SECURITIES & EXCHANGE COMMISSION EDGAR FILING
Palatin Technologies, Inc.
Form: 10-K
Date Filed: 2010-09-27
Corporate Issuer CIK: 911216
Symbol:
Fiscal Year End:
PTN
6/30
© Copyright 2014, Issuer Direct Corporation. All Right Reserved. Distribution of this document is strictly prohibited, subject to the
terms of use.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2010
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number: 001-15543
PALATIN TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
4C Cedar Brook Drive
Cranbury, New Jersey
(Address of principal executive offices)
95-4078884
(I.R.S. Employer Identification No.)
08512
(Zip Code)
(609) 495-2200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $.01 per share
Name of Each Exchange on Which Registered
NYSE Amex
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12
months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates, computed by reference to the price at
which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter (December 31, 2009): $35,557,982.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date (September
27, 2010): 11,824,574.
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PALATIN TECHNOLOGIES, INC.
Table of Contents
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
(Removed and Reserved)
PART I
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
Item 15.
Exhibits, Financial Statement Schedules
PART IV
SIGNATURES
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Item 1. Business.
Forward-looking statements
PART I
Statements in this Annual Report on Form 10-K (this Annual Report), as well as oral statements that may be made by us or by our officers,
directors, or employees acting on our behalf, that are not historical facts constitute “forward-looking statements,” which are made pursuant
to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 (the Exchange Act). The forward-looking statements in
this Annual Report do not constitute guarantees of future performance. Investors are cautioned that statements which are not strictly
historical statements contained in this Annual Report, including, without limitation, current or future financial performance, management’s
plans and objectives for future operations, clinical trials and results, product plans and performance, management’s assessment of market
factors, as well as statements regarding our strategy and plans and our strategic partners, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause our actual results to be
materially different from our historical results or from any results expressed or implied by such forward-looking statements. Our future
operating results are subject to risks and uncertainties and are dependent upon many factors, including, without limitation, the risks
identified under the caption “Risk Factors” and elsewhere in this Annual Report, as well as in our other Securities and Exchange
Commission (SEC) filings.
In this Annual Report, references to “we,” “our,” “us” or “Palatin” means Palatin Technologies, Inc.
Overview
We are a biopharmaceutical company dedicated to the development of peptide, peptide mimetic and small molecule agonist compounds
with a focus on melanocortin and natriuretic peptide receptor systems. We have a pipeline of development programs targeting
melanocortin and natriuretic receptors, including development of proposed products for treatment of sexual dysfunction, acute asthma,
heart failure, hypertension, obesity, diabetes and metabolic syndrome.
We currently have the following active drug development programs:
· Bremelanotide, a peptide melanocortin receptor agonist, for treatment of sexual dysfunction, targeting female sexual dysfunction
(FSD) and erectile dysfunction (ED) in patients non-responsive to current therapies.
· Peptide melanocortin receptor agonists for treatment of FSD, ED, and other indications.
· PL-3994, a peptide mimetic natriuretic peptide receptor A (NPR-A) agonist, for treatment of acute exacerbations of asthma, heart
failure and refractory or difficult-to-control hypertension.
We have licensed several families of melanocortin receptor-based compounds for treatment of obesity, diabetes and related metabolic
syndrome to AstraZeneca AB (AstraZeneca) pursuant to our research collaboration and license agreement with AstraZeneca.
Key elements of our business strategy include: using our technology and expertise to develop and commercialize products in our active
drug development programs; entering into alliances and partnerships with pharmaceutical companies to facilitate the development,
manufacture, marketing, sale and distribution of product candidates we are developing; and, partially funding our product development
programs with the cash flow from our AstraZeneca research collaboration and license agreement and any future agreements with other
companies.
We incorporated in Delaware in 1986 and commenced operations in the biopharmaceutical area in 1996. Our corporate offices and
research and development facility are located at 4C Cedar Brook Drive, Cranbury, New Jersey 08512 and our telephone number is (609)
495-2200. We maintain an Internet site at http://www.palatin.com, where among other things, we make available free of charge on and
through this website our Forms 3, 4 and 5, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) and Section 16 of the Exchange Act as soon as
reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Our website and the information contained in
it or connected to it are not incorporated into this Annual Report.
Recent Events
Reverse Stock Split. On September 24, 2010, we announced that we were implementing a one-for-ten reverse stock split of our common
stock, which had been authorized by our stockholders at our annual meeting held
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on May 13, 2010. The reverse stock split, which became effective on September 27, 2010, reduced the number of shares of our common
stock issued and outstanding from approximately 118.2 million to approximately 11.8 million. All share and per share amounts in this
Annual Report, including shares of common stock issuable upon exercise, vesting or conversion of all outstanding options, warrants and
convertible preferred stock, are presented on a post-reverse-split basis.
Realignment of Resources. On September 24, 2010, we announced our strategic decision to focus resources and efforts on clinical trials
for bremelanotide and PL-3994 and preclinical development of an inhaled formulation of PL-3994 and a new peptide drug candidate for
sexual dysfunction. As part of this decision, we have suspended further research and development efforts on new product candidates and
are implementing a reduction in staffing levels, and anticipate having no more than twenty employees by December 31, 2010.
Melanocortin Receptor-Specific Programs
The melanocortin system is involved in a large and diverse number of physiologic functions, and therapeutic agents modulating this system
may have the potential to treat a variety of conditions and diseases, including sexual dysfunction, obesity and related disorders, cachexia
(wasting syndrome) and inflammation-related diseases.
Bremelanotide for Sexual Dysfunction. We are developing subcutaneously administered bremelanotide for the treatment of FSD and ED
in patients non-responsive to current therapies. Bremelanotide, which is a melanocortin agonist (a compound which binds to a cell receptor
and triggers a response) drug candidate, is a synthetic peptide analog of the naturally occurring hormone alpha-MSH (melanocyte-
stimulating hormone).
Medical Need - FSD. FSD is a multifactorial condition that has anatomical, physiological, medical, psychological and social components.
FSD includes four disorders, hypoactive sexual desire disorder, female sexual arousal disorder, sexual pain disorder and orgasmic
disorder. To establish a diagnosis of FSD, these syndromes must be associated with personal distress, as determined by the affected
women. Approximately 40 million American women are affected by FSD. The National Health and Social Life Survey, a probability sample
study of sexual behavior in a demographically representative cohort of United States adults ages 18 to 59, found that approximately 43% of
women suffer from some form of FSD.
There are no drugs in the United States approved for FSD indications.
Medical Need - ED. ED is the consistent inability to attain and maintain an erection sufficient for sexual intercourse. The condition is
correlated with increasing age, cardiovascular disease, hypertension, diabetes, hyperlipidemia and smoking. In addition, certain
prescription drugs and psychogenic issues may contribute to ED. According to the Massachusetts Male Aging Study, more than 50% of
men aged 40-70 report episodes of ED and more than 30 million men in the United States may be afflicted with some form of ED, with less
than 20% seeking treatment. The incidence of ED increases with age. Studies show that chronic ED affects about 5% of men in their 40s
and 15% to 25% of men by the age of 65. The current market size for ED is more than $4 billion per year.
Phosphodiesterase-5 (PDE-5) inhibitors such as sildenafil (Viagra®), vardenafil (Levitra®) and tadalafil (Cialis®) are used to treat ED, but
an estimated 35% of ED patients are non-responsive to PDE-5 inhibitor therapy. There are limited therapeutic options for ED patients non-
responsive or inadequately responsive to PDE-5 inhibitor therapy, including alprostadil for direct penis injection or urethral suppositories,
surgical penile implants and various devices.
Mechanisms of Action with Bremelanotide. Bremelanotide is believed to act through activation of melanocortin receptors in the central
nervous system, which is a different mechanism of action from currently marketed PDE-5 inhibitor ED therapies that act directly on the
vascular system. Studies have demonstrated efficacy with bremelanotide in ED patients non-responsive to PDE-5 inhibitor therapies.
Studies have also demonstrated an additive effect in ED patients co-administered both bremelanotide and a PDE-5 inhibitor.
Clinical Trials with Intranasal Formulations. We extensively studied bremelanotide for sexual dysfunction in nasal formulations,
administered as a single spray in one nostril. Increases in blood pressure were observed in some patients receiving nasally administered
bremelanotide, and this observed increase was a significant factor leading us to discontinue work on nasally administered bremelanotide
as a first-line therapy for sexual dysfunction. We believe that the amount of increase in blood pressure, as well as the rate of nausea and
emesis (vomiting), was due, at least partially, to high doses resulting from variability in drug uptake with nasal administration. Studies
showed significant variation in plasma levels of bremelanotide in patients receiving nasally administered bremelanotide.
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While we are no longer developing intranasal formulations of bremelanotide for commercialization, trials with intranasal formulations of
bremelanotide did demonstrate potential utility of bremelanotide. Phase 2B double blind, placebo-controlled, parallel doses clinical trials
evaluating nasal bremelanotide for ED, conducted in 726 non-diabetic and 294 diabetic patients, showed that over 30% of ED patients
were restored to a normal level of function. Phase 2A clinical trials of post-menopausal FSD patients showed a statistically significant
increase in the level of sexual desire and genital arousal in subjects receiving nasal bremelanotide compared to subjects receiving placebo
and, in pre-menopausal FSD patents, a trend to increases in the level of sexual desire and genital arousal in subjects receiving nasal
bremelanotide compared to subjects receiving placebo. In trials conducted to date, almost 2,000 patients received at least one dose of
bremelanotide, with about 1,500 receiving multiple doses.
Subcutaneous Administration of Bremelanotide. In a Phase 1 clinical trial designed to evaluate the blood pressure effects of
subcutaneously administered bremelanotide, no statistically significant difference in mean changes in blood pressure was seen in subjects
receiving bremelanotide compared to placebo. No subject discontinued participation in the trial as a result of protocol stopping rules based
on blood pressure changes. In addition, there was no difference in the incidence of emesis in subjects receiving bremelanotide compared
to placebo. This Phase 1 trial was a two-week, randomized, double-blind, placebo-controlled study in subjects who received 45 repeat
doses of bremelanotide or placebo subcutaneously. Each administered dose of bremelanotide achieved plasma levels shown to be
efficacious for improving erectile function in multiple previous Phase 1 and Phase 2 erectile dysfunction studies. With subcutaneous
administration of bremelanotide variability in plasma exposure was significantly decreased.
We have completed a placebo-controlled, randomized, double-blind, cross over safety study evaluating blood pressure effects of
subcutaneous bremelanotide in healthy male volunteers between 45 and 65 years old. The study also evaluated dose-to-dose consistency
of plasma exposure of bremelanotide. A total of 49 subjects were dosed in the safety study; 19 of the subjects were enrolled in a sub-study
and completed a graded exercise treadmill test as a surrogate for the cardiovascular effects of sexual activity. The results demonstrate that
with subcutaneous administration consistent therapeutic blood plasma levels can be obtained without sustained clinically significant blood
pressure effects.
Next Clinical Trial Steps. In the fourth quarter of calendar 2010 we intend to submit protocols to the U. S. Food and Drug Administration
(FDA) for initiation of an in-clinic Phase 2 clinical trial of subcutaneously administered bremelanotide, as either monotherapy or a
combination therapy with a PDE-5 inhibitor such as sildenafil, for men with ED who are non-responsive or inadequately responsive to PDE-
5 inhibitor therapies alone. Assuming concurrence of the FDA, and depending on financial resources, this Phase 2 clinical trial for men with
ED could start as early as the first quarter of calendar 2011. We are submitting protocols and a meeting request to the FDA for initiation of
an at-home Phase 2 clinical trial of subcutaneously administered bremelanotide for women with FSD, and anticipate that the meeting will
be held late in the fourth quarter of calendar 2010 or early in the first quarter of calendar 2011. Assuming concurrence of the FDA, and
depending on financial resources, this Phase 2 at home clinical trial for women with FSD could start as early as the first half of calendar
2011.
Delivery of Bremelanotide. Injection sites for subcutaneous injection of bremelanotide include the abdomen, thigh and upper arms. We are
exploring various delivery devices for subcutaneous administration. We believe that fine needle devices, pen injectors and needle-free
injector systems can be used for subcutaneous administration of bremelanotide, and are evaluating various delivery devices for potential
commercialization. If Phase 2 clinical trials for ED or FSD are successful, we anticipate that Phase 3 clinical trials will be conducted with a
delivery device intended for commercialization.
Peptide and Small Molecule Melanocortin Receptor Agonists for Treatment of Sexual Dysfunction. We developed a series of
lead alternative melanocortin receptor-specific peptides for treatment of sexual dysfunction, and have demonstrated efficacy with certain of
these peptides in inducing erections in animal models.
In developing these peptides, we used a novel screening platform that examined the effectiveness of peptides in animal models of sexual
response and also determined cardiovascular effects, primarily looking at changes in blood pressure. In these animal models, certain of
these peptides resulted in significantly smaller increases in blood pressure at doses effective for a sexual response than increases in blood
pressure in the same models seen with comparably effective doses of bremelanotide. Additionally, many of these peptides are highly
selective for the specific melanocortin receptor believed to be involved in sexual response, and thus may have an improved side effect and
safety profile.
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We have suspended further discovery work on our alternative melanocortin receptor-specific peptides, but intend, depending on financial
resources, to advance one or more of the peptides we have developed to preclinical toxicology and other studies required by the FDA prior
to initiating human clinical trials.
We have suspended our development program for small molecule melanocortin receptor-specific compounds for treatment of sexual
dysfunction.
Obesity. In 2007, we entered into an exclusive research collaboration and license agreement with AstraZeneca to discover, develop and
commercialize compounds that target melanocortin receptors for the treatment of obesity, diabetes and related metabolic syndrome. In
June and December 2008 and in September 2009, the research collaboration and license agreement was amended to include additional
compounds and associated intellectual property we developed and to modify royalty rates and milestone payments. Active work under the
collaboration portion of the agreement concluded in January 2010, but we are still providing certain clinical trial related and other services
to AstraZeneca.
Obesity is a multifactorial condition with significant biochemical components relating to satiety (feeling full), energy utilization and
homeostasis. A number of different metabolic and hormonal pathways are being evaluated by companies around the world in efforts to
develop better treatments for obesity. Scientific research has established that melanocortin receptors have a role in eating behavior and
energy homeostasis, and that some melanocortin receptor agonists decrease food intake and induce weight loss.
Obesity is a significant healthcare issue, often correlated with a variety of cardiovascular and other diseases, including diabetes. More
than 1.1 billion adults and over 150 million children worldwide are overweight, with over 300 million adults categorized as obese. According
to the American Obesity Association, obesity is the second leading cause of preventable death after smoking and nearly one-third of adults
in the United States are obese. Increased mortality, high blood pressure, diabetes and other substantial health risks are associated with
being overweight and obese. Over 2.6 million deaths are attributed to diabetes each year worldwide and almost $120 billion is spent on
related costs of obesity, according to the U.S. Surgeon General.
We developed classes of small molecule and peptide compounds targeting melanocortin receptors which are effective in the treatment of
obesity in animal models. Certain of these compounds have been demonstrated to be effective in normal diet-induced obese and
genetically obese animal models for decreasing food intake and body weight, without an increase in sexual response in normal animals at
the same or higher dose levels. Pursuant to clinical trial agreements with AstraZeneca, we have conducted proof-of-principle clinical trials
on the effects of a melanocortin receptor-specific compound on food intake, obesity and other metabolic parameters, and have agreed to
conduct additional related studies at a negotiated rate.
Pursuant to the terms of the research collaboration and license agreement with AstraZeneca, we have received up-front and other
licensing payments totaling $15 million from AstraZeneca. We are eligible for milestone payments totaling up to $145 million, with up to $85
million contingent upon development and regulatory milestones and the balance on achievement of sales targets, plus royalties on sales of
approved products. AstraZeneca has responsibility for product commercialization, product discovery and development costs.
Other Melanocortin Programs. We have suspended work on our other early stage research and discovery programs exploring additional
indications and targets. These programs include development of highly selective melanocortin-1 and melanocortin-3 receptor agonists for
treatment of inflammation-related diseases and disorders and melanocortin-4 receptor antagonists for treatment of cachexia. We do not
anticipate that any significant effort will be devoted to these programs during the next twelve months.
Natriuretic Peptide Receptor-Specific Programs
The natriuretic peptide receptor system has numerous cardiovascular functions, and therapeutic agents modulating this system may be
useful in treatment of heart failure, hypertension, acute asthma and other cardiovascular diseases.
PL-3994. PL-3994 is an NPR-A agonist compound in development for treatment of acute exacerbations of asthma, heart failure and
refractory hypertension. PL-3994 activates NPR-A, a receptor known to play a role in cardiovascular homeostasis. PL-3994 increases
plasma cyclic guanosine monophosphate (cGMP) levels, a pharmacological response consistent with the effects of endogenous (naturally
produced) natriuretic peptides on cardiovascular function and smooth muscle relaxation. PL-3994 also decreases activity of the renin-
angiotensin-aldosterone system (RAAS), a hormone system that regulates blood pressure and fluid balance. The RAAS system is
frequently over-activated in heart failure patients, leading to worsening of cardiovascular function.
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PL-3994 is one of a number of natriuretic peptide receptor agonist compounds we have developed. PL-3994 is a synthetic molecule
incorporating a novel and proprietary amino acid mimetic structure. It has an extended half-life, with reduced affinity for the endogenous
natriuretic peptide clearance receptor and significantly increased resistance to neutral endopeptidase, an endogenous enzyme that
degrades natriuretic peptides.
PL-3994 for Acute Exacerbations of Asthma. Acute exacerbations of asthma, also called acute severe asthma, is an ongoing asthma
episode in which asthma symptoms do not adequately respond to initial bronchodilator or corticosteroid therapy. Inhaled beta-2 adrenergic
receptor agonists, such as albuterol, and inhaled corticosteroids are primary treatments for asthma episodes. Some patients with acute
exacerbations of asthma become unresponsive to beta-2 adrenergic receptor agonists, significantly limiting treatment options and
increasing risk.
In 2006, the most recent year reported, there were almost 1.7 million emergency room visits due to asthma, with 440,000 hospitalizations
attributed to asthma. In 2008, approximately 23.3 million Americans had asthma, with a projected 2010 economic cost in the United States
of $20.7 billion, of which the largest single direct medical expenditure, $5.9 billion, is for prescription drugs.
Existing therapies for acute exacerbations of asthma in patients unresponsive to beta-2 adrenergic receptor agonists have limitations,
including typically taking several hours for significant patient improvement. Existing therapies include oxygen, systemic steroids and
anticholinergic drugs. PL-3994, which works through a different pathway than beta-2 adrenergic receptor agonists and other approved
bronchodilators, is intended to address this unmet medical need.
Research over the past two decades has demonstrated potent bronchodilator effects with both systemic and inhalation administration of
natriuretic peptides. NPR-A agonism is known to relax smooth muscles in airways and works through a pathway independent of the beta-2
adrenergic receptor. Preclinical testing demonstrated potent airway smooth muscle relaxation in rat, guinea pig and human tissues using
PL-3994, and animal studies in sensitized guinea pigs has demonstrated a bronchodilator effect with PL-3994 using both subcutaneous
and inhalation administration.
Endogenous natriuretic peptides have a very short half-life, due primarily to degradation by neutral endopeptidase and clearance through
the natriuretic peptide clearance receptor. PL-3994 is resistant to neutral endopeptidase and clears from the body much more slowly than
endogenous natriuretic peptides. PL-3994 has a blood-plasma half-life of at least three hours in humans when administered by
subcutaneous injection, with biological effects seen for over eight hours post-administration.
