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
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Protalex, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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PROTALEX, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On October 23, 2007
TO THE STOCKHOLDERS OF PROTALEX, INC.
You are cordially invited to attend the 2007 Annual Meeting of Stockholders of Protalex, Inc., which will be held at the Hyatt Regency Princeton, 102 Carnegie Center Princeton, NJ 08540, (609) 987-1234, on Tuesday, October 23, 2007 at 9:30 a.m., to consider and act upon the following matters:
1) | ELECTION OF DIRECTORS. To elect Directors of the Company as more fully described in the attached Proxy Statement to serve until the next Annual Meeting of Shareholders or until their respective successors are elected and qualified; |
2) | RATIFICATION OF INDEPENDENT AUDITORS. To ratify the appointment of Grant Thornton, LLP as the independent auditors for the Company for the fiscal year ending May 31, 2008; and |
3) | To transact such other business as may properly come before the Annual Meeting and any adjournment or postponement thereof. |
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 14, 2007. 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 23, 2007, 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
By: | /s/ 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
![](https://capedge.com/proxy/DEF 14A/0001144204-07-050640/line.gif)
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 23, 2007
The accompanying proxy is solicited by the Board of Directors (the “Board”) of Protalex, Inc., a Delaware 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 23, 2007, 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 Hyatt Regency Princeton, 102 Carnegie Center Princeton, NJ 08540 - (609) 987-1234. The date of this Proxy Statement is September 21, 2007, 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 September 21, 2007, is solicited by the Board of Protalex in connection with our Annual Meeting of Stockholders that will take place on October 23, 2007. 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 14, 2007 will be entitled to vote at the Annual Meeting. On September 14, 2007, there were 28,600,464 shares of common stock outstanding and entitled to vote.
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, American Stock Transfer and Trust Company or AST.), 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
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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, other than the election of directors, 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; Directors shall be elected by a plurality of the votes of the shares present in person or by proxy at and entitled to vote on the election of directors.
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 elect the nominated Directors set forth on page 6; and |
• | FOR the ratification of the Directors’ selection of auditors as set forth on page 7. |
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 2008 Annual Meeting of Stockholders (the “2008 Annual Meeting”) must deliver the proposal to our Corporate Secretary at 145 Union Square Drive, New Hope, PA 18938, not later than May 24, 2008, 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 May 24, 2008, we may vote in our discretion as to that proposal all of the shares for which we have received proxies for the 2008 Annual Meeting.
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I.
PROPOSALS
PROPOSAL 1.
ELECTION OF DIRECTORS
The Company’s Board consists of eight directors, all of whom are up for reelection at our 2006 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 below. 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 | ||
G. Kirk Raab+ # | 72 | Chairman of the Board, Director and Director Nominee | ||
Steven H. Kane + | 55 | President, Chief Executive Officer, Director and Director Nominee | ||
Carleton A. Holstrom* | 72 | Director and Director Nominee | ||
Eugene A. Bauer, M.D.# | 65 | Director and Director Nominee | ||
Thomas P. Stagnaro* | 64 | Director and Director Nominee | ||
Dinesh Patel, Ph.D.* | 56 | Director and Director Nominee | ||
Frank M. Dougherty+ # | 59 | Director and Director Nominee | ||
Peter G. Tombros# | 65 | Director and Director Nominee |
* | Member of the Audit Committee |
# | Member of Compensation Committee |
+ | Member of the Nominating and Corporate Governance Committee |
Set forth below is biographical information for each person nominated to serve as a Director.
Nominees for Election at this Annual Meeting
G. Kirk Raab has served on the Company’s Board of Directors since August 2003. Mr. Raab is also the Chairman of the Board. Mr. Raab currently sits on the Boards and serves as Chairman of TransOral Pharmaceuticals, Velos Medical Informatics, Inc and BiPar Sciences, Inc. Mr. Raab also serves on the board of 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 director. 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 former trustee of KQED, the San Francisco Ballet, 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 2002. He is currently the President and Chief Executive Officer of the Company. He has over 25 years experience in the health care industry. From April 1997 to August 2000, Mr. Kane served as 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.
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Carleton A. Holstrom has served on the Company’s Board of Directors since October 2004. From 1977 through 1987, Mr. Holstrom was the Chief Financial Officer of Bear, Stearns & Co. and its successor, The Bear Stearns Companies, Inc., and from 1987 to the present, he has been a Managing Director Emeritus. From 1996 to 1997, Mr. Holstrom was the Chief Financial Officer of Scientific Learning Corporation. From 1983 to the present, Mr. Holstrom has served on the Board of Directors of Custodial Trust Company of Princeton, New Jersey, and from 1995 to the present with Scientific Learning Corporation of Oakland, California. From 1989 through 1995, Mr. Holstrom served on the Board of Governors of Rutgers University and was the Chair of the Board of Governors from 1994 through 1995. From 1983 through 1995, Mr. Holstrom served on the Board of Trustees of Rutgers University and was the Chair of that Board from 1998 through 1999. From 1995 through the present date, he has been an Emeritus Member of the Rutgers University Board of Trustees. From 1977 through 2000, Mr. Holstrom served on the Rutgers University Foundation Board of Overseers. He was the Chair of the Board of Overseers from 1979 through 1981. From 2000 to the present, he has served on the Rutgers University Foundation Board of Overseers in an emeritus capacity. From 1994 through 2005, Mr. Holstrom has served on the University of Wisconsin at Madison College of Letters and Sciences Board of Overseers. From 1989 through the present, he served on the University of Wisconsin Foundation Board of Directors and was the Vice Chair of that Foundation from 2000 through 2003.
Eugene A. Bauer, M.D. has served on the Company’s Board of Directors since February 2005. Dr, Bauer is Chief Executive Officer and board member of Neosil Incorporated, a privately held biotechnology company. From 2002 to 2004 Dr. Bauer was a Senior Client Partner with Korn/ Ferry International. Dr. Bauer served as Vice President for the Stanford University Medical Center from 1997 to 2001, and as Dean of the Stanford University School of Medicine from 1995 through 2001. Dr. Bauer was a founder of Connetics and served as an Emeritus Director of Connetics Corp until its sale to Stiefel Laboratories in 2006. Since 1988 he has been Professor, Department of Dermatology, Stanford University School of Medicine, and was Chief of the Dermatology Service at Stanford University Hospital from 1988 to 1995. From 1982 to 1988, he was a professor at Washington University School of Medicine. Dr. Bauer has served as Chairman of two National Institutes of Health study sections of the National Institute of Arthritis and Musculoskeletal and Skin Diseases and has served on a board of scientific counselors for the National Cancer Institute. Dr. Bauer also serves as a director of Peplin LTD, an Australian public corporation and a director of Echo Healthcare Acquisition Corp, a publicly held SPAC and as a director of Modigene, Inc., a publicly traded biotechnology company, and a non-profit Dermatological Organization. Dr. Bauer holds B.S. and M.D. degrees from Northwestern University.
