREAS , the initial closing of the PPO and the closing of the Merger have taken place as of the Effective Date; and

WHEREAS , as an inducement to the parties’ willingness to consummate the transactions contemplated by the Merger Agreement, the Company and the Stockholders are entering into this Agreement.

NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants, and conditions set forth herein, the parties mutually agree as follows:


ARTICLE I

DEFINITIONS

Section 1.1 Capitalized Terms. For purposes of this Agreement, capitalized terms used and not defined herein shall have the respective meanings ascribed to them in the Merger Agreement.

ARTICLE II

VOTING AGREEMENT AND IRREVOCABLE PROXY

Section 2.1 Agreement to Vote the Subject Shares. Each Stockholder hereby agrees that, during the Voting Period, at any duly called meeting of the stockholders of the Company (or any adjournment or postponement thereof) or action taken by written consent in lieu of a meeting, each Stockholder shall, if a meeting is held, appear at the meeting, in person or by proxy, or otherwise cause his Subject Shares owned at any time to be counted as present thereat for purposes of establishing a quorum, and he shall vote (or cause to be voted), in person or by proxy, all of his Subject Shares:

(a) to ensure that the size of the Board shall be set and remain at five (5) directors unless increased by the Board;

(b) to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the Stockholders, one person designated by Strategic shall be elected to the Board, which individual shall initially be Josh Silverman;

(c) to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the Stockholders, four persons designated by Garo H. Armen (as long as he is an officer or director of the Company) shall be elected to the Board, which individuals shall initially be Garo H. Armen, Robert B. Stein, Khalil Barrage and Gregory H. Ekizian; and

(d) to ensure that the Company files an amendment to its certificate of incorporation to effect a one-for-15,463.7183 reverse stock split.

Section 2.2 Grant of Irrevocable Proxy. If requested by the Company, each Stockholder shall appoint the Company and any designee of the Company, and each of them individually, as each Stockholder’s proxy, with full power of substitution and resubstitution, to vote during the Voting Period with respect to any and all of the Subject Shares on the matters and in the manner specified in Section 2.1 . Each Stockholder shall take such further action or execute such other instruments as may be reasonably necessary to effectuate the intent of any such proxy. Each Stockholder affirms that any irrevocable proxy given by such Stockholder with respect to this Agreement and the transactions contemplated hereby shall be given to the Company by such Stockholder to secure the performance of the obligations of the Stockholder under this Agreement. It is agreed that the Company (and its officers on behalf of the Company) will use the irrevocable proxy that may be granted by each Stockholder only in accordance with applicable law and only if such Stockholder fails to comply with Section 2.1 and that, to the

 

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extent the Company (and its officers on behalf of the Company) uses any such irrevocable proxy, he will only vote the Subject Shares subject to such irrevocable proxy with respect to the matters specified in, and in accordance with the provisions of, Section 2.1 .

Section 2.3 Nature of Irrevocable Proxy. Any proxy granted pursuant to Section 2.2 to the Company by the Stockholders shall be irrevocable during the term of this Agreement, shall be deemed to be coupled with an interest sufficient in law to support an irrevocable proxy and shall revoke any and all prior proxies granted by the Stockholders. Any proxy that may be granted hereunder shall terminate upon the termination of this Agreement.

ARTICLE III

COVENANTS

Section 3.1 Subject Shares.

(a) Each Stockholder agrees that during the Voting Period such Stockholder shall not, without the Company’s prior written consent, grant any proxies or powers of attorney with respect to any or all of the Subject Shares or agree to vote the Subject Shares on any matter inconsistent with the terms described herein; provided , however , that in the event a Stockholder transfers all or any portion of his Subject Shares such Stockholder shall be permitted to grant stock powers with respect to such transferred Subject Shares.

(b) In the event of (i) a stock dividend or distribution, (ii) any change in the Subject Shares by reason of any stock dividend or distribution, split-up, recapitalization, combination, conversion, exchange of shares or the like or (iii) the conversion of Series B Shares into Common Shares, the term “Subject Shares” shall be deemed to refer to and include the Subject Shares as well as all such stock dividends and distributions and any securities into which or for which any or all of the Subject Shares may be changed, exchanged or converted or which are received in such transaction.

Section 3.2 Voting Trusts. Each Stockholder agrees that it will not, nor will it permit any entity under its control to, deposit any of such Stockholder’s Subject Shares in a voting trust or subject any of its Subject Shares to any arrangement with respect to the voting of such Subject Shares other than as provided herein. Notwithstanding the foregoing, each Stockholder shall be permitted to transfer all or any portion of its Subject Shares to third parties.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER

Each Stockholder hereby represents and warrants to the Company, severally, but not jointly, as follows:

Section 4.1 Authority, etc. The Stockholder (i) if a natural person, represents that the Stockholder has reached the age of 21 and has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof; (ii) if a corporation, partnership, or limited liability company or

 

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partnership, or association, joint stock company, trust, unincorporated organization or other entity, represents that such entity was not formed for the specific purpose of acquiring the Series B Shares, such entity is duly organized, validly existing and in good standing under the laws of the state of its organization, the consummation of the transactions contemplated hereby is authorized by, and will not result in a violation of state law or its charter or other organizational documents, such entity has full power and authority to execute and deliver this Agreement and all other related agreements or certificates and to carry out the provisions hereof and thereof, the execution and delivery of this Agreement has been duly authorized by all necessary action, this Agreement has been duly executed and delivered on behalf of such entity and is a legal, valid and binding obligation of such entity; or (iii) if executing this Agreement in a representative or fiduciary capacity, represents that it has full power and authority to execute and deliver this Agreement in such capacity and on behalf of the subscribing individual, ward, partnership, trust, estate, corporation, or limited liability company or partnership, or other entity for whom the Stockholder is executing this Agreement, and such individual, partnership, ward, trust, estate, corporation, or limited liability company or partnership, or other entity has full right and power to perform pursuant to this Agreement and represents that this Agreement constitutes a legal, valid and binding obligation of such entity. This Agreement has been duly executed and delivered by each Stockholder and (assuming the due authorization, execution and delivery by the Company) constitutes a valid and binding obligation of such Stockholder, enforceable against such Stockholder in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and by general equitable principles.

Section 4.2 Ownership of Shares. As of the date hereof, each Stockholder is the lawful owner of the Voting Shares owned by such Stockholder and has the sole power to vote or cause to be voted such shares or shares power to vote or cause to be voted such shares solely with one or more other persons. Each Stockholder has good and valid title to the Voting Shares owned by each Stockholder, free and clear of any and all pledges, mortgages, liens, charges, proxies, voting agreements, encumbrances, adverse claims, options, security interests and demands of any nature or kind whatsoever, other than (i) those created by this Agreement, or (ii) those existing under applicable securities laws.

Section 4.3 No Conflicts. (a) No authorization, consent or approval of any other person is necessary for the execution of this Agreement by each Stockholder and (b) none of the execution and delivery of this Agreement by each Stockholder, the consummation by each Stockholder of the transactions contemplated hereby or compliance by each Stockholder with any of the provisions hereof shall (i) result in, or give rise to, a violation or breach of or a default under any of the terms of any material contract, understanding, agreement or other instrument or obligation to which each Stockholder is a party or by which each Stockholder or any of the Subject Shares or its assets may be bound or (ii) violate any applicable order, writ, injunction, decree, judgment, statute, rule or regulation, except for any of the foregoing as would not reasonably be expected to materially impair each Stockholder’s ability to perform his obligations under this Agreement.

 

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ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

The Company hereby represents and warrants to each Stockholder as follows:

Section 5.1 Due Organization, etc. The Company is a Delaware corporation duly organized and validly existing under the laws of Delaware. The Company has all necessary corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby by the Company have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and (assuming the due authorization, execution and delivery by each Stockholder) constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent enforcement is limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and by general equitable principles.

Section 5.2 No Conflicts. (a) No authorization, consent or approval of any other person is necessary for the execution of this Agreement by the Company and (b) none of the execution and delivery of this Agreement by the Company, the consummation by the Company of the transactions contemplated hereby or compliance by the Company with any of the provisions hereof shall (i) conflict with or result in any breach of the organizational documents of the Company, (ii) result in, or give rise to, a violation or breach of or a default under any of the terms of any material contract, understanding, agreement or other instrument or obligation to which the Company is a party or by which the Company or any of its assets may be bound or (iii) violate any applicable order, writ, injunction, decree, judgment, statute, rule or regulation, except for any of the foregoing as would not reasonably be expected to materially impair the Company’s ability to perform its obligations under this Agreement.

ARTICLE VI

TERMINATION

Section 6.1 Termination. This Agreement shall automatically terminate, and neither the Company nor the Stockholders shall have any rights or obligations hereunder and this Agreement shall become null and void and have no effect upon the earliest to occur of: (a) the approval of the holders of at least 90% of the Subject Shares (which percentage shall take into account any Subject Shares owned by a Stockholder that are not eligible to vote pursuant to any limitations on voting under the terms of the Series B Shares), (b) the closing of a firm commitment underwritten public offering of the Company’s shares of Common Stock resulting in gross proceeds of at least $20 million or (iii) three years from the Effective Date. The termination of this Agreement shall not prevent either party from seeking any remedies (at law or in equity) against the other party or relieve any party from liability for such party’s willful and material breach of any terms of this Agreement. Notwithstanding anything to the contrary herein, (i) the provisions of Article VII shall survive the termination of this Agreement and (ii) if a Stockholder effectuates a sale, transfer or other disposition of its Subject Shares to a party that is not a Stockholder during the Voting Period, the transferee shall not acquire Subject Shares subject to the terms of this Agreement.

 

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ARTICLE VII

MISCELLANEOUS

Section 7.1 Further Actions. Each of the parties hereto agrees to take any all actions and to do all things reasonably necessary or appropriate to effectuate this Agreement.

Section 7.2 Amendments, Waivers, etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified, except upon the execution and delivery of a written agreement executed by the holders of at least 75% of the Subject Shares. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance.

Section 7.3 Notices. All notices or other communications which are required or permitted under this Agreement shall be in writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified mail, post pre-paid, or by courier or overnight carrier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered:

 

If to the Company

 

Atrinsic, Inc.

149 Fifth Avenue, Suite 500

New York, NY 10010

Attn: Robert Ziroyan, President

Facsimile: 508.734.2177

Email: rziroyan@protagenic.com

  

Copy to (which copy shall not constitute

notice hereunder):

 

Meister Seelig & Fein LLP

125 Park Avenue, 7 th Floor

New York, NY 10017

Attn: Mark J. Seelig, Esq.

Facsimile: (646) 539-3655

Email: mjs@msf-law.com

If to the Stockholders:

To each Stockholder at the address set forth on the signature page hereto or at such other address as any party shall have furnished to the other parties in writing.

Section 7.4 Headings. Headings of the Articles and Sections of this Agreement are for convenience of the parties only, and shall be given no substantive or interpretive effect whatsoever.

Section 7.5 Severability. The provisions of this Agreement shall be deemed severable and the invalidity or unenforceability of any provision shall not affect the validity or enforceability of the other provisions hereof. If any provision of this Agreement, or the

 

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application of such provision to any person or any circumstance, is invalid or unenforceable (a) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision and (b) the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application of such provision, in any other jurisdiction.

Section 7.6 Entire Agreement; Assignment. This Agreement constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, between the parties, or any of them, with respect to the subject matter hereof. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding two sentences, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

Section 7.7 Parties in Interest. The Company and the Stockholders hereby agree that their respective representations, warranties and covenants set forth herein are solely for the benefit of the other party hereto, in accordance with and subject to the terms of this Agreement, and this Agreement is not intended to, and does not, confer upon any person other than the parties hereto any rights or remedies hereunder, including, without limitation, the right to rely upon the representations and warranties set forth herein. The representations and warranties in this Agreement are the product of negotiations among the parties hereto and are for the sole benefit of the parties hereto. Any inaccuracies in such representations and warranties are subject to waiver by the parties hereto in accordance with Section 7.2 without notice or liability to any other person. In some instances, the representations and warranties in this Agreement may represent an allocation among the parties hereto of risks associated with particular matters regardless of the knowledge of any of the parties hereto. Consequently, persons other than the parties hereto may not rely upon the representations and warranties in this Agreement as characterizations of actual facts or circumstances as of the date of this Agreement or as of any other date.

Section 7.8 Interpretation. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. Whenever the words “include,” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant thereto unless otherwise defined therein. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented in accordance with the terms hereof, including (in the case

 

-7-


of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. References to a person are also to its permitted successors and assigns. Each of the parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if drafted by all the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.

Section 7.9 Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.

Section 7.10 Specific Performance. The parties acknowledge that any breach of this Agreement would give rise to irreparable harm for which monetary damages would not be an adequate remedy and that, in addition to other rights or remedies, the parties shall be entitled to seek enforcement of any provision of this Agreement by a decree of specific performance and to temporary, preliminary and permanent injunctive relief to prevent breaches or threatened breaches of any of the provisions of this Agreement, without the necessity of proving the inadequacy of monetary damages as a remedy.

Section 7.11 Submission to Jurisdiction. The parties hereby irrevocably submit to the exclusive jurisdiction of the United States District Court for the Southern District of New York located in the borough of Manhattan in the City of New York, or if such court does not have jurisdiction, the Supreme Court of the State of New York, New York County, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of the parties hereto further agrees that service of any process, summons, notice or document by registered mail to such party’s respective address set forth in Section 7.3 (or to such other address for notices as provided by such party pursuant to Section 7.3 ) or in any other manner permitted by law shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each of the parties hereto irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the United States District Court for the Southern District of New York or (ii) the Supreme Court of the State of New York, New York County, and hereby further irrevocably and unconditionally waives and agrees not to please or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

Section 7.12 Waiver of Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.

 

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EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (III) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND (IV) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 7.12 .

Section 7.13 Counterparts. This Agreement may be executed in two or more counterparts (including by facsimile or electronic submission via .pdf file), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties and delivered (including by facsimile or electronic submission via .pdf file) to the other parties.

[Signature Pages Follow]

 

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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be duly executed as of the day and year first above written.

 

ATRINSIC, INC.
By:  

/s/ Garo H. Armen

Name:   Garo H. Armen
Title:   Chairman


IN WITNESS WHEREOF, the undersigned have caused this Voting Agreement to be duly executed as of the day and year first above written.

PROTAGENIC THERAPEUTICS, INC. STOCKHOLDERS

 

/s/ Garo H. Armen

Garo H. Armen

 

Address:    c/o Atrinsic, Inc.

                  149 Fifth Avenue, Suite 500

                  New York, NY 10010

   

/s/ Garo H. Armen

Garo H. Armen IRA

 

Address:    c/o Atrinsic, Inc.

                  149 Fifth Avenue, Suite 500

                  New York, NY 10010

/s/ Gregory H. Ekizian

Gregory H. Ekizian

 

Address:    1902 South Ardsley Street,

                  Tampa Florida 33629

   

/s/ Gregory H. Ekizian

Gregory H. Ekizian Revocable Trust

 

A ddress:    1902 South Ardsley Street,

                  Tampa Florida 33629

/s/ Alexander Arrow

Alexander Arrow

 

A ddress:    c/o Atrinsic, Inc.

                  149 Fifth Avenue, Suite 500

                  New York, NY 10010

   

/s/ Mark Berg

Mark Berg

 

Address:    210 Circle Rd,

                  Syosset, NY 11791

/s/ Mark Berg

Mark Berg IRA

 

Address:    210 Circle Rd,

                  Syosset, NY 11791

   

/s/ Larry N. Feinberg

Larry N. Feinberg

 

A ddress:    808 North St.

                  Greenwich, CT 06831

/s/ David A. Lovejoy

David A. Lovejoy

 

A ddress:    149 Baker St.

                   Stouffville, Ontario, L4A 1K6

                   Canada

   


IN WITNESS WHEREOF, the undersigned have caused this Voting Agreement to be duly executed as of the day and year first above written.

 

STRATEGIC BIO PARTNERS, LLC
By:  

 

Name:  
Title:  

Exhibit 10.5

This INDEMNITY AGREEMENT, dated as of February 12, 2016 (this “ Agreement ”), among Atrinsic, Inc. (“ Atrinsic ”), Strategic Bio Partners, LLC (the “Indemnitor”), Iroquois Master Fund Ltd. (“ Iroquois Master ”), Iroquois Capital Investment Group (“ Iroquois Capital ”), and Hudson Bay Master Fund Ltd. and (“ Hudson Bay ” and together with Iroquois Master and Iroquois Capital, the “ Guarantors ”).

RECITALS:

WHEREAS , reference is made to that certain Agreement and Plan of Merger and Reorganization, dated as of the date hereof (the “ Merger Agreement ”), among Atrinsic, Protagenic Acquisition Corp. and Protagenic Therapeutics, Inc.;

WHEREAS , as an inducement to the parties’ willingness to consummate the transactions contemplated by the Merger Agreement, the Indemnitor has agreed to indemnify Atrinsic for certain matters as described below up to the aggregate amount set forth herein.

NOW, THEREFORE , in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

1. Definitions . All capitalized terms used herein (including the preamble and recitals hereto) and not otherwise defined herein shall have the meanings ascribed thereto in the Merger Agreement.

2. Indemnification . The Indemnitor hereby covenants and agrees, at its sole cost and expense, to assume liability and/or reimburse Atrinsic for the following:

 

  (i) amounts due the U.S. Treasury for failure to file Form 5471 for its tax years ended December 31, 2011, December 31, 2012 and June 30, 2014 (the “Tax Claim”);

 

  (ii) amounts due the New York State Workers’ Compensation Board for Atrinsic’s failure to carry required workers’ compensation insurance for the period from July 6, 2011 to May 10, 2012 pursuant to a judgment signed July 10, 2012 (the “2012 Workers’ Compensation Claim”);

 

  (iii) amounts that may be due the New York State Workers’ Compensation Board pursuant to a judgment signed October 5, 2011 (the “2011 Workers’ Compensation Claim”);

 

  (iv) amounts Atrinsic is required to pay as a result of its subsidiaries that are being simultaneously spun-off pursuant a Subsidiaries Split-Off Agreement between Atrinsic and Quintel Holdings, Inc. (the “Subsidiaries Claim”); and

 

  (v) amounts due to the New York State Department of State as a result of Atrinsic’s failure to file its biennial statements with the New York State Department of State and to maintain its good standing as a foreign entity registered to do business in New York State (the “NY Good Standing Claim”, and together with (i), (ii), (iii) and (iv) the “ Indemnified Liabilities ”);


and any penalties or interest that may accrue thereon, provided that the aggregate amounts payable in the aggregate by the Indemnitor hereunder shall not exceed $200,000.00 (the “Indemnification Limit”).

3. The Tax Claim, the 2012 Workers’ Compensation Claim and the 2011 Workers’ Compensation Claim .

(a) Within forty-five (45) days following the Closing of the Merger, the Indemnitor agrees to either pay all amounts due with respect to the Tax Claim, the 2012 Workers Compensation Claim and the 2011 Workers’ Compensation Claim or to commence negotiations with the Internal Revenue Service and the New York State Workers’ Compensation Board with respect to the respective Claim pursuant to the power of attorney granted to the Indemnitor pursuant to Section 5 below.

(b) In the event the Indemnitor shall fail to pay all amounts due with respect to the Tax Claim, 2012 Worker’s Compensation Claim and the 2011 Workers’ Compensation Claim within the aforesaid forty-five (45) day period or shall fail to commence negotiations with the applicable Governmental Institution, as defined below, within said period, or shall terminate such negotiation, then Atrinsic shall be free to settle the respective Claim on such terms as Atrinsic sees fit. Atrinsic shall give the Indemnitor a minimum of ten (10) days written notice of its intention to settle the Claim and the terms thereof. Within seven (7) days following receipt of that notice, the Indemnitor shall pay to Atrinsic the amount payable with respect to the Claim to be settled, subject to the Indemnification Limit.

(c) In the event the Tax Claim, 2012 Worker’s Compensation Claim and/or the 2011 Workers’ Compensation Claim is still outstanding twelve (12) months following the date of this Agreement, Atrinsic shall be free to settle the respective claim on such terms as Atrinsic sees fit. Atrinsic shall give the Indemnitor a minimum of ten (10) days prior written notice of its intention to settle the Claim and the terms thereof. Within seven (7) days following receipt of that notice, the Indemnitor shall pay to Atrinsic the amount payable with respect to the Claim to be settled, subject to the Indemnification Limit.

4. The Subsidiaries Claim .

(a) If any Subsidiaries Claim is asserted against Atrinsic or any of its officers, directors, employees, stockholders, agents, representatives and affiliates, then Atrinsic shall notify the Indemnitor within 20 days after receipt of that claim (said notification being referred to as a “ Claim Notice ”) and give the Indemnitor a reasonable opportunity to review the Subsidiaries Claim and to conduct any negotiations related thereto, to defend Atrinsic and/or to settle the Subsidiaries Claim. The expenses (including reasonable attorney’s fees) of all negotiations proceedings, lawsuits or settlements of such Subsidiaries Claims shall be borne by the Indemnitor and shall be excluded for purposes of calculating the Indemnification Limit.

 

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(b) In the event the Indemnitor shall (i) fail to pay the aforesaid Subsidiaries Claim, (ii) fail to defend Atrinsic with respect to that Subsidiaries Claim, (iii) discontinue its defense, (iv) fail to commence negotiations with the respective Governmental Institution or (v) terminate such negotiations, then Atrinsic shall be free to settle that Subsidiaries Claim on such terms as Atrinsic sees fit. Atrinsic shall give the Indemnitor a minimum of ten (10) days prior within notice of its intention to settle the Subsidiaries Claim and the terms thereof. Written seven (7) days following receipt of that notice, the Indemnitor shall pay to Atrinsic the amount payable with respect to the Subsidiaries Claim to be settled, subject to the Indemnification Limit.

5. Power of Attorney . Atrinsic hereby grants the Indemnitor an irrevocable power-of-attorney to negotiate and/or appeal on behalf of Atrinsic the Indemnified Liabilities with the New York State Workers’ Compensation Board, the Internal Revenue Service, the Delaware Secretary of State and the New York Secretary of State or any other federal or state institution with jurisdiction over the Indemnified Liabilities (“ Governmental Institution ”); provided that any proposed agreement or settlement to which a Governmental Institution has agreed in principal regarding the Indemnified Liabilities (a “ Proposed Settlement ”) may only be entered into in and become binding with the written agreement of Atrinsic; further provided that if Atrinsic does not agree in writing to a Proposed Settlement, the amount that the Indemnitor would be required to pay for the Claim to which the Proposed Settlement relates shall henceforth be limited to the lesser of (i) the dollar amount that would have been paid in the Proposed Settlement, or (ii) the Indemnification Limit. The powers-of-attorney granted in this section shall expire on the earliest of the date (i) that is twelve (12) months from the date hereof, (ii) on which there are no Indemnified Liabilities outstanding or (iii) on which no power of attorney granted hereunder is outstanding. The Indemnitor may terminate its power of attorney by providing notice of such termination in writing to Atrinsic.

6. Guaranteed Obligations .

(a) Guaranteed Obligations . Guarantors jointly and severally hereby irrevocably and unconditionally guaranty to Atrinsic the indefeasible payment in full in cash and discharge, or other satisfaction and discharge, in full of the Guaranteed Obligations (as defined below). “ Guaranteed Obligations ” means, collectively, all of the present and future payment and performance obligations of Indemnitor arising from the Indemnified Liabilities and, for avoidable of doubt, subject to the Indemnification Limit.

(b) Waiver . Guarantors waive diligence, presentment, protest, notice of dishonor, notice of default by Indemnitor, demand for payment, extension of time for payment, notice of acceptance of this Guaranty, and indulgences and notices of every kind. Guarantors waive any rights of subrogation, indemnity, reimbursement, and contribution which would otherwise be acquired by Guarantors by reason of their payment of any part of the Guaranteed Obligations.

(c) Guarantors’ Representation and Warranty . Each Guarantor represents and warrants to Buyer that such Guarantor expects to derive substantial benefits from the transactions contemplated by the Merger Agreement and the indemnification provided for herein.

 

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(d) Enforcement . This is a continuing guaranty of payment and performance, not a guaranty of collection. Atrinsic may enforce this Guaranty without first proceeding against Indemnitor or any other person, and without first pursuing any other right or remedy. This Guaranty remains enforceable regardless of any defenses based on failure of consideration, breach of warranty, fraud, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, accord and satisfaction, or usury that the Indemnitor may assert on the Indemnified Obligations.

(e) Enforcement Expenses . Each Guarantor shall pay or reimburse Atrinsic for all reasonable costs, expenses and attorneys’ fees paid or incurred by Atrinsic on all meritorious claims in endeavoring to collect and enforce the Guaranteed Obligations and in enforcing this Guaranty.

(f) Alteration of Indemnified Obligations . No provision of this Guaranty shall be construed to amend the Indemnified Obligations or to relieve Indemnitor of any obligations thereunder.

(g) No Duties Owed by Atrinsic . Each Guarantor acknowledges and agrees that Atrinsic (a) has not made any representations or warranties with respect to, (b) does not assume any responsibility to such Guarantor for, and (c) has no duty to provide information to such Guarantor regarding, the enforceability of any of the Guaranteed Obligations. Applicable Law; Venue.

(h) Valid and Binding Instrument . Each Guarantor hereby represents, warrants and covenants that this Guaranty is a legal, valid and binding instrument, enforceable against it in accordance with its terms.

7. Applicable Law; Venue

(a) This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of laws of any jurisdictions other than those of the State of New York.

(b) Each of the Parties (a) submits to the jurisdiction of any state or federal court sitting in the County of New York in the State of New York in any action or proceeding arising out of or relating to this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, and (c) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each of the Parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other Party with respect thereto. The prevailing party in any action or proceeding brought to enforce the terms of this Agreement shall be entitled to reimbursement of it reasonable legal fees and expenses incurred in connection with that action or proceeding.

 

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8. Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

9. Effectiveness . This Agreement shall become effective upon the execution and delivery of a counterpart hereof by each of the parties hereto, but in no event shall it become effective prior to the Merger Agreement.

10. Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto, Atrinsic and their respective successors and assigns including all persons who become bound to this Agreement. Neither Iroquois Master, Iroquois Capital, nor Hudson Bay shall, without the prior written consent of the other, assign any right, duty or obligation hereunder.

11. Severability . In case any provision in or obligation hereunder shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

12. Termination . This Agreement shall terminate upon the earlier of (a) the date on which there are no Indemnified Liabilities outstanding or, in the case of the Subsidiaries Claim, potential claims outstanding, or (b) six (6) years from the date of the Closing.

13. Headings . Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

[Signature pages to follow]

 

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IN WITNESS WHEREOF , Atrinsic, Iroquois Master, Iroquois Capital, and Hudson Bay have caused this Indemnity Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

  ATRINSIC, INC.
  By:  

/s/ Edward Gildea

  Name:   Edward Gildea
  Title:   Chief Executive Officer
STRATEGIC BIO PARTNERS, LLC
By:  

 

Name:    
Title:    
GUARANTORS
  IROQUOIS MASTER FUND LTD.
  By:  

 

  Name:   Joshua Silverman
  Title:   Authorized Signatory
 

IROQUOIS CAPITAL

INVESTMENT GROUP

  By:  

 

  Name:   Joshua Silverman
  Title:   Authorized Signatory
 

HUDSON BAY MASTER FUND LTD.

  By:  

 

  Name:  
  Title:   Authorized Signatory

Exhibit 10.6

MOMSPOT SPLIT-OFF AGREEMENT

This SPLIT-OFF AGREEMENT, dated as of February 12, 2016 (this “Agreement”), is entered into by and among (i) Atrinsic, Inc., a Delaware corporation (the “Seller”), (ii) B.E. Global LLC (“B.E. Global”), a Delaware limited liability company and (iii) MomSpot LLC, a Delaware limited liability company (“MomSpot”).

RECITALS:

WHEREAS, prior to the execution of this Agreement, Seller, Protagenic Therapeutics, Inc., a Delaware corporation (“PrivateCo”), and a newly-formed wholly-owned subsidiary of Seller, Protagenic Acquisition Corp. (“Acquisition Sub”) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) pursuant to which Acquisition Sub will merge with and into PrivateCo with PrivateCo remaining as the surviving entity (the “Merger”); and the equity holders of PrivateCo will receive securities of Seller in exchange for their equity interests in PrivateCo;

WHEREAS, the execution and delivery of this Agreement is required by PrivateCo as a condition to its execution of the Merger Agreement, and the consummation of the assignment, assumption, purchase and sale transactions contemplated by this Agreement is also a condition to the completion of the Merger pursuant to the Merger Agreement, and Seller has represented to PrivateCo in the Merger Agreement that the transactions contemplated by this Agreement will be consummated contemporaneously with the closing of the Merger, and PrivateCo relied on such representation in entering into the Merger Agreement;

WHEREAS, B.E. Global desires to purchase all of the membership interests of MomSpot (the “Interests”) from Seller, on the terms and subject to the conditions specified in this Agreement;

WHEREAS, in exchange for the purchase of the Interests by B.E. Global, B.E. Global agrees to assume the Assigned Liabilities (as defined herein);

WHEREAS, B.E. Global currently owns 49% of the Interests of MomSpot; and

WHEREAS, Seller desires to sell and transfer the Interests to B.E. Global, on the terms and subject to the conditions specified in this Agreement, and MomSpot agrees to such transfer and waives any objection, right of first refusal or other right that either may have to the transfer of the Interests;

NOW, THEREFORE, in consideration of the premises and the covenants, promises and agreements herein set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, agree as follows:

I. INTEREST PURCHASE AND ASSIGNMENT AND ASSUMPTION OF SELLER’S ASSETS AND LIABILITIES.

 

1


Subject to the terms and conditions provided below:

1.1  Purchase and Sale of Interests . For $1.00 and other good and valuable consideration, Seller hereby sells, assigns and transfers to B.E. Global the Interests and B.E. Global hereby purchases the Interests.

1.2  Assignment and Assumption of Liabilities . Seller hereby assigns to B.E. Global, and B.E. Global hereby assumes and agrees to pay, honor and discharge all debts, adverse claims, liabilities, judgments and obligations, including tax obligations (but excluding those related to the Subsidiaries (as defined in a Split-Off Agreement between Seller and Quintel Holdings, Inc., dated the date hereof)), of Seller as of the Closing Date immediately prior to the closing of the Merger, whether accrued, contingent or otherwise and whether known or unknown, including those arising under any law (including the common law) or any rule or regulation of any Governmental Entity or imposed by any court or any arbitrator in a binding arbitration resulting from, arising out of or relating to the assets, activities, operations, actions or omissions of Seller, or products manufactured or sold thereby or services provided thereby, or under contracts, agreements (whether written or oral), leases, commitments or undertakings thereof (all of the foregoing being referred to herein as the “Assigned Liabilities”), but  excluding  in all cases the obligations of Seller under the Transaction Documents .

The assignment and assumption of Seller’s assets and liabilities provided for in this Article I is referred to as the “Assignment.”

II.  CLOSING.

2.1  Closing . The closing of the transactions contemplated in this Agreement (the “Closing”) shall take place immediately after the closing of the Merger. The date on which the Closing occurs shall be referred to herein as the “Closing Date.”

2.2  Transfer of Interests . The parties agree this Agreement vests B.E. Global with good and marketable title to such Interests, free and clear of all liens and encumbrances without need for the production or delivery of any further documents.

2.3  Management . Immediately after the Closing, Seller shall hereby be deemed to have resigned from any management position that it may have held with MomSpot LLC, if it held any such position.

III. REPRESENTATIONS AND WARRANTIES OF ALL PARTIES . Each party hereto represents and warrants to each other party that:

3.1  Capacity and Enforceability . It has the legal capacity to execute and deliver this Agreement and the documents to be executed and delivered by it at the Closing pursuant to the transactions contemplated hereby. This Agreement and all such documents constitute valid and binding agreements of such party, enforceable in accordance with their terms.

 

2


3.2  Organization and Good Standing. If an entity, it is duly incorporated or otherwise organized, validly existing, and in good standing under the laws of its state of incorporation or organization.

3.3  Compliance . Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby by B.E. Global will result in the breach of any term or provision of, or constitute a default under, or violate any agreement, indenture, instrument, order, law or regulation to which it is a party or by which it is bound.

 

IV. B.E. GLOBAL’S ’S REPRESENTATIONS AND WARRANTIES . B.E. Global represents and warrants to Seller that:

4.1  Purchase for Investment . B.E. Global is financially able to bear the economic risks of acquiring the Interests and the other transactions contemplated hereby and has no need for liquidity in its investment in the Interests. B.E. Global has such knowledge and experience in financial and business matters in general, and with respect to businesses of a nature similar to the business of MomSpot, so as to be capable of evaluating the merits and risks of, and making an informed business decision with regard to, the acquisition of the Interests and the other transactions contemplated hereby. B.E. Global is acquiring the Interests solely for its own account and not with a view to or for resale in connection with any distribution or public offering thereof, within the meaning of any applicable securities laws and regulations, unless such distribution or offering is registered under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from such registration is available. B.E. Global has (i) received all the information it has deemed necessary to make an informed decision with respect to the acquisition of the Interests and the other transactions contemplated hereby; (ii) had an opportunity to make such investigation as he has desired pertaining to MomSpot and the acquisition of an interest therein and the other transactions contemplated hereby, and to verify the information which is, and has been, made available to him or her; and (iii) had the opportunity to ask questions of Seller concerning MomSpot. B.E. Global has received no public solicitation or advertisement with respect to the offer or sale of the Interests. B.E. Global realizes that the Interests are “restricted securities” as that term is defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act, the resale of the Interests is restricted by federal and state securities laws and, accordingly, the Interests must be held indefinitely unless their resale is subsequently registered under the Securities Act or an exemption from such registration is available for their resale. B.E. Global understands that any resale of the Interests by him must be registered under the Securities Act (and any applicable state securities law) or be effected in circumstances that, in the opinion of counsel for MomSpot at the time, create an exemption or otherwise do not require registration under the Securities Act (or applicable state securities laws). B.E. Global acknowledges and consents that certificates now or hereafter issued for the Interests will bear a legend substantially as follows:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), HAVE BEEN ACQUIRED FOR

 

3


INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE ACTS OR PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS (INCLUDING, IN THE CASE OF THE SECURITIES ACT, THE EXEMPTIONS AFFORDED BY SECTION 4(1) OF THE SECURITIES ACT AND RULE 144 THEREUNDER). AS A PRECONDITION TO ANY SUCH TRANSFER, THE ISSUER OF THESE SECURITIES SHALL BE FURNISHED WITH AN OPINION OF COUNSEL OPINING AS TO THE AVAILABILITY OF EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION AND/OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY THERETO THAT ANY SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES LAWS.

B.E. Global understands that the Interests are being sold to it pursuant to the exemption from registration under the Securities Act and that Seller is relying upon the representations made herein as one of the bases for claiming the exemption.

4.2  Liabilities . Following the Closing, Seller will have no liability for any debts, liabilities or obligations of MomSpot, or its business or activities. There are no outstanding guaranties, performance or payment bonds, letters of credit or other contingent contractual obligations that have been undertaken by Seller directly or indirectly in relation to MomSpot, or its business or activities.

V.  SELLER’S REPRESENTATIONS AND WARRANTIES . Seller and MomSpot, as applicable, represent and warrant to B.E. Global that Seller is the sole record and beneficial owner of the Interests. At Closing, Seller will have good and marketable title to the Interests, which Interests are, and at the Closing will be, free and clear of all options, warrants, pledges, claims, liens and encumbrances, and any restrictions or limitations prohibiting or restricting transfer to B.E. Global, except for restrictions on transfer as contemplated by Section 4.1 above. The Interests constitute 51% of the outstanding membership interests of MomSpot.

VI.  OTHER AGREEMENTS .

6.1  Access to Information Post-Closing; Cooperation .

(a) Following the Closing, B.E. Global and MomSpot shall afford to Seller and its authorized accountants, counsel and other designated representatives, reasonable access (and including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to allow records, books, contracts, instruments, computer data and other data and information (collectively, “Information”) within the possession or control of B.E. Global or MomSpot insofar as such access is reasonably required by Seller. Information may be requested under this Section 6.1 for, without limitation, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and performing this Agreement and the transactions contemplated hereby. No files, books or records of MomSpot existing at the Closing Date shall be destroyed by B.E. Global or MomSpot for three years after Closing.

 

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(b) Following the Closing, Seller shall afford to MomSpot and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to Information within Seller’s possession or control relating to the business of MomSpot insofar as such access is reasonably required by B.E. Global. Information may be requested under this Section 6.1 for, without limitation, audit, accounting, claims, litigation and tax purposes as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and the transactions contemplated hereby. No files, books or records of MomSpot existing at the Closing Date shall be destroyed by Seller for three years after Closing.

(c) At all times following the Closing, Seller, B.E. Global and MomSpot shall use their reasonable efforts to make available to the other on written request, the current and former officers, directors, employees and agents of Seller or MomSpot for any of the purposes set forth in Section above or as witnesses to the extent that such persons may reasonably be required in connection with any legal, administrative or other proceedings in which Seller or MomSpot may from time to be involved.

(d) The party to whom any Information or witnesses are provided under this Section shall reimburse the provider thereof for all out-of-pocket expenses actually and reasonably incurred in providing such Information or witnesses.

(f) Seller, B.E. Global and MomSpot shall each use their best efforts to forward promptly to the other party all notices, claims, correspondence and other materials which are received and determined to pertain to the other party.

6.2  Filings and Consents . B.E. Global, at its risk, shall determine what, if any, filings and consents must be made and/or obtained prior to Closing to consummate the purchase and sale of the Interests. B.E. Global shall indemnify the Seller Indemnified Parties (as defined below) against any Losses (as defined in below) incurred by such Seller Indemnified Parties by virtue of the failure to make and/or obtain any such filings or consents.

6.3  Agreements Regarding Taxes .

(a)  Tax Sharing Agreements . Any tax sharing agreement between Seller and MomSpot is terminated as of the Closing Date and will have no further effect for any taxable year (whether the current year, a future year or a past year).

(b)  Returns for Periods Through the Closing Date . Seller will include the income and loss of MomSpot and the Assigned Liabilities (including any deferred income triggered into income by Reg. §1.1502-13 and any excess loss accounts taken into income under Reg. §1.1502-19) on Seller’s consolidated federal income tax returns for all periods through the Closing Date and pay any federal income taxes attributable to such income. Seller and MomSpot

 

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agree to allocate income, gain, loss, deductions and credits between the period up to Closing (the “Pre-Closing Period”) and the period after Closing (the “Post-Closing Period”) based on a closing of the books of MomSpot, and both Seller and MomSpot agree not to make an election under Reg. §1.1502-76(b)(2)(ii) to ratably allocate the year’s items of income, gain, loss, deduction and credit. Seller, MomSpot and B.E. Global agree to report all transactions not in the ordinary course of business occurring on the Closing Date after B.E. Global’s purchase of the Interests on MomSpot’s tax returns to the extent permitted by Reg. §1.1502-76(b)(1)(ii)(B). MomSpot will furnish tax information to Seller for inclusion in Seller’s consolidated federal income tax return for the period which includes the Closing Date in accordance with MomSpot’s past custom and practice.

(c)  Audits . Seller will allow MomSpot and its counsel to participate at MomSpot’s expense in any audit of Seller’s consolidated federal income tax returns to the extent that such audit raises issues that relate to and increase the tax liability of MomSpot. Seller shall have the absolute right, in its sole discretion, to engage professionals and direct the representation of Seller in connection with any such audit and the resolution thereof, without receiving the consent of B.E. Global or MomSpot or any other party acting on behalf of B.E. Global or MomSpot, provided that Seller will not settle any such audit in a manner which would materially adversely affect MomSpot after the Closing Date. In the event that after Closing any tax authority informs B.E. Global or MomSpot of any notice of proposed audit, claim, assessment or other dispute concerning an amount of taxes which pertain to Seller, or to MomSpot during the period prior to Closing, B.E. Global or MomSpot must promptly notify Seller of the same within 15 calendar days of the date of the notice from the tax authority.

(d)  Cooperation on Tax Matters . B.E. Global, Seller and MomSpot shall cooperate fully, as and to the extent reasonably requested by any party, in connection with the filing of tax returns pursuant to this Section and any audit, litigation or other proceeding with respect to taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. MomSpot shall (i) retain all books and records with respect to tax matters pertinent to MomSpot relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) give Seller reasonable written notice prior to transferring, destroying or discarding any such books and records and, if Seller so requests, B.E. Global agrees to cause MomSpot to allow Seller to take possession of such books and records.

VII. MISCELLANEOUS .

7.1  Definitions . Capitalized terms used herein without definition have the meanings ascribed to them in the Merger Agreement.

7.2 Notices . All notices and communications required or permitted hereunder shall be in writing and deemed given when received by means of the United States mail, addressed to the

 

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party to be notified, postage prepaid and registered or certified with return receipt requested, or personal delivery, or overnight courier, as follows:

 

  (a) If to Seller, addressed to:

Atrinsic, Inc.

149 Fifth Avenue, Suite 500

New York, NY 10010

Attn: Robert Ziroyan, President

Facsimile: 508.734.2177

With a copy to (which shall not constitute notice hereunder):

Meister Seelig & Fein LLP

125 Park Avenue, 7 th Floor

New York, NY 10017

Attention: Kenneth Goodwin, Esq.

Facsimile: (646) 539-3663

 

  (b) If to B.E. Global or MomSpot, addressed to:

1221 Avenue of the Americas

Suite 4200

New York, NY 10020

Attention: Barry Eisenberg

or to such other address as any party hereto shall specify pursuant to this Section 8.2 from time to time.

7.3  Exercise of Rights and Remedies . Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

7.4  Reformation and Severability . In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

7.5  Further Acts and Assurances . From and after the Closing, Seller, B.E. Global and MomSpot agree that each will act in a manner supporting compliance, including compliance by its Affiliates, with all of its obligations under this Agreement and, from time to time, shall, at the request of another party hereto, and without further consideration, cause the execution and delivery of such other instruments of conveyance, transfer, assignment or assumption and take such other action or execute such other documents as such party may reasonably request in order to complete the transactions contemplated by this Agreement.

 

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7.6  Entire Agreement; Amendments . This Agreement contains the entire understanding of the parties relating to the subject matter contained herein. This Agreement cannot be amended or changed except through a written instrument signed by all of the parties hereto and by PrivateCo. No provisions of this Agreement or any rights hereunder may be waived by any party without the prior written consent of PrivateCo.

7.7  Assignment . No party may assign his, her or its rights or obligations hereunder, in whole or in part, without the prior written consent of the other parties.

7.8  Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts or choice of laws thereof.

7.9  Counterparts . This Agreement may be executed in one or more counterparts, with the same effect as if all parties had signed the same document. Each such counterpart shall be an original, but all such counterparts taken together shall constitute a single agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page was an original thereof.

7.10  Section Headings and Gender . The section headings used herein are inserted for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate.

7.11  Submission to Jurisdiction; Process Agent; No Jury Trial .

(a) Each party to the Agreement hereby submits to the jurisdiction of any state or federal court sitting in the Borough of Manhattan, City and State of New York, in any action arising out of or relating to this Agreement, and agrees that all claims in respect of the action may be heard and determined in any such court. Each party to the Agreement also agrees not to bring any action arising out of or relating to this Agreement in any other court. Each party to the Agreement agrees that a final judgment in any action so brought will be conclusive and may be enforced by action on the judgment or in any other manner provided at law or in equity. Each party to the Agreement waives any defense of inconvenient forum to the maintenance of any action so brought and waives any bond, surety or other security that might be required of any other party with respect thereto.

(b) EACH PARTY TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RIGHTS TO JURY TRIAL OF ANY DISPUTE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY DEALINGS AMONG THEM RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. The scope of this

 

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waiver is intended to be all encompassing of any and all actions that may be filed in any court and that relate to the subject matter of the transactions, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party to the Agreement hereby acknowledges that this waiver is a material inducement to enter into a business relationship and that they will continue to rely on the waiver in their related future dealings. Each party to the Agreement further represents and warrants that it has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED ORALLY OR IN WRITING, AND THE WAIVER WILL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING HERETO. In the event of commencement of any action, this Agreement may be filed as a written consent to trial by a court.

7.12 Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party because of the authorship of any provision of this Agreement. Any reference to any federal, state, local or foreign law will be deemed also to refer to law as amended and all rules and regulations promulgated thereunder, unless the context requires otherwise. The words “include,” “includes,” and “including” will be deemed to be followed by “without limitation.” The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder,” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The parties hereto intend that each representation, warranty and covenant contained herein will have independent significance. If any party hereto has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which that party has not breached will not detract from or mitigate the fact that such party is in breach of the first representation, warranty or covenant.

7.13 Expenses . Each party hereto shall bear its expenses separately incurred in connection with this Agreement and with the performance of its obligations hereunder.

[Signature page follows this page.]

 

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IN WITNESS WHEREOF , the Parties hereto have caused this Split-Off Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

ATRINSIC, INC.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   Chief Executive Officer
B.E. GLOBAL LLC
By:  

/s/ Barry Eisenberg

Name:  

Barry Eisenberg

Title:  

Owner

MOMSPOT LLC
By:  

/s/ Barry Eisenberg

Name:  

Barry Eisenberg

Title:  

Owner

 

10

Exhibit 10.7

GENERAL RELEASE AGREEMENT

This  GENERAL RELEASE AGREEMENT  (this “ Agreement ”), dated as of February 12, 2016, is entered into by and among Atrinsic, Inc., a Delaware corporation (“Seller”), MomSpot LLC, a Delaware limited liability corporation (“MomSpot”), and B.E. Global LLC (the “Buyer”). In consideration of the mutual benefits to be derived from this Agreement, the covenants and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the execution and delivery hereof, the parties hereto hereby agree as follows:

1.  Release and Waiver by MomSpot .  For and in consideration of the covenants and promises contained herein and in a Split-Off Agreement among the Buyer, Seller and MomSpot dated the date hereof, the receipt and sufficiency of which are hereby acknowledged, MomSpot, on behalf of itself and its assigns, representatives and agents, if any, hereby covenants not to sue and fully, finally and forever completely releases Seller, along with its present, future and former officers, directors, stockholders, members, employees, agents, attorneys and representatives (collectively, the “Seller Released Parties”), of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown, which MomSpot has or might claim to have against the Seller Released Parties for any and all injuries, harm, damages (actual and punitive), costs, losses, expenses, attorneys’ fees and/or liability or other detriment, if any, whenever incurred or suffered by MomSpot arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur on or prior to the date of the Closing.

2.  Release and Waiver by Buyer .  For and in consideration of the covenants and promises contained herein and in the Split-Off Agreement, the receipt and sufficiency of which are hereby acknowledged, Buyer hereby covenants not to sue and fully, finally and forever completely release the Seller Released Parties of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown which Buyer has or might claim to have against the Seller Released Parties for any and all injuries, harm, damages (actual and punitive), costs, losses, expenses, attorneys’ fees and/or liability or other detriment, if any, whenever incurred or suffered by Buyer arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur on or prior to the date of the Closing.

3.  Additional Covenants and Agreements .

(a) Each of MomSpot and Buyer, on the one hand, and Seller, on the other hand, waives and releases the other from any claims that this Agreement was procured by fraud or signed under duress or coercion so as to make this Agreement not binding.

(b) Each of the parties hereto acknowledges and agrees that the releases set forth herein do not include any claims the other party hereto may have against such party for such party’s failure to comply with or breach of any provision in this Agreement or the Split-Off Agreement.


(c) Notwithstanding anything contained herein to the contrary, this Agreement shall not release or waive, or in any manner affect or void, any party’s rights and obligations under the Split-Off Agreement.

4.  Modification .  This Agreement cannot be modified orally and can only be modified through a written document signed by both parties.

5.  Severability .  If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.

6.  Expenses .  The parties hereto agree that each party shall pay its respective costs, including attorneys’ fees, if any, associated with this Agreement.

7.  Further Acts and Assurances .  MomSpot and Buyer agrees that it will act in a manner supporting compliance, including compliance by its Affiliates, with all of its obligations under this Agreement and, from time to time, shall, at the request of Seller, and without further consideration, cause the execution and delivery of such other instruments of release or waiver and take such other action or execute such other documents as such party may reasonably request in order to confirm or effect the releases, waivers and covenants contained herein, and, in the case of any claims, actions, obligations, liabilities, demands and/or causes of action that cannot be effectively released or waived without the consent or approval of other persons or entities that is unobtainable, to use its best reasonable efforts to ensure that the Seller Released Parties receive the benefits thereof to the maximum extent permissible in accordance with applicable law or other applicable restrictions, and shall perform such other acts which may be reasonably necessary to effectuate the purposes of this Agreement. For the purposes of this Agreement, an “Affiliate” is a person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another specified person or entity.

8.  Governing Law .  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts or choice of laws thereof.

9.  Entire Agreement .  This Agreement, together with the Split-Off Agreement, constitutes the entire understanding and agreement of Seller, MomSpot and Buyer and supersedes prior understandings and agreements, if any, among or between Seller, MomSpot and Buyer with respect to the subject matter of this Agreement, other than as specifically referenced herein. This Agreement does not, however, operate to supersede or extinguish any confidentiality, non-solicitation, non-disclosure or non-competition obligations owed by MomSpot or Buyer to Seller under any prior agreement.

[Signature Page Follows]


IN WITNESS WHEREOF , the undersigned have executed this General Release Agreement as of the day and year first above written.

 

ATRINSIC, INC.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   Chief Executive Officer
B.E. GLOBAL LLC
By:  

/s/ Barry Eisenberg

Name:  

Barry Eisenberg

Title:  

Owner

MOMSPOT LLC
By:  

/s/ Barry Eisenberg

Name:  

Barry Eisenberg

Title:  

Owner

 

3

Exhibit 10.8

SPLIT-OFF AGREEMENT

This SPLIT-OFF AGREEMENT, dated as of February 12, 2016 (this “Agreement”), is entered into by and among (i) Atrinsic, Inc., a Delaware corporation (the “Seller”), and (ii) Quintel Holdings, Inc. (“Buyer”), a Nevada company.

RECITALS:

WHEREAS, prior to the execution of this Agreement, Seller, Protagenic Therapeutics, Inc., a Delaware corporation (“PrivateCo”), and a newly-formed wholly-owned subsidiary of Seller, Protagenic Acquisition Corp. (“Acquisition Sub”) entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) pursuant to which Acquisition Sub will merge with and into PrivateCo with PrivateCo remaining as the surviving entity (the “Merger”); and the equity holders of PrivateCo will receive securities of Seller in exchange for their equity interests in PrivateCo;

WHEREAS, the execution and delivery of this Agreement is required by PrivateCo as a condition to its execution of the Merger Agreement, and the consummation of the assignment, assumption, purchase and sale transactions contemplated by this Agreement is also a condition to the completion of the Merger pursuant to the Merger Agreement, and Seller has represented to PrivateCo in the Merger Agreement that the transactions contemplated by this Agreement will be consummated contemporaneously with the closing of the Merger, and PrivateCo relied on such representation in entering into the Merger Agreement;

WHEREAS, Buyer desires to purchase all of the equity securities (the “Interests”) held by Seller in the entities set out in Exhibit A (the “Subsidiaries”) from Seller, on the terms and subject to the conditions specified in this Agreement;

WHEREAS, in exchange for the purchase of the Interests by Buyer, Buyer agrees to assume the Assigned Liabilities (as defined herein);

WHEREAS, Seller currently owns all of the Interests of the Subsidiaries; and

WHEREAS, Seller desires to sell and transfer the Interests to Buyer, on the terms and subject to the conditions specified in this Agreement;

NOW, THEREFORE, in consideration of the premises and the covenants, promises and agreements herein set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, agree as follows:

I.  INTEREST PURCHASE AND ASSIGNMENT AND ASSUMPTION OF SELLER’S ASSETS AND LIABILITIES.

Subject to the terms and conditions provided below:

 

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1.1  Purchase and Sale of Interests . For $1.00 and other good and valuable consideration, Seller hereby sells, assigns and transfers to Buyer the Interests and Buyer agrees to purchase the Interests.

1.2  Assignment and Assumption of Liabilities . Seller hereby assigns to Buyer, and Buyer hereby assumes and agrees to pay, honor and discharge all debts, adverse claims, liabilities, judgments and obligations, including tax obligations, of Seller related to the Subsidiaries as of the Closing Date immediately prior to the closing of the Merger, whether accrued, contingent or otherwise and whether known or unknown, including those arising under any law (including the common law) or any rule or regulation of any Governmental Entity or imposed by any court or any arbitrator in a binding arbitration resulting from, arising out of or relating to the assets, activities, operations, actions or omissions of Seller, or products manufactured or sold thereby or services provided thereby, or under contracts, agreements (whether written or oral), leases, commitments or undertakings thereof, but  excluding  in all cases the obligations of Seller under the Transaction Documents (all of the foregoing being referred to herein as the “Assigned Liabilities”).

The assignment and assumption of Seller’s assets and liabilities provided for in this Article I is referred to as the “Assignment.”

II.  CLOSING.

2.1  Closing . The closing of the transactions contemplated in this Agreement (the “Closing”) shall take place immediately after the closing of the Merger. The date on which the Closing occurs shall be referred to herein as the “Closing Date.”

2.2  Transfer of Interests . The parties agree this Agreement vests Buyer with good and marketable title to such Interests, free and clear of all liens and encumbrances without need for the production or delivery of any further documents.

2.3  Management . Immediately after the Closing, Seller shall hereby be deemed to have resigned from any management position that it may have held with any of the Subsidiaries, if it held any such position.

III.  REPRESENTATIONS AND WARRANTIES OF ALL PARTIES . Each party hereto represents and warrants to each other party that:

3.1  Capacity and Enforceability . It has the legal capacity to execute and deliver this Agreement and the documents to be executed and delivered by it at the Closing pursuant to the transactions contemplated hereby. This Agreement and all such documents constitute valid and binding agreements of such party, enforceable in accordance with their terms.

3.2  Organization and Good Standing . If an entity, it is duly incorporated or otherwise organized, validly existing, and in good standing under the laws of its state of incorporation or organization.

 

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3.3  Compliance . Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby by Buyer will result in the breach of any term or provision of, or constitute a default under, or violate any agreement, indenture, instrument, order, law or regulation to which it is a party or by which it is bound.

IV. BUYER’S REPRESENTATIONS AND WARRANTIES . Buyer represents and warrants to Seller that:

4.1  Purchase for Investment . Buyer is financially able to bear the economic risks of acquiring the Interests and the other transactions contemplated hereby and has no need for liquidity in its investment in the Interests. Buyer has such knowledge and experience in financial and business matters in general, and with respect to businesses of a nature similar to the business of the Subsidiaries, so as to be capable of evaluating the merits and risks of, and making an informed business decision with regard to, the acquisition of the Interests and the other transactions contemplated hereby. Buyer is acquiring the Interests solely for its own account and not with a view to or for resale in connection with any distribution or public offering thereof, within the meaning of any applicable securities laws and regulations, unless such distribution or offering is registered under the Securities Act of 1933, as amended (the “Securities Act”), or an exemption from such registration is available. Buyer has (i) received all the information it has deemed necessary to make an informed decision with respect to the acquisition of the Interests and the other transactions contemplated hereby; (ii) had an opportunity to make such investigation as he has desired pertaining to Subsidiaries and the acquisition of an interest therein and the other transactions contemplated hereby, and to verify the information which is, and has been, made available to him or her; and (iii) had the opportunity to ask questions of Seller concerning Subsidiaries. Buyer has received no public solicitation or advertisement with respect to the offer or sale of the Interests. Buyer realizes that the Interests are “restricted securities” as that term is defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act, the resale of the Interests is restricted by federal and state securities laws and, accordingly, the Interests must be held indefinitely unless their resale is subsequently registered under the Securities Act or an exemption from such registration is available for their resale. Buyer understands that any resale of the Interests by him must be registered under the Securities Act (and any applicable state securities law) or be effected in circumstances that, in the opinion of counsel for the applicable Subsidiary at the time, create an exemption or otherwise do not require registration under the Securities Act (or applicable state securities laws). Buyer acknowledges and consents that certificates now or hereafter issued for the Interests will bear a legend substantially as follows:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES LAWS (THE “STATE ACTS”), HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE ACTS OR PURSUANT TO EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS (INCLUDING, IN THE

 

3


CASE OF THE SECURITIES ACT, THE EXEMPTIONS AFFORDED BY SECTION 4(1) OF THE SECURITIES ACT AND RULE 144 THEREUNDER). AS A PRECONDITION TO ANY SUCH TRANSFER, THE ISSUER OF THESE SECURITIES SHALL BE FURNISHED WITH AN OPINION OF COUNSEL OPINING AS TO THE AVAILABILITY OF EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION AND/OR SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY THERETO THAT ANY SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES LAWS.

Buyer understands that the Interests are being sold to it pursuant to the exemption from registration under the Securities Act and that Seller is relying upon the representations made herein as one of the bases for claiming the exemption.

4.2  Liabilities . Following the Closing, Seller will have no liability for any debts, liabilities or obligations of the Subsidiaries, or their business or activities. There are no outstanding guaranties, performance or payment bonds, letters of credit or other contingent contractual obligations that have been undertaken by Seller directly or indirectly in relation to the Subsidiaries, or their business or activities.

V.  SELLER’S REPRESENTATIONS AND WARRANTIES . Seller represents and warrants to Buyer that Seller is the sole record and beneficial owner of the Interests. At Closing, Seller will have good and marketable title to the Interests, which Interests are, and at the Closing will be, free and clear of all options, warrants, pledges, claims, liens and encumbrances, and any restrictions or limitations prohibiting or restricting transfer to Buyer, except for restrictions on transfer as contemplated by Section 4.1 above.

VI.  OTHER AGREEMENTS .

6.1  Access to Information Post-Closing; Cooperation .

(a) Following the Closing, Buyer shall afford to Seller and its authorized accountants, counsel and other designated representatives, reasonable access (and including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to allow records, books, contracts, instruments, computer data and other data and information (collectively, “Information”) within the possession or control of Buyer or the Subsidiaries insofar as such access is reasonably required by Seller. Information may be requested under this Section 6.1 for, without limitation, audit, accounting, claims, litigation and tax purposes, as well as for purposes of fulfilling disclosure and reporting obligations and performing this Agreement and the transactions contemplated hereby. No files, books or records of the Subsidiaries existing at the Closing Date shall be destroyed by Buyer or the Subsidiaries for three years after Closing.

(b) Following the Closing, Seller shall afford to the Subsidiaries and its authorized accountants, counsel and other designated representatives reasonable access (including using reasonable efforts to give access to persons or firms possessing information) and duplicating rights during normal business hours to Information within Seller’s possession or

 

4


control relating to the business of the Subsidiaries insofar as such access is reasonably required by Buyer. Information may be requested under this Section 6.1 for, without limitation, audit, accounting, claims, litigation and tax purposes as well as for purposes of fulfilling disclosure and reporting obligations and for performing this Agreement and the transactions contemplated hereby. No files, books or records of the Subsidiaries existing at the Closing Date shall be destroyed by Seller for three years after Closing.