We have planned a proof-of-concept human trial for asthma using a subcutaneously administered formulation of PL-3994, and will submit
an Investigational New Drug (IND) application to the FDA in the fourth quarter of calendar 2010 for this trial. We also have an inhalation
formulation of PL-3994 under development. Depending on financial resources, either or both the proof-of-concept human trial and
preclinical inhalation toxicity studies could start as early as the first quarter of calendar 2011.
PL-3994 for Heart Failure. Heart failure is an illness in which the heart is unable to pump blood efficiently, and includes acutely
decompensated heart failure with dyspnea (shortness of breath) at rest or with minimal activity. Endogenous natriuretic peptides have a
number of beneficial effects, including vasodilation (relaxation of blood vessels), natriuresis (excretion of sodium), and diuresis (excretion
of fluids).
Patients who have been admitted to the hospital with an episode of worsening heart failure have an increased risk of either death or
hospital readmission in the three months following discharge. Up to 15% of patients die in this period and as many as 30% need to be
readmitted to the hospital. We believe that decreasing mortality and hospital readmission in patients discharged following hospitalization for
worsening heart failure is a large unmet medical need for which PL-3994 may be effective. PL-3994 would be utilized as an adjunct to
existing heart failure medications, and may, if successfully developed, be self-administered by patients as a subcutaneous injection
following hospital discharge. We believe that PL-3994, through activation of NPR-A, may, if successful, reduce cardiac hypertrophy
(increase in heart size due to disease), which is an independent risk factor for cardiovascular morbidity and mortality.
Over 5.7 million Americans suffer from heart failure, with 670,000 new cases of heart failure diagnosed each year, with disease incidence
expected to increase with the aging of the American population. Despite the treatment of heart failure with multiple drugs, almost all heart
failure patients will experience at least one episode of acute heart failure that requires treatment with intravenous medications in the
hospital. Heart failure has tremendous human and financial costs. Estimated direct costs in the United States for heart failure are $37.2
billion in 2009, with heart failure constituting the leading cause of hospitalization in people over 65 years of age, with over 1.1 million
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hospital discharges for heart failure in 2006. Heart failure is also a high mortality disease, with approximately one-half of heart failure
patients dying within five years of initial diagnosis.
We have planned a repeat dose Phase 2 clinical trial in patients hospitalized with heart failure, which will evaluate safety profiles in patients
given repeat doses of PL-3994 as well as pharmacokinetic (period to metabolize or excrete the drug) and pharmacodynamic (period of
action or effect of the drug) endpoints, but have not determined when this trial will commence.
PL-3994 for Refractory Hypertension. PL-3994 may potentially also be used for treatment of refractory or difficult-to-control hypertension,
which is high blood pressure despite a three-drug regimen that includes a diuretic. Refractory hypertension is commonly found in patients
with congestive heart failure or renal disease. While there are a large number of approved drugs for treatment of hypertension, there are no
approved drugs for hypertension that are active through the NPR-A system. Refractory and other difficult-to-control hypertension can be
caused by increased aldosterone levels. PL-3994 is believed to act through the NPR-A system on the RAAS to decrease renin and
aldosterone secretion and thereby decrease blood pressure. In a Phase 2A study of subjects with controlled hypertension, the data
suggested an increased effect of PL-3994 in reducing systemic blood pressure when taken with an angiotensin-converting enzyme (ACE)
inhibitor, a common class of drugs for controlling hypertension. PL-3994 thus may be suitable for use as an adjunct therapy to one or more
existing hypertension drugs, including an ACE inhibitor.
Clinical Studies with PL-3994. Preclinical studies in animals established a dose-dependent effect on blood pressure and diuresis, and in
animal models of heart failure showed improved kidney function and prevention of cardiac hypertrophy. Human clinical studies of PL-3994
commenced with a Phase 1 trial which concluded in the first quarter of calendar year 2008. This was a randomized, double-blind, placebo-
controlled, study in 26 healthy volunteers who received either PL-3994 or a placebo subcutaneously. The evaluations included safety,
tolerability, pharmacokinetics and several pharmacodynamic endpoints, including levels of cGMP, a natural messenger nucleotide. Dosing
concluded with the successful achievement of the primary endpoint of the study, a prespecified reduction in systemic blood pressure. No
volunteer experienced a serious or severe adverse event. Elevations in plasma cGMP levels, increased diuresis and increased natriuresis
were all observed for several hours after single subcutaneous doses.
In the second quarter of calendar year 2008, we conducted a Phase 2A trial in volunteers with controlled hypertension who were receiving
one or more conventional antihypertensive medications. In this trial, which was a randomized, double-blind, placebo-controlled, single
ascending dose study in 21 volunteers, the objective was to demonstrate that PL-3994 can be given safely to patients taking
antihypertensive medications commonly used in heart failure and hypertension patients. Dosing concluded with the successful
achievement of the primary endpoint of the study, a prespecified reduction in systemic blood pressure. No volunteer experienced a serious
or severe adverse event. Elevations in plasma cGMP levels were observed for several hours after single subcutaneous doses.
Administration of PL-3994. We are developing PL-3994 for acute exacerbations of asthma indications as either a subcutaneously
administered drug or as an inhaled drug. For asthma indications we believe that inhalation administration may be preferable to
subcutaneous or other systemic administration.
We are developing PL-3994 for heart failure and refractory hypertension indications as a subcutaneously administered drug. PL-3994 is
well absorbed through this route of administration. In human studies, the pharmacokinetic and pharmacodynamic half-lives were on the
order of hours, significantly longer than the comparable half-lives of endogenous natriuretic peptides. We believe that subcutaneous PL-
3994, if successful, will be amenable to self-administration by patients, similar to insulin and other self-administered drugs.
Other Natriuretic Peptide Receptor-Specific Programs. We have suspended work on our early stage discovery and development
programs in the natriuretic peptide receptor field. We do not anticipate that any significant effort will be devoted to these programs during
the next twelve months.
Other Programs
We previously marketed NeutroSpec®, a radiolabeled monoclonal antibody product for imaging and diagnosing infection, which is the
subject of a strategic collaboration agreement with the Mallinckrodt division of Covidien Ltd. We have suspended marketing, clinical trials
and securing regulatory approvals of NeutroSpec, and do not anticipate conducting any substantive work or incurring substantial
expenditures on NeutroSpec over the next twelve months.
Technologies We Use
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We used a rational drug design approach to discover and develop proprietary peptide, peptide mimetic and small molecule agonist
compounds, focusing on melanocortin and natriuretic peptide receptor systems. Computer-aided drug design models of receptors are
optimized based on experimental results obtained with peptides and small molecules we develop, supported by conformational analyses of
peptides in solution utilizing nuclear magnetic resonance spectroscopy. By integrating both technologies, we believe we are developing an
advanced understanding of the factors which drive agonism.
We have developed a series of proprietary technologies used in our drug development programs. One technology employs novel
amino acid mimetics in place of selected amino acids. These mimetics provide the receptor-binding functions of conventional amino acids,
while providing structural, functional and physiochemical advantages. The amino acid mimetic technology is employed in PL-3994, our
compound in development for treatment of acute exacerbations of asthma, heart failure and refractory hypertension.
Some compound series have been derived using our proprietary and patented platform technology, called MIDAS™ (Metal Ion-induced
Distinctive Array of Structures). This technology employs metal ions to fix the three-dimensional configuration of peptides, forming
conformationally rigid molecules that remain folded specifically in their active state. These MIDAS molecules are generally simple to
synthesize, are chemically and proteolytically stable, and have the potential to be orally bioavailable. In addition, MIDAS molecules are
information-rich and provide data on structure-activity relationships that may be used to design small molecule, non-peptide drugs.
Estimate of Amount Spent on Research and Development Activities
Research and development expenses were $12.3 million for the fiscal year ended June 30, 2010 (fiscal 2010) and $13.4 million for the
fiscal year ended June 30, 2009 (fiscal 2009), of which $3.2 million and $4.7 million of our research and development expenses for fiscal
2010 and fiscal 2009, respectively, were borne by AstraZeneca pursuant to the research collaboration and license agreement.
Competition
General. Our products under development will compete on the basis of quality, performance, cost effectiveness and application
suitability with numerous established products and technologies. We have many competitors, including pharmaceutical, biopharmaceutical
and biotechnology companies. Furthermore, there are several well-established products in our target markets that we will have to compete
against. Products using new technologies which may be competitive with our proposed products may also be introduced by others. Most of
the companies selling or developing competitive products have financial, technological, manufacturing and distribution resources
significantly greater than ours and may represent significant competition for us.
The pharmaceutical and biotechnology industries are characterized by extensive research efforts and rapid technological change.
Many biopharmaceutical companies have developed or are working to develop products similar to ours or that address the same markets.
Such companies may succeed in developing technologies and products that are more effective or less costly than any of those that we
may develop. Such companies may be more successful than us in developing, manufacturing and marketing products.
We cannot guarantee that we will be able to compete successfully in the future or that developments by others will not render our
proposed products under development or any future product candidates obsolete or non-competitive or that our collaborators or customers
will not choose to use competing technologies or products.
Bremelanotide and Other Melanocortin Recepetor Agonists for Treatment of Sexual Dysfunction. There is competition and financial
incentive to develop, market and sell drugs for the treatment of ED and FSD. Leading drugs approved for ED indications are PDE-5
inhibitors which target the vascular system, such as sildenafil (sold under the trade name Viagra®), vardenafil (sold under the trade name
Levitra®) and tadalafil (sold under the trade name Cialis®). In addition, we are aware of other PDE-5 inhibitors under development. Other
drugs approved for ED indications include alprostadil for injection (sold under the trade name Caverject Impulse® among others), which is
injected directly into the penis, and alprostadil in urethral suppository format (sold under the trade name MUSE®). In addition, a variety of
devices, including vacuum devices and surgical penile implants, have been approved for ED indications. We are aware of a number of
companies developing new drugs for ED indications, including at least one company developing a new drug for treatment of ED not
sufficiently responsive to PDE-5 inhibitors, some of which are in clinical trials in the United States and elsewhere. We are not aware of any
company actively developing a melanocortin receptor agonist drug for ED.
There are no products specifically approved for an FSD indication in the United States. A number of hormonal therapies have been
commercialized for other indications, including progestin, androgen and localized estrogen therapies, but none have been approved by the
FDA for FSD indications. A number of drugs, including
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hormonal drugs, are in various stages of research or development for FSD. We are not aware of any company actively developing a
melanocortin receptor agonist drug for FSD.
PL-3994 for Acute Exacerbations of Asthma Indications. The asthma market is intensively competitive, with substantial competition and
financial incentive to develop, market and sell drugs for treatment of asthma, with projected costs of prescription drugs of $5.9 billion in the
United States in 2010. We are aware of companies developing drugs for the specific indications of either acute exacerbations of asthma or
acute severe asthma, including at least one company with a drug reported to be currently in clinical trials. In addition, a number of clinical
trials are conducted by hospitals, research institutes and others exploring various methods and combinations of drugs to treat acute
exacerbations of asthma. There are a number of drugs and therapies currently used to treat acute exacerbations of asthma, including
administration of oral or intravenous systemic steroids, use of oxygen or heliox, a mixture of helium and oxygen, nebulized short-acting
beta-2 adrenergic receptor agonists, intravenous or nebulized anticholinergic agents and, for patients in or approaching respiratory arrest,
intubation and mechanical ventilation. However, each of these drugs or therapies has recognized limitations or liabilities, and we believe
that there remains an unmet medical need for a safe and effective treatment for acute exacerbations of asthma. We are not aware of any
company actively developing a drug to relax smooth muscles in airways through a natriuretic peptide receptor pathway.
PL-3994 for Heart Failure Indications. Nesiritide (sold under the trade name Natrecor®), a recombinant human B-type natriuretic peptide
drug, is marketed in the United States by Scios Inc., a Johnson & Johnson company. Nesiritide is approved for treatment of acutely
decompensated congestive heart failure patients who have dyspnea at rest or with minimal activity. Carperitide, a recombinant human atrial
natriuretic peptide drug, is marketed in Japan and is reported to be available for licensing in other countries. Ularitide, a synthetic form of
urodilatin, a naturally occurring human natriuretic peptide related to atrial natriuretic peptide, is reported to be in clinical trials. Nesiritide,
carperitide and ularitide are administered by intravenous infusion. Because of the very short half-lives of nesiritide, carperitide and ularitide,
we believe these drugs are unlikely to be suitable for subcutaneous administration or for long-term treatment of heart failure. We are aware
of other companies developing intravenously administered natriuretic peptide drugs, with at least one reported to be in Phase 2 clinical
trials for acute heart failure. In addition, there are a number of approved drugs and drugs in development for treatment of heart failure
through mechanisms or pathways other than agonism of NPRA.
Obesity. There are several FDA-approved drugs for the treatment of obesity, and a large number of products in clinical
development by other companies, including products which target melanocortin receptors. Clinical trials for obesity are lengthy, time-
consuming and expensive, and we may not be able to proceed if AstraZeneca discontinues work under or terminates our research
collaboration and license agreement. See the discussion under the heading “We do not control the development of compounds licensed to
third parties and, as a result, we may not realize a significant portion of the potential value of any such license arrangements” in Item 1A,
“Risk Factors” in this Annual Report.
Patents and Proprietary Information
Patent Protection. Our success will depend in substantial part on our ability to obtain, defend and enforce patents, maintain trade
secrets and operate without infringing upon the proprietary rights of others, both in the United States and abroad. We own a number of
issued United States patents and have pending United States patent applications, many with issued or pending counterpart patents in
selected foreign countries. We seek patent protection for our technologies and products in the United States and those foreign countries
where we believe patent protection is commercially important.
We own issued United States and foreign patents claiming the bremelanotide substance. The issued United States patents have a
term until 2020, which term may be subject to extension for a maximum period of up to five years as compensation for patent term lost
during drug development and the FDA regulatory review process, pursuant to the Drug Price Competition and Patent Term Restoration Act
of 1984 (the Hatch-Waxman Amendments). Whether we will be able to obtain patent term extensions under the Hatch-Waxman
Amendments and the length of the extension to which we may be entitled cannot be determined until the FDA approves for marketing, if
ever, a product in which bremelanotide is the active ingredient. In addition, the claims of issued patents covering bremelanotide may not
provide meaningful protection. Further, third parties may challenge the validity or scope of any issued patent.
We have patent applications pending in the United States and other countries claiming the PL-3994 substance and other
natriuretic peptide receptor agonist compounds we have developed. One United States patent claiming PL-3994 has been issued, but
other patent applications have not yet issued, and in any event we do not
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know the full scope of patent coverage we will obtain, or whether any patents will issue other than the United States patent
claiming PL-3994. The issued patent has a term until 2027, which term may be subject to extension for a maximum period of up
to five years as compensation for patent term lost during drug development and the FDA regulatory review process, pursuant to
the Hatch-Waxman Amendments. Whether we will be able to obtain patent term extensions under the Hatch-Waxman
Amendments and the length of the extension to which we may be entitled cannot be determined until the FDA approves for
marketing, if ever, a product in which PL-3994 is the active ingredient.
We have filed patent applications on melanocortin receptor specific peptides and small molecules we are developing, but these
applications have not yet been examined. Until these applications are examined, we do not know the scope of patent claims that will be
allowed, or whether any patents will issue.
We own a number of United States and foreign patent applications that are licensed to AstraZeneca under our research
collaboration and license agreement relating to our obesity program. Under the agreement, AstraZeneca is responsible for prosecution of
these patent applications in the United States and other countries. However, many of these patent applications have not yet been
examined, and we do not know the scope of patent claims that will be allowed, or whether any patents will issue. Additionally, until one or
more compounds subject to the agreement with AstraZeneca are developed for commercialization, which may never occur, we cannot
evaluate the duration of patents or their effect on the program.
In the event that a third party has also filed a patent application relating to an invention we claimed in a patent application, we may
be required to participate in an interference proceeding adjudicated by the United States Patent and Trademark Office to determine priority
of invention. The possibility of an interference proceeding could result in substantial uncertainties and cost, even if the eventual outcome is
favorable to us. An adverse outcome could result in the loss of patent protection for the subject of the interference, subjecting us to
significant liabilities to third parties, the need to obtain licenses from third parties at undetermined cost, or requiring us to cease using the
technology.
Future Patent Infringement. We do not know for certain that our commercial activities will not infringe upon patents or patent
applications of third parties, some of which may not even have been issued. Although we are not aware of any valid United States patents
which are infringed by bremelanotide or PL-3994, we cannot exclude the possibility that such patents might exist or arise in the future. We
may be unable to avoid infringement of any such patents and may have to seek a license, defend an infringement action, or challenge the
validity of such patents in court. Patent litigation is costly and time consuming. If such patents are valid and we do not obtain a license
under any such patents, or we are found liable for infringement, we may be liable for significant monetary damages, may encounter
significant delays in bringing products to market, or may be precluded from participating in the manufacture, use or sale of products or
methods of treatment covered by such patents.
Proprietary Information. We rely on proprietary information, such as trade secrets and know-how, which is not patented. We have
taken steps to protect our unpatented trade secrets and know-how, in part through the use of confidentiality and intellectual property
agreements with our employees, consultants and certain contractors. If our employees, scientific consultants, collaborators or licensees
develop inventions or processes independently that may be applicable to our product candidates, disputes may arise about the ownership
of proprietary rights to those inventions and processes. Such inventions and processes will not necessarily become our property, but may
remain the property of those persons or their employers. Protracted and costly litigation could be necessary to enforce and determine the
scope of our proprietary rights.
If trade secrets are breached, our recourse will be solely against the person who caused the secrecy breach. This might not be an
adequate remedy to us, because third parties other than the person who causes the breach will be free to use the information without
accountability to us. This is an inherent limitation of the law of trade secret protection.
Governmental Regulation
The FDA, comparable agencies in other countries and state regulatory authorities have established regulations and guidelines
which apply to, among other things, the clinical testing, manufacturing, safety, efficacy, labeling, storage, record keeping, advertising,
promotion, marketing and distribution of our proposed products. Noncompliance with applicable requirements can result in fines, recalls or
seizures of products, total or partial suspension of production, refusal of the regulatory authorities to approve marketing applications,
withdrawal of approvals and criminal prosecution.
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Before a drug product is approved by the FDA for commercial marketing, three phases of human clinical trials are usually
conducted to test the safety and effectiveness of the product. Phase 1 clinical trials most typically involve testing the drug on a small
number of healthy volunteers to assess the safety profile of the drug at different dosage levels. Phase 2 clinical trials, which may also enroll
a relatively small number of patient volunteers, are designed to further evaluate the drug’s safety profile and to provide preliminary data as
to the drug’s effectiveness in humans. Phase 3 clinical trials consist of larger, well-controlled studies that may involve several hundred or
thousand patient volunteers representing the drug’s targeted population. During any of these phases, the clinical trial can be placed on
clinical hold, or temporarily or permanently stopped for a variety of reasons, principally for safety concerns.
After approving a product for marketing, the FDA may require post-marketing testing, including extensive Phase 4 studies, and
surveillance to monitor the safety and effectiveness of the product in general use. The FDA may withdraw product approvals if compliance
with regulatory standards is not maintained or if problems occur following initial marketing. In addition, the FDA may impose restrictions on
the use of a drug that may limit its marketing potential. The failure to comply with applicable regulatory requirements in the United States
and in other countries in which we conduct development activities could result in a variety of fines and sanctions, such as warning letters,
product recalls, product seizures, suspension of operations, fines and civil penalties or criminal prosecution.
