UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. __)
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PROTALEX, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On October 26, 2004
TO THE STOCKHOLDERS OF PROTALEX, INC.
You are cordially invited to attend the 2004 Annual Meeting of Stockholders of Protalex, Inc., which will be held at the Doral Forrestal Hotel, 100 College Road East, Princeton, NJ 08540, (609) 897-7226, on Tuesday, October 26, 2004 at 9:30 a.m., to consider and act upon the following matters:
| | (1) | To approve a reincorporation of Protalex in Delaware; |
| | (2) | To approve the Protalex, Inc. 2003 Stock Option Plan; |
| | (3) | To elect seven directors; |
| | (4) | To ratify the appointment of Grant Thornton LLP as our independent public accountants for fiscal year ending May 31, 2005; and |
| | (5) | To transact such other business as may properly come before the meeting. |
The record date for the determination of the stockholders entitled to vote at the meeting or at any adjournment thereof is the close of business on September 30, 2004. A list of stockholders entitled to vote at the Annual Meeting will be open to the examination of any stockholder, for any purpose germane to the meeting, at the location of the Annual Meeting on October 26, 2004, and during ordinary business hours for ten days prior to the meeting at our principal offices located at 145 Union Square Drive, New Hope, PA 18938.
It is important that your shares be represented at the meeting regardless of the number of shares you hold. Whether or not you expect to attend the meeting in person, please complete, date, sign and return the accompanying proxy in the enclosed envelope to ensure the presence of a quorum at the Annual Meeting. If you do attend the meeting, you may, if you prefer, revoke your proxy and vote your shares in person.
Your Board of Directors recommends that you vote in favor of the proposals outlined in the Proxy Statement. Please refer to the Proxy Statement for detailed information on each of the proposals.
By Order of the Board of Directors
Steven H. Kane
Steven H. Kane
President and Chief Executive Officer
145 Union Square Drive
New Hope, PA 18938
WE URGE STOCKHOLDERS TO MARK, SIGN AND RETURN
PROMPTLY THE ACCOMPANYING PROXY CARD
PROTALEX, INC.
145 Union Square Drive
New Hope, PA 18938
_____________________________
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 26, 2004
The accompanying proxy is solicited by the Board of Directors (the "Board") of Protalex, Inc., a New Mexico corporation (referred to throughout this Proxy Statement as "Protalex" or "Company" or "we" or "our") for use at the Annual Meeting of Stockholders to be held on October 26, 2004, at 9:30 a.m. local time, and at any adjournment thereof, for the purposes set forth in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the Doral Forrestal Hotel, 100 College Road East, Princeton, NJ 08540. The date of this Proxy Statement is October 1, 2004, the approximate date on which this Proxy Statement and the accompanying form of proxy were first sent or given to stockholders.
Why Have I Received Those Materials?
The accompanying proxy, being mailed to stockholders on or about October 1, 2004, is solicited by the Board of Protalex in connection with our Annual Meeting of Stockholders that will take place on October 26, 2004. You are cordially invited to attend the Annual Meeting and are requested to vote on the proposals described in this Proxy Statement.
Who is Entitled to Vote at the Annual Meeting?
Holders of common stock of Protalex ("Common Stock"), as of the close of business on September 30, 2004 will be entitled to vote at the Annual Meeting. On September 30, 2004, there were outstanding and entitled to vote 16,784,433 shares of common stock.
How Do I Vote My Shares at the Annual Meeting?
If you are a "record" stockholder of Common Stock (that is, if you hold Common Stock in your own name in Protalex’s stock records maintained by our transfer agent, Wachovia Bank, N.A.), you may complete and sign the accompanying proxy card and return it to Protalex or deliver it in person.
"Street name" stockholders of Common Stock (that is, stockholders who hold Common Stock through a broker or other nominee) who wish to vote at the Annual Meeting will need to obtain a proxy form from the institution that holds their shares and to follow the voting instructions on such form.
What Does It Mean if I Receive More Than One Proxy?
It means you have multiple accounts with brokers and/or our transfer agent. Please vote all of these shares. We recommend that you contact your broker to consolidate as many accounts as possible under the same name and address. Can I Change My Vote After I Return My Proxy Card?
Yes. After you have submitted a proxy, you may change your vote at any time before the proxy is exercised by submitting a written notice of revocation or a proxy bearing a later date or by voting in person at the Annual Meeting.
How Many Votes Am I Entitled To?
Each share of Common Stock is entitled to one vote.
What Constitutes a Quorum for Purposes of the Annual Meeting?
The presence at the Annual Meeting in person or by proxy of the holders of a majority of the voting power of all outstanding shares of Common Stock entitled to vote shall constitute a quorum for the transaction of business. Proxies marked as abstaining (including proxies containing broker non-votes) on any matter to be acted upon by stockholders will be treated as present at the meeting for purposes of determining a quorum but will not be counted as votes cast on such matters.
What Vote is Required to Approve Each Item?
Each item to be voted upon at the Annual Meeting requires the affirmative vote of a majority of the shares represented in person or by proxy and entitled to vote on the matter for approval. This means that the votes "FOR" the matter must exceed the votes "AGAINST" the matter.
A properly executed proxy marked "ABSTAIN" with respect to any matter will not be voted, although it will be counted for purposes of determining whether there is a quorum. Accordingly, an abstention on any such matter will have the effect of a negative vote on such matter. If you hold your shares in "street name" through a broker or other nominee, shares represented by "broker non-votes" will be counted in determining whether there is a quorum but will not be counted as votes cast on such matters.
What Information Do I Need to Attend the Annual Meeting?
You will need an admission ticket to attend the Annual Meeting. If you are a record stockholder, an admission ticket is included with this mailing and is attached to the proxy card. If you are a street name stockholder, the stub of your voting instruction form is your admission ticket. If you arrive at the Annual Meeting without an admission ticket, we will admit you if we are able to verify that you are a Protalex stockholder.
How Does the Board Recommend That I Vote My Shares?
Unless you give other instructions on your proxy card, the persons named as proxy holders on the proxy card will vote in accordance with the recommendations of the Board. The Board’s recommendation is set forth together with the description of each item in this Proxy Statement. In summary, the Board recommends a vote:
— FOR the Directors’ proposal to reincorporate the Company in Delaware set forth on page 4;
— FOR the approval of the Company’s 2003 Stock Option Plan as set forth on page 10;
— FOR the Directors’ proposal to elect the nominated Directors set forth on page 10; and
— FOR the ratification of the Directors’ selection of auditors, set forth on page 12.
With respect to any other matter that properly comes before the Annual Meeting, the proxy holders will vote as recommended by the Board or, if no recommendation is given, in their own discretion in the best interests of Protalex. At the date this Proxy Statement went to press, the Board had no knowledge of any business other than that described herein that would be presented for consideration at the Annual Meeting. Who Will Bear the Expense of Soliciting Proxies?
Protalex will bear the cost of soliciting proxies in the form enclosed. In addition to the solicitation by mail, proxies may be solicited personally or by telephone, facsimile or electronic transmission by our employees. Our employees will not receive any additional compensation for participating in proxy solicitation. We may reimburse brokers holding Common Stock in their names or in the names of their nominees for their expenses in sending proxy materials to the beneficial owners of such Common Stock.
Is There Any Information That I Should Know About Future Annual Meetings?
Stockholder Proposals
Any stockholder who intends to present a proposal at the 2005 Annual Meeting of Stockholders (the "2005 Annual Meeting") must deliver the proposal to our Corporate Secretary at 145 Union Square Drive, New Hope, PA 18938, not later than June 3, 2005, if the proposal is submitted for inclusion in our proxy materials for that meeting pursuant to Rule 14A-8 under the Securities Exchange Act of 1934. If a stockholder proposal is received after June 3, 2005, we may vote in our discretion as to that proposal all of the shares for which we have received proxies for the 2005 Annual Meeting.
I.
PROPOSALS
Proposal 1.
Reincorporation in Delaware
General
At the Annual Meeting shareholders of the Company will be asked to vote upon the reincorporation of the Company from the State of New Mexico to the State of Delaware. The reincorporation will be effected pursuant to an Agreement and Plan of Merger, dated as of September 14, 2004 (the "merger agreement"), by and between the Company and Protalex, Inc., a Delaware corporation of the same name and a wholly owned subsidiary of the Company ("Protalex Delaware"). On September 14, 2004, the boards of directors of each of the companies unanimously approved the merger agreement, and subsequently the Company, as the sole stockholder of Protalex Delaware, adopted the merger agreement. The merger agreement is attached as Annex A to this proxy statement.
No Change in Name, Business, Jobs, Physical Location, Etc.