Thomas P. Stagnaro has served on the Company’s Board of Directors since July 2002. He is President & Chief Executive Officer of Americas Biotech Distributor (ABD), which he founded in June 2004. Previously, Mr. Stagnaro was President and Chief Executive Officer of Agile Therapeutics, a private company focused on developing women's healthcare products from September 2000 to August 2004. He also served as a director on the board of Life Science Research Organization and the National Science Foundation - Singapore. Mr. Stagnaro formerly was President and Chief Executive Officer of 3-Dimensional Pharmaceuticals and Univax Biologics. He began his career with Searle Laboratories and held increasingly important positions during his 30 years in the pharmaceutical industry. Mr. Stagnaro has raised over $200 million for three development stage companies and took Univax Biologics public in 1972. He holds three patents and has published numerous articles.
Dinesh Patel, PhD has served on the Company’s Board of Director since September 2003. He is a Managing Director and Founding Partner of vSpring Capital, an early stage venture capital fund with $280 million under management. From 1999 to 2004 Dr. Patel was 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 gene 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
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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 charitable causes.
Frank M. Dougherty has served on the Company’s Board of Director since October 2001, and served as the Company’s Corporate Secretary from June 2002 to December 2002. From January 2004 to April 2005, Mr. Dougherty served as the Corporate Secretary and 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.
Peter G. Tombros has served on the Company’s Board of Directors since November 2005. Mr. Tombros has served as the Chairman of the Board of Alpharma, Inc. since March 2006. He has been a director of Alpharma since 1997. Commencing in 2005, Mr. Tombros has been the Professor and Executive in Residence in the Eberly College of Science BS/MBA Program at Pennsylvania State University. From 2001 to 2005, Mr. Tombros served as Chief Executive Officer of VivoQuest, Inc., a private biopharmaceutical company. He was President, Chief Executive Officer and Director of Enzon, Inc., a developer and marketer of bio-pharmaceutical products, from April 1994 to June 2001. Mr. Tombros served in a variety of senior management positions at Pfizer, Inc., the pharmaceutical company, for 25 years, including Vice President of Marketing, Senior Vice President and General Manager of Roerig Pharmaceuticals Division, Executive Vice President of Pfizer Pharmaceuticals Division, Director, Pfizer Pharmaceuticals Division. Mr. Tombros also serves as Lead Director for NPS Pharmaceuticals, Director of Cambrex Corporation, and Director of PharmaNet Development Corporation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF MESSRS. RAAB, KANE, HOLSTROM, DR. BAUER, MR. STAGNARO, DR. PATEL, MESSRS. DOUGHERTY AND TOMBROS, AS DIRECTORS OF PROTALEX.
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PROPOSAL 2.
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, 2008. Grant Thornton LLP served as our independent auditors for the fiscal years ended May 31, 2003 through May 31, 2007.
The auditor’s reports on our 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 2006 and 2007 statements, dated July 21, 2006, (except for Note K, as to which the date is July 26, 2006) and July 30, 2007, respectively.
Grant Thornton LLP will be retained as our auditors for the fiscal year ending May 31, 2008, 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, 2008.
During our two most recent fiscal years, and through September 21, 2007, 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-K and the related instructions).
Audit Fees
The aggregate fees paid to Grant Thornton LLP for professional services rendered for the audit of the Company’s annual financial statements for the fiscal year ended May 31, 2007 and review of the financial statements included in the Company’s Form 10-Qs for the fiscal year ended May 31, 2007 totaled $112,500. The aggregate fees paid to Grant Thornton LLP for professional services rendered for the audit of the Company’s annual financial statements for the fiscal year ended May 31, 2006 and review of the financial statements included in the Company’s Form 10-Qs for the fiscal year ended May 31, 2006 totaled $103,000.
Audit-Related Fees
The aggregate fees paid to Grant Thornton LLP for professional services rendered for the audit of the Company’s registration statements on Form SB-2 and Form S-1 during the fiscal year ended May 31, 2007 totaled $25,000. The aggregate fees paid to Grant Thornton LLP for professional services rendered for the audit of the Company’s registration statements on Form SB-2 during the fiscal year ended May 31, 2006 totaled $22,000.
Tax Fees
The Company 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, 2006 and May 31, 2007.
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 they will have the opportunity to make a statement if they desire to do so, 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, 2008.
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II.
CORPORATE GOVERNANCE AND RELATED MATTERS
BOARD OF DIRECTORS’ MEETINGS, COMMITTEES AND FEES
In accordance with the General Corporation Law of the State of Delaware and our Amended and Restated Certificate of Incorporation our business, property and affairs are managed under the direction of the Board of Directors. Although our directors are not involved in our day-to-day operating details, they are kept informed of our business through written reports and documents provided to them regularly, as well as by operating, financial and other reports presented by our officers at meetings of the Board of Directors and committees of the Board of Directors.
Meetings of the Board of Directors. The Board of Directors held four meetings in fiscal 2007. Each of the incumbent directors attended an aggregate of at least 75% of the Board of Directors and committee meetings on, and during the period in, which the director served.
Board members are expected to make every reasonable effort to attend the Annual Meeting of Stockholders. All directors except for Mr. Tombros attended the 2006 Annual Meeting of Stockholders held on October 24, 2006.
Communication with the Board of Directors. Stockholders may communicate with the Board of Directors by sending a letter to Protalex, Inc. Board of Directors, c/o Corporate Secretary 145 Union Square Drive, New Hope, PA 18938. The Corporate Secretary will review the correspondence and forward it to the Chair of the appropriate committee or to any individual director or directors to whom the communication is directed, unless the communication is unduly hostile, threatening, illegal, does not reasonably relate to Protalex, Inc. or its business, or is similarly inappropriate. The Corporate Secretary has the authority to discard or disregard any inappropriate communications or to take other appropriate actions with respect to any such inappropriate communications.