In addition to obtaining approval of a New Drug Application (an NDA) from the FDA for any of our proposed products, any facility
that manufactures such a product must comply with current good manufacturing practices (GMPs). This means, among other things, that
the drug manufacturing establishment must be registered with, and subject to inspection by, the FDA. Foreign manufacturing
establishments must also comply with GMPs and are subject to periodic inspection by the FDA or by corresponding regulatory agencies in
such other countries under reciprocal agreements with the FDA. In complying with standards established by the FDA, manufacturing
establishments must continue to expend time, money and effort in the areas of production and quality control to ensure full technical
compliance. We will use contract manufacturing establishments, in the United States or in foreign countries, to manufacture our proposed
products, and will depend on those establishments to comply with GMPs and other regulatory requirements.
Third-Party Reimbursements
Successful sales of our proposed products in the United States and other countries will depend, in large part, on the availability of
adequate reimbursement from third-party payors such as governmental entities, managed care organizations, health maintenance
organizations (HMOs) and private insurance plans. Reimbursement by a third-party payor may depend on a number of factors, including
the payor’s determination that the product has been approved by the FDA for the indication for which the claim is being made, that it is
neither experimental nor investigational, and that the use of the product is safe and efficacious, medically necessary, appropriate for the
specific patient and cost effective. Since reimbursement by one payor does not guarantee reimbursement by another, we or our licensees
may be required to seek approval from each payor individually. Seeking such approvals is a time-consuming and costly process. Third-
party payors routinely limit the products that they will cover and the amount of money that they will pay and, in many instances, are
exerting significant pressure on medical suppliers to lower their prices. There is significant uncertainty concerning third-party
reimbursement for the use of any pharmaceutical product incorporating new technology and we are not sure whether third-party
reimbursement will be available for our proposed products once approved, or that the reimbursement, if obtained, will be adequate. There
is also significant uncertainty concerning third-party reimbursement for products treating FSD and ED. Less than full reimbursement by
governmental and other third-party payors for our proposed products would adversely affect the market acceptance of these proposed
products. Further, healthcare reimbursement systems vary from country to country, and we are not sure whether third-party reimbursement
will be made available for our proposed products under any other reimbursement system.
Manufacturing and Marketing
To be successful, our proposed products will need to be manufactured in commercial quantities under GMPs prescribed by the
FDA and at acceptable costs. We do not have the facilities to manufacture any of our proposed products under GMPs. We intend to rely on
collaborators, licensees or contract manufacturers for the commercial manufacture of our proposed products.
Our bremelanotide product candidate is a synthetic peptide. While the production process involves well-established technology,
there are few manufacturers capable of scaling up to commercial quantities under GMPs at acceptable costs. We have identified one third-
party manufacturer for the production of bremelanotide, and have
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validated manufacturing of the bremelanotide drug substance under GMPs with that manufacturer. However, we have not
negotiated a long-term supply agreement with the third-party manufacturer, and may not be able to enter into a supply
agreement on acceptable terms, if at all.
Our PL-3994 product candidate is a peptide mimetic molecule, incorporating a proprietary amino acid mimetic structure and amino
acids. We have identified a manufacturer which made the product in quantities sufficient for Phase 1 and some anticipated Phase 2 clinical
trials, and are in the process of evaluating commercial-scale manufacturers. Scaling up to commercial quantities may involve production,
purification, formulation and other problems not present in the scale of manufacturing done to date.
Certain of our melanocortin receptor agonist product candidate are synthetic peptides, which we have primarily manufactured in-
house. We have not contracted with a third-party manufacturer to produce these synthetic peptides for either clinical trials or commercial
purposes. While the production process involves well-established technology, there are few manufacturers capable of scaling up to
commercial quantities under GMPs at acceptable costs. Additionally, scaling up to commercial quantities may involve production,
purification, formulation and other problems not present in the scale of manufacturing done to date.
The failure of any manufacturer or supplier to comply with FDA GMPs or to supply the drug substance and services as agreed,
would force us to seek alternative sources of supply and could interfere with our ability to deliver product on a timely and cost effective
basis or at all. Establishing relationships with new manufacturers or suppliers, any of whom must be FDA-approved, is a time-consuming
and costly process.
Product Liability and Insurance
Our business may be affected by potential product liability risks which are inherent in the testing, manufacturing, marketing and
use of our proposed products. We have liability insurance providing up to $10 million coverage in the aggregate as to certain clinical trial
risks.
Employees
As of September 24, 2010, we employed 41 persons full time, of whom 27 are engaged in research and development activities and
13 are engaged in administration and management. On September 24, 2010, we announced a realignment of our work force with
corporate objectives, and anticipate that we will have 20 or fewer full time employees by December 31, 2010. While we have been
successful in attracting skilled and experienced scientific personnel, competition for personnel in our industry is intense. None of our
employees are covered by a collective bargaining agreement. All of our employees have executed confidentiality and intellectual property
agreements. We consider relations with our employees to be good.
From time to time, we hire scientific consultants to work on specific research and development programs. We also rely on
independent organizations, advisors and consultants to provide services, including aspects of manufacturing, clinical management,
regulatory strategy and market research. Our independent advisors and consultants sign agreements that provide for confidentiality of our
proprietary information and rights to any intellectual property developed while working for us.
Item 1A. Risk Factors.
We will continue to incur substantial losses over the next few years and we may never become profitable.
We have never been profitable and we may never become profitable. As of June 30, 2010, we had an accumulated deficit of $209.2 million.
We expect to incur additional losses as we continue our development of bremelanotide, PL-3994 and other product candidates. Unless
and until we receive approval from the FDA or other equivalent regulatory authorities outside the United States, we cannot sell our
products and will not have product revenues from them. Therefore, for the foreseeable future, we will have to fund all of our operations and
capital expenditures from reimbursements and other contract revenue under collaborative development agreements, existing cash
balances and outside sources of financing, which may not be available on acceptable terms, if at all.
We need to raise additional funds and will need to continue to raise funds in the future, and funds may not be available on
acceptable terms, or at all.
As of June 30, 2010, we had cash and cash equivalents of $5.4 million and available-for-sale investments of $3.5 million, with current
liabilities of $2.4 million. We have curtailed our operations significantly, including suspending early stage research and discovery programs
and implementing a reduction in our workforce. However, our available working capital will not fund our currently planned operations for
the next twelve months. We will
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also need additional funds to continue development of bremelanotide and PL-3994, including planned clinical trials and preclinical
development efforts.
We may raise additional funds through public or private equity financings, collaborative arrangements on our product candidates or other
sources. However, additional funding may not be available on acceptable terms or at all. To obtain additional funding, we may need to
enter into arrangements that require us to develop only certain of our product candidates or relinquish rights to certain technologies,
product candidates and/or potential markets.
If we are unable to raise sufficient additional funds, we will implement plans for the orderly wind down of our business operations, including
curtailing operations significantly and further decreasing staffing levels, and will seek to license, sell or otherwise dispose of our product
candidates, technologies and contractual rights, including rights under our research collaboration and license agreement with
AstraZeneca, on the best possible terms available. Even if we are able to license, sell or otherwise dispose of our product candidates,
technologies and contractual rights, it is likely to be on unfavorable terms and for less value than if we had the financial resources to
develop or otherwise advance our product candidates, technologies and contractual rights ourselves.
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern, which
may hinder our ability to obtain future financing.
Our consolidated financial statements as of June 30, 2010 have been prepared under the assumption that we will continue as a
going concern. Our independent registered public accounting firm has issued a report dated September 27, 2010 that included an
explanatory paragraph referring to our recurring net losses and negative cash flows from operations and expressing substantial doubt in
our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional
equity financing or other capital, attain further operating efficiencies, reduce expenditures, and, ultimately, to generate revenue. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We are continually
evaluating opportunities to raise additional funds through public or private equity financings, as well as evaluating prospective business
partners, and will continue to do so. However, if adequate funds are not available to us when we need it, and we are unable to enter into
some form of strategic relationship that will give us access to additional cash resources, we will be required to even further curtail our
operations which would, in turn, further raise substantial doubt about our ability to continue as a going concern.
Based upon the recent price of our common stock on the NYSE Amex LLC (the NYSE Amex), even if we are able to raise
additional capital our existing stockholders will experience substantial dilution.
In order to raise any meaningful amount of capital, as we intend, based upon our recent stock price we will almost certainly need to
sell a significant amount of equity securities, either in the form of new shares of common stock or some other form of convertible security.
Any significant sale of equity securities in any form at these prices will result in significant dilution to our existing stockholders. The
prospect of this dilution is likely to continue to have a negative effect on the market price and trading volume of our common stock until
such time as an actual financing occurs.
We have implemented a reverse stock split, which will reduce our trading volume and may result in a decrease in our market
capitalization.
Effective September 27, 2010, we implemented a one-for-ten reverse stock split. This reverse stock split was implemented because we
had received notice that the NYSE Amex deemed it appropriate for us to effect a reverse stock split because of the low selling price of our
common stock. At our annual meeting of stockholders held on May 13, 2010, the stockholders authorized a reverse stock split. We believe
it is likely that the per share market price of our common stock will increase after the one-for-ten reverse split. However, we cannot
guarantee that our common stock price will increase, and even if it does, we cannot guarantee that the price increase:
· will be proportionate to the reverse split ratio;
· will last in the marketplace for any length of time;
· will remain at a price sufficient to meet the listing requirements of the NYSE Amex; or
· will be sufficient to facilitate raising capital.
We have a limited operating history upon which to base an investment decision.
Our operations are primarily focused on acquiring, developing and securing our proprietary technology, conducting preclinical and
clinical studies and formulating and manufacturing on a small-scale basis our principal
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product candidates. These operations provide a limited basis for stockholders to assess our ability to commercialize our product
candidates.
We have not yet demonstrated our ability to perform the functions necessary for the successful commercialization of any of our
current product candidates. The successful commercialization of our product candidates will require us to perform a variety of functions,
including:
· continuing to conduct preclinical development and clinical trials;
· participating in regulatory approval processes;
· formulating and manufacturing products, or having third parties formulate and manufacture products;
· post-approval monitoring and surveillance of our products;
· conducting sales and marketing activities, either alone or with a partner; and
· obtaining additional capital.
If we are unable to obtain regulatory approval of any of our product candidates, to successfully commercialize any products for which we
receive regulatory approval or to obtain additional capital, we may not be able to recover our investment in our development efforts.
Development and commercialization of our product candidates involves a lengthy, complex and costly process, and we may
never successfully develop or commercialize any product.
Our product candidates are at various stages of research and development, will require regulatory approval, and may never be
successfully developed or commercialized. Our product candidates will require significant further research, development and testing before
we can seek regulatory approval to market and sell them.
We must demonstrate that our product candidates are safe and effective for use in patients in order to receive regulatory approval for
commercial sale. Preclinical studies in animals, using various doses and formulations, must be performed before we can begin human
clinical trials. Even if we obtain favorable results in the preclinical studies, the results in humans may be different. Numerous small-scale
human clinical trials may be necessary to obtain initial data on a product candidate’s safety and efficacy in humans before advancing to
large-scale human clinical trials. We face the risk that the results of our trials in later phases of clinical trials may be inconsistent with those
obtained in earlier phases. Adverse or inconclusive results could delay the progress of our development programs and may prevent us
from filing for regulatory approval of our product candidates. Additional factors that can cause delay or termination of our human clinical
trials include:
· the availability of sufficient capital to sustain operations and clinical trials;
· timely completion of clinical site protocol approval and obtaining informed consent from subjects;
· the rate of patient enrollment in clinical studies;
· adverse medical events or side effects in treated patients; and
· lack of effectiveness of the product being tested.
You should evaluate us in light of these uncertainties, delays, difficulties and expenses commonly experienced by early stage
biopharmaceutical companies, as well as unanticipated problems and additional costs relating to:
· product approval or clearance;
· regulatory compliance;
· good manufacturing practices;
· intellectual property rights;
· product introduction; and
· marketing and competition.
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The regulatory approval process is lengthy, expensive and uncertain, and may prevent us from obtaining the approvals we
require.
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Government authorities in the United States and other countries extensively regulate the advertising, labeling, storage, record-
keeping, safety, efficacy, research, development, testing, manufacture, promotion, marketing and distribution of drug products. Drugs are
subject to rigorous regulation by the FDA in the United States and similar regulatory bodies in other countries. The steps ordinarily required
by the FDA before a new drug may be marketed in the United States include:
· completion of non-clinical tests including preclinical laboratory and formulation studies and animal testing and toxicology;
· submission to the FDA of an IND, which must become effective before clinical trials may begin;
· performance of adequate and well-controlled Phase 1, 2 and 3 human clinical trials to establish the safety and efficacy of the
drug for each proposed indication;
· submission to the FDA of an NDA; and
· FDA review and approval of the NDA before any commercial marketing or sale.
Satisfaction of FDA pre-market approval requirements for new drugs typically takes a number of years and the actual time required for
approval may vary substantially based upon the type, complexity and novelty of the product or disease. The results of product
development, preclinical studies and clinical trials are submitted to the FDA as part of an NDA. The NDA also must contain extensive
manufacturing information. Once the submission has been accepted for filing, the FDA generally has ten months to review the application
and respond to the applicant. The review process is often significantly extended by FDA requests for additional information or clarification.
Success in early stage clinical trials does not assure success in later stage clinical trials. Data obtained from clinical trials is not always
conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. The FDA may refer the
NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved, but the FDA
is not bound by the recommendation of the advisory committee. The FDA may deny or delay approval of applications that do not meet
applicable regulatory criteria or if the FDA determines that the clinical data do not adequately establish the safety and efficacy of the drug.
Therefore, our proposed products could take a significantly longer time than we expect or may never gain approval. If regulatory approval
is delayed or never obtained, our business and our liquidity would be adversely affected.
Upon approval, a product candidate may be marketed only in those dosage forms and for those indications approved by the FDA. Once
approved, the FDA may withdraw the product approval if compliance with regulatory requirements is not maintained or if problems occur
after the product reaches the marketplace. In addition, the FDA may require post-marketing studies, referred to as Phase 4 studies, to
monitor the approved products in a larger number of patients than were required for product approval and may limit further marketing of the
product based on the results of these post-market studies. The FDA has broad post-market regulatory and enforcement powers, including
the ability to seek injunctions, levy fines and civil penalties, criminal prosecution, withdraw approvals and seize products or request recalls.
If regulatory approval of any of our product candidates is granted, it will be limited to certain disease states or conditions. Adverse
experiences with the product must be reported to the FDA and could result in the imposition of market restriction through labeling changes
or in product removal. Product approvals may be withdrawn if compliance with regulatory requirements is not maintained or if problems
concerning safety or efficacy of the product occur following approval.
Outside the United States, our ability to market our product candidates will also depend on receiving marketing authorizations from the
appropriate regulatory authorities. The foreign regulatory approval process generally includes all of the risks associated with FDA approval
described above. The requirements governing the conduct of clinical trials and marketing authorization vary widely from country to country.
At present, foreign marketing authorizations are applied for at a national level, although within the European Community, or EC, registration
procedures are available to companies wishing to market a product to more than one EC member state. If the regulatory authority is
satisfied that adequate evidence of safety, quality and efficiency has been presented, a marketing authorization will be granted.
If any approved product does not achieve market acceptance, our business will suffer.
Regulatory approval for the marketing and sale of any of our product candidates does not assure the product’s commercial success. Any
approved product will compete with other products manufactured and marketed
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by major pharmaceutical and other biotechnology companies. The degree of market acceptance of any such product will depend on a
number of factors, including:
· perceptions by members of the healthcare community, including physicians, about its safety and effectiveness;
· cost-effectiveness relative to competing products and technologies;
· availability of reimbursement for our products from third party payors such as health insurers, health maintenance
organizations and government programs such as Medicare and Medicaid; and
· advantages over alternative treatment methods.
If any approved product does not achieve adequate market acceptance, our business, financial condition and results of operations will be
adversely affected.
We rely on third parties to conduct clinical trials for our product candidates and their failure to timely perform their obligations
could significantly harm our product development.
We rely on outside scientific collaborators such as researchers at clinical research organizations and universities in certain areas that are
particularly relevant to our research and product development plans, such as the conduct of clinical trials and non-clinical tests. There is
competition for these relationships, and we may not be able to maintain our relationships with them on acceptable terms. These outside
collaborators generally may terminate their engagements with us at any time. As a result, we can control their activities only within certain
limits, and they will devote only a certain amount of their time to conduct research on our product candidates and develop them. If they do
not successfully carry out their duties under their agreements with us, fail to inform us if these trials fail to comply with clinical trial protocols
or fail to meet expected deadlines, our ability to develop our product candidates and obtain regulatory approval on a timely basis, if at all,
may be adversely affected.
Production and supply of our product candidates depend on contract manufacturers over whom we have no control.
We do not have the facilities to manufacture bremelanotide, PL-3994, melanocortin receptor agonist compounds or our other potential
products. Our contract manufacturers must perform these manufacturing activities in a manner that complies with FDA regulations. Our
ability to control third-party compliance with FDA requirements will be limited to contractual remedies and rights of inspection. The
manufacturers of approved products and their manufacturing facilities will be subject to continual review and periodic inspections by the
FDA and other authorities where applicable, and must comply with ongoing regulatory requirements, including the FDA’s GMPs
regulations. Failure of third-party manufacturers to comply with GMPs or other FDA requirements may result in enforcement action by the
FDA. Failure to conduct their activities in compliance with FDA regulations could delay our development programs or negatively impact our
ability to receive FDA approval of our potential products or continue marketing if they are approved. Establishing relationships with new
suppliers, who must be FDA-approved, is a time-consuming and costly process.
We are subject to extensive regulation in connection with the laboratory practices and the hazardous materials we use.
We are subject to various laws and regulations regarding laboratory practices, the experimental use of animals and the use and disposal of
hazardous or potentially hazardous substances in connection with our research. In each of these areas, as noted above, the FDA and other
regulatory authorities have broad regulatory and enforcement powers, including the ability to levy fines and civil penalties, suspend or
delay issuance of approvals, seize or recall products and withdraw approvals, any one or more of which could have a material adverse
effect on us. We are also subject to numerous federal, state and local laws relating to such matters as safe working conditions,
manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances.
Even though we have suspended research and development efforts on new product candidates, we are maintaining selected laboratory
capabilities, and will be subject to regulations in connection with decommissioning animal facilities, disposal of chemicals and hazardous or
potentially hazardous substances, and decommissioning and disposing of laboratory equipment. We may incur significant costs to comply
with such laws and regulations now or in the future.
Contamination or injury from hazardous materials used in the development of our products could result in a liability exceeding
our financial resources.
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Our research and development has involved the use of hazardous materials and chemicals, including radioactive compounds. We cannot
completely eliminate the risk of contamination or injury from these materials. In the event of contamination or injury, we may be responsible
for any resulting damages. Damages could be significant and could exceed our financial resources, including the limits of our insurance.
We have no experience in marketing, distributing and selling products and will substantially rely on our marketing partners to
provide these capabilities.
We are developing bremelanotide and melanocortin receptor agonist compounds for sexual dysfunction and PL-3994 for the treatment of
asthma, heart failure and related indications. We do not have marketing partners for any of these products. If any of these products are
approved by the FDA or other regulatory authorities, we must either develop marketing, distribution and selling capacity and expertise,
which will be costly and time consuming, or enter into agreements with other companies to provide these capabilities. We may not be able
to enter into suitable agreements on acceptable terms, if at all.
We do not control the development of compounds licensed to third parties and, as a result, we may not realize a significant
portion of the potential value of any such license arrangements.