The reincorporation merger will effect a change in the legal domicile of the Company and other changes of a legal nature, the most significant of which are described below under the heading "Comparison of Shareholder Rights Before and After the Reincorporation." However, the reincorporation merger will not result in any change in name, headquarters, business, jobs, management, office location, number of employees, assets, liabilities or net worth (other than as a result of the costs incident to the reincorporation merger, which are immaterial). Our management, including all directors and officers, will remain the same in connection with the reincorporation merger and will assume identical positions with Protalex Delaware. There will be no new employment agreements for executive officers or other direct or indir ect interest of the current directors or executive officers of the Company in the reincorporation merger as a result of the reincorporation. Upon the effective time of the reincorporation merger, your shares of New Mexico Stock will be converted into an equivalent number of shares of common stock of Protalex Delaware and such shares will trade under the symbol "PRTX."
Reasons for the Reincorporation
Delaware is a nationally recognized leader in adopting and implementing comprehensive and flexible corporate laws. The General Corporation Law of the State of Delaware (the "DGCL") is frequently revised and updated to accommodate changing legal and business needs. Almost 60% of the Fortune 500 corporations are incorporated in Delaware. With the growth of the Company and changes in the composition of our management and board of directors in recent years, we think it will be beneficial to the Company and its shareholders to obtain the benefits of Delaware corporate law.
In addition, Delaware has established a specialized court, the Court of Chancery, having exclusive jurisdiction over matters relating to the DGCL. The Chancery Court has no jurisdiction over criminal and tort cases, and corporate cases are heard by judges, without juries, who have many years of experience with corporate issues. Traditionally, this has meant that the Delaware courts are able in most cases to process corporate litigation relatively quickly and effectively. By comparison, many states, including New Mexico, do not have a specialized judiciary over matters relating to corporate issues.
Delaware courts have developed considerable expertise in dealing with corporate legal issues and produced a substantial body of case law construing Delaware corporate laws, with multiple cases concerning areas that no New Mexico court has considered. Because our judicial system is based largely on legal precedents, the abundance of Delaware case law should serve to enhance the relative clarity and predictability of many areas of corporate law, which should offer added advantages to the Company by allowing our board of directors and management to make corporate decisions and take corporate actions with greater assurance as to the validity and consequences of those decisions and actions.
Reincorporation from New Mexico to Delaware also may make it easier to attract future candidates willing to serve on our board of directors, because many of such candidates already will be familiar with Delaware corporate law, including provisions relating to director indemnification, from their past business experience.
Protalex Delaware
Protalex Delaware, our wholly owned subsidiary, was incorporated under the DGCL on March 23, 2004, under the name "Protalex, Inc.," exclusively for the purpose of merging with the Company. The address and phone number of Protalex Delaware’s principal office are the same as those of the Company. Prior to the reincorporation merger, Protalex Delaware will have no material assets or liabilities and will not have carried on any business.
Upon completion of the reincorporation merger, the rights of the stockholders of Protalex Delaware will be governed by the DGCL and the certificate of incorporation and the bylaws of Protalex Delaware (the "Delaware Certificate of Incorporation" and the "Delaware Bylaws," respectively). The Delaware Certificate of Incorporation and the Delaware Bylaws are attached to this proxy statement as Annexes B and C, respectively.
The Merger Agreement
The merger agreement provides that the Company will merge with and into Protalex Delaware, with Protalex Delaware being the surviving corporation. Pursuant to the merger agreement, Protalex Delaware will assume all of the assets and liabilities of the Company, including obligations under our outstanding indebtedness and contracts. Our existing board of directors and officers will become the board of directors and officers of Protalex Delaware for identical terms of office.
At the effective time of the reincorporation merger, each outstanding share of New Mexico Stock, with respect to which dissenters’ rights are not validly perfected, automatically will be converted into one share of the Common Stock, par value $.00001, of Protalex Delaware ("Delaware Stock"). You will not have to exchange your existing stock certificates of the Company for stock certificates of Protalex Delaware. However, after consummation of the reincorporation merger, any stockholder desiring a new form of stock certificate may submit the existing stock certificate to Protalex Delaware’s transfer agent for cancellation, and obtain a new Delaware form of certificate.
Pursuant to the reincorporation merger, Protalex Delaware will assume all of the Company’s obligations under its employee stock plans and its employee benefit plans. Each option to purchase shares of New Mexico Stock under the Company stock plans will be converted into an option to purchase the same number of shares of Delaware Stock on the same terms and conditions as in effect immediately prior to the reincorporation. Options and rights granted under the Company stock plans in the future will be for shares of Delaware Stock.
The merger agreement was unanimously approved by the board of directors of the Company and the board of directors of Protalex Delaware and subsequently was adopted by the Company, as the sole stockholder of Protalex Delaware. Approval of the reincorporation proposal (which constitutes approval of the merger agreement) requires the affirmative vote of the holders of a majority of all of the votes entitled to be cast by the holders of New Mexico Stock.
Effective Time
If approved by the requisite vote of the holders of shares of New Mexico Stock, it is anticipated that the reincorporation merger, and consequently the reincorporation, will become effective at the time set forth in each of the Articles of Merger to be filed with the New Mexico Public Regulation Commission (together with the merger agreement) in accordance with Article 53-14-4 of the New Mexico Business Corporation Act (the "NMBCA") and the Certificate of Merger to be filed with the Secretary of State of Delaware in accordance with §252 of the DGCL. However, the merger agreement may be terminated and abandoned by action of the board of directors of the Company at any time prior to the effective time of the reincorporation merger, whether before or after the approval by holders of shares of New Me xico Stock, if the board of directors of the Company determines for any reason, in its sole judgment and discretion, that the consummation of the reincorporation merger would be inadvisable or not in the best interests of the Company and its shareholders.
Effect of Not Obtaining the Required Vote for Approval
If the reincorporation proposal fails to obtain the requisite vote for approval, the reincorporation merger will not be consummated and the Company will continue to be incorporated in New Mexico.
Comparison of Shareholder Rights Before and After the Reincorporation
Because of differences between the NMBCA and the DGCL, the reincorporation will effect some changes in the rights of the Company’s shareholders. Summarized below are the most significant differences between the rights of the shareholders of the Company before and after the reincorporation, as a result of the differences among the NMBCA and the DGCL. The summary below is not intended to be relied upon as an exhaustive list of all differences or a complete description of the differences, and is qualified in its entirety by reference to the NMBCA and the DGCL.