(c) At all times following the Closing, Seller, and Buyer shall use their reasonable efforts to make available to the other on written request, the current and former officers, directors, employees and agents of Seller or the Subsidiaries for any of the purposes set forth in Section above or as witnesses to the extent that such persons may reasonably be required in connection with any legal, administrative or other proceedings in which Seller or the Subsidiaries may from time to be involved.

(d) The party to whom any Information or witnesses are provided under this Section shall reimburse the provider thereof for all out-of-pocket expenses actually and reasonably incurred in providing such Information or witnesses.

(f) Seller and Buyer shall each use their best efforts to forward promptly to the other party all notices, claims, correspondence and other materials which are received and determined to pertain to the other party.

6.2  Filings and Consents . Buyer, at its risk, shall determine what, if any, filings and consents must be made and/or obtained prior to Closing to consummate the purchase and sale of the Interests. Buyer shall indemnify the Seller Indemnified Parties (as defined below) against any Losses (as defined in below) incurred by such Seller Indemnified Parties by virtue of the failure to make and/or obtain any such filings or consents.

6.3  Agreements Regarding Taxes .

(a)  Tax Sharing Agreements . Any tax sharing agreement between Seller and a Subsidiary is terminated as of the Closing Date and will have no further effect for any taxable year (whether the current year, a future year or a past year).

(b)  Returns for Periods Through the Closing Date . Seller will include the income and loss of the Subsidiaries and the Assigned Liabilities (including any deferred income triggered into income by Reg. §1.1502-13 and any excess loss accounts taken into income under Reg. §1.1502-19) on Seller’s consolidated federal income tax returns for all periods through the Closing Date and pay any federal income taxes attributable to such income. Seller agrees to allocate income, gain, loss, deductions and credits between the period up to Closing (the “Pre-Closing Period”) and the period after Closing (the “Post-Closing Period”) based on a closing of the books of MomSpot, and Seller agrees not to make an election under Reg. §1.1502-76(b)(2)(ii) to ratably allocate the year’s items of income, gain, loss, deduction and credit. Seller and Buyer agree to report all transactions not in the ordinary course of business occurring on the Closing Date after Buyer’s purchase of the Interests on Buyer’s tax returns to the extent permitted by Reg. §1.1502-76(b)(1)(ii)(B). The Subsidiaries will furnish tax information to Seller for inclusion in Seller’s consolidated federal income tax return for the period which includes the Closing Date in accordance with the Sellers’ past custom and practice.

 

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(c)  Audits . Seller will allow Buyer and its counsel to participate at Buyer’s expense in any audit of Seller’s consolidated federal income tax returns to the extent that such audit raises issues that relate to and increase the tax liability of Buyer or any Subsidiary. Seller shall have the absolute right, in its sole discretion, to engage professionals and direct the representation of Seller in connection with any such audit and the resolution thereof, without receiving the consent of Buyer or any other party acting on behalf of Buyer, provided that Seller will not settle any such audit in a manner which would materially adversely affect Buyer after the Closing Date. In the event that after Closing any tax authority informs Buyer or any of the Subsidiaries of any notice of proposed audit, claim, assessment or other dispute concerning an amount of taxes which pertain to Seller, or to the Subsidiaries during the period prior to Closing, Buyer must promptly notify Seller of the same within 15 calendar days of the date of the notice from the tax authority.

(d)  Cooperation on Tax Matters . Buyer and Seller shall cooperate fully, as and to the extent reasonably requested by any party, in connection with the filing of tax returns pursuant to this Section and any audit, litigation or other proceeding with respect to taxes. Such cooperation shall include the retention and (upon the other party’s request) the provision of records and information which are reasonably relevant to any such audit, litigation or other proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. Buyer shall (i) retain all books and records with respect to tax matters pertinent to the Subsidiaries relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Seller, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (ii) give Seller reasonable written notice prior to transferring, destroying or discarding any such books and records and, if Seller so requests, Buyer agrees to cause the Subsidiaries to allow Seller to take possession of such books and records.

VII.  MISCELLANEOUS .

7.1  Definitions . Capitalized terms used herein without definition have the meanings ascribed to them in the Merger Agreement.

7.2 Notices . All notices and communications required or permitted hereunder shall be in writing and deemed given when received by means of the United States mail, addressed to the party to be notified, postage prepaid and registered or certified with return receipt requested, or personal delivery, or overnight courier, as follows:

 

  (a) If to Seller, addressed to:

Atrinsic, Inc.

149 Fifth Avenue, Suite 500

New York, NY 10010

Attn: Robert Ziroyan, President

Facsimile: 508.734.2177

 

6


With a copy to (which shall not constitute notice hereunder):

Meister Seelig & Fein LLP

125 Park Avenue, 7 th Floor

New York, NY 10017

Attention: Kenneth Goodwin, Esq.

Facsimile: (646) 539-3663

 

  (b) If to Buyer or the Subsidiaries, addressed to:

Josh Silverman

Quintel Holdings, Inc.

c/o Iroquois Capital Management LLC

205 East 42 nd  Street, 20  th  Floor

New York, New York 10017

(347) 408-0969

or to such other address as any party hereto shall specify pursuant to this Section 8.2 from time to time.

7.3  Exercise of Rights and Remedies . Except as otherwise provided herein, no delay of or omission in the exercise of any right, power or remedy accruing to any party as a result of any breach or default by any other party under this Agreement shall impair any such right, power or remedy, nor shall it be construed as a waiver of or acquiescence in any such breach or default, or of any similar breach or default occurring later; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default occurring before or after that waiver.

7.4  Reformation and Severability . In case any provision of this Agreement shall be invalid, illegal or unenforceable, it shall, to the extent possible, be modified in such manner as to be valid, legal and enforceable but so as to most nearly retain the intent of the parties, and if such modification is not possible, such provision shall be severed from this Agreement, and in either case the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

7.5  Further Acts and Assurances . From and after the Closing, Seller and Buyer agree that each will act in a manner supporting compliance, including compliance by its Affiliates, with all of its obligations under this Agreement and, from time to time, shall, at the request of another party hereto, and without further consideration, cause the execution and delivery of such other instruments of conveyance, transfer, assignment or assumption and take such other action or execute such other documents as such party may reasonably request in order to complete the transactions contemplated by this Agreement.

 

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7.6  Entire Agreement; Amendments . This Agreement contains the entire understanding of the parties relating to the subject matter contained herein. This Agreement cannot be amended or changed except through a written instrument signed by all of the parties hereto and by PrivateCo. No provisions of this Agreement or any rights hereunder may be waived by any party without the prior written consent of PrivateCo.

7.7  Assignment . No party may assign his, her or its rights or obligations hereunder, in whole or in part, without the prior written consent of the other parties.

7.8  Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts or choice of laws thereof.

7.9  Counterparts . This Agreement may be executed in one or more counterparts, with the same effect as if all parties had signed the same document. Each such counterpart shall be an original, but all such counterparts taken together shall constitute a single agreement. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature page was an original thereof.

7.10  Section Headings and Gender . The section headings used herein are inserted for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement. All personal pronouns used in this Agreement shall include the other genders, whether used in the masculine, feminine or neuter and the singular shall include the plural, and vice versa, whenever and as often as may be appropriate.

7.11  Submission to Jurisdiction; Process Agent; No Jury Trial .

(a) Each party to the Agreement hereby submits to the jurisdiction of any state or federal court sitting in the Borough of Manhattan, City and State of New York, in any action arising out of or relating to this Agreement, and agrees that all claims in respect of the action may be heard and determined in any such court. Each party to the Agreement also agrees not to bring any action arising out of or relating to this Agreement in any other court. Each party to the Agreement agrees that a final judgment in any action so brought will be conclusive and may be enforced by action on the judgment or in any other manner provided at law or in equity. Each party to the Agreement waives any defense of inconvenient forum to the maintenance of any action so brought and waives any bond, surety or other security that might be required of any other party with respect thereto.

(b) EACH PARTY TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RIGHTS TO JURY TRIAL OF ANY DISPUTE BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER AGREEMENTS RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT OR ANY DEALINGS AMONG THEM RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. The scope of this waiver is intended to be all encompassing of any and all actions that may be filed in any court

 

8


and that relate to the subject matter of the transactions, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party to the Agreement hereby acknowledges that this waiver is a material inducement to enter into a business relationship and that they will continue to rely on the waiver in their related future dealings. Each party to the Agreement further represents and warrants that it has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED ORALLY OR IN WRITING, AND THE WAIVER WILL APPLY TO ANY AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING HERETO. In the event of commencement of any action, this Agreement may be filed as a written consent to trial by a court.

7.12 Construction . The parties hereto have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties hereto and no presumption or burden of proof will arise favoring or disfavoring any party because of the authorship of any provision of this Agreement. Any reference to any federal, state, local or foreign law will be deemed also to refer to law as amended and all rules and regulations promulgated thereunder, unless the context requires otherwise. The words “include,” “includes,” and “including” will be deemed to be followed by “without limitation.” The words “this Agreement,” “herein,” “hereof,” “hereby,” “hereunder,” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. The parties hereto intend that each representation, warranty and covenant contained herein will have independent significance. If any party hereto has breached any representation, warranty or covenant contained herein in any respect, the fact that there exists another representation, warranty or covenant relating to the same subject matter (regardless of the relative levels of specificity) which that party has not breached will not detract from or mitigate the fact that such party is in breach of the first representation, warranty or covenant.

7.13 Expenses . Each party hereto shall bear its expenses separately incurred in connection with this Agreement and with the performance of its obligations hereunder.

[Signature page follows this page.]

 

9


IN WITNESS WHEREOF , the Parties hereto have caused this Split-Off Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.

 

ATRINSIC, INC.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   President
QUINTEL HOLDINGS, INC.
By:  

 

Name:  

 

Title:  

 

 

10


EXHIBIT A

Traffix, Inc.

Calling Card Co., Inc.

NL Corporation

Quintel Productions, Inc.

Quintel Financial Information Services, Inc.

Thanksmuch, Inc.

Group Lotto Inc.

Traffix Canada, Inc.

Txnet, Inc.

Imatchup.com, Inc.

HMU Services Inc.

Send Traffic, Inc.

Hot Rocket Acqusitions Corp.

Q121, Inc.

Creative Direct Marketing Inc.

Quintelco, Inc.

Quintel Psychic Zone, Inc.

Quintel Hair Products, Inc.

Multibuyer, Inc.

Quintelcomm, Inc.

Quintel Email Inc.

Traffix Club Marketing Inc.

Traffix Wireless, Inc.

Consumer Access Services, Inc.

World Web Access, Inc.

Prizedistributors.com, Inc.

New Motion Mobile, Inc.

Ringtone Channel Pty LTD

Infiknowledge, Ulc.

EZ Tracks LP

 

11

Exhibit 10.9

GENERAL RELEASE AGREEMENT

This  GENERAL RELEASE AGREEMENT  (this “ Agreement ”), dated as of February 12, 2016, is entered into by and among Atrinsic, Inc., a Delaware corporation (“Seller”) and Quintel Holdings, Inc. (the “Buyer”). In consideration of the mutual benefits to be derived from this Agreement, the covenants and agreements set forth herein, and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the execution and delivery hereof, the parties hereto hereby agree as follows:

1.  Release and Waiver by Buyer For and in consideration of the covenants and promises contained herein and in the Split-Off Agreement, the receipt and sufficiency of which are hereby acknowledged, Buyer, for itself and on behalf of the Subsidiaries (as defined in a Split-Off Agreement between the Seller and Buyer dated the date hereof (the “Split-Off Agreement”)), itself and its assigns, representatives and agents, if any, hereby covenants not to sue and fully, finally and forever completely releases Seller, along with its present, future and former officers, directors, stockholders, members, employees, agents, attorneys and representatives (collectively, the “Seller Released Parties”), of and from any and all claims, actions, obligations, liabilities, demands and/or causes of action, of whatever kind or character, whether now known or unknown, which Buyer or the Subsidiaries have or might claim to have against the Seller Released Parties for any and all injuries, harm, damages (actual and punitive), costs, losses, expenses, attorneys’ fees and/or liability or other detriment, if any, whenever incurred or suffered by Buyer or a Subsidiary arising from, relating to, or in any way connected with, any fact, event, transaction, action or omission that occurred or failed to occur on or prior to the date of the closing of the Merger (as defined in the Split-Off Agreement).

2.  Additional Covenants and Agreements .

(a) Buyer, on the one hand, and Seller, on the other hand, waives and releases the other from any claims that this Agreement was procured by fraud or signed under duress or coercion so as to make this Agreement not binding.

(b) Each of the parties hereto acknowledges and agrees that the releases set forth herein do not include any claims the other party hereto may have against such party for such party’s failure to comply with or breach of any provision in this Agreement or the Split-Off Agreement.

(c) Notwithstanding anything contained herein to the contrary, this Agreement shall not release or waive, or in any manner affect or void, any party’s rights and obligations under the Split-Off Agreement.

3.  Modification .  This Agreement cannot be modified orally and can only be modified through a written document signed by both parties.

4.  Severability If any provision contained in this Agreement is determined to be void, illegal or unenforceable, in whole or in part, then the other provisions contained herein shall remain in full force and effect as if the provision that was determined to be void, illegal or unenforceable had not been contained herein.


5.  Expenses .  The parties hereto agree that each party shall pay its respective costs, including attorneys’ fees, if any, associated with this Agreement.

6.  Further Acts and Assurances . Buyer agrees that it will act in a manner supporting compliance, including compliance by its Affiliates, with all of its obligations under this Agreement and, from time to time, shall, at the request of Seller, and without further consideration, cause the execution and delivery of such other instruments of release or waiver and take such other action or execute such other documents as such party may reasonably request in order to confirm or effect the releases, waivers and covenants contained herein, and, in the case of any claims, actions, obligations, liabilities, demands and/or causes of action that cannot be effectively released or waived without the consent or approval of other persons or entities that is unobtainable, to use its best reasonable efforts to ensure that the Seller Released Parties receive the benefits thereof to the maximum extent permissible in accordance with applicable law or other applicable restrictions, and shall perform such other acts which may be reasonably necessary to effectuate the purposes of this Agreement. For the purposes of this Agreement, an “Affiliate” is a person or entity that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, another specified person or entity.

7.  Governing Law .  This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to principles of conflicts or choice of laws thereof.

8.  Entire Agreement .  This Agreement, together with the Split-Off Agreement, constitutes the entire understanding and agreement of Seller and Buyer and supersedes prior understandings and agreements, if any, among or between Seller and Buyer with respect to the subject matter of this Agreement, other than as specifically referenced herein. This Agreement does not, however, operate to supersede or extinguish any confidentiality, non-solicitation, non-disclosure or non-competition obligations owed by Buyer to Seller under any prior agreement.

[Signature Page Follows]


IN WITNESS WHEREOF , the undersigned have executed this General Release Agreement as of the day and year first above written.

 

ATRINSIC, INC.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   Chief Executive Officer

QUINTEL HOLDINGS, INC.

By:  

 

Name:  

 

Title:  

 

Exhibit 10.10

INVESTOR NOTE EXCHANGE AGREEMENT

EXCHANGE AGREEMENT  (this “ Agreement ”), dated as of February 12, 2016, by and among Atrinsic, Inc. (the “ Company ”) and each investor that is a signatory to this Agreement (together, the “ Investors ”).

WHEREAS:

A. Each Investor currently holds those secured convertible promissory notes as set forth below such Investor’s name on its signature page attached hereto (the “ Investor Notes ”).

B. The Company and the Investors desire to enter into this Agreement, pursuant to which, among other things, each Investor shall exchange (the “ Exchange ”) the Investor Notes, and all accrued but unpaid interest thereon, for such number of warrants (the form of which warrant is attached as Exhibit A) to purchase shares of the Company’s Series B Preferred Stock, par value $0.000001 per share (the “ Series B Shares ”), as set forth below such Investor’s name on its signature page attached hereto (the “ Exchange Warrants ”) in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “ Securities Act ”).

C. The Company, Protagenic Acquisition Corp. (“Acquisition Subsidiary”), a wholly-owned subsidiary of the Company, and Protagenic Therapeutics, Inc. (“ PTI ”) have entered into a Merger Agreement (the “ Merger Agreement ”) whereby Acquisition Subsidiary shall merge with and into PTI with PTI remaining as the surviving entity after the merger, whereby the stockholders of PTI will receive Series B Shares, in exchange for all of the capital stock of PTI.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the Company and the Investors hereby agree as follows:

1.  EXCHANGE OF INVESTOR NOTES . Simultaneous with the Closing (as defined in the Merger Agreement), each Investor shall, and the Company shall, pursuant to Section 3(a)(9) of the Securities Act, exchange the Investor Notes, and all accrued but unpaid interest thereon, for the Exchange Warrants, without the payment of any additional consideration (the “ Exchange ”), as follows:

(a) In exchange for the Investor Notes, on the date hereof the Company shall record the Exchange Warrants in the name of Strategic Bio Partners, LLC, the designee of the Investors, without need for the Investors to deliver or cause to be delivered to the Company the Investor Notes. Immediately upon the issuance of the Exchange Warrants, the Investor Notes shall be cancelled.

(b)  Other Documents . The Company and the Investors shall execute and/or deliver such other documents and agreements as are customary and reasonably necessary to effectuate the Exchange.

 

1


(c) UCC Termination Statements . Each Investor on the date hereof shall file UCC termination statements in all appropriate jurisdictions evidencing the termination of such Investor’s security interest in and to the assets of the Company.

2.  REPRESENTATIONS AND WARRANTIES

(i)  Investor Representations and Warranties . Each Investor hereby represents and warrants to the Company that, as of the date hereof, such Investor is the sole owner of the Investor Notes set out on such Investor’s signature page and transfers and delivers to the Company valid title to the Investor Notes, free from all preemptive or similar rights, taxes, liens, charges and other encumbrances. Each Investor further represents and warrants that immediately upon the exchange of the Investor Notes that it no longer has any rights under the First Amended and Restated Security Agreement among the Company such investor, each such dated as of December 18, 2014 and as subsequently amended, and it hereby relinquishes any such rights that it may otherwise have.

(ii)  Company Representations and Warranties . The Company hereby represents and warrants to each Investor that, as of the date hereof,

 

  (a) Authorization of Transaction . The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder and thereunder. The execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company. Specifically, the Exchange and the issuance of the Exchange Warrants is duly authorized and upon issuance in accordance with the terms of this Agreement, the Exchange Warrants will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against it in accordance with its terms.

 

  (b) Organization, Qualification and Corporate Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.

 

  (c)

Noncontravention . Neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby, will (a) conflict with or violate any provision of the articles or certificate of incorporation or bylaws of the Company, (b) require on the part of the Company any filing with, or permit, authorization, consent or approval of, any governmental entity, (c) conflict with, result in breach of, constitute (with or without due notice or lapse of time or both) a default

 

2


  under, result in the acceleration of obligations under, create in any person any right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Company is a party or by which either is bound or to which any of their assets are subject, (d) result in the imposition of any security interest upon any assets of the Company or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of their properties or assets.

3.  COVENANTS .

(a)  Disclosure of Transactions and Other Material Information . On or before 5:30 p.m., New York time, on or before the fourth (4th) Business Day following the date of this Agreement, the Company shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by this Agreement in the form required by the Exchange Act and attaching the form of this Agreement (including all attachments, the “ 8-K Filing ”).

(b)  Section 3(a)(9) . The Company represents that the exchange of the Investor Notes for the Exchange Warrants is being made in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act and agrees not to take any position contrary to this Section 3(b). For the purposes of Rule 144 of the Securities Act, the Company acknowledges that the holding period of the Exchange Warrants may be tacked onto the holding period of the Investor Notes.

4. MISCELLANEOUS.

(a) Applicable Law; Venue .

(i) This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of laws of any jurisdictions other than those of the State of New York.

(ii) Each party hereto (a) submits to the jurisdiction of any state or federal court sitting in the County of New York in the State of New York in any action or proceeding arising out of or relating to this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, and (c) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each party waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto.

(b) Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

 

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(c) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

(d) Severability . In case any provision in or obligation hereunder shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

(e) Headings . Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

[Signature Page Follows]

 

4


IN WITNESS WHEREOF , the Investors and the Company have caused their respective signature pages to this Investor Note Exchange Agreement to be duly executed as of the date first written above.

 

COMPANY
ATRINSIC, INC.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   Chief Executive Officer

 

5


IN WITNESS WHEREOF, the Investors and the Company have caused their respective signature page to this Investor Note Exchange Agreement to be duly executed as of the date first written above.

 

INVESTOR
Iroquois Master Fund Ltd.
By:  

 

Name:   Joshua Silverman
Title:   Authorized Signatory

Investor Notes:

 

Principal

Amount

    

Issuance Date

$ 87,500       February 11, 2014
$ 45,000       August 15, 2014
$ 75,000       December 18, 2014
$ 50,000       May 15, 2015
$ 25,000       September 3, 2015
$ 25,000       October 30, 2015

Number of Exchange Warrants: 147,972

 

6


IN WITNESS WHEREOF, the Investors and the Company have caused their respective signature page to this Investor Note Exchange Agreement to be duly executed as of the date first written above.

 

INVESTOR
Hudson Bay Master Fund Ltd.
By:  

 

Name:  
Title:   Authorized Signatory

Investor Notes:

 

Principal
Amount

    

Issuance Date

$ 87,500       February 11, 2014
$ 45,000       August 15, 2014
$ 75,000       December 18, 2014
$ 50,000       May 15, 2015
$ 25,000       September 3, 2015
$ 25,000       October 30, 2015

Number of Exchange Warrants: 147,973

 

7


Exhibit A

Form of Exchange Warrants

 

8

Exhibit 10.11

PREFERRED STOCK EXCHANGE AGREEMENT

EXCHANGE AGREEMENT  (this “ Agreement ”), dated as of February 12, 2016, by and among Atrinsic, Inc. (the “ Company ”) and each investor that is a signatory to this Agreement (together, the “ Investors ”).

WHEREAS:

A. Each Investor currently holds that number of shares of Series A Preferred Stock of the Company as set forth below such Investor’s name on its signature page attached hereto (the “ Investor Series A Shares ”).

B. The Company and the Investors desire to enter into this Agreement, pursuant to which, among other things, each Investor shall exchange (the “ Exchange ”) the Investor Series A Shares for such number of shares of the Company Series B Preferred Stock as set forth below such Investor’s name on its signature page attached hereto (the “ Exchange Shares ”) in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended (the “ Securities Act ”).

C. The Company, Protagenic Acquisition Corp. (“Acquisition Subsidiary”), a wholly-owned subsidiary of the Company, and Protagenic Therapeutics, Inc. (“ PTI ”) have entered into a Merger Agreement (the “ Merger Agreement ”) whereby Acquisition Subsidiary shall merge with and into PTI with PTI remaining as the surviving entity after the merger, whereby the stockholders of PTI will receive Company Series B Preferred Stock, in exchange for all of the capital stock of PTI.

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the Company and the Investors hereby agree as follows:

1.  EXCHANGE OF INVESTOR SERIES A SHARES . Simultaneous with the Closing (as defined in the Merger Agreement), each Investor shall, and the Company shall, pursuant to Section 3(a)(9) of the Securities Act, exchange the Investor Series A Shares for the Exchange Shares, without the payment of any additional consideration (the “ Exchange ”), as follows:

(a) In exchange for the Investor Series A Shares, on the date hereof the Company shall cause the Company’s transfer agent to record the Exchange Shares in the name of Strategic Bio Partners, LLC, the designee of the Investors, without need for the Investors to deliver or cause to be delivered to the Company the Investor Series A Shares. Immediately upon the issuance of the Exchange Shares, the Investor Series A Shares shall be cancelled.

(b)  Other Documents . The Company and the Investors shall execute and/or deliver such other documents and agreements as are customary and reasonably necessary to effectuate the Exchange.

 

1


2.  REPRESENTATIONS AND WARRANTIES

(i)  Investor Representations and Warranties . Each Investor hereby represents and warrants to the Company that, as of the date hereof, such Investor is the sole owner of the Investor Series A Shares set out on such Investor’s signature page and transfers and delivers to the Company valid title to the Investor Series A Shares, free from all preemptive or similar rights, taxes, liens, charges and other encumbrances.

(ii)  Company Representations and Warranties . The Company hereby represents and warrants to each Investor that, as of the date hereof,

 

  (a) Authorization of Transaction . The Company has all requisite power and authority to execute and deliver this Agreement and to perform its obligations hereunder and thereunder. The execution and delivery by the Company of this Agreement and the consummation by the Company of the transactions contemplated hereby have been duly and validly authorized by all necessary corporate action on the part of the Company. Specifically, the Exchange and the issuance of the Exchange Shares is duly authorized and upon issuance in accordance with the terms of this Agreement, the Exchange Shares will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against it in accordance with its terms.

 

  (b) Organization, Qualification and Corporate Power . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has all requisite corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it.

 

  (c) Noncontravention . Neither the execution and delivery by the Company of this Agreement, nor the consummation by the Company of the transactions contemplated hereby, will (a) conflict with or violate any provision of the articles or certificate of incorporation or bylaws of the Company, (b) require on the part of the Company any filing with, or permit, authorization, consent or approval of, any governmental entity, (c) conflict with, result in breach of, constitute (with or without due notice or lapse of time or both) a default under, result in the acceleration of obligations under, create in any person any right to terminate, modify or cancel, or require any notice, consent or waiver under, any contract or instrument to which the Company is a party or by which either is bound or to which any of their assets are subject, (d) result in the imposition of any security interest upon any assets of the Company or (e) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any of its properties or assets.

 

2


3.  COVENANTS .

(a)  Disclosure of Transactions and Other Material Information . On or before 5:30 p.m., New York time, on or before the fourth (4th) Business Day following the date of this Agreement, the Company shall file a Current Report on Form 8-K describing all the material terms of the transactions contemplated by this Agreement in the form required by the Exchange Act and attaching the form of this Agreement (including all attachments, the “ 8-K Filing ”).

(b)  Section 3(a)(9) . The Company represents that the exchange of the Investor Series A Shares for the Exchange Shares is being made in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act and agrees not to take any position contrary to this Section 3(b). For the purposes of Rule 144 of the Securities Act, the Company acknowledges that the holding period of the Exchange Shares may be tacked onto the holding period of the Investor Series A Shares.

4. MISCELLANEOUS.

(a) Applicable Law; Venue .

(i) This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York without giving effect to any choice or conflict of law provision or rule (whether of the State of New York or any other jurisdiction) that would cause the application of laws of any jurisdictions other than those of the State of New York.

(ii) Each party hereto (a) submits to the jurisdiction of any state or federal court sitting in the County of New York in the State of New York in any action or proceeding arising out of or relating to this Agreement, (b) agrees that all claims in respect of such action or proceeding may be heard and determined in any such court, and (c) agrees not to bring any action or proceeding arising out of or relating to this Agreement in any other court. Each party waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety or other security that might be required of any other party with respect thereto.

(b) Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.

(c) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

(d) Severability . In case any provision in or obligation hereunder shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.

 

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(e) Headings . Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.

[Signature Page Follows]

 

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IN WITNESS WHEREOF , the Investors and the Company have caused their respective signature pages to this Preferred Stock Exchange Agreement to be duly executed as of the date first written above.

 

COMPANY
ATRINSIC, INC.
By:  

/s/ Edward Gildea

Name:   Edward Gildea
Title:   President

 

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IN WITNESS WHEREOF, the Investors and the Company have caused their respective signature page to this Preferred Stock Exchange Agreement to be duly executed as of the date first written above.

 

INVESTOR
Iroquois Master Fund Ltd.
By:  

 

Name:   Joshua Silverman
Title:   Authorized Signatory

Aggregate Principal Amount of Series A Preferred Stock: 2,287,165,699

Number of Exchange Shares: 147,904

 

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IN WITNESS WHEREOF, the Investors and the Company have caused their respective signature page to this Exchange Agreement to be duly executed as of the date first written above.

 

INVESTOR
Hudson Bay Master Fund Ltd.
By:  

 

Name:  
Title:   Authorized Signatory

Aggregate Principal Amount of Series A Preferred Stock: 2,312,834,301

Number of Exchange Shares: 149,564

 

7

Exhibit 10.12

 

LOGO

 

EMPLOYEE:

PTCI CONTACT:

EFFECTIVE DATE:

TERMINATION DATE:

  

•    Robert Ziroyan

•    Garo H Armen,

•    January 01, 2014

•    December 31, 2015

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (together with the Business Terms Exhibit, the “Agreement”) made as of December 26, 2011 (the “Effective Date”) is between Protagenic Therapeutics Canada (2006) Inc. , a Ontario Corporation Number 660068- 9 with a office address at 22 Elkhorn Drive, Suite 424, North York, Ontario, M2K 1J4, Canada; (“PTCI”) and Dr. Robert Ziroyan having an home address at 22 Elkhorn Drive, Apt # 424, North York, ON, M2K 1J4, Canada (Tel:+416.500.3305 (“Employee”). Protagenic Therapeutics Canada Inc. (PTCI) desires to have the benefit of Employee’s knowledge and experience, and Employee desires to provide employment services to PTCI, all as provided in this Agreement. Employee will be working on a full time basis as a President and Chief Operating Officer . It should be noted that the Protagenic Therapeutics Canada (2006) Inc. is subsidiary of Protagenic Therapeutics, Inc. Protagenic Therapeutics, Inc. is incorporated in the state of Delaware, U.S.A.

 

1. Definitions. The following terms have the meanings set forth below:

 

  1.1 “Business Terms Exhibit” means the business and financial terms applicable to the Employment Services (as defined below) set forth in the attached exhibit, as may be amended from time to time by written agreement of the parties.

 

  1.2 “Confidential Information” means any non-public scientific, technical, financial or business information possessed or obtained by, developed for or given to PTCI which is treated by PTCI as confidential or proprietary, whether or not labeled or identified as “Confidential”. Confidential Information will include, without limitation, information prepared in full or in part for PTCI by Employee, Materials and Developments (defined below), the terms of this Agreement and information about or belonging to PTCI’s suppliers, licensors, licensees, partners, affiliates, customers, potential customers or others.

 

  1.3 “Developments” means concepts, inventions, know-how, techniques, improvements, writings, data, computer software, and Materials (whether or not patentable or subject to copyright or trade secret protection) that Employee makes, conceives or reduces to practice, either alone or jointly with others, and that result from the performance of the Employment Services, and/or result from use of PTCI’s Confidential Information.

 

  1.4 “Materials ” means all materials furnished by PTCI, all materials developed by Employee in connection with the Employment Services, and any materials, the cost of which are reimbursed to Employee by PTCI hereunder. Materials include, in the case of biological materials, all progeny and unmodified derivatives of those materials, and in the case of chemical materials, all analogs, formulations, mixtures and compositions of those materials.

 

  1.5 “Term” means the term of this Agreement as set forth in the Business Terms Exhibit .

 

2. Employment Services . PTCI retains Employee and Employee agrees to provide Employment services to PTCI as it may from time to time reasonably request and as specified in the Business Terms Exhibit (the “Employment Services”). Any changes to the Employment Services (and any related compensation adjustments) must be agreed to in writing between Employee and PTCI prior to commencement of the changes.

 

Protagenic Therapeutics Inc ., 22 Elkhorn Drive, Suite 424, North York, ON, M2K 1J4, Canada

www.protagenic.com

 

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3. Employment Relationship. Employee agrees, as a condition of this Agreement, to the following terms:

 

  3.1 Compliance.

 

  a. With Institution Policies . PTCI recognizes that if the Employee becomes a faculty member at or employee of a university or hospital (“Institution”), then the Employee is responsible for ensuring that any Employment agreement Employee enters into with industry is not in conflict with the patent, Employment or other policies of Institution. If Employee is required by Employee’s Institution to disclose to it any proposed agreements with industry, Employee has made that disclosure. If Institution’s prior approval of this Agreement is required by Institution policies, Employee has obtained that approval.

 

  b. With Policies and Regulations . In performing the Employment Services, Employee will comply with all business conduct, regulatory, and health and safety guidelines or regulations established by PTCI or any governmental authority with respect to PTCI’s business.

 

  c. Absence of Debarment. Employee represents that Employee has not been debarred, and to the best of Employee’s knowledge, is not under consideration to be debarred, by the Health of Canada or from working in or providing services to any pharmaceutical or biotechnology company under the Generic Drug Enforcement Act of 1992.

 

  3.2 Absence of Restrictions. Employee is under no contractual or other obligation or restriction which is inconsistent with Employee’s execution of this Agreement or the performance of the Employment Services. During the Term, Employee will not enter into any agreement, either written or oral, in conflict with Employee’s obligations under this Agreement. Employee will arrange to provide the Employment Services in such manner and at such times so that they will not conflict with Employee’s responsibilities under any other agreement, arrangement or understanding or pursuant to any employment relationship Employee has at any time with any third party (including, without limitation, Institution).

 

  3.3 Confidential Information of Third Parties. The performance of the Employment Services does not and will not breach any agreement which obligates Employee to keep in confidence any confidential or proprietary information of any third party or to refrain from competing, directly or indirectly, with the business of any third party. Employee will not disclose to PTCI any confidential or proprietary information of any third parties.

 

  3.4 Competitive Activities. During the Term and for a period of twelve (12) months thereafter, Employee will not provide Employment services to any business or entity developing a product or sponsoring a project which competes with a product being developed or project being sponsored by PTCI for which Employee is providing Employment Services. It will not be considered a competitive activity for Employee to be a member of the faculty or staff of a university, college or other educational or non-profit research institution.

 

4. Compensation. As full consideration for the Employment Services rendered under this Agreement, PTCI agrees to pay Employee and reimburse expenses as set forth in the Business Terms Exhibit .

 

5. Developments.

 

  5.1

Ownership. All Developments will be the exclusive property of PTCI. All Developments that are “Works Made for Hire” as defined in the Canadian and U.S. Copyright Act and other copyrightable works will be deemed, upon creation, to be assigned to PTCI. Employee will promptly and fully disclose to PTCI all Developments. Employee will keep and maintain complete written records of all Developments and of all work or investigations done or carried out by Employee. Employee may keep one (1) copy of these records in Employee’s files solely for reference purposes.

 

Protagenic Therapeutics Inc ., 22 Elkhorn Drive, Suite 424, North York, ON, M2K 1J4, Canada

www.protagenic.com

 

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  Employee assigns and agrees to assign to PTCI all of Employee’s right, title and interest in and to any Developments. During and after the Term, Employee will cooperate fully in obtaining patent and other proprietary protection for the Developments, all in the name of PTCI and at PTCI’s cost and expense, and, without limitation, will execute and deliver all requested applications, assignments and other documents, and take such other measures as PTCI will reasonably request, in order to perfect and enforce PTCI’s rights in the Developments. Employee appoints PTCI its attorney to execute and deliver any such documents on Employee’s behalf in the event Employee fails to do so.

 

  5.2 Agreement with Institution. This Agreement is made subject to the understanding that Employee, if becoming an affiliated with an Institution, may be required to fulfill certain obligations, including teaching, directing laboratory operations, conducting research, and publishing work. It is further understood that Employee may have signed an agreement concerning inventions with Institution, under which Employee may be obligated to assign to Institution certain inventions which arise out of or otherwise relate to Employee’s work at or for Institution or from Employee’s use of certain of its facilities or intellectual property. In performing the Employment Services, Employee agrees not to utilize Institution facilities or intellectual property if the result of that use is that any Development will not be assignable solely to PTCI.

 

  5.3 Work at Third Party Facilities. Unless covered by an appropriate agreement between any third party and PTCI, Employee will not engage in any activities or use any third party facilities or intellectual property in performing the Employment Services which could result in claims of ownership to any Developments being made by a third party.

 

6. Confidentiality; Publication.

 

  6.1 Confidentiality. During the Term and for a period of five (5) years thereafter, Employee will not publish, disseminate or otherwise disclose, use for Employee’s own benefit or for the benefit of a third party, any Confidential Information. Employee will exercise all reasonable precautions to physically protect the confidentiality of the Confidential Information. Employee may disclose the Confidential Information to a governmental authority or by order of a court of competent jurisdiction, provided that the disclosure is subject to all applicable governmental or judicial protection available for like material and reasonable advance notice is given to PTCI. The obligations of non-disclosure will not apply to information which (a) was known to Employee at the time it was disclosed, other than by previous disclosure by PTCI, as evidenced by Employee’s written records at the time of disclosure; (b) is at the time of disclosure or later becomes publicly known under circumstances involving no breach of this Agreement; or (c) is lawfully and in good faith made available to Employee by a third party who did not derive it, directly or indirectly, from PTCI.

 

  6.2 Publication. Employee agrees to submit to PTCI a copy of any proposed manuscript or other materials to be published or otherwise publicly disclosed which contain information or any discussion relating to PTCI or the Employment Services, at least thirty (30) days prior to submission for publication or disclosure, to enable PTCI to determine if patentable Developments or any Confidential Information of PTCI would be disclosed. Employee will cooperate with PTCI in this respect and will delete from the manuscript or other disclosure any Confidential Information if requested by PTCI, and will assist PTCI in filing for patent protection for any patentable Developments described in those documents, prior to publication or other disclosure.

 

7. Expiration/Termination.

 

  7.1 Term . This Agreement will commence on the Effective Date and continue for the Term, unless sooner terminated pursuant to the express terms of this Section 7 or extended by mutual written agreement of the parties.

 

Protagenic Therapeutics Inc ., 22 Elkhorn Drive, Suite 424, North York, ON, M2K 1J4, Canada

www.protagenic.com

 

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  7.2 Termination for Breach . If either party breaches in any material respect any of its material obligations under this Agreement, in addition to any other right or remedy, the non-breaching party may terminate this Agreement in the event that the breach is not cured within thirty (30) days after receipt by that party of written notice of the breach.

 

  7.3 Termination by PTCI . Either party may terminate this Agreement (a) immediately at any time upon written notice to the other party in the event of a breach of this Agreement by the other party which cannot be cured ( i.e. breach of the confidentiality obligations) and/or (b) at any time without cause upon not less than forty five (45) days’ prior written notice to the other party.

 

  7.4 Severance Compensation and Termination Protection .

Termination without Cause. Under this employment agreement, if PTCI terminates Dr. Robert Ziroyan’s employment agreement without cause or if he terminates his employment for good reason not involving a change of control (as defined below), he is entitled to a lump sum payment of 12 months of base salary plus 150% of the higher of their target incentive bonus for that year or their last actual incentive bonus, as well as coverage under the medical and dental plans for 12 months following the date of termination, a lump sum payment of $10,000 for outplacement assistance, a gross-up for any taxes with respect to such outplacement assistance payment, a gross-up payment for any taxes, interest and penalties imposed by Canada Revenue Agency, the acceleration of vesting of any unvested stock options.

Under Dr. Ziroyan’s employment agreement, “good reason” means the occurrence of any of the following events: (i) failure to continue Dr. Ziroyan in the position of Chief Operating Officer, (ii) a material and substantial diminution in the nature or scope of his responsibilities, (iii) a material reduction in base salary or benefits, or (iv) relocation of Dr. Ziroyan’s principal office, without his prior consent, to a location more than 50 kilometers away. The principal place of business for Dr. Ziroyan is Toronto, Ontario.

Change of control: Under this employment agreement upon a change of control: 50% of any of Dr. Ziroyan’s outstanding unvested stock options as of the change of control date become vested and exercisable. If the Robert Ziroyan is terminated or resigns for good reason as a result of the change of control, the remaining 50% vests. If a change of control occurs and, within 18 months, PTCI terminates the employee’s employment agreement without cause or if the employee terminates his employment for good reason, the employee is entitled to: a lump sum payment of 18 months of base salary plus 150% of the higher of their target incentive bonus for that year or their last actual incentive bonus, coverage under the medical and dental plans for 12 months following the date of termination, a lump sum payment of $10,000 for outplacement assistance, a gross-up for any taxes with respect to such outplacement assistance payment, a gross-up payment for any taxes, interest and penalties imposed by Canada Revenue Agency, and acceleration of vesting for all unvested stock options as of the date of termination. The principal place of business for Dr. Ziroyan is Toronto, Ontario.

 

  7.5 Effect of Expiration/Termination. Upon expiration or termination, neither PTCI nor Employee will have any further obligations under this Agreement, except (a) the liabilities accrued through the date of expiration or termination, and (b) the terms and obligations under sections 1, 3.4, 5, 6, 7.4 and 8, will survive. Upon expiration or termination, and in any case upon PTCI’s request, Employee will promptly return to PTCI all Confidential Information and copies thereof, except for one (1) copy which Employee may retain solely for archival purposes.

 

Protagenic Therapeutics Inc ., 22 Elkhorn Drive, Suite 424, North York, ON, M2K 1J4, Canada

www.protagenic.com

 

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8. Miscellaneous.

 

  8.1 Remuneration.

Taxes. Employer shall pay, on Employee’s behalf, all applicable income taxes (Federal and provincial) and fees imposed by Canada Pension Plan and Employment Insurance. Employee will provide PTCI with his Social Insurance number, as applicable.

Vacation. Employee shall be entitled to four weeks paid vacation time per annum. Such vacation request shall be subject to prior approval and authorization by the Chairman of the Board of Directors.

Travel Expenses. Employee will be reimbursed for all travel and other out-of-pocket business expenses (subject to prior approval) actually and properly incurred in connection with his obligations under this Agreement. For all such expenses, Employee shall furnish PTI with the corresponding reports and vouchers, as and when PTCI requires.

Expenses.  Employee will be reimbursed for the expenses related to the implementation of his obligations under this Agreement such as communications (wireless phone and internet). Also, Employee will be reimbursed for the “complementary and dental” health care services provided. For all such expenses, Employee will furnish PTI with the corresponding reports and vouchers, as and when PTCI requires. Employee will also be reimbursed up to $510 per month to cover rent cost associated with office rent.

 

  8.2 Use of Name. Employee consents to the use by PTCI of Employee’s name and likeness in written materials and oral presentations to current or prospective customers, partners, investors or others, provided that the materials or presentations accurately describe the nature of Employee’s relationship with or contribution to PTCI.

 

  8.3 Notices. All notices must be written and sent to the address or facsimile number identified in this Agreement or a subsequent notice. All notices must be given (a) by personal delivery, with receipt acknowledged; (b) by facsimile followed by hard copy delivered by the methods under (c) or (d); (c) by prepaid certified or registered mail, return receipt requested; or (d) by prepaid recognized next business day delivery service. Notices will be effective upon receipt or as stated in the notice. Notices to PTCI must be marked “ Attention: Chairman of the Board of the Directors” .

 

  8.4 Assignment. This Agreement is a personal services agreement, and the rights and obligations hereunder, may not be assigned or transferred by either party without the prior written consent of the other party, except that PTCI may assign this Agreement, in whole or in part, to an affiliated company or in connection with the merger, consolidation, sale or transfer of all or substantially all of its business to which this Agreement relates.

 

  8.5 Entire Agreement. This Agreement constitutes the entire agreement of the parties with regard to its subject matter, and supersedes all previous written or oral representations, agreements and understandings between PTCI and Employee.

 

  8.6 No Modification. This Agreement may be changed only by a writing signed by both parties.

 

  8.7 Severability. Each provision in this Agreement is independent and severable from the others, and no provision will be rendered unenforceable as a result of any other provision(s) being held to be invalid or unenforceable in whole or in part. If any provision of this Agreement is invalid, unenforceable or too broad, that provision will be appropriately limited and reformed to the maximum extent permitted by applicable law.

 

Protagenic Therapeutics Inc ., 22 Elkhorn Drive, Suite 424, North York, ON, M2K 1J4, Canada

www.protagenic.com

 

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  8.8 Applicable Law. This Agreement will be governed by, and construed in accordance with, the laws of the Province of Ontario, and the laws of Canada applicable in Ontario without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. Any action, suit, or other legal proceeding which is commenced to resolve any matter arising under or relating to any provision of this Agreement will be commenced only in a court of the Province of Ontario (or, if appropriate, a federal court located within the Province of Ontario), and PTCI and Employee each consents to the jurisdiction of such a court.

 

  8.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which shall constitute one and the same agreement.

IN WITNESS WHEREOF , duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

PROTAGENIC THERAPEUTICS, INC.

PROTAGENIC THERAPEUTICS CANADA (2006), INC.

By:  

/s/ Robert Ziroyan

  Name: Robert Ziroyan
  Title: President & Operations Manager
By:  

/s/ Garo H. Armen

  Name: Garo. H Armen
  Title: Chairman of the Board of Directors

 

Protagenic Therapeutics Inc ., 22 Elkhorn Drive, Suite 424, North York, ON, M2K 1J4, Canada

www.protagenic.com

 

6


BUSINESS TERMS EXHIBIT

Employment Agreement with Dr. Robert Ziroyan

 

1. Scope of Work/Duties and Responsibilities

Under the direct supervision of the PTI Chairman of the Board of the Directors the Employee will:

Strategy & Operations:

 

    in coordination with the chairman, develop, communicate and implement the company’s overall strategy and operating plan;

 

    develop and implement appropriate business plan;

 

    prepare progress reports, budgets and workplans as requested by the chairman of the board;

Corporate:

 

    support the board of the directors and the senior management in maintaining the relation with investors, venture capitalists and donor community;

 

    support the senior management in advocating and promoting the company products through public relation; means of information technology use;

 

    support the senior management in updating information contained at the business plan, power point presentation, fact sheets and website;

Financials:

 

    prepare annual, quarterly budgets and relevant financial statements;

 

    manage various budgetary constraints or targets; regularly (monthly) monitor and help manage the company and various departmental budgets, expenses, cash flow;

 

    establish financial forecasts for the company to ensure alignment with board-approved company objectives;

 

    clear disbursement requests and final reception of goods, works or services and for the corresponding closing of a contract;

Operations:

 

    provide administrative, infrastructure, financial support in implementation of day to day company and various project activities;

 

    provide operational support and assistance to consultants and researchers hired by the company;

 

    ensure efficient operation of administrative structures;

Contracts:

 

    work actively with legal and intellectual property department to prepare various contracts and agreements: employment, service, engagement, corporative.

 

    in coordination with the chairman will be responsible for recruitment of employees, consultants, contract researching and service providing organizations.

 

2. Accountability and Reporting

The President and Chief Operating Officer will be accountable to the Chairman of the Board of the Directors.

 

3. Compensation.

As full compensation for the Employment Services, PTCI will pay the Employee, an annual salary of ninety eight thousand and one hundred Canadian Dollars (CA$ 98,100), payable on a monthly basis. In case of well performance the Employee may also be entailed at bonus to be calculated at 30% of annual the Bonus to be authorized and approved by the Chairman of the Board of the Directors.

 

4. Term.

This Agreement will be for an initial term of two years, ending December 31, 2015, beginning on the Effective Date (the “Term”), and may be extended for additional periods, at PTCI’s and with Employee’s consent.

 

Protagenic Therapeutics Inc ., 22 Elkhorn Drive, Suite 424, North York, ON, M2K 1J4, Canada

www.protagenic.com

 

7

Exhibit 10.13

 

LOGO

AMENDMENT TO THE CONSULTING AGREEMENT

 

CONSULTANT:

 

Original Contract Date:

 

Duration:

 

Amendement No:

  

•     Dr. Dalia Barsyte

 

•     January 01, 2009

 

•     January 01, 2015 - December 31, 2015

 

•     07 (dated of January 30, 2015)

This amendment is issued:

 

1. To extend the duration of the contact for one more year, whereas Protagenic Therapeutics Canada (2006) Inc. will pay the consultant as per following schedule and amount of work agreed:

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of January, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of February, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of March, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of April, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of May, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of June, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of July, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of August, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of September, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of October, 2015

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of November, 2015.

 

    CA$ 1,000 (one thousand Canadian dollars) for 32 hours of work for the month of December, 2015.

 

2. All other terms of the original contract shall remain unchanged.

 

PROTAGENIC THERAPEUTICS CANADA (2006) INC.
By:  
Print Name:   Robert Ziroyan
Title:   President & Chief Operating Officer
Signature:   /s/ Robert Ziroyan
By: Dr. Dalia Barsyte
Print Name:   Dalia Barsyte
Signature:   /s/ Dalia Barsyte

 

Protagenic Therapeutics Canada (2006) Inc ., 22 Elkhorn Drive, Suite 424, Toronto, Ontario, M2K 1J4, Canada;

e: infopti@protagenic.com, www.protagenic.com

 

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CONSULTANT:

 

EFFECTIVE DATE:

 

TERMINATION DATE:

  

•     Dr. Dalia Barsyte

 

•     January 01, 2009

 

•     December 31, 2009

 

 

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (together with the Business Terms Exhibit, the “Agreement”) made as of January 01, 2009 (the “Effective Date”) is between Protagenic Therapeutics Canada (2006) Inc., Corporation Number 660068- 9 a Ontario corporation with a office address at 2 Carlton Street, Suite No.1307, Toronto, Ontario, M5B 1J3, Canada (“PTCI”) and Dr. Dalia Barsyte having a home address at 149 Baker street, Stouffville, Ontario, L4A 1K6, Canada (Tel: 905.642.4616 (“Consultant”). PTCI desires to have the benefit of Consultant’s knowledge and experience, and Consultant desires to provide consulting services to PTCI, all as provided in this Agreement.

 

1. Definitions. The following terms have the meanings set forth below:

 

  1.1 “Business Terms Exhibit” means the business and financial terms applicable to the Consulting Services (as defined below) set forth in the attached exhibit, as may be amended from time to time by written agreement of the parties.

 

  1.2 “Confidential Information” means any non-public scientific, technical, financial or business information possessed or obtained by, developed for or given to PTCI which is treated by PTCI as confidential or proprietary, whether or not labeled or identified as “Confidential”. Confidential Information will include, without limitation, information prepared in full or in part for PTCI by Consultant, Materials and Developments (defined below), the terms of this Agreement and information about or belonging to PTCI’s suppliers, licensors, licensees, partners, affiliates, customers, potential customers or others.

 

  1.3 “Developments” means concepts, inventions, know-how, techniques, improvements, writings, data, computer software, and Materials (whether or not patentable or subject to copyright or trade secret protection) that Consultant makes, conceives or reduces to practice, either alone or jointly with others, and that result from the performance of the Consulting Services, and/or result from use of PTCI’s Confidential Information.

 

  1.4 “Materials ” means all materials furnished by PTCI, all materials developed by Consultant in connection with the Consulting Services, and any materials, the cost of which are reimbursed to Consultant by PTCI hereunder. Materials include, in the case of biological materials, all progeny and unmodified derivatives of those materials, and in the case of chemical materials, all analogs, formulations, mixtures and compositions of those materials.

 

  1.5 “Term” means the term of this Agreement as set forth in the Business Terms Exhibit .

 

2. Consulting Services . PTCI retains Consultant and Consultant agrees to provide consulting services to PTCI as it may from time to time reasonably request and as specified in the Business Terms Exhibit (the “Consulting Services”). Any changes to the Consulting Services (and any related compensation adjustments) must be agreed to in writing between Consultant and PTCI prior to commencement of the changes.

 

3. Consulting Relationship. Consultant agrees, as a condition of this Agreement, to the following terms:

 

Protagenic Therapeutics Inc ., 2 Carlton Street, Suite 1307, Toronto, Ontario, M5B1J3, Canada;

e: infopti@protagenic.com, www.protagenic.com

 

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  3.1 Compliance.

 

  a. With Institution Policies . PTCI recognizes that if the Consultant becomes a faculty member at or employee of a university or hospital (“Institution”), then the Consultant is responsible for ensuring that any consulting agreement Consultant enters into with industry is not in conflict with the patent, consulting or other policies of Institution. If Consultant is required by Consultant’s Institution to disclose to it any proposed agreements with industry, Consultant has made that disclosure. If Institution’s prior approval of this Agreement is required by Institution policies, Consultant has obtained that approval.

 

  b. With Policies and Regulations . In performing the Consulting Services, Consultant will comply with all business conduct, regulatory, and health and safety guidelines or regulations established by PTCI or any governmental authority with respect to PTCI’s business.

 

  c. Absence of Debarment. Consultant represents that Consultant has not been debarred, and to the best of Consultant’s knowledge, is not under consideration to be debarred, either by the Health Canada or by the U.S. Food and Drug Administration from working in or providing services to any pharmaceutical or biotechnology company under the Generic Drug Enforcement Act of 1992.

 

  3.2 Absence of Restrictions. Consultant is under no contractual or other obligation or restriction which is inconsistent with Consultant’s execution of this Agreement or the performance of the Consulting Services. During the Term, Consultant will not enter into any agreement, either written or oral, in conflict with Consultant’s obligations under this Agreement. Consultant will arrange to provide the Consulting Services in such manner and at such times so that they will not conflict with Consultant’s responsibilities under any other agreement, arrangement or understanding or pursuant to any employment relationship Consultant has at any time with any third party (including, without limitation, Institution).

 

  3.3 Confidential Information of Third Parties. The performance of the Consulting Services does not and will not breach any agreement which obligates Consultant to keep in confidence any confidential or proprietary information of any third party or to refrain from competing, directly or indirectly, with the business of any third party. Consultant will not disclose to PTCI any confidential or proprietary information of any third parties.

 

  3.4 Competitive Activities. During the Term, Consultant will not provide consulting services to any business or entity developing a product or sponsoring a project which competes with a product being developed or project being sponsored by PTCI for which Consultant is providing Consulting Services. For a period of twelve (12) months after the Term, Consultant will not provide services to any business or entity, other than PTCI, developing a product or sponsoring a project that is directly related to PTCI IP portfolio at the beginning of the Term. It will not be considered a competitive activity for Consultant to be a member of the faculty or staff of a university, college or other educational or non-profit research institution.

 

4. Compensation. As full consideration for the Consulting Services rendered under this Agreement, PTCI agrees to pay Consultant and reimburse expenses as set forth in the Business Terms Exhibit .

 

5. Developments.

 

  5.1

Ownership. All Developments will be the exclusive property of PTCI. All Developments that are “Works Made for Hire” as defined both by the Canadian and the U.S. Copyright Act and other copyrightable works will be deemed, upon creation, to be assigned to PTCI. Consultant will promptly and fully disclose to PTCI all Developments. Consultant will keep and maintain

 

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e: infopti@protagenic.com, www.protagenic.com

 

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  complete written records of all Developments and of all work or investigations done or carried out by Consultant. Consultant may keep one (1) copy of these records in Consultant’s files solely for reference purposes. Consultant assigns and agrees to assign to PTCI all of Consultant’s right, title and interest in and to any Developments. During and after the Term, Consultant will cooperate fully in obtaining patent and other proprietary protection for the Developments, all in the name of PTCI and at PTCI’s cost and expense, and, without limitation, will execute and deliver all requested applications, assignments and other documents, and take such other measures as PTCI will reasonably request, in order to perfect and enforce PTCI’s rights in the Developments. Consultant appoints PTCI its attorney to execute and deliver any such documents on Consultant’s behalf in the event Consultant fails to do so.

 

  5.2 Agreement with Institution. This Agreement is made subject to the understanding that Consultant, if becoming an affiliated with an Institution, may be required to fulfill certain obligations, including teaching, directing laboratory operations, conducting research, and publishing work. It is further understood that Consultant may have signed an agreement concerning inventions with Institution, under which Consultant may be obligated to assign to Institution certain inventions which arise out of or otherwise relate to Consultant’s work at or for Institution or from Consultant’s use of certain of its facilities or intellectual property. In performing the Consulting Services, Consultant agrees not to utilize Institution facilities or intellectual property if the result of that use is that any Development will not be assignable solely to PTCI.

 

  5.3 Work at Third Party Facilities. Unless covered by an appropriate agreement between any third party and PTCI, Consultant will not engage in any activities or use any third party facilities or intellectual property in performing the Consulting Services which could result in claims of ownership to any Developments being made by a third party.

 

6. Confidentiality; Publication.

 

  6.1 Confidentiality. During the Term and for a period of five (5) years thereafter, Consultant will not publish, disseminate or otherwise disclose, use for Consultant’s own benefit or for the benefit of a third party, any Confidential Information. Consultant will exercise all reasonable precautions to physically protect the confidentiality of the Confidential Information. Consultant may disclose the Confidential Information to a governmental authority or by order of a court of competent jurisdiction, provided that the disclosure is subject to all applicable governmental or judicial protection available for like material and reasonable advance notice is given to PTCI. The obligations of non-disclosure will not apply to information which (a) was known to Consultant at the time it was disclosed, other than by previous disclosure by PTCI, as evidenced by Consultant’s written records at the time of disclosure; (b) is at the time of disclosure or later becomes publicly known under circumstances involving no breach of this Agreement; or (c) is lawfully and in good faith made available to Consultant by a third party who did not derive it, directly or indirectly, from PTCI.

 

  6.2 Publication. Consultant agrees to submit to PTCI a copy of any proposed manuscript or other materials to be published or otherwise publicly disclosed which contain information or any discussion relating to PTCI or the Consulting Services, at least thirty (30) days prior to submission for publication or disclosure, to enable PTCI to determine if patentable Developments or any Confidential Information of PTCI would be disclosed. Consultant will cooperate with PTCI in this respect and will delete from the manuscript or other disclosure any Confidential Information if requested by PTCI, and will assist PTCI in filing for patent protection for any patentable Developments described in those documents, prior to publication or other disclosure.

 

7. Expiration/Termination.

 

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e: infopti@protagenic.com, www.protagenic.com

 

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  7.1 Term . This Agreement will commence on the Effective Date and continue for the Term, unless sooner terminated pursuant to the express terms of this Section 7 or extended by mutual written agreement of the parties.

 

  7.2 Termination for Breach . If either party breaches in any material respect any of its material obligations under this Agreement, in addition to any other right or remedy, the non-breaching party may terminate this Agreement in the event that the breach is not cured within thirty (30) days after receipt by that party of written notice of the breach.

 

  7.3 Termination by PTCI . Either party may terminate this Agreement (a) immediately at any time upon written notice to the other party in the event of a breach of this Agreement by the other party which cannot be cured ( i.e. breach of the confidentiality obligations) and/or (b) at any time without cause upon not less than fifteen (15) days’ prior written notice to the other party.

 

  7.4 Effect of Expiration/Termination. Upon expiration or termination, neither PTCI nor Consultant will have any further obligations under this Agreement, except (a) the liabilities accrued through the date of expiration or termination, and (b) the terms and obligations under sections 1, 3.4, 5, 6, 7.4 and 8, will survive. Upon expiration or termination, and in any case upon PTCI’s request, Consultant will promptly return to PTCI all Confidential Information and copies thereof, except for one (1) copy which Consultant may retain solely for archival purposes.