Under our research collaboration and license agreement with AstraZeneca for our melanocortin-based therapeutic compounds for obesity,
diabetes and related metabolic syndrome, we have no direct control over the development of compounds and have only limited, if any,
input on the direction of development efforts. If the results of development efforts are negative or inconclusive, AstraZeneca may decide to
abandon further development of this program, including terminating the agreement, by giving us notice of termination. Because much of
the potential value of the license arrangement with AstraZeneca is contingent upon the successful development and commercialization of
the licensed technology, the ultimate value of this license will depend on the efforts of AstraZeneca. If AstraZeneca does not succeed in
developing the licensed technology for any reason, or elects to discontinue the development of this program, we may be unable to realize
the potential value of this arrangement.
Competing products and technologies may make our proposed products noncompetitive.
There are a number of other products being developed for FSD and ED. In addition to three oral FDA-approved PDE-5 inhibitor drugs for
the treatment of ED, there are other approved products and devices, and other products are being developed and are in clinical trials.
There is competition to develop drugs for ED in patients non-responsive to PDE-5 inhibitor drugs, and to develop drugs for treatment of
FSD.
There are a large number of products approved for use in asthma, and a number of other products being developed for treatment of acute
exacerbations of asthma, including products in clinical trials. There is competition to develop drugs for treatment of acute exacerbations of
asthma.
We are aware of one recombinant natriuretic peptide product for acutely decompensated congestive heart failure approved and marketed
in the United States, and another recombinant natriuretic peptide product approved and marketed in Japan. Clinical trials on other
natriuretic peptide products are being conducted in the United States. In addition, other products for treatment of heart failure are either
currently being marketed or in development.
The biopharmaceutical industry is highly competitive. We are likely to encounter significant competition with respect to bremelanotide,
other melanocortin receptor agonist compounds and PL-3994. Most of our competitors have substantially greater financial and
technological resources than we do. Many of them also have significantly greater experience in research and development, marketing,
distribution and sales than we do. Accordingly, our competitors may succeed in developing, marketing, distributing and selling products and
underlying technologies more rapidly than we can. These competitive products or technologies may be more effective and useful or less
costly than bremelanotide, other melanocortin receptor agonist compounds or PL-3994. In addition, academic institutions, hospitals,
governmental agencies and other public and private research organizations are also conducting research and may develop competing
products or technologies on their own or through strategic alliances or collaborative arrangements.
Our ability to achieve revenues from the sale of our products in development will depend, in part, on our ability to obtain
adequate reimbursement from Medicare, Medicaid, private insurers and other healthcare payers.
Our ability to successfully commercialize our products in development will depend, in significant part, on the extent to which we or our
marketing partners can obtain reimbursement for our products and also reimbursement at appropriate levels for the cost of our products
and related treatment. Obtaining reimbursement from governmental payers, insurance companies, HMOs and other third-party payers of
healthcare costs is a time-consuming and expensive process. There is no guarantee that our products will ultimately be reimbursed. If we
are able to obtain
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reimbursement, continuing efforts by governmental and third party payers to contain or reduce costs of healthcare may adversely affect our
future revenues and ability to achieve profitability. Third-party payers are increasingly challenging the prices charged for diagnostic and
therapeutic products and related services. Reimbursement from governmental payers is subject to statutory and regulatory changes,
retroactive rate adjustments, administrative rulings and other policy changes, all of which could materially decrease the range of products
for which we are reimbursed or the rates of reimbursement by government payers. In addition, recent legislation reforming the healthcare
system may result in lower prices or the actual inability of prospective customers to purchase our products in development. The cost
containment measures that healthcare payers and providers are instituting and the effect of any healthcare reform could materially and
adversely affect our ability to operate profitably. Furthermore, even if reimbursement is available, it may not be available at price levels
sufficient for us to realize a positive return on our investment.
If we fail to adequately protect or enforce our intellectual property rights or secure rights to patents of others, the value of our
intellectual property rights would diminish.
Our success, competitive position and future revenues will depend in part on our ability and the abilities of our licensors to obtain and
maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third
parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. We cannot predict:
· the degree and range of protection any patents will afford us against competitors, including whether third parties will find ways
to invalidate or otherwise circumvent our patents;
· if and when patents will be issued;
· whether or not others will obtain patents claiming aspects similar to those covered by our patents and patent applications; and
· whether we will need to initiate litigation or administrative proceedings, which may be costly whether we win or lose.
If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs
and we may have to:
· obtain licenses, which may not be available on commercially reasonable terms, if at all;
· redesign our products or processes to avoid infringement;
· stop using the subject matter claimed in the patents held by others;
· pay damages; or
· defend litigation or administrative proceedings, which may be costly whether we win or lose, and which could result in a
substantial diversion of our management resources.
If we are unable to keep our trade secrets confidential, our technologies and other proprietary information may be used by others
to compete against us.
In addition to our reliance on patents, we attempt to protect our proprietary technologies and processes by relying on trade secret laws and
agreements with our employees and other persons who have access to our proprietary information. These agreements and arrangements
may not provide meaningful protection for our proprietary technologies and processes in the event of unauthorized use or disclosure of
such information. In addition, our competitors may independently develop substantially equivalent technologies and processes or gain
access to our trade secrets or technology, either of which could materially and adversely affect our competitive position.
We may incur substantial liabilities and may be required to limit commercialization of our products in response to product
liability lawsuits.
The testing and marketing of medical products entails an inherent risk of product liability. If we cannot successfully defend ourselves
against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products or cease clinical
trials. Our inability to obtain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims
could prevent or inhibit the commercialization of pharmaceutical products we develop, alone or with corporate collaborators. We currently
carry liability insurance as to certain clinical trial risks. We, or any corporate collaborators, may not in the future be able
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to obtain insurance at a reasonable cost or in sufficient amounts, if at all. Even if our agreements with any future corporate collaborators
entitle us to indemnification against losses, such indemnification may not be available or adequate should any claim arise.
We are highly dependent on our management team, senior research professionals and third-party contractors and consultants,
and the loss of their services could materially adversely affect our business.
We rely on our management team, our employees and various contractors and consultants to provide critical services. Our ability to
execute our bremelanotide and PL-3994 clinical programs and our preclinical programs on an inhaled formulation of PL-3994 and a new
peptide drug candidate for sexual dysfunction depends on our continued retention and motivation of our management and scientific
personnel, including executive officers and senior members of development and management who possess significant technical expertise
and experience and oversee our development programs. Our success also depends on our ability to develop and maintain relationships
with contractors, consultants and scientific advisors. If we lose the services of existing personnel or fail to attract new personnel, our
development programs could be adversely affected. Competition for personnel is intense. In addition, we may need to hire consultants or
contractors for development activities previously undertaken by our employees.
As of September 27, 2010, there were 2,629,247 shares of common stock underlying outstanding convertible preferred stock,
options, warrants and restricted stock units, and stockholders may experience dilution from the conversion of preferred stock,
exercise of outstanding options and warrants and the vesting of restricted stock units.
As of September 24, 2010, holders of our outstanding dilutive securities had the right to acquire the following amounts of underlying
common stock:
· 26,865 shares issuable on the conversion of immediately convertible Series A Convertible preferred stock, subject to
adjustment, for no further consideration;
· 1,553,248 shares issuable on the exercise of warrants, at exercise prices ranging from $2.00 to $40.00 per share;
· 949,634 shares issuable on the exercise of stock options, at exercise prices ranging from $1.30 to $47.00 per share; and
· 99,500 shares issuable under restricted stock units that vest no later than March 15, 2011, subject to the fulfillment of service
conditions.
If the holders convert, exercise or receive those securities, or similar dilutive securities we may issue in the future, stockholders may
experience dilution in the net tangible book value of their common stock. In addition, the sale or availability for sale of the underlying shares
in the marketplace could depress our stock price. We have registered or agreed to register for resale substantially all of the underlying
shares listed above. Holders of registered underlying shares could resell the shares immediately upon issuance, resulting in significant
downward pressure on our stock.
Our stock price is, and we expect it to remain, volatile, which could limit investors’ ability to sell stock at a profit.
The volatile price of our stock makes it difficult for investors to predict the value of their investment, to sell shares at a profit at any given
time, or to plan purchases and sales in advance. A variety of factors may affect the market price of our common stock. These include, but
are not limited to:
· publicity regarding actual or potential clinical results relating to products under development by our competitors or us;
· delay or failure in initiating, completing or analyzing preclinical or clinical trials or unsatisfactory designs or results of these
trials;
· interim decisions by regulatory agencies, including the FDA, as to clinical trial designs, acceptable safety profiles and the
benefit/risk ratio of products under development;
· achievement or rejection of regulatory approvals by our competitors or by us;
· announcements of technological innovations or new commercial products by our competitors or by us;
· developments concerning proprietary rights, including patents;
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· developments concerning our collaborations;
· regulatory developments in the United States and foreign countries;
· economic or other crises and other external factors;
· period-to-period fluctuations in our revenue and other results of operations;
· changes in financial estimates by securities analysts; and
· sales of our common stock.
We will not be able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not
necessarily be indicative of our future performance. If our revenues, if any, in any particular period do not meet expectations, we may not
be able to adjust our expenditures in that period, which could cause our operating results to suffer further. If our operating results in any
future period fall below the expectations of securities analysts or investors, our stock price may fall by a significant amount.
For the 12 month period ended August 31, 2010, the price of our stock has been volatile, ranging from a high of $4.40 per share to a low of
$1.60 per share.
In addition, the stock market in general, and the market for biotechnology companies in particular, has experienced extreme price and
volume fluctuations that may have been unrelated or disproportionate to the operating performance of individual companies. These broad
market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance.
Anti-takeover provisions of Delaware law and our charter documents may make potential acquisitions more difficult and could
result in the entrenchment of management.
We are incorporated in Delaware. Anti-takeover provisions of Delaware law and our charter documents may make a change in control or
efforts to remove management more difficult. Also, under Delaware law, our board of directors may adopt additional anti-takeover
measures. Under Section 203 of the Delaware General Corporation Law, a corporation may not engage in a business combination with an
“interested stockholder” for a period of three years after the date of the transaction in which the person first becomes an “interested
stockholder,” unless the business combination is approved in a prescribed manner.
Pursuant to approvals by our stockholders at the annual meeting of stockholders held on May 13, 2010, effective July 23, 2010 we
increased our authorized common stock from 150,000,000 to 400,000,000, and on September 27, 2010 we implemented a one-for-ten
reverse stock split, which reduced our authorized common stock to 40,000,000 shares. This could have the effect of making it more difficult
for a third party to acquire a majority of our outstanding voting stock.
Our charter authorizes us to issue up to 10,000,000 shares of preferred stock and to determine the terms of those shares of stock without
any further action by our stockholders. If we exercise this right, it could be more difficult for a third party to acquire a majority of our
outstanding voting stock.
In addition, our equity incentive plans generally permit us to accelerate the vesting of options and other stock rights granted under these
plans in the event of a change of control. If we accelerate the vesting of options or other stock rights, this action could make an acquisition
more costly.
The application of these provisions could have the effect of delaying or preventing a change of control, which could adversely affect the
market price of our common stock.
We do not intend to pay cash dividends in the foreseeable future.
We do not anticipate paying any cash dividends in the foreseeable future and intend to retain future earnings, if any, for the development
and expansion of our business. In addition, the terms of existing or future agreements may limit our ability to pay dividends. Therefore, our
stockholders will not receive a return on their shares unless the value of their shares increases.
We have broad discretion over the use of available cash and may not realize an adequate return.
We have considerable discretion in the application of available cash and have not fixed the amounts that we will apply to various
corporate purposes, including potential acquisitions. We may use cash for purposes that do not yield a significant return, if any, for our
stockholders.
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Item 1B. Unresolved Staff Comments.
Inapplicable.
Item 2. Properties.
Our corporate offices and research and development facilities are located at 4C Cedar Brook Drive, Cedar Brook Corporate
Center, Cranbury, NJ 08512, where we lease approximately 28,000 square feet under a lease which expires July 17, 2012. We also lease
10,000 square feet of additional office space and 12,000 square feet of laboratory space in two other buildings in the same center under
leases that expire in 2015 and 2012, respectively. The 10,000 square feet of additional office space is subleased to a third party under a
sublease that expires February 28, 2012. The leased properties are in good condition.
Item 3. Legal Proceedings.
We are involved, from time to time, in various claims and legal proceedings arising in the ordinary course of our business. We are not
currently a party to any such claims or proceedings that, if decided adversely to us, would either individually or in the aggregate have a
material adverse effect on our business, financial condition or results of operations.
Item 4. (Removed and Reserved)
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The table below provides, for the fiscal quarters indicated, the reported high and low sales prices for our common stock on the
NYSE Amex since July 1, 2008. Prices per share of our common stock have been adjusted for the one-for-ten reverse stock split on
September 27, 2010 on a retroactive basis.
FISCAL YEAR ENDED JUNE 30, 2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
FISCAL YEAR ENDED JUNE 30, 2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
HIGH
LOW
HIGH
$3.50
3.70
4.40
4.80
$3.70
1.40
10.50
3.40
$1.70
2.50
2.30
2.20
$1.00
0.60
0.60
1.10
LOW
Our common stock has been quoted on NYSE Amex under the symbol PTN since December 21, 1999. It previously traded on The
Nasdaq SmallCap Market under the symbol PLTN.
Holders of common stock. On September 24, 2010, we had approximately 231 holders of record of common stock. On September
24, 2010, the closing sales price of our common stock as reported on the NYSE Amex, adjusted for the one-for-ten reverse stock split on
September 27, 2010, was $1.80 per share.
Dividends and dividend policy. We have never declared or paid any dividends. We currently intend to retain earnings, if any, for use
in our business. We do not anticipate paying dividends in the foreseeable future.
Dividend restrictions. Our outstanding Series A Preferred Stock, consisting of 4,997 shares on September 24, 2010, provides that we may
not pay a dividend or make any distribution to holders of any class of stock unless we first pay a special dividend or distribution of $100 per
share to the holders of the Series A Preferred Stock.
Equity Compensation Plan Information. Reference is made to the information contained in the Equity Compensation Plan table contained in
Item 12 of this Annual Report, which is incorporated here by reference.
Item 6. Selected Financial Data.
Not applicable.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and notes to the
consolidated financial statements filed as part of this Annual Report.
Critical Accounting Policies.
Our significant accounting policies are described in Note 2 to the consolidated financial statements included in this Annual Report. We
believe that our accounting policies and estimates relating to revenue recognition, accrued expenses and stock-based compensation
charges are the most critical.
Revenue Recognition
Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and development funding and
milestone payments. Non-refundable up-front fees are deferred and amortized to revenue on a straight-line basis over the related
performance period. We estimate the performance period as the period in which we perform certain development activities under the
applicable agreement. Reimbursements for research and development activities are recorded in the period that we perform the related
activities under the terms of the applicable agreements. Revenue resulting from the achievement of milestone events stipulated in the
applicable agreements is recognized when the milestone is achieved, provided that such milestone is substantive in nature.
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The $10.0 million upfront payment received in January 2007 under the research collaboration and license agreement with AstraZeneca
and the additional $5.0 million received pursuant to the September 2009 amendment has been recognized as revenue over the period
ended January 2010, the completion of the research collaboration portion of the agreement.
In 2004, we entered into a collaborative development and marketing agreement with King Pharmaceuticals, Inc. (King) to jointly develop
and commercialize bremelanotide, which agreement was terminated effective December 2007. Deferred revenue related to the King
agreement had been recognized as revenue over the estimated period of our performance during the initial development term of this
agreement. In connection with the termination of the agreement, we recognized as revenue in our fiscal year ended June 30, 2008 all
remaining deferred up-front license fees received from King, together with associated deferred costs, in the amounts of $6.5 million and
$0.8 million, respectively.
Accrued Expenses
Third parties perform a significant portion of our development activities. We review the activities performed under significant contracts each
quarter and accrue expenses and the amount of any reimbursement to be received from our collaborators based upon the estimated
amount of work completed. Estimating the value or stage of completion of certain services requires judgment based on available
information. If we do not identify services performed for us but not billed by the service-provider, or if we underestimate or overestimate the
value of services performed as of a given date, reported expenses will be understated or overstated.
Stock-based Compensation
The fair value of stock options granted has been calculated using the Black-Scholes option pricing model, which requires us to make
estimates of expected volatility and expected option lives. We estimate these factors at the time of grant based on our own prior
experience, public sources of information and information for comparable companies. The amount of recorded compensation related to an
option grant is not adjusted for subsequent changes in these estimates or for actual experience. The amount of our recorded
compensation is also dependent on our estimates of future option forfeitures and the probability of achievement of performance conditions.
If we initially over-estimate future forfeitures, our reported expenses will be understated until such time as we adjust our estimate. Changes
in estimated forfeitures will affect our reported expenses in the period of change and future periods.
The amount and timing of compensation expense to be recorded in future periods related to grants of restricted stock units may be
affected by employment terminations. As a result, stock-based compensation charges may vary significantly from period to period.
Results of Operations
Year Ended June 30, 2010 Compared to the Year Ended June 30, 2009:
Revenue – For the fiscal year ended June 30, 2010 (fiscal 2010), we recognized $14.2 million in revenue compared to $11.4 million for the
fiscal year ended June 30, 2009 (fiscal 2009) pursuant to our research collaboration and license agreement with AstraZeneca.
Revenue from AstraZeneca for fiscal 2010 and fiscal 2009 consists of $3.2 million and $9.7 million, respectively, of revenue related to our
research services performed during those periods, and $11.0 million and $1.7 million, respectively, of revenue related to AstraZeneca’s up-
front license fee. In connection with the completion of the research collaboration portion of the research collaboration and license
agreement, we recognized as revenue in fiscal 2010 all remaining deferred up-front license fees received from AstraZeneca. Future
contract revenue from AstraZeneca, in the form of reimbursement of development costs, will fluctuate based on development activities in
our obesity program. We may also earn contract revenue based on the attainment of development milestones.
Research and Development – Research and development expenses decreased to $12.3 million for fiscal 2010 compared to $13.4
million for fiscal 2009. The decrease is the result of the restructuring of our clinical-stage product portfolio and development programs.
Research and development expenses related to our bremelanotide, other melanocortin receptor agonists, PL-3994, obesity,
NeutroSpec and other preclinical programs were $4.1 million in each of fiscal years 2010 and 2009. Spending to date has been primarily
related to the identification and optimization of lead compounds, and secondarily to study the effects of melanocortin receptor-specific
compounds on food intake, obesity and other metabolic parameters and preclinical studies and a Phase 1 trial with subcutaneously
administered bremelanotide. The amount of such spending and the nature of future development activities are dependent on a number of
factors, including primarily the availability of funds to support future development activities, success of our clinical trials
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and preclinical and discovery programs, and our ability to progress compounds in addition to bremelanotide and PL-3994 into
human clinical trials.
The historical amounts of project spending above exclude general research and development spending, which decreased to $8.2
million for fiscal 2010 compared to $9.3 million for fiscal 2009. The decrease is primarily related to management’s refinement of operations
and expense control.
Cumulative spending from inception to June 30, 2010 on our bremelanotide, NeutroSpec and other programs (which include PL-3994,
other melanocortin receptor agonists, obesity and other discovery programs) amounts to $133.2 million, $55.5 million and $56.8 million,
respectively. Due to various risk factors described in this Annual Report, including the difficulty in currently estimating the costs and timing
of future Phase 1 clinical trials and larger-scale Phase 2 and Phase 3 clinical trials for any product under development, we cannot predict
with reasonable certainty when, if ever, a program will advance to the next stage of development or be successfully completed, or when, if
ever, related net cash inflows will be generated. See Item 1A - Risk Factors.