THE COMPANY | | PROTALEX DELAWARE |
| | | |
| PAR VALUE OF CAPITAL STOCK; SURPLUS; CAPITAL |
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| The concepts of par value, surplus and capital do not exist under the NMBCA. Accordingly, none of the shares of capital stock of the Company has a par value. | | Delaware law recognizes the concepts of par value, surplus and capital, and all shares of the capital stock of Protalex Delaware have a par value of $.00001. |
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| ACTION BY SHAREHOLDERS WITHOUT A MEETING |
| | | |
| The NMBCA provides that any action required or permitted to be taken at a shareholders’ meeting may be taken without a meeting if all of the shareholders entitled to vote thereon consent to such action in writing. | | The DGCL provides that any action that could be taken at an annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if written consents are 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. In addition, the DGCL provides that: (i) in order to be effective, all written consents must be delivered to the Company within 60 days of the earliest dated consent delivered to the Company, and (ii) prompt notice of the action by written consent must be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were delivered to the Company. |
| INDEMNIFICATION |
| | | |
| New Mexico law provides that the Company may indemnify the following persons, only if such persons acted in good faith and in a manner such persons reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal proceeding, had no reasonable cause to believe the person’s conduct was unlawful: (i) directors, except with respect to a personal benefit improperly received by such directors and (ii) officers and employees. | | The Delaware Certificate of Incorporation provides that the officers and directors of Protalex Delaware are to be indemnified to the fullest extent permitted by Delaware law. The Delaware Certificate does not contain the limitation required by New Mexico law (but not by Delaware law) limiting indemnification of a director or officer with respect to a personal benefit improperly received. It should be noted, however, that the DGCL is otherwise similar to the NMBCA with respect to mandatory indemnification by Protalex Delaware of directors and officers, and that all such persons must act in good faith and in a manner such persons reasonably believed to be in or not opposed to the best interests of Protalex Delaware, and with respect to any criminal proceeding, had no reasonable cause to believe the person’s cond uct was unlawful. |
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| AMENDMENT TO THE BYLAWS |
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| New Mexico law provides that the board of directors may amend, restate or repeal the bylaws of the Company unless that power is reserved to the shareholders by the Articles of Incorporation. | | Delaware law provides that the board of directors may amend, restate or repeal the bylaws of Protalex Delaware at any meeting by a majority of the directors present at a meeting at which a quorum is present. |
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| DIVIDENDS |
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| The NMBCA provides that the payment of distributions is generally permissible unless after giving effect to the dividend or distribution, the corporation would be unable to pay its debts as they become due in the usual course of business, or if the total assets of the corporation would be less than the sum of its total liabilities plus the amount that would be needed, if the corporation were dissolved at the time the dividend was paid, to satisfy the preferential rights of shareholders whose preferential rights upon dissolution of the corporation are greater than those of the shareholders receiving the dividend. Because New Mexico law dispenses with the concepts of par value of shares as well as statutory definitions of capital and surplus, the above limitation is the only limitation with respect to the declaration of dividends by the board of directors of the Company. | | Unlike in New Mexico, the concepts of par value, capital and surplus are retained in Delaware. The DGCL defines surplus as the excess of the net assets of the corporation over the capital of the corporation. Unless the corporation’s board of directors determines otherwise, the capital of the corporation is equal to the aggregate par value of the shares of stock having par value. Therefore, the DGCL provides that a corporation declare and pay dividends out of surplus or, if there is no surplus, out of the net profits for the fiscal year in which the dividend is declared and/or for the preceding fiscal year. |
| EXAMINATION OF BOOKS AND RECORDS |
| | | |
| Under the NMBCA, upon written demand, any shareholder of the Company may inspect the Company’s list of shareholders and certain other corporate records, including minutes of the meetings of board of directors of the Company, if the shareholder either (i) has been a shareholder for at least 6 months or (ii) is a shareholder of at least 5% of all outstanding shares of any class of shares when the demand is made, provided that the demand is made in good faith for a proper purpose. | | Under the DGCL, the inspection rights of the stockholders of Protalex Delaware are the same as under New Mexico law, except there is no requirement that stockholders have been stockholders for at least 6 months or are stockholders of at least 5% of all outstanding shares of any class of shares when the demand is made. |
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| BUSINESS COMBINATION STATUTE |
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| The NMBCA does not contain any business combination provisions. | | Section 203 of the DGCL provides for a three-year moratorium on certain business combinations with "interested stockholders" (generally, persons who own, individually or with or through other persons, 15% or more of the corporation’s outstanding voting stock). |
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| DISSENTERS’ (APPRAISAL) RIGHTS |
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| Under the NMBCA, shareholders are entitled to exercise dissenters’ rights in the event of certain mergers, share exchanges, sales, leases, exchanges or other dispositions of all or substantially all of the property of the corporation. | | The DGCL provides appraisal rights only in the case of a stockholder objecting to certain mergers or consolidations. Thus, under the DGCL, stockholders have no appraisal rights in a sale, lease or exchange of all or substantially all of a corporation’s assets. |
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| DERIVATIVE ACTIONS |
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| Under the NMBCA, if a court finds that a derivative action was brought without reasonable cause, the court may require the plaintiff to pay the defendants’ reasonable expenses attributable to the defense of such action, exclusive of attorney’s fees. | | The DGCL’s requirements for bringing derivative actions are substantially similar to those contained in the NMBCA, except that the DGCL does not impose the reasonable cause requirement. |
Federal Income Tax Consequences of the Reincorporation Merger
The following discussion addresses the material federal income tax consequences of the reincorporation merger that are applicable to holders of shares of New Mexico Stock. The discussion does not deal with all federal income tax consequences that may be relevant to a particular holder of shares of New Mexico Stock, or any foreign, state or local tax considerations.Accordingly, holders of New Mexico Stock are urged to consult their own tax advisors as to the specific federal, foreign, state and local tax consequences to them as a result of the reincorporation merger.
The following discussion is based upon the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations, judicial authority and administrative rulings and practice, all as of the date hereof. The Company has not and will not request a ruling from the Internal Revenue Service regarding the tax consequences of the reincorporation merger.
The Company believes that the reincorporation merger and the resulting reincorporation of the Company from New Mexico to Delaware will constitute a tax-free reorganization within the meaning of Section 368(a) of the Code. Accordingly, for federal income tax purposes: (i) no gain or loss will be recognized by the holders of shares of New Mexico Stock upon consummation of the reincorporation merger; (ii) the aggregate tax basis of shares of Delaware Stock received in the reincorporation merger will be the same as the aggregate tax basis of shares of New Mexico Stock exchanged in the reincorporation merger; and (iii) the holding period of the shares of Delaware Stock received in the reincorporation merger will include the period for which shares of New Mexico Stock were held.
Accounting Treatment of the Reincorporation Merger
The reincorporation merger will be accounted for as a reverse merger whereby, for accounting purposes, the Company will be considered the accounting acquiror and Protalex Delaware will be treated as the successor to the historical operations of the Company. Accordingly, the historical financial statements of the Company, which previously have been reported to the Commission on forms 10-K and 10-Q, among others, as of and for all periods through the date of this proxy statement, will be treated as the financial statements of Protalex Delaware.
Regulatory Approval
To the Company’s knowledge, the only required regulatory or governmental approval or filing necessary in connection with the consummation of the reincorporation merger will be the filing of the Articles of Merger (including the merger agreement) with the New Mexico Public Regulation Commission and the filing of the Certificate of Merger with the Secretary of State of Delaware.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE REINCORPORATION PROPOSAL.
Dissenters’ Rights for the Holder of New Mexico Stock
Holders of the issued and outstanding shares of New Mexico Stock are entitled to dissenters’ rights of appraisal under New Mexico law in connection with the reincorporation merger. Summarized below are the dissenters’ rights of the holders of New Mexico Stock and the statutory procedures required to be followed in order to perfect such rights. A copy of Article 53-15-4 of the NMBCA, which is the provision governing dissenters’ rights under the NMBCA, is attached to this proxy statement as Annex D. The following summary is qualified in its entirety by reference to Article 53-15-4 of the NMBCA, and such Article should be reviewed carefully by the holders of New Mexico Stock. Failure to comply strictly with all conditions for asserting rights as a dissenting shareholder, including the time limits, will result in loss of such dissenters’ rights by the dissenting shareholder.
Any shareholder who wishes to dissent from the decision to reincorporate in Delaware must file with the Company before or at the meeting of shareholders for which this proxy statement is being distributed, a written objection to the reincorporation. If the reincorporation is approved by the appropriate vote and the shareholder has not voted in favor of the reincorporation, the shareholder may, within ten (10) days after the date on which the vote is taken, make a written demand on the surviving corporation for payment of the fair value of the shareholder’s shares.
Upon the completion of the merger, the surviving company will be required to pay the shareholder, upon the determination of the fair value of the shareholder’s shares (either by agreement or judgment) and the surrender of the certificates for those shares, the fair value of the shares as of the date prior to the date on which the vote was taken approving the proposed merger, excluding any appreciation or depreciation in anticipation of the merger. Any shareholder making a demand within the 10-day period shall thereafter be entitled only to payment as required by the New Mexico Business Corporation Act and shall not thereafter be entitled to vote or to exercise any other rights of the shareholder.
No demand for payment as a dissenting shareholder may be withdrawn unless the surviving corporation consents. If however a demand is withdrawn with such a consent, or if no demand or petition for the determination of fair value by a court has been made or filed as provided by New Mexico law, then the right of a shareholder to be paid the fair value of its shares will cease and his status as a shareholder will be restored.
Within 10 days after the merger, the surviving corporation must give written notice of the completion of the merger to each dissenting shareholder who has made a demand as described above and must make a written offer to each such shareholder to pay for such shares at a specified price deemed by the surviving corporation to be the fair value thereof.
If within thirty (30) days after the merger, the fair value of dissenting shares is agreed upon between the dissenting shareholders and the Company, the agreed upon payment must be made within ninety (90) days after the merger. If no such agreement is made within such 30 days, then the Company, within 30 days after receipt of a written demand from any dissenting shareholder, which must be given within 60 days after the date of the merger, file a petition in a court of competent jurisdiction. The costs and expenses of any such proceeding shall be determined by the court and shall be assessed against the Company, but all or any part of such costs and expenses may be apportioned and assessed as the court deems equitable against any or all of the dissenting shareholders who are parties to the litigation.
Proposal 2.