 

8. Miscellaneous.

 

  8.1 Independent Consultant; Taxes.

 

  a. Independent Consultant. All Consulting Services will be rendered by Consultant as an independent Consultant and this Agreement does not create an employer-employee relationship between PTCI and Consultant. Consultant will have no rights to receive any employee benefits, such as health and accident insurance, sick leave or vacation which are accorded to regular PTCI employees. Consultant will not in any way represent himself to be an employee, partner, joint venturer, agent or officer with or of PTCI.

 

  b. Taxes. Consultant will pay all required taxes on Consultant’s income from PTCI under this Agreement. Consultant will provide PTCI with Consultant’s taxpayer Identification Number or Social Insurance number, as applicable.

 

  8.2 Use of Name. Consultant consents to the use by PTCI of Consultant’s name and likeness in written materials and oral presentations to current or prospective customers, partners, investors or others, provided that the materials or presentations accurately describe the nature of Consultant’s relationship with or contribution to PTCI.

 

  8.3 Notices. All notices must be written and sent to the address or facsimile number identified in this Agreement or a subsequent notice. All notices must be given (a) by personal delivery, with receipt acknowledged; (b) by facsimile followed by hard copy delivered by the methods under (c) or (d); (c) by prepaid certified or registered mail, return receipt requested; or (d) by prepaid recognized next business day delivery service. Notices will be effective upon receipt or as stated in the notice. Notices to PTCI must be marked “ Attention: Director/President and/or Operations Manager” .

 

  8.4 Assignment. This Agreement is a personal services agreement, and the rights and obligations hereunder, may not be assigned or transferred by either party without the prior written consent of the other party, except that PTCI may assign this Agreement, in whole or in part, to an affiliated company or in connection with the merger, consolidation, sale or transfer of all or substantially all of its business to which this Agreement relates.

 

Protagenic Therapeutics Inc ., 2 Carlton Street, Suite 1307, Toronto, Ontario, M5B1J3, Canada;

e: infopti@protagenic.com, www.protagenic.com

 

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  8.5 Entire Agreement. This Agreement constitutes the entire agreement of the parties with regard to its subject matter, and supersedes all previous written or oral representations, agreements and understandings between PTCI and Consultant.

 

  8.6 No Modification. This Agreement may be changed only by a writing signed by both parties.

 

  8.7 Severability. Each provision in this Agreement is independent and severable from the others, and no provision will be rendered unenforceable as a result of any other provision(s) being held to be invalid or unenforceable in whole or in part. If any provision of this Agreement is invalid, unenforceable or too broad, that provision will be appropriately limited and reformed to the maximum extent permitted by applicable law.

 

  8.8 Applicable Law. This Agreement will be governed by, and construed in accordance with, the laws of the Province of Ontario, Canada, without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. Any action, suit, or other legal proceeding which is commenced to resolve any matter arising under or relating to any provision of this Agreement will be commenced only in a court of the Province of Ontario (or, if appropriate, a provincial court located within the Province of Ontario), and PTCI and Consultant each consents to the jurisdiction of such a court.

 

  8.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which shall constitute one and the same agreement.

IN WITNESS WHEREOF , duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

PROTAGENIC THERAPEUTICS CANADA (2006) INC.
By: President and Operations Manager
Print Name:   Robert Ziroyan
Signature:   /s/ Robert Ziroyan
Title:  
Dr. Dalia Barsyte
Print Name:   Dalia Barsyte
Signature:   /s/ Dalia Barsyte

 

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e: infopti@protagenic.com, www.protagenic.com

 

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BUSINESS TERMS EXHIBIT

Consulting Agreement with Dalia Barsyte

1. Scope of Work/Duties and Responsibilities

Under the direct supervision of the PTI Chief Scientific Officer and indirect supervision of PTI/PTCI Directors and President the Consultant will be responsible for:

Design and oversee the development of assay for measuring TCAP, Radioimmunoassay

design the RIA assay and procure reagents

standardize the assay

validate on tissues and/or biological fluids

evaluate precision and accuracy

Radioligand binding assays and in vivo radioADME performed by InvivoPharm

Organize assays and follow progress

Initial evaluation of TCAP pharmacokinetics

Complete pharmacokinetic analysis for IV and SC K37 TCAP and TCAP

Generate a report on pharmacokinetic parameters

Initial evaluation of TCAP exposure biomarker assay through CRO

identification and evaluation of suitable timepoints for biomarker assessment

provide samples and follow progress

Oversee monoclonal antibody production through CRO

testing of the antibody clones

evaluation for sandwich ELISA

Peptide synthesis and formulation development

organize synthesis and follow progress

schedule initial in vitro screening experiments

coordinate assay schedule with Behavioral Studies Consultant and CSO

oversee formulation development

Ensure that all new formulations comply with clinical guidelines

Consult with CSO regarding coordination of manufacture of peptides with formulation of peptides

Coordinate development of receptor assays with CSO

Evaluate data from the biological assays

Consult with the CSO regarding results and their significance

Consult with the CSO and advisory board regarding clinical assays and future development

Direct activities of one technician involved in carrying out assays

Prepare summaries, presentations and study reports for the in house studies.

Prepare budgets associated with supervised activities.

Liase with CSO regarding coordination of CRO’s associated with ADME and PK analyses.

2. Accountability and Reporting

The Consultant will be accountable to the PTI Chief Scientific Officer.

3. Compensation

As full compensation for the Consulting Services PTCI will pay the Consultant monthly, as per following schedule and amount of worked agreed:

 

1. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Jan 2009;

 

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2. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Feb 2009;

 

3. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Mar 2009;

 

4. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Apr 2009;

 

5. $ 4,000 (four thousand dollars) per 128 hours of work for the month of May 2009;

 

6. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Jun 2009;

 

7. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Jul 2009;

 

8. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Aug 2009;

 

9. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Sep 2009;

 

10. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Oct 2009;

 

11. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Nov 2009;

 

12. $ 4,000 (four thousand dollars) per 128 hours of work for the month of Dec 2009;

 

    Amounts due under the Agreement will be payable no later than thirty (30) days from PTCI’s receipt and acceptance by President and/or Operations Manager of a written invoice with an expense report and accompanying supporting documentation (if necessary). Total payment to be made under this contract should not exceed CA$ 48,000 (forty eight thousand dollars).

4. Term

This Agreement will be for a term of one year (12 months), ending December 31, 2009, beginning on the Effective Date (the “Term”), and may be extended for additional periods, at PTCI’s option and with Consultant’s consent.

 

Protagenic Therapeutics Inc ., 2 Carlton Street, Suite 1307, Toronto, Ontario, M5B1J3, Canada;

e: infopti@protagenic.com, www.protagenic.com

 

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Exhibit 10.14

AGREEMENT BETWEEN BRANDT J. MANDIA AND

PROTAGENIC THERAPEUTICS, INC.

THIS AGREEMENT is made as of this 4 th day of November, 2015, by and between Brandt J. Mandia, an individual (“ Consultant” ), and Protagenic Therapeutics, Inc., a Delaware corporation (“ Protagenic ”).

WHEREAS , Consultant has significant expertise in providing financial and business advisory services.

WHEREAS , Consultant has been providing Protagenic with financial and business advisory services since January 2015.

WHEREAS , Protagenic desires to retain Consultant to continue to provide it with these services, and to compensate Consultant for services previously rendered, and Consultant is willing to be so retained, all on the terms set forth in this Agreement.

NOW THEREFORE , in consideration of the mutual covenants of the parties set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

1. Term & Obligations The term of this Agreement shall extend until December 31, 2015. This Agreement may be extended by mutual agreement of the parties. During the term of this Agreement, Consultant shall provide a variety of consulting and advisory services to Protagenic relating principally to identifying and evaluating strategic business relationships and strategies and potential licensing opportunities.

3. Consideration to Consultant As full consideration for the services previously rendered and to be rendered by Consultant hereunder, Protagenic hereby issues to Consultant a warrant (the “ Warrant ”) to purchase 200,000 shares of Protagenic common stock, par value $0.001 per share. The Warrant shall be exercisable for a period of five years from the date of this agreement, at an exercise price of $1.25 per share. The Warrant shall be immediately vested as to 150,000 shares, and shall vest as to the remaining 50,000 shares on December 31, 2015. A form of the Warrant is annexed hereto as Exhibit A .

4. Independent Contractor Status The parties intend for the relationship between Protagenic and Consultant to be that of an independent contractor. Consultant shall be responsible for all income and other taxes imposed on Consultant under applicable law by reason of any consideration paid to consultant by Protagenic or any of its affiliates pursuant to this Agreement.

 

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5. Confidential Information

 

  i) Company Information . At all times during the term of this Agreement and thereafter, Consultant shall hold in strictest confidence, and not use, except for the benefit of Protagenic and its affiliates, or disclose to any person, firm or corporation without written authorization of the Board of Directors of the Protagenic, any Confidential Information of Protagenic or its affiliates. “Confidential Information” means any proprietary information, technical data, trade secrets or know-how of Protagenic and its affiliates, including, but not limited to, research, product plans, products, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances or other business information disclosed to Consultant by Protagenic or its affiliates either directly or indirectly, in writing, orally, by drawings, or by observation of parts or equipment. Confidential Information does not include any of the foregoing items that have become publicly known and made generally available through no wrongful act of Consultant or of others who were under confidentiality obligations as to the item or items involved.

 

  ii) Consultant’s Information. At all times during the term of this Agreement and thereafter, Protagenic and its other consultants, directors, investors, shall hold in strictest confidence, and not use, or disclose to any person, firm or corporation without written authorization of Consultant any Confidential Information of Consultant. Thus, “Confidential Information” also means any proprietary information, technical data, trade secrets or know-how of Consultant, including, but not limited to, research, product plans, products, services, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, disclosed to Protagenic and its other consultants, directors, investors, by Consultant either directly or indirectly, in writing, orally, by drawings, or by observation of parts or equipment. Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of the Company or of others who were under confidentiality obligations as to the item or items involved.

6. Separability of Terms Each obligation and consideration in this Agreement is separately enforceable and the parties’ requirements to perform these obligations are separate and independent. In the event any provision, paragraph or clause either lapses in accordance with its terms or becomes unenforceable for any reason, all remaining provisions, paragraphs or clauses shall remain in full force and effect.

7. Notices All notices or other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally or sent by telefax or email, by recognized overnight courier marked for overnight delivery, or by registered or certified mail, postage prepaid, address as follows:

 

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If to Consultant, to:

Brandt J. Mandia

46 Lortel Avenue

Staten Island, NY 10314

Tel: (917) 981-0235

Email: dbncorpllc@yahoo.com

If to Protagenic, at:

Protagenic Therapeutics, Inc.

149 Fifth Avenue, Suite 500

New York, NY 10010

Attn: Garo H. Armen, PhD, Chairman

Telefax: 212-994-8296

Telephone: 212-994-8201

Email: armen@agenusbio.com

All such notices and communications shall be effective, if by telefax, when receipt is confirmed by telephone, or if sent by nationally recognized overnight courier service, one business day after delivery to such courier service marked for overnight delivery, or, if mailed, when received, or if e-mailed, upon confirmation of receipt.

9. Applicable Law This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York, without reference to or application of any conflicts of laws principles.

10. Accredited Investor Status . Consultant represents and warrants that Consultant is an “accredited investor,” as such term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended.

11. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

[signature page follows]

 

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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

 

CONSULTANT

/s/ Brandt J. Mandia

Brandt J. Mandia
PROTAGENIC THERAPEUTICS, INC.
By:  

/s/ Garo H. Armen

  Garo H. Armen, PhD, Chairman

 

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EXHIBIT A

Form of Warrant

 

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Exhibit 10.15

 

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CONSULTANT:

EFFECTIVE DATE:

TERMINATION DATE:

 

  

• Robert B. Stein

• January 23, 2015

• January 23, 2020

 

 

CONSULTING AGREEMENT

THIS CONSULTING AGREEMENT (together with the Business Terms Exhibit, the “Agreement”) made as of January 23, 2015 (the “Effective Date”) is between Protagenic Therapeutics, Inc., a Delaware corporation with a office address at 149 5 th Avenue, Suite 500, New York, NY 10010, Tel: 212 994 8202, F: 508 734 2177 (“Protagenic”) and Dr. Robert B. Stein having a home address at 155 Ocena Drive East, Suite 4i, Brooklyn, NY 11235 (Tel: 650-283-5834) (“Consultant”). Protagenic desires to have the benefit of Consultant’s knowledge and experience, and Consultant desires to provide consulting services to Protagenic, all as provided in this Agreement.

 

1. Definitions. The following terms have the meanings set forth below:

 

  1.1 “Business Terms Exhibit” means the business and financial terms applicable to the Consulting Services (as defined below) set forth in the attached exhibit, as may be amended from time to time by written agreement of the parties.

 

  1.2 “Confidential Information” means any non-public scientific, technical, financial or business information possessed or obtained by, developed for or given to Protagenic which is treated by Protagenic as confidential or proprietary, whether or not labeled or identified as “Confidential”. Confidential Information will include, without limitation, information prepared in full or in part for Protagenic by Consultant, Materials and Developments (defined below), the terms of this Agreement and information about or belonging to Protagenic’s suppliers, licensors, licensees, partners, affiliates, customers, potential customers or others.

 

  1.3 “Developments” means concepts, inventions, know-how, techniques, improvements, writings, data, computer software, and Materials (whether or not patentable or subject to copyright or trade secret protection) that Consultant makes, conceives or reduces to practice, either alone or jointly with others, and that result from the performance of the Consulting Services, and/or result from use of Protagenic’s Confidential Information.

 

  1.4 “Materials ” means all materials furnished by Protagenic, all materials developed by Consultant in connection with the Consulting Services, and any materials, the cost of which are reimbursed to Consultant by Protagenic hereunder. Materials include, in the case of biological materials, all progeny and unmodified derivatives of those materials, and in the case of chemical materials, all analogs, formulations, mixtures and compositions of those materials.

 

  1.5 “Term” means the term of this Agreement as set forth in the Business Terms Exhibit .

 

2. Consulting Services . Protagenic retains Consultant and Consultant agrees to provide consulting services to Protagenic as it may from time to time reasonably request and as specified in the Business Terms Exhibit (the “Consulting Services”). Any changes to the Consulting Services (and any related compensation adjustments) must be agreed to in writing between Consultant and Protagenic prior to commencement of the changes.

 

3. Consulting Relationship. Consultant agrees, as a condition of this Agreement, to the following terms:

 

 

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  3.1 Compliance.

 

  a. With Institution Policies . Protagenic recognizes that if the Consultant becomes a faculty member at or employee of a university or hospital (“Institution”), then the Consultant is responsible for ensuring that any consulting agreement Consultant enters into with industry is not in conflict with the patent, consulting or other policies of Institution. If Consultant is required by Consultant’s Institution to disclose to it any proposed agreements with industry, Consultant has made that disclosure. If Institution’s prior approval of this Agreement is required by Institution policies, Consultant has obtained that approval.

 

  b. With Policies and Regulations . In performing the Consulting Services, Consultant will comply with all business conduct, regulatory, and health and safety guidelines or regulations established by Protagenic or any governmental authority with respect to State of Delaware’s business.

 

  c. Absence of Debarment. Consultant represents that Consultant has not been debarred, and to the best of Consultant’s knowledge, is not under consideration to be debarred, either by the Health Canada or by the U.S. Food and Drug Administration from working in or providing services to any pharmaceutical or biotechnology company under the Generic Drug Enforcement Act of 1992.

 

  3.2 Absence of Restrictions. Consultant is under no contractual or other obligation or restriction which is inconsistent with Consultant’s execution of this Agreement or the performance of the Consulting Services. During the Term, Consultant will not enter into any agreement, either written or oral, in conflict with Consultant’s obligations under this Agreement. Consultant will arrange to provide the Consulting Services in such manner and at such times so that they will not conflict with Consultant’s responsibilities under any other agreement, arrangement or understanding or pursuant to any employment relationship Consultant has at any time with any third party (including, without limitation, Institution).

 

  3.3 Confidential Information of Third Parties. The performance of the Consulting Services does not and will not breach any agreement which obligates Consultant to keep in confidence any confidential or proprietary information of any third party or to refrain from competing, directly or indirectly, with the business of any third party. Consultant will not disclose to State of Delaware any confidential or proprietary information of any third parties.

 

  3.4 Competitive Activities. During the Term and for a period of twelve (12) months thereafter, Consultant will not provide consulting services to any business or entity developing a product or sponsoring a project which competes with a product being developed or project being sponsored by Protagenic for which Consultant is providing Consulting Services. It will not be considered a competitive activity for Consultant to be a member of the faculty or staff of a university, college or other educational or non-profit research institution.

 

4. Compensation. As full consideration for the Consulting Services rendered under this Agreement, Protagenic agrees to pay Consultant and reimburse expenses as set forth in the Business Terms Exhibit .

 

5. Developments.

 

  5.1

Ownership. All Developments will be the exclusive property of Protagenic. All Developments that are “Works Made for Hire” as defined both by the Canadian and the U.S. Copyright Act and other copyrightable works will be deemed, upon creation, to be assigned to Protagenic. Consultant will promptly and fully disclose to Protagenic all Developments. Consultant will keep and maintain

 

Protagenic Therapeutics Inc ., 149 5 th Avenue, Suite 500, New York, NY 10010,

Tel: 212 994 8202, F: 508 734 2177, www.protagenic.com

 

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  complete written records of all Developments and of all work or investigations done or carried out by Consultant. Consultant may keep one (1) copy of these records in Consultant’s files solely for reference purposes. Consultant assigns and agrees to assign to Protagenic all of Consultant’s right, title and interest in and to any Developments. During and after the Term, Consultant will cooperate fully in obtaining patent and other proprietary protection for the Developments, all in the name of Protagenic and at Protagenic’s cost and expense, and, without limitation, will execute and deliver all requested applications, assignments and other documents, and take such other measures as Protagenic will reasonably request, in order to perfect and enforce Protagenic’s rights in the Developments. Consultant appoints Protagenic its attorney to execute and deliver any such documents on Consultant’s behalf in the event Consultant fails to do so.

 

  5.2 Agreement with Institution. This Agreement is made subject to the understanding that Consultant, if becoming an affiliated with an Institution, may be required to fulfill certain obligations, including teaching, directing laboratory operations, conducting research, and publishing work. It is further understood that Consultant may have signed an agreement concerning inventions with Institution, under which Consultant may be obligated to assign to Institution certain inventions which arise out of or otherwise relate to Consultant’s work at or for Institution or from Consultant’s use of certain of its facilities or intellectual property. In performing the Consulting Services, Consultant agrees not to utilize Institution facilities or intellectual property if the result of that use is that any Development will not be assignable solely to Protagenic.

 

  5.3 Work at Third Party Facilities. Unless covered by an appropriate agreement between any third party and Protagenic, Consultant will not engage in any activities or use any third party facilities or intellectual property in performing the Consulting Services which could result in claims of ownership to any Developments being made by a third party.

 

6. Confidentiality; Publication.

 

  6.1 Confidentiality. During the Term and for a period of five (5) years thereafter, Consultant will not publish, disseminate or otherwise disclose, use for Consultant’s own benefit or for the benefit of a third party, any Confidential Information. Consultant will exercise all reasonable precautions to physically protect the confidentiality of the Confidential Information. Consultant may disclose the Confidential Information to a governmental authority or by order of a court of competent jurisdiction, provided that the disclosure is subject to all applicable governmental or judicial protection available for like material and reasonable advance notice is given to Protagenic. The obligations of non-disclosure will not apply to information which (a) was known to Consultant at the time it was disclosed, other than by previous disclosure by Protagenic, as evidenced by Consultant’s written records at the time of disclosure; (b) is at the time of disclosure or later becomes publicly known under circumstances involving no breach of this Agreement; or (c) is lawfully and in good faith made available to Consultant by a third party who did not derive it, directly or indirectly, from Protagenic.

 

  6.2 Publication. Consultant agrees to submit to Protagenic a copy of any proposed manuscript or other materials to be published or otherwise publicly disclosed which contain information or any discussion relating to Protagenic or the Consulting Services, at least thirty (30) days prior to submission for publication or disclosure, to enable Protagenic to determine if patentable Developments or any Confidential Information of Protagenic would be disclosed. Consultant will cooperate with Protagenic in this respect and will delete from the manuscript or other disclosure any Confidential Information if requested by Protagenic, and will assist Protagenic in filing for patent protection for any patentable Developments described in those documents, prior to publication or other disclosure.

 

Protagenic Therapeutics Inc ., 149 5 th Avenue, Suite 500, New York, NY 10010,

Tel: 212 994 8202, F: 508 734 2177, www.protagenic.com

 

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7. Expiration/Termination.

 

  7.1 Term . This Agreement will commence on the Effective Date and continue for the Term, unless sooner terminated pursuant to the express terms of this Section 7 or extended by mutual written agreement of the parties.

 

  7.2 Termination for Breach . If either party breaches in any material respect any of its material obligations under this Agreement, in addition to any other right or remedy, the non-breaching party may terminate this Agreement in the event that the breach is not cured within thirty (30) days after receipt by that party of written notice of the breach.

 

  7.3 Termination by Protagenic . Either party may terminate this Agreement (a) immediately at any time upon written notice to the other party in the event of a breach of this Agreement by the other party which cannot be cured ( i.e. breach of the confidentiality obligations) and/or (b) at any time without cause upon not less than fifteen (15) days’ prior written notice to the other party.

 

  7.4 Effect of Expiration/Termination. Upon expiration or termination, neither Protagenic nor Consultant will have any further obligations under this Agreement, except (a) the liabilities accrued through the date of expiration or termination, and (b) the terms and obligations under sections 1, 3.4, 5, 6, 7.4 and 8, will survive. Upon expiration or termination, and in any case upon Protagenic’s request, Consultant will promptly return to Protagenic all Confidential Information and copies thereof, except for one (1) copy which Consultant may retain solely for archival purposes.

 

8. Miscellaneous.

 

  8.1 Independent Consultant; Taxes.

 

  a. Independent Consultant. All Consulting Services will be rendered by Consultant as an independent Consultant and this Agreement does not create an employer-employee relationship between Protagenic and Consultant. Consultant will have no rights to receive any employee benefits, such as health and accident insurance, sick leave or vacation which are accorded to regular Protagenic employees. Consultant will not in any way represent himself to be an employee, partner, joint venture, agent or officer with or of Protagenic.

 

  b. Taxes. Consultant will pay all required taxes on Consultant’s income from Protagenic under this Agreement. Consultant will provide Protagenic with Consultant’s taxpayer Identification Number or Social Insurance number, as applicable.

 

  8.2 Use of Name. Consultant consents to the use by Protagenic of Consultant’s name and likeness in written materials and oral presentations to current or prospective customers, partners, investors or others, provided that the materials or presentations accurately describe the nature of Consultant’s relationship with or contribution to Protagenic.

 

  8.3 Notices. All notices must be written and sent to the address or facsimile number identified in this Agreement or a subsequent notice. All notices must be given (a) by personal delivery, with receipt acknowledged; (b) by facsimile followed by hard copy delivered by the methods under (c) or (d); (c) by prepaid certified or registered mail, return receipt requested; or (d) by prepaid recognized next business day delivery service. Notices will be effective upon receipt or as stated in the notice. Notices to Protagenic must be marked “ Attention: Chairman / CEO .

 

Protagenic Therapeutics Inc ., 149 5 th Avenue, Suite 500, New York, NY 10010,

Tel: 212 994 8202, F: 508 734 2177, www.protagenic.com

 

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  8.4 Assignment. This Agreement is a personal services agreement, and the rights and obligations hereunder, may not be assigned or transferred by either party without the prior written consent of the other party, except that Protagenic may assign this Agreement, in whole or in part, to an affiliated company or in connection with the merger, consolidation, sale or transfer of all or substantially all of its business to which this Agreement relates.

 

  8.5 Entire Agreement. This Agreement constitutes the entire agreement of the parties with regard to its subject matter, and supersedes all previous written or oral representations, agreements and understandings between Protagenic and Consultant.

 

  8.6 No Modification. This Agreement may be changed only by a writing signed by both parties.

 

  8.7 Severability. Each provision in this Agreement is independent and severable from the others, and no provision will be rendered unenforceable as a result of any other provision(s) being held to be invalid or unenforceable in whole or in part. If any provision of this Agreement is invalid, unenforceable or too broad, that provision will be appropriately limited and reformed to the maximum extent permitted by applicable law.

 

  8.8 Applicable Law. This Agreement will be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. Any action, suit, or other legal proceeding which is commenced to resolve any matter arising under or relating to any provision of this Agreement will be commenced only in a court of the State of Delaware (or, if appropriate, a provincial court located within the State of Delaware), and Protagenic and Consultant each consents to the jurisdiction of such a court.

 

  8.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which shall constitute one and the same agreement.

IN WITNESS WHEREOF , duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

PROTAGENIC THERAPEUTICS, INC.    ROBERT B. STEIN
By:        
Signature:  

/s/ Robert Ziroyan

   Signature:   

/s/ Robert B. Stein

Print Name:   Robert Ziroyan    SS or Tax ID No:   

[redacted]

Title:   Interim President & Chief Operating Officer      

 

Protagenic Therapeutics Inc ., 149 5 th Avenue, Suite 500, New York, NY 10010,

Tel: 212 994 8202, F: 508 734 2177, www.protagenic.com

 

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BUSINESS TERMS EXHIBIT

Consulting Agreement with Dr. Robert B. Stein

1. Scope of Work/Duties and Responsibilities

Consultant will provide advisory and technical services to Research and Development.

2. Compensation

As full compensation for the Consulting Services, Protagenic will grant a nonqualified stock option to the Consultant under the terms and conditions specified in the Nonqualified Stock Option Agreement.

3. Term:

This agreement will be for a term of five years beginning of the Effective Date (the “Term”).

4. Reporting:

The Consultant will be accountable to the Chairman of Protagenic Therapeutics Inc.

 

Protagenic Therapeutics Inc ., 149 5 th Avenue, Suite 500, New York, NY 10010,

Tel: 212 994 8202, F: 508 734 2177, www.protagenic.com

 

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Exhibit 10.16

PROTAGENIC THERAPEUTICS, INC.

FORM OF 2006 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN

 

1. DEFINITIONS .

Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Protagenic Therapeutic, Inc. 2006 Employee, Director and Consultant Stock Plan, have the following meanings:

Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the Administrator means the Committee.

Affiliate means a corporation which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.

Board of Directors means the Board of Directors of the Company.

Change of Control means a merger or consolidation of the Company whether or not approved by the Board of Directors, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or the parent of such corporation) at least 50% of the total voting power represented by the voting securities of the Company or such surviving entity or parent of such corporation outstanding immediately after such merger or consolidation, or the stockholders of the Company approve an agreement for the sale or disposition by the Company of all or substantially all of the Company’s assets.

Code means the United States Internal Revenue Code of 1986, as amended.

Committee means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan.

Common Stock means shares of the Company’s common stock, $0.001 par value per share.

Company means Protagenic Therapeutics, Inc., a Delaware corporation.

Disability or Disabled means permanent and total disability as defined in Section 22(e)(3) of the Code.

Employee means any employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.


Fair Market Value of a Share of Common Stock means:

(1) If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or last price of the Common Stock on the composite tape or other comparable reporting system for the trading day immediately preceding the applicable date;

(2) If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the trading day referred to in clause (1), and if bid and asked prices for the Common Stock are regularly reported, 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; and

(3) If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine.

ISO means an option meant to qualify as an incentive stock option under Section 422 of the Code.

Non-Qualified Option means an option which is not intended to qualify as an ISO.

Option means an ISO or Non-Qualified Option granted under the Plan.

Option Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan, in such form as the Administrator shall approve.

Participant means an Employee, director or consultant of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” where the context requires.

Plan means this Protagenic Therapeutics, Inc. 2006 Employee, Director and Consultant Stock Plan.

Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both.

 

 

 

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Stock Grant means a grant by the Company of Shares under the Plan.

Stock Grant Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan, in such form as the Administrator shall approve.

Stock Right means a right to Shares of the Company granted pursuant to the Plan, an ISO, a Non-Qualified Option or a Stock Grant.

Survivor means a deceased Participant’s legal representatives and/or any person or persons who acquired the Participant’s rights to a Stock Right by will or by the laws of descent and distribution.

 

2. PURPOSES OF THE PLAN .

The Plan is intended to encourage ownership of Shares by Employees and directors of and certain consultants to the Company in order to attract such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting of ISOs, Non-Qualified Options and Stock Grants.

 

3. SHARES SUBJECT TO THE PLAN .

(a) The number of Shares which may be issued from time to time pursuant to this Plan shall be 140,000 or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 23 of the Plan.

If an Option ceases to be “outstanding”, in whole or in part, or if the Company shall reacquire any Shares issued pursuant to a Stock Grant, the Shares which were subject to such Option and any Shares so reacquired by the Company shall be available for the granting of other Stock Rights under the Plan. Any Option shall be treated as “outstanding” until such Option is exercised in full, or terminates or expires under the provisions of the Plan, or by agreement of the parties to the pertinent Option Agreement.

 

4. ADMINISTRATION OF THE PLAN .

The Administrator of the Plan will be the Board of Directors, except to the extent the Board of Directors delegates its authority to the Committee, in which case the Committee shall be the Administrator. Subject to the provisions of the Plan, the Administrator is authorized to:

 

 

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  a. Interpret the provisions of the 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 Plan;

 

  b. Determine which Employees, directors and consultants shall be granted Stock Rights;

 

  c. Determine the number of Shares for which a Stock Right or Stock Rights shall be granted;

 

  d. Specify the terms and conditions upon which a Stock Right or Stock Rights 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 Company or to Plan Participants or to otherwise facilitate the administration of the 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 Plan or of any Stock Right granted under it shall be final, unless otherwise determined by the Board of Directors, if the Administrator is the Committee. In addition, if the Administrator is the Committee, the Board of Directors may take any action under the Plan that would otherwise be the responsibility of the Committee.

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.

 

5. ELIGIBILITY FOR PARTICIPATION .

The Administrator will, in its sole discretion, name the Participants in the Plan, provided, however, that each Participant must be an Employee, director or consultant of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, director or consultant of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of the execution of the Agreement evidencing such Stock Right. ISOs may be granted only to Employees. Non-Qualified Options and Stock Grants may be granted to any Employee, director or consultant of the Company or an Affiliate. The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in any other grant of Stock Rights.

 

 

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6. TERMS AND CONDITIONS OF OPTIONS .

Each Option shall be set forth in writing in an Option Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. The Option Agreements shall be subject to at least the following terms and conditions:

 

  A. Non-Qualified Options : Each Option intended to be a Non-Qualified Option shall be subject to the terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards for any such Non-Qualified Option:

 

  a. Option Price: Each Option Agreement shall state the option price (per share) of the Shares covered by each Option, which option price shall be determined by the Administrator but shall not be less than the par value per share of Common Stock.

 

  b. Each Option Agreement shall state the number of Shares to which it pertains;

 

  c. Each Option Agreement shall state the date or dates on which it first is exercisable and the date after which it may no longer be exercised, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the occurrence of certain conditions or the attainment of stated goals or events; and

 

  d. Exercise of any Option may be conditioned upon the Participant’s execution of a Share purchase agreement in form satisfactory to the Administrator providing for certain protections for the Company and its other shareholders, including requirements that:

 

  i. The Participant’s or the Participant’s Survivors’ right to sell or transfer the Shares may be restricted; and

 

  ii. The Participant or the Participant’s Survivors may be required to execute letters of investment intent and must also acknowledge that the Shares will bear legends noting any applicable restrictions.

 

 

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  B. ISOs : Each Option intended to be an ISO shall be issued only to an Employee and be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:

 

  a. Minimum standards: The ISO shall meet the minimum standards required of Non-Qualified Options, as described in Paragraph 6(A) above, except clause (a) thereunder.

 

  b. Option Price: Immediately before the ISO is granted, if the Participant owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code:

 

  i. 10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, the Option price per share of the Shares covered by each ISO shall not be less than 100% of the Fair Market Value per share of the Shares on the date of the grant of the Option; or

 

  ii. More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, the Option price per share of the Shares covered by each ISO shall not be less than 110% of the said Fair Market Value on the date of grant.

 

  c. Term of Option: For Participants who own:

 

  i. 10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide; or

 

  ii. More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than five years from the date of the grant or at such earlier time as the Option Agreement may provide.

 

  d. Limitation on Yearly Exercise: The Option Agreements shall restrict the amount of ISOs which may become exercisable in any calendar year (under this or any other ISO plan of the Company or an Affiliate) so that the aggregate Fair Market Value (determined at the time each ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by the Participant in any calendar year does not exceed $100,000.

 

 

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7. TERMS AND CONDITIONS OF STOCK GRANTS .

Each offer of a Stock Grant to a Participant shall state the date prior to which the Stock Grant must be accepted by the 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.

 

8. EXERCISE OF OPTIONS AND ISSUE OF SHARES .

An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company or its designee, together with provision for payment of the full purchase price in accordance with this Paragraph for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Option Agreement. Such notice shall be signed by the person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised and shall contain any representation required by the Plan or the Option Agreement. Payment of the purchase price for the Shares as to which such Option is being exercised 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 having a Fair Market Value equal as of the date of the exercise to the cash exercise price of the Option and held for at least six months, or (c) at the discretion of the Administrator, by delivery of the grantee’s personal note, for full, partial or no recourse, bearing interest payable not less than annually at market rate on the date of exercise and at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, with or without the pledge of such Shares as collateral, or (d) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Administrator, or (e) at the discretion of the Administrator, by any combination of (a), (b), (c) and (d) above. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.

 

 

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The Company shall then reasonably promptly deliver the Shares as to which such Option was exercised to the Participant (or to the Participant’s Survivors, as the case may be). In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable Shares.

The Administrator shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Administrator shall not accelerate the exercise date of any installment of any Option granted to an Employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to Paragraph 26) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6.B.d.

The Administrator may, in its discretion, amend any term or condition of an outstanding Option provided (i) such term or condition as amended is permitted by the Plan, (ii) any such amendment shall be made only with the consent of the Participant to whom the Option was granted, or in the event of the death of the Participant, the Participant’s Survivors, if the amendment is adverse to the Participant, and (iii) any such amendment of any ISO shall be made only after the Administrator determines whether such amendment would constitute a “modification” of any Option which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holder of such ISO.

 

9. ACCEPTANCE OF STOCK GRANT AND ISSUE OF SHARES .

A Stock Grant (or any part or installment thereof) shall be accepted by executing the Stock Grant Agreement and delivering it to the Company or its designee, together with provision for payment of the full purchase price, if any, in accordance with this Paragraph for the Shares as to which such Stock Grant is being accepted, and upon compliance with any other conditions set forth in the Stock Grant Agreement. Payment of the purchase price for the Shares as to which such Stock Grant is being accepted 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 as of the date of acceptance of the Stock Grant to the purchase price of the Stock Grant, or (c) at the discretion of the Administrator, by delivery of the grantee’s 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 Company shall then reasonably promptly deliver the Shares as to which such Stock Grant was accepted to the Participant (or to the Participant’s Survivors, as the case may be), subject to any escrow provision set forth in the Stock Grant Agreement. In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance.

 

 

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The Administrator may, in its discretion, amend any term or condition of an outstanding Stock Grant or Stock Grant Agreement provided (i) such term or condition as amended is permitted by the Plan, and (ii) any such amendment shall be made only with the consent of the Participant to whom the Stock Grant was made, if the amendment is adverse to the Participant.

 

10. RIGHTS AS A SHAREHOLDER .

No Participant to whom a Stock Right has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right, except after due exercise of the Option or acceptance of the Stock Grant and tender of the full purchase price, if any, for the Shares being purchased pursuant to such exercise or acceptance and registration of the Shares in the Company’s share register in the name of the Participant.

 

11. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS .

By its terms, a Stock Right granted to a Participant shall not be transferable by the Participant other than (i) by will or by the laws of descent and distribution, or (ii) as approved by the Administrator in its discretion and set forth in the applicable Option Agreement or Stock Grant Agreement. Notwithstanding the foregoing, an ISO transferred except in compliance with clause (i) above shall no longer qualify as an ISO. The designation of a beneficiary of a Stock Right by a Participant, with the prior approval of the Administrator and in such form as the Administrator shall prescribe, shall not be deemed a transfer prohibited by this Paragraph. Except as provided above, a Stock Right shall only be exercisable or may only be accepted, during the Participant’s lifetime, only by such Participant (or by his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void.

 

12. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN “FOR CAUSE” OR DEATH OR DISABILITY .

Except as otherwise provided in a Participant’s Option Agreement, in the event of a termination of service (whether as an employee, director or consultant) with the Company or an Affiliate before the Participant has exercised an Option, the following rules apply:

 

  a. A Participant who ceases to be an employee, director or consultant of the Company or of an Affiliate (for any reason other than termination “for cause”, Disability, or death for which events there are special rules in Paragraphs 13, 14, and 15, respectively), may exercise any Option granted to him or her to the extent that the Option is exercisable on the date of such termination of service, but only within such term as the Administrator has designated in a Participant’s Option Agreement.

 

 

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  b. Except as provided in Subparagraph (c) below, or Paragraph 14 or 15, in no event may an Option intended to be an ISO, be exercised later than three months after the Participant’s termination of employment.

 

  c. The provisions of this Paragraph, and not the provisions of Paragraph 14 or 15, shall apply to a Participant who subsequently becomes Disabled or dies after the termination of employment, director status or consultancy, provided, however, in the case of a Participant’s Disability or death within three months after the termination of employment, director status or consultancy, the Participant or the Participant’s Survivors may exercise the Option within one year after the date of the Participant’s termination of service, but in no event after the date of expiration of the term of the Option.

 

  d. Notwithstanding anything herein to the contrary, if subsequent to a Participant’s termination of employment, termination of director status or termination of consultancy, but prior to the exercise of an Option, the Board of Directors determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute “cause”, then such Participant shall forthwith cease to have any right to exercise any Option.

 

  e. A Participant to whom an Option has been granted under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a permanent and total Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.

 

  f. Except as required by law or as set forth in a Participant’s Option Agreement, Options granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an employee, director or consultant of the Company or any Affiliate.

 

13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE “FOR CAUSE” .

Except as otherwise provided in a Participant’s Option Agreement, the following rules apply if the Participant’s service (whether as an employee, director or consultant) with the Company or an Affiliate is terminated “for cause” prior to the time that all his or her outstanding Options have been exercised:

 

 

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  a. All outstanding and unexercised Options as of the time the Participant is notified his or her service is terminated “for cause” will immediately be forfeited.

 

  b. For purposes of this Plan, “cause” shall include (and is not limited to) dishonesty with respect to the Company or any Affiliate, insubordination, substantial malfeasance or non-feasance of duty, unauthorized disclosure of confidential information, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company, and conduct substantially prejudicial to the business of the Company or any Affiliate. The determination of the Administrator as to the existence of “cause” will be conclusive on the Participant and the Company.

 

  c. “Cause” is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of “cause” occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service but prior to the exercise of an Option, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute “cause”, then the right to exercise any Option is forfeited.

 

  d. Any definition in an agreement between the Participant and the Company or an Affiliate, which contains a conflicting definition of “cause” for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to that Participant.

 

14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY .

Except as otherwise provided in a Participant’s Option Agreement, a Participant who ceases to be an employee, director or consultant of the Company or of an Affiliate by reason of Disability may exercise any Option granted to such Participant:

 

  a. To the extent that the Option has become exercisable but has not been exercised on the date of Disability; and

 

  b. In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled. The proration shall be based upon the number of days accrued in the current vesting period prior to the date of Disability.

A Disabled Participant may exercise such rights only within the period ending one year after the date of the Participant’s termination of employment, directorship or consultancy, as the case may be, notwithstanding that the Participant might have been able to exercise the Option as to some or all of the Shares on a later date if the Participant had not become Disabled and had continued to be an employee, director or consultant or, if earlier, within the originally prescribed term of the Option.

 

 

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The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

15. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT .

Except as otherwise provided in a Participant’s Option Agreement, in the event of the death of a Participant while the Participant is an employee, director or consultant of the Company or of an Affiliate, such Option may be exercised by the Participant’s Survivors:

 

  a. To the extent that the Option has become exercisable but has not been exercised on the date of death; and

 

  b. In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died. The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.

If the Participant’s Survivors wish to exercise the Option, they must take all necessary steps to exercise the Option within one year after the date of death of such Participant, notwithstanding that the decedent might have been able to exercise the Option as to some or all of the Shares on a later date if he or she had not died and had continued to be an employee, director or consultant or, if earlier, within the originally prescribed term of the Option.

 

16. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS .

In the event of a termination of service (whether as an employee, director or consultant) with the Company or an Affiliate for any reason before the Participant has accepted a Stock Grant, such offer shall terminate.

For purposes of this Paragraph 16 and Paragraph 17 below, a Participant to whom a Stock Grant has been offered and accepted under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a permanent and total Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.

 

 

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In addition, for purposes of this Paragraph 16 and Paragraph 17 below, any change of employment or other service within or among the Company and any Affiliates shall not be treated as a termination of employment, director status or consultancy so long as the Participant continues to be an employee, director or consultant of the Company or any Affiliate.

 

17. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN “FOR CAUSE” OR DEATH OR DISABILITY .

Except as otherwise provided in a Participant’s Stock Grant Agreement, in the event of a termination of service (whether as an employee, director or consultant), other than termination “for cause,” Disability, or death for which events there are special rules in Paragraphs 18, 19, and 20, respectively, before all Company rights of repurchase shall have lapsed, then the Company shall have the right to repurchase that number of Shares subject to a Stock Grant as to which the Company’s repurchase rights have not lapsed.

 

18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE “FOR CAUSE” .

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if the Participant’s service (whether as an employee, director or consultant) with the Company or an Affiliate is terminated “for cause”:

 

  a. All Shares subject to any Stock Grant shall be immediately subject to repurchase by the Company at the purchase price, if any, thereof.

 

  b. For purposes of this Plan, “cause” shall include (and is not limited to) dishonesty with respect to the employer, insubordination, substantial malfeasance or non-feasance of duty, unauthorized disclosure of confidential information, breach by the Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company, and conduct substantially prejudicial to the business of the Company or any Affiliate. The determination of the Administrator as to the existence of “cause” will be conclusive on the Participant and the Company.

 

  c. “Cause” is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of “cause” occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute “cause,” then the Company’s right to repurchase all of such Participant’s Shares shall apply.

 

 

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  d. Any definition in an agreement between the Participant and the Company or an Affiliate, which contains a conflicting definition of “cause” for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to that Participant.

 

19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY .

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if a Participant ceases to be an employee, director or consultant of the Company or of an Affiliate by reason of Disability: to the extent the Company’s rights of repurchase have not lapsed on the date of Disability, they shall be exercisable; provided, however, that in the event such rights of repurchase lapse periodically, such rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of Disability as would have lapsed had the Participant not become Disabled. The proration shall be based upon the number of days accrued prior to the date of Disability.

The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.

 

20. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT .

Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply in the event of the death of a Participant while the Participant is an employee, director or consultant of the Company or of an Affiliate: to the extent the Company’s rights of repurchase have not lapsed on the date of death, they shall be exercisable; provided, however, that in the event such rights of repurchase lapse periodically, such rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of death as would have lapsed had the Participant not died. The proration shall be based upon the number of days accrued prior to the Participant’s death.

 

21. PURCHASE FOR INVESTMENT .

Unless the offering and sale of the Shares to be issued upon the particular exercise or acceptance of a Stock Right shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the “1933 Act”), the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled:

 

 

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  a. The person(s) who exercise(s) or accept(s) such Stock Right shall warrant to the Company, prior to the receipt of such Shares, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s) evidencing their Shares issued pursuant to such exercise or such grant:

“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws.”

 

  b. At the discretion of the Administrator, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise or acceptance in compliance with the 1933 Act without registration thereunder.

 

22. DISSOLUTION OR LIQUIDATION OF THE COMPANY .

Upon the dissolution or liquidation of the Company, all Options granted under this Plan which as of such date shall not have been exercised and all Stock Grants which have not been accepted will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or the Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise or accept any Stock Right to the extent that the Stock Right is exercisable or subject to acceptance as of the date immediately prior to such dissolution or liquidation.

 

23. ADJUSTMENTS .

Upon the occurrence of any of the following events, a Participant’s rights with respect to any Stock Right granted to him or her hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in a Participant’s Option Agreement or Stock Grant Agreement:

A. Stock Dividends and Stock Splits . If (i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock, the number of shares of Common Stock deliverable upon the exercise or acceptance of such Stock Right may be appropriately increased or decreased proportionately, and appropriate adjustments may be made including, in the purchase price per share, to reflect such events.

 

 

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B. Corporate Transactions . If the Company is to be consolidated with or acquired by another entity in a merger, sale of all or substantially all of the Company’s assets other than a transaction to merely change the state of incorporation (a “Corporate Transaction”), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then subject to such Options either the consideration payable with respect to the outstanding shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity (provided, that, at the discretion of the Administrator, all unvested Options shall be made fully or partially exercisable for purposes of this Subparagraph upon the closing of the Corporate Transaction); or (ii) upon written notice to the Participants, provide that all Options must be exercised (either to the extent then exercisable or, at the discretion of the Administrator, all Options being made fully or partially exercisable for purposes of this Subparagraph), 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 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 for purposes of this Subparagraph) 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 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.

Notwithstanding the foregoing, individual Option Agreements and Stock Grant Agreements may provide for different adjustments than those set forth herein.

C. Recapitalization or Reorganization . In the event of a recapitalization or reorganization of the Company other than a Corporate Transaction pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising or accepting a Stock Right after the recapitalization or reorganization shall be entitled to receive for the purchase price paid upon such exercise or acceptance the number of replacement securities which would have been received if such Stock Right had been exercised or accepted prior to such recapitalization or reorganization.

 

 

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D. Modification of ISOs . Notwithstanding the foregoing, any adjustments made pursuant to Subparagraph A, B or C above with respect to ISOs shall be made only after the Administrator determines whether such adjustments would constitute a “modification” of such ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Administrator determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments, unless the holder of an ISO specifically requests in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the ISO.

 

24. ISSUANCES OF SECURITIES .

Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Stock Rights. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company prior to any issuance of Shares pursuant to a Stock Right.

 

25. FRACTIONAL SHARES .

No fractional shares shall be issued under the Plan and the person exercising a Stock Right shall receive from the Company cash in lieu of such fractional shares equal to the Fair Market Value thereof.

 

26. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs .

The Administrator, at the written request of any Participant, may in its discretion take such actions as may be necessary to convert such Participant’s ISOs (or any portions thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Participant is an employee of the Company or an Affiliate at the time of such conversion. At the time of such conversion, the Administrator (with the consent of the Participant) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Administrator in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any Participant the right to have such Participant’s ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Administrator takes appropriate action. The Administrator, with the consent of the Participant, may also terminate any portion of any ISO that has not been exercised at the time of such conversion.

 

 

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27. WITHHOLDING .

In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act (“F.I.C.A.”) withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant’s salary, wages or other remuneration in connection with the exercise or acceptance of a Stock Right or in connection with a Disqualifying Disposition (as defined in Paragraph 28) or upon the lapsing of any right of repurchase, the Company may withhold from the Participant’s compensation, if any, or may require that the Participant advance in cash to the Company, or to any Affiliate of the Company which employs or employed the Participant, the statutory minimum amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company’s Common Stock or a promissory note, is authorized by the Administrator (and permitted by law). For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner provided in Paragraph 1 above, as of the most recent practicable date prior to the date of exercise. If the fair market value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer. The Administrator in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the Participant’s payment of such additional withholding.

 

28. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION .

Each Employee who receives an ISO must agree to notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale or gift) of such shares before the later of (a) two years after the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code. If the Employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.

 

29. TERMINATION OF THE PLAN .

The Plan will terminate on 10 years after adoption, the date which is ten years from the earlier of the date of its adoption by the Board of Directors and the date of its approval by the shareholders. The 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 Option Agreements or Stock Grant Agreements executed prior to the effective date of such termination.

 

 

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30. AMENDMENT OF THE PLAN AND AGREEMENTS .

The Plan may be amended by the shareholders of the Company. The Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the 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 Stock Rights granted, or Stock Rights to be granted, under the 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 shareholder approval shall be subject to obtaining such shareholder approval. Any modification or amendment of the Plan shall not, without the consent of a Participant, adversely affect his or her rights under a Stock Right previously granted to him or her. With the consent of the Participant affected, the Administrator may amend outstanding Option Agreements and Stock Grant Agreements in a manner which may be adverse to the Participant but which is not inconsistent with the Plan. In the discretion of the Administrator, outstanding Option Agreements and Stock Grant Agreements may be amended by the Administrator in a manner which is not adverse to the Participant.

 

31. EMPLOYMENT OR OTHER RELATIONSHIP .

Nothing in this Plan or any Option Agreement or Stock Grant Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time.

 

32. GOVERNING LAW .

This Plan shall be construed and enforced in accordance with the law of the State of Delaware.

 

 

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Exhibit 10.17

Participant: [Name]

PROTAGENIC THERAPEUTICS, INC.

FORM OF NONQUALIFIED STOCK OPTION AGREEMENT

(2006 Stock Plan)

THIS AGREEMENT is entered into by and between Protagenic Therapeutics, Inc., a Delaware corporation (hereinafter the “ Company ”), and the undersigned employee, consultant of or other provider of services to the Company (hereinafter the “ Participant ”).

WHEREAS, the Participant renders important services to the Company of the type specified on the signature page below (such services to be collectively herein referred to as “ Service ”), and the Company desires to grant a nonqualified stock option to the Participant;

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements herein contained, the parties hereto hereby agree as follows:

1. Grant, Exercisability and Term of Option .

(a) The Company hereby grants to the Participant pursuant to the 2006 Employee, Director and Consultant Stock Plan (the “ Plan ”), a copy of which is attached as Exhibit 1 , the option (the “ Option ”) to purchase from the Company upon the terms and conditions hereinafter set forth the number of shares (“ Shares ”) of the common stock, $0.001 par value, (“ Common Stock ”) of the Company set forth on the signature page below at the purchase price per Share so set forth (the “ Option Price ”). The date of grant of this Option is the date set forth on the signature page of this Agreement as the “ Option Date ”.

(b) This Option may be exercised only as to Shares which are “ Vested Shares ”, as defined in Section 5, at the time of exercise, and such exercise is subject to any other restrictions provided in Section 5. This option shall expire on the tenth anniversary of the Option Date, unless the Option is sooner terminated as hereinafter specified. Only whole Shares may be purchased pursuant to this Option.

2. Conditions and Limitations .

(a) The Option is granted on the condition that the purchase of shares hereunder shall be for investment purposes and not with a view to resale or distribution, except that such condition shall be inoperative if the offering of Shares subject to the Option is registered under the Securities Act of 1933, as amended, or if in the opinion of counsel for the Company such Shares may be resold without registration. At the time of the exercise of the Option or any installment thereof, the Participant will execute a Nonqualified Stock Option Exercise Form in the form attached as Exhibit 2 and such further agreements as the Company may require to implement the foregoing condition and to acknowledge the Participant’s familiarity with restrictions on the resale of the Shares under applicable securities laws, and the Company may stamp such legend on the certificate representing the Shares as may be necessary or appropriate in light of the foregoing condition.

(b) The Company will furnish upon request of the Participant copies of the certificate of incorporation of the Company, as amended (the “ Certificate of Incorporation ”), and bylaws of the Company, as amended (the “ Bylaws ”), such publicly available financial and other information concerning the Company and its business and prospects as may be reasonably requested by the Participant in connection with exercise of this Option (and such other financial and other information concerning the Company as may be required to be delivered to Optionees from time to time pursuant to applicable laws).

(c) The Option shall not be transferable otherwise than by will or by the laws of descent and distribution, and except as provided in Section 4 the Option shall be exercisable during the lifetime of the Participant by the Participant only. Notwithstanding the foregoing, however, if the Participant is determined to be mentally incompetent and a guardian or conservator (or other similar person) is appointed by a court of competent jurisdiction to manage the Participant’s affairs, the guardian or conservator (or other similar person) may exercise the Option on behalf of the Participant, provided that such exercise is made within the time limits prescribed herein.


(d) The Option granted in this Agreement is subject to the terms, conditions and definitions of the Plan. To the extent that the terms, conditions and definitions of this Agreement are inconsistent with those of the Plan, those of this Agreement shall govern. Capitalized terms not otherwise defined herein shall have the meanings defined in the Plan. The Participant hereby accepts this Option subject to all such provisions of the Plan and agrees that all decisions under, and interpretations of, such provisions of the Plan by the Board, as defined in the Plan, shall be final, binding and conclusive upon the Participant and the Participant’s heirs.

(e) In the event that the Company, upon the advice of counsel, deems it necessary to list upon official notice of issuance any shares to be issued pursuant to the Plan on a national securities exchange or market system or to register under the Securities Act of 1933 or other applicable federal or state statute any shares to be issued pursuant to the Plan, or to qualify any such shares for exemption from the registration requirements of the Securities Act of 1933 under the rules and regulations of the Securities and Exchange Commission or for similar exemption under state law, then the Company shall notify the Participant to that effect and no Shares shall be issued until such registration, listing or exemption has been obtained. The Company shall make prompt application for any such registration, listing or exemption pursuant to federal or state law or rules of such securities exchange which it deems necessary and shall make reasonable efforts to cause such registration, listing, or exemption to become and remain effective.

3. Exercise of Option; Withholding Taxes .

(a) Written notice of the exercise of the Option or any installment thereof shall be given to the Company in the form attached as Exhibit 2 , specifying the number of shares for which the Option is exercised and accompanied by (i) payment in full of the Option Price or (ii) if the Common Stock is registered under the Exchange Act, irrevocable instructions to a broker to promptly deliver to the Company full payment in accordance with this Section of the amount necessary to pay the aggregate exercise price. Payment shall be made (a) in cash, (b) by check, (c) at such time as the Common Stock is registered under the Exchange Act, by actual delivery or deemed delivery and assignment to the Company of shares of Common Stock owned by the Participant which (i) have a Fair Market Value not less than the Option Price (as specified on the signature page below), and (ii) have been owned by the Participant for at least six months prior to the date of delivery or deemed delivery of such shares (or such other period as may be required to avoid a charge to the Company’s earnings) or were not acquired, directly or indirectly, from the Company, (d) by such other consideration and method of payment approved by the Board or (e) by any combination of the foregoing. Notwithstanding the foregoing, this Option may not be exercised by delivery and assignment to the Company of shares of Common Stock to the extent that such delivery and assignment would constitute a violation of the provisions of any law, or related regulation or rule, or any agreement or Company policy, restricting the transfer or redemption of the Common Stock. For purposes of this Section, a deemed delivery of shares shall mean the offset by the Company of a number of shares subject to the Option against an equal number of shares of the Common Stock owned by the Participant, which may be accomplished by attestation by the Participant as to such shares owned. The Company reserves the right to decline to approve any such procedure in the Company’s sole and absolute discretion.

(b) The Company’s obligation to deliver Shares upon exercise of an Option shall be subject to the Participant’s satisfaction of all applicable income and employment tax withholding obligations. Without limiting the generality of the foregoing, the Company shall have the right to deduct from payments of any kind otherwise due to the Participant any taxes of any kind required by law to be withheld with respect to any Shares issued upon exercise of the Option. Payment of withholding taxes may be made (i) by cash, (ii) when the Common Stock is registered under the Exchange Act, through the surrender (by actual or deemed delivery) of shares of Common Stock which the Participant already owns and which, except to the extent otherwise permitted by the Board in any instance, have been owned by the Participant for at least six months prior to the date of delivery or deemed delivery of such Shares (or such other period as may be required to avoid a charge to the Company’s earnings) or were not acquired, directly or indirectly, from the Company, or (iii) to the extent of the minimum applicable federal, state and local withholding rate only, through the surrender of shares of Common Stock to which the Participant is otherwise entitled under the Plan, subject to the discretion of the Board to require payment in cash if it determines that payment by other methods is not in the best interests of the Company.

 

 

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4. Termination of Option . In the event that the Participant ceases to perform Service for the Company or any parent or subsidiary of the Company (collectively, the “ Company Group ”) at any time prior to the exercise of this Option in full, this Option shall terminate according to the following provisions:

(a) If the Participant ceases to perform Service for any reason other than death or disability (as defined in Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the “ Code ”)), the Participant may at any time within a period of 30 days after the date of such cessation of Service exercise the Option to the extent that the Option was exercisable on the date of such cessation;

(b) If the Participant ceases to perform Service because of disability (as defined in Section 22(e)(3) of the Code), the Participant may at any time within a period of 180 days after the date of such cessation of Service exercise the Option to the extent that the Option was exercisable on the date of such cessation; and

(c) If the Participant ceases to perform Service because of death, the Option, to the extent that the Participant was entitled to exercise it on the date of death, may be exercised within a period of 180 days after the Participant’s death by the person or persons to whom the Participant’s rights under the Option shall pass by will or by the laws of descent and distribution; provided, however, that this Option may not be exercised to any extent by anyone after the date of its expiration.

5. Exercisability of Option . The Participant’s ownership of the Shares shall vest over [        ] year[s] period commencing on the Grant Date Vesting Commencement Date in increments of [        ]% per month on the first day of each calendar month following the Vesting Commencement Date, such that the Shares shall be fully vested on [                ], for so long as the Participant remains as a Consultant to the Company. The Vesting Commencement Date is specified on the signature page below. Shares as to which this Option may be exercised at any time are herein referred to as “ Vested Shares ”.

The right of exercise shall be cumulative so that to the extent the option is not exercised in any period to the maximum extent permissible it shall continue to be exercisable, in whole or in part, with respect to all unpurchased Vested Shares until the earlier of the tenth anniversary of the Option Date or the termination of this option under Section 4 hereof or the Plan.

6. “ Market Stand Off” Agreement .

(a) The Participant, if requested by the Company or any managing underwriter of the Company’s securities, shall agree not to sell or otherwise transfer or dispose of any shares of the Company held by the Participant during the period up to 180 days, as requested by the Company or such underwriter, following the effective date of a registration statement of the Company filed under the Securities Act of 1933 (except for any Company securities held by the Participant sold pursuant to such registration statement). Such agreement shall be in writing in form satisfactory to the Company or such underwriter. The Company may impose stop-transfer instructions with respect to the Shares subject to the foregoing restriction until the end of such period.

(b) The provisions contained in this Section 6 shall not apply to any transfer of Shares to or in trust for the sole benefit of the Participant, or any member of the immediate family of the Participant, including for this purpose the undersigned’s spouse, domestic partner, parents, parents-in-law, issue, nephews, nieces, god-children, brothers, brothers-in-law, sisters, sisters-in-law, children-in-law and grandchildren-in-law, provided that such transferee agrees in writing to be subject to the terms of this Agreement.

7. Notices . All notices or demands given pursuant to this Agreement shall be in writing and shall be deemed to have been sufficiently given if delivered by hand or sent by certified or registered mail, postage prepaid, addressed to the Company at its principal office or to the Participant (or the Participant’s legal representatives) at the address stated in the Participant’s (or their) notice or at the Participant’s address appearing on the books of the Company.