General and Administrative – General and administrative expenses decreased to $4.9 million for fiscal 2010 compared to $5.3
million for fiscal 2009. The decrease is primarily related to management’s refinement of operations and expense control.
Income Tax Benefit – Income tax benefits of $1.0 million in fiscal 2010 and $1.7 million in fiscal 2009 relate to the sale of New Jersey state
net operating loss carryforwards. The amount of such losses and tax credits that we are able to sell depends on annual pools and
allocations established by the state of New Jersey.
Liquidity and Capital Resources
Since inception, we have incurred net operating losses, primarily related to spending on our research and development programs.
We have financed our net operating losses primarily through equity financings and amounts received under collaborative agreements.
Our product candidates are at various stages of development and will require significant further research, development and testing and
may never be successfully developed or commercialized. We may experience uncertainties, delays, difficulties and expenses commonly
experienced by early stage biopharmaceutical companies, which may include unanticipated problems and additional costs relating to:
· the development and testing of products in animals and humans;
· product approval or clearance;
· regulatory compliance;
· good manufacturing practices;
· intellectual property rights;
· product introduction;
· marketing, sales and competition; and
· obtaining sufficient capital.
Failure to obtain timely regulatory approval for our product candidates and indications would impact our ability to increase revenues and
could make it more difficult to attract investment capital for funding our operations. Any of these possibilities could materially and adversely
affect our operations and require us to curtail or cease certain programs.
During fiscal 2010, we used $5.7 million of cash for our operating activities, compared to $5.4 million used in fiscal 2009. Net cash outflows
from operations in fiscal 2010 were favorably impacted by the decrease in research and development expenses and the receipt of $5.0
million in additional payments from AstraZeneca. Net cash outflows from operations in fiscal 2009 were favorably impacted by the receipt
of $6.6 in additional payments from AstraZeneca. Our periodic accounts receivable balances will continue to be highly dependent on the
timing of receipts from collaboration partners and the division of development responsibilities between us and our collaboration partners.
In fiscal 2010, net cash provided by investing activities was $38,000 consisting mainly of the sale of property compared to $0.7
million provided by investing activities in fiscal 2009, which, consisted mainly of the sale of property and equipment.
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For fiscal 2010, net cash provided by financing activities was $6.7 million, primarily reflecting the aggregate net proceeds of
approximately $7.0 million from the sales in August 2009, February 2010 and June 2010 of 948,484 units, 962,962 units and 1,000,000
units, respectively, in registered direct offerings. Each unit from the August 2009 offering consisted of one share of common stock and a
five-year warrant to purchase 0.35 shares of common stock at an exercise price of $3.30 per share. Each unit from the February 2010
offering consisted of one share of common stock, a Series A warrant exercisable for 0.33 shares of our common stock at an exercise price
of $3.00 per share of common stock and a Series B warrant exercisable for 0.33 shares of common stock at an exercise price of $2.70 per
share of common stock. The Series A warrant is exercisable 181 days from the date of issuance and expires three years thereafter, the
Series B warrant was exercisable immediately upon issuance and originally expired 180 days from the date of issuance. Management
extended the expiration date of the Series B warrants an additional 180 days. Each unit from the June 2010 offering consisted of one share
of common stock and a one-year warrant to purchase 0.14 shares of common stock at an exercise price of $2.00 per share. During fiscal
2009, net cash used in financing activities was $0.3 million, consisting entirely of payments on capital lease obligations.
We have incurred cumulative negative cash flows from operations since our inception, and have expended, and expect to continue to
expend in the future, substantial funds to complete our planned product development efforts. As of June 30, 2010, our cash and cash
equivalents were $5.4 million and our available-for-sale investments were $3.5 million.
Our existing cash, cash equivalents and available-for-sale investments are not sufficient to fund our planned operations for the next twelve
months. This raises substantial doubt about our ability to continue as a going concern. We have made the strategic decision to focus
resources and efforts on clinical trials for bremelanotide and PL-3994 and preclinical development of an inhaled formulation of PL-3994
and a new peptide drug candidate for sexual dysfunction, and have ceased research and development efforts on new product candidates.
As part of this decision, we have implemented reductions in staffing levels, and anticipate having no more than twenty employees by
December 31, 2010. We also intend to raise additional capital by December 31, 2010. The accompanying consolidated financial
statements have been prepared assuming that we continue as a going concern.
We intend to seek additional capital through public or private equity or debt financings, collaborative arrangements on our product
candidates, or other sources. However, sufficient additional funding to support projected operations, including clinical trials with either
bremelanotide or PL-3994, or both, may not be available on acceptable terms or at all. We may be required to seek collaborators for our
product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be
available, and relinquish, license or otherwise dispose of rights on unfavorable terms to technologies and product candidates that we would
otherwise seek to develop or commercialize ourselves. The nature and timing of our development activities are highly dependent on our
financing activities.
If we are unable to raise sufficient additional funds to advance at least one of our product candidates, we will implement plans for
the orderly wind down of our business operations, including curtailing operations significantly and further decreasing staffing levels, and will
seek to license, sell or otherwise dispose of our product candidates, technologies and contractual rights, including rights under our
research collaboration and license agreement with AstraZeneca, on the best possible terms available. Even if we are able to license, sell
or otherwise dispose of our product candidates, technologies and contractual rights, it is likely to be on unfavorable terms and for less
value than if we had the financial resources to develop or otherwise advance our product candidates, technologies and contractual rights
ourselves.
We anticipate incurring additional losses over at least the next few years. To achieve profitability, we, alone or with others, must
successfully develop and commercialize our technologies and proposed products, conduct preclinical studies and clinical trials, obtain
required regulatory approvals and successfully manufacture and market such technologies and proposed products. The time required to
reach profitability is highly uncertain, and we do not know whether we will be able to achieve profitability on a sustained basis, if at all.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
We have entered into various contractual obligations and commercial commitments. The following table summarizes our most
significant contractual obligations as of June 30, 2010:
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Table of Contents
Facility operating leases
Capital lease obligations
License agreements
Total contractual obligations
Payments due by Period
Total
$ 4,948,401
37,107
210,000
$ 5,195,508
Less than 1 Year
$ 2,196,655
22,264
15,000
$ 2,233,919
1 - 3 Years
$ 2,290,236
14,843
30,000
$ 2,335,079
3 - 5 Years
$ 461,510
-
30,000
$ 491,510
More than 5
Years
$ -
-
135,000
$ 135,000
Our license agreement related to NeutroSpec requires royalty payments on commercial net sales and payments of up to $2.25 million
contingent on the achievement of specified cumulative net margins on sales by Mallinckrodt. No contingent amounts will be payable
related to NeutroSpec unless we recommence sales and marketing of NeutroSpec. We do not expect to make any such contingent
payments during the next twelve months.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
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Table of Contents
Item 8. Financial Statements and Supplementary Data.
Table of Contents
Consolidated Financial Statements
The following consolidated financial statements are filed as part of this Annual Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
27
Page
28
29
30
31
32
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Palatin Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Palatin Technologies, Inc. and subsidiary (the Company) as of June
30, 2010 and 2009, and the related consolidated statements of operations, cash flows, and stockholders’ equity and comprehensive loss
for each of the years in the three-year period ended June 30, 2010. These consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
Palatin Technologies, Inc. and subsidiary as of June 30, 2010 and 2009, and the results of their operations and their cash flows for each of
the years in the three-year period ended June 30, 2010, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As
discussed in note 1 to the consolidated financial statements, the Company has incurred recurring net losses and negative cash flows from
operations and will require substantial additional financing to continue to fund its planned development activities. These conditions raise
substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in note
1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Philadelphia, Pennsylvania
September 27, 2010
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PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Balance Sheets
Table of Contents
ASSETS
Current assets:
Cash and cash equivalents
Available-for-sale investments
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Restricted cash
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Capital lease obligations
Accounts payable
Accrued expenses
Deferred revenue
Total current liabilities
Capital lease obligations
Deferred rent
Total liabilities
Commitments and contingencies (Note 8)
June 30, 2010
June 30, 2009
$ 5,405,430
3,462,189
2,879
393,313
9,263,811
2,388,365
475,000
261,701
$ 12,388,877
$ 19,670
155,795
2,219,466
-
2,394,931
14,284
661,389
3,070,604
$ 4,378,662
3,439,650
508,528
492,824
8,819,664
3,650,783
475,000
254,364
$ 13,199,811
$ 87,675
206,363
1,420,741
6,955,553
8,670,332
33,954
1,182,026
9,886,312
Stockholders’ equity:
Preferred stock of $0.01 par value – authorized 10,000,000 shares;
Series A Convertible; issued and outstanding 4,997 shares as of June 30, 2010 and
2009, respectively
50
50
Common stock of $0.01 par value – authorized 40,000,000 shares; issued and
outstanding 11,702,818 and 8,666,290 shares as of June 30, 2010 and 2009,
respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
117,028
218,236,723
138,650
(209,174,178)
9,318,273
$ 12,388,877
86,663
210,492,345
116,111
(207,381,670)
3,313,499
$ 13,199,811
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Operations
REVENUES
$ 14,180,727
$ 11,351,774
$ 11,483,287
2010
Year Ended June 30,
2009
2008
OPERATING EXPENSES:
Research and development
General and administrative
Total operating expenses
Loss from operations
OTHER INCOME (EXPENSE):
Investment income
Interest expense
Gain on sale of supplies and equipment
Total other income, net
Loss before income taxes
Income tax benefit
NET LOSS
12,293,910
4,901,203
17,195,113
13,356,751
5,296,859
18,653,610
21,187,762
6,928,295
28,116,057
(3,014,386)
(7,301,836)
(16,632,770)
141,635
(13,165)
95,000
223,470
233,319
(26,159)
550,968
758,128
1,030,452
(73,495)
-
956,957
(2,790,916)
998,408
(6,543,708)
1,741,476
(15,675,813)
1,291,444
$ (1,792,508)
$ (4,802,232)
$(14,384,369)
Basic and diluted net loss per common share
$ (0.18)
$ (0.56)
$ (1.69)
Weighted average number of common shares outstanding used in
computing basic and diluted net loss per common share
9,861,215
8,637,030
8,522,057
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Stockholders’ Equity and Comprehensive Loss
Preferred Stock
Common Stock
Shares
Amount
4,997 $ 50
-
-
-
-
Amount
Shares
8,512,692 $ 85,127 $ 206,641,580
110,152
2,265,179
7,725
31,991
77
320
Additional
Paid-in
Capital
-
-
-
-
-
-
-
-
50
-
8,552,408
113,882
85,524
1,139
209,016,911
1,475,434
-
-
-
-
-
-
8,666,290
2,911,448
6,725
172,500
86,663
29,114
67
1,725
210,492,345
6,931,491
11,371
966,836
-
-
4,997
-
-
-
4,997
-
-
-
-
-
-
-
-
50
-
-
-
-
-
-
Balance, July 1, 2007
Exercise of options and warrants
Stock-based compensation
Comprehensive loss:
Unrealized gain on investments
Net loss
Total comprehensive loss
Balance, June 30, 2008
Stock-based compensation
Comprehensive loss:
Unrealized gain on investments
Net loss
Total comprehensive loss
Balance, June 30, 2009
Sale of common stock units, net of costs
Exercise of options
Stock-based compensation
Payment of withholding taxes related
to restricted stock units
Comprehensive loss:
Unrealized gain on investments
Net loss
Total comprehensive loss
Balance, June 30, 2010
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
$ -
-
-
$ (188,195,069) $ 18,531,688
110,229
2,265,499
-
-
29,117
-
29,117
-
86,994
-
116,111
-
-
-
-
(14,384,369)
(202,579,438)
-
29,117
(14,384,369)
(14,355,252)
6,552,164
1,476,573
-
(4,802,232)
(207,381,670)
-
-
-
86,994
(4,802,232)
(4,715,238)
3,313,499
6,960,605
11,438
968,561
(54,145)
(541)
(165,320)
-
-
(165,861)
4,997 $ 50 11,702,818 $ 117,028 $ 218,236,723
$ 138,650
$ (209,174,178)
-
-
-
-
-
-
22,539
-
-
(1,792,508)
22,539
(1,792,508)
(1,769,969)
$ 9,318,273
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization
Gain on sale of supplies and equipment
Stock-based compensation
Amortization of deferred revenue
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other liabilities
Deferred revenues
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of available-for-sale investments
Sale of supplies and equipment
Purchases of property and equipment
Net cash provided by (used in) investing
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations
Payment of withholding taxes related to restricted
stock units
Proceeds from common stock, stock option
and warrant issuances
Net cash provided by (used in) financing
activities
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning
of year
2010
Year Ended June 30,
2009
2008
$ (1,792,508)
$ (4,802,232)
$ (14,384,369)
1,269,413
(95,000)
968,561
(11,905,553)
505,649
92,174
(50,568)
278,088
5,000,000
(5,729,744)
-
45,000
(6,995)
38,005
1,364,644
(550,968)
1,476,573
(683,336)
(502,781)
(5,513)
(428,820)
(1,311,164)
-
(5,443,597)
-
700,000
(36,383)
1,393,077
-
2,265,499
(9,669,031)
602,094
1,115,350
(485,711)
(1,414,834)
-
(20,577,925)
(1,000,012)
-
(263,938)
663,617
(1,263,950)
(87,675)
(263,128)
(294,199)
(165,861)
6,972,043
-
-
-
110,229
6,718,507
(263,128)
(183,970)
1,026,768
(5,043,108)
(22,025,845)
4,378,662
9,421,770
31,447,615
CASH AND CASH EQUIVALENTS, end of year
$ 5,405,430
$ 4,378,662
$ 9,421,770
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest
Unrealized gain on available-for-sale
investments
Equipment acquired under financing arrangements
$ 13,165
$ 36,959
$ 58,495
22,539
-
86,994
-
29,117
186,989
The accompanying notes are an integral part of these consolidated financial statements.
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Table of Contents
(1) ORGANIZATION:
PALATIN TECHNOLOGIES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
Nature of Business – Palatin Technologies, Inc. (Palatin or the Company) is a biopharmaceutical company dedicated to the
development of peptide, peptide mimetic and small molecule agonist compounds with a focus on melanocortin and natriuretic peptide
receptor systems. Palatin has a diverse pipeline of active development programs targeting melanocortin and natriuretic receptors. The
melanocortin system is involved in a large and diverse number of physiologic functions, and therapeutic agents modulating this system
may have the potential to treat a variety of conditions and diseases, including sexual dysfunction, obesity and related disorders, cachexia
(wasting syndrome) and inflammation-related diseases. The natriuretic peptide receptor system has numerous cardiovascular functions,
and therapeutic agents modulating this system may be useful in treatment of acute asthma, heart failure, hypertension and other
cardiovascular diseases.
The Company’s active drug development programs consist of bremelanotide for treatment of sexual dysfunction, other peptide
melanocortin receptor agonists for treatment of sexual dysfunction, and PL-3994, an agonist peptide mimetic which binds to natriuretic
peptide receptor A, for treatment of acute asthma and heart failure. The Company has an exclusive global research collaboration and
license agreement with AstraZeneca AB (AstraZeneca) to commercialize compounds that target melanocortin receptors for the treatment of
obesity, diabetes and related metabolic syndrome.
Key elements of the Company’s business strategy include using its technology and expertise to develop and commercialize therapeutic
products; entering into alliances and partnerships with pharmaceutical companies to facilitate the development, manufacture, marketing,
sale and distribution of product candidates the Company is developing; and, partially funding its product candidate development programs
with the cash flow from the Company’s AstraZeneca collaboration agreement and any future agreements with other companies.
Reverse Stock Split – Effective on September 27, 2010, the Company implemented a one-for-ten reverse stock split of its common
stock, which reduced the number of shares of its common stock issued and outstanding from approximately 118,200,000 to approximately
11,800,000. All share and per share amounts in these consolidated financial statements, including shares of common stock issuable upon
exercise, vesting or conversion of all outstanding options, warrants and convertible preferred stock, are presented on a post-reverse-split
basis.
Business Risk and Liquidity – The Company has incurred negative cash flows from operations since its inception, and has expended, and
expects to continue to expend in the future, substantial funds to complete its planned product development efforts. As shown in the
accompanying consolidated financial statements, the Company has an accumulated deficit as of June 30, 2010 and incurred a net loss for
fiscal 2010. The Company anticipates incurring additional losses in the future as a result of spending on its development programs. To
achieve profitability, the Company, alone or with others, must successfully develop and commercialize its technologies and proposed
products, conduct successful preclinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and
market such technologies and proposed products. The time required to reach profitability is highly uncertain, and there can be no
assurance that the Company will be able to achieve profitability on a sustained basis, if at all.
As of June 30, 2010, the Company’s cash and cash equivalents were $5.4 million and its available-for-sale investments were $3.5 million.
The Company has made the strategic decision to focus resources and efforts on clinical trials for bremelanotide and PL-3994 and
preclinical development of an inhaled formulation of PL-3994 and a new peptide drug candidate for sexual dysfunction, and has ceased
research and development efforts on new product candidates. As part of this decision, the Company plans to reduce staffing levels, and
anticipates having no more than twenty employees by December 31, 2010, and intends to seek additional capital. Management does not
believe that the Company’s existing capital resources, together with expected revenues, will be adequate to fund its currently planned
operations for the next twelve months. The accompanying consolidated financial statements have been prepared assuming that the
Company continues as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course
of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of liabilities that might results from the outcome of this uncertainty.
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The Company intends to seek additional capital through public or private equity or debt financings, collaborative arrangements on our
product candidates, or other sources. However, sufficient additional funding to support projected operations, including clinical trials with
either bremelanotide or PL-3994, or both, may not be available on acceptable terms or at all. These matters raise substantial doubt over
the Company’s ability to continue as a going concern.
If the Company is unable to raise sufficient additional funds to advance at least one of its product candidates, management will implement
plans for the orderly wind down of its business operations, including curtailing operations significantly and further decreasing staffing levels,
and will seek to license, sell or otherwise dispose of the Company’s product candidates, technologies and contractual rights, including
rights under the research collaboration and license agreement with AstraZeneca, on the best possible terms available.
The nature and timing of the Company’s development activities are highly dependent on its financing activities. There can be no assurance
that the Company will be able to obtain financing when required, or that financing efforts will be successful. Additionally, the Company may
be required to seek collaborators for its product candidates at an earlier stage than otherwise would be desirable and on terms that are
less favorable than might otherwise be available, and relinquish, license or otherwise dispose of rights on unfavorable terms to
technologies and product candidates that the Company would otherwise seek to develop or commercialize itself.
Concentrations – Concentrations in the Company’s assets and operations subject it to certain related risks. Financial instruments that
subject the Company to concentrations of credit risk primarily consist of cash and cash equivalents, available-for-sale investments and
accounts receivable. The Company’s cash and cash equivalents are primarily invested in one money market fund sponsored by a large
financial institution. Revenues from collaboration partners as a percentage of total revenues were as follows:
AstraZeneca
King Pharmaceuticals, Inc.
Mallinckrodt
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
2010
100%
-
-
Year Ended June 30,
2009
100%
-
-
2008
26%
71%
3%
Principles of Consolidation – The consolidated financial statements include the accounts of Palatin and its wholly-owned inactive
subsidiary. All intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates – The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash in banks and all highly liquid investments with a
purchased maturity of less than three months. Cash equivalents consist of $4,111,051 and $3,250,191 in a money market fund at June 30,
2010 and 2009, respectively. Restricted cash secures letters of credit for security deposits on leases.