Approval of the Company’s 2003 Stock Option Plan
On October 28, 2003, the Board of Directors authorized the Company’s 2003 Stock Option Plan. The proposal to approve the 2003 Stock Option Plan is recommended by the Board of Directors because it considers it to be in the best interests of the Company and its stockholders. The Stock Option Plan is designed to serve as an incentive to directors, officers, and key employees and contractors to focus their services on achieving superior earnings performance and increasing the value of the stockholders’ proprietary interest in the Company. A maximum of 1,500,000 aggregate shares are reserved for issuance under the Stock Option Plan. The Stock Option Plan vests broad discretionary power in the Plan Committee, including the power to (i) select eligible optionees to be granted stock options, (ii)&nb sp;set the option exercise price (subject to certain restrictions), (iii) establish the duration of each option (not to exceed ten years), (iv) specify the method of exercise, and (v) designate the medium and time of payment. The Stock Option Plan will terminate on October 28, 2013, unless sooner terminated by the Board. No options may be granted after termination of the Stock Option Plan, although Options outstanding at the time of termination will continue to be exercisable in accordance with their terms. The issuance of shares of Common Stock upon the exercise of options granted under the Stock Option Plan will dilute the voting power of current stockholders. The extent of dilution will depend on the number of options exercised and difference between the option exercise price and the market price for the Common Stock at the time of exercise. The foregoing summary of the Stock Option Plan is qualified in its entirety by the terms of the plan, which is available for review at the princip al office of the Company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THE 2003 STOCK OPTION PLAN.
Proposal 3.
Election of Directors
Our Board consists of seven directors, all of whom are up for reelection at our 2004 annual meeting. Directors will be elected by the affirmative vote of a plurality of the votes cast at the Annual Meeting.
Unless authorization to do so is withheld, proxies received will be voted FOR the nominees named on the next page. If any nominee should become unavailable for election before the Annual Meeting, the proxies will be voted for the election of such substitute nominee as the present Board may propose. Each person nominated for election has agreed to serve if elected, and the Board has no reason to believe that any nominee will be unable to serve.
Information with Respect to Nominees and Continuing Directors
The following table sets forth information as to persons who serve as our Directors:
Name | Age | Position and Offices Held with the Company |
| C. Kirk Raab+*# | 69 | Chairman of the Board, Director and Director Nominee |
| Steven H. Kane+ | 52 | President, Chief Executive Officer, Director and Director Nominee |
| Dinesh Patel | 54 | Director Nominee |
| John E. Doherty# | 50 | Director and Director Nominee |
| Frank M. Dougherty#+ | 56 | Director and Director Nominee |
| Arthur D. Bankhurst, M.D.* | 67 | Director and Director Nominee |
| Thomas P. Stagnaro* | 61 | Director and Director Nominee |
* Member of the Audit Committee.
+ Member of the Nominating Committee.
# Member of Compensation Committee.
Set forth below is biographical information for each person nominated to serve as a Director.
Nominees for Election at this Annual Meeting
C. Kirk Raab has served on the Company’s board of directors since August 22, 2003. He is also the Chairman of the Board. Mr. Raab currently sits on the boards and serves as Chairman of Connetics Corporation, Medgenies Inc. and Applied Imaging Inc. Connetics and Applied Imaging are publicly traded companies. He also serves on the board of directors of Velos Medical Informatics, Inc. and The National Foundation for Science and Technology Medals. From February 1990 to July 1995, Mr. Raab served as the President and Chief Executive Officer of Genentech. He originally joined Genentech in February 1985, as President and Chief Operating Officer. Prior to joining Genentech, Mr. Raab worked for Abbott Laboratories for 10 years, most recently as President, Chief Operating Officer and a direc tor. Mr. Raab served as the first Chairman of the Biotechnology Industry Organization and the California Health Care Institute. Mr. Raab graduated from Colgate University in 1959, and is a Trustee Emeritus. He is a member of Exeter College and was elected to the Chancellor’s Court of Benefactors of Oxford University in September 2002. He is a former trustee of KQED, the San Francisco Pallet, the San Francisco Symphony, UCSF Foundation and Golden Gate Planned Parenthood.
Steven H. Kane has served on the Company’s board of directors since December 16, 2002. He is currently the President and Chief Executive Officer of the Company. He has over 25 years experience in the health care industry. Most recently, he was Vice President of North American Sales & Field Operations for Aspect Medical. While at Aspect, he helped guide the company to a successful initial public offering in January 2000. Prior to Aspect, Mr. Kane was Eastern Area Vice President for Pyxis Corporation, where he was instrumental in positioning the company for its successful initial public offering in 1992. Pyxis later was acquired by Cardinal Health for $1 billion. Prior to that Mr. Kane worked in sales management with Eli-Lilly and Becton Dickinson.
Dinesh Patel is a Managing Director and Founding Partner of vSpring Capital, an early stage venture capital fund with $125 million under management. Dr. Patel is also the Founder, Chairman, President & CEO of Ashni Naturaceuticals, Inc. a company that specializes in the research, development and marketing of clinically tested and patent-protected naturaceutical products. In 1999, Dr. Patel co-founded and was the Chairman of Salus Therapeutics, Inc., a biotechnology company focused on the research and development of nucleic acid-based therapeutics, including antisense and gone therapy drugs. In August 2003 publicly traded Genta, Inc acquired Salus for $30 million. From 1985 through 1999, Dr. Patel served as Co-founder, Chairman of the Board of Directors, President & CEO, of Thera Tech, Inc., a Salt Lake City, Utah based company, that has been a pioneer in the development and manufacture of innovative drug delivery products. Under Dr. Patel’s guidance, TheraTech established strategic alliances with major pharmaceutical companies including Eli Lilly, Pfizer, Proctor & Gamble, Roche, and SmithKline Beecham. TheraTech went public in 1992 and became profitable in 1997. In January 1999, TheraTech was acquired for approximately $350 million by Watson Pharmaceuticals, a California based company. Dr. Patel has been the recipient of numerous awards, including US Small Business Administration’s Business Achiever Award, and Scientific and Technology Award (State of Utah) and Entrepreneur of the Year Award (Mountain West venture Group). Dr. Patel got his undergraduate degree from India and his doctorate degree from University of Michigan. Dr. Patel is active in the Indian and local community serving on several boards and as an active donor for various charit able causes.
John Doherty has served as a director of the Company since November 1999 and previously served as a director of Enerdyne since August 1999. He also served as the President of the Company from 1999 through 2002. From 1976 to 1994, Mr. Doherty was a vice president and principal of Doherty & Co., an investment banking firm. During this time and subsequently, he was involved in early and later stage financing of companies such as Thoratec Laboratories, SeraCar, Inc., and Excalibur Technologies. From 1994 to present, Mr. Doherty has been a private investor, and over the last years was involved with the early stage development of Protalex.
Frank M. Dougherty was appointed to the Company’s board of directors on October 16, 2001, and served as the Company’s corporate secretary from June 21, 2002 to December 16, 2002. In January of 2004, Mr. Dougherty became the Secretary/Treasurer of the Company. Mr. Dougherty is a practicing attorney and founder and owner of Frank M. Dougherty P.C., a law firm in Albuquerque, New Mexico. He has practiced law since 1982, and founded his current law firm in November 2001. Prior to becoming a lawyer, Mr. Dougherty practiced as a CPA in Santa Fe, New Mexico. He has an undergraduate degree in economics from the University of Colorado, a graduate degree in accounting from the University of Arizona and a law degree from Texas Tech University.
Arthur D. Bankhurst, M.D. has served as a director of the Company since November 1999, and previously served as a director of Enerdyne from August 1999. Dr. Bankhurst earned his bachelors degree in biochemistry from the Massachusetts Institute of Technology, and his M.D. from Case Western Reserve University. He served as a research fellow at the Ball Institute of Medical Research in Melbourne, Australia and as a senior research fellow at the WHO Research Unit in Geneva, Switzerland. He joined the faculty of the University of New Mexico in 1971, and now holds a joint professorship in internal medicine and microbiology. Dr. Bankhurst’s professional accomplishments in the fields of arthritis and immunology are reflected in his being named Senior Investigator for the Arthritis Foundation from 19 74 to 1979, as well as serving as associate editor of several prestigious medical journals. These journals include The Journal of Immunology (1964-1967), Diagnostic Immunology (1994-1980) and Clinical Immunology and Immunopathology (1988-present). With more than 140 publications to his credit, Dr. Bankhurst has a national reputation as an investigator and has participated in a number of multi-center trials of anti-arthritis drugs.
Thomas Stagnaro was appointed to the board of directors of the Company on July 8, 2002. He is President and Chief Executive Officer of Agile Therapeutics, a private company focused on developing women’s healthcare products. He also serves as a director on the board of INKINE Pharmaceutical. Mr. Stagnaro formerly was President and Chief Executive Officer of 3-Dimensional Pharmaceuticals and Univax Biologics. He began his career with Searle Laboratories and has held increasingly important positions during his 30 years in the pharmaceutical industry. Mr. Stagnaro has raised over $200 million for three developmental stage companies and took Univax Biologics public in 1972. His present company, Agile Therapeutics, is a development-stage research-based firm founded in 1997, which is involved in de veloping novel products for transdermal delivery of pharmaceutical agents.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF MESSRS. RAAB, KANE, DR. PATEL, MESSRS. DOHERTY, DOUGHERTY, STAGNARO AND DR. BANKHURST AS DIRECTORS OF PROTALEX.