 

 

3


8. No Service Commitment; Tax Treatment . Nothing herein contained shall be deemed to be or constitute an agreement or commitment by the Company or any other member of the Company Group to continue the Participant in Service. The Option granted hereunder is not intended to qualify as an incentive stock option under Section 422 of the Code, and the Company makes no representation about the tax treatment to the Participant with respect to receipt or exercise of the Option or acquiring, holding or disposing of the Shares. The Participant represents that the Participant has had the opportunity to discuss such treatment with the Participant’s tax adviser. The Participant shall have no rights as a stockholder with respect to the Shares subject to the Option until the exercise of the Option and the issuance of a stock certificate for the Shares with respect to which the Option shall have been exercised.

9. Adjustment in Shares . In the event of any stock dividends, stock splits, stock combinations, recapitalizations and other similar changes in the capital structure of the Company after the Option Date, the number of shares of Common Stock deliverable upon the exercise of this Option shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made in the Option Price to reflect such subdivision, combination or stock dividend. In the event of a change of the Common Stock resulting from a merger or similar reorganization as to which the Company is the surviving corporation after the Option Date the number and kind of Shares subject to this Option and the Option Price thereof shall be appropriately adjusted in such manner as the Board may deem equitable to prevent dilution or enlargement of the rights available or granted hereunder. The Board’s determination in any specific situation shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to this Option.

10. Acquisition Events .

(a) An “ Acquisition Event ” shall mean: (x) any merger or consolidation after which the voting securities of the Company outstanding immediately prior thereto represent (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity) less than 50% of the combined voting power of the voting securities of the Company or such surviving or acquiring entity outstanding immediately after such event; or (y) any sale of all or substantially all of the assets or capital stock of the Company (other than in a spin-off or similar transaction); or (z) any other acquisition of the business of the Company, as determined by the Board.

(b) Upon the occurrence of an Acquisition Event, the Board or the board of directors of any entity assuming the obligations of the Company hereunder (as used in this Section 10(b), also the “ Board ”) shall, as to this Option, either (i) make appropriate provision for the continuation of this Option by substituting on an equitable basis for the Shares then subject to this Option either (1) the consideration payable with respect to the outstanding shares of Common Stock in connection with the Acquisition Event, (2) shares of stock of the surviving or successor corporation or (3) such other securities as the Board deems appropriate, the Fair Market Value of which shall not materially differ from the Fair Market Value of the shares of Common Stock subject to this Option immediately preceding the Acquisition Event; or (ii) upon written notice to the Participant, provide that this Option must be exercised, to the extent then exercisable or to be exercisable as a result of the Acquisition Event, within a specified number of days of the date of such notice, at the end of which period this Option shall terminate; or (iii) terminate this Option in exchange for a cash payment equal to the excess of the fair market value of the Shares subject to this Option (to the extent then exercisable or to be exercisable as a result of the Acquisition) over the Option Price.

(c) Dissolution or Liquidation . In the event of the proposed dissolution or liquidation of the Company, this Option will terminate immediately prior to the consummation of such proposed action or at such other time and subject to such other conditions as shall be determined by the Board.

11. Miscellaneous . This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware applicable to contracts made in and to be wholly performed within such. This Agreement shall be binding upon and inure to the benefit of the heirs and legal representatives of the Participant and the successors and assigns of the Company, but shall not be assigned by the Participant at any time without the prior written permission of the Company, and any such attempted assignment shall be void.

{Remainder of page intentionally left blank.}

 

 

4


IN WITNESS WHEREOF the parties have executed this Nonqualified Stock Option Agreement as of the Option Date set forth below.

 

Name of Participant: [__________]

Signature of Participant:

 

Address: [_________________________

_________________________________]

Type of Service: Consultant

Option Date: [______________]

No. of Shares: [______________]

Option Price: $[_____]

Vesting Commencement Date:

[______________]

Accepted, as the issuer of the Shares, in accordance with the terms of the foregoing Nonqualified Stock Option Agreement as of the foregoing Option Date.

 

Protagenic Therapeutics, Inc.
By:    
 
Its:  

 

 

 

 

5


Exhibit 1

Protagenic Therapeutics, Inc.

2006 Employee, Director and Consultant Stock Plan


Exhibit 2
Name of Participant:                     
Date of Exercise:                           

NONQUALIFIED STOCK OPTION EXERCISE FORM

Protagenic Therapeutics, Inc.

Dear Sir/Madam:

The undersigned optionee (the “ Participant ”), presently or formerly an employee, officer, director, agent or consultant of Protagenic Therapeutics, Inc. (the “ Company ”) was granted a nonqualified stock option (the “ Option ”) to purchase                 shares of common stock of the Company at an exercise price of $            per share on                 ,         pursuant to the Company’s 2006 Employee, Director and Consultant Stock Plan (the “ Plan ”) and an Nonqualified Stock Option Agreement dated                 , 200     (the “ Option Agreement ”).

The Participant hereby elects to exercise the Option as to                 shares of common stock of the Company (the “ Shares ”).

Enclosed herewith is full payment in the amount of $                for the Shares in the manner set forth in the Option Agreement. The Participant will make adequate provision for any federal and state income tax withholding obligations of the Company, if any, as more fully set forth in the Option Agreement.

The Participant represents and warrants that the Participant is acquiring the Shares for the Participant’s own account for investment and not with a view to, or for sale in connection with, any distribution of the Shares. The Participant also represents that the Participant does not have any present intention of selling, offering to sell or otherwise disposing of or distributing the Shares or any portion thereof; and that, subject to the right of the Participant to register the Shares in the joint names of the Participant and the Participant’s spouse, the entire legal and beneficial interest of the Shares is being purchased for, and will be held for the account of, the Participant only and not for any other person.

The Participant further represents and warrants that at no time was the Participant presented with or solicited by any form of general solicitation or any general advertising, including, but not limited to, any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media or broadcast over television or radio or presented at any seminar or meeting whose attendees have been invited by any general solicitation or general advertising.

The Participant acknowledges and understands that the purchase of the Shares is a highly speculative investment, and the Participant represents and warrants that the Participant is able, without impairing the Participant’s financial condition, to hold the Shares for an indefinite period of time and to suffer a complete loss of the investment.

The Participant further acknowledges and understands that the Shares have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), and that consequently the Shares must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available. The Participant further acknowledges and understands that the Company is under no obligation to register the Shares, that, in the absence of registration, the Shares may be transferred only under limited circumstances, and that transfer of the Shares is subject to restrictions contained in the Certificate of Incorporation and Bylaws of the Company, as amended from time to time, and restrictions contained in the Option Agreement. The Participant understands that the instrument evidencing the Shares will be imprinted with legends which prohibit the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company. The Participant does not have any contract, agreement or arrangement with any person to sell, transfer or grant participations, to such person or to any third person with respect to any of the Shares.


The Participant is aware of the adoption of Rule 144 by the Securities and Exchange Commission, promulgated under the Securities Act, which permits limited public resale of securities acquired in a non-public offering subject to the satisfaction of certain conditions, including, among other things: the availability of certain public information about the Company, the resale occurring not less than one year after the party has purchased and paid for the securities to be sold, the sale being through a broker in an unsolicited “brokers’ transaction,” and the amount of securities being sold during any three-month period not exceeding specified limitations (generally, 1% of the total amount outstanding).

The Participant agrees further that said Shares are being acquired by the Participant in accordance with and subject to the terms, provisions and conditions of the Plan and the Option Agreement, to each of which the Participant hereby expressly assents. Such terms, provisions and conditions shall bind and inure to the benefit of the Participant’s heirs, legal representatives, successors and assigns.

The Participant agrees to obtain the consent of the Participant’s spouse to any such agreement which may be required by the Company.

 

The Participant’s address of record is:          

 

         

 

and the Participant’s Social Security Number is:                     

     

 

Very truly yours,

 

Signature of Participant

{Spouse of the Participant to sign below if the Shares are to be registered in joint names or if the Participant resides in a community property state:}

The undersigned, being the spouse of the Participant exercising the option as set forth above, does hereby acknowledge that the undersigned has read and is familiar with the provisions of the above Nonqualified Stock Option Exercise Form, the Plan, and the Option Agreement, and the undersigned hereby agrees thereto and joins therein to the extent, if any, that the agreement and joinder of the undersigned may be necessary.

 

 

Signature of Spouse of Participant

Dated:

   

 

Receipt of the above is hereby acknowledged.

Protagenic Therapeutics, Inc.

 

By:                                                                      

Its:                                                                      

Dated:                                                                  

 

2

Exhibit 10.19(i)

TECHNOLOGY LICENSE AGREEMENT

THIS AGREEMENT is made and effective as of the 21st day of July, 2005

BETWEEN:

THE UNIVERSITY OF TORONTO INNOVATIONS FOUNDATION, a corporation without share capital incorporated under the laws of the Province of Ontario whose full post office address is Suite 200, 243 College Street, Toronto, Ontario M5T 1 R5, Canada

(hereinafter “ UTIF ”)

- and-

PROTAGENIC THERAPEUTICS, INC., a corporation incorporated under the laws of Delaware and having a principal place of business at 4264 Corte Favor, San Diego, California 92130 U.S.A.

(hereinafter “ Licensee ”)

WHEREAS David Lovejoy, Dalia Barsyte, Susan Rotzinger and Bradley Chewpoy (hereinafter “Owners”), while employed by the University (as hereinafter defined), made an invention titled “Teneurin C-Terminal Associated Peptides (TCAP) and Methods and Uses Thereof” and certain improvements thereto (hereinafter “Invention”);

WHEREAS David Lovejoy, while employed by the University, also made an invention titled “Selected Targeting of Residue Motifs (STORM): A Novel Algorithmic Method to Predict Bioactive Peptides in Genome Databases”, (hereinafter “STORM”);

WHEREAS by an Assignment of Rights from the University dated December 12, 2001 and an Assignment of Rights from the University dated July 4, 2003, the University assigned its entire right, title and interest in the Invention to Owners on terms and conditions set out therein;

WHEREAS by an Assignment of Rights from the University dated December 15, 2004, the University assigned its entire right, title and interest in STORM to David Lovejoy on terms and conditions set out therein;

WHEREAS by a Technology Owners’ Agreement dated March 8, 2002 as amended January 30, 2004, April 28, 2005 and July 20, 2005, the Owners retained UTIF as their agent for the exploitation of the Invention, including the patenting and licensing thereof;

 

Page 1 of 24


WHEREAS by an Technology Owners’ Agreement dated July 20, 2005, David Lovejoy retained UTIF as his agent for the exploitation of STORM, including the patenting and licensing thereof;

WHEREAS UTIF, on behalf of the Owners, has filed patent applications in relation to the Invention as listed in Schedule A;

WHEREAS Licensee is a company whose purpose is to develop and commercialize novel drugs;

WHEREAS Licensee wishes to commercialize, develop, manufacture, market, distribute and sell products which may be developed through the use of a part or the whole of the Technology, as hereinafter defined, and therefore desires to obtain a license for the Technology; and

WHEREAS UTIF is willing to grant a license under the terms and conditions set forth hereinafter.

NOW THEREFORE in consideration of the premises and the mutual covenants, terms, conditions and agreements contained herein, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the Parties hereto agree as follows:

ARTICLE 1

INTERPRETATION

 

1.1 Definitions

In this Agreement, the following terms have the meanings set forth below unless there is something in the subject matter or context inconsistent therewith:

“Affiliate” shall mean any company or other legal entity controlling, controlled by or under common control with Licensee. The term “control” means the ability to direct the management and policies of said entity, whether through ownership of equity, by contract or otherwise;

“Agreement” means this Technology License Agreement including all attached schedules, as the same may be supplemented, amended, restated or replaced in writing from time to time;

“Calendar Quarter” shall mean the period of time ending on March 31, June 30, September 30 and December 31 of each year;

“Confidential Information” means this Agreement and its terms and conditions, the Knowhow, and any information, which is non-public, confidential or proprietary in nature, including, without limitation, business information, trade secrets, and any information related to the Technology, whether written, oral or in electronic form, provided that tangible materials are marked as confidential, and provided that information given orally is identified as confidential at the time of disclosure, and confirmed as confidential in writing within fifteen (15) days, but shall not include information that:

 

Page 2 of 24


  (a) is or becomes generally available to the public other than as a result of any act by a Party to this Agreement;

 

  (b) is rightfully received from a Third Party without similar restriction or without breach of this Agreement;

 

  (c) a Party is able to demonstrate, in writing, was known to it on a non-confidential basis; or

 

  (d) was independently developed by a Party without the use of any of the Confidential Information.

“Effective Date” shall mean the date first shown in this Agreement;

“Field of Use” shall mean all human therapeutic applications;

“First Commercial Sale” means the first sale of a Licensed Product in the Territory after Regulatory Approval (as hereinafter defined), by Licensee or its Affiliates (or their sub-licensee(s)) to any Third Party as evidenced by an invoice or other relevant document to such Third Party. A sale shall not include Licensed Products delivered solely for research purposes or for clinical trials or Licensed Products distributed as samples or promotions;

“Improvements” means any and all improvements, variations, updates, modifications or enhancements to the Technology which are developed under the terms of a research agreement dated December 14, 2004, as amended May 31, 2005, between Licensee and the Governing Council of the University of Toronto attached hereto as Schedule B;

“Intellectual Property Rights” means any and all proprietary rights provided under, (i) patent law, (ii) copyright law, (iii) trade-mark law, (iv) design patent or industrial design law, (v) integrated circuit topography or mask work law, or (vi) any other statutory provision or common law principle applicable to this Agreement, including trade secret law, which may provide a right in either ideas, formulae, algorithms, concepts, inventions or know-how generally, or the expression or use of such ideas, formulae, algorithms, concepts, inventions or know-how;

“Know-how” means any and all trade secrets, technical expertise, knowledge, confidential information and know-how, whether patentable or unpatentable relating to the Patents and/or STORM, whether in written, machine readable, drawing or oral form, including, without limiting the generality of the foregoing, all technical information, raw material, data, product specifications, processes and designs, operating and production data, calculations, computer programs, instructions and techniques, quality control and other standards, and drawings relating thereto whether developed by UTIF, an Owner or the Licensee that exists as of the date of this Agreement;

 

Page 3 of 24


“Licensed Product” means (i) any product derived from STORM; (ii) any product derived from an Improvement; and/or (iii) any product derived from, or partially from, at least one claim of the Patents;

“Milestones” refers to the events which the Licensee has agreed to accomplish within defined periods of time. The Milestones are described in Schedule C of this Agreement;

“Net Sales” means the gross amount received by Licensee, its Affiliates or sub-licensees (including, without limitation, the fair market value of any non-cash consideration received in connection therewith) net of any of the following charges or expenses that are incurred in connection with the sales, leases or other transfers of Licensed Products: (i) discounts (including cash discounts and quantity discounts), chargeback payments and rebates granted to healthcare organizations or to federal, state or local government (or their respective agencies, purchasers and reimbursers) or to trade customers; (ii) credits, rebates or allowances because of damaged goods or returns with respect to Licensed Products; (iii) freight, postage, shipping and insurance charges incurred in transporting the Licensed Product(s) to the end customer; and (iv) taxes, duties or other governmental charges (other than income taxes) levied on, absorbed or otherwise imposed on sales of Licensed Products;

“Parties” means UTIF and the Licensee collectively, and “Party” means one of them;

“Patents” means the patent application listed in Schedule A appended hereto and any patents and patent applications from which such patent application claims priority, and shall include any divisional, re-examination, renewal, or continuation applications based on any of the foregoing patents and patent applications, any patents which may issue on, from or as a result of any of the foregoing, and any reissue of said patents;

“Phase I End” means approval by the FDA or other applicable regulatory authority to commence Phase II Clinical Trials of a Licensed Product as such trials are described in 21 C.F.R. 312.21(b);

“Phase II End” means approval by the FDA or other applicable regulatory authority to commence Phase III Clinical Trials of a Licensed Product as such trials are described in 21 C.F.R. 312.21(c);

“Phase III End” means Regulatory Approval of a Licensed Product;

“Prime Rate” for any day means the rate of interest expressed as a rate per annum that The Royal Bank of Canada establishes at its head office in Toronto as the reference rate of interest that it will charge on that day for Canadian dollar demand loans to its customers in Canada and which it at present refers to as its prime rate;

“Regulatory Approval” means all governmental approvals and authorizations necessary for the manufacture and commercial sale of the Licensed Product in a country of the Territory;

 

Page 4 of 24


“Secure” means the terms of financing agreed to as witnessed by a signed private placement memorandum (PPM) or term sheet and funds in escrow and accessible by Licensee within thirty (30) days following the execution of the PPM or term sheet;

“STORM” means the invention titled “Selected Targeting of Residue Motifs: A Novel Algorithmic Method to Predict Bioactive Peptides in Genome Databases” as described in the University of Toronto Confidential Invention Disclosure appended hereto as Schedule D;

“Technology” means the Patents, STORM, Know-how and, subject to Section 4.4 herein, Improvements;

“Territory” means each and every country of the world;

“Third Party” means, in respect of a Party, a person who deals with such Party at arm’s length, as that term is defined in the Income Tax Act (Canada) on the date hereof; and

“University” means the University of Toronto.

 

1.2 Captions

Captions or descriptive words at the commencement of the various sections are inserted for convenience only, and are in no way to be construed as part of this Agreement or as a limitation upon the scope of the particular section to which they refer.

 

1.3 Currency

Unless specified otherwise, all statements of or references to dollar amounts in this Agreement are to lawful money of Canada.

 

1.4 Schedules

The following schedules form part of this Agreement:

 

Schedule A    Patent Applications
Schedule B    Research Agreement
Schedule C    Milestones
Schedule D    University of Toronto Confidential Invention Disclosure

 

Page 5 of 24


ARTICLE 2

TECHNOLOGY LICENSE

 

2.1 Grant of License for Technology

Subject to the terms and conditions hereinafter set forth, UTIF hereby grants to Licensee:

 

  (a) an exclusive license, within the Territory and within the Field of Use to develop, make, have made, use, sell, offer for sale and import Licensed Products under all Owners’ right, title and interest in the Technology; and

 

  (b) an exclusive right to grant sub-licenses of all rights set out in Article 2.1(a) above provided that Licensee shall have the right to audit the books and records of each such sub-licensee in the same manner as UTIF as per Section 3.3(f) hereof. Any such sub-licenses shall be subject to Section 7.2 (b) herein, and Licensee shall notify UTIF of any such sub-license at least thirty (30) days prior to its execution. Further, Licensee shall promptly provide UTIF with a copy of each sub-license agreement entered into hereunder.

 

2.2 Reserved Rights

Licensee acknowledges that UTIF, on behalf of the Owners and the University, has reserved a royalty-free, perpetual irrevocable license to use the Technology and Improvements for the purpose of research, education and administrative purposes.

 

2.3 Conversion to Non-Exclusive License

In the event that UTIF elects to convert the rights granted under Section 2.1 herein to non-exclusive rights pursuant to Section 3.2(d) herein:

 

  (a) Licensee shall continue to pay all Third Party charges for the filing, prosecution and maintenance of the Patents pursuant to section 4.3 herein.

 

  (b) The right of Licensee to grant sub-licenses to a Third Party under subsection 2.1(b) herein shall be subject to the following conditions:

 

  (i) UTIF has not granted such Third Party with a non-exclusive license in relation to the Technology;

 

  (ii) UTIF is not in discussions/negotiations with such Third Party for a nonexclusive license in relation to the Technology;

 

  (iii) The prior written approval of UTIF, which approval shall not be unreasonably withheld; and

 

Page 6 of 24


  (iv) Licensee agrees to pay and shall pay to UTIF a non-refundable fee of five thousand dollars ($5,000) within ninety (90) days following the effective date of each sub-license.

 

  (c) Royalties and fees payable to UTIF pursuant to sections 2.3(b)(iv) and 3.l(a) herein shall be first applied to offset all reasonable expenses incurred by Licensee for filing, prosecuting, securing, and maintaining the Patents subsequent to the date upon which the exclusive rights under section 2.1 herein are converted to non-exclusive rights (the “Conversion Date”). For further clarity, Licensee shall not be entitled to recover such expenses incurred by Licensee prior to the Conversion Date. After Licensee recovers such expenses, any remaining royalties and fees shall be remitted to UTIF according to sections 2.3(b)(iv) and 3.1(a) herein.

 

  (d) All of the remaining terms and conditions of this Agreement shall continue to apply to Licensee.

ARTICLE 3

CONSIDERATION

 

3.1 Royalty

 

  (a) In consideration of the entering into of this Agreement, Licensee, together with all Affiliates, shall pay a royalty (the “Royalty Payment”) to UTIF of two and one-half percent (2.5%) of the Net Sales made during the term of this Agreement.

 

  (b) If Licensee sub-licenses any rights under this Agreement to a Third Party, the Licensee shall pay UTIF a percentage of the upfront sub-license fees and any periodic milestone payments, sub-license maintenance fees, sub-license milestone payments and similar non-royalty payments made by sub-licensees to Licensee on account of sub-licenses pursuant to this Agreement (the “Upfront Sub-License Fees” ), if any such Upfront Sub-License Fees are paid to Licensee, equal to:

 

  (i) fifty percent (50%) of the Upfront Sub-License Fees, if the sub-license occurs on or before September 9, 2005;

 

  (ii) twenty-five percent (25%) of the Upfront Sub-License Fees, if the sub-license occurs after September 9, 2005 but before September 9, 2006; or

 

  (iii) ten percent (10%) of the Upfront Sub-License Fees, if the sub-license occurs on or after September 9, 2006.

 

  (c) If Licensee sub-licenses any rights under this Agreement to a Third Party, the Licensee, on behalf of such sub-licensee, shall pay UTIF a royalty equal to two and one-half percent (2.5%) of the Net Sales in respect of all sales of Licensed Products made during the term of this Agreement by the sub-licensee (the “ Sub-License Royalty Payment ”).

 

Page 7 of 24


  (d) The Upfront Sub-License Fees may include both cash and non-cash consideration as may be agreed upon between UTIF and Licensee.

 

  (e) If Licensee obtains rights to another royalty bearing technology which is included in the Licensed Products and the aggregate royalty payable on the Licensed Products by the Licensee to all parties is greater than five percent (5%) of Net Sales, then Licensee may reduce the royalty payable to UTIF from two and one-half percent (2.5%) to one and one-half percent (1.5%) of Net Sales. In no case will the royalty payable to UTIF be less than one and one-half percent (1.5%) of Net Sales.

 

3.2 Milestones

 

  (a) In relation to each Licensed Product, Licensee shall use reasonable commercial efforts to carry out those activities set out in Schedule C: Milestones hereto.

 

  (b) Upon First Commercial Sale of a Licensed Product, Licensee shall be deemed to have met all Milestones for that particular Licensed Product.

 

  (c) Subject to any applicable federal or provincial or state privacy laws or regulations, Licensee shall provide UTIF with the following reports within thirty (30) days following June 30th and December 31 st of each year during the term of this Agreement:

 

  (i) a semi-annual development update disclosing a summary of research results (containing sufficient detail acceptable to UTIF, acting reasonably) obtained from the pre-clinical and clinical development of the Licensed Product during the preceding six (6) month period; and

 

  (ii) a semi-annual updated business plan.

Said reports are expected to demonstrate continued progress toward the Milestones and to ensure that Licensed Product opportunities and revenue potential is maximized.

 

  (d) If Licensee fails to either:

 

  (i) provide reports to UTIF pursuant to Section 3.2 (c) herein; or

 

  (ii) continue to make reasonable commercial efforts towards obtaining Regulatory Approval for a Licensed Product

then Licensee shall cure such breach within six (6) months after written notice of such breach is given to Licensee by UTIF. In the event that Licensee is unable to cure such breach within the said six (6) months, UTIF shall have the option to convert the rights granted pursuant to Section 2.1 herein to non-exclusive rights effective immediately. Upon First Commercial Sale of a Licensed Product, this Subsection 3.2 (d) shall no longer apply for that particular Licensed Product.

 

Page 8 of 24


3.3 Accounting and Records

 

  (a) The Royalty Payments, the Upfront Sub-License Fees and the Sub-License Royalty Payments (collectively the “Fees”) under Section 3.1 herein are to be paid by Licensee to UTIF on a quarterly calendar basis and shall be made within thirty (30) days after the end of each Calendar Quarter in which such Fees are received by Licensee.

 

  (b) The Parties acknowledge that the royalties and fees payable hereunder for all sales of Licensed Products within Canada are subject to the Canadian Goods and Services Tax (“GST”). Licensee hereby agrees to provide UTIF a statement as to the Licensee’s GST status and to remit such amounts to UTIF as required under Canadian GST legislation. UTIF is registered to collect GST under registration number 10525 7117 RT000l.

 

  (c) Fees shall be paid to UTIF free and clear of all taxes including income taxes, except such taxes as the Licensee shall be required by law to withhold.

 

  (d) Licensed Products sold under the license granted herein, or under any sub-license, shall be deemed to have been sold when a Licensed Product is delivered and payment is received.

 

  (e) Licensee agrees to keep complete and accurate books of account in which the particulars of all sales of the Licensed Product are recorded in sufficient detail to enable Fees payable hereunder to be determined.

 

  (f) UTIF, or their authorized representatives, shall have the right from time to time, upon ten (10) days prior written notice to Licensee, to audit Licensee’s said books and records of accounts and all of the documents and other materials in the possession or under the control of Licensee with respect to the subject matter of this Agreement. UTIF reserves the right to confirm any information learned in the course of such audit with individuals or corporations that have purchased a Licensed Product from Licensee to verify the accuracy of Licensee’s payments of Fees and compliance with the terms hereunder. Licensee shall preserve and keep available to UTIF all such books and records, documents, contracts, and other data (including reports of audits undertaken by Licensee of the books and records of its own sub-licensees) with respect thereto for a period of six (6) years after the date of each such record.

 

  (g) In the event that any audit of the books and records of Licensee reveals an error in excess of five percent (5%) to the detriment of UTIF, then Licensee shall bear all the costs of said examination and pay forthwith all outstanding amounts together with interest thereon as set out under Subsection (i) hereof.

 

  (h) Each payment of the Fees hereunder shall be accompanied by a statement of the Net Sales certified correct by the chief financial officer of Licensee.

 

 

Page 9 of 24


  (i) Interest shall be payable on any amounts owed by one Party to another Party which are not paid when due, at the Prime Rate plus 3% per annum, compounded monthly. The payment of interest shall not be deemed an alternative to the payment of amounts owing on the due dates, which payment shall be deemed to be in default, and if such default is not remedied within thirty (30) days of written notice thereof, UTIF may terminate this Agreement as provided in Section 6.2.

ARTICLE 4

INTELLECTUAL PROPERTY

 

4.1 Ownership

All Intellectual Property Rights in all aspects and parts of the Technology and Improvements shall be exclusively owned by Owners, and/or David Lovejoy as the case may be, and nothing herein shall serve to, or should be construed to transfer any Intellectual Property Rights whatsoever in the Technology or Improvements.

 

4.2 Know-how

UTIF shall furnish a summary of the relevant Know-how to Licensee within a reasonable period of time following the execution of this Agreement.

 

4.3 Patents and Patent Applications

 

  (a) UTIF, in the name of the Owners, or David Lovejoy as the case may be, as assignee, shall file, prosecute and maintain the Patents. Licensee, in consultation with UTIF, shall determine in which countries to pursue patent applications. In the event that Licensee elects not to reimburse UTIF for the costs associated with a patent application in accordance with Section 4.3 (c) hereunder or to continue prosecution in any country, UTIF may, at its sole discretion, file such patent or continue such prosecution in that country at its own expense. In such cases, any patents arising from such applications shall be excluded from the grant of rights under Section 2.1 herein and such country shall be deleted from the definition of Territory herein.

 

  (b) Licensee acknowledges that prior to the Effective Date of this Agreement, UTIF has incurred out-of-pocket expenses in relation to the filing and prosecution of the Patents. Licensee shall reimburse UTIF for such expenses (as evidenced by copies of invoices to be provided to Licensee) as follows:

 

  (i) Licensee shall pay UTIF ten thousand dollars ($10,000) within thirty (30) days following the Effective Date of this Agreement; and

 

  (ii) Licensee shall pay UTIF in consecutive installments of ten thousand dollars ($10,000) payable on a bi-monthly basis following the Effective Date of this Agreement until UTIF has been reimbursed in full.

 

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  (c) Subject to Section 4.3(a) herein, all out-of-pocket filing, prosecution and maintenance expenses in relation to the Patents incurred following the Effective Date of this Agreement shall be at Licensee’s sole expense. Without limiting the foregoing, Licensee shall pay UTIF any amounts anticipated to be payable or otherwise owing to any patent office in advance of when they would become due.

 

  (d) Subject to Sections 4.3(a) and 4.3(c) herein, the Parties hereto shall use reasonable commercial efforts to file patent applications in relation to STORM within two (2) years following the Effective Date of this Agreement. In the event that patent applications are not filed within this period, Licensee shall have the option to file, prosecute and maintain patent applications in relation to STORM subject to the following conditions:

 

  (i) David Lovejoy will be named as the assignee on all such patent applications;

 

  (ii) All out-of-pocket filing, prosecution and maintenance expenses will be at Licensee’s sole expense; and

 

  (iii) Licensee will undertake to keep UTIF reasonably advised of the progress of prosecution and of any actions Licensee proposes to take in connection with the prosecution or maintenance of such patent applications, and Licensee will diligently endeavor to provide UTIF with copies of correspondence and all actions issued by patent authorities.

Provided that all of the conditions of this Section 4.3(d) have been satisfied, such patent applications in relation to STORM shall then be included in the definition of Patents for purposes of this Agreement and licensed to Licensee under the terms of license granted hereunder.

 

  (e) UTIF undertakes to keep Licensee reasonably advised of the progress of prosecution and of any actions UTIF proposes to take or has taken in connection with the prosecution or maintenance of the Patents. UTIF shall diligently endeavor to provide Licensee with copies of correspondence and all actions issued by patent authorities and shall take into account any comments, remarks or suggestions Licensee may promptly provide to UTIF in writing at least ten (10) days prior to any due date established by UTIF for preparation of a response or amendment, and in all cases thirty (30) days prior to any patent office due date.

 

4.4 Improvements

UTIF shall inform Licensee promptly of any Improvements. Within one hundred and eighty (180) days following the disclosure by UTIF of such Improvements, Licensee shall have the option to direct UTIF to file patent applications, in the name of the Owners, or David Lovejoy as the case may be, as assignee, in relation to the Improvements provided that Licensee agrees to pay all expenses associated with the filing and prosecution of such patent applications. Subject to any rights of Third Parties and to the provisions of Section 4.3(a) herein, such applications shall then be included in the definition of Patents for purposes of this Agreement and licensed to

 

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Licensee under the terms of license granted hereunder. If Licensee does not make its election within the one hundred and eighty (180) days or if Licensee elects for UTIF not to file patent applications for such Improvements, UTIF shall have the right to apply for patents at its own expense, and any patents resulting from such applications shall be excluded from the grant of rights under Section 2.1 herein. It is understood that Licensee shall not be obligated to undertake responsibility with respect to any such Improvements or developments unless it elects to do so.

 

4.5 Infringement

 

  (a) Each Party shall notify the other Party promptly of any actual or threatened infringement, limitation or unauthorized use of any Technology by a Third Party of which such Party becomes aware.

 

  (b) Licensee shall have the right, at its own expense to bring any claim, action or proceeding on account of any such infringements, limitations or unauthorized use of the Technology. UTIF agrees that it shall cooperate with Licensee as Licensee may reasonably request in connection with any such claim, action or proceeding. Licensee agrees to reimburse UTIF for its reasonable expenses incurred in complying with any such request of Licensee. Any proceeds received by Licensee from such claim, action or proceedings shall be first applied to offset Licensee’s litigation expenses. Any remaining proceeds shall then be distributed according to Section 3.1(a) herein.

 

  (c) If Licensee does not undertake to bring any such claim, action or proceeding on account of any such infringements, limitations or unauthorized use within thirty (30) days following the receipt of notice of such infringement, limitation or unauthorized use, Licensee shall so notify UTIF and, at the expiry of such thirty (30) day period if the Licensee has not brought such claim, action or proceeding, UTIF may prosecute the same, at its expense. Licensee agrees that if UTIF brings such a claim, action or proceeding, Licensee shall cooperate with UTIF, at UTIF’s expense, and UTIF shall be entitled to keep all the proceeds obtained from such claim, action or proceeding.

 

  (d) Licensee shall have the right, at its expense, to defend and settle for other than money damages any claim, action or proceeding that may be commenced against Licensee or UTIF alleging that any Licensed Product infringes any rights of others. UTIF may, at its option, participate in such claims, actions and proceedings through counselor as a party. Any settlement shall require the consent of UTIF. If Licensee does not defend or settle such claim, action or proceeding, it shall notify UTIF of its election within thirty (30) days (or such shorter time period as may be required in order that UTIF may have reasonably sufficient time to comply with any statutory obligations for instituting such defence) following the receipt of notice of same, and UTIF may defend same, at its expense.

 

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4.6 Confidentiality

 

  (a) All Confidential Information will remain the property of its owner or the Party that furnished it as the case may be.

 

  (b) Each Party agrees to maintain in confidence all Confidential Information disclosed with the same degree of care as it normally takes to preserve its own confidential information of similar grade, but in any event, no less than a reasonable degree of care.

 

  (c) Each Party may only disclose Confidential Information to persons with a “need to know” who shall be made aware of, and be required to observe and comply with the covenants and obligations contained herein, and the Confidential Information shall only be used to carry on or facilitate business as contemplated under this Agreement.

 

  (d) A Party may disclose Confidential Information pursuant to the requirements of a government agency or pursuant to a court order, provided that the Party shall take all reasonable steps, including, but not limited to the seeking of an appropriate protective order, to preserve the confidentiality of the Confidential Information provided.

 

  (e) If this Agreement is terminated for any reason, any Party in receipt of Confidential Information shall promptly deliver or destroy all Confidential Information of the disclosing Party without retaining copies thereof, except that the receiving Party may retain in the office of its legal counsel one (l) copy of written Confidential Information for record purposes only.

 

  (f) In the event that a Party becomes aware of, or perceives any threat that, any Confidential Information may be disclosed contrary to the provisions of this Section 4.6, or in the circumstances referred to in Subsection 4.6(c), such Party shall immediately provide written notice thereof to the other Party.

ARTICLE 5

REPRESENTATIONS, WARRANTIES AND INDEMNITY

 

5.1 Representations and Warranties of Parties

The representations of Licensee and UTIF, one to the other are as follows:

 

  (a) Licensee is a corporation duly organized, validly existing and in good standing, and it has the right and authority to enter this Agreement, and do all acts and things as required or contemplated to be done, observed and performed by them hereunder.

 

  (b) The execution, delivery and performance of this Agreement does not contravene any law, rule or regulation of either Party or of the jurisdiction in which it is incorporated.

 

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  (c) UTIF is a corporation duly organized, validly existing and in good standing, and it has the right and authority to enter this Agreement and the right to grant the license as provided herein and that such grant is not in conflict with any other agreement to which it is a party.

EXCEPT FOR THE FOREGOING REPRESENTATIONS AND WARRANTIES PROVIDED IN THIS SECTION 5.1, UTIF DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND CONDITIONS OF ANY KIND, WHETHER EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, INCLUDING WITHOUT LIMITATION ALL REPRESENTATIONS, WARRANTIES AND CONDITIONS AS TO QUALITY, MERCHANTABLE QUALITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, SCOPE, PATENTABILITY, VALIDITY OR ENFORCEABILITY OF THE TECHNOLOGY OR THAT THE TECHNOLOGY IS SAFE FOR ANY USE OR PURPOSE WHATSOEVER, OR THAT THE TECHNOLOGY DOES NOT INFRINGE THE RIGHTS OF ANY THIRD PARTY.

 

5.2 Indemnity

Licensee shall indemnify and hold harmless the Owners, their successors and assigns, and UTIF and the University, including their parents, subsidiaries, affiliates, attorneys, agents, officers, directors, employees, administrators, predecessors, successors or assigns (collectively, the “Indemnities”) from and against any and all claims, threats, loss, liability, damage or expense, including reasonable lawyers’ fees, by reason or arising out of any acts or failure to act by or out of any use of Technology, Patents or Licensed Products by sub-licensees or by Licensee or their respective servants, agents, Affiliates, officers, directors, stock-holders, employees, or customers. The party seeking indemnification shall give the Licensee prompt notification of any such claim, threat, loss, liability, damage or expense. The indemnity provided herein shall survive any termination or assignment of this Agreement without time limit. Licensee acknowledges that UTIF is entering this Agreement and obtaining for foregoing indemnification as agent for the other Indemnities and is holding the rights contained in this paragraph in trust for the other Indemnities.

 

5.3 Insurance

 

  (a) Licensee, at its own expense and at all times, during the term of this Agreement and for the duration of its indemnity obligations which survive the expiration or premature termination of this Agreement pursuant to Section 5.2 herein, shall carry and maintain in full force and effect comprehensive general liability insurance in amounts not less than $1,000,000 per incident and $2,000,000 annual aggregate, naming UTIF, the University and the Owners as additional insureds. Prior to entering human clinical trials Licensee shall add product liability provisions, and Licensee shall increase the amounts of the insurance policy referred to hereinabove to $5,000,000 per incident and $5,000,000 annual aggregate.

 

  (b) The coming into force of this Agreement is conditional upon UTIF having received a certificate of insurance from the insurance company, in a form acceptable to UTIF, within thirty (30) days following the Effective Date. Such

 

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  policy shall contain an endorsement by the insurer providing that it shall not be reduced below the stated minimum, cancelled or amended without thirty (30) days prior notice to UTIF. Licensee shall provide a certificate of such insurance to UTIF annually hereafter on the anniversary of the Effective Date.

 

5.4 Limitation of Liability

IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS DIRECTORS, OFFICERS, CONTRACTORS, EMPLOYEES OR AGENTS BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES OR EXPENSES OF ANY TYPE (INCLUDING BUT NOT LIMITED TO ANY DAMAGES FOR LOST PROFITS, LOSS OF USE, BUSINESS INTERRUPTION, LOSS OF DATA, LOST BUSINESS OR LOST SAVINGS) ARISING OUT OF THIS AGREEMENT OR THE TECHNOLOGY, WHETHER SUCH DAMAGES OR EXPENSES ARISE OUT OF BREACH OF CONTRACT (INCLUDING FUNDAMENTAL BREACH), OR TORT OR ON ANY OTHER STATUTORY OR COMMON LAW BASIS, EVEN IF THAT PARTY OR ANY OF ITS DIRECTORS, OFFICERS, CONTRACTORS, EMPLOYEES OR AGENTS HAS BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES.

ARTICLE 6

TERM AND TERMINATION

 

6.1 Term

This Agreement shall come into effect upon the Effective Date, and unless earlier terminated, shall terminate on the expiration or invalidity of the last issued Patent.

 

6.2 Termination

 

  (a) The occurrence of anyone or more of the following events shall constitute an event of termination of this Agreement and shall, in addition to any other right or remedy either Party may have, permit a Party hereto to immediately terminate this Agreement:

 

  (i) if the other Party breaches any material covenant or obligation in this Agreement, other than a breach of the Milestones as specified in section 3.2 herein, and such breach is not fully remedied within thirty (30) days after the Party in breach receives written notice of such breach from the other Party; or

 

  (ii) if Licensee fails to provide UTIF with a certificate of insurance pursuant to Section 5.3 (b) herein; or

 

  (iii) in the event of any adjudication of bankruptcy, appointment of a receiver by a Court of competent jurisdiction, assignment for the benefit of creditors, involving the other Party either voluntary or involuntary, or appointment of a receiver by the other Party for any reason whatsoever. Such termination shall not impair or prejudice any other right or remedy that UTIF may otherwise have under this Agreement.

 

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  (b) Licensee may, at its sole discretion, terminate this Agreement upon thirty (30) days prior written notice to UTIF in the event that UTIF elects to make this license non-exclusive pursuant to Section 3.2 (d) herein.

 

  (c) UTIF may, at its sole discretion, terminate this Agreement upon thirty (30) days prior written notice to Licensee in the event that Licensee does not Secure a minimum of two hundred and forty-seven thousand and two hundred dollars ($247,200) within six (6) months following the Effective Date of this Agreement.

 

  (d) Termination as set forth in this Section shall not relieve any of the Parties of any obligations accrued under this Agreement prior to the date of termination. The following provisions shall survive termination of this license: Sections 3.3 (Accounting & Records); 4.1 (Ownership); 4.6 (Confidentiality); 5.2 (Indemnity); 5.3 (Insurance); 5.4 (Limitation of Liability); 6 (Termination and Effect of Termination); and 7 (General Provisions).

 

6.3 Effect of Termination

Upon termination of this Agreement, Licensee shall forthwith:

 

  (a) cease use of Technology and Licensed Products;

 

  (b) pay promptly all amounts it owes to UTIF;

 

  (c) assign any and all sub-licenses granted under this Agreement to UTIF; and

 

  (d) subject to Section 4.6 (e) herein, return to UTIF all Confidential Information.

ARTICLE 7

GENERAL

 

7.1 Time

Time is of the essence of each provision of this Agreement.

 

7.2 Assignment and Sub-licenses

 

  (a) Neither Party may sell, assign, encumber, license or otherwise transfer any of its rights, duties or obligations hereunder without the prior written consent of the other Party, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, either Party may assign its rights and obligations hereunder to a entity acquiring all, or substantially all of such Party’s business or assets without the prior consent of the other Party.

 

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  (b) The Licensee is responsible for any and all activities of any sub-licensee and the sub-licensee shall adhere to all confidentiality, indemnity and insurance requirements set forth in this Agreement. No sub-license granted by Licensee shall be less favorable with respect to any term or condition to UTIF than the license granted herein.

 

7.3 Notices

Any notice, demand or other communication required or permitted to be given or made hereunder shall be in writing and shall be sufficiently given or made if delivered personally or sent by prepaid registered mail to its address or by telecopier to the number and to the attention of the person set forth below:

 

  (a) In the case of a notice to Licensee:

Protagenic Therapeutics, Inc.

4264 Corte Favor,

San Diego, California,

92130

Attention: President

Telecopier No.: (•) •

With a copy to:

John D. Tishler

Sheppard Mullin Richter & Hampton LLP

12544 High Bluff Drive, Suite 300

San Diego, CA 92130

Telecopier No.: (858) 509-3691

 

  (b) In the case of a notice to UTIF:

University of Toronto Innovations Foundation

243 College Street, Suite 200

Toronto, Ontario

M5T lR5

Canada

Attention: Executive Director

Telecopier No: (416) 978-6052

Each notice sent in accordance with this Section shall be deemed to have been given and received:

 

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  (i) if delivered, on the day it was delivered if received within normal business hours;

 

  (ii) if mailed, on the fifth business day following the date on which it was mailed, unless an interruption of postal services occurs or is continuing on or within the five business days after the date of mailings in which case the notice shall be deemed to have been received on the fifth business day after postal service resumes;

 

  (iii) if sent by telecopier, on the day it was received, or on the first business day thereafter if the day on which it was sent was not a business day or outside normal business hours.

Either Party may by notice to the other, given as aforesaid, designate a changed address or telecopier number.

 

7.4 Conflict

In the event any term or any part of any term of this Agreement is determined to be void or unenforceable, such term or part of a term shall be considered separate and severable from this Agreement and the remaining terms shall continue in full force and effect.

 

7.5 Governing Law & Attornment

This Agreement shall be interpreted and construed in accordance with the laws of the Province of Ontario and the laws of Canada applicable therein, and each Party hereby attorns and submits to the non-exclusive jurisdiction of the courts of the Province of Ontario, Canada.

 

7.6 Further Assurances

The Parties agree to execute, acknowledge and deliver all such further instruments, and to do all such other acts, as may be necessary or appropriate to carry out the intent and purpose of this Agreement.

 

7.7 Waiver of Rights

The failure of a Party at any time to request the other Party hereto to comply with any of the terms, conditions or covenants hereof shall not be deemed a waiver of such terms, conditions or covenants. Waiver by a Party of a breach of any term or condition of this Agreement shall not be considered a waiver of any subsequent breach of the same or of any other term or condition hereof.

 

7.8 Relationship of the Parties

 

  (a) The relationship of Licensee to UTIF is that of an independent contractor and neither Licensee nor its agents or employees shall be considered employees of UTIF. This Agreement does not constitute and shall not be construed as constituting a partnership or joint venture or grant of a franchise between Licensee and UTIF.

 

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  (b) A Party will not use the name of any other Party, nor any member of such Party’s staff in any advertising or publicity without the prior written approval of an authorized representative of the body whose name is to be used. However, a Party may notify others of the fact that this Agreement is in effect.

 

7.9 Force Majeure

No Party shall be liable to any other party for delay or failure in the performance of any of its obligations hereunder if such failure is caused by Force Majeure, as hereinafter defined. For the purposes hereof, “Force Majeure” means any act of God, action or failure to act of any government or governmental or regulatory authority, failure of supplies, materials, equipment, labour or transportation being provided by any other person, power failure or shortage, strike, lockout, work slowdown or stoppage, accident, fire, flood, explosion, storm, other natural occurrence, sabotage or other event beyond the control of the relevant party.

 

7.10 Rights and Remedies

In the event that there is a dispute regarding any covenant or obligation in this Agreement, a Party shall be entitled to exercise any right or remedy available to it at law. Such rights shall include, without limitation, termination of this Agreement, and damages.

 

7.11 Entire Agreement

This Agreement, including all attached Schedules which are hereby incorporated by reference, sets forth the entire agreement and understanding of the Parties relating to the subject matter contained herein and merges all prior discussions and agreements between them, and neither Party shall be bound by any definition, condition, warranty or representation other than expressly stated in this Agreement. Any amendment to this Agreement shall not be effective unless it is in writing and signed by the duly authorized signing officers of each Party.

 

7.12 Facsimile Execution

To evidence the fact that it has executed this Agreement, a Party may send a copy of its executed counterpart to the other Party by facsimile transmission. That Party shall be deemed to have executed this Agreement on the date it sent such facsimile transmission. In such event, such Party shall forthwith deliver to the other Party the counterpart of this Agreement executed by such Party.

 

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7.13 Succession

This Agreement shall be binding upon and enure to the benefit of the Parties hereto and their respective successors and assigns.

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in a legally binding manner.

UNIVERSITY OF TORONTO INNOVATIONS FOUNDATION

 

Per:  

/s/ Ron Venter

  Ron Venter, Ph.D.
  Interim-Executive Director
PROTAGENIC THERAPEUTICS, INC.
Per:  

/s/ Haro Hartounian

  Haro Hartounian
  Assistant Secretary

 

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Schedule A

Patent Applications

 

Application No.:    PCT /CA03/00622
Title:    “Teneurin C-Terminal Associated Peptides (TCAP) and Methods and Uses Thereof”
Inventors:    David Lovejoy, Bradley Chewpoy, Dalia Barsyte and Susan Rotzinger
Filed:    May 2, 2003

 

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Schedule B

Research Agreement

 

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This RESEARCH AGREEMENT (the “Agreement”) is made and entered into as of December 14, 2004 (the “Effective Date”) by and between:

PROTAGENIC THERAPEUTICS, INC.

(the “Company”)

– and –

THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO

(the “University”)

WHEREAS, Professor David Lovejoy (“Dr. Lovejoy”) of the University of Toronto, Department of Zoology, has invented a proprietary genetic algorithm known as “STORM” for finding and predicting function(s) of novel therapeutic peptides that may be mimicked by small molecules, one such example of peptide is currently subject of the PCT patent application number PCT/CA03/0062 entitled “TENEURIN C-TERMINAL ASSOCIATED PEPTIDES (TCAP) AND METHODS AND USES THEREOF” (the “Technology”);

WHEREAS, Dr. Lovejoy has entered into an agreement with the University of Toronto Innovations Foundation (“UTIF”) in order to commercialize the Technology;

WHEREAS, UTIF entered into a Memorandum of Understanding (“MOU”) with the Company that outlines a plan for commercialization;

WHEREAS, a condition of the MOU is that the Company must enter into a licence agreement with UTIF for the Technology (the “License Agreement”), and a research agreement with the University to further develop the Technology, both agreements to be upon the terms set forth in the MOU.

WHEREAS, the University is prepared to undertake a research project entitled “[[Project Title]]” (the “Project”);

AND WHEREAS, the Company wishes to support the Project.

The Company and the University hereby agree as follows:

 

1. Project. The University and the Principal Investigator (as defined below) shall perform the Project in accordance with this Agreement and the research plan set forth in Appendix A, as may be amended from time to time by mutual agreement of the parties in accordance with this Section 1 and Section 3 (the “Research Plan”). The initial Research Plan shall encompass the first six months ($52,800) of the Project. Prior to receipt of the second payment ($194,400) the Principal Investigator will be required to submit a revised Research Plan to the Company for its approval. Once the Company has approved the revised Research Plan, the Research Plan will be amended to reflect such revisions. At any time during the Term, the parties may amend the Research Plan upon mutual written agreement.

 

2. Term. The initial term of this Agreement shall commence upon the Effective Date and will end on the second (2nd) anniversary of the Effective Date, unless terminated earlier pursuant to Section 14 (the “Term”). The Term may be extended upon mutual agreement of the parties to include additional research beyond such initial two (2) year period.

 

3. Principal Investigator. The “Principal Investigator” for the Project shall be Dr. David Lovejoy. The Principal Investigator shall be responsible for the technical content of the Project and overseeing and managing the Project. So long as Dr. Lovejoy is an employee of the University and is willing to be the Principal Investigator, the University will maintain Dr. Lovejoy as the Principal Investigator; provided, however, that if Dr. Lovejoy becomes unavailable at any time during the Project, the University may nominate a replacement Principal Investigator, such nomination to be made within fourteen (14) days of the date on which Dr. Lovejoy becomes unavailable. If the Company, for any reason, does not accept the replacement Principal Investigator or a replacement Principal Investigator is not nominated by the University, the Research Plan may be amended to reflect a reduced scope of work for the Project, or the Agreement may be terminated by the Company as set forth in Section 14.

 

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4. Undertakings.

(a) The University shall ensure that, prior to the commencement of the Project: (i) the Principal Investigator shall execute the Principal Investigator’s Undertaking (“PIU’,) attached hereto as Appendix C; (ii) any additional personnel, including without limitation, each additional investigator, involved in the Project (the “Personnel”) shall execute a Confidential Information and Intellectual Property Agreement (“CIIP”) substantially in the form attached hereto as Appendix D; and (iii) in the event that Dr. Lovejoy is replaced in accordance with Section 4 with a replacement Principal Investigator, the new Principal Investigator shall execute a PIU and each existing and new Personnel shall execute a CIIP under the replacement Principal Investigator.

(b) The University and Principal Investigator shall ensure that all work performed by such personnel on the Project is in compliance with the terms of this Agreement.

 

5. Budget. In consideration of the University carrying out the Project, the Company shall pay the University the sum of CDN $247,200 and certain additional compensation all in accordance with the budget and payment schedule attached as Appendix B.

 

6. Payment. All cash payments shall be made by cheque payable to the University of Toronto and addressed to the Assistant Vice-President, Technology Transfer. The First Instalment (as defined in Appendix B) will be paid upon execution of this Agreement and the Second Instalment (as defined in Appendix B) shalt be paid upon the last to occur of the following: (i) February 31, 2005; (ii) the date which is two (2) months from the final execution of the Research Agreement; or (iii) the date which is two (2) months from the final execution of the Licence Agreement.

 

7. Equipment. The University will own any equipment or material purchased by or provided to the University as part of the Project.

 

8. Meetings and Reports.

(a) The University through the Principal Investigator, the other investigators and any other appropriate Personnel will participate in bi-weekly telephone conversations, and at the discretion of the Company, monthly in-person meetings. Representatives of the Company shall be entitled to participate in such meetings.

(b) The University shall share all data, research work conclusions and recommendations arising from the performance of the Project (“Research Results”) with the Company, and shall provide reports regarding all Research Results as follows: (i) quarterly written reports, and more frequently upon specific request from the Company, presenting a meaningful summary of the research accomplished and comparing Research Results to the Research Plan, including without limitation, costs incurred with a comparison to Appendix B; and (ii) a fmal report within sixty (60) days after the end of the Term, or in the event the Term is extended, upon the end of such extended term.

(c) The Company shall have the right to use the Research Results and the reports (i) in connection with the research, development and commercialization of the Company’s future products; (ii) to promote the Company; and (iii) as required for any regulatory submission or other submission to a government authority.

 

9. Confidential Information. Each of the parties may disclose confidential information (the “Disclosing Party”) to the other party (the “Receiving Party”) to facilitate work under this Agreement. Such information (“Confidential Information’’) shall be so identified in writing at the time of its transmittal to the Receiving Party, or so reduced to writing within ten (10) days thereafter. Confidential Information shall be maintained and held in strict confidence by the Receiving Party using the same methods and to the same degree of care (but at least reasonable care) that the Receiving Party uses to prevent disclosure of its own Confidential Information and shall not be

 

-2-


disclosed to third parties by the Receiving Party without the written consent of the Disclosing Party; provided, however, that the Receiving Party may disclose the Disclosing Party’s Confidential Information to its agents, employees, officers, trustees, directors and representatives on a need-to-know basis (including, fulfilling corporate reporting obligations), as necessary to complete the Project in accordance with this Agreement, and only if the foregoing parties are bound in writing to be obligated by the same provisions of confidentiality and non-use with respect to such Confidential Information as are set forth herein. Confidential Information shall only be used by the Receiving Party for the purposes set forth in this Agreement, the MOU and the License Agreement. Confidential Information shall not include information that the Receiving Party can show by competent written evidence:

 

  (a) is already known to the Receiving Party without any obligations of confidentiality;

 

  (b) is or becomes part of the public domain without breach of this Agreement; or,

 

  (c) is obtained from a third party who has no obligations of confidentiality to the parties to this Agreement.

Notwithstanding the above, the Receiving Party may disclose Confidential Information, without violating the obligations of this Agreement, to the extent the disclosure is required by a valid court order or other governmental body having jurisdiction; provided that the Receiving Party gives reasonable prior written notice to the Disclosing Party of such required disclosure and makes a reasonable effort to obtain, or to assist the Disclosing Party in obtaining, a protective order preventing or limiting the disclosure and/or requiring that the Confidential Information so disclosed be used only for the purposes for which the law or regulation requires, or for which the order was issued.

 

10. Intellectual Property. Any new intellectual property, including without limitation, technical information, know-how, copyrights, models, drawings, specifications, prototypes, inventions, improvements, discoveries, or software developed in performance of the Project (“Intellectual Property”) will be owned by the University. In accordance with the terms of the MOU, or following execution of the License Agreement, in accordance with the terms of the License Agreement, the Company shall have the option to exclusively license with rights of sub-license the Intellectual Property on the same royalty, sublicense fee and other terms as set forth in the MOU with respect to the licensing of the Technology to the Company. The option will be for one hundred eighty (180) days after disclosure of the Intellectual Property to the Company, and the license fee for such Intellectual Property, if the option is exercised, shall be equal to the out-of-pocket patent prosecution costs that the University, or its designate, has incurred with respect to such Intellectual Property prior to the exercise of such option. The Principal Investigator and all other Personnel are required to disclose all Intellectual Property to the University and any such disclosure shall also be made to the Company. The University, the Principal Investigator and all other Personnel shall execute all documents necessary and sufficient to enable the licensing of the Intellectual Property to the Company. The University reserves the non-transferrable, non-assignable, non-sublicenseable right to use the Intellectual Property for research, teaching and other administrative purposes upon terms to be more fully described in the License Agreement.

 

11. Publications. The University may publish or disclose the Research Results as permitted under this Section 11. Each such publication shall be authored as is scientifically appropriate and shall acknowledge the support of the Company in all such publications. The University will provide a copy of any proposed publication or disclosure to the Company for its review at least thirty (30) days before submission for publication or disclosure. Upon the Company’s written request received within twenty (20) days of the Company’s receipt of a copy of such publication or disclosure, the University will, at the Company’s option:

 

  (a) delay publication up to sixty (60) additional days to enable the Company to secure intellectual property protection of Intellectual Property that would be publicly disclosed by said publication; and/or,

 

-3-


  (b) delete any Confidential Information provided by Company from the manuscript or proposed disclosure.

Prior to the earlier of completion of the First Research Milestone or termination of this Agreement, all publications or disclosures shall be made only upon the mutual agreement of the parties. For purposes of this Agreement, “First Research Milestone” shall mean identification of a single lead compound candidate ready for commencement of pre-clinical investigations.

 

12. Indemnity. The Company shall indemnify, defend and hold harmless the University and its trustees, officers, directors, employees and agents from and against all claims, demands, suits or actions by third parties for any liability, loss, damage or cost (“Losses”) arising out of injuries (including death) to persons participating in the Project or damage to property, caused by agents or personnel of the Company during the performance of this Agreement, except to the extent such Losses are attributable to the wilful or negligent act or omission of personnel or agents of the University. The University shall indemnify, defend and hold harmless the Company and its directors, officers, employees and agents from and against all Losses arising from injuries (including death) to persons participating in the Project or damage to University property caused by the wilful or negligent act or omission of personnel or agents of the University during the performance of this Agreement, except to the extent such Losses are attributable to the wilful or negligent act or omission of personnel or agents of the Company. The party seeking indemnity under this Section 12 shall promptly and in any event within thirty (30) days notify the indemnifying party of any known complaint, claim or injury which is the subject of a Loss by such indemnified party. The indemnified party shall, and shall ensure that any fellow indemnitees, cooperate with the indemnifying party in the defense or settlement of any claim of Loss under this Section 12; provided, however, that no indemnitee shall be required to admit fault or responsibility in connection with any settlement. The indemnified party shall have the right to select and to obtain representation by separate legal counsel at such indemnified party’s own expense.

 

13. Representations and Warranties; Limitation of Liability .

 

  (a) Each party represents and warrants that the terms of this Agreement are not inconsistent with its other contractual arrangements or obligations.

 

  (b) Each party represents and warrants that (i) it has the full power and authority to enter into this Agreement, (ii) this Agreement has been duly authorized, and (iii) this Agreement is binding upon it.

 

  (c) The University shall not be liable for any delays in the performance of its obligations under this Agreement resulting from circumstances or causes beyond the University’s control, and in no case shall the University be liable for loss of business or profit or other indirect or consequential damage.