Investments – The Company classifies its investments as available-for-sale investments and all such investments are recorded at fair value
based on quoted market prices. Unrealized holding gains and losses are generally excluded from earnings and are reported in
accumulated other comprehensive income/loss until realized. Interest and dividends on securities classified as available-for-sale are
included in investment income. Gains and losses are recorded in the statement of operations when realized or when unrealized holding
losses are determined to be other than temporary, on a specific-identification basis.
Fair Value of Financial Instruments – The Company’s financial instruments consist primarily of cash equivalents, available-for-sale
investments, accounts receivable, accounts payable and capital lease obligations. Management believes that the carrying values of these
assets and liabilities are representative of their respective fair values based on quoted market prices for investments and the short-term
nature of the other instruments.
Property and Equipment – Property and equipment consists of office and laboratory equipment, office furniture and leasehold
improvements and includes assets acquired under capital leases. Property and equipment are
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Table of Contents
recorded at cost. Depreciation is recognized using the straight-line method over the estimated useful lives of the related assets, generally
five years for laboratory and computer equipment, seven years for office furniture and equipment and the lesser of the term of the lease or
the useful life for leasehold improvements. Amortization of assets acquired under capital leases is included in depreciation expense.
Maintenance and repairs are expensed as incurred while expenditures that extend the useful life of an asset are capitalized.
Impairment of Long-Lived Assets – The Company reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be fully recoverable. To determine recoverability of a long-lived
asset, management evaluates whether the estimated future undiscounted net cash flows from the asset are less than its carrying amount.
If impairment is indicated, the long-lived asset would be written down to its fair value. Fair value is determined by an evaluation of available
price information at which assets could be bought or sold, including quoted market prices, if available, or the present value of the estimated
future cash flows based on reasonable and supportable assumptions.
Deferred Rent – The Company’s operating leases provide for rent increases over the terms of the leases. Deferred rent consists of
the difference between periodic rent payments and the amount recognized as rent expense on a straight-line basis, as well as tenant
allowances for leasehold improvements. Rent expenses are being recognized ratably over the terms of the leases.
Revenue Recognition – Revenue from corporate collaborations and licensing agreements consists of up-front fees, research and
development funding, and milestone payments. Non-refundable up-front fees are deferred and amortized to revenue over the related
performance period. The Company estimates the performance period as the period in which it performs certain development activities
under the applicable agreement. Reimbursements for research and development activities are recorded in the period that the Company
performs the related activities under the terms of the applicable agreements. Revenue resulting from the achievement of milestone events
stipulated in the applicable agreements is recognized when the milestone is achieved, provided that such milestone is substantive in
nature.
Research and Development Costs – The costs of research and development activities are charged to expense as incurred, including the
cost of equipment for which there is no alternative future use.
Stock-Based Compensation – The Company charges to expense the fair value of stock options and other equity awards granted. The
Company determines the fair value of stock options utilizing the Black-Scholes option pricing model. Compensation costs for share-based
awards with pro-rata vesting are allocated to periods on a straight-line basis
Income Taxes – The Company and its subsidiary file consolidated federal and separate-company state income tax returns. Income taxes
are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences or operating loss and tax credit carryforwards are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the
enactment date. The Company has recorded a valuation allowance against its deferred tax assets based on the history of losses incurred.
During the years ended June 30, 2010, 2009 and 2008, the Company sold New Jersey state net operating loss carryforwards, which
resulted in the recognition of $998,408, $1,741,476 and $1,291,444, respectively, in tax benefits.
Net Loss per Common Share – Basic and diluted earnings per common share (EPS) are calculated in accordance with the provisions of
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 260, “Earnings per Share.” In June 2008,
the FASB issued guidance stating that non-vested share-based payment awards that include non-forfeitable rights to dividends or dividend
equivalents, whether paid or unpaid, are considered participating securities, and the two-class method of computing EPS is required for all
periods presented. The Company adopted the provisions of ASC Topic 260 relating to the two-class method of computing EPS effective
July 1, 2009.
The Company’s outstanding shares of Series A Convertible Preferred stock contain rights that entitle the holder to a special dividend or
distribution of $100 per share before the Company can pay dividends or make distributions to the common stockholders. The outstanding
share-based compensation awards do not include non-forfeitable rights to dividends. Accordingly, only the outstanding Series A
Convertible Preferred stock is considered
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Table of Contents
a participating security and must be included in the computation of EPS. The adoption of the provisions of ASC Topic 260 relating to the
two-class method of computing EPS did not impact the basic and diluted EPS for the years ended June 30, 2010, 2009 or 2008,
respectively, as the Company incurred a net loss in each period.
As of June 30, 2010, 2009 and 2008, common shares issuable upon conversion of Series A Convertible Preferred Stock, the exercise of
outstanding options and warrants and the vesting of restricted stock units amounted to an aggregate of 2,569,695, 1,407,660 and
1,394,159, respectively.
Recently Issued Accounting Pronouncements – In June 2009, the FASB issued ASC 105-10 (formerly Statement of Financial Accounting
Standards 168), “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” which
was effective for the Company beginning July 1, 2009. The FASB Accounting Standards Codification (the Codification) officially became
the single source of authoritative nongovernmental generally accepted accounting principles (GAAP), superseding existing FASB,
American Institute of Certified Public Accountants, Emerging Issues Task Force and related accounting literature. After that date, only one
level of authoritative GAAP exists. All other accounting literature is considered non-authoritative. The Codification reorganizes the
thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included in the
Codification is relevant SEC guidance organized using the same topical structure in separate sections within the Codification. The
Company adopted this statement and has updated its existing GAAP references to the new codification.
In September 2009, the FASB issued Accounting Standards Update (ASU) 2009-13, Revenue Recognition (Topic 605), “Multiple-
Deliverable Revenue Arrangements (ASU 2009-13)”, which requires companies to allocate revenue in arrangements involving multiple
deliverables based on the estimated selling price of each deliverable when such deliverables are not sold separately either by the company
or other vendors. ASU 2009-13 eliminates the requirement that all undelivered elements must have objective and reliable evidence of fair
value before a company can recognize the portion of the overall arrangement fee that is attributable to items that already have been
delivered. As a result, the new guidance may allow some companies to recognize revenue on transactions that involve multiple
deliverables earlier than under current requirements. ASU 2009-13 is effective for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted at the beginning of a company’s fiscal year. The
Company adopted ASU 2009-13 on July 1, 2010 and does not expect ASU 2009-13 to have a material impact on its consolidated financial
statements.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (Topic 820), “Improving Disclosures about
Fair Value Measurements (ASU 2010-06)”, which amends the existing fair value measurement and disclosure guidance currently included
in ASC Topic 820, “Fair Value Measurements and Disclosures”, to require additional disclosures regarding fair value measurements.
Specifically, ASU 2010-06 requires companies to disclose the amounts of significant transfers between Level 1 and Level 2 of the fair value
hierarchy and the reasons for these transfers, the reasons for any transfer in or out of Level 3 and information in the reconciliation of
recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition, ASU 2010-06 also
clarifies the requirements for companies to disclose information about both the valuation techniques and inputs used in estimating Level 2
and Level 3 fair value measurements. ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15,
2009, except for additional disclosures related to Level 3 fair value measurements, which are effective for fiscal years beginning after
December 15, 2010. The adoption of ASU 2010-06 did not impact the Company’s consolidated financial statements or results of
operations.
In April 2010, the FASB issued ASU No. 2010-17, Revenue Recognition – Milestone Method (ASU 2010-17). ASU 2010-17 provides
guidance on applying the milestone method to milestone payments for achieving specified performance measures when those payments
are related to uncertain future events. Under ASU 2010-17, entities can make an accounting policy election to recognize arrangement
consideration received for achieving specified performance measures during the period in which the milestones are achieved, provided
certain criteria are met. This ASU is effective for fiscal years beginning January 1, 2011, with early adoption permitted. The Company does
not believe adoption will have a material impact on its consolidated financial position and results of operations.
(3) AGREEMENT WITH ASTRAZENECA
In January 2007, the Company entered into an exclusive global research collaboration and license agreement with AstraZeneca to
discover, develop and commercialize compounds that target melanocortin receptors for the treatment of obesity, diabetes and related
metabolic syndrome. In June 2008, the collaboration agreement was amended to include additional compounds and associated intellectual
property developed by the Company. In December 2008, the collaboration agreement was further amended to include additional
compounds and associated
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intellectual property developed by the Company and extended the research collaboration for an additional year through January 2010. In
September 2009, the collaboration agreement was further amended to modify royalty rates and milestone payments. The collaboration is
based on the Company’s melanocortin receptor obesity program and includes access to compound libraries, core technologies and
expertise in melanocortin receptor drug discovery and development. As part of the September 2009 amendment to the research
collaboration and license agreement, the Company agreed to conduct additional studies on the effects of melanocortin receptor specific
compounds on food intake, obesity and other metabolic parameters
In December 2009 and 2008, the Company also entered into clinical trial sponsored research agreements with AstraZeneca, under which
the Company agreed to conduct studies of the effects of melanocortin receptor specific compounds on food intake, obesity and other
metabolic parameters. Under the terms of these clinical trial agreements, AstraZeneca paid $5,000,000 as of March 31, 2009 upon
achieving certain objectives and pays all costs associated with these studies. The Company recognized $1,082,762 and $7,632,136,
respectively, as revenue in the years ended June 30, 2010 and 2009 under these clinical trial sponsored research agreements.
The Company received an up-front payment of $10,000,000 from AstraZeneca on execution of the research collaboration and license
agreement. Under the September 2009 amendment the Company was paid an additional $5,000,000 in consideration of reduction of
future milestones and royalties and providing specific materials to AstraZeneca. The Company is now eligible for milestone payments
totaling up to $145,250,000, with up to $85,250,000 contingent on development and regulatory milestones and the balance contingent on
achievement of sales targets. In addition, the Company will receive royalties on sales of any approved products. AstraZeneca assumed
responsibility for product commercialization, product discovery and development costs, with both companies contributing scientific
expertise in the research collaboration. The Company provided research services to AstraZeneca through January 2010, the expiration of
the research collaboration portion of the research collaboration and license agreement, at a contractual rate per full-time-equivalent
employee.
The Company has determined that the license portion of the agreement and research services should be evaluated together as a single
unit for purposes of revenue recognition. Accordingly, the aggregate payments of $15,000,000 have been recognized as revenue over the
period ended January 2010. For the years ended June 30, 2010, 2009 and 2008, the Company recognized as revenue $10,972,219,
$1,666,667 and $1,666,667, respectively, related to these aggregate payments. Per-employee compensation from AstraZeneca for
research services was recognized as earned at the contractual rate, which approximates the fair value of such services. Revenue
recognized for research services for the years ended June 30, 2010, 2009 and 2008 were $2,125,746, $2,052,968 and $1,250,000,
respectively. Payments received upon the attainment of substantive milestones are recognized as revenue when earned.
(4) AGREEMENT WITH KING
King Pharmaceuticals, Inc. (King) terminated, effective December 2007, a collaborative development and marketing agreement
between the Company and King entered into in August 2004, relating to development and commercialization of bremelanotide for treatment
of sexual dysfunction. As a result of the termination, Palatin solely owns all rights to bremelanotide. In connection with the termination of
the agreement, for the year ended June 30, 2008, the Company recognized as revenue all remaining deferred up-front license fees
received from King, together with associated deferred costs, in the amounts of $6,499,796 and $815,561, respectively. King retains
Company common stock obtained upon entering into the agreement in August 2004 and pursuant to a September 2005 agreement.
(5) INVESTMENTS AND FAIR VALUE MEASUREMENTS
The following is a summary of available-for-sale investments:
Cost
Gross unrealized gains
Gross unrealized losses
Total available-for-sale investments
June 30,
2010
$ 3,323,539
173,658
(35,008)
$ 3,462,189
June 30,
2009
$ 3,323,539
116,170
(59)
$ 3,439,650
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The fair value of investments and cash equivalents are classified using a hierarchy prioritized based on inputs. Level 1 inputs are quoted
prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for
substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on management’s own assumptions
used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on
the lowest level input that is significant to the fair value measurement.
The following table provides the assets carried at fair value as of June 30, 2010 and 2009:
June 30, 2010 –
Money Market Fund
Mutual Funds
June 30, 2009 –
Money Market Fund
Mutual Funds
Fair Value
Quoted prices in
active
markets (Level 1)
Quoted prices in
active
markets (Level 2)
Quoted prices in
active
markets (Level 3)
$ 4,111,051
$ 4,111,051
$ -
$ -
3,462,189
3,462,189
-
-
$ 3,250,191
$ 3,250,191
$ -
$ -
3,439,650
3,439,650
-
-
(6) PROPERTY AND EQUIPMENT, NET
Property and equipment, net, consists of the following:
Office equipment
Laboratory equipment
Leasehold improvements
Less: Accumulated depreciation and amortization
June 30,
2010
$ 1,662,830
4,137,242
7,088,462
12,888,534
(10,500,169)
$ 2,388,365
June 30,
2009
$ 1,662,830
4,130,247
7,088,462
12,881,539
(9,230,756)
$ 3,650,783
The cost of assets acquired under capital leases was $941,974 as of June 30, 2010 and 2009, respectively. Accumulated
amortization associated with assets acquired under capital leases was $728,868 and $552,157 as of June 30, 2010 and 2009, respectively.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
Clinical study costs
Other research related expenses
Deferred rent, current portion
Other
(8) COMMITMENTS AND CONTINGENCIES
June 30,
2010
$ 798,744
315,439
421,443
683,840
$ 2,219,466
June 30,
2009
$ 300,776
263,731
356,012
500,222
$ 1,420,741
Leases – The Company currently leases facilities under three non-cancelable operating leases. Future minimum lease payments
under these leases are as follows:
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Year Ending June 30,
2011
2012
2013
2014
2015
$ 2,196,655
1,995,860
294,376
236,335
225,175
$ 4,948,401
For the years ended June 30, 2010, 2009 and 2008, rent expense was $1,520,807, $1,613,534 and $1,650,273, respectively.
Capital Leases – The Company has acquired certain of its laboratory equipment under leases classified as capital leases.
Scheduled future payments related to capital leases as of June 30, 2010 are as follows:
Year Ending June 30,
2011
2012
Amount representing interest
Net
$ 22,264
14,843
37,107
(3,153)
$ 33,954
Employment Agreements – The Company has employment agreements with three executive officers which provide a stated
annual compensation amount, subject to annual increases, and annual bonus compensation in an amount to be approved by the
Company’s Board of Directors. Each agreement allows the Company or the employee to terminate the agreement in certain
circumstances. In some circumstances, early termination by the Company may result in severance pay to the employee for a period of 18
to 24 months at the salary then in effect, continuation of health insurance premiums over the severance period and immediate vesting of all
stock options and restricted stock units. Termination following a change in control will result in a lump sum payment of one and one-half to
two times the salary then in effect and immediate vesting of all stock options and restricted stock units.
License Agreements – The Company has license agreements related to NeutroSpec, a radiolabeled monoclonal antibody product
for which the Company has suspended marketing, clinical trials and securing regulatory approvals, that require minimum annual payments
of $15,000, royalty payments on commercial net sales and payments of up to $2,250,000 contingent on the achievement of specified
cumulative net margins on sales. No royalty payments or other contingent amounts will be payable under these agreements unless the
Company recommences sales and marketing of NeutroSpec. The Company does not expect to make any such contingent payments
during the next twelve months.
Employee Retirement Savings Plan – The Company maintains a defined contribution 401(k) plan for the benefit of its employees.
The Company currently matches a portion of employee contributions to the plan. For the years ended June 30, 2010, 2009 and 2008,
Company contributions were $221,599, $254,127 and $341,997, respectively.
Contingencies – The Company accounts for litigation losses in accordance with ASC 450-20, “Loss Contingencies.” Under ASC
450-20, loss contingency provisions are recorded for probable losses when management is able to reasonably estimate the loss. Any
outcome upon settlement that deviates from the Company’s best estimate may result in additional expense or in a reduction in expense in
a future accounting period. The Company records legal expenses associated with such contingencies as incurred.
On January 21, 2008, the Company entered into a settlement agreement and release with Competitive Technologies, Inc. (CTI),
resolving all outstanding disputes between the Company and CTI. The license agreement between CTI and the Company was terminated,
with the Company retaining all rights to bremelanotide and CTI retaining all rights to a peptide called variously MT-II or PT-14. The
settlement agreement and release also includes mutual covenants not to sue and releases of all claims by either party against the other
based on, arising out of or in any way involving the subject matter of the license agreement. As part of the settlement, the Company
remitted a one-time payment to CTI of $800,000 that was charged to general and administrative expense in the year ended June 30, 2008.
(9) STOCKHOLDERS’ EQUITY
Series A Convertible Preferred Stock – As of June 30, 2010, 4,997 shares of Series A Convertible Preferred Stock were
outstanding. Each share of Series A Convertible Preferred Stock is convertible at any time, at the option
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of the holder, into the number of shares of common stock equal to $100 divided by the Series A Conversion Price.
As of June 30, 2010, the Series A Conversion Price was $18.60, so each share of Series A Convertible Preferred Stock is currently
convertible into approximately 5 shares of common stock. The Series A Conversion Price is subject to adjustment, under certain
circumstances, upon the sale or issuance of common stock for consideration per share less than either (i) the Series A Conversion Price in
effect on the date of such sale or issuance, or (ii) the market price of the common stock as of the date of such sale or issuance. The Series
A Conversion Price is also subject to adjustment upon the occurrence of a merger, reorganization, consolidation, reclassification, stock
dividend or stock split which will result in an increase or decrease in the number of shares of common stock outstanding. Shares of Series
A Convertible Preferred Stock have a preference in liquidation, including certain merger transactions, of $100 per share, or $499,700 in the
aggregate as of June 30, 2010. Additionally, the Company may not pay a dividend or make any distribution to holders of any class of stock
unless the Company first pays a special dividend or distribution of $100 per share to holders of the Series A Convertible Preferred Stock.
Common Stock Transactions – In August 2009, the Company sold 948,485 units in a registered direct offering for gross proceeds of
$3,100,000. Each unit consisted of one share of common stock and a five-year warrant to purchase 0.35 shares of common stock at an
exercise price of $3.30 per share. Net proceeds to the Company, after costs of the offering, were approximately $2,800,000. In addition,
the Company issued to the placement agent warrants to purchase 47,424 shares of common stock at an exercise price of $4.10 per share.
In February 2010, the Company sold 962,963 units in a registered direct offering for gross proceeds of $2,600,000. Each unit consisted of
one share of common stock, a Series A warrant exercisable for 0.33 shares of common stock at an exercise price of $3.00 per share and a
Series B warrant exercisable for 0.33 shares of common stock at an exercise price of $2.70 per share. The Series A warrant became
exercisable on August 30, 2010 and expires on August 30, 2013. The Series B warrant was exercisable immediately upon issuance and
initially expired August 29, 2010, but the Company extended the expiration date through February 28, 2011. Net proceeds to the Company,
after costs of the offering, were approximately $2,300,000. In addition, the Company issued to the placement agent warrants to purchase
48,148 shares of common stock at an exercise price of $3.40 per share.
In June 2010, the Company sold 1,000,000 units in a registered direct offering for gross proceeds of $2,000,000. Each unit consisted of
one share of common stock and a one-year warrant to purchase 0.14 shares of common stock at an exercise price of $2.00 per share. Net
proceeds to the Company, after costs of the offering, were approximately $1,800,000. In addition, the Company issued to the placement
agent warrants to purchase 50,000 shares of common stock at an exercise price of $2.50 per share.