Director Independence.Each of the following directors are “independent” under NASDAQ Stock Market LLC rules: Messers. Raab, Dougherty, Holstrom, Stagnaro, and Tombros; and Drs. Bauer and Patel. These persons represent a majority of the board of directors. All members of the Compensation and Audit Committees are independent. Mr. Kane, a director and the Company’s President and Chief Executive Officer is a member of the Nominating and Corporate Governance Committee and is not considered independent. The other two members of the Nominating and Corporate Governance Committee are independent directors.
Committees of the Board of Directors. The Board of Directors has established three standing committees and the table below shows the current membership for each of the standing Board committees.
![]() | ![]() | ![]() | ||
Audit Committee | Compensation Committee | Governance and Nominating Committee | ||
Carleton A. Holstrom* | G. Kirk Raab* | Frank M. Dougherty* | ||
Dinesh Patel, Ph.D. | Eugene A. Bauer, MD | Steven H. Kane | ||
Thomas P. Stagnaro | Frank M. Dougherty | G. Kirk Raab | ||
Peter G. Tombros |
* | Committee Chairman |
Audit Committee
The members of the Audit Committee are Messrs. Holstrom, Stagnaro and Dr. Patel. As of May 31, 2007, the chair of the Audit Committee was Mr. Holstrom. The Company believes Mr. Holstrom is qualified as an audit committee financial expert within the meaning of Securities and Exchange Commission (“SEC”) regulations. In addition, the Board has determined, in accordance with the listing standards of the NASDAQ Global Market that Mr. Holstrom meets the standards of financial sophistication set forth therein and that each other member of the audit committee is able to read and understand fundamental financial statements.
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
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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 determines and approves engagements of the Auditors, prior to commencement of such engagements, to perform all proposed audit, review and attest services, including the scope of and plans for the audit, the adequacy of staffing, and the compensation to be paid by the Company to the Auditors The Committee may delegate pre-approval authority to one or more Committee members so long as any such pre-approval decisions are presented to the full Committee at the next scheduled meeting.
The Audit Committee determines and approves engagements of the Auditors, prior to commencement of such engagements (unless in compliance with exceptions available under applicable laws and rules related to immaterial aggregate amounts of services), to perform any proposed permissible non-audit services, including the scope of the service and the compensation to be paid therefore. The Committee may delegate pre-approval authority to one or more Committee members so long as any such pre-approval decisions are presented to the full Committee at the next scheduled meeting.
The charter of the Audit Committee is available on the Investor Information section of the Company’s website (www.protalex.com). The Audit Committee met four times in fiscal 2007.
Compensation Committee
The Compensation Committee annually reviews the performance and total compensation package for the Company’s executive officers, including the Chief Executive Officer; considers the modification of existing compensation and employee benefit programs, and the adoption of new plans; administers the terms and provisions of the Company’s equity compensation plans; and reviews the compensation and benefits of non-employee directors. The charter of the Compensation Committee is available on the Investor Information section of the Company’s website (www.protalex.com). The Compensation Committee met four times during fiscal 2007.
The members of the Compensation Committee are Messrs. Raab, Dougherty, Tombros and Dr. Bauer. As of May 31, 2007, the chair of the Compensation Committee was Mr. Raab. 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 and Corporate Governance Committee
The Corporate Governance and Nominating Committee is responsible for developing and implementing policies and practices relating to corporate governance, including reviewing and monitoring implementation of the Company’s Corporate Governance Guidelines. In addition, the Committee develops and reviews background information on candidates for the Board and makes recommendations to the Board regarding such candidates. Currently there are no specific minimum qualifications that must be met by a Committee-recommended nominee and there is no formal process for identifying and evaluating nominees. The Committee also prepares and supervises the Board’s annual review of director independence and the Board’s performance evaluation. The charter of the Corporate Governance and Nominating Committee is available on the Investor Information section of the Company’s website (www.protalex.com).
The members of the Nominating and Corporate Governance Committee are Messrs. Raab, Kane and Dougherty. Mr. Kane is not considered independent because he is the Company’s President and Chief Executive Officer. As of May 31, 2007, the chair of the Nominating and Corporate Governance Committee was Mr. Dougherty. The functions of this committee include recommending to our full Board nominees for election as Directors. Prior to the establishment of the Nominating and Corporate Governance Committee, its functions were performed by the entire Board. The Nominating and Corporate Governance Committee held three meetings during the fiscal year ended May 31, 2007.
Although there is no formal procedure for stockholders to recommend nominees for the Board, the Nominating and Corporate Governance 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 and Corporate Governance Committee at our address and provide all information relating to such
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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”).
AUDIT COMMITTEE INFORMATION
Report of Audit Committee
The Audit Committee of the Company’s Board of Directors is composed of three independent directors and operates under a written charter adopted by the Board that is designed to comply with rules adopted by the National Association of Securities Dealers, Inc. A copy of the written charter is included as Appendix A to this Proxy Statement. The current members of the Audit Committee are Mr. Holstrom (chair), Dr. Patel and Mr. Stagnaro.
Management is responsible for the preparation, presentation and integrity of the Company’s financial statements, accounting and financial reporting principles, internal controls and procedures designed to ensure compliance with accounting standards, applicable laws and regulations. The Company’s independent public accountants are responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with generally accepted auditing standards and issuing a report thereon. The Audit Committee’s responsibility is to monitor and oversee these processes, including the recommendation to the Board of Directors of the selection of the Company’s independent accountants.
The Audit Committee members are not professional accountants or auditors, and their functions are not intended to duplicate or to certify the activities of management and the independent auditor, nor can the Audit Committee certify that the independent auditor is “independent” under applicable rules. The Audit Committee serves a Board-level oversight role, in which it provides advice, counsel and direction to management and the auditors on the basis of the information it receives, discussions with management and the auditors and the experience of the Committee’s members in business, financial and accounting matters.
In this context, the Audit Committee has met and held discussions with management and the independent accountants, including meetings with the independent accountants during which management was not present. Management represented to the Audit Committee that the Company’s financial statements were prepared in accordance with generally accepted accounting principles, and the Audit Committee has reviewed and discussed the consolidated financial statements with management and the independent accountants. The Audit Committee discussed with the independent accountants matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Company’s independent accountants also provided to the Audit Committee the written disclosures required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit Committee discussed with the independent accountants that firm’s independence.