 

14. Termination. This Agreement may be terminated as follows:

 

  (a) by the University upon giving sixty (60) days written notice to the Company, if, in the reasonable judgement of the Principal Investigator, the research program is no longer technically feasible;

 

  (b) by the Company upon giving sixty (60) days written notice to the University if, in the reasonable judgement of the Company, the research program is no longer technically or commercially feasible;

 

  (c) by the Company upon giving thirty (30) days written notice to the University if, at any time during the Term or any extension thereof, the parties are unable to agree on the terms of an amendment to the Research Plan;

 

  (d) by the Company immediately upon giving written notice to the University if (i) the Company does not accept the replacement Principal Investigator nominated by the University or (ii) if no replacement Principal Investigator is nominated by the University within fourteen (14) days of the date on which Or. Lovejoy becomes unavailable;

 

-4-


 

  (e) by the Company upon giving thirty (30) days written notice to the University if a research milestone has not been achieved within the time period specified in the Research Plan; or,

 

  (f) by either party upon giving thirty (30) days written notice to the other if the other party is in default of fulfilling any of its obligations under this Agreement and such default has not been cured within such thirty (30) days notice period.

Upon termination, the University will be entitled to credit for work performed hereunder prior to such termination, including all non-cancellable costs incurred by the University prior to the date of notice of termination, and the Company will be entitled to a return of the remaining balance of any advance payment. The University shall use reasonable efforts, and shall ensure that the Principal Investigator uses reasonable efforts, to minimize the non-cancellable costs and expenses associated with the termination of the Agreement. Upon termination, the Company may, in its sole discretion, pursue research under the Research Plan beyond the First Research Milestone outside of this Agreement. Expiration or termination of this Agreement will not relieve the parties of any obligation accruing prior to such expiration or termination. Sections 5, 6, 8, 9, 10, 11, 12, 13(c), 14, 15, 16, 17, 18, 19, 20 and 21 will survive termination of this Agreement.

 

15. No Use of Names. Neither party win use the name of the other party, or of any member of the other party’s personnel, in any advertising or publicity without the prior written approval of the other party’s authorized representative. However, both parties may make the following information a matter of public record: name of the Principal Investigator; the Principal Investigator’s department; the University’s name; the Company’s name; the Project title; and the Project duration.

 

16. Notices. Notices under this Agreement will be sent to the appropriate party at the address specified below, with copies to the additional addresses for such party specified below, or at such other address(es) as the party shall specify in writing:

 

  (a) to the University:

 

  i. for technical and scientific matters:

Professor David Lovejoy

Department of Zoology

Faculty of Arts and Science

25 Harbord Street, RW305

Toronto, Ontario, M5S 3G5

LOGO : 416-946-7259

 

  ii. for legal and administrative matters:

Peter B. Munsche

Assistant Vice-President, Technology Transfer

University of Toronto Research Services

27 King’s College Circle

Toronto, Ontario M5S 1A1

LOGO : 416- 978-6063 / LOGO : 416-978-5821

  (b) to Company:

 

  i. for scientific and technical matters:

Protagenic Therapeutics, Inc.

Attn: Chief Scientific Officer

4264 Corte Favor

San Diego, CA 92103

 

-5-


LOGO :            / LOGO :            

 

  ii. for legal and administrative matters:

Protagenic Therapeutics, Inc.

Attn: Chief Operating Officer

4264 Corte Favor

San Diego, CA 92103

LOGO :            / LOGO :            

 

  iii. with a copy to:

John D. Tishler

Sheppard Mullin Richter & Hampton LLP

12544 High Bluff Drive, Suite 300

San Diego, CA 92130

LOGO : 858-720-8900 / LOGO : 858-509-3691

 

17. Independent Parties. The parties are independent parties and nothing in this Agreement shall constitute either party as the employer, principal or partner of or joint venturer with the other party. Neither party has any authority to assume or create any obligation or liability, either express or implied, on behalf of the other.

 

18. No Assignment. Neither party may sell, assign, encumber, licence or otherwise transfer any of its rights, duties or obligations under this Agreement without the prior written consent of the other party, which consent may not be unreasonably withheld. Notwithstanding the foregoing, the Company may assign its rights or obligation to an entity acquiring all, or substantially all of the Company’s business or assets without obtaining the consent of the University.

 

19. Successors. This Agreement shall binding and enure to the benefit of the parties and their respective heirs, successors and assigns.

 

20. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Canada and the laws of the Province of Ontario applicable therein.

 

21. Entire Agreement. This Agreement is the entire agreement of the parties and no change or modification shall be valid unless it is in writing and signed by both parties.

In witness whereof the parties agree to be bound by the terms of this Agreement.

 

THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO

  

PROTAGENIC THERAPEUTICS, INC.

/s/ Peter Munsche

  

/s/ H. Hartounian

Name:   Peter Munsche    Name:    H. Hartounian
Title:   Vice-President, Technology    Title:    Chairman
  Transfer      

 

-6-


PRINCIPAL INVESTIGATOR:

I, the Principal Investigator, having read this Agreement, hereby agree to act in accordance with all the terms and conditions herein and further to agree to ensure that all University participants are informed of their obligations under such terms and conditions.

 

/s/ David Lovejoy

Professor David Lovejoy, University of Toronto, Department of Zoology

 

-7-


APPENDIX” A”

Research Plan

Dr. D.A. Lovejoy: Research Plan

for Protagenic Therapeutics, Inc.

Phase I Funding

Time Scale: 6 months from onset of funding

PROJECT TITLE: Evidence for existence of TCAP receptors in neurons.

GOALS:

 

1) Determination of the most appropriate cell line to evaluate TCAP ligand affinity for its receptor.

 

2) Determination of cell lines that do not have TCAP receptors

 

3) Determination of the most appropriate cell line in which to purify the TCAP receptor

Background: The identification of eventual structural characterization of high affinity TCAP receptors are essential to develop a high sensitivity ligand-screening assay for the purpose of evaluating future TCAP peptide variants and ultimately as a high-throughput testing platform to develop TCAP small molecule mimics. We have a unique advantage to develop a distinct receptor-screening assay by capitalizing on the use of the recently developed immortalized hypothalamic cell lines. We have screened these cells for TCAP responsiveness and identified four cell lines that are responsive to TCAP as determined by cAMP modulation abilities. However, we have determined that cAMP is not a reliable endpoint as an evalution method. Many hormones can trigger an increase in cAMP in some parts of the cell, for example neurites and axon hillock regions, but a decrease in dentrites. Thus using a monoculture of cells can lead to inconsistent results depending upon the confluency, passage and growth rate of the cultured cells. Ligand-binding determinations are a more reliable determination as a first level of evalution of ligand activity because receptor activation is a prerequisite for downstream cellular activity such as cAMP.

Experimental Design: Plasma membrane preparations of four different mouse neuronal cell line cultures will be used to measure the affinity of mouse TCAP-l for the endogenous receptor. Cells will be grown initially to 50 to 60% confluency, as we have previously determined that this cell density is the most consistent in terms of TCAP action using neurite outgrowth and cAMP as physiological endpoints. Receptor affinity will be evaluated using two methods: 1) Scintillation proximity assays (SPA) and 2) radioreceptor assays. The scintillation assay has the advantage in that it is already designed to be a high throughput method. It has the disadvantage in that it has a lower sensitivity than other methods, and so the optimization of the cell type and receptor expression level are key requirements for an effective method. We have used this method in the past with ectopically expressed receptors in a rapidly growing cell line. The radioreceptor assay, on the other hand is highly sensitive and specific using a radiolabelled TCAP ligand. We have used this method in the past to evaluate small sequence changes in peptides with a similar structure to TCAP. The disadvantage of this method is that it cannot be readily scaled up to a high-throughput level. Thus for the purposes of defining the level of TCAP receptor expression and its affinity for its ligand, both methods are complementary.

 

-8-


Goal 1 : Determination of the most appropriate cell line to evaluate TCAP ligand affinity for its receptor.

TCAP affinity determined by as strong response using the SPA assay, and confirmed by the radioreceptor assay will be selected as the cell line for high throughput screening

Goal 2: Determination of cell lines that do not have TCAP receptors.

A negative response in the form of a flat displacement curve for both assays will be used as evidence that the TCAP receptor is not present. As further confirmation of this, a cAMP assay will be employed.

Goal 3 : Determination of the most appropriate cell line in which to purify the TCAP receptor

Cell lines showing a strong affinity curve with a single binding site will be selected to for the purification of the receptor. Proteins with affinity for TCAP will be examined using ligand photoaffinity crosslinking to the bound protein.

Challenges and Interpretation: Although we already possess cell lines with the TCAP receptor that can yield a measurable response, high levels of receptor expression are essential for a sensitive screening assay. Endogenously expressed receptors may not be expressed at a level that is viable for a screening assay that can be scaled up to a high-throughput type level. In this case, it may be necessary to explore additional heterologous systems where the TCAP receptor is ectopically expressed in for example non-neural cells using a vector system incorporating a high expression promotor (e.g. CMV). We have utilized a similar system in the past to evaluate novel peptide designs and, therefore, have the experience to develop this further, if necessary. Our preliminary investigations also indicate that the affinity of the TCAP receptor may be altered by the presence of GPCR-modulating proteins, particularly the RAMP proteins. Thus, if using a heterologous expression system, the appropriate RAMP may have to be coexpressed. Alternatively, if receptor levels are of sufficiently high levels in the homologous neuronal systems, then using the appropriate cell line with the requisite accessory proteins will be essential.

Timelines

The setting up and optimization of the receptor assay systems are expected to take about 2 months. Determination of the appropriate cell lines are expected to take 2-4 months depending of the data obtained. Within this period we will know whether an endogenously expressed receptor system or an ectopically expressed receptor system is more sensitive to evaluate the compounds. About 2 to 4 months will be required to evaluate the levels of TCAP bound protein in the responsive cell lines. A number of the project goals can be done in parallel to each other such that about 6 months will be required to answer these questions.

Personnel: An entry-level post-doctoral scientist with a background in molecular pharmacology will be responsible for the setting up and optimization of the assay, as well as the analysis of the peptide binding curves. This individual will also be responsible for organizing the testing regimens and in consultation with Dr. Lovejoy making the decision on the appropriate cell lines and preparing the data reports. A junior research assistant is will be required for the preparation and maintenance of the cell lines as well as assist as necessary in the preparation of the cell and membrane extracts. The scientist in training, Arij Al Chawaf, presently a Ph.D student in Dr. Lovejoy’s laboratory, who has been developing the receptor characterization assays will evaluate the cell lines selected for the purification of the receptor using photoaffinity crosslinking purification.

 

-9-


Phase / Budget: Evalution of TCAP receptor affinity in immortalized neurons

 

Personnel

   Post Doctoral Scientist      21,000   
   Research Assistant      12,500   
   Scientist in training      2,000   
   total      35,500   

Consumables

   SPA kits      7,000   
   Radioisotopes      2,500   
   disposable labware      800   
   chemicals      500   
   Electrophoresis      5500   
   Tissue culture      1000   
   total      17,300   
   grand total      52,800   

 

 

-10-


APPENDIX “B”

Budget

Cash Payment

 

     First Installment      Second Installment  

Direct Costs

   CDN$ 45,913       CDN$ 169,043   

O/H Cash

   CDN$ 6,887       CDN$ 25,357   
  

 

 

    

 

 

 

Total Cash

   CDN$ 52,800       CDN$ 194,400   
  

 

 

    

 

 

 

Additional Consideration

As consideration for an overhead cost of 15% of direct costs for a two (2) year period beginning on the Effective Date, the University shall receive an option to purchase 30,000 shares of the Company’s Common Stock, representing 3% of the Company’s outstanding Common Stock upon formation, at an exercise price of US$1.00 per share (the “Options”). Commencing on the Effective Date, the Options shall vest on a monthly basis over a two (2) year period, subject to continuation of research by the University under this Agreement, so that 1/24th of the Options shall vest each month during such two (2) year period. The Options shall expire on August 31, 2009.

 

-11-


APPENDIX “C”

Principal Investigator’s Undertaking

 

Please return the signed original of this Undertaking to Melissa Jutzi at Research Services, Simcoe Hall, Rm. 133S, who can be reached at 978-6927 for information about the Research Agreement.

 

20/01/99

PRINCIPAL INVESTIGATOR’S UNDERTAKING

 

RE: Contract between the University of Toronto and Protagenic Therapeutics, Inc. for a project entitled “[[Project Title]]” (the “Project”)

UNDERTAKING

I have read and received a copy of the above referenced agreement (the “Research Agreement”) and agree with the terms and conditions contained therein. I will ensure that the Project is performed as outlined in the Research Agreement and will meet the obligations as specified in the Research Agreement. I will authorize all project expenditures as outlined in the Research Agreement and the normal procedures and practices of the University, and in all matters will follow normal University policies and practices where they are not replaced by specific conditions of the Research Agreement.

I will inform each person working on the Project, whether or not paid from Research Agreement funds (the “Participant”), of the Participant’s obligations under the Research Agreement, and ensure that each Participant signs a Confidential Information and Intellectual Property Agreement in the form attached as Appendix “D” to the Research Agreement (“IP Agreement”). I understand that any person who does not wish to sign an IP Agreement may not participate in the Project unless the University’s Office of Research Services advises otherwise.

A list of Participants is provided on the reverse and a signed IP Agreement for each Participant is attached. I have indicated on the reverse if any Participant’s work involves his or her thesis. If any person not listed on the reverse commences work on the Project, I will submit an additional IP Agreement for such person promptly upon his or her commencement of work, and I shall update the list of Participants to include any such person.

 

/s/ David Lovejoy

Name: Professor David Lovejoy, Principal Investigator
Date: December 9, 2004
ACKNOWLEDGEMENT

/s/ James D. Thomson

Name: Professor James D. Thomson, Chair, Department of Zoology
Date: 9 December 2004

 

-12-


Appendix “C-l”

Project Participants

 

RE: Agreement with Sponsor:    Protagenic Therapeutics, Inc.   
for Project:      
by Principal Investigator:    Professor David Lovejoy   

The following is a complete list of all persons who are working on the Project, whether or not paid from Research Agreement funds, as of                     (Date) .

(student, postdoc, RA, technician, etc.)

 

Name

  

Status

  

Involves Thesis

ARIJ AL CHAWAF

   PHD STUDENT    YES

20/01/99

 

-13-


APPENDIX “D”

Form of Confidential Information & Intellectual Property Agreement

 

Each person working on the project, whether or not paid from Research Agreement funds, must sign and date this agreement. Please return a signed original of this agreement to Melissa Jutzl at Research Services, Simcoe Hall, Rm. 133S, who can be reached at 978-6927 for information about the Research Agreement.

 

20/01/99

Confidential Information & Intellectual Property Agreement

The University of Toronto (the “University”) may make information and facilities for research available to me in connection with my work under a contract between the University and Protagenic Therapeutics, Inc. (the “Sponsor”) for the project entitled “[[Project Title]]” (the “Research Agreement’’). Dr. David Lovejoy will supervise my work.

In consideration of information and facilities made available to me and other valuable consideration, I agree that:

 

1. I will keep confidential, in accordance with the terms of the Research Agreement, all of the Sponsor’s confidential information that I may receive. I will also keep the terms of the Research Agreement confidential.

 

2. I will comply with all publication conditions that may be set out in the Research Agreement.

 

3. I will give complete information to the University’s Office of Research Services about any intellectual property, including without limitation, any technical information, know-how, copyright, model, drawing, specification, prototype, invention, improvement, discovery, or software that I may make, conceive, develop, or reduce to practice in performance of the project (“Intellectual Property”) as may be requested by the University.

 

4. I will comply with all conditions regarding Intellectual Property that may be set out in the Research Agreement.

 

5. All decisions about the protection of Intellectual Property under applicable legislation, ownership of and rights in any resulting application or patent, and revenue from Intellectual Property will be made in accordance with the University of Toronto Inventions Policy dated effective January 1, 1990, as amended (http://www.research.utoronto.ca/policies_inventions.html). and/or the University of Toronto Copyright Policy dated June 3, 2002, as amended (http://www.research.utoronto.ca/copyright.html), and the Research Agreement, and I will accept such decisions as final.

 

6. I will sign all documents and do all things necessary or proper to give effect to this Agreement and any rights granted by the University under the Research Agreement.

 

7. I have had an opportunity to review the applicable terms of the Research Agreement and obtain independent advice on the terms of the Research Agreement and my obligations and liabilities under this Agreement and the Research Agreement.

 

8. This Agreement shall be binding on my heirs.

 

-14-


By signing below, I indicate my acceptance of these terms.

 

/s/ David Lovejoy

     

/s/ Gina Trubiani

  
Signature       Witness   

David Lovejoy

     

Gina Trubiani

  
Name (Type or Print)       Name (Type or Print)   

December 16, 2004

     

December 16, 2004

  
Date       Date   

 

-15-


Dr. D.A. Lovejoy: Research Plan

for Protagenic Therapeutics, Inc.

Phase I Funding

Time Scale: 6 months from onset of funding

PROJECT TITLE: Evidence for existence of TCAP receptors in neurons.

GOALS:

 

1) Determination of the most appropriate cell line to evaluate TCAP ligand affinity for its receptor.

 

2) Determination of cell lines that do not have TCAP receptors

 

3) Determination of the most appropriate cell line in which to purify the TCAP receptor

Background: The identification of eventual structural characterization of high affinity TCAP receptors are essential to develop a high sensitivity ligand-screening assay for the purpose of evaluating future TCAP peptide variants and ultimately as a high-throughput testing platform to develop TCAP small molecule mimics. We have a unique advantage to develop a distinct receptor-screening assay by capitalizing on the use of the recently developed immortalized hypothalamic cell lines. We have screened these cells for TCAP responsiveness and identified four cell lines that are responsive to TCAP as determined by cAMP modulation abilities. However, we have determined that cAMP is not a reliable endpoint as an evalution method. Many hormones can trigger an increase in cAMP in some parts of the cell, for example neurites and axon hillock regions, but a decrease in dentrites. Thus using a monoculture of cells can lead to inconsistent results depending upon the confluency, passage and growth rate of the cultured cells. Ligand-binding determinations are a more reliable determination as a first level of evalution of ligand activity because receptor activation is a prerequisite for downstream cellular activity such as cAMP.

Experimental Design: Plasma membrane preparations of four different mouse neuronal cell line cultures will be used to measure the affinity of mouse TCAP-l for the endogenous receptor. Cells will be grown initially to 50 to 60% confluency, as we have previously determined that this cell density is the most consistent in terms of TCAP action using neurite outgrowth and cAMP as physiological endpoints. Receptor affinity will be evaluated using two methods: 1) Scintillation proximity assays (SPA) and 2) radioreceptor assays. The scintillation assay has the advantage in that it is already designed to be a high throughput method. It has the disadvantage in that it has a lower sensitivity than other methods, and so the optimization of the cell type and receptor expression level are key requirements for an effective method. We have used this method in the past with ectopically expressed receptors in a rapidly growing cell line. The radioreceptor assay, on the other hand is highly sensitive and specific using a radiolabelled TCAP ligand. We have used this method in the past to

 


evaluate small sequence changes in peptides with a similar structure to TCAP. The disadvantage of this method is that it cannot be readily scaled up to a high-throughput level. Thus for the purposes of defining the level of TCAP receptor expression and its affinity for its ligand, both methods are complementary.

Goal 1: Determination of the most appropriate cell line to evaluate TCAP ligand affinity for its receptor.

TCAP affinity determined by as strong response using the SPA assay, and confirmed by the radioreceptor assay will be selected as the cell line for high throughput screening

Goal 2 : Determination of cell lines that do not have TCAP receptors.

A negative response in the form of a flat displacement curve for both assays will be used as evidence that the TCAP receptor is not present. As further confirmation of this, a cAMP assay will be employed.

Goal 3 : Determination of the most appropriate cell line in which to purify the TCAP receptor

Cell lines showing a strong affinity curve with a single binding site will be selected to for the purification of the receptor. Proteins with affinity for TCAP will be examined using ligand photoaffinity cross linking to the bound protein.

Challenges and Interpretation: Although we already possess cell lines with the TCAP receptor that can yield a measurable response, high levels of receptor expression are essential for a sensitive screening assay. Endogenously expressed receptors may not be expressed at a level that is viable for a screening assay that can be scaled up to a high-throughput type level. In this case, it may be necessary to explore additional heterologous systems where the TCAP receptor is ectopically expressed in for example non-neural cells using a vector system incorporating a high expression promotor (e.g. CMV). We have utilized a similar system in the past to evaluate novel peptide designs and, therefore, have the experience to develop this further, if necessary. Our preliminary investigations also indicate that the affinity of the TCAP receptor may be altered by the presence of GPCR-modulating proteins, particularly the RAMP proteins. Thus, if using a heterologous expression system, the appropriate RAMP may have to be coexpressed. Alternatively, if receptor levels are of sufficiently high levels in the homologous neuronal systems, then using the appropriate cell line with the requisite accessory proteins will be essential.

Timelines

The setting up and optimization of the receptor assay systems are expected to take about 2 months. Determination of the appropriate cell lines are expected to take 2-4 months depending of the data obtained. Within this period we will know whether an endogenously

 


expressed receptor system or an ectopically expressed receptor system is more sensitive to evaluate the compounds. About 2 to 4 months will be required to evaluate the levels of TCAP bound protein in the responsive cell lines. A number of the project goals can be done in parallel to each other such that about 6 months will be required to answer these questions.

Personnel: An entry-level post-doctoral scientist with a background in molecular pharmacology will be responsible for the setting up and optimization of the assay, as well as the analysis of the peptide binding curves. This individual will also be responsible for organizing the testing regimens and in consultation with Dr. Lovejoy making the decision on the appropriate cell lines and preparing the data reports. A junior research assistant is will be required for the preparation and maintenance of the cell lines as well as assist as necessary in the preparation of the cell and membrane extracts. The scientist in training, Arij Al Chawaf, presently a Ph.D student in Dr. Lovejoy’s laboratory, who has been developing the receptor characterization assays will evaluate the cell lines selected for the purification of the receptor using photo affinity cross-linking purification.

Phase / Budget: Evalution of TCAP receptor affinity in immortalized neurons

 

Personnel

   Post Doctoral Scientist      21,000   
   Research Assistant      12,500   
   Scientist in training      2,000   
   total      35,500   

Consumables

   SPA kits      7,000   
   Radioisotopes      2,500   
   disposable labware      800   
   chemicals      500   
   Electrophoresis      5500   
   Tissue culture      1000   
   total      17,300   
   grand total      52,800   

 


AMENDING AGREEMENT #1 between

Protagenic Therapeutics, Inc. and the Governing Council of the University of Toronto

 

This AMENDING AGREEMENT (the “Amending Agreement”) made in duplicate the 31 st day of May, 2005.

BETWEEN:

PROTAGENIC THERAPEUTICS, INC.

(the “Company”)

-and-

THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO

(the “University”)

WHEREAS the Company and the University entered into an agreement effective December 14, 2004 (the “Research Agreement”) for the performance of a research project entitled “Evidence for existence of TCAP receptors in neurons” (the “Project”);

AND WHEREAS the parties now wish to amend the Research Agreement herein;

The parties hereby agree as follows:

1. Definitions. Except as otherwise defined herein, any capitalized terms used in this Amending Agreement shall have the meanings prescribed by the Research Agreement The capitalized terms “First Installment,” “Second Installment,” and “Final Installment” shall have the meaning prescribed in Appendix “B” attached hereto.

2. Budget. The University has received $52,800 of the $247,200 due to the University for carrying out the Project. The Company shall provide the remaining budget of $l94,400 in accordance with the revised budget and payment schedule attached as Appendix “B”, which shall replace Appendix “B” of the Research Agreement.

3. Payment. The First Installment from the Company was paid by cheque on December 1, 2005. The Second Installment will be paid in equal installments over the six (6) month period of June 1, 2005—November 31, 2005 on the first of every month. The Final Installment will be paid on the date which is six (6) months after the final execution of the License Agreement.

4. Research Plan. In accordance with Section 1 of the Research Agreement, the research plan set forth in Appendix “A” to the Research Agreement is supplemented by the research plan attached as Appendix “A” to this Amending Agreement.

5. Financial Reports. For six month period of the Second Installment, the University will provide the Company with financial reports from time to time summarizing the expenses incurred within a reasonable time after the Company’s request therefor.

6. General. All other terms of the Research Agreement and the Administration Agreement shall remain unchanged and in full force and effect.

In witness whereof the parties agree to be bound by the terms of this Amending Agreement

 

THE GOVERNING COUNCIL OF THE     PROTAGENIC THERAPEUTICS, INC.
UNIVERSITY OF TORONTO    

/s/ Peter B. Munsche

   

/s/ H. Hartounian

Name:   Peter B. Munsche     Name:   H. Hartounian
Title:   Assistant Vice-President     Title:   Chairman
  Technology Transfer      

 


Acknowledgement:

I, the Principal Investigator having read this Agreement, hereby agree to act in accordance with all the terms and conditions herein and to agree to ensure that all University participants are informed of their obligations under such terms and conditions.

 

/s/ David Lovejoy

Prof. David Lovejoy, University of Toronto, Department of Zoology

 


Appendix “A”

PTI Research Plan

Viability of TCAP as an Intravenously Injected Therapeutic

David Lovejoy and Susan Rotzinger

Strategy and Goals

The aim is to establish a complete physiological model of TCAP action from exogenous administration to the onset of behaviour with the goal to establish the feasibility of TCAP treatment on hospitalized patients suffering from severe depression or anxiety. Several experiments are proposed to fill in the gaps where the understanding of TCAP action is not complete.

At the completion of these studies, we should be able to determine the best method to administer TCAP, its longevity in vivo (biological half-life), its uptake in the brain, its mode of action on key sites in the brain and how it targets the CRF-mediated anxiogenic system, its actions on behavioural tests. Moreover, its actions on behavioural tests should allow predictions as to whether TCAP will be most appropriate for treating depression or anxiety.

Proposed Experiments

Development of New Assay Systems

In order to enhance our understanding of the actions of TCAP two new assay systems will be developed.

Forced Swim Test: Presently, our behavioural analyses are designed to evaluate the anxiolytic or anxiogenic aspects of bioreactive agents. However, the forced swim test is the industry standard test for evaluating whether an agent has the potential to modify the incidence of depression. This method is presently not being used in-house and therefore we need to purchase the necessary equipment and validate the test on TCAP treated animals in comparison to animals treated with agents known to enhance depression.

TCAP Radioimmunoassay : In addition, the accurate detection of TCAP in the blood stream may be a powerful tool to determine if individuals are predisposed to the incidence of depression and anxiety or are suffering from a condition associated with TCAP dysregulation. Moreover, a TCAP detection assay will allow for an understanding of the biological halflife of TCAP and in the future could be used to monitor patients undergoing TCAP treatment. If TCAP can be reliably detected in plasma then we envision using the ratio of plasma TCAP concentrations to known anxiogenic hormones such as CRF, ACTH and cortisol as a diagonostic means to detect the incidence of depression and anxiety. We have already raised three TCAP-specific antisera, and possess the necessary equipment to put this assay together.

 

page 1


Route of Administration

Presently most studies have focused on direct injection of TCAP into the brain using indwelling cannulae. Pilot studies indicate that intravenous injection is a viable method, although a full set of behavioural experiments to ascertain this have not been performed. In addition, subcutaneous injection has not been investigated.

TCAP will be administered either as a single injection IV or SC to determine acute effects, or as one injection each day over five days to determine chronic actions. The acoustic startle response, elevated plus maze, swim test behaviour locomotion and body weight changes will be examined

Biological Half-life

Nothing is presently known about the longevity of TCAP in vivo. A structural analysis of the peptide predicts that TCAP is modified for circulation in the blood stream. Two sets of experiments are designed to answer these questions.

Synthetic TCAP will be incubated in rat plasma, and its breakdown by proteolytic enzymes will be determined by examining the loss of immunoreactive signal on a high resolution polyacrylamide gel using TCAP-specific antisera over a 2 to 8 hour period. The length of time will be based on its rate of breakdown in the first 1 to 2 hours of the study. This will allow us to understand the plasma component of TCAP degradation.

Upon completion of the above experiments, TCAP will be injected intravenously into rats and the presence of TCAP in tissues and the brain will be examined by radioimmunoassay. TCAP expression

Tissue partitioning Studies

Pilot studies on IV injected TCAP reveal that this mode of administration induces behavioural changes consistent with the actions of neurally injected TCAP. This implies that TCAP is moving across the blood brain barrier to gain access into the brain, but does not rule out an indirect action of TCAP on other organ systems that possess a feedback action on the brain, for example the adrenal cortex.

TCAP uptake in the brain will be examined directly by the expression of labelled TCAP in the brain after IV injection of labelled TCAP. Any major modification of the TCAP sequence either by adding a novel epitope or by chemoluminescent tagging will likely modify TCAP uptake by putative transporter and receptor systems. Thus a radiolabel tag will likely be employed.

 

page 2


Interactions with CRF and its receptor system

The acoustic startle response studies indicate that TCAP may act directly on its own receptor to induce an anxiolytic response or alternatively may act as an antagonist on the CRF-receptor system to inhibit the actions of CRF. These studies are designed whether TCAP can directly inhibit the actions of CRF acutely or chronically through the CRF-R1 receptor system.

TCAP and CRF will be coinjected IV at varying concentrations to determine actions on ACTH release from the pituitary and cortisol release from the adrenal cortex. Previous studies by our laboratories indicate that TCAP by itself does not induce cortisol release. However a non-significant but compelling decrease in plasma cortisol was observed in animals treated with TCAP. These studies will be repeated in vitro using a cell line that possesses the CRF-R1 receptor.

Project Costs

 

Project

  

Experiment

  

Item

  

Description

   Total Cost  

Administration Route

   Subcutaneous injection    Animals    80 sprague dawley rats    $ 2,235.20   
   Intravenous injection    Animals    80 sprague dawley rats    $ 2,235.20   

New behavior models

   Forced swim test   

Animals

equipment

  

100 sprague dawley rats

chambers

   $

$

2,794.00

1,000.00

  

  

In Vivo CRF-R1 studies

   TCAP/CRF interaction    Animals    80 sprague dawley rats    $ 2,235.20   

Behavioural Studies

   General    Personnel    Full time animal technician    $ 20,000.00   
      Consummables   

Surgical supplies

Pharmaceuticals

Misc lab supplies

   $

$

$

4,000.00

1,000.00

1,000.00

  

  

  

Development of TCAP assay

     

Animals

Consummables

Consummables

Consummables

Consummables

  

20 sprague dawley rats

isotopes

secondary antisera

scintillation tubes and reagents

misc lab supplies

   $

$

$

$

$

558.80

3,000.00

2,000.00

2,000.00

1,500.00

  

  

  

  

  

TCAP degradation studies

   In vivo   

animals

connsumables

  

10 sprague dawley rats

electrophoresis reagents

   $

$

279.40

2,500.00

  

  

   In vitro   

animals

connsumables

  

10 sprague dawley rats

electrophoresis reagents

   $

$

279.40

1,000.00

  

  

TCAP partitioning studies

   Synthetic TCAP injection   

Animals

consummables

consummables

  

40 sprague dawley rats

Radioimmunoassay reagents

Misc lab supplies

   $

$

$

1,117.60

1,000.00

1,000.00

  

  

  

Peptide Studies

   General    personnel    Full time post doctoral scientest    $ 17,500.00   

Total

            $ 70,234.80   

 

page 3


Project Timeline

 

LOGO

 

page 4


AMENDING AGREEMENT #1 between

Protagenic Therapeutics, Inc. and the Governing Council of the University of Toronto

 

APPENDIX “B”

Revised Budget

Cash Payment

 

     First Installment    Second Installment    Final Installment

Direct Costs

   CDN$45,913    CDN$70,235    CDN$98,808

O/H Cash

   CDN$6,887    CDN$10,535    CDN$14,822

Total Cash

   CDN$52,800    CDN$80,770    CDN$113,630

Additional Consideration

As consideration for an overhead cost of 15% of direct costs for a two (2) year period beginning on the Effective Date, the University shall receive an option to purchase 30,000 shares of the Company’s Common Stock, representing 3% of the Company’s outstanding Common Stock upon formation, at an exercise price of US$1.00 per share (the “Options”). Commencing on the Effective Date, the Options shall vest on a monthly basis over a two (2) year period, subject to continuation of research by the University under this Agreement, so that 1/24 th of the Options shall vest each month during such two (2) year period. The Options shall expire on August 31, 2009.

 


Schedule C

Milestones

 

Event

   Payment  

IND submitted after efficacy demonstrated in non-human primates (“IND Submission”), per IND candidate

   $ 100,000   

Phase I End

   $ 100,000   

Phase II End

   $ 100,000   

Phase III End

   $ 100,000   

 

Page 23 of 24


Schedule D

University of Toronto Confidential Invention Disclosure

 

Page 24 of 24


Appendix A

 

LOGO   

UNIVERSITY OF TORONTO INVENTIONS POLICY

CONFIDENTIAL INTELLECTUAL PROPERTY DISCLOSURE

Office of the Vice President • Research and Associate Provost

27 Kings College Circle, Room 133-S

Tel: (416) 978-7833 Fax: (416) 978-5821 email: monique.mcnaughton@utoronto.ca

 

 

1. Title: Selected Targeting of Residue Motifs (STORM): a novel algorithmic method to predict bioactive peptides in genome databases

2. a) University of Toronto Inventors/Major Contributors:

 

SURNAME, GIVEN NAMES    UNIVERSITY
PERSONNEL
NO.
   DEPARTMENT (LIST
ANY CROSS
APPOINTMENTS OR
AFFILIATED
INSTITUTIONS)
   AFFILIATION WITH
UNIVERSITY (i.e.,
faculty, res. assoc., post-
doc, student, staff, visitor,
etc.)
   CURRENT ADDRESS, PHONE,
FAX, EMAIL

Lovejoy, David A.

   001012872    Zoology    Faculty   

25 Harbord St

t. (416) 946-7259

f. (416) 978-8532

dlovejoy@zoo.utoronto.ca

2. b) External Inventors/Major Contributors:

(Please provide names and affiliations of non-University of Toronto individuals who have made a creative contribution to this Intellectual Property, i.e. sponsor employees, academic collaborators, etc.)

No external inventors or contributors were part of the development of this intellectual property

3. Description:

(Please highlight the novelty or patentable aspects of this Intellectual Property; attach a separate sheet if necessary)

STORM is an algorithm to identify the functional regions in a peptide by examining the structure of orthologous peptides across taxa, and the structure of paralogous peptides within taxa. STORM is unique from other algorithmic methods to predict structure by its use of comparative phylogenetic information to determine the probability of particular amino acid substitutions within a sequence. Thus STORM utilizes animal phylogeny models based on both palaeontological data as well as molecular data. This information is used to construct a hypothetical functional ancestor where sets of common amino acid motifs are identified. The sequence and relative position of the motifs are used to search databases for related sequences. STORM can therefore be used to discover new bioactive proteins and peptides, new functions of known peptides and proteins, functional regions within peptides and proteins, and to design new peptides with novel properties.

 

DATE RECEIVED:   November 19, 2004                                 DISCLOSURE REFERENCE NO.:   10001238  

  Confidential Intellectual Property Disclosure (inventions Policy)

January/03

 

Page 1 of 2


4. How was the work leading to this Intellectual Property funded? i.e., salaries, equipment used, supplies, etc.

This work has not been funded.

 

SPONSOR

 

GRANT OR CONTRACT FUND #

 

INTELLECTUAL PROPERTY

TERMS & CONDITIONS

n/a

  n/a   n/a

5. Where did the work leading to this Intellectual Property take place?

The STORM algorithm was developed entirely at the Dept of Zoology, University of Toronto, as a means of attempting to identify new families of peptides associated with stress and anxiety.

6. Is this Intellectual Property subject to any software licence, material transfer, confidentiality , nondisclosure, collaboration or other agreement, written or oral, not referenced In Section 4?

x NO              ¨ YES (If “Yes”, please provide details)

7. What are the potential applications and/or sources of revenue from this Intellectual Property?

The STORM algorithm can be used to identify new peptide hormones, their receptors and regulatory proteins. These in tum can be used as targets for the development of new pharmacological therapeutics. STORM can also be used to design amino acid (ie peptide) based drugs. With respect to basic science STORM can be used to identify previously unknown paralogous peptide and proteins to understand the physiological regulation of a particular system and also help establish the phylogenetic interrelationships of species. Thus the STORM algorithm is likely to be of interest to scientists in both commercial and academic settings.

8. Warranty:

I/We, the Inventors/Contributors listed in Section 2(a), have read, understood and agree to all of the preceding and declare that all of the information provided in this disclosure is complete and correct. To the best of our knowledge, all persons who might legally make an ownership claim in this Intellectual Property are identified in Section 2(a) and 2(b).

 

/s/ David Lovejoy

 

Nov 14

Signature   Date
Typed Name:  

David Lovejoy

 

For more information on University of Toronto Intellectual property policies, please call 416-978-7833 or access http://www.library.utoronto.ca/techtran/.

For information on commercialization processes and procedures please call the Innovations Foundation at 416-978-5117.

Confidential Intellectual Property Disclosure (Inventions Policy)

January/03

 

Page 2 of 2

Exhibit 10.19(ii)

FIRST AMENDMENT TO TECHNOLOGY LICENSE AGREEMENT

THIS FIRST AMENDMENT TO TECHNOLOGY LICENSE AGREEMENT (the “ License Amendment ”) is made and entered into as of February 18, 2015 by and between THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO (“UT’’), a corporation vested with the government, management and control of the University of Toronto by the University of Toronto Act, 1971 and having offices at Banting Institute, 100 College Street, Suite 413, Toronto, Ontario, Canada, M5G 1L5 and PROTAGENIC TIIERAPEUTICS, INC . a corporation incorporated under the laws of Delaware and having a principal place of business at 149 5th Avenue, Suite 500, New York, NY 10010, U.S.A . (“Licensee”).

BACKGROUND:

 

  A. The Licensee and the University of Toronto Innovations Foundation (“ UTIF ”) entered into a technology license agreement effective July 21, 2005 (“ License Agreement ”).

 

  B. Effective May 1, 2006, UTIF ceased to operate its business and it transferred and assigned all of its business and assets to UT and the License Agreement continued under the same terms and conditions aside from UT replacing UTIF in said License Agreement.

 

  C. UT and Licensee entered into a sponsored research agreement dated December 14, 2004, as amended May 31, 2005; December 11, 2006; April 16, 2007; March 17, 2008; March 18, 2009; February 1, 2011; February 21, 2011; May 18, 2011; April 1, 2012; and April 1, 2013 and may enter into additional sponsored research agreements (collectively the “ Research Agreement ”).

 

  D. UT and Licensee wish for improvements (as defined in the License Agreement and listed under Schedule A hereto), created by David Lovejoy and/or other research participants under the Research Agreement while employed by UT, to be included in the License.

 

  E. UT and Licensee wish to amend the License Agreement in accordance with the conditions hereof.

NOW THEREFORE, the Parties hereto agree to further amend and revise the License Agreement as follows:

All capitalized terms not defined herein shall have the same meaning ascribed to such terms as set out in the License Agreement.


1. All references to the University of Toronto Innovations Foundation and “UTIF” are hereby deleted and replaced with The Governing Council of the University of Toronto and “UT” respectively.

2. Section 1.1 -Definitions.

The definition of “Improvements” is hereby deleted in its entirety and replaced with the following:

Improvements ” means any and all improvements, variations, updates, modifications or enhancements to the Technology (including without limitation any related Intellectual Property Rights) which are developed under the terms of a research agreement dated December 14, 2004, as amended May 31, 2005; December 11, 2006; April 16, 2007; March 17, 2008; March 18, 2009; February 1, 2011; February 21, 2011; May 18, 2011; April 1, 2012; and April 1,2013, and under the terms of any other sponsored research agreement designated in same as being added by reference to Schedule B of this Agreement and this Agreement shall be deemed to be amended accordingly to incorporate all such sponsored research agreements as a Research Agreement by reference between Licensee and The Governing Council of the University of Toronto.

The definitions of “Phase I End”, “Phase II End” and “Phase III End” are hereby deleted in their entirety and replaced with the following:

Phase I End ” means approval by the FDA or other applicable regulatory authority to commence Phase II Clinical Trials of each Licensed Product as such trials are described in 21 C.F.R. 312.2 l(b);

Phase II End ” means approval by the FDA or other applicable regulatory authority to Commence Phase III Clinical Trials of each Licensed Product as such trials are described in 21 C.F.R.3 12.21(c);

Phase III End ” means Regulatory Approval of each Licensed Product;

The definition for “University” is hereby deleted in its entirety and replaced with the following:

University ” means The Governing Council of the University of Toronto.

3. Section 2.1(a) -Grant of License for Technology

Section 2.1 (a) is hereby deleted in its entirety and replaced with the following;

(a) an exclusive license within the Territory and within the Field of Use to develop, make, have made, use, sell, offer for sale and import the Technology and Licensed Products under all Owners’ and/or David Lovejoy’s and or UT rights, title and interest in the Technology and Licensed Products; and


4. Section 3.1 -Royalty

Section 3.1(f) is added as follow:

f) For clarity, Upfront Sub-License Fees shall exclude any and all research and development payments, reimbursements, loans and equity investments in the Company and payments made in respect of a collaboration agreement or acquisition agreement, whether such payments are for research milestones or otherwise, supply of product and similar arrangements.

5. Section 4.1 -Ownership

Section 4.1 is hereby deleted in its entirety and replaced with the following:

All Intellectual Property Rights in all aspects and parts of the Technology and Improvements shall be exclusively owned by the Owners, and/or David Lovejoy and/or the UT as the case may be and nothing herein shall serve to, or should be construed to transfer any Intellectual Property Rights whatsoever in the Technology or Improvements except to the extent that any such Intellectual Property Rights are developed solely by the Licensee (with or without a third party) in which case the Licensee shall own or co-developed with the Licensee, in which case the Licensee shall have co-ownership rights in same as applicable.

6. Section 4.3 -Patents and Patent Applications.

Section 4.3 (a) is hereby deleted in its entirety and replaced with the following:

 

  (a) Licensee, in the name of the Owners, and/or David Lovejoy and/or UT (and as the case may be the Licensee if a joint developer) as the case may be, as assignee, shall file, prosecute and maintain the Patents. Licensee shall determine in which countries to pursue patent applications. In the event that Licensee elects not to continue prosecution in any country, UT may, at its sole discretion, file such patent or continue such prosecution in that country at its own expense. In such cases, any patents arising from such applications shall be excluded from the grant of rights under Section 2.1 herein for said country.

Section 4.3 (e) is hereby deleted in its entirety and replaced with the following:

 

  (e) Licensee undertakes to keep UT reasonably advised of the progress of prosecution and of any actions Licensee proposes to take or has taken in connection with the prosecution or maintenance of the Patents. Licensee shall provide UT with copies of correspondence and all actions issued by patent authorities and shall take into account any comments, remarks or suggestions UT may promptly provide to Licensee in writing at least ten (10) days prior to any due date established by Licensee for preparation of a response or amendment, and in all cases thirty (30) days prior to any patent office due date.


7. Section 4.4 -Improvements

Section 4.4 is hereby amended by replacing the phrase at the third line, “the name of the Owners, or David Lovejoy” with the name of the Owners and/or David Lovejoy and/or UT (and, as the case may be) the Licensee if a joint developer)”

8. Section 7 -Notices.

Section 7.3 (a) is hereby deleted and replaced with the following:

 

(a) In the case of a notice to Licensee:

Protagenic Therapeutics, Inc .

149 5th Avenue,

Suite 500, New York, NY 10010

U.S.A.

Attention: Robert Ziroyan, PhD, MSc

E-mail: robert.ziroyan@me.com

With a copy to:

Gowlings Lafleur Henderson LLP

1 First Canadian Place

100 King Street West Suite 1600

Toronto, Ontario M5X 1G5

Canada

Attention: Anita Nador

E-mail: anita.nador@gowlings.com

Section 7.3 (b) is hereby deleted and replaced with the following:

 

(b) In the case of a notice to UT:

Innovations and Partnerships Office

Banting Institute, 100 College Street, Suite 413

Toronto, Ontario M5G lL5

Canada

Attention: Jennifer Fraser

Director, Innovations

E-mail: jen.fraser@utoronto.ca

 

9 . Schedule “A” is hereby amended by including the additional Improvements (Confidential Intellectual Property Disclosures & related Patents and Patent Applications) under the Schedule.


10. Schedule “B” is hereby amended by incorporating by reference the 2012 and the 2013 Sponsored Research Agreements to the Schedule and any other Research Agreement designated in same as being added by reference to Schedule B of the License Agreement between Licensee and The Governing Council of the University of Toronto.

 

11. Except as set out herein, this License Amendment shall not amend or modify any other provision within the License Agreement.

 

12. This License Amendment shall be governed by the laws of the Province of Ontario and the federal laws of Canada applicable in the Province of Ontario

IN WITNESS OF WHICH the Parties hereto have executed this First Amendment.

 

PROTAGENIC THERAPEUTICS, INC.    THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO
By:   

/s/ Robert Ziroyan

   By:   

/s/ Jennifer Fraser

Name:    Robert Ziroyan, PhD, MSc    Name    Jennifer Fraser
Title:    Chief Operating Officer, President    Title:    Director, Innovations


SCHEDULE A

Additional Improvements

Project Ref: P1323

Copies of listed Invention Disclosures Attached

 

S.No.

  

Confidential
Invention
Disclosure
Number

  

Date of
Disclosure

  

Named
Internal
Inventors

  

Title of Disclosure

  

Date of
Assignment to
Inventors

1.    10002701    Jan 16, 2014    David Alan Lovejoy    Treatment of Insulin-Resistant Hyperglycemia by Teneurin C-Terminal Associated Peptide-1    Feb 18, 2015
2.    10002574    Mar 27, 2013    David Alan Lovejoy; Chand Dhan    Treatment of Human male Infertility by Use of Teneurin C-Terminal Associated Peptide (TCAP- 1) Administration    March 3, 2015


LOGO   UNIVERSITY OF TORONTO
  CONFIDENTIAL INTELLECTUAL PROPERTY DISCLOSURE
  Banting Institute, Room 413
  100 College Street, Toronto, ON M5G 1L5
  Tel: (416) 978-7833 Fax: (416) 978-5821 email: ip.officer@utoronto.ca

1. Title of Invention: Treatment of insulin-resistant hyperglycemia by teneurin C-terminal associated peptide-1 administration

2 . a) University of Toronto Inventors Individuals intimal to the University who have made an inventive contribution to this Invention i.e. faculty, students, postdocs, staff etc. Attach extra sheet if necessary:

 

SURNAME,

GIVEN NAMES

 

UNIVERSITY

PERSONNEL

NO.

 

DEPARTMENT

(List any cross
appointments or affiliated
institutions)

 

AFFILIATION

 

EMAIL ADDRESS

 

CONTACT

INFORMATION

(mailing address

phone, fax)

Lovejoy

David Alan

  001012972  

Cell and

Systems

Biology

  Professor  

David.lovejoy@

Utoronto.ca

 

Tel: cell: 647 999

2977, home: 905

642 4616

 

Address: 149

Baker Street,

Stouffville,

Ontario, L4A

1K6

b) External Inventors Non-University of Toronto Individuals who have made an inventive contribution to the Invention. i.e. sponsor employees, academic collaborators, etc. List name, organization and e-mail address.

not applicable

 

For Research Services use only:

Date Received: JAN 16 2014

 

DISCLOSURE REFERENCE NO: 10002701

Version: 2011.09.08


  c) Contributors Individuals Internal or external to the University who have not made an Inventive Contribution to this Invention but have made a valuable contribution to the development of the Invention. List name organization and e-mail address.

Protagenic Therapeutics Inc provided the majority of the funding for this project

Contact: Dr. Robert Ziroyan: rziroyan@protagenic.com

3. Where did the work leading to this Invention take place? Please be specific

In vitro studies were conducted in rooms 304, 305 in Ramsay Wright Building at the University of Toronto. Animal studies were conducted in the Biosciences Support Facility central vivarium at Ramsay Wright. Hormone studies were performed under contract by Rules Based Medicine, a contract research organization (CRO)

4. Invention Description Please provide a description of this Invention for evaluation, highlighting its novel or patentable aspects. Attach a separate sheet if necessary.

TCAP-l is a 41 amino acid peptide derived from a natural protein (teneurin) found in the human reproductive organs and other tissues. It acts to regulate cell metabolism via a unique mechanism associated with activation of the dystroglycan complex leading to a signal transduction cascade to increase the number of glucose transporters in the cell membrane thereby increasing the transport of glucose into the cell. This action leads to significantly higher cellular energy in the form of increased cellular ATP levels. At the organismal level, single doses of TCAP-1 at 300 and 3000 pmoles significantly decrease blood glucose levels as long as one week later.

5. Have there been any prior disclosures (abstracts, presentations, publications) in respect of this Invention? List them and provide the date each disclosure occurred.

Chen C. Song L. de Lannoy L, Xu M, Crosier R, Lovejoy DA (November. 2013) Insulin independent glucose transport and enhanced neuron metabolism by Teneurin C-terminal Associated Peptide (TCAP)-l Society for Neuroscience. San Diego, USA

 

6 . a) How was the work leading to this Invention funded? (I.e. salaries, equipment used, supplies

etc.)

 

SPONSOR

  

PROJECT TITLE

  

RIS FUND #

Protagenic Therapeutics Inc    Evidence for the existence of TCAP receptors    495550


b) Was the project/work leading to this Invention subject to any software licence, material transfer, confidentiality, non-disclosure, collaboration or other agreement, written or oral, not referenced in (a) above?

x NO         ¨ YES (please provide details)

 

7. Have any patent applications or other intellectual property protection been filled in respect of this invention?

¨ NO         x YES (please provide details)

 

  1. AUSTRALIA: September 2010. Patent Number: (May 2, 2003) 2003221575 Teneurin c-terminal associated peptides (tcap) and methods and uses thereof Inventors: LOVEJOY, David; CHEWPOY, R. Bradley; BARSYTE, Dalia; ROTZINGER, Susan.

 

  2. UNITED STATES. August 26, 2011. Patent Number 10/510959 . Teneurin c- terminal peptides (TCAP) and uses thereof LOVEJOY, David; CHEWPOY, R. Bradley; BARSYTE, Dalia; ROTZINGER, Susan.

8. Warranty:

I/We the Inventors listed in Section 2(a), have read, understood and agree to all of the preceding, and declare that all of the Information provided in this disclosure is complete and correct. To the best of our knowledge, all persons who might legally make an ownership claim in this Invention are identified in Section 2(a) and 2(b).

 

/s/ David A. Lovejoy             
Signature    Date: 01/14/2014       Signature   

Typed Name:

 

   David A. Lovejoy       Typed Name:     
Signature    Date       Signature    Date
Typed Name:          Typed Name:   


LOGO    UNIVERSITY OF TORONTO
   CONFIDENTIAL INTELLECTUAL PROPERTY DISCLOSURE
   Banting Institute, Room 413
   100 College Street, Toronto, ON M5G 1 L5
   Tel: (416) 978-7833 Fax: (416) 978-5821 email: ip.officer@utoronto.ca

1. Title of Invention: Treatment of human male infertility by use of teneurin C-terminal associated peptide (TCAP)-1 administration

2. a) University of Toronto Inventors Individuals internal to the University who have made an inventive contribution to this Invention i.e. faculty, students, postdocs, staff etc. Attach extra sheet if necessary:

 

SURNAME,

GIVEN
NAMES

  

UNIVERSITY

PERSONNEL

NO.

  

DEPARTMENT

(List any cross
appointments or
affiliated
institutions)

  

AFFILIATION

  

EMAIL ADDRESS

  

CONTACT

INFORMATION

(mailing address

phone, fax)

Lovejoy

David Alan

   001012972    Cell and Systems Biology    Professor    David.lovejoy@utoronto.ca   

Tel: 647 999 2977

Dept of Cell of

Systems Biology

Ramsay Wright

Bldg. 25 Harbord

Street, University of Toronto

Chand

Dhan

   993001103   

Cell and

Systems

Biology

   Ph.D. Graduate   

Dhan.chand

@mail.utoronto.ca

  

Tel: 416 209 0826

Dept. of Cell of Systems Biology

Ramsay Wright

Bldg. 25 Harbord street. University of Toronto

b) External Inventors Non-University of Toronto individuals who have made an inventive contribution to the Invention, i.e. sponsor employees, academic collaborators, etc. List name, organization and email address.

not applicable

c) Contributors Individuals internal or external to the University who have not made an inventive contribution to this Invention but have made a valuable contribution to the development of the Invention. List name, organization and e-mail address.

Protagenic Therapeutics Inc provided the majority of the funding for this project

Contact: Dr. Robert Ziroyan: rziroyan@protagenic.com

 

For Research Services use only:

Date Received: Mar 27 2013

 

DISCLOSURE REFERENCE NO: 10002574


3. Where did the work leading to this Invention take place? Please be specific.

In vitro studies were conducted in rooms 304, 305 in Ramsay Wright Building at the University of Toronto. Animal studies were conducted in the Biosciences Support Facility central vivarium at Ramsay Wright. Hormone studies were performed under contract by Rules Based Medicine a contract research organization (CRO).

 

4. Invention Description Please provide a description of this Invention for evaluation, highlighting its novel or patentable aspects. Attach a separate sheet if necessary.

TCAP-l is a 41 amino acid peptide derived from a natural protein (teneurin) found in the human reproductive organs and other tissues. It acts to regulate cell metabolism via a unique mechanism associated with activation of the dystroglycan complex. In the male reproductive system the teneurin-dystroglycan complex is associated with regions of the testes and epididymis that play a role in spermatozoa formation, maturation and viability. In vivo studies indicate that synthetic TCAP-l modifies testicular and epididymal morphology increases testes size and increases testosterone production. These effects are consistent with increased activity of the reproductive system in mate mice. However because the peptide and hormone system is highly conserved in all mammals as well as vertebrates in general, these studies suggest that synthetic TCAP-l has potential to be used to treat some forms of male infertility in humans as well as other species.

 

5. Have there been any prior disclosures (abstracts, presentations, publications) in respect of this invention? List them and provide the date each disclosure occurred.

Chand D, Colacci M, Dixon K, Lovejoy DA. (2012). Gonadal characterization of the evolutionary conserved teneurin-dystroglycan system in mouse. 26 th Conference of European Comparative Endocrinologists, Zurich, Switzerland (August 2012)

 

6. a) How was the work reading to this Invention funded? (i.e. salaries, equipment used, supplies etc.)

 

SPONSOR

  

PROJECT TITLE

  

RIS FUND #

Protagenic Therapeutics Inc   

Existence for the existence of TCAP

Receptors in neurons

   457526

 

b) Was the project/work leading to this Invention subject to any software licence, material transfer, confidentiality, non-disclosure, collaboration or other agreement, written or oral, not referenced in (a) above ?

x   NO     ¨   YES (please provide details)


7. Have any patent applications or other Intellectual property protection been filed in respect of this invention?
   ¨ NO         x YES (please provide details)

 

  1. AUSTRALIA: September 2010. Patent Number: (May 2,2003) 2003221575 Teneurin c-terminal associated peptides (tcap) and methods and uses thereof Inventors: LOVEJOY, David; CHEWPOY, R. Bradley; BARSYTE, Dalia; ROTZINGER, Susan

 

  2. UNITED STATES. August 26, 2011. Patent Number 10/510959. Teneurin C-terminal peptides (TCAP) and uses thereof. LOVEJOY, David; CBEWPOY, R. Bradley; BARSYTE, Dalia; ROTZINGER, Susan.

 

8. Warranty:

I/We. the Inventors listed in Section 2(a) , have read, understood and agree to all of the preceding, and declare that all of the Information provided in this disclosure is complete and correct. To the best of our knowledge, all persons who might legally make an ownership claim in this Invention are identified in Section 2(a) and 2(b)

 

/s/ David A. Lovejoy       /s/ Dan S. Chand
Signature    Date: 03/20/2013       Signature    Date: 03/20/2013

Typed Name:

 

   David A. Lovejoy       Typed Name:    Dhan S. Chand
Signature    Date       Signature    Date
Typed Name:          Typed Name:   

 


SCHEDULE A (Continued)

Status Listing of Patent Applications filed for the Improvements

 

TENEURIN C- TERMINAL ASSOCIATED PEPTIDES (TCAP) AND METHODS AND USES THEREOF

Inventors: LOVEJOY, David; CHEWPOY, R. Bradley; BARSYTE, Dalia; ROTZINGER, Susan

 

COUNTRY

   REFERENCE#    TYPE    FILED    SERIAL #    ISSUED    PATENT #    STATUS

UNITED

STATES

   T8476262USP1

(090931-360625)

   OTH    05/03/2002    60/377,231          EXPIRED

UNITED

STATES

   T8476262USP2

(090931-360627)

   OTH    11/06/2002    60/424,016          EXPIRED
WIPO    T8476262WO

(090931-360635)

   CEQ    05/02/2003    PCT/
CA03/00622
         ENTERED

NATIONAL

PHASE

AUSTRALIA    T8476262AU

(090931-360631)

   DCA    05/02/2003    2003221575    09/23/2011    2003221575    ISSUED
CANADA    T8476262CA

(090931-360629)

   DCA    05/02/2003    2,482,810    06/10/2014    2,482,810    ALLOWED

EUROPEAN

PATENT

   T8476262EP

(090931-360633)

   DCA    05/02/2003    03717086.7    03/12/2014    1499635    GRANTED

COMMENTS:

   Validated in France, Germany and Great Britain

Opposition period is over; no opposition(s) filed

JAPAN    T8476262JP

(090931-360634)

   DCA    05/02/2003    2004-501444    ABANDONED

UNITED

STATES

   T8476262US

(090931-360630)

   DCA    11/01/2004    10/510,959    01/03/2012    8,088,889    ISSUED

UNITED

STATES

   T8476262USCON

(090931-438501)

   CON    11/09/2011    13/292,849    PENDING


A METHOD FOR INHIBITING NEURAL CELL DEATH

Inventor: LOVEJOY, David

 

COUNTRY

  

REFERENCE#

  

TYPE

  

FILED

  

SERIAL #

  

ISSUED

  

PATENT #

  

STATUS

UNITED

STATES

  

T8476261USP

(090931-370851)

   NEW    02/15/2006    60/773,309          EXPIRED

UNITED

STATES

  

T8476261US

(090931-387536)

  

Non-

provisional

   02/15/2007    11/706,376          ABANDONED

COMMENTS: This application was abandoned in lieu of filing a Continuation Application

 

UNITED

STATES

  

T8476261USCON

(090931-435930)

   CON    08/03/2011    13/197,575          ABANDONED

COMMENTS: July 1, 2014 – INSTRUCTIONS TO ABANDON APPLICATION RECEIVED

COMMENTS: This application is a Continuation of US application No. 11/706,376

A METHOD FOR REGULATING NEURITE GROWTH

Inventor: LOVEJOY, David

 

COUNTRY

  

REFERENCE#

  

TYPE

  

FILED

  

SERIAL #

  

ISSUED

  

PATENT #

  

STATUS

UNITED

STATES

  

T8476288USP

(090931-372046)

   NEW    03/21/2006    60/783,821          EXPIRED


METHOD FOR MODULATING GLUCOSE TRANSPORT USING TENEURIN C-TERMINAL ASSOCIATE PEPTIDE (TCAP)

Inventor: LOVEJOY, David; CHEN, Yani

 

COUNTRY

  

REFERENCE#

   TYPE    FILED    SERIAL #    ISSUED    PATENT #    STATUS

UNITED

STATES

   T8476302USP    Provisional    07/18/2014    62/026,346          PENDING

TENEURIN C-TERMINAL ASSOCIATED PEPTIDE (TCAP) AS AN ANTAGONIST OF LATROTOXIN

Inventor: LOVEJOY, David A; D’AQUILA, Andrea L.