At the annual meeting of stockholders held on May 13, 2010, the stockholders authorized, at the discretion of the Company’s Board of
Directors, an amendment to the Company’s restated certificate of incorporation to increase the number of authorized shares of common
stock, $0.01 par value per share, from 150,000,000 to 400,000,000, and separately an amendment to the Company’s restated certificate of
incorporation to effect a reverse stock split of common stock at a ratio of between one-for-two and one-for-fifteen (Note 1). At the direction
of the Board of Directors, the amendment increasing the number of authorized shares of common stock, $0.01 par value per share, to
400,000,000 was filed effective July 23, 2010. Pursuant to the reverse stock split effective September 27, 2010, both the outstanding
common stock and number of authorized shares of common stock were reduced proportionately.
Outstanding Stock Purchase Warrants – As of June 30, 2010, the Company had outstanding warrants exercisable for shares of
common stock as follows:
Shares of Common Stock
140,000
50,000
317,777
317,777
331,969
48,148
47,424
1,500
329,359
1,500
1,585,454
Exercise Price per Share
$ 2.00
2.50
2.70
3.00
3.30
3.40
4.10
28.20
28.80
40.00
Latest Termination Date
June 29, 2011
November 26, 2012
February 28, 2011
August 30, 2013
August 12, 2014
November 26, 2012
November 26, 2012
December 11, 2012
April 17, 2011
December 15, 2010
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Stock Plan – The Company’s 2005 Stock Plan was initially approved by the Company’s stockholders in June 2005 and provides for
incentive and nonqualified stock option grants and other stock-based awards to employees, non-employee directors and consultants for up
to 500,000 shares of common stock. On December 7, 2007, the Company received stockholder approval to increase the number of
authorized shares available for grant to 1,000,000, and on May 13, 2009 the Company received stockholder approval to increase the
number of authorized shares available for grant to 1,500,000. The 2005 Stock Plan is administered under the direction of the Board of
Directors, which may specify grant terms and recipients. Options granted by the Company generally expire ten years from the date of grant
and generally vest over three to four years. As of June 30, 2010, 459,006 shares were available for grant under the 2005 Stock Plan.
The Company also has outstanding options that were granted under previous plans. The Company expects to settle option
exercises under any of its plans with authorized but currently unissued shares.
The following table summarizes option activity for the years ended June 30, 2010, 2009 and 2008:
2010
2009
2008
Number of
Shares
Weighted Average
Exercise Price
Weighted
Average
Number of Shares
Exercise Price Number of Shares
Weighted
Average
Exercise Price
Outstanding at
beginning of year
Granted
Forfeited
Exercised
Expired
Outstanding at end of
year
Exercisable at end of
year
Weighted average
grant-date fair value of
options granted
during the year
882,862
174,276
(34,303)
(6,725)
(58,736)
957,374
631,313
$16.60
2.60
16.00
1.70
34.10
13.20
18.00
$2.20
654,345
287,455
(27,097)
-
(31,841)
882,862
546,380
$24.00
1.70
19.70
-
31.90
16.60
23.10
$1.40
639,472
178,745
(138,154)
-
(25,718)
654,345
439,285
$28.90
10.40
23.20
-
48.20
24.00
29.30
$7.30
The following table summarizes options outstanding as of June 30, 2010:
Number of Shares
Weighted
Average
Exercise Price
Weighted Average
Remaining Term in
Years
Aggregate
Intrinsic Value
Options outstanding at end of year
Options vested and exercisable at end
of year
Unvested options expected to vest
957,374
631,313
308,382
$13.20
$18.00
$4.00
6.2
5.3
8.0
$15,599
$4,084
$10,289
The intrinsic value of options exercised during the year ended June 30, 2010 was $7,998.
The fair value of option grants is estimated at the grant date using the Black-Scholes model. For grants during the year ended
June 30, 2010, the Company’s weighted average assumptions for expected volatility, dividends, term and risk-free interest rate were 96%,
0%, 8.1 years and 3.2%, respectively. For grants during the year ended June 30, 2009, the Company’s weighted average assumptions for
expected volatility, dividends, term and risk-free interest rate were 85%, 0%, 8.8 years and 3.8%, respectively. For grants during the year
ended June 30, 2008, the Company’s weighted average assumptions for expected volatility, dividends, term and risk-free interest rate were
80%, 0%, 6.2 years and 3.7%, respectively. Expected volatilities are based primarily on the Company’s historical volatility. The expected
term of options is based upon the simplified method, which represents the average
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of the vesting term and the contractual term. The risk-free interest rate is based on U.S. Treasury yields for securities with terms
approximating the expected term of the option.
For the years ended June 30, 2010, 2009 and 2008 the Company recorded stock-based compensation related to stock options of
$633,532, $700,618 and $1,016,579, respectively. The Company did not record a tax benefit related to stock-based compensation
expense. As of June 30, 2010, there was $549,292 of total unrecognized compensation cost related to unvested options, which is expected
to be recognized over a weighted-average period of 1.03 years.
In July 2010, the Company granted 30,000 options to its non-employee directors under the Company’s 2005 stock plan.
Restricted Stock Units – In October 2006, the Company made grants of restricted stock units to three executive officers for an aggregate of
97,500 shares of common stock. Under the original vesting conditions, 32,500 shares vested if the quoted market price of Palatin’s
common stock was $40.00 or more for 20 consecutive trading days, an additional 32,500 shares vested if the quoted market price of
Palatin’s common stock was $60.00 or more for 20 consecutive trading days and the remaining 32,500 shares vested if the quoted market
price of Palatin’s common stock was $80.00 or more for 20 consecutive trading days. The fair value of the restricted stock units was
estimated at the grant date using a lattice-type model. The Company’s assumptions for expected volatility, dividends and risk-free rate
were 80%, 0% and 4.56%, respectively. The expected volatility was based on the Company’s historical volatility and the risk-free rate was
based on U.S. Treasury yields for securities with terms approximating the contractual term of the units. The aggregate fair value of the
units at the date of grant was $1,846,000, which was recognized over a weighted-average period ended December 31, 2009. For the years
ended June 30, 2010, 2009 and 2008 the Company recognized $201,500, $470,031 and $671,125, respectively, of stock-based
compensation expense related to these restricted stock units.
In March 2008, the Company’s Compensation Committee revised the vesting conditions of the above restricted stock units granted to the
three executive officers. Under the revised conditions, the restricted stock units granted to each of the executive officers became fully
vested on March 26, 2010 and on such date, after adjusting for withholding taxes, 66,160 shares of common stock were issued. The
restricted stock unit agreements require that each executive officer retain ownership of at least 33% of the stock received for the duration of
the executive’s employment with the Company unless there is a change in control or for hardship as determined by the Board of Directors.
In addition to the original grant-date fair value of these awards, the Company recognized an incremental fair value adjustment to these
restricted stock units, totaling $273,000, on a straight-line basis through March 26, 2010. For the years ended June 30, 2010, 2009 and
2008, the Company recognized $102,375, $136,500 and $34,125, respectively, of stock-based compensation expense related to these
restricted stock units.
On December 10, 2008, the Company granted restricted stock units to its executive officers under the Company’s 2005 Stock Plan totaling
75,000 shares of common stock. The restricted stock units vested on December 31, 2009 and on such date, after adjusting for withholding
taxes, 52,195 shares of common stock were issued. The Company amortized the fair value of these restricted stock units, totaling $67,500,
on a straight-line basis through December 31, 2009. For the years ended June 30, 2010, and 2009, the Company recognized $31,154 and
$36,346, respectively, as stock-based compensation expense related to these restricted stock units.
In September 2007, the Company issued 157,391 restricted stock units under the Company’s 2005 Stock Plan as retention bonuses to its
employees, other than the executive officers, that were not affected by the September 2007 reduction in workforce. On September 30,
2008, after adjusting for forfeitures and early vesting due to involuntary position elimination, 113,882 shares of common stock vested. The
Company amortized the fair value of these restricted stock units of $676,748 on a straight-line basis over a one-year period. For the years
ended June 30, 2009 and 2008, the Company recognized $133,078 and $543,670, respectively, of stock-based compensation expense
related to these restricted stock units.
In July 2010, the Company granted 205,000 restricted stock units to its employees under the Company’s 2005 stock plan. On September
15, 2010, 99,500 shares of common stock vested. The Company will amortize the fair value of these restricted stock units of approximately
$340,000 over the nine months ending March 31, 2010.
(10) INCOME TAXES
The Company has had no income tax expense or benefit since inception because of operating losses, except for amounts
recognized for sales of New Jersey state net operating loss carryforwards. Deferred tax assets and liabilities are determined based on the
estimated future tax effect of differences between the financial statement and
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tax reporting basis of assets and liabilities, as well as for net operating loss carryforwards and research and development credit
carryforwards, given the provisions of existing tax laws.
As of June 30, 2010, the Company had federal and state net operating loss carryforwards of approximately $194,000,000 and
$83,000,000, respectively, which expire between 2011 and 2030 if not utilized. As of June 30, 2010, the Company had federal research
and development credits of approximately $5,400,000 that will begin to expire in 2012, if not utilized.
The Tax Reform Act of 1986 (the Act) provides for limitation on the use of net operating loss and research and development tax
credit carryforwards following certain ownership changes (as defined by the Act) that could limit the Company’s ability to utilize these
carryforwards. The Company may have experienced various ownership changes, as defined by the Act, as a result of past financings.
Accordingly, the Company’s ability to utilize the aforementioned carryforwards may be limited. Additionally, U.S. tax laws limit the time
during which these carryforwards may be applied against future taxes; therefore the Company may not be able to take full advantage of
these carryforwards for federal income tax purposes.
The Company’s net deferred tax assets are as follows:
Net operating loss carryforwards
Research and development tax credits
Accrued expenses, deferred revenue and other
Valuation allowance
Net deferred tax assets
June 30,
2010
$ 72,603,000
5,390,000
2,911,000
80,904,000
(80,904,000)
$ -
June 30,
2009
$ 70,810,000
5,288,000
5,768,000
81,866,000
(81,866,000)
$ -
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future
taxable income and the application of loss limitation provisions related to ownership changes. Due to the Company’s history of losses, the
deferred tax assets are fully offset by a valuation allowance as of June 30, 2010 and 2009. The valuation allowance for the year ended
June 30, 2010 decreased by $962,000 due to the tax treatment of certain deferred revenue.
During the years ended June 30, 2010, 2009 and 2008, the Company sold New Jersey state net operating loss carryforwards,
which resulted in the recognition of $998,408, $1,741,476 and $1,291,444, respectively, in tax benefits.
(11) CONSOLIDATED QUARTERLY FINANCIAL DATA – UNAUDITED
The following tables provide quarterly data for the years ended June 30, 2010 and 2009:
Three Months Ended
June 30,
2010
March 31,
2010
December 31,
2009
September 30,
2009
(amounts in thousands, except per share data)
Total revenues
Total operating expenses
Total other income, net
Income/(loss) before income taxes
Income tax benefit
Net income (loss)
$ 675
4,929
17
(4,237)
-
$ (4,237)
Basic net income/(loss) per common share
$ (0.40)
$ 2,560
4,594
14
(2,020)
-
$ (2,020)
$ (0.20)
$ 7,283
3,848
68
3,503
998
$ 4,501
$ 0.41
$ 3,663
3,824
124
(37)
-
$ (37)
$ (0.00)
Weighted average number of common
shares outstanding used in computing
basic net income/(loss) per common share
Diluted net income/(loss) per common share
Weighted average number of common
shares outstanding used in computing
diluted net income/(loss) per common
share
10,722,061
9,987,323
9,616,954
9,130,622
$ (0.40)
$ (0.20)
$ 0.41
$ (0.00)
10,722,061
9,987,323
9,664,507
9,130,622
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Total revenues
Total operating expenses
Total other income, net
Income/(loss) before income taxes
Income tax benefit
Net income/(loss)
Basic and diluted net income/(loss) per
common share
Weighted average number of common
shares outstanding used in computing
basic and diluted net income/(loss) per
common share
Three Months Ended
June 30,
2009
March 31,
2009
December 31,
2008
September 30,
2008
(amounts in thousands, except per share data)
$ 4,228
4,461
32
(201)
-
$ (201)
$ 5,159
5,087
26
98
-
$ 98
$ 1,211
3,991
622
(2,158)
1,741
$ (417)
$ 754
5,115
78
(4,283)
-
$ (4,283)
$ (0.02)
$ 0.01
$ (0.05)
$ (0.50)
8,666,290
8,666,290
8,664,064
8,552,431
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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Our management carried out an evaluation, with the participation of our chief executive officer and our chief financial officer, of the
effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act) as of the end of
the period covered by this report. Based upon this evaluation, our chief executive officer and our chief financial officer concluded that, as of
June 30, 2010, our disclosure controls and procedures were effective.
A control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control
system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule
13a-15(f) or 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance to management
and the board of directors regarding the preparation and fair presentation of published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
There was no change in our internal control over financial reporting during the fourth quarter of the period covered by this Annual
Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2010. In making this
assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on its assessment, management believes that, as of June 30, 2010, our internal control over
financial reporting is effective based on those criteria.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control
over financial reporting.
Item 9B. Other Information.
None.
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Table of Contents
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors
PART III
The following table sets forth the names, ages, positions and committee memberships of our directors. All directors hold office until the
next annual meeting of stockholders or until their successors have been elected and qualified. All current directors were elected at our
annual stockholders’ meeting on May 13, 2010.
Name
Carl Spana, Ph.D.
John K.A. Prendergast, Ph.D.
Perry B. Molinoff, M.D.
Robert K. deVeer, Jr. (1) (2) (3)
Zola P. Horovitz, Ph.D. (1) (2) (3)
Robert I. Taber, Ph.D. (1) (2)
Errol De Souza, Ph.D. (2) (3)
J. Stanley Hull
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
(3) Member of the Nominating and Corporate Governance Committee.
Age
48
56
70
64
75
74
56
58
Position with Palatin
Chief executive officer, president and a director
Director, chairman of the board of directors
Director
Director
Director
Director
Director
Director
CARL SPANA, Ph.D., co-founder of Palatin, has been our chief executive officer and president since June 14, 2000. He has been
a director of Palatin since June 1996 and has been a director of our wholly-owned subsidiary, RhoMed Incorporated, since July 1995. From
June 1996 through June 14, 2000, Dr. Spana served as an executive vice president and our chief technical officer. From June 1993 to
June 1996, Dr. Spana was vice president of Paramount Capital Investments, LLC, a biotechnology and biopharmaceutical merchant
banking firm, and of The Castle Group Ltd., a medical venture capital firm. Through his work at Paramount Capital Investments and The
Castle Group, Dr. Spana co-founded and acquired several private biotechnology firms. From July 1991 to June 1993, Dr. Spana was a
Research Associate at Bristol-Myers Squibb, a publicly-held pharmaceutical company, where he was involved in scientific research in the
field of immunology. Dr. Spana is a director of AVAX Technologies, Inc., a publicly-held life science company. Dr. Spana received his Ph.D.
in molecular biology from The Johns Hopkins University and his B.S. in biochemistry from Rutgers University.
Dr. Spana’s qualifications for our board include his leadership experience, business judgment and industry experience. As a senior
executive of Palatin for almost fifteen years, he provides in-depth knowledge of our company, our drug products under development and
the competitive and corporate partnering landscape.
JOHN K.A. PRENDERGAST, Ph.D., co-founder of Palatin, has been chairman of the board since June 14, 2000, and a director since
August 1996. Dr. Prendergast has been president and sole stockholder of Summercloud Bay, Inc., an independent consulting firm
providing services to the biotechnology industry, since 1993. He is a member of the board of AVAX Technologies, Inc. and MediciNova,
Inc., publicly-held life science companies. Currently, he is the chairman of AVAX Technologies, Inc. and executive chairman of the board of
directors of Antyra, Inc., a privately-held biopharmaceutical firm. From October 1991 through December 1997, Dr. Prendergast was a
managing director of The Castle Group Ltd., a medical venture capital firm. Dr. Prendergast received his M.Sc. and Ph.D. from the
University of New South Wales, Sydney, Australia and a C.S.S. in administration and management from Harvard University.
Dr. Prendergast is a co-founder of Palatin, and brings a historical perspective to our board coupled with extensive industry experience in
corporate development and finance in the life sciences field. His service on other publicly traded company boards provides experience
relevant to good corporate governance practices.
PERRY B. MOLINOFF, M.D. has been a director since November 2001. He served as our executive vice president for research and
development from September 2001 until November 3, 2003, when he resigned to accept a position as Vice Provost for Research at the
University of Pennsylvania, which he held from November 2003
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through September 2006. He is also a director of Cypress Bioscience, Inc., a publicly-held life science company. Dr. Molinoff has more
than 30 years of experience in both the industrial and educational sectors. From 1981 to 1994, he was a professor of pharmacology and
chairman of the Department of Pharmacology at the University of Pennsylvania School of Medicine in Philadelphia. From January 1995
until March 2001, he was vice president of neuroscience and genitourinary drug discovery for the Bristol-Myers Squibb Pharmaceutical
Research Institute, where he was responsible for directing and implementing the Institute’s research efforts. Dr. Molinoff earned his
medical degree from Harvard Medical School.
Dr. Molinoff has extensive academic and pharmaceutical company experience, with scientific knowledge that makes him a resource to our
executive officers and other board members. As a former officer of Palatin, Dr. Molinoff has significant knowledge of our technologies and
drug products under development, as well as the markets potentially addressed by our drug products under development.
ROBERT K. deVEER, Jr. has been a director since November 1998. Since January 1997, Mr. deVeer has been the president of deVeer
Capital LLC, a private investment company. He is also a director of Solutia Inc., a publicly-held chemical-based materials company. From
1995 until his retirement in 1996, Mr. deVeer served as Managing Director, Head of Industrial Group, at New York-based Lehman
Brothers. From 1973 to 1995, he held increasingly responsible positions at New York-based CS First Boston, including Head of Project
Finance, Head of Industrials and Head of Natural Resources. He was a managing director, member of the investment banking committee
and a trustee of the First Boston Foundation. He received a B.A. in economics from Yale University and an M.B.A. in finance from Stanford
Graduate School of Business.
Mr. deVeer has extensive experience in investment banking and corporate finance, including the financing of life sciences companies, and
serves as the Audit Committee’s financial expert.
ZOLA P. HOROVITZ, Ph.D. has been a director since February 2001. Before he retired from Bristol-Myers Squibb in 1994, Dr. Horovitz
spent 34 years in various positions, including associate director of the Squibb Institute for Medical Research, vice president of
development, vice president, scientific liaison, vice president of licensing, and vice president of business development and planning for the
pharmaceutical division of Bristol-Myers Squibb. He held advisory positions at the University of Pittsburgh, Rutgers College of Pharmacy
and Princeton University. He is also currently a director of BioCryst Pharmaceuticals, Inc. and GenVec, Inc., publicly-held life science
companies. Dr. Horovitz earned his Ph.D. in pharmacology from the University of Pittsburgh.
Dr. Horovitz has extensive experience in development of pharmaceutical drugs, business development and licensing, and has served on
the board of directors of a number of publicly-held life science companies.
ROBERT I. TABER, Ph.D. has been a director since May 2001. Dr. Taber began his career in the pharmaceutical industry in 1962, holding
a succession of positions within Schering Corporation’s biological research group before leaving in 1982 as director of biological research.
He has also held a number of increasingly important positions with DuPont Pharmaceuticals and the DuPont Merck Pharmaceutical
Company, including director of pharmaceutical research, director of pharmaceutical and biotechnology research, vice president of
pharmaceutical research and vice president of extramural research and development. From 1994 to 1998, Dr. Taber held the position of
senior vice president of research and development at Synaptic Pharmaceuticals Corporation before founding Message Pharmaceuticals,
Inc. in 1998, serving as president and chief executive officer until 2000. Dr. Taber earned his Ph.D. in pharmacology from the Medical
College of Virginia.