Based upon the Audit Committee’s discussion with management and the independent accountants and the Audit Committee’s review of the representation of management and the report of the independent accountants to the Audit Committee, the Audit Committee recommended that the Board of Directors include the audited financial statements in the Company’s Annual Report on Form 10-K for the year ended May 31, 2007 as filed with the United States Securities and Exchange Commission.
Respectfully submitted,
Audit Committee of the Board of Directors
Carleton A. Holstrom
Dinesh Patel, Ph.D.
Thomas P. Stagnaro
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TRANSACTIONS WITH RELATED PERSONS
During the years ended May 31, 2007, the Company incurred $81,352 of expenses related to air travel to a partnership principally owned by the Chief Executive Officer of the Company. Currently the Company does not have written policies and procedures for the review, approval or ratification of related person transactions. However, given the Company’s small size, senior management and the audit committee is able to review all transactions consistent with applicable securities rules governing Company transactions and proposed transactions exceeding $120,000 in which a related person has a direct or indirect material interest. Currently the Board of Directors reviews related person transactions and has approval authority with respect to whether a related person transaction is within the Company's best interest.
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 is not aware of any failure to file any report by any of its executive officers, Directors or 10% shareholders during the fiscal year ended May 31, 2007.
EXECUTIVE OFFICERS
The following individual is an executive officer of the Company and not a Director:
Marc L. Rose, CPA, has served as the Company’s Vice President of Finance, Chief Financial Officer and Treasurer since November 2004 and in April 2005 Mr. Rose was elected Corporate Secretary. From March 2001 to November 2004, Mr. Rose served as Vice President and Chief Financial Officer of the DentalEZ Group, a privately held manufacturer of dental equipment and dental handpieces located in Malvern, PA. From January 1998 to March 2001, Mr. Rose was Practice Manager of Oracle Consulting Services for Oracle Corporation responsible for designing and implementing Oracle financial and project applications. From September 1990 to January 1998, Mr. Rose held several positions with the controllership organization of Waste Management, Inc and from June 1988 to September 1990, was an auditor with Ernst & Young in Philadelphia. Mr. Rose is a Certified Public Accountant in the Commonwealth of Pennsylvania and received his BA in Accounting/Finance from Drexel University.
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COMPENSATION DISCUSSION AND ANALYSIS
Introduction
This Compensation Discussion and Analysis, or CD&A, provides an overview of the Company’s executive compensation program together with a description of the material factors underlying the decisions which resulted in the compensation provided to the Company’s Chief Executive Officer, or CEO, Chief Financial Officer, or CFO and certain other executive officers (collectively, the named executive officers or NEO’s) for fiscal 2007 (as presented in the tables which follow this CD&A).
Compensation Committee
The Compensation Committee (the “Committee”) of the Board of Directors is composed of four non-employee directors, all of whom are independent directors under the listing standards of The Nasdaq Stock Market LLC and the Securities and Exchange Commission rules. The Committee has responsibility for determining and implementing the Company’s philosophy with respect to executive compensation. Accordingly, the Committee has overall responsibility for approving and evaluating the various components of the Company’s executive compensation program. The Committee annually evaluates the performance of, and determines and reviews with the full Board, the compensation of the NEOs.
Executive Compensation Philosophy and Objectives
The Committee’s philosophy with respect to executive compensation is to provide compensation that attracts, retains and motivates executives of outstanding ability and to emphasize variable pay and long-term incentives that align the interests of the Company’s executives with its stockholders. To achieve these objectives, the Committee implements and maintains compensation plans that tie a substantial portion of executives’ overall compensation potential to operational goals, such as achieving progress in the Company’s research and development programs, the development of the Company’s human resources, enhancing stockholder value, managing the operating budget and raising the capital needed for the Company’s operations. The Committee appraises the CEO’s performance and considers performance reviews of the Company’s other NEOs when evaluating compensation. The Committee believes executive compensation packages provided by the Company to its executives should include both cash and stock-based compensation that reward performance as measured against established objectives. The Committee believes that the achievement of both short and long-term objectives over the next few years will place considerable demands on the executive team and that their retention and motivation are crucial to building long-term corporate value.
Executive Compensation Consultant
For all fiscal years prior to May 31, 2007, we did not retain a compensation consultant to review our policies and procedures with respect to executive compensation. In June 2007, the Committee engaged a third-party executive compensation consultant to gather market data and to conduct reviews of the Company’s executive compensation program. The Company’s Chief Executive Officer and Chief Financial Officer assisted the Committee in the selection of executive compensation consultant. The consultant’s act as an independent advisor to the Committee and it has no other consulting relationships with the Company or its management.
Setting Executive Compensation
Based on the compensation philosophy and objectives mentioned above, the Committee has structured the Company’s executive compensation program to motivate NEOs to achieve the business objectives developed by management, and approved by the Board of Directors, and reward NEOs for achieving such objectives.
The Committee attempts to create a balance between the variable pay incentives, longer-term compensation and cash compensation. The Committee believes that by providing an emphasis on variable pay amounts and long-term incentives, the Company is able to attract executives who are willing to sacrifice current earnings and the retirement benefits generally offered by larger employers for potential long-term gains in a less stable and more risky environment. The Committee believes that stockholders of the Company share a similar risk profile.
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2007 Executive Compensation Components
The Company’s executive compensation is composed of three principal components:
• | Base salary |
• | Annual incentive bonus: and |
• | Long term incentives, consisting of stock option grants |
The Company has entered into employment contracts with all of the NEOs. In addition to the compensation components listed above, these contracts provide for post-employment severance payments and benefits in the event of termination under certain circumstances. The Committee believes that these contracts provide an incentive to the NEOs to remain with the Company and serve to align the interest of the NEOs and stockholders in the event of a potential acquisition of the Company.
Base Salaries
The Committee believes that base salaries should be reasonable. The Committee retains the discretion to set base salaries based on performance, experience and other factors which it considers. During its review of base salaries for executives the Committee primarily considers:
• | an internal review of the executives’ compensation |
• | the individual performance of the executive |
The Committee reviews executive salaries at the end of each calendar year, with any increases to base salary being set at a Committee meeting in January. In January 2007, merit increases and adjustments for the NEOs were not authorized. . In addition, the Committee may make interim increases to executive salaries during the course of the year if the Committee determines an increase is appropriate because of an NEO’s performance or changing market conditions.