 

COUNTRY

  

REFERENCE#

   TYPE    FILED    SERIAL #    ISSUED    PATENT #    STATUS

UNITED

STATES

   T8476314USP    Provisional                NOT FILED

 


SCHEDULE B

Additional Research Agreement (s)

Copies of listed Sponsored Research Agreements Incorporated by Reference

Principal Investigator: David Alan Lovejoy

 

S.No.

  

Research Agreement

  

Effective Date

  

End Date

  

Project Title

  

Fund Number

1.   

Sponsored

Research

Agreement

   Apr 1, 2012    March 31, 2013    Evidence for existence of TCAP receptors in neurons    495550
2.   

Sponsored

Research

Agreement

   Apr 1, 2013    March 31, 2014    Teneurin C-terminal Associated Peptide (TCAP)-mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism    495550

Exhibit 10.20(i)

SPONSORED RESEARCH AGREEMENT

This agreement (the “Agreement” ) is made effective 1 April 2014 (the “Effective Date” ).

BETWEEN:

THE GOVERNING COUNCIL OF THE UNIVERSITY OF TORONTO

(the “University” )

-and-

PROTAGENIC THERAPEUTICS CANADA (2006), INC,

PROTAGENIC THERAPEUTICS INC.

(the “Sponsor” )

(Individually a “Party” and collectively the “Parties” )

WHEREAS the parties have entered into a Technology License Agreement effective July 21, 2005, as amended, (collectively, the “License Agreement”)

AND WHEREAS the Parties under said License Agreement wish to undertake a research project entitled “Teneurin C-terminal Associated Peptide (TCAP)-mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism.” as described in the attached Appendix “A” and add this as an additional Research Agreement under Schedule B of the License Agreement (the “ Project ”);

AND WHEREAS the Sponsor wishes to support the Project;

NOW THEREFORE the Parties hereby agree as follows:

 

1.0 THE PROJECT

 

  1.1 Project. The University will perform the Project as described in the attached Appendix “A” which University has determined is in accordance with University policies and procedures. The Project is consistent with the University’s primary mission, which is education and advancement of knowledge. The manner of performance of the Project shall be determined solely by the Principal Investigator, after consultation with the Sponsor and subject to substantial compliance in all respects with Appendix “A” and all other provisions of this Agreement, as may be amended from time to time and applicable laws and regulations, including without limitation those governing the use of animals in research. University will cause diligent efforts to be used to perform the Project in a timely manner and in accordance with appropriate scientific standards. Neither Party makes any warranties or representations regarding its ability to achieve, nor shall it be bound to accomplish, any particular research objective or results.

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 1


  1.2 Principal Investigator. The Project will be performed under the supervision and direction of Prof. David Lovejoy of the Department of Cell and Systems Biology (the “Principal Investigator”), together with such additional personnel as the Parties may assign. If Dr. Lovejoy becomes unavailable at any time during the Project, the University may nominate a replacement individual as Principal Investigator, such nomination to be made within fourteen (14) days of the date on which Dr. Lovejoy becomes unavailable. If the Sponsor, for any reason, does not accept the nominated replacement Principal Investigator or a replacement Principal Investigator is not nominated by the University, as Sponsor’s sole discretion, the Research Program may be amended to reflect a reduced scope of work for the Project, or the Agreement may be terminated by the Sponsor as set forth in Article 5.2.

 

  1.3 Budget. In consideration of the University carrying out the Project, the Sponsor will pay the University the sum of CA$ 75,475 (currency: Canadian Dollars) in compensation for the direct and indirect costs of the Project, all generally in accordance with the budget contained in the attached Appendix “B” .

 

  1.4 Payment. Subject to Article 5.2 , the University shall issue invoices and the Sponsor shall pay the sum set out in Article 1.3 to the University in accordance with the payment schedule in the attached Appendix “B” .

 

  1.5 Equipment. The University will own any equipment or material purchased by the University under the Project.

 

  1.6 Report. The University will share all data, results research work conclusions and recommendations arising from the performance of the Project (“Research Results”) with Sponsor. The University will provide reports of Research Results to Sponsor at least on a calendar quarter basis, or as may be reasonably requested by Sponsor, and will include in such reports a meaningful summary of the research accomplished in comparison to the Project description. The University, through the Principal investigator, will participate in discussions and/or meetings with Sponsor with respect to Research Results and the progress of the Project as may be reasonably requested by the Sponsor. The University will submit a final report describing the results of the Project to the Sponsor within sixty (60) days of completion of the Project.

 

  1.7 Undertakings.

 

  a. The University will ensure that, prior to commencement of the Project the Principal Investigator and any replacement shall execute the Principal Investigator’s Undertaking (“PIU”) attached as Appendix C ; any additional personnel, including without limitation, each additional investigator involved in the Project shall execute a Confidential Information and Intellectual Property Agreement (“CIIP”) attached as Appendix D .

 

  b. The University and Principal Investigator shall ensure that all work performed by such personnel on the Project is in compliance with the terms of this Agreement.

 

  c. In order for University to fulfil its obligations under this Agreement, including without limitation under Section 2.0 of this Agreement, University shall ensure Investigator and additional personnel (including any and all inventors), as applicable, are obligated to assign and do irrevocably assign any and all of their rights in the Foreground Intellectual Property to the University, including the right to make any claims of priority therefrom

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 2


2.0 INTELLECTUAL PROPERTY

 

  2.1 Definitions. In this Agreement,

 

  a. “Background Intellectual Property” means Intellectual Property of a Party that is:

 

  i. proprietary to that Party and was conceived, created, or developed prior to, or independent of, any research performed pursuant to or related to this Agreement or a Project hereunder; and

 

  ii. necessary for the performance of a Project.

 

  b. “Foreground Intellectual Property” means Intellectual Property that is discovered, created or reduced to practice in the performance of a Project.

 

  c. “Intellectual Property” (or “IP” ) means all intellectual property, including technical information, know-how, models, drawings, specifications, prototypes, inventions and software.

 

  d. “University Foreground Intellectual Property” means Intellectual Property that is discovered, created or reduced to practice by University personnel in the performance of a Project.

 

  e. “University personnel” shall include but not necessarily limited to the Principal Investigator (“PI”) and University employees, subcontractors, consultants, technicians, students, post-docs and visiting scientists. Other than the Sponsor or by written consent of the Sponsor, the University shall not have anyone other than University personnel work on the Project.

 

  2.2 Ownership

 

  a. Background Intellectual Property of a Party shall remain the exclusive property of such Party.

 

  b. The University shall own all University Foreground Intellectual Property.

 

  c. Subject to all of the terms and conditions of this Agreement and the License Agreement (including section 7.2 of the License Agreement) and the agreement of any assignee to be bound hereby in writing, the University may assign its interest in University Foreground Intellectual Property according to the University’s applicable policies and procedures upon prior notice and prior written consent by the Sponsor, such consent not to be unreasonably withheld.

 

  2.3 Disclosure of Inventions: The Principal Investigator will disclose any University Foreground Intellectual Property to the University in accordance with the University’s Inventions Policy, and such disclosure will be communicated to the Sponsor promptly and in reasonably sufficient detail to permit assessment by Sponsor. University’s obligation under this Article 2.3 will not be satisfied by submission of any report as required under Article 1.6 of this Agreement.

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 3


  2.4 Sponsor’s Rights

 

  a. Option: Provided that the Sponsor is not in breach of its obligations under this Agreement, the Sponsor will have the option to obtain at its preference, either an exclusive or non-exclusive licence to use University’s interest in University Foreground Intellectual Property in accordance with the terms of the License Agreement (the “Option”).

 

  b. Option Period: The Sponsor must indicate its intention to exercise the Option by notifying the University in writing within one hundred eighty (180) days of disclosure of the University Foreground Intellectual Property to the Sponsor (the “ Option Period ”), failing which the University or its assignee(s) may offer licenses to the University Foreground Intellectual Property to third parties without further obligation to Sponsor. Unless otherwise agreed to in writing by the Parties, the University shall be under no obligation to file, prosecute or maintain patents related to the University Foreground Intellectual Property during the Option Period. For clarity, the University shall not disclose any of the University Foreground Intellectual Property to third parties during the Option Period. In the event Sponsor exercises the Option, University will grant to Sponsor the non-exclusive right to use University Background Intellectual Property to the extent necessary to practice the University Foreground Intellectual Property as provided in the License Agreement.

 

  c. Representations and Warranties: Sponsor acknowledges and agrees that under the terms of the License Agreement: (i) the University Foreground Intellectual Property will be supplied and licensed to the Sponsor on an “as is” basis; (ii) the University Foreground Intellectual Property will exclude representations and warranties as to the patentability, validity, scope or enforceability of the University Foreground Intellectual Property; and (iii) the University Foreground Intellectual Property will exclude representations and warranties that any use of the University Foreground Intellectual Property will be free from infringement of intellectual property rights of any third party. Notwithstanding the above, nothing in this Agreement is intended to alter or amend the terms of the License Agreement except in respect of the addition of University Foreground Intellectual Property subject to exercise of the Option.

 

  2.5 Research and Teaching. Notwithstanding anything in this Agreement or any resulting license, the University will retain the right to use University’s interests in all University Foreground Intellectual Property for non-commercial research, educational and administrative purposes, without cost and in perpetuity.

 

  2.6 Similar Research. Nothing in this Agreement will be construed to limit the freedom of the University or of its researchers from engaging in similar research made under other agreements with parties other than the Sponsor as long as it does not conflict with or supersede the rights of the prior rights of the Sponsor under this Agreement or the License Agreement.

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 4


3.0 CONFIDENTIAL INFORMATION

 

  3.1 Confidential Information. The Parties may disclose confidential information one to another to facilitate performance of this Agreement. Such information will be identified as “confidential” in writing at the time of its transmittal, or so reduced to writing within fifteen (15) days thereafter (“Confidential Information’”), and will be safeguarded and not disclosed to third parties by the receiving Party. Confidential Information will not include information that:

 

  a. is already known to the Party to which it is disclosed;

 

  b. is or becomes part of the public domain without breach of this Agreement;

 

  c. is obtained from third parties which have no obligations to keep confidential to the Parties to this Agreement;

 

  d. was independently developed by the receiving Party without the use of, reference to or reliance upon any of the Confidential Information of the disclosing Party.

 

  3.2 Notwithstanding anything contained herein, each Party may disclose Confidential Information to its officers, employees, consultants, agents, and students on a need-to-know basis to facilitate performance of the Project, provided that such persons agree to be bound by terms at least as restrictive as those contained herein.

 

4.0 PUBLICATION OF RESEARCH RESULTS

 

  4.1 Review. The University will provide a copy of any proposed publication of Project research results (a “Publication” ) to the Sponsor for its review at least thirty (30) days before submission for publication or disclosure. Upon the Sponsor’s written request received within twenty (20) days of the Sponsor’s receipt of the Publication or intended disclosure, the University will, at the Sponsor’s option:

 

  a. delete identifiable references to any Confidential Information provided by the Sponsor from the proposed Publication or intended disclosure;

 

  b. if the Sponsor has exercised the Option, delay publication of the Publication up to sixty (60) additional days to enable the Sponsor to file; in the name of the Intellectual Property owner or its assignee(s), patent application(s) for any Intellectual Property that would be publicly disclosed in the Publication.

 

  4.2 Academic Progression: Except in respect of Article 4.1(a) , nothing in Article 4.1 will impose restrictions on the content or handling, for academic purposes, of the thesis of any Project participant.

 

  4.3 Disclosure of Research Results. Subject to Article 4.1 , the University reserves on behalf of itself, the Principal Investigator and all other Project participants the right to disseminate information or otherwise publish the research results arising in performance of the Project. The Sponsor’s support of the Project will be acknowledged in all such publications.

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 5


5.0 TERM AND TERMINATION

 

  5.1 Term. This Agreement will enter into force as of the Effective Date and will terminate on 31 March 2015 (“Term”) unless sooner terminated in accordance with Article 5.2 below, or upon the written agreement of the Parties.

 

  5.2 Termination. This agreement may be terminated as follows:

 

  a) Sponsor may terminate this Agreement upon sixty (60) days written notice to University. In the event of termination, the University will be entitled to credit for work performed hereunder before termination including the University’s non-cancellable costs incurred by University prior to the date of notice of termination, and the Sponsor will be entitled to a return of the balance of any advance payment;

 

  b) by the Sponsor upon giving sixty (60) days written notice to the University if, in the reasonable judgment of the Company, the research program is no longer technically or commercially feasible;

 

  c) written notice to the University if, at any time during the Term or any extension thereof, the parties are unable to agree on the terms of an amendment to the Research Program;

 

  d) by the Sponsor immediately upon giving written notice to the University if (i) the Sponsor does not accept the replacement Principal Investigator nominated by the University or (ii) if no replacement is nominated within (14) days of the date on which Dr. Lovejoy become unavailable;

 

  e) by the Sponsor upon giving thirty (30) days written notice to the University if a research milestone has not achieved within the time period specified in the Research Project; or,

 

  f) by University or the Sponsor upon giving thirty (30) days written notice to the other if University is in default of fulfilling any of its material obligations under this Agreement and such default has not been cured within such thirty (30) days notice period.

 

  5.3 Effect of Termination. The provisions of Articles 1.4, 1.5, 2.0, 3.0, 4.0, 5.0, 6.0 and 7.0 will survive termination or expiration of this Agreement in accordance with their terms.

 

6.0   LIABILITY AND INDEMNITY

 

  6.1 Limitation of Liability. Neither Party will be liable for any delays in the performance of its obligations under this Agreement resulting from circumstances or causes beyond its reasonable control, and in no case will the Parties be liable for loss of business or profit or other indirect or consequential damages.

 

  6.2

Indemnity. The University will indemnify and save harmless the Sponsor against all costs, suits or claims on account of injuries (including death) to persons participating in the Project or to damage to University property caused by the wilful or negligent act or omission of personnel of University during the performance of this Agreement. The Sponsor will

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 6


  indemnify and save harmless the University and its employees, students and agents against all costs, suits or claims on account of injuries (including death) to persons participating in the Project or to damage to property caused by agents or personnel of the Sponsor during the performance of this Agreement or resulting from the use by the Sponsor or its affiliates, its customers or licensees of any deliverable or intellectual property developed under this Agreement.

 

7.0 MISCELLANEOUS

 

  7.1 Use of Names. Neither Party will use the name of the other Party, or of any member of the other Party’s personnel, in any advertising or publicity without the prior written approval of the other Party’s authorized representative. However, both Parties may make the following information a matter of public record: name of Principal Investigator; Principal Investigator’s department; University’s name; Sponsor’s name; Project title; Project duration; and, contract value.

 

  7.2 Independent Parties. The Parties are independent parties and nothing in this Agreement will constitute either Party as the employer, principal or partner of or joint venturer with the other Party. Neither Party has any authority to assume or create any obligation or liability, either express or implied, on behalf of the other Party.

 

  7.3 Notices. Notices under this Agreement will be sent to the Parties as follows or to such other person as a Party may designate in writing:

For Technical and Scientific Matters:

 

    

To University:

  

To Sponsor:

    
Name:    Prof. David Lovejoy    Robert Ziroyan    Garo Armen
Department:    Dept. of Cell and Systems Biology    Protagenic Therapeutics Canada(2006), Inc.    Protagenic Therapeutics Inc.
Address:    25 Harbord Street    22 Elkhorn Drive, Suite 424    149 5 th Avenue, Suite 500
City, Province/State:    Toronto, ON    Toronto, ON    New York, NY
Postal/Zip Code, Country:    M5S 3G5    M2K 1J4    10010
Tel:    416-946-7259    416-500-3305    212-994-8202
Email:    David.lovejoy@utoronto.ca    rziroyan@protagenic.com    armen@agenusbio.com

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 7


For Legal and Administrative Matters:

 

    

To University:

  

To Sponsor:

Name:    Colleen Burke    Robert Ziroyan
Department:    Innovations & Partnerships Office (IPO), University of Toronto    Protagenic Therapeutics Canada (2006), Inc.
Address:   

Banting Institute

100 College Street, Suite 413

   22 Elkhorn Drive, Suite 424
City, Province/State:    Toronto, ON    Toronto, ON
Postal/Zip Code, Country:    M5G 1L5 Canada    M2K 1J4
Tel:    416-978-3648    416-500-3305
Email:    Innovations.partnerships@utoronto.ca    rziroyan@protagenic.com

For Financial Matters:

 

    

To University:

  

To Sponsor:

    
Name:    Yolanda Buenaflor    Robert Ziroyan    Garo Armen
Department:   

Research Oversight & Compliance Office (ROCO),

University of Toronto

   Protagenic Therapeutics Canada (2006), Inc.    Protagenic Therapeutics Inc.
Address:   

McMurrich Building, F2

12 Queen’s Park Crescent W.

   22 Elkhom Drive, Suite 424    149 5 th Avenue, Suite 500
City, Province/State:    Toronto, ON    Toronto, ON    New York, NY
Postal/Zip Code, Country:    M5S 1S8 Canada    M2K 1J4    10010
Tel:    416-978-6464    416-500-3305    212-994-8202
Email:    yolanda.buenatlor@utoronto.ca    rziroyan@protagenic.com   

 

  7.4 No Assignment. Except as provided for in Article 2.0, neither Party may sell, assign, encumber, licence or otherwise transfer any of its rights, duties or obligations under this Agreement without the prior written consent of the other Party, which consent may not be unreasonably withheld. Notwithstanding the foregoing, the Company may assign its rights or obligations under this Agreement in connection with a merge or change of control or to an entity acquiring all, or substantially all of the Company’s business or assets to which this Agreement relates without obtaining the consent of the University.

 

  7.5 Successors. This Agreement binds and enures to the benefit of the Parties hereto and their respective heirs, successors and permitted assigns.

 

  7.6 Interpretation. This Agreement will be governed by and construed in accordance with the laws of the Province of Ontario in Canada. In the event that a court of competent jurisdiction holds any provision of this Agreement to be invalid, such holding will have no effect on the remaining provisions of this Agreement, which will continue in full force and effect. Headings are used for convenience only and will not be used to interpret the provisions of this Agreement.

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 8


  7.7 Entire Agreement. This Agreement is the entire agreement of the parties with respect to its subject matter and no change or modification will be valid unless it is in writing and signed by both parties.

 

  7.8 Counterparts. This Agreement may be executed by signatures delivered by facsimile transmission or delivered electronically in optically scanned form; and/or it may be simultaneously executed by the parties in multiple counterparts, each of which will be considered to be an original instrument, and all of which taken together, where each Party has executed at least one counterpart, will constitute one and the same instrument.

IN WITNESS WHEREOF by signature of their respective authorized officers, the parties agree to be bound by the terms of this Agreement.

 

THE GOVERNING COUNCIL OF

THE UNIVERSITY OF TORONTO

  

PROTAGENIC THERAPEUTICS CANADA (2006), INC.

PROTAGENIC THERAPEUTICS, INC.

 

  

 

Name:    Lino DeFacendis    Name:    Robert Ziroyan. PhD, MSc
Title:    Director, Partnerships    Title:    Chief Operating Officer, President
   /s/ Lino DeFacendis       /s/ Robert Ziroyan
  

 

     

 

Date:    April 21/15    Date:    April

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 9


Acknowledgement:

I, the Principal Investigator, having read this Agreement, hereby agree to act in accordance with all the terms and conditions herein and applicable University policies, and further agree to ensure that all University participants are informed of their obligations under such terms and conditions.

 

/s/ David Lovejoy
Name:   Prof. David Lovejoy
Date:   April 15, 2015

 

The Governing Council of the University of Toronto

Protagenic Therapeutics, Inc.

 

Page 10


APPENDIX “A”

Description of the Project

April 2014 – March 31 2015

PROJECT TITLE:

Teneurin C-terminal Associated Peptide (TCAP)-mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism.”

Duration: April 1, 2014 - March 31, 2015

GOALS:

 

  1) Complete the elucidation of the signal transduction cascade by TCAP-1 associated with cellular energy metabolism with the goal of establishing an intracellular mechanism by which TCAP-1 exerts its effects in animals.

 

  2) Efficacy of synthetic TCAP-1 on the treatment of animal models of addictive disorders, and insulin-independent glucose regulation for indications for diabetes, infertility and skeletal muscle performance.

Background.

The discovery of the teneurin C-terminal associated peptides (TCAP) were reported in 2004 by our laboratory and consisted of a family of four bioactive peptides in mammals (Qian et al., 2004). We subsequently showed that the TCAP-l paralogue was highly efficacious at inhibiting anxiety as determined by the acoustic startle response in rats (Wang et al., 2005; Lovejoy et al., 2006; 2009). Further studies indicated that these peptides inhibited the corticotropin-releasing factor (CRF) facilitation of anxiety using a number of behavioural models (Al Chawaf, 2007; Tan et al., 2008; 2011; 2012; Rotzinger et al., 2010). In addition, TCAP-1 could inhibit CRF-associated neuronal activation in key regions of the brain associated with emotion (Tan et al., 2009b). Based on the inhibitory actions of TCAP-I on CRF, subsequent studies established that TCAP-I could also inhibit the CRF-induced facilitation of cocaine addiction (Kupferschmidt et al. 2011).

Over the same period, we showed that TCAP-1 had a neuroprotective effect on neurons and was associated with neurotrophic activity (Trubiani et al., 2007, Ng et al., 2010) and that the peptide played a role with aerobic metabolism. However, associated with these actions were increased neuronal process formation (Al Chawaf et al., 2007b: Tan et al., 2009a; 2011). The cloning of the gene, and identification of the receptor mechanism and associated signal transduction system required for process development was recently established (Chand el al., 2012; 2013c) thereby establishing the independence of the TCAP-l system. Further studies confirmed the evolution of the TCAP-l peptide as a distinct signalling entity (Chand et al., 2013d) that played a role in cellular metabolism.

 

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Taken together, these studies indicated that TCAP-l played a major role in the regulation of cellular metabolism and were most active in highly metabolic cells such as the brain (Chand et al., 2013b) and reproductive organs (Chand et al., 2013a). We have now established that TCAP-l increases energy production in cells by an insulin-independent increase in glucose transport and energy transduction in both neurons and skeletal muscle, and further, may play a role in male reproductive function.

Therefore, these findings indicate that TCAP-l likely exerts its neuroprotective and neurological effects by increasing energy usage in brain cells to effectively increase the stress threshold of these cells. Further studies indicate that it likely has similar effects throughout the organism to increase the efficiency of glucose and energy metabolism. Thus, this peptide has applications to a wide variety of pathological disorders associated with energy metabolism that include neurological pathology, glucose availability such as diabetes, reproductive disorders such as infertility and muscular disorders.

Cited References:

Al Chawaf A, Xu K, Tan L, Vaccarino F, Lovejoy, DA, Rotzinger S (2007a) Corticotropin-releasing factor behaviours are modulated by intravenous administration of teneurin C-terminal associated peptides. Peptides 28, 1406-1415.

Al Chawaf A, St. Amant, K, Belsham DD, Lovejoy DA (2007b) Regulation of neurite outgrowth in immortalized hypothalamic cells and hippocampal primary cultures by teneurin C-terminal associate peptide-l (TCAP-I). Neuroscience 144, 1241-1254.

Chand D, Colacci M, Dixon K, Kollara A, Brown TJ, Lovejoy DA (2013a) C-terminal region of teneurin-l co-localizes with the dystroglycan complex in the seminiferous tubules and epididymis of the adult mouse testes and regulates testicular size and testosterone production. Journal of Histology and Cell Biology 141, 191-121.

Chand D, Casatti C, Bittencourt JC, Kollara A, Brown TJ, Lovejoy DA (2013b) Expression and localization of the Teneurin C-terminal Associated Peptide (TCAP-1) in the adult mouse (Mus musculus) brain. Journal of Comparative Neurology (submitted)

Chand D, Casatti CA, de Lannoy L, Song L, Kollara A, Barsyte-Lovejoy D, Brown TJ, Lovejoy DA (2013c) C-terminal processing of the teneurin proteins: Independent actions of a teneurin C-terminal associated peptide in hippocampal cells. Molecular and Cellular Neuroscience 52, 38-50.

Chand D, de Lannoy, L, Tucker RP, Lovejoy DA (2013d) Origin of chordate peptides by horizontal protozoan gene transfer in early metazoans and protists: Evolution of the teneurin C-terminal associated peptides. General and Comparative Endocrinology 188, 144-150.

 

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Chand D, Song L, de Lannoy L, Barsyte-Lovejoy D, Ackloo S, Boutros PC, Evans K, Belsham DD, Lovejoy DA (2012) C-terminal region of teneurin-l co-localizes with dystroglycan and modulates cytoskeletal organization through an ERK-dependent stathmin- and filamin A-mediated mechanism in hippocampal cells. Neuroscience 219, 255-270

Kupferschmidt D, Lovejoy DA, Rotzinger S, Erb S (2011) Teneurin C-terminal associated peptide (TCAP)-l blocks the effects of corticotropin-releasing factor (CRF) on the reinstatement of cocaine seeking and expression of cocaine induced behavioral sensitization British Journal of Pharmacology 163, 574-583

Lovejoy DA, A1 Chawaf A, Cadinouche, A. (2006) Teneurin C-terminal associated peptides: An enigmatic family of neuropeptides with structural similarity to the corticotrophin releasing factor and calcitonin family of peptides. General and Comparative Endocrinology 148, 299-305

Lovejoy DA, Rotzinger S, Barsyte-Lovejoy, D (2009) Evolution of complementary peptide systems: Teneurin C-terminal associated peptide (TCAP) and corticotropin-releasing factor (CRF) superfamilies. Annals of the New York Academy of Sciences. 1163, 215-220.

Ng. T, Chand D, Song L, Watson JD, Boutros PC, Barsyte-Lovejoy D, Belsham DD, Lovejoy DA (2011) Identification of a novel Brain Derived Neurotrophic Factor (BDNF)-inhibitory factor: Regulation of BDNF by Teneurin C-terminal Associated Peptide (TCAP)-l in immortalized embryonic mouse hypothalamic cells Regulatory Peptides 174, 79-89.

Qian X, Barsyte-Lovejoy D, Chewpoy RH, Wang L, Gautam N, Wang N, Al Chawaf A, Lovejoy DA (2004) Characterization of teneurin C-terminal associated peptide (TCAP)-3 from rainbow trout hypothalamus. General and Comparative Endocrinology

137, 205-216

Rotzinger S, Lovejoy DA, Tan L (2010) Behavioral effects of neuropeptide ligands in rodent models of depression and anxiety. Peptides 31, 736-756

Tan LA, Al Chawaf A, Vaccarino FJ, Boutros, JC, Lovejoy DA (2011) Teneurin C-terminal associated peptide (TCAP)-1 increases dendritic spine density in hippocampal neurons and decreases anxiety-like behaviors in rats. Physiology and Behavior 104, 199-204.

Tan LA, Chand D, De Almeida R, Xu M, Colacci M, de Lanno, L, Lovejoy DA (2012) Modulation of neuroplastic changes and corticotropin-releasing factor associated behaviour by a phylogenetically ancient and conserved peptide family. General and Comparative Endocrinology. 176, 309-313.

Tan L, Lovejoy DA (2009a) Neuroprotection, neuronal remodeling, and anxiety-like behaviour: The role of the teneurin and teneurin C-terminal associated peptide (TCAP) system in the hippocampus. American Journal of Neuroprotection and Neuroregeneration. 1: 3-10

Tan L, Xu K, Vaccarino FJ, Lovejoy DA, Rotzinger S (2009b) Teneurin C-terminal associated peptide (TCAP)-l attenuates corticotropin-releasing factor (CRF)-induced c-Fos expression in the limbic system and modulates anxiety behaviour in male Wistar rats. Behavioural Brain Research 201, 198-206

 

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Tan L, Xu K, Vaccarino F, Lovejoy DA, Rotzinger S (2008) Repeated intracerebral teneurin C-terminal associated peptide (TCAP)-l injections produce enduring changes in behavioral responses to corticotropin-releasing factor (CRF) in rat models of anxiety. Behavioural Brain Research 188, 195-200.

Trubiani G, Al Chawaf A, Belsham DD, Barsyte-Lovejoy D, Lovejoy DA (2007) Teneurin carboxy (C)-terminal associated peptide-1 inhibits alkalosis-associated necrotic cell death by stimulating superoxide dismutase and catalase activity in immortalized mouse hypothalamic cells. Brain Research 1176.27-36.

Wang L, Rotzinger S, Barsyte-Lovejoy D, Qian X, Elias CF, Bittencourt JC, De Cristofaro A, Wang NC, Belsham D, Vaccarino F, Lovejoy DA (2005) Teneurin proteins possess a carboxy terminal corticotropin-releasing factor-like sequence that modulates emotionality and neuronal growth. Molecular Brain Research 133, 253-265

Research Program Overview

The goal of this research program is to provide confirmation that TCAP-l can be used to treat these disorders. This will be done within the scope of four main research projects:

 

  1. Metabolism: Investigation of the role of TCAP-1 with respect to diet and type II diabetes.

 

  2. Establish proof of concept data that TCAP-l treatment improves skeletal muscle performance.

 

  3. Cocaine addiction.

 

  4. Regulation of TCAP-1 with respect to infertility.

Description of Projects

1. Glucose/Metabolism Project

Goto-Kakizaki (GK) Hyperglycaemia study: These studies will test whether TCAP-1 administration can rescue the hyperglyaemic effect inherent in this animals. In the first study, a single dose of TCAP-1 will be administered to determine if plasma glucose will be reduced. In addition, samples of pancreas, muscle, liver, brain and testes will be taken from each animal. Metabolic hormones wi1l be examined. In the second study, repeated doses of TCAP-l will be given to determine long-term effects of the peptide.

Zucker Diabetic Obese Hyperglycaemia study: These studies will test whether TCAP-l administration can rescue the hyperglyaemic effect associated with a high calorific diet in this animals. In the first study, a single dose of TCAP-1 will be administered to determine if plasma glucose will be reduced. In addition, samples of pancreas, muscle, liver, brain and testes will be taken from each animal. Metabolic hormones will be examined. In the second study, repeated doses of TCAP-l will be given to determine long-term effects of the peptide .

 

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In vitro Studies: A combination of in vitro models using immortalized cell culture and tissue sections will be used to ascertain the molecular mechanism TCAP-l utilizes to regulate energy production. This will be aimed at establishing the independence of TCAP-1 from the insulin signal transduction pathway and will support the studies associated with the Metabolism project (above). Moreover, these studies will provide information to interpret safety studies are part of the IND enabling program. Most of these studies are now complete for neurons. Similar studies are being carried out in skeletal muscle cells.

Additional in vitro studies utilizing recombinant DNA methods to express TCAP in immortalized cells will be used to determine how TCAP is regulated and processed and is expected to provide insight into the type of pathologies that TCAP is involved in. Currently, the specific mRNA has been cloned and a mouse-based knockdown of TCAP-1 will be prepared. This model will be useful to assess all elements of TCAP-1 action including neurological and behavioural regulation, metabolism and infertility.

Blood hormone/metabolite study: The goal of these studies is to assess the acute actions of TCAP-l on metabolic parameters. In this study, rats will be given either vehicle, or one of two doses of TCAP-1 (25 or 250 pmols). Blood will be collected at 0, 15, 30, 60, 120 and 240 minutes later. Insulin, glucose, triglycerides, glucagon, leptin will be determined for each time point.

2. Skeletal Muscle Performance (associated with part 1 above)

Previous studies in mice have established that TCAP-l changes muscle fiber density, and is associated with insulin-independent glucose uptake. Moreover, TCAP-l immunoreactivity and binding is concentrated in regions of the neuromuscular junction. New studies are designed to establish how muscle fiber growth is regulated by TCAP-l both in vitro and in vivo. In vivo studies will be used to establish how TCAP-1 treatment can regulate muscle contractility and determine whether tissue damage is reduced by TCAP-1.

3. Fertility

The actions of TCAP-l on male mice reproduction will be investigated by examining morphological and physiological changes that occur in the testes and associated tissues following TCAP-l treatment. In addition, a previously developed immunoassay will be used to investigate the expression of TCAP-1 immunoreactivity in human clinical samples.

4. Cocaine addiction

In vivo Studies: The effect of TCAP-l using intravenous administration under a variety of conditions will be used to determine the efficacy of TCAP-1 on the inhibition of cocaine seeking reinstatement in rats. These studies are currently underway in the laboratory of Dr. Suzanne Erb. Further studies will be aimed at determining the molecular and neural pathways by which this mechanism occurs. Based on previous data, we hypothesize that TCAP-1 regulates cocaine addiction by altering the dopaminergic pathway associated with reward. Thus these new studies are aimed at determining the co-localization of the TCAP-1 system with that of the dopaminergic pathway.

 

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In vitro Studies: Currently, an in vitro model is being developed to determine if TCAP-l can regulate dopamine receptors. Pending the results of these studies, TCAP-l and cocaine will be used to treat rats and determine if TCAP-l regulates elements of the dopaminergic system in vivo.

 

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APPENDIX “B”

Project Budget

 

Item

   Particular    Total  

Total Direct Costs

        65,630   

Indirect Costs at 15%

        9,845   
     

 

 

 

Total

        75,475   
     

 

 

 

Payment schedule:

University of Toronto will submit invoices to Sponsor according to the following schedule:

Upon execution of the Agreement: $25,000

May 31, 2015: $25,000

June 30, 2015: $25,475

Payment method:

Sponsor will pay via electronic wire transfer.

 

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APPENDIX “C”

Please return a signed original of this Undertaking to Colleen Burke at Innovations & Partnerships Office, 100 College St., Suite 413. Colleen Burke can be reached at 416-946-7342 for information about the Research Agreement.

3/5/2013

PRINCIPAL

INVESTIGATOR’S UNDERTAKING

RE: Contract (“the Research Agreement”) between The Governing Council of the University of Toronto and Protagenic Therapeutics Canada (2006), Inc. and Protagenic Therapeutics, Inc. for a project entitled “Determination of the cellular activation mechanism of teneurin C-terminal associated peptide (TCAP-1) and its relationship to organismal energy regulation” (the “Project”) and Technology License Agreement entered into between the Parties on July 21, 2005 as amended (the “License Agreement”)

UNDERTAKING

I have read and received a copy of the “Research Agreement” and the “License Agreement” and agree with the terms and conditions contained therein. I will ensure that the Project is performed as outlined in the Research Agreement and will meet the obligations as specified in the Research Agreement and the License Agreement. I will authorize all project expenditures as outlined in the Research Agreement and the normal procedures and practices of the University, and in all matters will follow normal University policies and practices where they are not replaced by specific conditions of the Research Agreement or the License Agreement.

I will inform each person working on the Project, whether or not paid from Research Agreement funds (the “Participant”), of the Participant’s obligations under the Research Agreement and the License Agreement, and ensure that each Participant signs a Confidential Information and Intellectual Property Agreement (“IP Agreement”). I understand that any person who does not wish to sign an IP Agreement may not participate in the Project unless advised otherwise by the Innovations & Partnerships Office.

A list of Participants is provided on the reverse and a signed IP Agreement for each Participant is attached. I have indicated on the reverse if any Participant’s work involves his or her thesis. If any person not listed on the reverse commences work on the Project, I will submit an additional IP Agreement for such person promptly upon his or her commencement of work.

 

/s/ David A. Lovejoy
Name: David A. Lovejoy
Principal Investigator
Date: April 15, 2015

 

ACKNOWLEDGEMENT

 

     
Name:         
   Chair, Department of Cell and Systems Biology      
Date:           

                        More ®

 

 

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Project Participants

 

RE:    Agreement with Sponsor:    Protagenic Therapeutics Canada (2006), Inc. and Protagenic Therapeutics, Inc.
   for Project:    Determination of the Cellular Activation mechanism of teneurin C-terminal associated peptide (TCAP-1) and its relationship to organismal energy relation.
   by Principal Investigator:    David Lovejoy

The following is a complete list of all persons who are working on the Project, whether or not paid from Research Agreement funds, as of April 15, 2015 .

 

Name

  

Status

(student, postdoc, RA, technician, etc.)

   Involves Thesis
Rebecca Woelfle    MSc student    yes
Andrea D’Aquila    PhD student    yes
Mia Husic    MSc student    yes
Tea Pavlovic    PhD student    yes
Dr. David Hogg    Postdoctoral Fellow    no
[[Participant 6]]      
[[Participant 7]]      
[[Participant 8]]      
[[Participant 9]]      
[[Participant 10]]      
[[Participant 11]]      
[[Participant 12]]      
[[Participant 13]]      
[[Participant 14]]      
[[Participant 15]]      
[[Participant 16]]      
[[Participant 17]]      

 

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Page 19

Exhibit 10.20(ii)

A MENDING A GREEMENT

This Amending Agreement is made effective the 1 st day of April, 2015 (the “Effective Date” ).

BETWEEN:

T HE G OVERNING C OUNCIL OF THE U NIVERSITY OF T ORONTO

(the “University” )

- and -

P ROTAGENIC T HERAPEUTICS CANADA (2006), INC,

P ROTAGENIC T HERAPEUTICS INC.

(the “Sponsor” )

(Individually a “Party” and collectively the “Parties” )

WHEREAS the Parties entered into a Technology License Agreement effective July 21, 2005, as amended, (collectively, the “License Agreement”)

AND WHEREAS the Parties under said License Agreement entered into a Sponsored Research greement effective April 1 st , 2014 (the “Research Agreement”) for the performance of a research project entitled “Teneurin C-terminal Associated Peptide (TCAP)-mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism” (the “Project”);

AND WHEREAS the parties now wish to amend the Research Agreement by reference herein;

NOW THEREFORE the Parties hereby agree as follows:

 

1. Definitions. Except as otherwise defined herein, any capitalized terms used in this Amending Agreement shall have the meanings prescribed by the Research Agreement.

 

2. Amendments.

 

  a. Section 5.1 is hereby deleted in its entirety and replaced with the following:

5.1 Term. This Agreement will enter into force as of the Effective Date and will terminate on 31 March 2016 (“ Term ”) unless sooner terminated in accordance with Article 5.2, or upon the written agreement of the Parties.

 

  b. Appendix “A” Description of the Project , is hereby amended to include “Appendix A-1” attached hereto.

 

  c. Appendix “B” Project Budget is hereby amended to include “Appendix B-1” attached herto.

 

1


3. Counterparts . This amending agreement may be executed by signatures delivered by facsimile transmission or delivered electronically in optically scanned form; and/or it may be simultaneously executed by the parties in multiple counterparts, each of which will be considered to be an original instrument, and all of which taken together, where each party has executed at least one counterpart, will constitute one and the same instrument.

 

4. General. The provisions herein shall supersede and replace all conflicting provisions and subject matter otherwise contained in the Research Agreement, and in the event of any contradiction or conflict between the Research Agreement and this Amending Agreement, this Amending Agreement shall prevail and govern the contractual relations and all other obligations and rights between the Parties hereto. All other terms of the Research Agreement shall remain unchanged and in full force and effect. This Amending Agreement shall be governed by, and interpreted and enforced in accordance with the laws in force in the Province of Ontario and the federal laws of Canada applicable therein.

IN WITNESS WHEREOF by signature of their respective authorized officers, the parties agree to be bound by the terms of this Amending Agreement.

 

THE GOVERNING COUNCIL OF

THE UNIVERSITY OF TORONTO

   

P ROTAGENIC  T HERAPEUTICS  CA NADA  (2006), INC.

P ROTAGENIC T HERAPEUTICS , INC.

 

/s/ P. Lino DeFacendis

     

/s/ Robert Ziroyan

N AME :   P. Lino DeFacendis     N AME :   Robert Ziroyan
T ITLE :   Director, Partnerships     T ITLE :   President and Chief Operating Officer
D ATE :   Sept. 28, 2015     D ATE :   September 23, 2015

Acknowledgement:

I, the Principal Investigator, having read this Agreement, hereby agree to act in accordance with all the terms and conditions herein and applicable University policies, and further agree to ensure that all University participants are informed of their obligations under such terms and conditions.

 

 

/s/ David Lovejoy

N AME :   David Lovejoy
D ATE :   September 29, 2015

 

2


Appendix “A-1”

Description of the Project

April 2015 – March 2016

Prepared by David A. Lovejoy, August 2015

Project 2015-1: Effect of TCAP on Glucose Regulation and Type II Diabetes

2015-1-A: TCAP actions of Glucose in the brain

This project was designed to establish proof of principal that TCAP could regulate glucose action in the brain. This was a 5-year project to establish both in vitro and in vivo mechanisms of how TCAP acts to increase glucose transmission in the brain and how it affects organismal glucose, insulin and glucagon levels.

2015-1-A1: Brain Glucose Completion : Following from studies with Molecular Imagining, Inc in 2014, this project was aimed at finalizing completing the blood biochemistry and hematology studies. [complete]

2015-1-A2: Brain Glucose, Mechanism: Further studies were aimed at establishing the signal transduction mechanism of TCAP in the cell line models used for the glucose study. Further studies were aimed at establishing that TCAP-1 had a distinct action on intracellular calcium flux.[complete]

2015-1-B: TCAP actions of glucose in the muscle

Following from the original observation that TCAP-1 could affect glucose regulation in muscle, further studies were performed to establish an in vivo action in muscle.

2015-1-B1: In vivo proof of concept : SC administered rats showed significantly improved muscle tension and recovery from exertion. [complete]

2015-1-B2: Immunohistochemistry: Tissues collected from the animals in the above study will be assessed for water and glycogen accumulation, and fiber type. This study has already established that water is significantly increased in affected muscle. Previous studies have established that TCAP acts in part through dystroglycan actions which have been implicated with aquaporin regulation. Aquaporin-4 is the dominant water transporter in muscle and studies are currently underway to establish how this protein is regulated. [partially complete. Expected completion Oct, 2015]

2015-1-B3: Pathology. Muscle tissue will be assessed for damage. Sectioning has been completed. Final pathology assessment expected to be completed Sept-Oct 2015) [in progress]

2015-1-B4: Ion Regulation. In vivo studies indicated that the increased recovery from muscle fatigue is likely due to increased calcium and possibly sodium and or potassium flux. This will be assessed using differentiated C2C12 cells. The model and methods have been developed. Studies are currently underway to assess these ion fluxes [expected completion Oct-Nov, 2015]

2015-1-B5: Wound Healing . Based on the findings of the pathological studies, to be performed, as well as novel studies indicating increased growth of the C2C12 myocyte model, and previous studies indicating a role of TCAP in cell protection, studies are planned to assess proof of principal for wound healing. This is expected to begin Jan 2016. Should this prove successful, this will generate new IP and a new research project. [completion expected May 2016]

2015-1-B6: Long term studies: To date, the actions of TCAP with respect to glucose regulation in brain and muscle have been performed with acute administration. This study will include both the actions of TCAP with respect to type II diabetes and muscle action in a single study. [to begin Autumn 2015, results expected Jan-Feb 2016]


Project 2015-2 Structure Function Studies

This project is designed to assess the binding affinity, signal transduction mechanisms of the key TCAP peptides and their truncated analogues with the goal to produce novel variants and to protect the key amino acid motifs for patent applications.

2015-2-A Bioactivity

This component focuses on the signal transduction mechanisms of the endogenous TCAP peptides

2015-2-A1: Calcium Flux. Calcium flux will be measured electrophysiologically using various pharmacological agonists and antagonists of endoplasmic reticulum, mitochondrial and plasma membrane channels. To date, studies for mouse TCAP-1 have been completed. Mouse TCAP-3, and human TCAP-1 are expected in the next month. [completion Jan-Mar 2016]

2015-2-A2: Potassium. Plasma membrane potassium channels will be measured using patch-clamping electrophysiology methods. Studies have begun. [Completion Jan-Mar 2016]

2015-2-A3: IP3, DAG . This signal transduction system is associated with the receptors (latrophilins). Mouse TCAP-1 has been assessed in five different cell lines. Further studies, currently in progress will assess the actions of the other key endogenous peptides [Completion expected Nov-Dec 2015]

2015-2-A4: MEK, ERK: This signal transduction system is associated with the dystroglycans which associate with the latrophilins. Mouse TCAP-1 has been assessed in three different cell lines. Further studies, currently in progress will assess the actions of the other key endogenous peptides [Completion expected Nov-Dec 2015]

2015-2-A5: cAMP, PKA. Previous studies established that mouse TCAP-1 and 3 activate this signal transduction system, and reports in the literature indicate the receptor can be associated with this system. Additional homologues will be investigated. [Completion Early 2016]

2015-2-A6: Glucose ATP . Previous studies have established that mouse TCAP-1 increases glucose transport in the cells resulting in increased mitochondrial ATP activity. Further studies on the actions of mitochondria will establish the role of TCAPs on mitochondrial activity. Methods are currently be evaluated [completion early 2016]

2015-2-B Receptor Binding

Both the full-length and functional domains of the receptor will be over-expressed in cell lines and the binding ability of TCAP variants will be assessed.

2015-2-B1 Full length latrophilin: Currently several methods have been employed to express the full length receptor. Data indicates increased co-localization of tagged TCAP with the receptor. The sensitivity of this method will be improved. [completion: Dec 2015]

2015-2-B2: Hormone binding domain: The latrophilins possess a conserved hormone binding domain. This region has been transgenetically over expressed in cell lines and shown to bind with the putative mature endogenous mouse TCAP-1 (1-41) but not the prohormone confirming that the synthetic form of TCAP-1 binds to the latrophilin receptor. [Completed]

2015-2-C: Analogue Development

To date, several truncated variants of TCAP-1 have been developed. This study is designed to assess the efficacy of each analogue and design novel sequences with the goal of developing a shorter and more efficacious synthetic form

2015-2-C1: Human TCAP-1. Synthesis is completed. Evalution of the sequence currently in progress.

2015-2-C2: Mouse TCAP-3. Synthesis is completed. Bioactivity testing to being Oct 2015


2015-2-C3: Human TCAP-3. Sequence defined. Synthesis is expected to being early 2016.

2015-2-C4: Truncated analogues. First set of truncated variants synthesized. Partial activity assessed for the mouse TCAP-1 (9-37) variant.

Project 2015-3: TCAP and infertility

Previous studies have established that TCAP-1 has a regulatory action of sex steroids and gonadal morphology in mice. However, the studies were equivocal in that it was not clear whether TCAP-1 had a direct action on the gonads (i.e. gonadotropin-independent) or were acting at the level of GnRH production, release and synthesis at the hypothalamic level. Moreover, in both male and female tissues TCAP-1 and teneurin immunoreactivity was highly expressed indicating a number of physiological roles.

2015-3-A: Male Reproduction

These studies are designed to establish the mechanism by which TCAP-1 regulates reproductive function.

2015-3-A1: In vivo, LH, T: This study was a follow up to a previous study showing that TCAP-1 could regulate testosterone production in mice. In this study the regimen was changed to reflect current efficacy studies of TCAP and blood was sampled to determine if testosterone and LH was regulated in a pulsatile manner. Testosterone studies have been completed. LH studies are currently in progress. [Completion Dec 2015]

2015-3-A2: In vitro LH, T: An in vitro model has been developed to examine the molecular and cellular actions of TCAP in leydig and sertoli cells. Currently, the signal transduction and cellular expression of key molecular components have been completed. LH measurements will begin within the next two months.

2015-3-A3: Sperm motility, ex vivo: Based on previous studies, TCAP-1 is not expected to have an appreciable effect on sperm motility in normal animals. Models are currently being assessed for an appropriate in vivo model. Studies are expected to being in 2016.

2015-3-A4: Sperm motility, in vivo : Based on previous studies, TCAP-1 is not expected to have an appreciable effect on sperm motility in normal animals. Models are currently being assessed for an appropriate in vivo model. Studies are expected to being in 2016.

2015-3-B: Female Reproduction

These studies are designed to complete previous studies on the expression of TCAP-1, teneurin, dystroglycan and latrophilin expression in the female reproductive tract.

2015-3-B1: Immunohistochemistry : Normal female mice will be assessed for dystroglycans and latrophilins in reproductive tissues.

Project 2015-4 Neuroprotection

Based on previous studies, TCAP-1 plays a significant role in the protection of neuronal cells. These studies will be aimed at delineating the mechanism by which this occurs.

2015-4-A TCAP variants

Various TCAP peptides will be used to assess different models of cell protection in neuronal cell lines.

2015-4-A1 In vitro assessment : TCAP will be used to examine ROS and glutamate actions in hypothalamic, hippocampal and midbrain cell models.


Project 2015-5 Behaviour

Numerous previous studies have indicated a number of actions of TCAP-1 on behaviour in rodents. Our recent understanding of the mechanisms of TCAP-1 have allowed us to re-evaluate previous unpublished behavioural studies to develop a new understanding of TCAP with respect to behaviour. Based on these studies, further studies are planned to provide a greater understanding of how TCAP affects behaviour and what could be expected in the clinic.

2015-5-A Learning

To date, no studies have been performed on learning behaviour, per se. Some studies indicate that TCAP could be affecting motivational behaviours, which could manifest as a change in learning behaviour. Further tests using standardized models are planned.

2015-5-A1: Morris water maze: Locational learning has been suggested by previous in vivo studies indicating that key regions of the hippocampus associated with direction are modified by TCAP. This study will provide further evidence of these observations.

2015-5-A2: T-maze: This will be a modification of the previous H-maze test completed earlier to determine if the effects will be similar.

2015-5-A3: Passive avoidance: This will build on previous studies indicating that TCAP may influence the avoidance of noxious events.

2015-5-B Depression

Previous studies, particularly the sucrose administration and forced swim test indicates that TCAP-1 decreases depressive like behaviours. A further test is suggested to provide confirmation.

2015-5-B1 Tail suspension. This is one of the ‘gold standard’ tests for depression, and has not been previously performed.

Personnel

Dr. David Hogg : Post Doctoral Fellow: Dr. Hogg is a neurophysiologist with exception creative problem solving skills. He developed the electrophysiological methodology for analyzing TCAP variants in vitro and ex vivo. Moreover, he has a strong understanding of neuroprotection and has the skill set to analyze novel analogues using a variety of methods. Although his contract ends in February, I am suggesting that he continues after that.

Andrea D`Aquila: PhD Candidate: Although this student is exceptional and provided much input into novel intellectual property, she has received a scholarship and therefore no funding is requested for her.

Tea Pavlovic: PhD Candidate: Tea has taken over Dr. Dhan Chand`s work in the laboratory. Her work is funding entirely by academic grants until the end of the year. I have requested additional funding for her to complete the work started by Dr. Chand in the new year.

Choden Tenjin: PhD Candidate. Choden has reanalyzed all previous CRO associated behavioural studies and has led to a new synthesis of our understanding of TCAP associated behaviour. She has been tasked with overseeing all behavioural studies. Because of her multinational background and ability to speak 7 languages, I have tasked her with overseeing the next set of behavioural studies to support preclinical studies.

All other students are currently covered by academic grants.


APPENDIX “B-1”

Project Budget

 

Item

   Total, CA$  

Total Direct Costs

   $ 206,437   

Indirect Costs at 15%

   $ 30,966   
  

 

 

 

Total

   $ 237,403   
  

 

 

 

Payment schedule:

University of Toronto will submit invoices to Sponsor according to the following schedule:

 

Date:

   Payment:    CA$  

24-Sep 2015

   1st installment    $ 30,000   

31-Oct 2015

   2nd installment    $ 21,000   

30-Nov 2015

   3rd installment    $ 100,000   

30-Jan 2016

   4th installment    $ 86,403   
     

 

 

 
   Total    $ 237,403   
     

 

 

 

Payment method:

Sponsor will pay via electronic wire transfer or cheque.

Exhibit 10.21(i)

 

LOGO

Re: Bridge Loan Agreement

April 15, 2015

This Bridge Agreement (this “Agreement”) is entered into effect on April 15, 2015 (the “Effective Date”), by and between Protagenic Therapeutics Inc, Inc., a Delaware corporation (the “Company”), and Dr. Garo H. Armen (the “Lender”).

WHEREAS, the Lender, pursuant to the terms and conditions of this Agreement, will lend the Company an aggregate amount of twenty thousand five hundred Dollars (US$ 20,700) (the “Loan Amount”). The loan (the “Loan”) shall be convertible into securities of the Company on the terms and conditions set forth herein. This loan will bear interest rate of 10% (ten percent) per annum.

Protagenic Therapeutics agrees to guarantee the payment of all principal and accrued interest in the form of shares of its Common Stock, $0.001 par value (“Common Stock”.) at a purchase price of $1.25 per share (“the Shares”) upon competing its next fundraising round.

The proceeds will be used to fund the research and development and some operational activities for Protagenic Therapeutics Inc.

The Lender will lend the Company the Loan Amount in one installment upon signature of the agreement.

This Agreement will be governed by and construed in accordance with the laws of the State of New York, U.S.A., without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. The parties agree that any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of New York (or, if appropriate, a federal court located within the State of New York), and each party consents to the jurisdiction of such court.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be considered one and the same agreement.

IN WITNESS WHEREOF, duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

Dr. Garo H Armen

 

Print Name:

    Garo H. Armen

 

Signature:

    /s/ Garo H. Armen

     

PROTAGENIC THERAPEUTICS, INC.

By: Dr. Robert Ziroyan

 

Print Name:

    Robert Ziroyan

 

Signature:

    /s/ Robert Ziroyan

 

Title: Chief Operating Officer and Interim President

Protagenic Therapeutics Inc., 149 5th Avenue, Suite 500, New York, NY 10010

Tel: 416-500-3305; Fax: 508.734.2177, www.protagenic.com

Exhibit 10.21(ii)

 

LOGO

Re: Bridge Loan Agreement

May 28, 2015

This Bridge Agreement (this “Agreement”) is entered into effect on May 28, 2015 (the “Effective Date”), by and between Protagenic Therapeutics Inc, Inc., a Delaware corporation (the “Company”), and Dr. Garo H. Armen (the “Lender”).

WHEREAS, the Lender, pursuant to the terms and conditions of this Agreement, will lend the Company an aggregate amount of twenty nine thousand five hundred Dollars (US$ 29,500) (the “Loan Amount”). The loan (the “Loan”) shall be convertible into securities of the Company on the terms and conditions set forth herein. This loan will bear interest rate of 10% (ten percent) per annum.

Protagenic Therapeutics agrees to guarantee the payment of all principal and accrued interest in the form of shares of its Common Stock, $0.001 par value (“Common Stock”.) at a purchase price of $1.25 per share (“the Shares”) upon competing its next fundraising round.

The proceeds will be used to fund the research and development and some operational activities for Protagenic Therapeutics Inc.

The Lender will lend the Company the Loan Amount in one installment upon signature of the agreement.

This Agreement will be governed by and construed in accordance with the laws of the State of New York, U.S.A., without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. The parties agree that any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of New York (or, if appropriate, a federal court located within the State of New York), and each party consents to the jurisdiction of such court.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be considered one and the same agreement.

IN WITNESS WHEREOF, duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

Dr. Garo H Armen

 

Print Name:

    Garo H. Armen

 

Signature:

    /s/ Garo H. Armen

     

PROTAGENIC THERAPEUTICS, INC.

By: Dr. Robert Ziroyan

 

Print Name:

    Robert Ziroyan

 

Signature:

    /s/ Robert Ziroyan

 

Title: Chief Operating Officer and Interim President

Protagenic Therapeutics Inc., 149 5th Avenue, Suite 500, New York, NY 10010

Tel: 416-500-3305; Fax: 508.734.2177, www.protagenic.com

Exhibit 10.21(iii)

 

LOGO

Re: Bridge Loan Agreement

July 1, 2015

This Bridge Agreement (this “Agreement”) is entered into effect on July 1, 2015 (the “Effective Date”), by and between Protagenic Therapeutics Inc, Inc., a Delaware corporation (the “Company”), and Dr. Garo H. Armen (the “Lender”).

WHEREAS, the Lender, pursuant to the terms and conditions of this Agreement, will lend the Company an aggregate amount of seventy four thousand four hundred ninety nine Dollars (US$ 74,499) (the “Loan Amount”). The loan (the “Loan”) shall be convertible into securities of the Company on the terms and conditions set forth herein. This loan will bear interest rate of 10% (ten percent) per annum.

Protagenic Therapeutics agrees to guarantee the payment of all principal and accrued interest in the form of shares of its Common Stock, $0.001 par value (“Common Stock”.) at a purchase price of $1.25 per share (“the Shares”) upon competing its next fundraising round.

The proceeds will be used to fund the research and development and some operational activities for Protagenic Therapeutics Inc.

The Lender will lend the Company the Loan Amount in two installments: (a) $29,200 upon signature of the agreement and b) $45,299 on August 25, 2015.

This Agreement will be governed by and construed in accordance with the laws of the State of New York, U.S.A., without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. The parties agree that any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of New York (or, if appropriate, a federal court located within the State of New York), and each party consents to the jurisdiction of such court.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be considered one and the same agreement.

IN WITNESS WHEREOF, duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

Dr. Garo H Armen

 

Print Name:

    Garo H. Armen

 

Signature:

    /s/ Garo H. Armen

     

PROTAGENIC THERAPEUTICS, INC.

By: Dr. Robert Ziroyan

 

Print Name:

    Robert Ziroyan

 

Signature:

    /s/ Robert Ziroyan

 

Title: Chief Operating Officer and Interim President

Protagenic Therapeutics Inc., 149 5th Avenue, Suite 500, New York, NY 10010

Tel: 416-500-3305; Fax: 508.734.2177, www.protagenic.com

Exhibit 10.21(iv)

 

LOGO

Re: Bridge Loan Agreement

September 1, 2015

This Bridge Agreement (this “Agreement”) is entered into effect on September 1, 2015 (the “Effective Date”), by and between Protagenic Therapeutics Inc, Inc., a Delaware corporation (the “Company”), and Dr. Garo H. Armen (the “Lender”).

WHEREAS, the Lender, pursuant to the terms and conditions of this Agreement, will lend the Company an aggregate amount of one hundred thirty five thousand and three hundred one Dollars (US$ 135,301) (the “Loan Amount”). The loan (the “Loan”) shall be convertible into securities of the Company on the terms and conditions set forth herein. This loan will bear interest rate of 10% (ten percent) per annum.

Protagenic Therapeutics agrees to guarantee the payment of all principal and accrued interest in the form of shares of its Common Stock, $0.001 par value (“Common Stock”.) at a purchase price of $1.25 per share (“the Shares”) upon competing its next fundraising round.

The proceeds will be used to fund the research and development and some operational activities for Protagenic Therapeutics Inc.