Proposal 4.
Ratification of Selection of Auditors
The Board is seeking stockholder ratification of its selection of Grant Thornton LLP to serve as Protalex’s independent auditors for the fiscal year ending May 31, 2005. Grant Thornton LLP served as our independent auditors for the fiscal year ended May 31, 2003 and May 31, 2004.
The auditor’s reports on our consolidated financial statements for the past two years did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. Their audit opinion on their 2003 and 2004 statements, dated August 15, 2003 and July 23, 2004, respectively, included an paragraph regarding the Company’s ability to continue as a going concern.
During our two most recent fiscal years and through today, there were no disagreements with Grant Thornton on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure that, if not resolved to Grant Thornton’s satisfaction, would have caused them to make reference to the subject matter in connection with their report on our consolidated financial statements for such years.
Grant Thornton LLP will be retained as our auditors for the fiscal year ending May 31, 2005, if this proposal is approved by the holders of a majority of the voting power of the shares represented and voting at the Annual Meeting. If this proposal is not approved by the holders of a majority of the voting power of the shares represented and voting at the Annual Meeting, the Board will reconsider its selection of Grant Thornton LLP as its independent auditors for the fiscal year ending May 31, 2005.
During our two most recent fiscal years, and through September 30, 2004, neither we nor anyone acting on our behalf consulted with Grant Thornton LLP regarding the application of accounting principles to a specified transaction, either completed or proposed, or the type of the audit opinion that might be rendered on our financial statements, nor did we (or anyone acting on our behalf) consult with Grant Thornton LLP regarding any other matter that was the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-B and the related instructions).
Audit Fees
The aggregate fees paid to Grant Thornton LLP for professional services rendered for the audit of our annual financial statements for the fiscal year ended May 31, 2003 and review of the financial statements included in our Form 10-Qs for the fiscal year ended May 31, 2003 totaled $8,000. The aggregate fees paid to Grant Thornton LLP for professional services rendered for the audit of our annual financial statements for the fiscal year ended May 31, 2004 and review of the financial statements included in our Form 10-Qs for the fiscal year ended May 31, 2004 totaled $12,000.
Audit-Related Fees
We paid no fees to Grant Thornton LIP for assurance and related services related to the performance of their audit or review of Protalex’s financial statements for the last two fiscal years that are included under the previous heading "Audit Fees."
Tax Fees
Protalex paid no fees to Grant Thornton LLP for professional services rendered for tax compliance, tax advice and tax planning for the fiscal years ended May 31, 2003 and May 31, 2004.
All Other Fees
Except as described above, no other fees were paid to Grant Thornton LLP for any other services during the last two fiscal years.
We expect representatives of Grant Thornton LLP will attend the Annual Meeting and will be available to respond to appropriate questions from stockholders.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE RATIFICATION OF GRANT THORNTON LLP AS AUDITORS OF PROTALEX FOR FISCAL YEAR ENDED MAY 31, 2005.
II.
CORPORATE GOVERNANCE AND RELATED MATTERS
BOARD OF DIRECTORS’ MEETINGS, COMMITTEES AND FEES
Our Board held a total of nine meetings during the fiscal year ended May 31, 2004. All of our Directors attended more than 75% of the meetings of the Board and meetings of committees of the Board on which they served. Among the standing committees of the Board are the Audit Committee, the Compensation Committee and the Nominating Committee.
Audit Committee
The members of the Audit Committee are Messrs. Raab, Bankhurst and Stagnaro. As of May 31, 2004, the chair of the Audit Committee was Mr. Raab. The Audit Committee meets with our management periodically to consider the adequacy of our internal controls and the objectivity of our financial reporting. The Audit Committee also meets with the independent auditors and with our own appropriate financial personnel and internal auditors regarding these matters. The independent auditors meet privately with the Audit Committee and have unrestricted access to this committee. The Audit Committee recommends to our Board the appointment of the independent auditors. The Audit Committee held three meetings during the fiscal year ended May 31, 2004. See "Audit Committee Information--Report of Audit Committee " on page 9 for more information.
Compensation Committee
The members of the Compensation Committee are Messrs. Dougherty, Doherty, and Raab. Mr. Doherty is the Chair of the Compensation Committee. The functions of this committee include administering management incentive compensation plans, establishing the compensation of officers and reviewing the compensation of Directors. The Compensation Committee held three meetings during the fiscal year ended May 31, 2004.
None of our executive officers serves as a member of the Board of Directors or compensation committee of an entity that has an executive officer serving as a member of our Board or our Compensation Committee.
Nominating Committee
The members of the Nominating Committee are G. Kirk Raab, Steven H. Kane and Frank M. Dougherty. The functions of this committee include recommending to our full Board nominees for election as Directors. Prior to the establishment of the Nominating Committee, its functions were performed by the entire Board.
Although there is no formal procedure for stockholders to recommend nominees for the Board, the Nominating Committee will consider such recommendations if received 120 days in advance of the Annual Meeting of Stockholders. Such recommendations should be addressed to the Nominating Committee at our address and provide all information relating to such person that the stockholder desires to nominate that is required to be disclosed in solicitation of proxies pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended ("Exchange Act").
Director Compensation
Directors received stock-based compensation for their services as directors during the fiscal year ended May 31, 2004. The Company issued 734,333 stock options to directors during such fiscal year, at exercise prices ranging from $1.50 to $2.75.
Directors do not receive separate meeting fees, but are reimbursed for out-of-pocket expenses. We do not provide a retirement plan for our non-employee Directors.
AUDIT COMMITTEE INFORMATION
Report of Audit Committee
The Audit Committee has met and held discussions with management and the independent auditors. The committee has reviewed and discussed the consolidated financial statements for the year ended May 31, 2004 with management and the independent auditors.
The Audit Committee discussed with the independent auditors matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees). In addition, the Audit Committee has discussed with the independent auditors the auditors’ independence from Protalex and its management, including the matters in the written disclosures required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).
In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board, and the Board approved, that the audited consolidated financial statements be included in Protalex’s Annual Report on Form 10-KSB for the year ended May 31, 2004, for filing with the SEC.
Audit Committee of the Board of Directors
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The last of 12 monthly payments of $2,333 was made in June, 2003, concluding a stock buyback agreement with former Treasurer, Secretary, Director and Chief Scientist Dr. Paul Mann. Pursuant to the buyback agreement, the Company redeemed 142,857 shares of Dr. Mann’s, over 12 months, at $0.70 per share, for a total cost of $100,000.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires certain of our executive officers, our Directors and persons who own more than 10% of a registered class of Protalex’s equity securities to file initial reports of ownership and changes in ownership with the SEC. Such executive officers, directors and stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. The Company knows that none of the current directors or executive officers filed a Form 3 upon their election or appointment to their current positions or a Form 5 at the end of each fiscal year in which they held such positions. In addition, the officers and directors failed to file the following Form 4s:
| · | By Mr. Kane for the issuance of (i) options to purchase 863,242 shares of Protalex common stock on December 16, 2002; (ii) options to purchase 100,000 shares of Protalex common stock on August 13, 2003; (iii) 8,334 shares of Protalex common stock on January 15, 2003; (iv) 8,334 shares of Protalex common stock on February 18, 2003; (v) 8,334 shares of Protalex common stock on March 17, 2003; (vi) 8,333 shares of Protalex common stock on April 15, 2003; (vii) 8,333 shares of Protalex common stock on May 30, 2003; (viii) 8,334 shares of Protalex common stock on June 15, 2003; and (ix) options to purchase 75,000 shares of Protalex common stock on January 1, 2004. |
| · | By Mr. Dougherty for the issuance of (i) options to purchase 10,000 shares of Protalex common stock on December 16, 2002; and (ii) options to purchase 30,000 shares of Protalex common stock on January 1, 2004. |
| · | By Dr. Bankhurst for (i) the acquisition of 276,192 shares of Protalex common stock on January 6, 2000; (ii) the issuance of options to purchase 10,000 shares of Protalex common stock on December 16, 2002; and (iii) the issuance of options to purchase 10,000 shares of Protalex common stock on January 1, 2004. |
| · | By Mr. Stagnaro for the issuance of (i) options to purchase 100,000 shares of Protalex common stock on July 10, 2002; (ii) options to purchase 100,000 shares of Protalex common stock on October 24, 2002; (iii) options to purchase 10,000 shares of Protalex common stock on December 16, 2002; and (iv) options to purchase 30,000 shares of Protalex common stock on January 1, 2004. |
| · | By Mr. Doherty for (i) the issuance of 3,062,660 shares of Protalex common stock on October 18, 2001, in connection with the dissolution of Alex, LLC, in which he held he was a member; (ii) the disposition of 110,000 shares on October 18, 2001; (iii) the issuance of options to purchase 10,000 shares of Protalex common stock on December 16, 2002; and (iv) the issuance of options to purchase 50,000 shares of Protalex common stock on January 1, 2004. |
| · | By Mr. Hitchcock in connection with (i) the issuance of options to purchase 100,000 shares of Protalex common stock on November 26, 2001; (ii) the issuance of options to purchase 133,680 shares of Protalex common stock on July 16, 2002; (iii) the issuance of options to purchase 10,000 shares of Protalex common stock on December 16, 2002; (iv) the issuance of 73,334 shares of Protalex common stock on December 18, 2002 to WMH LP, in which Mr. Hitchcock is a partner; (v) the issuance of warrants to purchase 50,000 shares of Protalex common stock on May 31, 2002; and (vi) the issuance of warrants to purchase 85,000 shares of Protalex common stock to Pembroke Financial, LLC, an entity in which Mr. Hitchcock is the manager on May 31, 2002. |
| · | By Mr. Raab for the issuance of (i) options to purchase 584,333 shares of Protalex common stock on September 19, 2003; and (ii) options to purchase 30,000 shares of Protalex common stock on January 1, 2004. |
III.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth in the following table is the beneficial ownership of Common Stock as of September 20, 2004, for our Directors, the executive officers listed in the Summary Compensation Table, our Directors and executive officers as a group and each person or entity known by us to beneficially own more than five percent of the outstanding shares of our Common Stock.