Discretionary Annual Bonus
In addition to base salaries, our compensation committee has the authority to award discretionary annual bonuses to our NEO’s. The annual incentive bonuses are intended to compensate NEO’s for achieving corporate goals and for achieving what the committee believes to be value creating milestones. The Committee provides bonus incentives for achievement of these goals because it believes that attainment of these goals will ultimately be in the best long-term interests of the Company and its stockholders. Our NEO’s are eligible to receive a bonus of up to 25% of their respective base salaries. For the calendar year 2006, the compensation committee awarded discretionary annual bonuses of $50,000 and $37,500 to our Chief Executive Officer and Chief Financial Officer, respectively.
Long-Term Incentives
The Committee believes that equity-based incentives are an important link between the NEO and stockholder interests. Accordingly, the Committee provides long-term incentives by means of periodic grants of stock options under the Company’s 2003 Stock Option Plan, as amended, or the 2003 Plan. Historically the Committee has elected to use stock options as the primary long-term equity incentive vehicle. Due to the growth stage of our business, the Committee targets a greater portion of compensation to the Company’s executives through its equity compensation plans than through cash based compensation.
The Committee reviews and approves stock option awards to NEOs based upon a review of the Company’s collected market data, its assessment of individual performance, a review of each executive’s existing long-term incentives and retention considerations.
Stock options granted have exercise prices equal to the fair market value of the underlying common stock as determined by reference to the closing price per share on the Over-the-Counter Bulletin Board exchange on the date of grant. Stock options typically vest monthly over a four-year period and expire ten years from the date of grant. The Committee considers stock options to be a valuable and necessary compensation tool that aligns the long-term financial interests of the Company’s executives with the financial interests of its stockholders. Further, the vesting of stock options monthly over a four-year period serves to retain qualified
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employees, providing continuing benefits to the Company beyond those achieved in the year the stock option grant is made. Newly hired executives typically receive an initial award of stock options on the first date of employment subject to a six month probationary period. After the successful completion of the probationary period, vesting is retroactive to the initial date of employment.
Annual awards are granted at the Committee’s regularly scheduled board meetings. In fiscal 2007, the Committee awarded the NEOs stock options for an aggregate of 200,000 shares of common stock at an exercise price ranging from $2.30 to $2.87. These stock options expire ten years from the date of grant.
Stock Ownership/Retention Guidelines
The Company does not require its NEOs to maintain a minimum ownership interest in the Company, however the Committee targets a greater portion of compensation to NEOs through stock compensation plans than through cash based compensation.
Other Compensation and Perquisite Benefits
In addition to the principal categories of compensation described above, the Company provides its NEOs with coverage under its broad-based health and welfare benefits plans, including medical, dental, disability and life insurance. The Company also sponsors a 401(k) Plan. Our 401(k) Plan is a tax-qualified retirement savings plan pursuant to which all employees, including the NEOs, are able to contribute up to the limit prescribed by the Internal Revenue Code on a before tax basis. The Company does not match employee’s contributions to the 401(k) Plan at this time. All contributions made by a participant vest immediately.
The Company’s NEOs are not generally entitled to benefits that are not otherwise available to all of our employees. In this regard it should be noted that the Company does not provide pension arrangements, post-retirement health coverage or similar benefits for its executives.
Compensation of the CEO
Effective as of October 25, 2005, we have an employment agreement with our current President and Chief Executive Officer, Steven H. Kane. Effective January 1, 2006, Mr. Kane is paid at a rate of $33,333 per month. Mr. Kane is eligible to participate in the Company's annual executive bonus plan, as well as in any life, health, accident, disability, or hospitalization insurance plans, pension plans, or retirement plans as the Company's Board of Directors makes available to the Company's executives as a group. Either the Company or Mr. Kane can terminate Mr. Kane's employment at any time, with or without cause, upon notice. If the Company terminates Mr. Kane without cause, Protalex will continue to pay Mr. Kane his monthly salary for a period of 18 months and will accelerate vesting of any of Mr. Kane's outstanding unvested options that would have vested over the next 18 months. During Mr. Kane's employment and for two (2) years thereafter, Mr. Kane must obtain Protalex's prior written approval before soliciting, inducing or attempting to persuade any employee or independent contractor of Protalex to terminate their relationship with Protalex to work for any other person or entity.
Tax and Accounting Implications
Deductibility of Certain Compensation
Payments made during fiscal 2007 to the Company’s executives under the various programs discussed above were made with regard to the provisions of section 162(m) of the Internal Revenue Code that became effective on January 1, 1994. Section 162(m) limits the deduction that may be claimed by a “public company” for compensation paid to certain individuals to $1,000,000 except to the extent that any excess compensation is “performance-based compensation.” The definition of performance-based compensation includes compensation deemed paid on the exercise of certain stock options. The exercised stock options must have an exercise price equal to the fair market value of the option shares on the grant date to qualify as performance-based compensation. The 2003 Plan is intended to ensure that the exercise of such stock options will qualify as performance-based compensation. Through May 31, 2007, this provision has not affected our tax deductions, and the Committee believes that, at the present time, it is quite unlikely that the compensation paid to any of our employees in a taxable year, which is subject to the deduction limit, will exceed $1,000,000. The Committee intends to continue to evaluate the effects of the statute and any applicable regulations and to comply with Internal Revenue Code section 162(m) in the future to the extent consistent with the best interests of the Company.
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Summary Compensation Table
The table below summarizes the total compensation paid to or earned by each of the named executive officers for the fiscal year ended May 31, 2007:
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Name and Principal Position | Year | Salary ($)(1) | Bonus ($) | Stock Awards ($) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total ($) | |||||||||||||||||||||||||||
Steven H. Kane, President and Chief Executive Officer | 2007 | 400,000 | 50,000 | — | 241,138 | (3) | — | — | — | 691,138 | ||||||||||||||||||||||||||
Marc L. Rose, CPA, Vice President and Chief Financial Officer | 2007 | 200,000 | 37,500 | — | 207,130 | (3) | — | — | — | 444,630 | ||||||||||||||||||||||||||
Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer | 2007 | 186,667 | — | — | — | — | — | 280,000 | (4) | 466,667 |
(1) | In January 2007, the Compensation Committee did not authorize salary increase for calendar year 2007. |
(2) | In October 2006, the Compensation Committee granted the following option awards: Mr. Kane 25,000 and Mr. Rose 50,000. In January 2007, the Compensation Committee granted the following option awards: Mr. Kane 100,000 and Mr. Rose 50,000. |
(3) | Amounts are calculated in accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123R “Share-based Payment.” See Note 2. of the financial statements of the Company’s Annual Report for the year ended May 31, 2007 regarding assumptions underlying valuation of equity awards. |
(4) | On January 2, 2007, the Company terminated the employment of Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer. Pursuant to the terms of his employment agreement, Dr. Sloan was paid $280,000 as a severance payment. |
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Grants of Plan-Based Awards
The table below sets forth certain information with respect to stock awards and options granted during the fiscal year ended May 31, 2007 to each of our executive officers listed in the Summary Compensation Table above.