The Lender will lend the Company the Loan Amount in three installments: (a) $25,000 upon signature of the agreement, (b) $64,450 on Sep 18, 2015 and (c) $45,851 on Oct. 13, 2015.

This Agreement will be governed by and construed in accordance with the laws of the State of New York, U.S.A., without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. The parties agree that any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of New York (or, if appropriate, a federal court located within the State of New York), and each party consents to the jurisdiction of such court.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be considered one and the same agreement.

IN WITNESS WHEREOF, duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

Dr. Garo H Armen

 

Print Name:

    Garo H. Armen

 

Signature:

    /s/ Garo H. Armen

     

PROTAGENIC THERAPEUTICS, INC.

By: Dr. Robert Ziroyan

 

Print Name:

    Robert Ziroyan

 

Signature:

    /s/ Robert Ziroyan

 

Title: Chief Operating Officer and Interim President

Protagenic Therapeutics Inc., 149 5th Avenue, Suite 500, New York, NY 10010

Tel: 416-500-3305; Fax: 508.734.2177, www.protagenic.com

Exhibit 10.21(v)

 

LOGO

Re: Bridge Loan Agreement

October 29, 2015

This Bridge Agreement (this “Agreement”) is entered into effect on October 29, 2015 (the “Effective Date”), by and between Protagenic Therapeutics Inc, Inc., a Delaware corporation (the “Company”), and Dr. Garo H. Armen (the “Lender”).

WHEREAS, the Lender, pursuant to the terms and conditions of this Agreement, will lend the Company an aggregate amount of ninety thousand Dollars (US$90,000) (the “Loan Amount”). The loan (the “Loan”) shall be convertible into securities of the Company on the terms and conditions set forth herein. This loan will bear interest rate of 10% (ten percent) per annum.

Protagenic Therapeutics agrees to guarantee the payment of all principal and accrued interest in the form of shares of its Common Stock, $0.001 par value (“Common Stock”.) at a purchase price of $1.25 per share (“the Shares”) upon competing its next fundraising round.

The proceeds will be used to fund the research and development, corporate and operational activities for Protagenic Therapeutics Inc.

The Lender will lend the Company the Loan Amount in one installment upon signature of the agreement.

This Agreement will be governed by and construed in accordance with the laws of the State of New York, U.S.A., without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. The parties agree that any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of New York (or, if appropriate, a federal court located within the State of New York), and each party consents to the jurisdiction of such court.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be considered one and the same agreement.

IN WITNESS WHEREOF, duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

Dr. Garo H. Armen

 

Print Name:

    Garo H. Armen

 

Signature:

    /s/ Garo H. Armen

     

PROTAGENIC THERAPEUTICS, INC.

By: Dr. Robert Ziroyan

 

Print Name:

    Robert Ziroyan

 

Signature:

    /s/ Robert Ziroyan

 

Title: Chief Operating Officer and Interim President

Protagenic Therapeutics Inc., 149 5th Avenue, Suite 500, New York, NY 10010

Tel: 416-500-3305; Fax: 508.734.2177, www.protagenic.com

Exhibit 10.21(vi)

 

LOGO

Re: Bridge Loan Agreement

December 23, 2015

This Bridge Agreement (this “Agreement”) is entered into effect on December 23, 2015 (the “Effective Date”), by and between Protagenic Therapeutics Inc, Inc., a Delaware corporation (the “Company”), and Dr. Garo H. Armen (the “Lender”).

WHEREAS, the Lender, pursuant to the terms and conditions of this Agreement, will lend the Company an aggregate amount of one hundred fifty thousand Dollars (US$150,000) (the “Loan Amount”). The loan (the “Loan”) shall be convertible into securities of the Company on the terms and conditions set forth herein. This loan will bear interest rate of 10% (ten percent) per annum.

Protagenic Therapeutics agrees to guarantee the payment of all principal and accrued interest in the form of shares of its Common Stock, $0.001 par value (“Common Stock”.) at a purchase price of $1.25 per share (“the Shares”) upon competing its next fundraising round.

The proceeds will be used to fund the research and development, corporate and operational activities for Protagenic Therapeutics Inc.

The Lender will lend the Company the Loan Amount in one installment upon signature of the agreement.

This Agreement will be governed by and construed in accordance with the laws of the State of New York, U.S.A., without regard to any choice of law principle that would dictate the application of the law of another jurisdiction. The parties agree that any action, suit or other legal proceeding that is commenced to resolve any matter arising under or relating to any provision of this Agreement shall be commenced only in a court of the State of New York (or, if appropriate, a federal court located within the State of New York), and each party consents to the jurisdiction of such court.

This Agreement may be executed in counterparts, each of which shall be deemed to be an original and all of which together shall be considered one and the same agreement.

IN WITNESS WHEREOF, duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

Dr. Garo H. Armen

 

Print Name:

    Garo H. Armen

 

Signature:

    /s/ Garo H. Armen

     

PROTAGENIC THERAPEUTICS, INC.

By: Dr. Robert Ziroyan

 

Print Name:

    Robert Ziroyan

 

Signature:

    /s/ Robert Ziroyan

 

Title: Chief Operating Officer and Interim President

Protagenic Therapeutics Inc., 149 5th Avenue, Suite 500, New York, NY 10010

Tel: 416-500-3305; Fax: 508.734.2177, www.protagenic.com

Exhibit 10.22

STOCK PURCHASE AGREEMENT

THIS STOCK PURCHASE AGREEMENT (this “ Agreement ”) is made as of the 21 day of December, 2015, by and among Mark Berg (the “ Seller ”), and Alexander K. Arrow (the “ Purchaser ”).

WHEREAS, the Seller owns all right, title and interest (legal and beneficial) in certain shares of Protagenic Therapeutics, Inc., a Delaware corporation (the “ Company ”).

THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Purchase and Sale of Stock .

1.1 Sale of Shares . Subject to the terms and conditions of this Agreement, the Seller agrees to sell to the Purchaser at the Closing (as defined below), an aggregate of sixty thousand (60,000) shares of Common Stock of the Company, US$0.001 par value per share (the “ Shares ”), at a per share purchase price equal to US$0.50 for an aggregate purchase price of US$30,000 (thirty thousand US. dollars) (the “ Purchase Price ”), and the Purchaser agrees to purchase at the Closing the Shares for the Purchase Price.

1.2 Closing . The purchase and sale of the Shares shall take place remotely via the exchange of documents and signatures at 1:00 p.m. (Boston time), on the date hereof, or at such other time and place as the Seller and Purchaser mutually agree upon orally or in writing (which time and place are designated as the “ Closing ”). At the Closing:

(a) The Seller shall deliver to the Purchaser the stock certificate representing the Shares;

(b) The Seller shall deliver to the Purchaser a stock power transfer in the form attached hereto as Exhibit A reflecting the Shares that the Seller is selling to the Purchaser; and

(c) The Purchaser shall pay to the Seller the aggregate Purchase Price for the Shares being purchased by the Purchaser from the Seller, by check or wire transfer, or any combination thereof.

2. Representations and Warranties of Seller . The Seller hereby represents and warrants to the Purchaser that:

2.1 Ownership of Shares . The Seller owns all right, title and interest (legal and beneficial) in and to all of the Shares being sold by the Seller pursuant to this Agreement free and clear of all liens, including, but not limited to, any lien, pledge, claim, security interest, encumbrance, mortgage, assessment, charge, restriction or limitation of any kind, whether arising by agreement, operation of law or otherwise, except for those imposed by applicable federal and state securities laws. The Seller has the full power and authority to sell, transfer, convey, assign and deliver to the Purchaser the Shares being sold by it to the Purchaser, and upon delivery and payment for such Shares at the Closing, the Purchaser shall acquire valid and unencumbered title to such Shares to be delivered by the Seller hereunder and such Shares shall not be subject to any right of first refusal, preemptive, tag-along or drag-along right or other comparable obligations or restrictions. At no time has the Seller ever held or received any stock certificates evidencing the Shares.


2.2 Authorization . The execution and delivery of this Agreement, the performance of all obligations of the Seller hereunder, and the sale and delivery of the Shares being sold by the Seller hereunder, have been duly authorized. This Agreement constitutes the valid and legally binding obligation of the Seller, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

2.3 Governmental Consents . To the Seller’s knowledge, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Seller is required in connection with the consummation of the transactions contemplated by this Agreement.

2.4 Compliance with Other Instruments . The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby will not result in a violation of, or default under, any instrument, judgment, order, writ, decree or contract known to the Seller, or an event that results in the creation of any lien, charge or encumbrance upon the Shares being sold by the Seller. The Seller has received as of the Closing all consents or waivers necessary to transfer the Shares being sold by the Seller to the Purchaser and such transfer is not subject to any right of first refusal, preemptive, tag-along or drag-along right or other comparable obligations or restrictions.

2.5 Litigation . There is no action, suit, proceeding or investigation pending or, to the Seller’s knowledge, currently threatened that questions the validity of this Agreement, or the right of the Seller to enter into this Agreement, or to consummate the transaction contemplated hereby.

2.6 Receipt of Information . The Seller believes it has received all the information it considers necessary or appropriate for deciding whether to enter into this Agreement and perform the obligations set forth herein. The Seller hereby represents that it has had an opportunity to ask questions and receive answers from the Company regarding the business, properties, prospects and financial condition of the Company, including, without limitation, any strategic transaction, public securities offering, private financing transaction (whether debt or equity), merger, consolidation, recapitalization, reclassification, reorganization, change of control transaction, sale of assets or securities, liquidation or similar transaction which have been, are being or may be contemplated by the Company. The Seller hereby acknowledges that any future sale of shares of the Company’s capital stock could be at a premium or a discount to the Purchase Price, and such sale could occur at any time or not at all.

3. Representations and Warranties of the Purchaser . The Purchaser hereby represents and warrants that:

 

2


3.1 Authorization . The execution and delivery of this Agreement, the performance of all obligations of the Purchaser hereunder, and the purchase of the Shares by the Purchaser hereunder, have been duly authorized. This Agreement constitutes the valid and legally binding obligation of the Purchaser, enforceable in accordance with its terms, except (a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally and (b) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies.

3.2 Compliance with Other Instruments . The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby will not result in a violation of, or default under, any instrument, judgment, order, writ, decree or contract known to the Purchaser to which the assets of the Purchaser are subject. The Purchaser has received as of the Closing all consents or waivers necessary under the respective governing documents of the Purchaser to purchase the Shares being sold by the Seller to the Purchaser.

3.3 Purchase Entirely for Own Account . Such Purchaser hereby confirms that the Shares to be purchased by such Purchaser hereunder will be acquired for investment for its own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and such Purchaser has no present intention of selling, granting any participation in, or otherwise distributing the same, provided, however, that such Purchaser may sell, grant participation in, or distribute such Shares to affiliated entities or persons (including a venture capital fund, other venture capital funds affiliated with such fund, successor and predecessor funds, and funds under common investment management). By executing this Agreement, such Purchaser further represents that it does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of such Shares. Such Purchaser further acknowledges that such Shares have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), and, therefore, may not be sold or otherwise transferred unless they are subsequently registered under the Securities Act or an exemption from such registration is available.

3.4 Investment Experience . Such Purchaser is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of this investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares to be purchased by such Purchaser hereunder.

3.5 Accredited Investor . Such Purchaser is an “accredited investor” within the meaning of Securities and Exchange Commission Rule 501 of Regulation D, as presently in effect.

3.6 Foreign Investor . If the Purchaser is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended), the Purchaser hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Shares or any use of this Agreement, including (a) the legal requirements within its jurisdiction for the purchase of the Shares, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental

 

3


or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Shares. The Purchaser’s subscription and payment for and continued beneficial ownership of the Shares will not violate any applicable securities or other laws of the Purchaser’s jurisdiction.

4. Indemnity . To the extent permitted by law, the Seller will indemnify and hold harmless the Purchaser against any losses, claims, damages or liabilities to which they make become subject, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any breach of the representations and warranties made by the Seller in this Agreement.

5. Conditions to Closing .

5.1 Conditions of Purchaser’s Obligations at Closing . The obligations of the Purchaser under Section 1.2 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions:

(a) Representations and Warranties . The representations and warranties of the Seller contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing.

(b) Performance . The Seller shall have performed and complied in all material respects with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.

(c) Qualifications . All authorizations, approvals, or permits, if any, of any governmental authority or body of the United States or of any state that are required in connection with the lawful sale of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing.

(d) Proceedings and Documents . All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchaser, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request.

5.2 Conditions of the Seller’s Obligations at Closing . The obligations of the Seller to the Purchaser under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions by the Purchaser:

(a) Representations and Warranties . The representations and warranties of the Purchaser contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.

 

4


(b) Payment of Purchase Price; Performance . The Purchaser shall have delivered the aggregate Purchase Price as specified in Section 1.2(c) hereof, and the Purchaser shall have performed and complied in all material respects with all other agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by the Purchaser on or before the Closing.

(c) Qualifications . All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required in connection with the lawful sale of the Shares pursuant to this Agreement shall be duly obtained and effective as of the Closing.

6. Miscellaneous .

6.1 Successors and Assigns . Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.

6.2 Governing Law . This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware.

6.3 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

6.4 Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

6.5 Finder’s Fee . Each party represents that it neither is nor will be obligated for any finders’ fee or commission in connection with this transaction. Each party also represents that it has not entered into any agreements for which such party would be liable for finders’ fees or commissions in connection with this transaction or any other contemplated transaction. Each party agrees to indemnify and hold harmless the other parties from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which such party or any of its directors, stockholders, employees or representatives is responsible.

6.6 Amendment and Waivers . Any term of this Agreement may be amended only with the written consent of the parties hereto. The observance of any term of this Agreement may be waived by the Purchaser or the Seller (either generally or in a particular instance and either retroactively or prospectively) only if such waiver is in writing and signed by the party to be bound.

6.7 Severability . If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

5


6.8 Survival of Representations and Warranties . The representations and warranties made by the Seller shall survive the Closing. The representations and warranties made by the Seller herein shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Purchaser.

6.9 Entire Agreement; Facsimile Signatures . This Agreement (including its Schedules) constitutes the entire agreement and understanding among the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings related to such subject matter. This Agreement may be executed by facsimile signatures.

6.10 Expenses . Irrespective of whether the Closing is effected, the Seller shall pay all costs and expenses that the Seller incurs with respect to the negotiation, execution, delivery and performance of this Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

6.11 Notices . All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be deemed delivered (a) three (3) business days after being sent by registered or certified mail, return receipt requested, postage prepaid or (b) one (1) business day after being sent via an internationally recognized overnight courier service guaranteeing next business day delivery, in each case to the intended recipient as set forth below:

If to the Purchaser, at the address set forth below the Purchaser’s signature to this Agreement, or at such other address as may have been furnished in writing by the Purchaser to the other parties hereto; or

If to the Seller, at the address set forth below such Seller’s signature to this Agreement, or at such other address as may have been furnished in writing by such Seller to the other parties hereto.

Any party may give any notice, request, consent or other communication under this Agreement using any other means (including, without limitation, personal delivery, messenger service, telecopy, first class mail or electronic mail), but no such notice, request, consent or other communication shall be deemed to have been duly given unless and until it is actually received by the party for whom it is intended. Any party may change the address to which notices, requests, consents or other communications hereunder are to be delivered by giving the other parties notice in the manner set forth in this Section.

[ Remainder of Page Intentionally Left Blank ]

 

6


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

SELLER:

        /s/ Mark Berg

Mark Berg
Address:   210 Circle Road
  Syosset, NY 11791

S IGNATURE P AGE TO S TOCK P URCHASE A GREEMENT


IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

PURCHASER:

        /s/ Alexander Arrow

Alexander K. Arrow
Address:   25422 Trabuco Road
  # 105-606
  Lake Forest, CA 92630

S IGNATURE P AGE TO S TOCK P URCHASE A GREEMENT


Exhibit A

Stock Power Transfer

FOR VALUE RECEIVED, Mark Berg hereby sells, assigns and transfers unto Alexander K. Arrow sixty thousand (60,000) shares of Protagenic Therapeutics, Inc. Common Stock represented by stock certificate number 99 , and does hereby irrevocably constitute and appoint the attorneys of Faber Daeufer & Itrato PC as attorney to transfer said stock on the books of Protagenic Therapeutics, Inc. with full power of substitution in the premises.

 

Dated: December 21, 2015     

/s/ Mark Berg

     Mark Berg

Exhibit 21.1

Subsidiaries of Atrinsic, Inc.

 

    

Name

  

Jurisdiction of Incorporation

1.    Protagenic Therapeutics, Inc.    Delaware
2.    Protagenic Therapeutics Canada (2006), Inc.*    Ontario, Canada

 

* Protagenic Therapeutics Canada (2006), Inc. is a wholly-owned subsidiary of Protagenic Therapeutics, Inc.

Exhibit 99.1

PROTAGENIC THERAPEUTICS, INC.

AND SUBSIDIARY

DECEMBER 31, 2014 AND 2013

TABLE OF CONTENTS

 

     Page  

Independent Auditors’ Report

     1   

Consolidated Financial Statements

  

Consolidated Balance Sheets

     2   

Consolidated Statements of Operations and Comprehensive (Loss)

     3   

Consolidated Statements of Stockholders’ (Deficit) Equity

     4   

Consolidated Statements of Cash Flows

     5   

Notes to Consolidated Financial Statements

     6 - 24   


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Protagenic Therapeutics, Inc. and Subsidiary

We have audited the accompanying consolidated balance sheets of Protagenic Therapeutics, Inc. and Subsidiary as of December 31, 2014 and 2013 and the related consolidated statements of operations and comprehensive (loss), stockholders’ (deficit) equity, and cash flows for the years then ended. Protagenic Therapeutics, Inc. and Subsidiary’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Protagenic Therapeutics, Inc. and Subsidiary as of December 31, 2014 and 2013 and the results of their consolidated operations and their consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has continued to incur net (losses), has an accumulated (deficit) as of December 31, 2014 and its principal operations have not yet commenced. These factors among others create a substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Our opinion is not modified with respect to that matter.

Schulman Lobel Zand Katzen Williams & Blackman LLP

CERTIFIED PUBLIC ACCOUNTANTS

 

North Brunswick, New Jersey
October 16, 2015

 

-1-


     2014     2013  

ASSETS

  

CURRENT ASSETS

    

Cash and cash equivalents

   $ 22,733      $ 155,983   
  

 

 

   

 

 

 

Prepaid research and developemnt expenses

     —          47,224   
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     22,733        203,207   

EQUIPMENT

    

Office

     9,414        9,414   

Computer

     12,506        12,506   
  

 

 

   

 

 

 
     21,920        21,920   

Less: Accumulated depreciation

     (21,920     (21,540
  

 

 

   

 

 

 

Total equipment

     —          380   

OTHER ASSETS

     4,147        3,063   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 26,880      $ 206,650   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

    

CURRENT LIABILITIES

    

Accounts payable and accrued expenses

   $ 145,733      $ 130,310   

Income taxes payable

     2,500        3,100   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     148,233        133,410   

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ (DEFICIT) EQUITY

    

Common stock at $.001 par value, 10,000,000 shares authorized; 7,613,338 shares issued and 6,613,338 shares outstanding

     7,613        7,613   

Additional paid-in-capital

     5,580,548        5,316,322   

Accumulated (deficit)

     (5,461,933     (5,159,452

Treasury stock, at cost $.001 par value, 1,000,000 shares

     (100,000     (100,000

Accumulated other comprehensive (loss) gain - foreign currency translation

     (147,581     8,757   
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY

     (121,353     73,240   
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

   $ 26,880      $ 206,650   
  

 

 

   

 

 

 

 

-2-


     2014     2013  

REVENUE

   $ —        $ —     

OPERATING AND ADMINISTRATIVE EXPENSES

    

Research and development expenses

    

Sponsorship research and development

     67,270        178,018   

Legal fees

     25,287        13,549   

Salaries

     88,791        95,238   

Patent expense

     60,434        25,500   

Consulting

     10,861        11,650   

Payroll taxes and employee benefits

     5,335        5,089   

Rent - related party and officer

     5,862        5,079   

Travel

     2,892        477   

Telephone, internet and website

     2,703        2,713   

Rebates from research and development Canadian tax credits

     (78,366     (46,355
  

 

 

   

 

 

 

Total research and development expenses

     191,069        290,958   

Depreciation expense

     380        1,200   

Consulting expense - other

     4,133        16,662   

Stock compensation expense

     85,168        603,785   

Tax expense based on capital tax

     3,463        3,100   

Miscellaneous expenses

     7,887        15,523   
  

 

 

   

 

 

 

TOTAL OPERATING AND ADMINISTRATIVE EXPENSES

     292,100        931,228   
  

 

 

   

 

 

 

OTHER INCOME (EXPENSE)

    

Interest income

     49        74   

Interest expense - stockholder

     —          (3,282

Loss on foreign transaction exchange

     (10,430     (2,560
  

 

 

   

 

 

 

TOTAL OTHER (EXPENSE) - NET

     (10,381     (5,768
  

 

 

   

 

 

 

NET (LOSS)

     (302,481     (936,996

COMPREHENSIVE (LOSS)

    

Other Comprehensive (Loss) - net of tax

    

Foreign exchange translation (loss)

     (156,338     (111,757
  

 

 

   

 

 

 

TOTAL COMPREHENSIVE (LOSS)

   $ (458,819   $ (1,048,753
  

 

 

   

 

 

 

Net (loss) per common share - basic and diluted

   $ (0.05   $ (0.14

Weighted average common shares - basic and diluted

     6,613,338        6,780,074   

 

-3-


                                            Accumulated        
                                            Other     Stockholders’  
     Common Stock      Additional      Accumulated     Treasury Stock     Comprehensive     (Deficit)  
     Shares      Amount      Paid-in-Capital      (Deficit)     Shares     Amount     Gain (Loss)     Equity  

BALANCE - December 31, 2012

     6,795,549       $ 6,795       $ 3,920,566       $ (4,222,456     —          —        $ 120,514      $ (174,581
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Issuance of common stock

     475,000         475         474,525         —          —          —          —          475,000   

Issuance of warrants on conversion of bridge loan

     310,000         310         309,690         —          —          —          —          310,000   

Issuance of warrants on conversion of bridge loan interest

     7,789         8         7,781         —          —          —          —          7,789   

Issuance of common stock for consulting services

     25,000         25         24,975         —          —          —          —          25,000   

Stock option grants

     —           —           5,735         —          —          —          —          5,735   

Issuance of warrants

     —           —           573,050         —          —          —          —          573,050   

Purchase of common stock

     —           —           —           —          (1,000,000     (100,000     —          (100,000

Foreign currency translation (loss)

     —           —           —           —          —          —          (111,757     (111,757

Net (loss)

     —           —           —           (936,996     —          —          —          (936,996
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE - December 31, 2013

     7,613,338         7,613         5,316,322         (5,159,452     (1,000,000     (100,000     8,757        73,240   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stock option grants

     —           —           264,226         —          —          —          —          264,226   

Foreign currency translation (loss)

     —           —           —           —          —          —          (156,338     (156,338

Net (loss)

     —           —           —           (302,481     —          —          —          (302,481
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE - December 31, 2014

     7,613,338       $ 7,613       $ 5,580,548       $ (5,461,933     (1,000,000   $ (100,000   $ (147,581   $ (121,353
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

-4-


     2014     2013  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net (Loss)

   $ (302,481   $ (936,996

Adjustments to reconcile net (loss) to net cash provided by (used in) provided by (used in) operating activities

    

Depreciation expense

     380        1,200   

Stock based compensation

     264,226        603,785   

Changes in operating assets and liabilities

    

Prepaid research and development expenses

     47,224        (47,224

Other assets

     (1,084     (415

Accounts payable and accrued expenses

     15,423        103,642   

Income taxes payable

     (600     3,100   
  

 

 

   

 

 

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

     23,088        (272,908

CASH FLOWS FROM FINANCING ACTIVITIES

    

Purchase of treasury stock

     —          (100,000

Proceeds from bridge loan

     —          160,000   

Proceeds from issuance of common stock

     —          475,000   
  

 

 

   

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

     —          535,000   

Effect of exchange rate on cash and cash quivalents

     (156,338     (111,757

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

     (133,250     150,335   

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

     155,983        5,648   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF YEAR

   $ 22,733      $ 155,983   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid for interest expense

   $ —        $ —     
  

 

 

   

 

 

 

Cash paid for income taxes based on capital tax

   $ 4,063      $ —     
  

 

 

   

 

 

 

NONCASH TRANSACTIONS

    

Warrants issued for interest on bridge loan

   $ —        $ 7,789   

Warrants issued for bridge loan

   $ —        $ 310,000   

 

-5-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 1 ORGANIZATION AND NATURE OF BUSINESS

Protagenic Therapeutics, Inc. (“PTI U.S.A.”) was organized on September 29, 2004 in the State of Delaware. On September 14, 2015, PTI U.S.A. obtained its renewal and revival of its Delaware charter which had become inoperative effective August 7, 2015. The Company is a privately held biotechnology company focused on the discovery, research and development of pre-clinical studies for developing novel, naturally occurring, human neuropeptide-based, brain-active therapeutics for treatment of depression, mood, anxiety and other neurodegenerative disorders. The Company is also interested in acquiring exclusive intellectual property rights for peptide-based therapeutics for the treatment of neurological and mood disorders. Once the Company’s planned principal operations commence, its focus will be licensing certain technologies and the continued research of the new technologies.

Protagenic Therapeutics Canada (2006) Inc. (“PTI Canada”) was incorporated in 2006 in the Province of Ontario, Canada. PTI Canada is a wholly-owned subsidiary of PTI U.S.A. (collectively, the “Company”). It provides operational support and assistance for the implementation of corporate and operational activities conducted in Canada.

 

NOTE 2 FINANCIAL CONDITION AND LIQUIDITY

Financial condition

The Company’s accompanying consolidated financial statements indicate that there is substantial doubt about its ability to continue as a going concern since the Company is dependent on its ability to obtain additional capital or obtain short term financing and actually commence its operations to fund the Company’s long-term plans. The Company has incurred net (losses) of ($302,481) and ($936,996) for the years ended December 31, 2014 and 2013, respectively, resulting in an accumulated (deficit) of ($5,461,933) and ($5,159,452) as of December 31, 2014 and 2013, respectively. The success of the Company is dependent upon obtaining the necessary regulatory approvals, bringing its products to market and achieving profitable operations. The continuation of the research and development programs and the commercialization of its products are dependent upon the Company’s ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations. No assurances can be given that management of the Company will be successful in its efforts. The Company’s existing liquidity is not sufficient to fund its operations, working capital and other financing requirements for the foreseeable future. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be not able to continue as a going concern. These factors among others create a substantial doubt about the Company’s ability to continue as a going concern.

Liquidity

The Company intends to finance its activities through managing current cash and cash equivalents on hand and seeking additional funds raised in the future through the issuance of common stock or borrowing of funds. However, there can be no assurance that financing of such funds will be available when required, or if available, obtained on satisfactory terms to the Company.

 

-6-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the parent company, PTI U.S.A, and its wholly owned subsidiary, PTI Canada. All significant intercompany transactions and balances have been eliminated from the consolidated financial statements.

Basis of Accounting

The accompanying consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification.

Foreign Currency Translation and Transactions

The assets and liabilities of the Company’s foreign subsidiary PTI Canada are translated into U.S. dollars from its functional currency using the exchange rate in effect at the balance sheets date. Additionally, the accounts on the statements of operations are translated using exchange rates approximating average rates prevailing during the years. Translation adjustments that arise from translating its financial statements from the local currency to the U.S. dollar are accumulated and reflected as a separate component of stockholders’ equity (deficit). Transaction gains and losses that arise from exchange rate changes denominated in currencies other than the local currency are included in the consolidated statements of operations as incurred. As of December 31, 2014, PTI U.S.A. recorded an accumulated translation loss of $147,581 which converts to CA$ 170,251. At December 31, 2013, PTI U.S.A. recorded an accumulated translation gain of $8,757 which converts to CA$ 9,315.

Certain amounts pertaining to the Canada Revenue Agency included in the accompanying notes to the consolidated financial statements may be in Canada dollars (denoted as “CA$”). If not denoted with CA$, then all amounts are stated in U.S. dollars (as “$”).

As of December 31, 2014 and 2013, approximately 49% and 3%, respectively, of the Company’s cash and cash equivalent balances was translated to U.S. dollars since the amount was maintained with PTI Canada. As of December 31, 2013, 100% of the prepaid research and development expenses were translated to U.S. dollars since it was paid by and maintained with PTI Canada.

Use of Estimates

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Significant estimates include accruals, contingencies, valuation allowance for deferred tax assets and valuation of stock options and warrants. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts. Actual results could differ from those estimates.

 

-7-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Cash and Cash Equivalents

Cash equivalents consist of money market instruments purchased with an original maturity of three months or less. The Company maintains its cash and cash equivalents with two high credit quality financial institutions with one located in each the United States and Canada, which at times, may be in excess of insured amounts with the U.S. Federal Deposit Insurance Company. The Company’s policy is to maintain its cash and cash equivalents with reputable financial institutions assessed on an annual basis.

Equipment

Equipment is stated at cost less accumulated depreciation. Improvements and replacements of equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of equipment are charged to expense as incurred. When assets are retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss is reported in the consolidated statements of operations. Depreciation is computed using straight-line methods over their estimated useful lives ranging from 3 to 5 years.

Treasury Stock

During 2013, the Company purchased 1,000,000 shares of common stock at $.10 per share for a total cost of $100,000. Management of the Company does not plan to retire the stock and applies the cost method to its treasury stock transactions. Differences between proceeds for reissuance of treasury stock and the cost are credited or charged to additional paid in capital to the extent of the prior credits and thereafter to accumulated deficit.

Financial Instruments

Financial assets and financial liabilities are initially recorded at fair value and their subsequent measurements are determined in accordance with their classification. The classification depends on the purpose for which the financial instruments were acquired or issued and their characteristics. Cash and cash equivalents are classified as held-for-trading assets and are reported at fair value. Accounts payable and accrued liabilities are classified as other liabilities and after initial recognition are recorded at amortized cost. As of December 31, 2014 and 2013, there were no significant differences between the carrying values of these amounts and their estimated fair values due to their short-term nature.

Rebates from Research and Development Credits

The Company derives rebates from scientific research and experimental development tax credits issued by the Canada Revenue Agency for qualified expenditures. The credits are recognized when the rebate is issued. The amounts received are reinvested into the Company’s scientific research, experimental development and operational works conducted in Canada.

Research and Development Expenses, net of Rebates

The Company’s research and development expenditures for present and future products are expensed as incurred. The Company incurred research and development expenses of $191,069 and $290,958 net of rebates from research and development credits during the years ended December 31, 2014 and 2013, respectively.

 

-8-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 a 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 Company’s stock-based compensation is accounted for as an equity instrument.

Advertising Costs

The Company expenses advertising costs as incurred. The Company had no advertising expenses during the years ended December 31, 2014 and 2013.

Income Taxes

The Company accounts for income taxes utilizing the liability method. Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statement basis and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is recorded to reduce the carting amounts of deferred tax assets unless it is more likely than not that such asset will be realized.

Management has determined that a valuation allowance is required for the deferred tax assets which is primarily attributable to net operating loss carry forwards for federal and state tax purposes. The net operating losses expire through 2034 and 2021 for federal and state taxes, respectively. Thus, the consolidated financial statements do not reflect a deferred tax provision.

Accounting for Uncertain Tax Positions

The Company follows the Income Taxes Topic of the FASB Accounting Standards Codification, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s consolidated financial statements. The guidance prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, clarification, interests and penalties, disclosure and transition. The Company’s only major tax jurisdictions are the United States, New York and Canada. At December 31, 2014 and 2013, no significant income tax uncertainties have been included in the Company’s consolidated balance sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the consolidated statements of operations. No interest or penalties were recorded for the years ended December 31, 2014 and 2013. In addition, the Company currently has no federal or state tax examinations in progress. Tax returns are generally subject to potential examination for three years after filing.

 

-9-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Comprehensive (Loss)

Comprehensive (loss) is net (loss) plus other comprehensive (loss) items that are provided directly to stockholders’ (deficit) equity. The only item currently applicable to other comprehensive (loss) is the foreign currency translation adjustments.

Basic and Diluted Net (Loss) per Common Share

Basic (loss) per common share is computed by dividing the net (loss) by the weighted-average number of shares of common stock outstanding for each period. Diluted (loss) per share is computed by dividing the net (loss) by the weighted-average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents for each period. For the years ended December 31, 2014 and 2013, there were 2,126,674 and 1,821,670, respectively, potentially dilutive securities not included in the calculation of weighted-average shares of common stock outstanding since they would be anti-dilutive.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new, comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under Generally Accepted Accounting Principles (“GAAP”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2017, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company currently has no revenues and does not expect any impact of adopting this guidance.

In June 2014, ASU 2014-10 removed the definition of a development stage entity from the Master Glossary of the Account Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for the development stage entities to (1) present inception-to-date information in the statements of operations, cash flow, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Company adopted this ASU effective with December 31, 2014 and 2013 consolidated financial statements and its adoption resulted in the removal of previously required development stage information

In June 2014, the FASB issued ASU 2014-12, “Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could be Achieved after the Requisite Service Period.” This ASU provides more explicit guidance for treating share-based payment awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.

 

-10-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

New Accounting Pronouncements (continued)

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 31, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2015 and the Company will continue to assess the impact on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

 

NOTE 4 EQUIPMENT

Equipment consisted of the following as of December 31:

 

     2014      2013  
            Accumulated     Net Book             Accumulated     Net Book  
     Cost      Amortization     Value      Cost      Amortization     Value  

Office equipment

   $ 9,414       $ (9,414   $  —         $ 9,414       $ (9,414   $ —     

Computer equipment

     12,506         (12,506     —           12,506         (12,126     380   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 21,920       $ (21,920   $ —         $ 21,920       $ (21,540   $ 380   
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The Company recorded depreciation expense of $380 and $1,200 for the years ended December 31, 2014 and 2013, respectively.

 

NOTE 5 FAIR VALUE MEASUREMENTS

Accounting Standards Codification 820, “Fair Value Measurements and Disclosure,” (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

 

-11-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 5 FAIR VALUE MEASUREMENTS (CONTINUED)

 

The three levels are described below:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;

Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

There were no transfers in or out of any level the years ended December 31, 2014 and 2013.

The Company determines fair values for its investment assets as follows:

Cash equivalents at fair value – the Company’s cash equivalents, at fair value, consist of money market funds – marked to market. The Company’s money market funds are classified within Level 1 of the fair value hierarchy since they are valued using quoted market prices from an exchange.

The following tables provide information on those assets measured at fair value on a recurring basis as of December 31, 2014 and December 31, 2013, respectively:

 

     Carrying                              
     Amount                              
     In                              
     Balance      Fair                       
     Sheet      Value                       
     December 31,      December 31,      Fair Value Measurement Using  
     2014      2014      Level 1      Level 2      Level 3  

Assets:

              

Money Market Funds

   $ 22,733       $ 22,733       $ 22,733       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     Carrying                              
     Amount                              
     In                              
     Balance      Fair                       
     Sheet      Value                       
     December 31,      December 31,      Fair Value Measurement Using  
     2013      2013      Level 1      Level 2      Level 3  

Assets:

              

Money Market Funds

   $ 155,983       $ 155,983       $ 155,983       $ —         $ —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-12-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 6 SHORT TERM BRIDGE LOAN BORROWINGS

During 2013 and 2012, the Company had entered into bridge loan agreements for total borrowings of $310,000 with the executive director, chairman – board of directors and major stockholder of PTI U.S.A. and director of PTI Canada (the “Major Stockholder and Chairman”). The proceeds were used to fund research, development and the general operating activity of the Company. The loan bore interest at a rate of 10% per annum. On February 15, 2013, upon completion of the next fundraising round, the loan and accrued interest of $317,789 were converted into a fixed number of 953,367 warrants to purchase shares of the Company’s common stock at the purchase price of $1.00 per share. The Company did not enter into any bridge loan arrangements during 2014. The Company recorded interest expense of $ 3,282 for the year ended December 31, 2013.

 

NOTE 7 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following as of December 31:

 

     2014      2013  

Patent costs - to University of Toronto, a stockholder

   $ 87,244       $ 94,344   

Patent costs - legal expensess

     51,120         34,468   

Research and development - to University of Toronto, a stockholder

     6,089         —     

Other

     1,280         1,498   
  

 

 

    

 

 

 
   $ 145,733       $ 130,310   
  

 

 

    

 

 

 

 

NOTE 8 STOCKHOLDERS’ EQUITY

Authorized Number of Common Stock Shares

During the formation of the Company, the original number of authorized shares was 750,000 shares of common stock. All 750,000 shares of common stock were issued and outstanding. On August 19, 2005, the number of authorized shares of common stock was increased from 750,000 to 10,000,000 shares. As of December 31, 2014 and 2013, the Company still has 10,000,000 shares of common stock authorized.

Common Stock Splits

On August 19, 2005, the number of shares of common stock issued and outstanding were split using a fraction of 4/3. This resulted in the Company having 1,000,000 common stock shares issued and outstanding upon the stock split.

On October 26, 2006, the Company’s common stock issued and outstanding was split into a new number of shares of common stock of the Company by multiplying each such share by 3.471652721. No fractional shares were issued in connection therewith. This resulted in the Company having 4,409,816 common stock shares issued and outstanding upon the stock split.

The Company has not had any additional stock splits since 2006.

 

-13-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

Common Stock Issuances

No common stock was issued during the year ended December 31, 2014. The Company issued 475,000 shares of common stock for $475,000 and issued 25,000 shares of common stock having a value of $25,000 for consulting services during the year ended December 31, 2013.

On March 15, 2006, the Company adopted the “Protagenic Therapeutic, Inc. 2006 Employee, Director and Consultant Stock Plan” (the “Plan”) and authorized 140,000 shares for issuance pursuant to the Plan. On April 1, 2012, the Company increased the number of authorized shares to 2,000,000 shares. In accordance with the Plan, the Company can grant to certain employees, directors or consultants options to purchase shares of the Company’s common stock which vest automatically or ranging from a one year period to a five year period. The shares are exercisable over a period of ten years from the date of grant. The Plan provides that qualified options be granted at an exercise price equal to the fair market value at the date of grant, as determined by the Board of Directors. On March 1, 2014, the Company granted a total of 240,000 options to purchase shares of the Company’s common stock at an exercise price of $1.00 per share. The 2014 options vest monthly over a one year period for most of the individuals and over a three year period for one individual. No options were granted during the year ended December 31, 2013.

Management has determined that for each round of stock options granted, it was reasonable to estimate the fair value of the common stock options using Black Scholes. Accordingly, the Company has accounted for options using this calculated value method. Based on the fact that the Company is a privately held company with no revenue, management has estimated its expected future equity volatility factor in valuing the Company’s common stock equivalents by starting with its historical volatility adjusted for the volatility of equity interests from comparable publicly traded and privately held published companies to arrive at such industry benchmarks to evaluate.

Stock-Based Compensation

The fair value of each stock option granted and warrant issued was estimated using the Black Scholes assumptions and or factors as follows:

 

Expected dividend yield (no dividends paid by the Company through 12/31/14)

     - 0 -   

Risk - free interest rate
(Publicly available data published by the Federal Reserve)

     2.30

Expected life in years

     10   

Expected future equity volatility

     85

Weighted average calculated value of all common stock equivalents

   $ .83   

Forfeitues based on voluntary termination behavior and analysis of actual option or warrant forfeitures (no forfeitures received by the Company through 12/31/14)

     - 0 -   

Calculated fair value of all common stock equivalents

   $ .73   

 

-14-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

Stock Options (continued)

 

The Company has outstanding the following options categorized by the type of grantee to purchase shares of the Company’s common stock as of December 31:

 

Grantee

   2014      2013  

Officer / Related Party

     175,000         125,000   

Consultants - Research & Development

     664,444         489,444   

Consultants - Legal

     104,150         104,150   

License Agreement - Research & Development

     129,150         129,150   

Consultants - Business Development, Administration and Clinical

     145,000         130,000   
  

 

 

    

 

 

 

Total Options Granted

     1,217,744         977,744   
  

 

 

    

 

 

 

The following is an analysis of the stock option grant activity under the Plan:

 

     Number of      Exercise      Weighted Average  
     Options      Price      Exercise Price  

Options granted 2006

     531,598       $ 0.26       $ 0.26   

Options granted 2007

     21,146       $ 1.00       $ 1.00   

Options granted 2011

     300,000       $ 1.00       $ 1.00   

Options granted 2012

     125,000       $ 1.00       $ 1.00   
  

 

 

       

Total Options outstanding at December 31, 2013

     977,744          $ 0.60   

Options granted 2014

        

(includes 50,000 options granted to the Officer/Related Party)

     240,000       $ 1.00       $ 1.00   
  

 

 

       

Total Options outstanding at December 31, 2014

     1,217,744          $ 0.68   
  

 

 

       

As of December 31, 2014 and 2013, the Plan had available option shares to be granted of 782,256 and 1,022,256, respectively. No stock options expired or were forfeited during the years ended December 31, 2014 and 2013. As of December 31, 2014 and 2013, the stock options had no intrinsic value. The Company recognized stock-based compensation expense pertaining to the options granted of $85,168 and $5,735 during the years ended December 31, 2014 and 2013, respectively.

The Company has recognized a total stock-based compensation expense pertaining to the options granted under the Plan of $798,920 since its formation through December 31, 2014 based on a fair value of $.73 per share calculated using the Black Scholes.

As of December 31, 2014, the unrecognized compensation cost on the 123,333 stock option grants that are non-vested out of the 240,000 stock options granted in 2014 under the Plan was $90,033. All stock options granted in 2013 and prior were fully vested as of December 31, 2013.

 

-15-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

Stock Options (continued)

 

The following is an analysis of the non-vested stock options under the Plan as of December 31, 2014:

 

Number of   Expiration   Remaining Contractual    

Options

 

Date

 

Life (Years)

 

Exercise Price

15,000

  March 1, 2015   0.167   $                                1.00

108,333

  March 1, 2017   2.167   $                                1.00

Warrants:

The Company has conducted private placement offerings to raise financing since its formation. In connection with the private placement offerings that occurred in 2013, 2011 and 2007, the Company offered its common stock at a fixed purchase price of $1.00 per share, $0.001 par value, and offered 3 warrants for each share purchased. The warrants have an exercise price of $1.00 per share and have an exercise term of ten years from the date of issuance.

The Company has outstanding the following warrants to purchase the Company’s common stock as of December 31,

 

     2014      2013  

Financing and stock subscriptions (includes 300,000 warrants to the Major Stockholder and Chairman)

     2,100,000         2,100,000   

Consultants

     100,000         100,000   

Debt conversion, Major Stockholder and Chairman

     953,367         953,367   
  

 

 

    

 

 

 

Total Warrants Issued

     3,153,367         3,153,367   
  

 

 

    

 

 

 

A summary of warrant issuances are as follows:

 

     Number of      Exercise      Weighted Average  
     Warrants      Price      Exercise Price  

Balance at December 31, 2012

     775,000       $ 1.00 - $1.25       $ 1.03   

Warrants exercised

     —           

Warrants expired

     —           

Warrants issued with stock subscriptions

     2,378,367       $ 1.00       $ 1.01   
  

 

 

       

Balance at December 31, 2013

     3,153,367         

Warrants exercised

     —           

Warrants expired

     —           
  

 

 

       

Balance at December 31, 2014

     3,153,367          $ 1.01   
  

 

 

       

 

-16-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

Warrants: (continued)

 

All outstanding warrants are currently exercisable. A summary of warrants issued and outstanding at December 31, 2014 is summarized as follows:

 

Number of Common     Expiration   Remaining Contractual      

Stock Equivalents

   

Date

 

Life (Years)

  Exercise Price  
  100,000      01/01/2017   2.1   $ 1.25   
  675,000      07/07/2021   6.4 to 6.6   $ 1.00   
  2,378,367      12/20/2023   8.2 to 9.0   $ 1.00   

 

 

       
  3,153,367         

 

 

       

As of December 31, 2014, the Major Stockholder and Chairman has been issued 1,253,367 warrants to purchase 417,789 shares of common stock at an exercise price of $1.00 exercisable over 10 year periods which ends either on May 19, 2021 or on February18, 2023.

The Company recognized stock-based compensation expense pertaining to the warrants issued of $0 and $573,050 during the years ended December 31, 2014 and 2013, respectively.

The Company has recognized a total stock-based compensation expense pertaining to the warrants issued of $761,633 since its formation through December 31, 2014 based on a fair value of $.73 per share calculated using the Black Scholes.

 

NOTE 9 INCOME TAXES

PTI Canada

Income tax recoveries attributable to losses from operations differ from the amounts computed by applying the combined Canadian federal and provincial income tax rates to pre-tax losses from operations primarily as a result of the provision of a valuation allowance on net future income tax benefits. Due to the Company’s stage of development and operations, and uncertainties related to the industry in which the Company operates, the tax benefit of the Company’s future income tax assets has been completely offset by a valuation allowance.

As of December 31, 2014 and 2013, the Company has available research and development expenditures for income tax purposes of approximately CA$1,131,000 and CA$1,045,000, respectively, or approximately $980,000 and $982,000, respectively, which may be carried forward indefinitely to reduce future years’ taxable income. As of December 31, 2014 and 2013, the Company also has unclaimed Canadian federal scientific research and development investment tax credits which are available to reduce future federal taxes payable of CA$223,000 and CA$209,000, respectively, or approximately $193,000 and $196,000, respectively. The benefit of these losses and investment tax credits has not been recorded in the accompanying consolidated financial statements.

 

-17-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 9 INCOME TAXES (CONTINUED)

 

PTI Canada: (continued)

 

The Company has accumulated federal and provincial income tax losses that can be used to offset future years’ taxable income. The non-capital tax losses expire as follows:

 

     CA$  

2026

     102,700   

2027

     106,300   

2028

     79,100   

2029

     92,100   

2030

     74,000   

2031

     85,900   

2032

     81,900   

2033

     83,000   

2034

     99,000   
  

 

 

 
     804,000   
  

 

 

 

PTI – U.S.A.

PTI U.S.A. files its own federal and separate state income tax returns. Certain tax years are subject to examination by the Internal Revenue service and certain state taxing authorities and generally remain open for 3 years after filing. The Company does not believe there would be any material adjustments upon such examination.

As of December 31, 2014 and 2013, the Company had federal net operating loss carryforwards of approximately $1,041,000 and $901,000, respectively, to reduce future federal income tax liabilities through 2034, which under regulations of the Internal Revenue Service related to ownership changes, could be limited under IRC Section 382. As of December 31, 2014 and 2013, the Company had state net operating loss carryforwards of approximately $293,000 and $152,000, respectively, to reduce future state tax liabilities also through 2034.

As of December 31, 2014 and 2013, realization of the Company’s deferred tax assets of $927,000 and $860,000, respectively, were not considered more likely than not and, accordingly, a valuation allowance of $927,000 and $860,000, respectively, has been provided.

 

-18-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 9 INCOME TAXES (CONTINUED)

 

PTI – U.S.A. (continued)

 

The net change in the valuation allowance during the year ended December 31, 2014 increased by $67,000 and in 2013 increased by $12,000.

 

     2014      2013  

Federal net operating loss

   $ 354,000       $ 306,000   

State net operating loss

     47,000         24,000   

Canadian provincial - income tax losses

     333,000         334,000   

Canadian provincial - scientific investment tax credits

     193,000         196,000   
  

 

 

    

 

 

 
     927,000         860,000   

Valuation allowance

     (927,000      (860,000
  

 

 

    

 

 

 

Net deferred tax asset

   $ —         $ —     
  

 

 

    

 

 

 

The Company had state income tax expense based on U.S.capital tax of $3,463 and $3,100 for the years ended December 31, 2014 and 2013, respectively.

For the years ended December 31, 2014 and 2013, the actual tax expense differs from the effective tax expense (benefit) based on the U. S. Federal tax rate of 34%, as follows:

 

     2014     2013  

Expected Federal tax rate

     -34.0     -34.00

Expected State tax rate, net of Federal effect

     -6.0     -6.0

Change in valuation allowance

     40.0     40.0
  

 

 

   

 

 

 

Net deferred tax asset

     0.0     0.0
  

 

 

   

 

 

 

 

NOTE 10 COLLABORATIVE AGREEMENTS

The Company and the University of Toronto, a stockholder of the Company (the “University”) entered into an agreement effective December 14, 2004 (the “Research Agreement”) for the performance of a research project titled “Evidence for existence of TCAP receptors in neurons” (the “Project”). The Research Agreement expired on March 31, 2013.

The Company and the University entered into an agreement effective April 1, 2014 (the “New Research Agreement”) for the performance of a research project titled “Teneurin C-terminal Associated Peptide (“TCAP”) mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism” (the “New Project”). The New Project is to perform research related to work done by a professor at the University and stockholder of the Company (the “Professor”) in regard to TCAP mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism. In addition to the New Research Agreement, the Professor entered into an agreement with the University in order to commercialize certain technologies. The New Research Agreement expired on March 31, 2015. In September 2015, the New Research Agreement was extended to March 31, 2016 which allows for further development of the technologies and use of their applications.

 

-19-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 10 COLLABORATIVE AGREEMENTS (CONTINUED)

 

As of December 31, 2014, the University has been granted 129,000 stock options which are fully vested at exercise prices of $.26 and $1.00 exercisable over 10 year periods which ends either on March 15, 2016 or on April 1, 2022. As of December 31, 2014, the Professor has been granted 483,299 stock options which are fully vested, except for 108,333 stock options, at exercise prices of $.26 and $1.00 exercisable over 10 or 13 year periods which ends either on March 15, 2016 or on March 1, 2027.

The sponsorship research and development expenses were $67,270 and $178,018 pertaining to the Research Agreements for the years ended December 31, 2014 and 2013, respectively.

 

NOTE 11 LICENSING AGREEMENTS

On July 31, 2005, the Company had entered into a Technology License Agreement (“License Agreement”) with the University pursuant to which the University agreed to license to the Company patent rights and other intellectual property, among other things (the “Technologies”). The Technology License Agreement was amended on February 18, 2015 and currently does not provide for an expiration date.

Pursuant to the License Agreement and its amendment, the Company obtained an exclusive worldwide license to make, have made, use, sell and import products based upon the Technologies, or to sublicense the Technologies in accordance with the terms of the License Agreement and amendment. In consideration, the Company agreed to pay to the University a royalty payment of 2.5% of net sales of any product based on the Technologies. If the Company elects to sublicense any rights under the License Agreement and amendment, the Company agrees to pay to the University 10% of any up-front sub-license fees for any sub-licenses that occur on or after September 9, 2006, and, on behalf of the sub-licensee, 2.5% of net sales by the sub-licensee of all products based on the Technologies. The Company had no revenue for the years ending December 31, 2014 and 2013 and therefore was not subject to paying any royalties.

In the event the Company fails to provide the University with semi-annual reports on the progress or fails to continue to make reasonable commercial efforts towards obtaining regulatory approval for products based on the Technologies, the University may convert our exclusive license into a non-exclusive arrangement. Interest on any amounts owed under the License Agreement and amendment will be at 3% per annum. All intellectual property rights resulting from the Technologies or improvements thereon will remain the property of the other inventors and/or the Professor, and/or the University, as the case may be. The Company has agreed to pay all out-of-pocket filing, prosecution and maintenance expenses in connection with any patents relating to the Technologies. In the case of infringement upon any patents relating to the Technologies, the Company may elect, at its own expense, to bring a cause of action asserting such infringement. In such a case, after deducting any legal expenses the Company may incur, any settlement proceeds will be subject to the 2.5% royalty payment owed to the University under the License Agreement and amendment.

The Company as a non-owner of the Technologies incurred legal expense for research and development projects associated with the License Agreement and its amendment of $25,287 and $ 13,549 during the years ended December 31, 2014 and 2013, respectively.

 

-20-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 11 LICENSING AGREEMENTS (CONTINUED)

 

The Company also incurred patent costs as a non-owner of the Technologies for research and development projects associated with the License Agreement and its amendment of $60,434 and $ 25,500 during the years ended December 31, 2014 and 2013, respectively.

The patent applications were made in the name of the Professor and other inventors, but the Company’s exclusive, worldwide rights to such patent applications are included in the License

Agreement and its amendment with the University. The Company maintains exclusive licensing agreements and it currently controls the six intellectual patent properties.

The patents are summarized as follows:

 

Patent Description

   Country    Patent Status    Issue Date

Teneurin C-Terminal Associated

   United States    Issued    01/03/2012

Peptides (“TCAP”) and Methods

        

and uses thereof.

        

Serial # 10/510,959

        

TCAP and Methods and uses

   Australia    Issued    09/23/11

thereof.

        

Serial # 2003221575.

        

TCAP and Methods and uses

   Canada    Issued    6/10/2014

thereof.

        

Serial # 2,482,810.

        

TCAP and Methods and uses

   France, Germany    Issued    3/12/2014

thereof.

   and Great Britain      

Serial # 03717086.7

        

A Method for Regulating Neurite

   United States    Pending    -

Growth: Application.

      (Filed on 03/21/06)   

Serial # 60/783,821

        

Method for Modulating Glucose

   United States    Pending    -

Transport Using TCAP.

        

Serial # 62/026,346

        

 

-21-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

 

NOTE 12 COMMITTMENTS AND CONTINGENCIES

Operating Lease with Related Party

The Company paid its sole employee and officer, a related party, serving as the interim president and chief operating officer of PTI U.S.A. and a director and president and chief operating officer of PTI Canada (the “Officer/Related Party”), $5,862 and $5,079 for rent during the years ended December 31, 2014 and 2013, respectively, on the property which the Officer/Related Party is renting. The Company occupies roughly 1/3 of the total rented area and pays rent in an amount approximately to 1/3 of the monthly rent on the property. As of December 31, 2014, the monthly rent is $430 per month which is now paid by the Company on a month to month basis which may be cancelled upon providing the proper notice to the other party. Thus, the future lease commitment rent expense will be $5,160 per year.

Employment Agreement

The Company has an employment agreement with its sole employee the Officer/Related Party which expires on December 31, 2015 at a salary of $7,086 or CA$8,175 per month at a calculated value at December 31, 2014 plus a bonus, other healthcare benefits and has been granted stock options As of December 31, 2014, the Officer/Related Party has been granted 175,000 stock options which are fully vested, except for 8,333 stock options, at exercise prices of $.26 and $1.00 exercisable over 10 year periods which ends either on August 1, 2016 or on March 1, 2024. The Company’s salary expense to the Officer/Related Party was $88,791 and $ 95,238 for the years ended December 31, 2014 and 2013, respectively. The employment agreement also provides for severance compensation if the employee is terminated under certain conditions such as a change of control of the Company or is terminated without cause by the Company as defined in the agreement.

Upon the date of a change in control of the Company, 50% of the Officer/Related Party’s outstanding unvested common stock options become vested and exercisable. If the Officer/Related Party is terminated or resigns for good reason as a result of the change of control, the remaining 50% vests. In addition, if the Officer/Related Party is terminated or resigns for good reason the Officer/Related Party is entitled to receive 18 months in base salary, bonus eligible, medical and dental benefits continuation, and outplacement services.

If the Company terminates the employment agreement without cause or if the Officer/Related Party terminates the employment for good reason not involving a change of control, the Officer/Related Party is entitled to a lump sum payment of 12 months of base salary, bonus eligible, medical and dental benefits continuation, and outplacement services.

Either party may terminate the employment agreement (a) immediately at any time upon written notice to the other party in the event of a breach of employment by the other party which cannot be cured ( i.e. breach of the confidentiality obligations) and/or (b) at any time without cause upon not less than forty-five (45) days’ prior written notice to the other party.

 

-22-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 12 COMMITTMENTS AND CONTINGENCIES (continued)

 

Consulting Agreement

PTI Canada entered into a consulting agreement with a stockholder of the Company, (the “Consultant”) which expires on December 31, 2015 pursuant to which the Consultant is responsible for overseeing i) design and development of enzyme-linked immunosorbent assay “(ELISA”), assays for measuring TCAP, ii) evaluation of TCAP exposure biomarker assay, iii) development of pipeline peptides, and iv) development of clinically compatible formulations for TCAP, as well as all of the bench research and development of formulation and extraction methods. As of December 31, 2014, the Consultant has been granted 100,000 stock options which are fully vested, except for 4,167 stock options, at an exercise price of $1.00 exercisable over 10 year periods which ends either on March 30, 2021 or on March 1, 2024. The Consultant is paid approximately CA$1,000 per month. Either party may terminate the agreement (a) immediately at any time upon written notice to the other party in the event of a breach of the agreement by the other party which cannot be cured ( i.e. breach of the confidentiality obligations) and or (b) at any time without cause upon not less than fifteen (15) days’ prior written notice to the other party. Upon expiration or termination, neither the Company nor Consultant will have any further obligations under the consulting agreement.

The Company paid the Consultant $10,861 and $11,650 for research and development projects during the years ended December 31, 2014 and 2013, respectively.

Legal

In the normal course of business, the Company may become subject to claims or assessments. Such matters are subject to many uncertainties, and outcomes, which are not readily predictable with assurance.

 

NOTE 13 COMPENSATED ABSENCES

The employee of the Company is entitled to paid vacation, paid sick days and paid personal days off depending on the length of service. The Company is unable to estimate the amount of compensation for absences, and accordingly, no liability has been recorded in the accompanying consolidated financial statements. Thus, it is the Company’s policy to recognize the costs of compensated absences when actually paid to the employee.

 

NOTE 14 SUBSEQUENT EVENTS

Stock Options

In January, February, and March of 2015, the Company granted 490,000 stock options which vest over periods ranging from one year to five years at an exercise price of $1.25 per share exercisable over a period of 10 or 15 years from the date of grant. This includes 75,000 stock options granted to the Officer/Related Party and 50,000 stock options granted to the Consultant.

 

-23-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 14 SUBSEQUENT EVENTS (continued)

 

Bridge Loan Borrowings

During the period April 15, 2015 through September 17, 2015, PTI U.S.A. entered into 4 bridge loan agreements aggregating $260,000 in borrowings with the last installment of $45,851 due to the Company on October 19, 2015 at 10% interest from the Major Stockholder and Chairman of the Company. The Company issued convertible promissory notes guaranteeing the payment of the principle and accrued interest in the form of shares of common stock at a purchase price of $1.25 per share upon completion of the next fundraising round or private placement offering.

Placement Agency Agreement

The Company had entered into a Placement Agency Agreement (the “Agency”) effective June 15, 2015 in connection with a private placement offering to issue up to 1,200,000 shares of the Company’s common stock at a price of $1.25 per share. However, the agreement was voluntarily terminated by the Company effective August 14, 2015. Since the Company did not close on any institutional financings or investments from investors during this period, the Company was not obligated to pay any commissions or fees to the Agency.