Beneficial ownership is determined in accordance with the rules of the SEC. In computing the number of shares beneficially owned by a person or a group and the percentage ownership of that person or group, shares of our Common Stock issuable currently or within 60 days of October 1, 2004, upon exercise of options or warrants held by that person or group are deemed outstanding. These shares, however, are not deemed outstanding for computing the percentage ownership of any other person. Except as indicated by footnote, and subject to community property laws where applicable, the stockholders named in the table below have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. Percentage ownership is based on 16,695,034 shares of Common Stock outstandin g as of September 29, 2003, together with applicable options and warrants for each stockholder. Unless otherwise indicated, the address of each person listed below is in the care of Protalex, Inc., 145 Union Square Drive, New Hope, PA 18938.
| | | Shares Beneficially Owned | |
| Name & Address | | Number | | Percent | |
| C. Kirk Raab, Chairman of the Board and Director | | | 261,173(1 | ) | | 2 | % |
| Steven H. Kane, President and Director | | | 656,622(2 | ) | | 4 | % |
| John E. Doherty, Director and former President | | | 3,012,660(3 | ) | | 18 | % |
| Frank M. Dougherty, Director | | | 376,192(4 | ) | | 2 | % |
| Arthur D. Bankhurst, M.D., Director | | | 296,192(5 | ) | | 2 | % |
| Thomas Stagnaro, Director | | | 240,000(6 | ) | | 1 | % |
vSpring SBIC, L.P. Attn:Dinesh Patel 2795 E. Cottonwood Pkwy, Suite 360 Salt Lake City, UT 84121 | | | 9,900,193(7 | ) | | 57 | % |
Integral Capital Partners VI, L.P. Attn:Daniel McNally 3600 South Lake Drive St. Francis, WI 53235 | | | 1,687,500(8 | ) | | 10 | % |
SF Capital Partners Ltd. Attn:Pamela K. Hagenah 3000 Sand Hill Road Big 3, Suite 240 Menlo Park, CA 94025 | | | 1,588,235(9 | ) | | 9 | % |
| All officers and directors as a group (8 persons) | | | 4,842,839(10 | ) | | 29 | % |
| (1) | Includes options to purchase 261,173 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (2) | Includes options to purchase 606,622 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (3) | Includes options to purchase 60,000 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (4) | Includes options to purchase 40,000 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (5) | Includes options to purchase 20,000 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (6) | Includes options to purchase 240,000 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (7) | Includes warrants to purchase 720,588 shares of Protalex common stock exercisable within 60 days of October 1, 2004. vSpring SBIC, L.P. has entered into a Shareholder Agreement dated September 18, 2003 with Steven H. Kane, John E. Doherty, Frank M. Dougherty, Arthur D. Bankhurst, M.D., Integral Capital Partners VI, L.P. and SF Capital Partners Ltd., pursuant to which each such party executed proxies appointing vSpring SPEC, L.P. as their proxy to vote all of such party’s respective shares (i) to fix and maintain the number of directors at seven and (ii) to cause and maintain the election of a candidate designated by vSpring SBIC, L.P. on the Protalex board of directors. The proxy may not be exercised on any other matter, and each party may vote their shares on all other matters. |
| (8) | Includes warrants to purchase 437,500 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (9) | Includes warrant to purchase 411,765 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
| (10) | Includes options to purchase 1,207,795 shares of Protalex common stock exercisable within 60 days of October 1, 2004. |
IV.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Compensation Philosophy
Protalex’s compensation philosophy is that compensation should be designed to support our primary objective of creating value for our stockholders. The Compensation Committee believes that the following compensation strategies for Protalex’s executive officers, including the Chief Executive Officer (the "CEO"), achieve this objective. This compensation philosophy is based on a base salary, with opportunity for bonuses to reward outstanding performance and a stock option program.
Compensation Programs
The following are summary descriptions of Protalex’s compensation programs for executive officers:
Base Salary
Protalex generally establishes the base salary of each executive officer based, among other factors, on the Board’s assessment of that executive officer’s responsibilities, experience and performance. In addition, the Board considers compensation levels in similarly sized companies in our industry. Protalex’s current philosophy is to pay base salaries sufficient to attract and retain executives with a broad, proven track record of performance.
The performance and base salary of each executive officer is reviewed annually. An executive officer’s level of responsibility is the primary factor used in determining base salary. Individual performance and industry information are also considered in determining any salary adjustment. The Board reviews arid approves all executive officer salary adjustments as recommended by the CEO. The Board reviews the performance of the CEO and establishes his base salary.
Equity-Based Program
Our equity-based awards consist principally of stock options granted from time to time. These options are granted in order to align management interests with those of stockholders. The grants are based on various factors, including competitive practice each executive officer’s ability to contribute to our future success and the other elements of such executive officer’s compensation.
EMPLOYMENT CONTRACTS
The Company has an employment agreement with its current President and Chief Executive Officer, Steven H. Kane, whereby he was paid in stock totaling 8,324 shares per month from January to June 2003. Thereafter, he was paid $12,500 per month through December of 2003. Currently, he is paid at a rate of $20,833 per month. The agreement calls for, and he was issued, options to purchase 863,242 shares of Protalex common stock. The options vest over four years, at an exercise price of $1.50. Vesting started his first day of employment, December 16, 2002. The first third of these options were earned after one year of employment. The remaining options vest quarterly over three years.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation we paid for services rendered in all capacities during the last three fiscal years to our Chief Executive Officer and our other four most highly compensated executive officers who served as such at the end of the fiscal year ended May 31, 2004. In accordance with the rules of the SEC, the compensation described in this table does not include medical, group life insurance or ether benefits which are available generally to our salaried employees.
| | | | | Annual Compensation | | | |
Name & Principal Position | | | Year | | | Salary $ | | | Bonus $ | | | Other AnnualCompensation | | | Restricted StockAwards $ | |
Steven H. Kane, President,
Chief Executive Officer, Chief Financial Officer and Director | | | 2004 2003(1 | ) | $ $ | 179,165 0 | | $ $ | 176,576 0 | | $ $ | 0 0 | | $ $ | 20,835(2 104,107(2 | ) ) |
| | | | | | | | | | | | | | | | | |
| John Doherty | | | 2003(3 | ) | $ | 12,500 | | $ | 0 | | $ | 0 | | | 0 | |
| Former President and Director | | | 2002 | | $ | 0 | | $ | 0 | | $ | 0 | | | 0 | |
| (1) | Mr. Kane was hired as Protalex’s President effective as of December 16, 2002. Prior to that date, he was not employed, in any capacity, by the Company. |
| (2) | Mr. Kane received 41,668 shares of restricted stock through May 31, 2003. The value of this restricted stock received by Mr. Kane is computed using the closing price of Protalex common stock on May 31, 2003, which was $2.25. Mr. Kane received 8,334 shares of restricted stock on June 15, 2003. The value of this stock was also computed using the closing price of Protalex common stock on May 31, 2003. |
| (3) | Mr. Doherty resigned as the Company’s President effective as of December 16, 2002. He no longer serves as an officer of Protalex. He remains a director. |
Option Grants in the Fiscal Year Ended May 31, 2004
The following table sets forth information concerning the stock options granted to each person named in the above "Summary Compensation Table" during the Company’s fiscal year ended May 31, 2004, and the exercise price of all such options:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
| | Number of
Securities Underlying Options/SARsGranted (#) | Percent of Total Options/SARs Granted to Employees in FiscalYear (%) | Exercise or
BasePrice ($/Share) | Market Price on
Date of Grant |
| John Doherty | 50,000 | 13% | $2.75 | $2.50 |
| Steven H. Kane | 100,000 | 26% | $1.50 | $2.90 |
| | 75,000 | 20% | $1.96 | $2.30 |
Aggregated Option Exercises in the Fiscal Year Ended May 31, 2004 and Year-End Option Values.