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Name | Grant Date | Estimated Future Payments Under Non-Equity Incentive Plan Awards | Estimated Future Payments Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#) | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Options ($/Sh)(1) | Grant Date Fair Value of Stock and Option Awards ($)(2) | |||||||||||||||||||||||||||||||||||||
Threshold ($) | Target ($) | Maximum ($) | Threshold ($) | Target ($) | Maximum ($) | |||||||||||||||||||||||||||||||||||||||
Steven H. Kane, President and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||||||||||
10/24/2006 | — | — | — | — | — | — | — | 25,000 | (3) | $ | 2.87 | $ | 57,708 | |||||||||||||||||||||||||||||||
01/18/2007 | — | — | — | — | — | — | — | 100,000 | (4) | $ | 2.30 | $ | 183,430 | |||||||||||||||||||||||||||||||
Marc L. Rose, CPA, Vice President and Chief Financial Officer | 10/24/2006 | — | — | — | — | — | — | — | 50,000 | (4) | $ | 2.87 | $ | 115,415 | ||||||||||||||||||||||||||||||
01/18/2007 | — | — | — | — | — | — | — | 50,000 | (4) | $ | 2.30 | $ | 91,715 | |||||||||||||||||||||||||||||||
Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer(5) | — | — | — | — | — | — | — | — | — | — | — |
(1) | The exercise price of the stock option awards is equal to the prior day’s closing price of the Common Stock as reported by Over the Counter Bulletin Board (OTC BB). Stock options were granted under the 2003 Stock Option Plan, as amended. Stock options expire ten years from the date of grant. |
(2) | See Note 2 of the financial statements of the Company’s Annual Report for the year ended May 31, 2007 regarding assumptions underlying valuation of equity awards. |
(3) | These stock options vested immediately on the date of grant. |
(4) | These stock options vest over four years at the rate of 1/48th per month. |
(5) | On January 2, 2007, the Company terminated the employment of Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer. |
Employment Contracts, Termination of Employment and Change in Control Arrangements
Effective as of October 25, 2005, we have an employment agreement with our current President and Chief Executive Officer, Steven H. Kane. Effective January 1, 2006, Mr. Kane is paid at a rate of $33,333 per month. Mr. Kane is eligible to participate in the Company's annual executive bonus plan, as well as in any life, health, accident, disability, or hospitalization insurance plans, pension plans, or retirement plans as the Company's Board of Directors makes available to the Company's executives as a group. Either the Company or Mr. Kane can terminate Mr. Kane's employment at any time, with or without cause, upon notice. If the Company terminates Mr. Kane without cause, Protalex will continue to pay Mr. Kane his monthly salary for a period of 18 months and will accelerate vesting of any of Mr. Kane's outstanding unvested options that would have vested over the next 18 months. During Mr. Kane's employment and for two (2) years thereafter, Mr. Kane must obtain Protalex's prior written approval before soliciting, inducing or attempting to persuade any employee or independent contractor of Protalex to terminate their relationship with Protalex to work for any other person or entity.
Effective as of November 15, 2004, we entered into a letter agreement with Marc L. Rose, which provides for a grant of options to acquire 100,000 shares of our common stock. These options are subject to the Company’s 2003 Stock Option Plan, as amended, vest over four years at a rate of 1/48 per month starting on May 15, 2005, retroactive to November 15, 2004 and have a 10-year term. The letter agreement also provides for an award of 15,000 restricted shares of our common stock. Mr. Rose is eligible to participate in our annual executive bonus plan, as well as in any life, health, accident, disability, or hospitalization insurance plans, pension plans, or retirement plans as our board of directors makes available to our executives as a group. Effective January 1, 2006, Mr. Rose is paid at a rate of $16,667 per month. The agreement also provides for payment to Mr. Rose of up to 12 payments equal to his monthly base salary in the event Mr. Rose is terminated without cause.
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On August 9, 2007, the Compensation Committee approved an increase of Mr. Rose’s annual salary from $200,000 to $230,000. The increase was effective retroactively on June 1, 2007.