Legal Engagement Letter

Effective September 2, 2015, the Company entered into an engagement letter with a law firm to assist in a possible merger transaction. The Company was required and paid a retainer fee of $25,000.

Increase in Authorized shares of common stock

The Company adopted a certificate of amendment to the Company’s restated certificate of incorporation to increase the number of authorized shares of its $.001 par value common stock from 10,000,000 shares to 20,000,000 shares which was recorded by the state of Delaware on October 2, 2015.

 

-24-


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

SEPTEMBER 30, 2015 AND 2014

TABLE OF CONTENTS

 

     Page  

Report of Independent Registered Public Accounting Firm

     1   

Consolidated Financial Statements

  

Consolidated Balance Sheets

     2   

Consolidated Statements of Operations and Comprehensive (Loss)

     3   

Consolidated Statement of Changes in Stockholders’ (Deficit) Equity

     4   

Consolidated Statements of Cash Flows

     5   

Notes to Consolidated Financial Statements

     6 - 25   


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

1


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

 

     September 30,
2015

(Unaudited)
    December 31,
2014

(Audited)
 

ASSETS

    

CURRENT ASSETS

    

Cash and cash equivalents

   $ 41,867      $ 22,733   

Prepaid research and development expenses

     350        —     
  

 

 

   

 

 

 

TOTAL CURRENT ASSETS

     42,217        22,733   
  

 

 

   

 

 

 

EQUIPMENT

    

Office

     9,414        9,414   

Computer

     12,506        12,506   
  

 

 

   

 

 

 
     21,920        21,920   

Less: Accumulated depreciation

     (21,920     (21,920
  

 

 

   

 

 

 

Total equipment

     —          —     
  

 

 

   

 

 

 

OTHER ASSETS

     —          4,147   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 42,217      $ 26,880   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)

    

CURRENT LIABILITIES

    

Accounts payable and accrued expenses

   $ 150,823      $ 145,733   

Bridge loan payable – stockholder (including accrued interest)

     217,686        —     

Capital taxes payable

     1,500        2,500   
  

 

 

   

 

 

 

TOTAL CURRENT LIABILITIES

     370,009        148,233   
  

 

 

   

 

 

 

COMMITMENTS AND CONTINGENCIES

    

STOCKHOLDERS’ (DEFICIT) EQUITY

    

Common stock at $.001 par value, 10,000,000 shares authorized; 7,612,838 shares issued

     7,613        7,613   

Additional paid-in-capital

     5,753,178        5,580,548   

Accumulated (deficit)

     (5,856,811     (5,461,933

Treasury stock, at cost $.001 par value, 1,000,000 shares

     (100,000     (100,000

Accumulated other comprehensive (loss) gain – foreign currency translation

     (131,772     (147,581
  

 

 

   

 

 

 

TOTAL STOCKHOLDERS’ (DEFICIT)

     (327,792     (121,353
  

 

 

   

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

   $ 42,217      $ 26,880   
  

 

 

   

 

 

 

See notes to the consolidated financial statements

 

2


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(Unaudited)

 

     September 30,
2015
    September 30,
2014
 

REVENUE

   $ —        $ —     

OPERATING AND ADMINISTRATIVE EXPENSES

    

Research and development expenses

    

Sponsorship research and development

     46,346        67,270   

Legal fees

     17,855        25,287   

Salaries

     58,424        66,382   

Patent expense

     17,482        60,434   

Consulting

     7,866        8,120   

Payroll taxes and employee benefits

     5,490        4,594   

Rent - officer and related party

     3,584        3,577   

Travel

     1,894        2,892   

Telephone, internet and website

     1,501        1,746   

Rebates from research and development Canadian tax credits

     (8,630     (78,366
  

 

 

   

 

 

 

Total research and development expenses - net

     151,812        161,936   

Depreciation expense

     —          193   

Consulting expense - other

     1,991        4,133   

Stock compensation expense

     172,630        59,618   

Tax expense based on capital tax

     1,500        3,463   

Miscellaneous expenses

     3,670        4,802   

Legal expense retainer

     25,000        —     
  

 

 

   

 

 

 

TOTAL OPERATING AND ADMINISTRATIVE EXPENSES

     356,603        234,145   
  

 

 

   

 

 

 

OTHER INCOME (EXPENSES)

    

Interest and dividend income

     —          49   

Interest expense - stockholder

     (3,537     —     

Loss on foreign transaction exchange

     (34,738     (10,430
  

 

 

   

 

 

 

TOTAL OTHER INCOME (EXPENSES) - NET

     (38,275     (10,381
  

 

 

   

 

 

 

NET (LOSS)

     (394,878     (244,526

COMPREHENSIVE (LOSS)

    

Other Comprehensive Income (Loss) - net of tax

    

Foreign exchange translation income (loss)

     15,809        (65,438
  

 

 

   

 

 

 

TOTAL COMPREHENSIVE (LOSS)

   $ (379,069   $ (309,964
  

 

 

   

 

 

 

Net (loss) per common share - basic and diluted

   $ (.06   $ (.04

Weighted average common shares - basic and diluted

     6,612,838        6,612,838   

See notes to the consolidated financial statements

 

3


    

 

Common Stock

     Additional
Paid-in-Capital
     Accumulated
(Deficit)
   

 

Treasury Stock

    Accumulated
Other
Comprehensive
Gain (Loss)
    Stockholders’
(Deficit)
Equity
 
     Shares      Amount           Shares     Amount      

BALANCE - January 1, 2015

     7,612,838         7,613         5,580,548         (5,461,933     (1,000,000     (100,000     (147,581     (121,353

Stock option grants

     —           —           172,630         —          —          —          —          172,630   

Foreign currency translation (loss)

     —           —           —           —          —          —          15,809        15,809   

Net (loss)

     —           —           —           (394,878     —          —          —          (394,878
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

BALANCE - September 30, 2015

     7,612,838       $ 7,613       $ 5,753,178       $ (5,856,811     (1,000,000   $ (100,000   $ (131,772   $ (327,792
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

4


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED

SEPTEMBER 30, 2015 AND 2014

(Unaudited)

 

     September 30,
2015
    September 30,
2014
 

CASH FLOWS FROM OPERATING ACTIVITIES

  

Net (Loss)

   $ (394,878   $ (244,526

Adjustments to reconcile net (loss) to net cash (used in) operating activities

    

Depreciation expense

     —          193   

Stock based compensation

     172,630        150,957   

Changes in operating assets and liabilities

    

Prepaid research and development expenses

     (350     47,224   

Other assets

     4,147        (1,084

Accounts payable and accrued expenses

     3,090        16,349   

Capital taxes payable

     1,000        (600
  

 

 

   

 

 

 

NET CASH (USED IN) OPERATING ACTIVITIES

     (214,361     (31,487

CASH FLOWS FROM FINANCING ACTIVITIES

    

Proceeds from bridge loan and accrued interest - stockholder

     217,686        —     
  

 

 

   

 

 

 

NET CASH PROVIDED BY FINANCING ACTIVITIES

     217,686        —     
  

 

 

   

 

 

 

Effect of exchange rate on cash and cash equivalents

     15,809        (65,438

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

     19,134        (96,925

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

     22,733        155,983   
  

 

 

   

 

 

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

   $ 41,867      $ 59,058   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

    

Cash paid for interest expense

   $ —        $ —     
  

 

 

   

 

 

 

Cash paid for income taxes based on capital tax

   $ —        $ 963   
  

 

 

   

 

 

 

See notes to the consolidated financial statements

 

5


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

 

NOTE 1 ORGANIZATION AND NATURE OF BUSINESS

Protagenic Therapeutics, Inc. (“PTI U.S.A.”) was organized on September 29, 2004 in the State of Delaware. On September 14, 2015, PTI U.S.A. obtained its renewal and revival of its Delaware charter which had become inoperative effective August 7, 2015. The Company is a privately held biotechnology company focused on the discovery, research and development of pre-clinical studies for developing novel, naturally occurring, human neuropeptide-based, brain- active therapeutics for treatment of depression, mood, anxiety and other neurodegenerative disorders. The Company is also interested in acquiring exclusive intellectual property rights for peptide-based therapeutics for the treatment of neurological and mood disorders. Once the Company’s planned principal operations commence, its focus will be licensing certain technologies and the continued research of the new technologies.

Protagenic Therapeutics Canada (2006) Inc. (“PTI Canada”) was incorporated in 2006 in the Province of Ontario, Canada. PTI Canada is a wholly-owned subsidiary of PTI U.S.A. (collectively, the “Company”). It provides operational support and assistance for the implementation of corporate and operational activities conducted in Canada.

 

NOTE 2 FINANCIAL CONDITION AND LIQUIDITY

Financial condition

The Company’s accompanying consolidated financial statements indicate that there is substantial doubt about its ability to continue as a going concern since the Company is dependent on its ability to obtain additional capital, short term financing or merging and actually commence its operations to fund the Company’s long-term plans. The Company has incurred net (losses) of ($394,878) and ($244,526) for the nine months ended September 30, 2015 and 2014, respectively, resulting in an accumulated (deficit) of ($5,856,811) as of September 30, 2015. The success of the Company is dependent upon obtaining the necessary regulatory approvals, bringing its products to market and achieving profitable operations. The continuation of the research and development programs and the commercialization of its products are dependent upon the Company’s ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations. No assurances can be given that management of the Company will be successful in its efforts. The Company’s existing liquidity is not sufficient to fund its operations, working capital and other financing requirements for the foreseeable future. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be not able to continue as a going concern. These factors among others create a substantial doubt about the Company’s ability to continue as a going concern.

Liquidity

The Company intends to finance its activities through managing current cash and cash equivalents on hand and seeking additional funds raised in the future through the issuance of common stock, borrowing of funds or merging. However, there can be no assurance that financing of such funds will be available when required, or if available, obtained on satisfactory terms to the Company.

 

6


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the parent company, PTI U.S.A, and its wholly owned subsidiary, PTI Canada. All significant intercompany transactions and balances have been eliminated from the consolidated financial statements.

Basis of Accounting

The accompanying consolidated financial statements of the Company have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification.

Foreign Currency Translation and Transactions

The assets and liabilities of the Company’s foreign subsidiary PTI Canada are translated into U.S. dollars from its functional currency using the exchange rate in effect at the balance sheets date. Additionally, the accounts on the statements of operations are translated using exchange rates approximating average rates prevailing during the years. Translation adjustments that arise from translating its financial statements from the local currency to the U.S. dollar are accumulated and reflected as a separate component of stockholders’ equity (deficit). Transaction gains and losses that arise from exchange rate changes denominated in currencies other than the local currency are included in the consolidated statements of operations as incurred. As of September 30, 2015, PTI U.S.A. recorded an accumulated translation loss of $131,772 which converts to CA $174,815. As of December 31, 2014, PTI U.S.A. recorded an accumulated translation loss of $147,581 which converts to CA$ 170,251.

Certain amounts pertaining to the Canada Revenue Agency included in the accompanying notes to the consolidated financial statements may be in Canada dollars (denoted as “CA$”). If not denoted with CA$, then all amounts are stated in U.S. dollars (as “$”).

As of September 30, 2015 and December 31, 2014, approximately 33% and 49%, respectively, of the Company’s cash and cash equivalent balances were translated to U.S. dollars since the amount was maintained with PTI Canada. As of September 30, 2015, 100% of the prepaid research and development expenses and as of December 31, 2014, 100% of the other assets were translated to U.S. dollars since the amounts were either paid by or maintained with PTI Canada.

Use of Estimates

In preparing consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amount of revenues and expenses during the reporting period. Significant estimates include accruals, contingencies, valuation allowance for deferred tax assets and valuation of stock options and warrants. These estimates may be adjusted as more current information becomes available, and any adjustment could have a significant impact on recorded amounts. Actual results could differ from those estimates.

 

7


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Cash and Cash Equivalents

Cash equivalents consist of money market instruments purchased with an original maturity of three months or less. The Company maintains its cash and cash equivalents with two high credit quality financial institutions with one located in each the United States and Canada, which at times, may be in excess of insured amounts with the U.S. Federal Deposit Insurance Company. The Company’s policy is to maintain its cash and cash equivalents with reputable financial institutions assessed on an annual basis.

Equipment

Equipment was stated at cost less accumulated depreciation. Improvements and replacements of equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of equipment are charged to expense as incurred. When assets are retired, their cost and related accumulated depreciation are removed from the accounts and any gain or loss will be reported in the consolidated statements of operations. Depreciation is computed using straight-line methods over their estimated useful lives ranging from 3 to 5 years.

Treasury Stock

During 2013, the Company purchased 1,000,000 shares of common stock at $.10 per share for a total cost of $100,000. Management of the Company does not plan to retire the stock and applies the cost method to its treasury stock transactions. Differences between proceeds for reissuance of treasury stock and the cost are credited or charged to additional paid in capital to the extent of the prior credits and thereafter to accumulated deficit.

Financial Instruments

Financial assets and financial liabilities are initially recorded at fair value and their subsequent measurements are determined in accordance with their classification. The classification depends on the purpose for which the financial instruments were acquired or issued and their characteristics. Cash and cash equivalents are classified as held-for-trading assets and are reported at fair value. Accounts payable and accrued liabilities are classified as other liabilities and after initial recognition are recorded at amortized cost. As of September 30, 2015, there were no significant differences between the carrying values of these amounts and their estimated fair values due to their short-term nature.

Rebates from Research and Development Credits

The Company derives rebates from scientific research and experimental development tax credits issued by the Canada Revenue Agency for qualified expenditures. The credits are recognized when the rebate is issued. The amounts received are reinvested into the Company’s scientific research, experimental development and operational works conducted in Canada.

Research and Development Expenses, net of Rebates

The Company’s research and development expenditures for present and future products are expensed as incurred. The Company incurred research and development expenses of $151,812 and $161,936 net of rebates from research and development credits during the nine months ended September 30, 2015 and 2014, respectively.

 

8


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 a 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 Company’s stock-based compensation is accounted for as an equity instrument.

Advertising Costs

The Company expenses advertising costs as incurred. The Company had no advertising expenses during the nine month periods ended September 30, 2015 and 2014.

Income Taxes

The Company accounts for income taxes utilizing the liability method. Deferred income tax assets and liabilities are computed annually for differences between the consolidated financial statement basis and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such asset will be realized.

Management has determined that a valuation allowance is required for the deferred tax assets which is primarily attributable to net operating loss carry forwards for federal and state tax purposes. The net operating losses expire through 2035 and 2022 for federal and state taxes, respectively. Thus, the consolidated financial statements do not reflect a deferred tax provision.

Accounting for Uncertain Tax Positions

The Company follows the Income Taxes Topic of the FASB Accounting Standards Codification, which provides clarification on accounting for uncertainty in income taxes recognized in an enterprise’s consolidated financial statements. The guidance prescribes a recognition threshold and measurement attribute for the consolidated financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de- recognition, clarification, interests and penalties, disclosure and transition. The Company’s only major tax jurisdictions are the United States, New York and Canada. At September 30, 2015 and December 31, 2014, no significant income tax uncertainties have been included in the Company’s consolidated balance sheets. The Company’s policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense in the consolidated statements of operations. No interest or penalties were recorded for the nine months ended September 30, 2015 and 2014. In addition, the Company currently has no federal or state tax examinations in progress. Tax returns are generally subject to potential examination for three years after filing.

 

9


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Comprehensive Income (Loss)

Comprehensive income (loss) is net (loss) plus other comprehensive income (loss) items that are provided directly to stockholders’ (deficit) equity. The only item currently applicable to other comprehensive income (loss) is the foreign currency translation adjustments.

Basic and Diluted Net (Loss) per Common Share

Basic (loss) per common share is computed by dividing the net (loss) by the weighted-average number of shares of common stock outstanding for each period. Diluted (loss) per share is computed by dividing the net (loss) by the weighted-average number of shares of common stock outstanding plus the dilutive effect of shares issuable through the common stock equivalents. For the nine months ended September 30, 2015 and year ended December 31, 2014, there were 2,188,677 and 2,126,674, respectively, potentially dilutive securities not included in the calculation of weighted- average shares of common stock outstanding since they would be anti-dilutive.

New Accounting Pronouncements

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers (Topic 606),” which is the new, comprehensive revenue recognition standard that will supersede all existing revenue recognition guidance under Generally Accepted Accounting Principles (“GAAP”). The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual and interim periods beginning on or after December 15, 2017, and early adoption is not permitted. Entities will have the option of using either a full retrospective approach or a modified approach to adopt the guidance in the ASU. The Company currently has no revenues and does not expect any impact of adopting this guidance.

In June 2014, ASU 2014-10 removed the definition of a development stage entity from the Master Glossary of the Account Standards Codification, thereby removing the financial reporting distinction between development stage entities and other reporting entities from U.S. GAAP. In addition, the amendments eliminate the requirements for the development stage entities to (1) present inception-to-date information in the statements of operations, cash flow, and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. The ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods therein with early adoption permitted. The Company adopted this ASU effective with the December 31, 2014 consolidated audited financial statements resulting in the removal of previously required development stage information.

In June 2014, the FASB issued ASU 2014-12, “Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide for a Performance Target.” This ASU provides more explicit guidance for share-based awards that require a specific performance target that affects vesting and that could be achieved after the requisite service period as a performance condition. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2015. The Company does not expect the adoption of this guidance to have a material impact on the consolidated financial statements.

 

10


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

New Accounting Pronouncements (continued)

 

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements – Going Concern (Topic 205-40)”, which requires management to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 31, 2016. Early adoption is permitted. The Company expects to adopt this new standard for the fiscal year ending December 31, 2017 and the Company will continue to assess the impact on its consolidated financial statements.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.

 

NOTE 4 EQUIPMENT

Equipment consisted of the following as of September 30, 2015 and December 31, 2014:

 

     9/30/2015      12/31/2014  
     Cost      Accumulated
Amortization
    Net Book
Value
     Cost      Accumulated
Amortization
    Net Book
Value
 

Office equipment

   $ 9,414       $ (9,414   $  —         $ 9,414       $ (9,414   $  —     

Computer equipment

     12,506         (12,506     —           12,506         (12,506     —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 
   $ 21,920       $ (21,920   $ —         $ 21,920       $ (21,920   $ —     
  

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The Company recorded depreciation expense of $-0- and $193 for the nine months ended September 30, 2015 and 2014, respectively.

 

NOTE 5 FAIR VALUE MEASUREMENTS

Accounting Standards Codification 820, “Fair Value Measurements and Disclosure,” (“ASC 820”) defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

 

11


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 5 FAIR VALUE MEASUREMENTS (CONTINUED)

 

The three levels are described below:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that is accessible by the Company;

Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly;

Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

There were no transfers in or out of any level for the periods ended September 30, 2015 and December 31, 2014. The Company determines fair values for its investment assets as follows:

Cash equivalents at fair value – the Company’s cash equivalents, at fair value, consist of money market funds – market to market. The Company’s money market funds are classified within Level 1 of the fair value hierarchy since they are valued using quoted market prices from an exchange.

The following tables provide information on those assets measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014:

 

     Carrying
Amount
In
Balance
Sheet
     Fair
Value
    

 

Fair Value Measurement Using

 
           Level 1      Level 2      Level 3  

Assets at 9/30/2015:

              

Money Market Funds

   $ 41,867       $ 41,867       $ 41,867       $ —         $ —     

Assets at 12/31//2014:

              

Money Market Funds

   $ 22,733       $ 22,733       $ 22,733       $ —         $ —     

 

12


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

 

NOTE 6 SHORT TERM BRIDGE LOAN BORROWINGS

During 2013 and 2012, the Company had entered into bridge loan agreements for total borrowings of $310,000 with the executive director, chairman – board of directors and major stockholder of PTI U.S.A. and director of PTI Canada (the “Major Stockholder and Chairman”). The proceeds were used to fund research, development and the general operating activity of the Company. The loan bore interest at a rate of 10% per annum. On February 15, 2013, upon completion of the next fundraising round, the loan and accrued interest of $317,789 were converted into a fixed number of 953,367 warrants to purchase shares of the Company’s common stock at the purchase price of $1.00 per share (converted at 3 warrants for each $1.00). The Company did not enter into any bridge loan arrangements during 2014. During January 1, 2015 through September 30, 2015, the Company had entered into a series of bridge loan arrangements for total borrowings received of approximately $214,000 with the Major Stockholder and Chairman. The last installment due under the September 1, 2015 bridge loan arrangement of $45,851 was received by the Company on October 20, 2015. The proceeds were once again used to fund research, development and the general operating activity of the Company. The Company has guaranteed the payment of all principal and interest in the form of the Company’s common stock at a purchase price of $1.25 per share. The loan bears interest at a rate of 10% per annum. The Company recorded interest expense of $3,537 (which is accrued is accrued at 9/30/15) and $0 for the nine months ended September 30, 2015 and 2014, respectively.

 

NOTE 7 ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses including amounts due to stockholders of the Company consisted of the following as of September 30, 2015 and December 31, 2014:

 

     September 30,
2015
     December 31,
2014
 

Patent costs - to University of Toronto, a stockholder

   $ 64,038       $ 87,244   

Patent costs - legal expenses

     23,813         51,120   

Salary and related benefits to Officer / Related Party

     46,629         —     

Other

     16,343         7,369   
  

 

 

    

 

 

 
   $ 150,823       $ 145,733   
  

 

 

    

 

 

 

 

NOTE 8 STOCKHOLDERS’ EQUITY

Authorized Number of Common Stock Shares

During the formation of the Company, the original number of authorized shares was 750,000 shares of common stock. All 750,000 shares of common stock were issued and outstanding. On August 19, 2005, the number of authorized shares of common stock was increased from 750,000 to 10,000,000 shares. The Company adopted a certificate of amendment to the Company’s restated certificate of incorporation to increase the number of authorized shares of its $.001 par value common stock from 10,000,000 shares to 20,000,000 shares which was recorded by the state of Delaware on October 2, 2015.

As of September 30, 2015 and December 31, 2014, the Company has 10,000,000 shares of common stock authorized.

 

13


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

Common Stock Splits

On August 19, 2005, the number of shares of common stock issued and outstanding were split using a fraction of 4/3. This resulted in the Company having 1,000,000 common stock shares issued and outstanding upon the stock split.

On October 26, 2006, the Company’s common stock issued and outstanding was split into a new number of shares of common stock of the Company by multiplying each such share by 3.471652721. No fractional shares were issued in connection therewith. This resulted in the Company having 4,409,816 common stock shares issued and outstanding upon the stock split.

The Company has not had any additional stock splits since 2006.

Common Stock Issuances

No common stock was issued during the nine months ended September 30, 2015 and the year ending December 31, 2014.

On March 15, 2006, the Company adopted the “Protagenic Therapeutic, Inc. 2006 Employee, Director and Consultant Stock Plan” (the “Plan”) and authorized 140,000 shares for issuance pursuant to the Plan. On April 1, 2012, the Company increased the number of authorized shares to 2,000,000 shares. In accordance with the Plan, the Company can grant to certain employees, directors or consultants options to purchase shares of the Company’s common stock which vest automatically or ranging from a one year period to a five year period. The shares are exercisable over a period of ten years from the date of grant. The Plan provides that qualified options be granted at an exercise price equal to the fair market value at the date of grant, as determined by the Board of Directors. During the nine months ended September 30, 2015 and 2014, the Company granted a total of 490,000 and 116,667 respectively, options to purchase shares of the Company’s common stock at an exercise price of $1.25 and $1.00 per share. The 2015 and 2014 options vest monthly ranging from six months to over a five year period for one individual.

Management has determined that for each round of stock options granted, it was reasonable to estimate the fair value of the common stock options using the Black Scholes option pricing model. Accordingly, the Company has accounted for options using this calculated value method. Based on the fact that the Company is a privately held company with no revenue, management has estimated its expected future equity volatility factor in valuing the Company’s common stock equivalents by starting with its historical volatility adjusted for the volatility of equity interests from comparable publicly traded and privately held published companies to arrive at such industry benchmarks to evaluate.

 

14


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

Stock-Based Compensation

The fair value of each stock option granted and warrant issued was estimated using the Black Scholes assumptions and or factors as follows:

 

 

Expected dividend yield (no dividends paid by the Company through 9/30/15)

     - 0 -   

Risk - free interest rate
(Publicly available data published by the Federal Reserve)

     2.30

Expected life in years

     10   

Expected future equity volatility

     85

Weighted average calculated value of all common stock equivalents

   $ .90   

Forfeitures based on voluntary termination behavior and analysis of actual option or warrant forfeitures (no forfeitures received by the Company through 9/30/15)

     - 0 -   

Calculated fair value of all common stock equivalents

   $ .75   

Stock Options

The Company has outstanding the following options categorized by the type of grantee to purchase shares of the Company’s common stock as of September 30, 2015 and December 31, 2014:

 

Grantee    9/30/2015      12/31//2014  

Officer / Related Party

     250,000         175,000   

Consultants - Research & Development

     1,064,444         664,444   

Consultants - Legal

     104,150         104,150   

License Agreement - Research & Development

     129,150         129,150   

Consultants - Business Development, Administration and Clinical

     160,000         145,000   
  

 

 

    

 

 

 

Total Options Granted

     1,707,744         1,217,744   
  

 

 

    

 

 

 

 

15


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

The following is an analysis of the stock option grant activity under the Plan:

 

     Number of
Options
     Exercise
Price
     Weighted
Average
Exercise
Price
 

Options granted during the year 2006

     531,598       $ 0.26      

Options granted during the year 2007

     21,146       $ 1.00      

Options granted during the year 2011

     300,000       $ 1.00      

Options granted during the year 2012

     125,000       $ 1.00      
  

 

 

       

Total Options outstanding at December 31, 2013

     977,744          $ 0.60   

Options granted during the nine months ended September 30, 2014 (includes 41,667 options granted to the Officer/Related Party)

     116,667       $ 1.00      
  

 

 

       

Total Options outstanding at September 30, 2014

     1,094,411          $ 0.63   

Options granted during the three month period ended December 31, 2014

     123,333       $ 1.00      
  

 

 

       

Total Options outstanding at December 31, 2014

     1,217,744          $ 0.68   

Options granted during the nine months period ended September 30, 2015

     490,000       $ 1.25      
  

 

 

       

Total Options outstanding at September 30, 2015

     1,707,744          $ 0.84   
  

 

 

       

Stock Options

As of September 30, 2015 and December 31, 2014, the Plan had available option shares to be granted of 292,256 and 782,256, respectively. No stock options expired or were forfeited during the nine months ended September 30, 2015 and 2014. As of September 30, 2015 and December 31, 2014, the stock options had no intrinsic value. The Company recognized stock-based compensation expense pertaining to the options granted of $172,630 and $59,618 during the nine months ended September 30, 2015 and 2014, respectively.

The Company has recognized a total stock-based compensation expense pertaining to the options granted under the Plan of $971,550 since its formation through September 30, 2015 based on a fair value of $.75 per share calculated using the Black Scholes.

As of September 30, 2015, the unrecognized compensation cost on the 490,000 and 123,333 stock option grants that are non-vested and that were granted during the nine months ended September 30, 2015 or during the year ended December 31, 2014, respectively, under the Plan was $314,583.

 

16


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

The following is an analysis of the non-vested stock options under the Plan as of September 30, 2015:

 

Number of

Options

 

Expiration

Date

 

Remaining Contractual

Life (Years)

 

Exercise Price

175,000

  March 9, 2016   0.42   $                                1.25

108,333

  March 1, 2017   1.42   $                                1.00

62,500

  March 9, 2017   1.42   $                                1.25

125,000

  February 1, 2018   2.34   $                                1.25

250,000

  January 22, 2020   4.32   $                                1.25

Warrants:

The Company has conducted private placement offerings to raise financing since its formation. In connection with the private placement offerings that occurred in 2013, 2011 and 2007, the Company offered its common stock at a fixed purchase price of $1.00 per share, $0.001 par value, and offered 3 warrants for each share purchased. The warrants have an exercise price of $1.00 per share and have an exercise term of ten years from the date of issuance.

The Company has outstanding the following warrants to purchase the Company’s common stock as of September 30, 2015 and December 31, 2014:

 

     September 30,
2015
     December 31,
2014
 

Financing and stock subscriptions (includes 300,000 warrants to the Major Stockholder and Chairman)

     2,100,000         2,100,000   

Consultants

     100,000         100,000   

Debt conversion, Major Stockholder and Chairman

     953,367         953,367   
  

 

 

    

 

 

 

Total Warrants Issued

     3,153,367         3,153,367   
  

 

 

    

 

 

 

A summary of warrant issuances are as follows:

 

     Number of
Warrants
     Exercise
Price
     Weighted
Average
Exercise
Price
 

Balance at December 31, 2012

     775,000       $ 1.00 - 1.25       $ 1.03   

Warrants exercised

     —           

Warrants expired

     —           

Warrants issued with stock subscriptions

     2,378,367       $ 1.00       $ 1.01   
  

 

 

       

Balance at December 31, 2013

     3,153,367         
  

 

 

       

Balance at December 31, 2014

     3,153,367          $ 1.00   
  

 

 

       

Balance at September 30, 2015

     3,153,367          $ 1.00   
  

 

 

       

 

17


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 8 STOCKHOLDERS’ EQUITY (CONTINUED)

 

All outstanding warrants are currently exercisable. A summary of warrants issued and outstanding at September 30, 2015 is summarized as follows:

 

Number of Common

Stock Equivalents

   

Expiration

Date

 

Remaining Contractual

Life (Years)

  Exercise Price  
  100,000      01/01/2017   1.2     $                    1.25   
  675,000      07/07/2021   5.5 to 6.7     $                    1.00   
  2,378,367      12/20/2023   7.3 to 8.1     $                    1.00   

 

 

       
  3,153,367         

As of September 30, 2015, the Major Stockholder and Chairman has been issued 1,253,367 warrants to purchase 417,789 shares of common stock at an exercise price of $1.00 exercisable over 10 year periods which ends either on May 19, 2021 or on February 18, 2023.

The Company recognized stock-based compensation expense pertaining to the warrants issued of $0 during the nine months ended September 30, 2015 and 2014.

The Company has recognized a total stock-based compensation expense pertaining to the warrants issued of $761,633 since its formation through September 30, 2015, based on a fair value of $.75 per share calculated using the Black Scholes.

 

NOTE 9 INCOME TAXES

PTI Canada

Income tax recoveries attributable to losses from operations differ from the amounts computed by applying the combined Canadian federal and provincial income tax rates to pre-tax losses from operations primarily as a result of the provision of a valuation allowance on net future income tax benefits. Due to PTI Canada’s stage of development and operations, and uncertainties related to the industry in which it operates, the tax benefit of the PTI Canada’s future income tax assets has been completely offset by a valuation allowance.

As of December 31, 2014 and 2013 (the most recent completed year-ends), the PTI Canada had available research and development expenditures for income tax purposes of approximately CA$1,131,000 and CA$1,045,000, respectively, or approximately $980,000 and $982,000, respectively, which may be carried forward indefinitely to reduce future years’ taxable income. As of December 31, 2014 and 2013, PTI Canada also has unclaimed Canadian federal scientific research and development investment tax credits which are available to reduce future federal taxes payable of CA$223,000 and CA$209,000, respectively, or approximately $196,000 and $193,000, respectively. The benefit of these losses and investment tax credits has not been recorded in the accompanying consolidated financial statements.

 

18


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 9 INCOME TAXES (CONTINUED)

 

PTI Canada has accumulated federal and provincial income tax losses that can be used to offset future years’ taxable income. The non-capital tax losses expire as follows:

 

     CA$  

2026

     102,700   

2027

     106,300   

2028

     79,100   

2029

     92,100   

2030

     74,000   

2031

     85,900   

2032

     81,900   

2033

     83,000   

2034

     99,000   
  

 

 

 
     804,000   
  

 

 

 

PTI U.S.A.

PTI U.S.A, the parent company, also files its own federal and separate state income tax returns. Certain tax years are subject to examination by the Internal Revenue service and certain state taxing authorities and generally remain open for 3 years after filing. The Company does not believe there would be any material adjustments upon such examination.

As of September 30, 2015 and December 31, 2014, the Company had federal net operating loss carryforwards of approximately $1,441,000 and $1,041,000, respectively, to reduce future federal income tax liabilities through 2035, which under regulations of the Internal Revenue Service related to ownership changes, could be limited under IRC Section 382. As of September 30, 2015 and December 31,2014, the Company had state net operating loss carryforwards of approximately $343,000 and $293,000, respectively, to reduce future state tax liabilities also through 2022.

As of September 30, 2015 and December 31, 2014, realization of the Company’s deferred tax assets of $1,095,000 and $927,000, respectively, were not considered more likely than not and, accordingly, a valuation allowance of $1,095,000 and $927,000, respectively, has been provided.

 

19


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 9 INCOME TAXES (CONTINUED)

 

The net change in the valuation allowance during the nine months ended September 30, 2015 increased by $168,000 and in 2014 increased by $67,000.

 

     September 30,
2015
     December 31,
2014
 

Federal net operating loss

   $ 514,000       $ 354,000   

State net operating loss

     55,000         47,000   

Canadian provincial - income tax losses

     333,000         333,000   

Canadian provincial - scientific investment tax credits

     193,000         193,000   
  

 

 

    

 

 

 
     1,095,000         927,000   

Valuation allowance

     (1,095,000      (927,000
  

 

 

    

 

 

 

Net deferred tax asset

   $ —         $ —     
  

 

 

    

 

 

 

The Company had state income tax expense based on U.S. capital tax of $1,500 and $3,463 for the nine months ended September 30, 2015 and 2014, respectively.

For the nine months ended September 30, 2015 and year ended December 31, 2014, the actual tax expense differs from the effective tax expense (benefit) based on the U. S. Federal tax rate of 34%, as follows:

 

     9/30/2015     12/31/2014  

Expected Federal tax rate

     (34.0 %)      (34.00 %) 

Expected State tax rate, net of Federal effect

     (6.0 %)      (6.0 %) 

Change in valuation allowance

     40.0     40.0
  

 

 

   

 

 

 

Net deferred tax asset

     0.0     0.0
  

 

 

   

 

 

 

 

NOTE 10 COLLABORATIVE AGREEMENTS

The Company and the University of Toronto, a stockholder of the Company (the “University”) entered into an agreement effective December 14, 2004 (the “Research Agreement”) for the performance of a research project titled “Evidence for existence of TCAP receptors in neurons” (the “Project”). The Research Agreement expired on March 31, 2013.

The Company and the University entered into an agreement effective April 1, 2014 (the “New Research Agreement”) for the performance of a research project titled “Teneurin C-terminal Associated Peptide (“TCAP”) mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism” (the “New Project”). The New Project is to perform research related to work done by a professor at the University and stockholder of the Company (the “Professor”) in regard to TCAP mediated stress attenuation in vertebrates: Establishing the role of organismal and intracellular energy and glucose regulation and metabolism. In addition to the New Research Agreement, the Professor entered into an agreement with the University in order to commercialize certain technologies. The New Research Agreement expired on March 31, 2015. In September 2015, the New Research Agreement was extended to March 31, 2016 which allows for further development of the technologies and use of their applications.

 

20


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 10 COLLABORATIVE AGREEMENTS (CONTINUED)

 

As of September 30, 2015 the University has been granted 129,150 stock options which are fully vested at exercise prices of $.26 and $1.00 exercisable over 10 year periods which ends either on March 15, 2016 or on April 1, 2022. As of September 30, 2015 the Professor has been granted 483,299 stock options which are fully vested, except for 108,333 stock options, which are exercisable at exercise prices of $.26 and $1.00 exercisable over 10 or 13 year periods which ends either on March 15, 2016 or on March 1, 2027.

The sponsorship research and development expenses were $151,812 and $161,936 pertaining to the Research Agreements for the nine months ended September 30, 2015 and 2014, respectively.

 

NOTE 11 LICENSING AGREEMENTS

On July 31, 2005, the Company had entered into a Technology License Agreement (“License Agreement”) with the University pursuant to which the University agreed to license to the Company patent rights and other intellectual property, among other things (the “Technologies”). The Technology License Agreement was amended on February 18, 2015 and currently does not provide for an expiration date.

Pursuant to the License Agreement and its amendment, the Company obtained an exclusive worldwide license to make, have made, use, sell and import products based upon the Technologies, or to sublicense the Technologies in accordance with the terms of the License Agreement and amendment. In consideration, the Company agreed to pay to the University a royalty payment of 2.5% of net sales of any product based on the Technologies. If the Company elects to sublicense any rights under the License Agreement and amendment, the Company agrees to pay to the University 10% of any up-front sub-license fees for any sub-licenses that occur on or after September 9, 2006, and, on behalf of the sub-licensee, 2.5% of net sales by the sub-licensee of all products based on the Technologies. The Company had no revenue for the periods ended September 30, 2015 and 2014 and therefore was not subject to paying any royalties.

The License Agreement contains certain diligence clauses for product development and commercialization. As a result, the University could convert the Company’s exclusive license into a non-exclusive arrangement. Interest on any amounts owed under the License Agreement and amendment will be at 3% per annum. All intellectual property rights resulting from the Technologies or improvements thereon will remain the property of the other inventors and/or the Professor, and/or the University, as the case may be. The Company has agreed to pay all out-of- pocket filing, prosecution and maintenance expenses in connection with any patents relating to the Technologies. In the case of infringement upon any patents relating to the Technologies, the Company may elect, at its own expense, to bring a cause of action asserting such infringement. In such a case, after deducting any legal expenses the Company may incur, any settlement proceeds will be subject to the 2.5% royalty payment owed to the University under the License Agreement and amendment.

 

21


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 11 LICENSING AGREEMENTS (CONTINUED)

 

The Company, as a non-owner of the Technologies, incurred legal expense for research and development projects associated with the License Agreement and its amendment of $17,855 and $25,287 during the nine months ended September 30, 2015 and 2014, respectively.

The Company also incurred patent costs as a non-owner of the Technologies for research and development projects associated with the License Agreement and its amendment of $17,482 and $60,434 during the nine months ended September 30, 2015 and 2014, respectively.

The patent applications were made in the name of the Professor and other inventors, but the Company’s exclusive, worldwide rights to such patent applications are included in the License Agreement and its amendment with the University. The Company maintains exclusive licensing agreements and it currently controls the six intellectual patent properties.

The patents are summarized as follows:

 

Patent Description

   Country    Patent Status    Issue Date

Teneurin C-Terminal Associated

Peptides (“TCAP”) and Methods

and uses thereof.

Serial # 10/510,959

   United States    Issued    01/03/2012

TCAP and Methods and uses

thereof.

Serial # 2003221575.

   Australia    Issued    09/23/11

TCAP and Methods and uses

thereof.

Serial # 2,482,810.

   Canada    Issued    6/10/2014

TCAP and Methods and uses

thereof.

Serial # 03717086.7

   France, Germany

and Great Britain

   Issued    3/12/2014

A Method for Regulating Neurite

Growth: Application.

Serial # 60/783,821

   United States    Pending

(Filed on 03/21/06)

   -

Method for Modulating Glucose

Transport Using TCAP.

Serial # 62/026,346

   United States    Pending

(Filed on 07/18/14)

   -

 

22


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

 

NOTE 12 COMMITTMENTS AND CONTINGENCIES

Operating Lease with Related Party

The Company paid its sole employee and officer, a related party, serving as the interim president and chief operating officer of PTI U.S.A. and a director and president and chief operating officer of PTI Canada (the “Officer/Related Party”), $3,584 and $3,577 for rent during the nine months ended September 30, 2015 and 2014, respectively, on the property which the Company is renting. The Company occupies roughly 1/3 of the total rented area and pays rent in an amount approximately to 1/3 of the monthly rent on the property. As of September 30, 2015, the monthly rent is $430 per month which is now paid by the Company on a month to month basis which may be cancelled upon providing the proper notice to the other party. Thus, the future lease commitment rent expense will be $5,160 per year.

Employment Agreement

The Company had an employment agreement with its sole employee the Officer/Related Party which expired on December 31, 2015. The employment agreement indicated a salary of $6,489 or CA$8,175 per month at a calculated value at September 30, 2015 plus a bonus, other healthcare benefits and was granted stock options As of September 30, 2015, the Officer/Related Party has been granted 250,000 stock options, 212,500 are fully vested, except for 37,500 stock options which are exercisable at exercise prices of $.26, $1.00 and $1.25 exercisable over 10 year periods which ends either on August 1, 2016 or on March 30, 2021 or on March 1, 2014 or on March 9, 2025. The Company’s salary expense to the Officer/Related Party was $58,424 (of which $43,354 is accrued at September 30, 2015) and $66,382 for the nine months ended September 30, 2015 and 2014, respectively.

Consulting Agreements

Consultant

PTI Canada entered into a consulting agreement with a stockholder of the Company, (the “Consultant”) which expired on December 31, 2015 and is currently in the process of being extended for an additional year, an pursuant to which the Consultant was responsible for overseeing i) design and development of enzyme-linked immunosorbent assay “(ELISA”), assays for measuring TCAP, ii) evaluation of TCAP exposure biomarker assay, iii) development of pipeline peptides, and iv) development of clinically compatible formulations for TCAP, as well as all of the bench research and development of formulation and extraction methods. As of September 30, 2015, the Consultant has been granted 150,000 stock options which are fully vested, except for 25,000 stock options which are exercisable at an exercise price of $1.00 exercisable over 10 year periods which ends either on March 30, 2021, or on April 1, 2022, or on December 1, 2022, or on March 1, 2024, or on March 9, 2025 or on March 1, 2024. The Consultant is paid CA$1,000 per month. Either party may terminate the agreement (a) immediately at any time upon written notice to the other party in the event of a breach of the agreement by the other party which cannot be cured ( i.e. breach of the confidentiality obligations) and or (b) at any time without cause upon not less than fifteen (15) days’ prior written notice to the other party.

 

23


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 12 COMMITTMENTS AND CONTINGENCIES (continued)

 

Consulting Agreements (continued)

 

Consultant (continued)

Upon expiration or termination, neither the Company nor Consultant will have any further obligations under the consulting agreement.

The Company paid the Consultant $7,866 (of which $6,279 is accrued at September 30, 2015) and $8,120, respectively, for research and development projects during the nine months ended September 30, 2015 and 2014, respectively.

Consultant

The Company entered into a consulting agreement with a consultant effective January 2015. The consultant is responsible for providing the Company with technical and advisory services related to the Company’s research and development efforts. The consulting agreement is effective through January 2020. The Company has granted the consultant ten-year stock options to purchase 200,000 shares of the Company’s common stock, at an exercise price of $1.25 per share. The options vest monthly on the first day of each calendar month following January 22, 2015, such that the shares shall be fully vested on January 22, 2020, provided the consultant is still providing services to the Company.

Consultant

The Company entered into a consulting agreement with 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). The consultant is also responsible for providing the Company with technical and advisory services related to the Company’s research effort. For his services, the Company has granted the consultant stock options to purchase 25,000 shares of the Company’s common stock at an exercise price of $1.25 per share, which vests on March 9, 2017 and expires on March 9, 2025.

Consultant

The Company entered into a consulting agreement with a consultant that is also a clinician and researcher and Private Docent at the University of Geneva Medical School, where the consultant teaches Neurosciences and is head of the Bipolar Program in the Department of Psychiatry. The consultant is also responsible for providing the Company with technical and advisory services related to the Company’s research effort. For his services, the Company has granted the consultant stock options to purchase 25,000 shares of the Company’s common stock at an exercise price of $1.25 per share, which vest on March 9, 2017 and which expire on March 9, 2025.

Legal

In the normal course of business, the Company may become subject to claims or assessments. Such matters are subject to many uncertainties, and outcomes, which are not readily predictable with assurance. Effective September 2, 2015, the Company entered into an engagement letter with a law firm to assist in a possible merger transaction. The Company was required and paid a retainer fee of $25,000.

 

24


PROTAGENIC THERAPEUTICS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015 AND 2014

 

NOTE 12 COMMITTMENTS AND CONTINGENCIES (continued)

 

Placement Agency Agreement

The Company had entered into a Placement Agency Agreement (the “Agency”) effective June 15, 2015 in connection with a private placement offering to issue up to 1,200,000 shares of the Company’s common stock at a price of $1.25 per share. However, the agreement was voluntarily terminated by the Company effective August 14, 2015. Since the Company did not close on any institutional financings or investments from investors during this period, the Company was not obligated to pay any commissions or fees to the Agency.

 

NOTE 13 COMPENSATED ABSENCES

The employee of the Company is entitled to paid vacation, paid sick days, and paid personal days off depending on the length of service. The Company is unable to estimate the amount of compensation for absences, and accordingly, no liability has been recorded in the accompanying consolidated financial statements. Thus, it is the Company’s policy to recognize the costs of compensated absences when actually paid to the employee.

 

NOTE 14 SUBSEQUENT EVENTS

Short-Term Bridge Loan Borrowings

The Company entered into additional bridge loan arrangements subsequent to September 30, 2015 for total borrowings and or receipts of approximately $136,000 with the Major Stockholder and Chairman of the Company. The proceeds were used to fund research, development and the general operating activity of the Company and all principal and interest payments were once again guaranteed by the Company in the form of the Company’s common stock at a purchase price of $1.25 per share. The loan has interest at a rate of 10% per annum.

Consulting Agreement

The Company has hired a new acting Chief Financial Officer (“CFO”) of the Company and will become the Chief Financial Officer upon the closing of an anticipated merger transaction. The CFO will receive base compensation of $125,000 per year for his part-time work. In addition, The CFO will receive 100,000 options under the 2006 Plan as a sign-on bonus. These options will have an exercise price of $1.25 per share, a ten-year term and vest over a three-year period in equal monthly installments.

Warrants

On November 4, 2015, the Company entered into a consulting agreement with a consultant providing for a continuation of existing consulting services through December 31, 2015. As consideration for entering the consulting agreement, the consultant has been granted a warrant to purchase 250,000 shares of the Company’s common stock, exercisable for an eight year period ending in October, 2023 at an exercise price of $1.25 per share. The warrant became fully vested on December 31, 2015.

 

25

Exhibit 99.2

Atrinsic, Inc.

(A Development Stage Company)

Unaudited Pro forma Condensed Combined Financial Statements

 

Table of Contents    Page  

Introduction to Pro forma Condensed Combined Financial Statements (Unaudited)

     F-2   

Pro forma Condensed Combined Balance Sheet as of September 30, 2015 (Unaudited)

     F-3   

Pro forma Condensed Combined Statement of Operations for the Nine Months Ended September 30, 2015 (Unaudited)

     F-4   

Pro forma Condensed Combined Statement of Operations for the Year Ended December 31, 2014 (Unaudited)

     F-5   

Pro forma Condensed Combined Statement of Operations for the Year Ended December 31, 2013 (Unaudited)

     F-6   

Notes to Pro forma Condensed Combined Financial Statements (Unaudited)

     F-7   


Atrinsic, Inc.

(A Development Stage Company)

Introduction to Unaudited Pro forma Condensed Combined Financial Statements

On February 12, 2016 (the “Closing Date”), Atrinsic Inc a Delaware corporation (the “Company”) entered into and closed an Agreement and Plan of Merger (the “Merger Agreement”), with Protagenic Acquisiiton Corp, a Delaware corporation and a wholly-owned subsidiary of the Company (the “Subsidiary”) and Protagenic Therapeutics, Inc., a Delaware corporation (“PTI”). Pursuant to the Merger Agreement, (i) the Subsidiary merged into PTI such that PTI became a wholly-owned subsidiary of the Company, and (ii) the Company issued 6,612,838 shares (the “Acquisition Shares”), of the Company’s Series B Preferred stock to the shareholders of PTI, representing approximately 68.1% of the Company’s aggregate issued and outstanding common stock following the closing of the Merger Agreement, assuming conversion of the Series B Preferred Stock on the basis of 15,463.7183 shares of common stock per share of Series B Preferred Stock.

In connection with the Merger, as of the Closing Date the Company entered into and closed subscription agreements with accredited investors (the “Investors”), pursuant to which the Company issued and sold an aggregate of 2,775,000 shares of Series B Preferred stock to the Investors for an aggregate purchase price of $3,468,750 (the “Private Placement”).

Including the 3,403,367 warrants and the 1,807,744 options to purchase Series B Preferred Stock issued to the shareholders of PTI, the shareholders of PTI will own 76.8% of the company on a fully-diluted basis following the Merger assuming conversion of the Series B Preferred Stock on the basis of 15,463.7183 shares of common stock per share of Series B Preferred Stock.

Based on the fact that after the Merger, (i) the former stockholders of PTI control the Company, (ii) the officers and directors of PTI have become the Company’s officers and directors, (iii) the Company’s only business is the business that had been previously conducted by PTI for accounting purposes, PTI is treated as the acquirer. The acquisition will be accounted for as a “reverse merger” and recapitalization since the sellers of PTI will control the combined company immediately following the completion of the Merger. Accordingly, the assets and liabilities and the historical operations that are reflected in the financial statements in this report filed on Form 8-K are those of PTI and are recorded at the historical cost basis of PTI The Company’s assets, liabilities and results of operations will be consolidated with the assets, liabilities and results of operations of PTI after consummation of the Merger.

The following unaudited pro forma condensed combined financial statements are presented to illustrate the estimated effects of the Merger and the Private Placement. The following unaudited pro forma condensed combined balance sheet as of September 30, 2015 combines the unaudited condensed balance sheet of the Company as of September 30, 2015 with the unaudited condensed balance sheet of PTI giving effect to the transactions described in the Merger Agreement as if they had occurred on September 30, 2015.

The following unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 2015 combines the unaudited condensed statement of operations of the Company for the nine months ended September 30, 2015 with the unaudited condensed results of operations of PTI for the nine months ended September 30, 2015, giving effect to the transactions described in the Merger Agreement as if they had occurred on January 1, 2015.

The following unaudited pro forma condensed combined statement of operations for the year ended December 31, 2014 combines the condensed statement of operations of the Company for the year ended December 31, 2014 with the condensed results of operations of PTI for the year ended December 31, 2014, giving effect to the transactions described in the Merger Agreement as if they had occurred on January 1, 2014.

The information presented in the unaudited pro forma condensed consolidated financial statements does not purport to represent what our financial position or results of operations would have been had the Merger and Private Placement occurred as of the dates indicated, nor is it indicative of our future financial position or results of operations for any period. You should not rely on this information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience after the Merger and Private Placement were consummated.

The pro forma adjustments are based upon available information and certain assumptions that we believe are reasonable under the circumstances. For example, the company’s historical income statement figures for the 12-month period ending December 31, 2014 were derived from June 30th fiscal year data with the assumption that expenses incurred in the 12-months ended June 30, 2014 occurred evenly distributed over each 6-month period. These unaudited pro forma condensed consolidated financial statements should be read in conjunction with the accompanying notes and assumptions and the historical financial statements and related notes of Atrinsic and PTI which are included elsewhere in this Form 8-K.

 

F-2


Atrinsic, Inc.

(A Development Stage Company)

Pro forma Condensed Combined Balance Sheet

As of September 30, 2015

(Unaudited)

 

Pro forma                                      
(Unaudited)    Historical                     
$(000) except share counts and per share figures                                      
ASSETS                Pro forma adjustments         
     Atrinsic Corp.     Protagenic Therapeutics, Inc.     (1)     (2)     (3)      Combined Pro Forma  

Current assets:

             

Cash

   $ 10        45        —        $ —        $ 3,350       $ 3,405   

Other Current Assets

   $ 49        —                 49   

Total current assets

   $ 59        45        —          —          3,350         3,454   

Property and equipment - Net

   $ 1        22        —          —          —           23   

Less Accumulated depreciation

       (22            (22

Intangible assets - Net

     —          —          —          —          —           —     

Total assets

   $ 60        45        —        $ —        $ 3,350       $ 3,455   

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

             

Current liabilities:

             

Accounts payable and accrued expenses

   $ 202        384        —        $ —        $ —         $ 586   

Intercompany loans payable

   $ —          123        —          —          —           123   

Short/Current Long Term Debt

   $ 565        —          —          —          —           565   

Total Current Liabilities

   $ 767        507               1,274   

Long Term Portion of Long Term Debt

     —                   —     

Minority Interest

   $ 79                 (79

Total Liabilities

   $ 688      $ 507               1,195   

Stockholders’ (deficiency) equity:

             

Common stock, $0.0001 par value:

             

7,612,838 shares issued and 6,612,838 shares outstanding before exchange and financing

             

15,264,013 shares issued and 9,711,173 shares outstanding after exchange and financing

     —          8        —          (1     0.268         7   

Preferred Stock

     5                 5   

Additional paid in capital

       5,408        (2     1        3,350         8,757   

Canada Retained Earnings

       (2,001            (2,001

Deficit accumulated during development stage

     (1,686     (3,776     2        —          —           (5,460

Treasury stock, at cost $.001 par value, 1,000,000 shares

       (100            (100

Capital Surplus

     1,053                 1,053   

Total stockholders’ (deficiency) equity

     (628     (462     —          —          3,350         2,260   

Total liabilities and stockholders’ (deficiency) equity

   $ 60      $ 45        —        $ —        $ 3,350       $ 3,455   

See Notes to Unaudited Pro forma Condensed Combined Financial Statements

 

F-3


Atrinsic, Inc.

(A Development Stage Company)

Pro forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2015

(Unaudited)

 

     Historical               
(Unaudited)                          
$(000) except share count and per share figures                          
     Atrinsic Corp.     Protagenic Therapeutics, Inc.     Pro forma Adjustments      Pro forma Combined  
     (Audited)     (Unaudited)            (Unaudited)  

Revenues

   $ —        $ —        $ —         $ —     

Operating Expenses

         

Research Development

     —          160           160   

Selling General and Administrative

     365        0           365   

Non Recurring

     —          —             —     

Others

     —          —             —     

Total Operating Expenses

     —          206           206   

Operating Income or Loss

     365        (206        159   

Total Other Income/Expenses Net

     5        —             5   

Earnings Before Interest And Taxes

     (360     (206        (566

Interest Expense

     19        1           20   

Income Before Tax

     (379     (207        (586

Income Tax Expense

     —          —             —     

Minority Interest

     17        —             17   

Net Income From Continuing Ops

     (362     (207        (569

Net Loss

   $ (362   $ (207   $ —         $ (569

Basic and diluted net loss per common share

   $ 0.00      $ 0.03         $ 0.09   

Weighted average number of basic and diluted common shares outstanding

     400,000,000        6,612,838           6,612,838   

See Notes to Unaudited Pro forma Condensed Combined Financial Statements

 

F-4


Atrinsic, Inc.

(A Development Stage Company)

Pro forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2014

 

(Unaudited)    Historical               
$(000) except share count and per share figures                          
     Atrinsic Corp.     Protagenic Therapeutics, Inc.     Pro forma Adjustments      Pro forma Combined  
     (Audited)*     (Audited)            (Unaudited)  

Revenues

   $ —        $ —        $ —         $ —     

Operating Expenses

         

Research Development

       191           191   

Selling General and Administrative

         

Non Recurring

         

Others

         

Total Operating Expenses

     744        292           1,036   

Operating Income or Loss

     (744     (292        (1,036

Total Other Income/Expenses Net

     318        (10        308   

Earnings Before Interest And Taxes

     (713       

Interest Expense (Income)

     8        (0        7   

Income Before Tax

     (720       

Income Tax Expense

     —            

Minority Interest

     38          

Net Income From Continuing Ops

     (396     (10        (406

Net Loss

   $ (396   $ (302   $ —         $ (698

Basic and diluted net loss per common share

   $ 0.00      $ 0.05         $ 0.11   

Weighted average number of basic and diluted common shares outstanding

     400,000,000        6,612,838           6,612,838   

 

* Includes the assumption that expenses incurred in the 12-months ended June 30, 2014 occurred evenly over each 6-month period.

See Notes to Unaudited Pro forma Condensed Combined Financial Statements

 

F-5


Atrinsic, Inc.

(A Development Stage Company)

Pro forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2013

(Unaudited)

 

     Historical               
$(000) except share count and per share figures    Atrinsic Corp.     Protagenic Therapeutics, Inc.     Pro forma Adjustments      Pro forma Combined  
     (Audited)*     (Audited)            (Unaudited)  

Revenues

   $ —        $ —        $ —         $ —     

Operating Expenses

         

Research Development

       291           291   

Selling General and Administrative

         

Non Recurring

         

Others

         

Total Operating Expenses

     867        931           1,798   

Operating Income or Loss

     (867     (931        (1,798

Total Other Income/Expenses Net

     137        (3        134   

Earnings Before Interest And Taxes

     (864       

Interest Expense (Income)

     2        (0        1   

Income Before Tax

     (865       

Income Tax Expense

     —            

Minority Interest

     25          

Net Income From Continuing Ops

     (664     (2        (666

Net Loss

   $ (664   $ (934   $ —         $ (1,598

Basic and diluted net loss per common share

   $ 0.00      $ 0.14         $ 0.24   

Weighted average number of basic and diluted common shares outstanding

     400,000,000        6,612,838           6,612,838   

 

* Includes the assumption that expenses incurred in the 12-months ended June 30, 2014 and June 30, 2013 occurred evenly over each 6-month period.

See Notes to Unaudited Pro forma Condensed Combined Financial Statements

 

F-6


(1) To eliminate the accumulated deficit of Atrinsic upon closing of the Merger. The accumulated deficits of Atrinsic for the year ended December 31, 2014 and for the nine months ended September 30, 2015 were derived from the Atrinsic’s Annual Report on Form 10-K for the year ended Dec 31, 2015, and Quarterly Report on Form 10-Q for the fiscal quarter ended Sept 30, 2015, respectively.

 

(2) To reflect in connection with the Merger (a) the issuance of 6,612,838 shares of common stock 3,403,367 warrants, and 1,807,744 options by the Company in exchange for all the issued and outstanding common shares of PTI (11,823,949 fully diluted shares as of the Closing Date with a par value of $0.0001) and (b) the return to the Treasury of 400,000,000 shares of the Company’s common stock.

 

(3) To reflect the issuance of 2,775,000 shares of the Company’s Common Stock at $1.25 per share issued to an accredited investor upon closing of the Merger for net proceeds of 3,468,750.

 

(4) These unaudited pro forma combined statements of operations assume the Merger and Private Placement occurred as of the beginning of the nine month period ending September 30, 2015 and at the beginning of the year ended December 31, 2014. Therefore, the weighted average number of shares outstanding for the nine month period ending September 30, 2015 and for the year ended December 31, 2014 equals the total number of shares outstanding upon completion of the Merger and Private Placement as follows:

Pre-Exchange Pre-Reverse Split Transaction and Financing Atrinsic Common Shares Outstanding:

400,000,000,000

Pre-Exchange Post-Reverse Split Transaction and Financing Atrinsic Common Shares Outstanding:

323,335

Atrinsic Common Shares Issued for all outstanding shares of PTI

6,612,838

Atrinsic Common Shares Issued to investor at $1.25 per share pursuant to Financing

2,775,000

Total Atrinsic Common Shares Outstanding Post-Exchange and Financing:

9,711,173

 

F-7