The following table sets forth information concerning the exercise of stock options by each person named in the "Summary Compensation Table" during the Company’s fiscal year ended May 31, 2004, and the value of all exercisable and unexercisable options at May 31, 2004:
| | Number of Securities Underlying
Unexercised Options at Year End | Value of Unexercised In The Money
Options at Year End |
| Name | Exercisable | Unexercisable | Exercisable | Unexercisable |
| John Doherty | 13,125 | 46,875 | $5,500 | $0 |
| Steven H. Kane | 508,705 | 528,537 | $356,000 | $369,000 |
The values of unexercised in-the-money options at year-end in the table above were determined based on the fair market value as of May 31, 2004 minus the per share exercise price multiplied by the number of shares.
ANNUAL REPORT
Our latest Annual Report on Form 10-KSB/A for the fiscal year ended May 31, 2004, as filed with the SEC, excluding exhibits, is being mailed to stockholders with this Proxy Statement. We will furnish any exhibit to our Annual Report on Form 10-KSB/A free of charge to any stockholder upon written request to the Company at 145 Union Square Drive, New Hope, PA. The Annual Report is not incorporated in, and is not a part of, this Proxy Statement and is not proxy-soliciting material. You are encouraged to review the Annual Report together with subsequent information filed by the Company with the SEC and other publicly available information.
OTHER MATTERS
The Board does not know of any other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the Annual Meeting or any adjournment thereof, the proxy holders named in the accompanying proxy will have discretionary authority to vote all proxies in accordance with their best judgment with respect to such matters.
New Hope, Pennsylvania October 1, 2004 | By Order of the Board of Directors |
| | By:Steven H. Kane Steven H. Kane President, Chief Executive Officer and Director |
[Form of Proxy]
PROTALEX, INC.
145 Union Square Drive
New Hope, PA
(215) 862-9720
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR USE AT THE 2004 ANNUAL MEETING OF SHAREHOLDERS
ON OCTOBER 26, 2004
The shares of Common Stock you hold will be voted as you specify. By signing this proxy, you revoke all prior proxies and appoint Steven H. Kane and Frank M. Dougherty, and each of them, with full power of substitution, to vote your shares on the matters shown below and any other matters which may come before the Annual Meeting and all adjournments.
This Proxy when properly executed, will be voted as directed or, if no direction is given, will be voted for Items 1, 2 and 3.
The Board of Directors recommends a vote for Items 1, 2, 3 and 4.
| (1) | For the reincorporation of the Company in Delaware by and through the merger of the Company with Protalex, Inc., a Delaware corporation. |
| (2) | For the approval of the Protalex, Inc. 2003 Stock Option Plan. |
| (3) | For the election of the following persons as Directors of Protalex to hold office until the 2004 Annual Meeting of Stockholders and until their respective successors are elected and qualified: |
G. Kirk Raab
Steven H. Kane
Dinesh Patel
John Doherty
Frank M. Dougherty
Arthur D. Bankhurst, M.D.
Thomas P. Stagnaro
oFOR nominees listed above, except as indicated to the contrary below. | o WITHHOLD AUTHORITY to vote for all nominees listed above. |
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR A SINGLE NOMINEE, WRITE THAT NOMINEE’S NAME IN THE SPACE PROVIDED BELOW.)
__________________________________________________________
| (4) | Ratification of Protalex’s selection of Grant Thornton LLP as independent auditors for Protalex for fiscal year ending May 31, 2005. |
| (5) | In their discretion upon such other matters as may properly come before the meeting and any adjournments thereof. |
The shares represented by this proxy will be voted as you have indicated above. If no indication has been made, the shares represented by this proxy will be voted for the above nominees and in favor of such proposals, and as said proxy deems advisable on such other business as may properly come before this meeting.
Dated: __________________________, 2004
__________________________________________
(Signature)
__________________________________________
(Signature of joint owner or additional trustee)
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PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY BY USING THE ENCLOSED ENVELOPE.
PLAN OF MERGER AND AGREEMENT
of
PROTALEX, INC.
a New Mexico corporation
with and into
PROTALEX, INC.
a Delaware corporation
_________________
PROTALEX, INC.
a Delaware corporation
to be the surviving corporation
Plan of Merger and Agreement (this "Agreement") by and between Protalex, Inc., a New Mexico corporation (the "New Mexico Corporation"), and Protalex, Inc., a Delaware corporation (the "Delaware Corporation" or "Surviving Corporation"), said corporations being hereinafter sometimes referred to collectively as the "Constituent Corporations";
WITNESSETH:
WHEREAS, the Delaware Corporation is a corporation duly organized and existing under laws of the State of Delaware;
WHEREAS, the New Mexico Corporation is a corporation duly organized and existing under the laws of the State of New Mexico;
WHEREAS, on the date of this Agreement, the New Mexico Corporation has authority to issue 40,000,000 shares of common stock, no par value, of which 16,695,034 shares are issued and outstanding and entitled to vote to approve this Agreement;
WHEREAS, on the date of this Agreement, the Delaware Corporation has authority to issue 40,000,000 shares of common stock, $0.00001 par value, of which 100 shares are issued and outstanding, entitled to vote to approve this Agreement, and owned by the New Mexico Corporation;
WHEREAS, the respective Boards of Directors of the New Mexico Corporation and the Delaware Corporation have determined that it is advisable that the New Mexico Corporation be merged with and into the Delaware Corporation, in accordance with the applicable provisions of the laws of the State of New Mexico and the State of Delaware permitting such merger; and
WHEREAS, the respective Boards of Directors of the New Mexico Corporation and the Delaware Corporation have approved this Agreement and the Board of Directors of the New Mexico Corporation has directed that this Agreement be submitted to a vote of its respective shareholders;
NOW THEREFORE, in consideration of the foregoing and of the agreements, covenants, and provisions hereinafter set forth, the New Mexico Corporation and the Delaware Corporation do hereby agree as follows:
ARTICLE I
New Mexico Corporation and the Delaware Corporation shall be merged into a single corporation, in accordance with applicable provisions of the laws of the State of New Mexico and the State of Delaware, by the New Mexico Corporation merging into the Delaware Corporation, which shall be the surviving corporation.
ARTICLE II
Upon the Effective Date (as hereinafter defined):
1. The New Mexico Corporation shall be merged with and into the Delaware Corporation, shall be the surviving corporation, and the separate existence of the New Mexico Corporation shall cease.
2. The Surviving Corporation shall thereupon and thereafter possess all of the rights, privileges, immunities, powers, purposes and franchises, of a public as well as of a private nature, of each of the Constituent Corporations and all property, real, personal and mixed, all debts due on whatever account, including subscriptions to shares and all other choses in action, and all and every other asset or interest of, or belonging to, or due to each of the Constituent Corporations shall be taken and deemed to be transferred to and vested in the Surviving Corporation without further act or deed, and the title to all property, real, personal or mixed, or any interest therein, vested in either of the Co nstituent Corporations shall not revert or be in any way impaired by reason of the merger.
3. The Surviving Corporation shall thenceforth assume and be liable for all of the liabilities, obligations and penalties of each of the Constituent Corporations, and any claim existing or action or proceeding pending by or against either of the Constituent Corporations, or any shareholder, officer or director of either of the Constituent Corporations, may be prosecuted to judgment as if the merger had not taken place, or the Surviving Corporation may be substituted in its place; and neither the rights of creditors nor any liens upon the property of either of the Constituent Corporations shall be impaired by the merger, but shall attach to the Surviving Corporation as if incurred or contracted by it. Without limiting the generality of the foregoing: (i) the Surviving Corporation shall thenceforth be bound by the Stock Option Plan of the New Mexico Corporation (the "Stock Option Plan"), and shall for all purposes be recognized as the "Company" in such Stock Option Plan, and (ii) the Surviving Corporation shall thenceforth be bound by the terms of each of the stock option agreements entered into between the New Mexico Corporation and the optionees thereunder pursuant to the Stock Option Plan, and shall for all purposes be recognized as the "Company" in such agreements.