Outstanding Equity Awards at Fiscal Year-End
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Name | Option Awards | Stock Awards | ||||||||||||||||||||||||||||||||||
Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) | Option Exercise Price ($) | 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 ($)(1) | Equity IncentivePlan Awards: Number of Unearned Shares, Unitsor Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of UnearnedShares, Units or Other Rights That Have Not Vested | ||||||||||||||||||||||||||||
Steven H. Kane, President and Chief Executive Officer | 863,242 | — | — | $ | 1.50 | 12/16/2012 | — | — | — | — | ||||||||||||||||||||||||||
100,000 | — | — | 1.50 | 8/13/2013 | — | — | — | — | ||||||||||||||||||||||||||||
75,000 | — | — | 2.13 | 1/22/2014 | — | — | — | — | ||||||||||||||||||||||||||||
175,000 | 62,502 (1) | — | 2.55 | 1/13/2015 | — | — | — | — | ||||||||||||||||||||||||||||
25,000 | — | — | 2.65 | 10/25/2015 | — | — | — | — | ||||||||||||||||||||||||||||
25,000 | — | — | 2.87 | 10/24/2016 | — | — | — | — | ||||||||||||||||||||||||||||
100,000 | 91,667 (2) | — | 2.30 | 1/18/2017 | — | — | — | — | ||||||||||||||||||||||||||||
Marc L. Rose, CPA, Vice President and Chief Financial Officer | 100,000 | 37,501 (3) | — | 2.55 | 1/13/2015 | — | — | — | — | |||||||||||||||||||||||||||
13,571 | 7,352 (4) | — | 2.80 | 7/29/2015 | — | — | — | — | ||||||||||||||||||||||||||||
30,000 | 20,001 (5) | — | 2.85 | 1/11/2016 | — | — | — | — | ||||||||||||||||||||||||||||
50,000 | 42,709 (6) | — | 2.87 | 10/24/2016 | — | — | — | — | ||||||||||||||||||||||||||||
50,000 | 45,834 (7) | — | 2.30 | 1/18/2017 | — | — | — | — | ||||||||||||||||||||||||||||
Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer President and Chief Medical Officer(8) | — | — | — | — | — | — | — | — | — |
(1) | These stock options, granted on January 13, 2005, vest over four years at the rate of 1/48th per month. |
(2) | These stock options, granted on January 18, 2007, vest over four years at the rate of 1/48th per month. |
(3) | These stock options, granted on January 13, 2005, vest over four years at the rate of 1/48th per month. |
(4) | These stock options, granted on July 29, 2005 vest over four years at the rate of 1/48th per month. |
(5) | These stock options, granted on January 11, 2006, vest over four years at the rate of 1/48th per month. |
(6) | These stock options, granted on October 24, 2006, vest over four years at the rate of 1/48th per month. |
(7) | These stock options, granted on January 18, 2007, vest over four years at the rate of 1/48th per month. |
(8) | On January 2, 2007, the Company terminated the employment of Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer. |
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Option Exercises and Stock Vested
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Name | Option Awards | Stock Awards | ||||||||||||||
Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | |||||||||||||
Steven H. Kane, President and Chief Executive Officer | — | — | — | — | ||||||||||||
Marc L. Rose, CPA, Vice President and Chief Financial Officer | — | — | — | — | ||||||||||||
Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer | 2,000 | $ | (300 | ) | — | — |
Pension Benefits Nonqualified Deferred Compensation
We do not offer any post employment compensation that would be required to be disclosed as pension benefits or non-qualified deferred compensation. Therefore, in accordance with SEC rules, we have omitted these tables.
Compensation of Directors
The table below summaries the compensation paid by the Company to our Directors for the fiscal year ended May 31, 2007:
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Name | Fees Earnedor Paid in Cash ($) | Stock Awards ($) | Option Awards ($)(1) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
G. Kirk Raab(2) | 150,000 | — | 57,708 | — | — | — | 207,708 | |||||||||||||||||||||
Carleton A. Holstrom(3) | 20,000 | — | 57,708 | — | — | — | 77,708 | |||||||||||||||||||||
Eugene A. Bauer, M.D.(4) | 20,000 | — | 57,708 | — | — | — | 77,708 | |||||||||||||||||||||
Thomas P. Stagnaro(5) | — | — | 57,708 | — | — | — | 57,708 | |||||||||||||||||||||
Dinesh Patel, Ph.D. | — | — | — | — | — | — | — | |||||||||||||||||||||
Frank M. Dougherty(6) | — | — | 57,708 | — | — | — | 57,708 | |||||||||||||||||||||
Peter G. Tombros(7) | 20,000 | — | 57,708 | — | — | — | 77,708 |
(1) | These stock options, granted on October 24, 2006 vested immediately on the date of grant and are determined in accordance with FAS 123R. |
(2) | As of May 31, 2007, Mr. Raab has 689,333 stock options outstanding and 643,963 are vested and exercisable. |
(3) | As of May 31, 2007, Mr. Holstrom has 150,000 stock options outstanding and 150,000 are vested and exercisable. |
(4) | As of May 31, 2007, Dr. Bauer has 150,000 stock options outstanding and 150,000 are vested and exercisable. |
(5) | As of May 31, 2007, Mr. Stagnaro has 311,000 stock options outstanding and 305,999 are vested and exercisable. |
(6) | As of May 31, 2007, Mr. Dougherty has 115,000 stock options outstanding and 109,999 are vested and exercisable. |
(7) | As of May 31, 2007, Mr. Tombros has 125,000 stock options outstanding and 125,000 are vested and exercisable. |
Directors received stock-based compensation for their services as directors during the fiscal year ended May 31, 2007. The Company issued 150,000 stock options to non-employee directors during such fiscal year,
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at exercise price of $2.87 and aggregate expense in accordance with FAS 123R of $346,248. 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.
The Company has an agreement with its Chairman to pay $12,500 per month as a director fee. For the fiscal year ended May 31, 2007, the Company incurred $150,000 for this director’s fee. The Company has an agreement with Carleton A. Holstrom, Eugene A. Bauer, MD and Peter G. Tombros to pay each of them $1,667 per month on a quarterly basis payable in arrears as a director fee. For the fiscal year ended May 31, 2007, the Company incurred $60,000 for these directors’ fees.
Compensation Committee Interlocks and Insider Participation
The members of the Compensation Committee are Messrs. Raab, Dougherty, Tombros and Dr. Bauer. As of May 31, 2007, the chair of the Compensation Committee was Mr. Raab. The functions of this committee include administering management incentive compensation plans, establishing the compensation of officers and reviewing the compensation of Directors. None of the Compensation Committee members has ever served as an executive officer of the Company. No executive officers of the Company served as a director or a member of the Compensation Committee of another entity, one of whose executive officers either served on our Board of Directors or on its Compensation Committee.
Compensation Committee Report
The information contained in this report shall not be deemed to be “soliciting material” or “filed” or “incorporated by reference” in future filings with the Securities and Exchange Commission, or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Exchange Act.
The Compensation Committee of our Board of Directors has reviewed and discussed the foregoing Compensation Discussion and Analysis, which is required by Item 402(b) of Regulation S-K, with management. Based on our review and discussions with management, we recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement.
Respectfully submitted,
Compensation Committee of the Board of Directors
G. Kirk Raab (Chairman)
Eugene A. Bauer, MD
Frank M. Dougherty
Peter G. Tombros
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Set forth in the following table is the beneficial ownership of common stock as of September 21, 2007, for our directors, the named 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 September 21, 2007, upon exercise of options or warrants held by that person or group is 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 28,600,464 shares of common stock outstanding as of September 21, 2007, 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.
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Name and Title | Shares Beneficially Owned | |||||||
Number | Percent | |||||||
G. Kirk Raab, Chairman of the Board and Director | 719,604 | (1) | 2.5 | % | ||||
Steven H. Kane, President and Director | 1,316,455 | (2) | 4.4 | % | ||||
Victor S. Sloan, M.D., former Senior Vice President and Chief Medical Officer | 944 | (3) | * | |||||
Marc L. Rose, CPA, Vice President, Chief Financial Officer, Treasurer and Corporate Secretary | 134,166 | (4) | * | |||||
Peter G. Tombros, Director | 175,000 | (5) | * | |||||
Frank M. Dougherty, Director | 475,581 | (6) | 1.7 | % | ||||
Carleton A. Holstrom, Director | 160,000 | (7) | * | |||||
Eugene A. Bauer, M.D., Director | 150,000 | (8) | * | |||||
Thomas P. Stagnaro, Director | 314,375 | (9) | 1.1 | % | ||||
John E. Doherty, Former Director | 3,101,549 | (10) | 10.8 | % | ||||
Dinesh Patel, Ph.D., Director | 4,433,002 | (11) | 14.9 | % | ||||
vSpring SBIC, L.P. Attn: Dinesh Patel 2795 E. Cottonwood Pkwy, Suite 360 Salt Lake City, UT 84121 | 4,433,002 | (12) | 14.9 | % | ||||
LB I Group 399 Park Avenue 9th Floor New York, NY 10022 | 1,600,000 | (13) | 5.6 | %(14) | ||||
All officers and directors as a group (10 persons) | 7,878,183 | (14) | 26.0 | % |
* | Indicates less than 1%. |
(1) | Includes options to purchase 719,604 shares of our common stock exercisable within 60 days of September 21, 2007. |
(2) | Includes options to purchase 1,233,034 shares of our common stock and warrants to purchase 7,778 shares of our common stock exercisable within 60 days of September 21, 2007. |
(3) | Includes warrants to purchase 944 shares of our common stock exercisable within 60 days of September 21, 2007. On January 2, 2007, the Company terminated the employment of Victor S. Sloan, MD, former Senior Vice President and Chief Medical Officer and his vested stock options expired as of April 2, 2007, |
(4) | Includes options to purchase 119,166 shares of our common stock exercisable within 60 days of September 21, 2007. |
(5) | Includes options to purchase 125,000 shares of our common stock and warrants to purchase 10,000 shares of our common stock exercisable within 60 days of September 21, 2007. |
(6) | Includes options to purchase 115,000 shares of our common stock and warrants to purchase 3,778 shares of our common stock exercisable within 60 days of September 21, 2007. |
(7) | Includes options to purchase 150,000 shares of our common stock exercisable within 60 days of September 21, 2007. |
(8) | Includes options to purchase 150,000 shares of our common stock exercisable within 60 days of September 21, 2007. |
(9) | Includes options to purchase 310,375 shares of our common stock exercisable within 60 days of September 21, 2007. |
(10) | Includes options to purchase 10,000 shares of our common stock and warrants to purchase 27,778 shares of our common stock exercisable within 60 days of September 21, 2007 |
(11) | Includes warrants to purchase 1,097,255 shares of our common stock exercisable within 60 days of September 21, 2007. |
(12) | Includes warrants to purchase 1,097,255 shares of our common stock exercisable within 60 days of September 21, 2007. |
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(13) | Excludes 400,000 shares of common stock issuable upon exercise of warrants, because the terms of the warrant contain a limitation on acquiring shares of common stock if the exercise would result in the holder beneficially owning more than 4.99% of the outstanding common stock. |
(14) | Includes options to purchase 425,000 shares of our common stock and warrants to purchase 1,108,199 shares of our common stock exercisable within 60 days of September 21, 2007. |
ANNUAL REPORT
Our latest Annual Report on Form 10-K for the fiscal year ended May 31, 2007, 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-K 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.
ONLINE ACCESS TO ANNUAL REPORTS ON FORM 10-K AND PROXY STATEMENTS
The Notice of Annual Meeting, Proxy Statement and the Annual Report on Form 10-K for our fiscal year ended May 31, 2007 are available on our website at www.protalex.com.
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.
STOCKHOLDER COMMUNICATIONS
Stockholders may communicate with the Company’s Board of Directors by sending their communications to Protalex, Inc. Board of Directors, c/o Corporate Secretary, 145 Union Square Drive, New Hope, PA 18938. The Corporate Governance and Nominating Committee of the Board has approved a process for handling letters received by the Company and addressed to independent members of the Board. Under that process, the Corporate Secretary reviews all such correspondence and regularly forwards to the Board a summary of all such correspondence and copies of all correspondence that, in the opinion of the Corporate Secretary, deals with the functions of the Board or its committees, or that he otherwise determines requires their attention. Directors may at any time review a log of all correspondence received by the Company that is addressed to members of the Board and request copies of any such correspondence. Concerns relating to accounting, internal controls or auditing matters are immediately brought to the attention of the Company’s internal audit department and handled in accordance with procedures established by the Audit Committee with respect to such matters.
New Hope, Pennsylvania | By Order of the Board of Directors |
September 14, 2007 | By: /s/ Steven H. Kane |
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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 2007 ANNUAL MEETING OF SHAREHOLDERS
ON OCTOBER 23, 2007
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 Marc L. Rose, 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 and 2
(1) | For the election of the following persons as Directors of Protalex to hold office until the 2007 Annual Meeting of Stockholders and until their respective successors are elected and qualified: |
G. Kirk Raab
Steven H. Kane
Carleton A. Holstrom
Eugene A. Bauer, M.D
Thomas P. Stagnaro
Dinesh Patel, Ph.D.
Frank M. Dougherty
Peter G. Tombros
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o FOR 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.)
(2) | Ratification of Protalex’s selection of Grant Thornton LLP as independent auditors for Protalex for fiscal year ending May 31, 2008. |
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o FOR | o AGAINST | o ABSTAIN |
(3) | In their discretion upon such other matters as may properly come before the meeting and any adjournments thereof. |
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o FOR | o AGAINST | o ABSTAIN |
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:, 2007
(Signature)
(Signature of joint owner or additional trustee)
Sign exactly as your name appears on your share certificate. When signing as attorney, executer, administrator, trustee or guardian, please give full title. If more than one trustee, all should sign. All joint owners should sign. If a corporation, sign in full corporation name by president or other authorized officer. If a partnership, sign in partnership name by authorized person. Persons signing in a fiduciary capacity should indicate their full title in such capacity.