4. Shares of common stock, $0.00001 par value, of the Surviving Corporation shall be made available for future grants under the Stock Option Plan in an amount equal to the number of shares of common stock, no par value, of the New Mexico Corporation available for future grants under the Stock Option Plan on the Effective Date.
5. The Certificate of Incorporation of the Delaware Corporation as in effect on the Effective Date shall be and remain the Certificate of incorporation of the Surviving Corporation until the same shall be appropriately amended or repealed.
6. The By-laws of the Delaware Corporation as in effect on the Effective Date shall be and remain the By-laws of the Surviving Corporation until the same shall be properly amended or repealed.
7. The directors and officers of the Delaware Corporation shall remain the same as they were immediately prior to the Effective Date.
ARTICLE III
The Surviving Corporation shall comply with the provisions of the New Mexico Business Corporation Act with respect to foreign corporations and hereby agrees that (i) it may be served with process in the State of New Mexico in any proceeding for the enforcement of any obligation of the New Mexico Corporation and in any proceeding for the enforcement of the rights of a dissenting shareholder of the New Mexico Corporation against the Surviving Corporation; (ii) the Secretary of State of New Mexico is irrevocably appointed as its agent to accept service of process in any such proceeding; and (iii) it will promptly pay to the dissenting shareholders, if any, of the New Mexico Corporation the amount, if any, to which they shall be entitled under the provisions of the New Mexico Business Corporation Act pertaining to the rights of dissenting shareholders.
ARTICLE IV
The manner and basis of converting the shares of the New Mexico Corporation into shares of the Surviving Corporation shall be as follows:
1. Upon the Effective Date, the 100 shares of common stock, $0.00001 par value, of the Delaware Corporation owned by the New Mexico Corporation immediately prior to the Effective Date shall be cancelled and retired, all rights in respect thereof shall cease and the capital of the Surviving Corporation shall be reduced by the $100 of capital applicable to such shares.
2. Upon the Effective Date each share of common stock, no par value, of the New Mexico Corporation issued and outstanding shall thereupon, and without the surrender of stock certificate or any other action, be converted into one fully paid and non-assessable, issued and outstanding share of common stock, $0.00001 par value, of the Surviving Corporation. Outstanding certificates representing shares of common stock of the New Mexico Corporation shall thenceforth be deemed to represent the same number of shares of common stock of the Surviving Corporation, and the holder thereof shall have all of the same rights which he would have had if such certificates had been issued by the Surviving Corporation .
3. Upon the Effective Date, all outstanding options or warrants to buy common stock, no par value, of the New Mexico Corporation shall become, respectively, options or warrants to buy the same number of shares of common stock, $0.00001 par value, of the Surviving Corporation.
4. After the Effective Date, each holder of a certificate representing outstanding shares of common stock, no par value, of the New Mexico Corporation may, but shall not be required to, surrender the same to the Surviving Corporation, and upon such surrender such holder shall be entitled to receive a certificate or certificates issued by the Surviving Corporation for the number of shares of common stock, $0.00001 par value, represented by the surrendered certificate; provided, however, it shall be a condition of any such issuance that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer and that the person requesting such issuance shall pay to the Surv iving Corporation or its transfer agent any transfer or other taxes required by reason of the issuance of certificates representing common stock, $0.00001 par value, of the Surviving Corporation in a name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of the Surviving Corporation or its transfer agent that such tax has been paid or is not applicable. The Surviving Corporation shall be entitled to rely upon the stock records of the New Mexico Corporation as to the ownership of its shares of common stock, no par value, at the Effective Date.
5. The New Mexico Corporation will not make any transfers of certificates representing outstanding shares of its common stock, no par value, of the New Mexico Corporation on its books after the Effective Date.
ARTICLE V
Upon the Effective Date:
1. the respective, assets of the New Mexico Corporation and the Delaware Corporation shall be taken up or continued on the books of the Surviving Corporation in the amounts at which such assets shall have been carried on their respective books immediately prior to the Effective Date, except those assets which are shares to be cancelled as provided herein;
2. the respective liabilities and reserves of the New Mexico Corporation and the Delaware Corporation (excluding capital stock, paid-in surplus and retained earnings) shall be taken up or continued on the books of the Surviving Corporation in the amounts at which such liabilities and reserves shall have been carried on their respective books immediately prior to the Effective Date; and
3. the capital stock, paid-in surplus and retained earnings of the New Mexico Corporation shall be taken up on the books of the Surviving Corporation as capital stock, paid-in surplus and retained earnings, respectively, in the amounts at which the same shall be carried on the books of the New Mexico Corporation immediately prior to the Effective Date, except with respect to shares to be cancelled as provided herein.
ARTICLE VI
The Delaware Corporation, as the Surviving Corporation, shall pay all expenses of carrying this Agreement into effect and accomplishing the merger herein provided for.
ARTICLE VII
The New Mexico Corporation agrees that from time to time as and when requested by the Surviving Corporation, its successors or assigns, it will execute, acknowledge, deliver and file all proper deeds, assurances, assignments, bills of sale and other documents, and do all other acts and things, or cause the same to be done, necessary or proper in order to vest, perfect or confirm in the Surviving Corporation title to and possession of all the property, rights, privileges, powers and franchises of the New Mexico Corporation, or otherwise necessary or proper to carry out the intent and purposes of this Agreement.
ARTICLE VIII
This Agreement shall be submitted by the New Mexico Corporation to its shareholders as provided by New Mexico and Delaware law. This Agreement shall take effect, and shall be deemed to be the Plan of Merger and Agreement of the Constituent Corporations, upon the approval or adoption thereof by the shareholders of the New Mexico Corporation in accordance with the laws of the State of New Mexico and the State of Delaware, and upon the execution, acknowledgment, filing and recording of such documents and the doing of such acts and things as shall be required for accomplishing the merger under the laws of the States New Mexico and Delaware. The term "Effective Date" as used in this Agreement shall be the point in time at which the last act required to make the merger effective under the respective laws of such stat es shall have been performed.
ARTICLE IX
Anything herein or elsewhere to the contrary notwithstanding, this Agreement may be abandoned for any reason whatsoever by the New Mexico Corporation by appropriate resolution of its Board of Directors at any time prior to the time that this Agreement (or a certificate in lieu thereof) filed with the Delaware Secretary of State becomes effective, notwithstanding approval or adoption of this Agreement by the shareholders of the New Mexico Corporation.
ARTICLE X
At any time prior to the time that this Agreement (or certificate in lieu thereof) is filed with the Delaware Secretary of State becomes effective, whether before or after approval and adoption by the shareholders of the New Mexico Corporation, this Agreement may be amended in any manner (except that the provisions of each of Article IV, Paragraph 2, Article II, Paragraph 5, or any other terms and conditions of this Agreement if such alteration or change would adversely affect the shareholders of the New Mexico Corporation may not be amended without the approval of the shareholders of the New Mexico Corporation) as may be determined in the judgment of the respective Boards of Directors of the Constituent Corporations to be necessary, desirable, or expedient in order to clarify the intention of the parties hereto or to effect or facilitate the filing, recording or official approval of this Agreement and the merger provided for herein, in accordance with the purposes and intent of this Agreement.
IN WITNESS WHEREOF, each of the Constituent Corporations has caused this Agreement to be executed by their duly authorized officers and their corporate seals to be hereto affixed as of the 23rd day of March, 2004.
| | PROTALEX, INC., a New Mexico corporation By: /s/ Steven H. Kane Steven H. Kane Its: President |
| | PROTALEX, INC., a Delaware corporation By: /s/ Steven H. Kane Steven H. Kane Its: President |
CERTIFICATE OF SECRETARY OF
PROTALEX, INC.
I, Steven H. Kane, Secretary of Protalex, Inc., a Delaware corporation, hereby certify as Secretary and under the seal of said corporation that the Plan of Merger and Agreement to which this certificate is attached, after having been first duly executed on behalf of said corporation by its President, was adopted at a meeting of the sole shareholder of Protalex, Inc. on March 23, 2004.
WITNESS MY HAND AND SEAL OF PROTALEX, INC. on the 23rd day of March, 2004.
/s/ Frank M. Dougherty
Frank M. Dougherty, Secretary
[SEAL]
The above Plan of Merger and Agreement, having been executed on behalf of Protalex, Inc., a Delaware corporation, the only Delaware corporation which is a party thereto, and having been adopted by the sole shareholder in accordance with the provisions of the general laws of the State of Delaware, the President of Protalex, Inc., now hereby executes said Plan of Merger and Agreement under the corporate seal by the authority of the Board of Directors of Protalex, Inc. this 23rd day of March, 2004.
PROTALEX, INC.
By: /s/ Steven H. Kane
Steven H. Kane, President