Dr. Tabor has extensive experience in pharmaceutical research and development both in large pharmaceutical companies and in smaller
biotechnology and biopharmaceutical companies.
ERROL DE SOUZA, Ph.D. has been a director since April 2003. Dr. De Souza has nearly two decades of experience in the field of drug
discovery and development. Since March 2010, Dr. De Souza has been president and chief executive officer of Biodel Inc., a publicly-held
specialty biopharmaceutical company. From April 2003 to January 2009, Dr. De Souza was president and chief executive officer of
Archemix Corporation, a biopharmaceutical company focused on aptamer therapeutics. From September 2002 to March 2003, he was
president and chief executive officer and a director of Synaptic Pharmaceuticals. As a result of a merger effective March 2003, Synaptic
Pharmaceuticals became a wholly-owned subsidiary of H. Lundbeck A/S, an international pharmaceutical company. Prior to that, Dr. De
Souza held senior management positions with Aventis, and its predecessor company Hoechst Marion Roussel Pharmaceuticals, and was
co-founder of Neurocrine Biosciences, Inc. He is currently a director of Biodel Inc., Targacept, Inc., a publicly-held life sciences company,
and Bionomics Limited, an Australian life science company publicly traded on the Australian Stock Exchange. Dr. De Souza received his
B.A. (Honors) in physiology and his Ph.D. in neuroendocrinology from the University of Toronto and he received his postdoctoral fellowship
in neuroscience from The Johns Hopkins University School of Medicine.
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Dr. De Souza has been the president and chief executive officer of three biopharmaceutical companies and has served on the
board of directors of a number of publicly-held life sciences companies, and has extensive experience with biotechnology
companies.
J. STANLEY HULL has been a director since September 2005. Mr. Hull has over three decades of experience in the field of sales and
marketing. Mr. Hull joined GlaxoSmithKline, a research-based pharmaceutical company, in October 1987 and retired as Senior Vice
President, Pharmaceuticals in May 2010, having previously served in the R&D organization of GlaxoSmithKline as Vice President and
Worldwide Director of Therapeutic Development and Product Strategy – Neurology and Psychiatry. Prior to that, he was Vice President of
Marketing – Infectious Diseases and Gastroenterology for Glaxo Wellcome Inc. Mr. Hull started his career in the pharmaceutical industry
with SmithKline and French Laboratories in 1978. Mr. Hull received his B.S. in business administration from the University of North
Carolina at Greensboro.
Mr. Hull has extensive experience in commercial operations, development and marketing of pharmaceutical drugs and corporate alliances
between pharmaceutical companies and biotechnology companies.
Director Independence
The board of directors has determined that all of the directors except for Dr. Spana (our chief executive officer and president) are
independent directors, as defined in Section 121A of the NYSE Amex original listing requirements.
The Board and Its Committees
Committees and meetings. The board has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance
Committee. During fiscal 2010, the board met four times, the Audit Committee met four times, the Compensation Committee met twice and
the Nominating and Corporate Governance Committee met once. Each director attended at least 75% of the total number of meetings of
the board and committees of the board on which he served. With the exception of Drs. Prendergast and Spana, the directors did not attend
the annual meeting of stockholders held on May 13, 2010.
Audit Committee. The Audit Committee reviews the engagement of the independent registered public accounting firm and reviews the
independence of the independent registered public accounting firm. The Audit Committee also reviews the audit and non-audit fees of the
independent registered public accounting firm and the adequacy of our internal control procedures. The Audit Committee is currently
composed of three non-employee directors, Mr. deVeer and Drs. Horovitz and Taber, all of whom are independent. The board has
determined that the members of the Audit Committee are independent, as defined in Section 803 of the NYSE Amex Company Guide, and
satisfy the requirements of the NYSE Amex as to financial literacy and expertise. The board has determined that at least one member of the
committee, Mr. deVeer, is an audit committee financial expert as defined by the SEC. The responsibilities of the Audit Committee are set
forth in a written charter adopted by the board, a copy of which is available on our web site at www.palatin.com.
Compensation Committee. The Compensation Committee reviews and recommends to the board on an annual basis employment
agreements and compensation for our officers, directors and some employees, and administers our 2005 Stock Plan and the options still
outstanding which were granted under previous stock option plans. The Compensation Committee is composed of Mr. deVeer and Drs.
Horovitz, Taber and De Souza, all of whom are independent.
The Compensation Committee does not have a written charter. The committee administers our 2005 Stock Plan, under which it may
delegate to an officer its authority to grant stock options and rights to officers and employees, except that it cannot authorize an officer to
make grants to himself. Our chief financial officer and our Director of Human Resources and Administration support the committee in its
work by gathering, analyzing and presenting data on our compensation arrangements and compensation in the marketplace.
Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee assists the board in
recommending nominees for directors, and in determining the composition of committees. It also reviews, assesses and makes
recommendations to the board concerning policies and guidelines for corporate governance, including relationships of the board, the
stockholders and management in determining our direction and performance. The responsibilities of the Nominating and Corporate
Governance Committee are set forth in a written charter adopted by the board, a copy of which is available on our web site at
www.palatin.com. The Nominating and Corporate Governance Committee is composed of Mr. deVeer and Drs. Horovitz and De Souza,
each of whom meets the independence requirements currently established by the NYSE Amex.
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Duration of Office. Unless a director resigns, all directors hold office until the next annual meeting of stockholders or until their successors
have been elected and qualified. Directors serve as members of committees as the board determines from time to time.
Stockholder Communication with Directors
Generally, stockholders who have questions or concerns should contact Stephen T. Wills, Secretary, Palatin Technologies, Inc., 4C Cedar
Brook Drive, Cranbury, NJ 08512. However, any stockholders who wish to address questions regarding our business directly to the board
of directors, or any individual director, should direct their questions to the non-employee board members via e-mail at
boardofdirectors@palatin.com.
Code of Corporate Conduct and Ethics
We have adopted a code of corporate conduct and ethics that applies to all of our directors, officers and employees, including our chief
executive officer and chief financial officer. You can view the code of corporate conduct and ethics at our website, www.palatin.com. We
will disclose any amendments to, or waivers from, provisions of the code of corporate conduct and ethics that apply to our directors,
principal executive and financial officers in a current report on Form 8-K, unless the rules of the NYSE Amex permit website posting of any
such amendments or waivers.
Executive Officers
Executive officers are appointed by the board and serve at the discretion of the board. Each officer holds his position until his successor is
appointed and qualified. The current executive officers hold office under employment agreements.
Name
Age
Position with Palatin
Carl Spana, Ph.D.
Stephen T. Wills, MST, CPA
Trevor Hallam, Ph.D.
48
53
52
Chief executive officer, president and director
Chief financial officer and executive vice president of operations, secretary
and treasurer
Executive vice president of research and development
Additional information about Dr. Spana is included above under the heading “Identification of Directors.”
STEPHEN T. WILLS, MST, CPA, has been vice president, secretary, treasurer and chief financial officer since 1997 and has been
executive vice president of operations since 2005. From July 1997 to August 2000, Mr. Wills was also a vice president and the chief
financial officer of Derma Sciences, Inc., a publicly-held company which provides wound and skin care products, and currently serves as
lead director of Derma. Mr. Wills is also a director of U.S. Helicopter Corp., a publicly-held company. From 1991 to August 2000, he was
the president and chief operating officer of Golomb, Wills & Company, P.C., a public accounting firm. Mr. Wills, a certified public
accountant, received his B.S. in accounting from West Chester University, and an M.S. in taxation from Temple University.
TREVOR HALLAM, Ph.D., has been executive vice president of research and development since May 2005. From 1996 to 2005, Dr.
Hallam held senior management positions within AstraZeneca R&D, including vice president of biologics based out of the UK, vice
president of respiratory and inflammation research based in Sweden and vice president of medical affairs within the United States. From
1985 to 1995, Dr. Hallam served in senior management positions within Smith Kline and French Research, Glaxo Group Research, Roche
Research and Rhone-Poulenc Rorer. Dr. Hallam joined the pharmaceutical industry after a postdoctoral fellowship at the Physiological
Laboratory, University of Cambridge, UK. He earned his Ph.D. in biochemistry from the University of London and his B.Sc. from the
University of Leeds.
Section 16(A) Beneficial Ownership Reporting Compliance
The rules of the SEC require us to disclose late filings of reports of stock ownership and changes in stock ownership by our
directors and officers. To the best of our knowledge, all of the filings for our directors and officers were made on a timely basis in fiscal
2010.
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Item 11. Executive Compensation.
Summary Compensation Table
The following table summarizes the compensation earned by or paid to our principal executive officer, principal financial officer and our one
other executive officer (our named executive officers) for our fiscal years ended June 30, 2010 and 2009. We have no non-equity incentive
plan, no defined benefit or actuarial pension plan, and no deferred compensation plan.
Salary
($)
Bonus (1)
($)
Stock
awards (2)
($)
Option
awards (2)
($)
All
other
compen-
sation (3)
($)
Total
($)
390,000
390,000
0
25,000
321,000
321,000
0
25,000
0
22,500
0
22,500
62,305
38,455
49,844
30,764
12,250
9,750
464,555
485,705
12,250
11,500
383,094
410,764
Fiscal
Year
2010
2009
2010
2009
2010
2009
321,000
321,000
0
25,000
0
22,500
49,844
30,764
12,250
11,500
383,094
410,764
Name and Principal
Position
Carl Spana, Ph.D.,
chief executive officer
and president
Stephen T. Wills, MST,
CPA, chief financial
officer and executive
vice president of
operations
Trevor Hallam, Ph.D.,
executive vice
president of research
and development
(1)
(2)
Bonus amounts for fiscal 2009 were paid on December 31, 2008. There were no bonuses awarded to any of our executive officers
for fiscal 2010.
Amounts in these columns represent the aggregate grant date fair value for stock awards and option awards computed in
accordance with FASB ASC Topic 718. For a description of the assumptions we used to calculate these amounts, see Note 9 to
the consolidated financial statements included in this Annual Report.
(3)
Consists of matching contributions to 401(k) plan accounts.
Employment Agreements
Effective July 1, 2010, we entered into employment agreements with Dr. Spana, Mr. Wills and Dr. Hallam, which continue through June 30,
2013 unless terminated earlier. Under these agreements, which replace substantially similar agreements that expired on June 30, 2010,
Dr. Spana is serving as chief executive officer and president at a base salary of $390,000 per year; Mr. Wills is serving as chief financial
officer and executive vice president of operations at a base salary of $321,000 per year; and Dr. Hallam is serving as executive vice
president of research and development at a base salary of $321,000 per year. Each agreement also provides for:
· annual discretionary bonus compensation, in an amount to be decided by the Compensation Committee and approved by the
board, based on achievement of yearly objectives; and
· participation in all benefit programs that we establish, to the extent the executive’s position, tenure, salary, age, health and
other qualifications make him eligible to participate.
Each agreement allows us or the executive to terminate the agreement upon written notice, and contains other provisions for
termination by us for “cause,” or by the employee for “good reason” or due to a “change in control” (as these terms are defined in the
employment agreements and set forth below). Early termination may, in some circumstances, result in severance pay at the salary then in
effect, plus continuation of medical and dental benefits then in effect for a period of two years (Dr. Spana) or 18 months (Mr. Wills and Dr.
Hallam). In addition, the agreements provide that options and restricted stock units granted to these officers accelerate upon termination of
employment except for voluntary resignation by the officer or termination for cause. In the event of retirement, termination by the officer for
good reason, or termination by us other than for “cause”, options may be exercised until the earlier of twenty-four months following
termination or expiration of the option term. Arrangements with
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our named executive officers in connection with a termination following a change in control are described below. Each
agreement includes non-competition, non-solicitation and confidentiality covenants.
The Compensation Committee determined not to award any discretionary bonuses to our named executive officers or to authorize any
increase in our named executive officers’ salaries for fiscal 2010, based on results of operations during fiscal 2009, including our financial
condition and our common stock price.
Stock Option and Restricted Stock Unit Grants
In October 2006, we granted 37,500, 30,000 and 30,000 restricted stock units to Dr. Spana, Mr. Wills and Dr. Hallam, respectively,
which vested on March 26, 2010. The terms of these restricted stock units require that each executive retain ownership of at least 33% of
the vested stock for the duration of the executive’s employment with us unless there is a change in control or for hardship as determined
by the board of directors. In connection with the grant of the restricted stock units to our executive officers in October 2006, we determined
at that time that the executive officers would not receive any further stock options or stock awards during the remainder of fiscal 2007 or
the next three fiscal years thereafter, subject, however, to annual review by the Compensation Committee, which is authorized to make
additional grants if warranted based on market conditions, our common stock price, the need to retain our executive officers and the
interests of our stockholders.
In fiscal 2008, the Compensation Committee determined that additional stock option grants were necessary in order to motivate
and retain our executive officers, and on March 26, 2008, Dr. Spana, Mr. Wills and Dr. Hallam were granted options to purchase 37,500,
30,000 and 30,000 shares of common stock, respectively, vesting over four years. Twenty-five percent of the shares underlying each
option were granted at an exercise price in excess of the fair market value on the date of grant in order to incentivize the executive to
improve our financial condition.
In each of fiscal 2009 and 2010, the Compensation Committee determined that additional equity grants were necessary in order to
motivate and retain our executive officers. Effective on each of July 1, 2008 and July 1, 2009, Dr. Spana, Mr. Wills and Dr. Hallam were
granted options to purchase 25,000, 20,000 and 20,000 shares of common stock, respectively, vesting over four years with an exercise
price equal to the closing price of our common stock on the respective date of grant. In addition, on December 10, 2008, we granted
restricted stock units as to 25,000 shares of common stock to each of Dr. Spana, Mr. Wills and Dr. Hallam, which vested on December 31,
2009.
On July 21, 2010, we granted 25,000, 20,000 and 20,000 restricted stock units to Dr. Spana, Mr. Wills and Dr. Hallam,
respectively, which will vest as to 50% on September 15, 2010 and the remaining 50% on March 15, 2011, provided that the executive
remains employed by us through such dates, subject to earlier vesting in the event of a change in control or termination of employment
other than a voluntary termination or termination for cause.
Outstanding Equity Awards at 2010 Fiscal Year-End
The following table summarizes all of the outstanding equity awards granted to our named executive officers as of June 30, 2010, the end
of our fiscal year. No stock awards were outstanding as of June 30, 2010.
Option awards (1)
Name
Carl Spana
Option
grant
date
08/01/00
10/01/01
12/11/02
07/16/03
07/01/05
07/01/05
Number of
securities
underlying
unexercised
options
(#)
exercisable
Number of
securities
underlying
unexercised
options
(#)
unexercisable
14,000
10,000
10,000
10,000
7,500
8,300
51
Option
exercise
price
($)
51.25
31.90
20.00
32.40
37.50
17.50
0
0
0
0
0
0
Option
expiration
date
08/01/10
10/01/11
12/11/12
07/16/13
07/01/15
07/01/15
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Name
Stephen T. Wills
Trevor Hallam
Option
grant
date
10/06/06
03/26/08
03/26/08
03/26/08
07/01/08
07/01/09
08/01/00
10/01/01
12/11/02
07/16/03
07/01/05
07/01/05
10/06/06
03/26/08
03/26/08
03/26/08
07/01/08
07/01/09
05/09/05
10/06/06
03/26/08
03/26/08
03/26/08
07/01/08
07/01/09
Option awards (1)
Number of
securities
underlying
unexercised
options
(#)
exercisable
Number of
securities
underlying
unexercised
options
(#)
unexercisable
3,125
14,062
2,344
2,344
18,750
25,000
0
0
0
0
0
0
2,500
11,250
1,875
1,875
15,000
20,000
0
2,500
11,250
1,875
1,875
15,000
20,000
9,375
14,062
2,344
2,344
6,250
0
6,500
7,000
8,000
8,000
5,000
7,300
7,500
11,250
1,875
1,875
5,000
0
35,000
7,500
11,250
1,875
1,875
5,000
0
52
Option
exercise
price
($)
24.90
2.80
5.00
6.60
1.80
2.80
51.25
31.90
20.00
32.40
37.50
17.50
24.90
2.80
5.00
6.60
1.80
2.80
19.90
24.90
2.80
5.00
6.60
1.80
2.80
Option
expiration
date
10/06/16
03/26/18
03/26/18
03/26/18
07/01/18
07/01/19
08/01/10
10/01/11
12/11/12
07/16/13
07/01/15
07/01/15
10/06/16
03/26/18
03/26/18
03/26/18
07/01/18
07/01/19
05/09/15
10/06/16
03/26/18
03/26/18
03/26/18
07/01/18
07/01/19
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Table of Contents
(1)
Stock option vesting schedules: All options granted before October 6, 2006 have fully vested. Options granted on or after October
6, 2006 vest over four years with 1/4 of the shares vesting per year starting on the first anniversary of the grant date.
Termination and Change-In-Control Arrangements
The employment agreements and restricted stock unit agreements with Dr. Spana, Mr. Wills and Dr. Hallam contain the following
provisions concerning severance compensation and the vesting of stock options and restricted stock units upon termination of employment
or upon a change in control. The executive’s entitlement to severance, payment of health benefits and accelerated vesting of options is
contingent on the executive executing a general release of claims against us.
Termination Without Severance Compensation. Regardless of whether there has been a change in control, if we terminate employment for
cause or the executive terminates employment without good reason (as those terms are defined in the employment agreement and set
forth below), then the executive receives only his accrued salary and vacation benefits through the date of termination. He may also elect
to receive medical and dental benefits pursuant to COBRA for up to eighteen months, but must remit the cost of coverage to us. Under the
terms of our outstanding options and restricted stock units, all unvested options and restricted stock units would terminate immediately, and
vested options would be exercisable for three months after termination.
Severance Compensation Without a Change in Control. If we terminate or fail to extend the employment agreement without cause, or the
executive terminates employment with good reason, then the executive will receive as severance pay his salary then in effect, paid on our
regular pay schedule, plus medical and dental benefits at our expense, for a period of two years (Dr. Spana) or 18 months (Mr. Wills and
Dr. Hallam) after the termination date. In addition, upon such event all unvested options would immediately vest and be exercisable for two
years after the termination date or, if earlier, the expiration of the option term, and all unvested restricted stock units would accelerate and
become fully vested.
Severance Compensation After a Change in Control. If, within one year after a change in control, we terminate employment or the
executive terminates employment with good reason, then the executive will receive as severance pay 200% (Dr. Spana) or 150% (Mr.
Wills and Dr. Hallam) of his salary then in effect, paid in a lump sum, plus medical and dental benefits at our expense, for a period of two
years (Dr. Spana) or 18 months (Mr. Wills and Dr. Hallam) after the termination date. We would also reimburse the executive for up to
$25,000 in fees and expenses during the six months following termination, for locating employment. We would also reimburse the
executive for any excise tax he might incur on “excess parachute payments” (as defined in Section 280G(b) of the Internal Revenue Code).
All unvested options would immediately vest and be exercisable for two years after the termination date or, if earlier, the expiration of the
option term. All unvested restricted stock units would vest upon a change in control, without regard to whether the executive’s employment
is terminated.
Option Vesting Upon a Change in Control. A change in control by itself does not change compensation or benefits while the employment
agreement remains in effect. However, if any options are to be terminated in connection with a change in control, those options will vest in
full immediately before the change in control.
Definitions. Under the employment agreements, a “change in control,” “cause” and “good reason” are defined as follows:
A “change in control” occurs when:
(a)
(b)
(c)
(d)
(a)
some person or entity acquires more than 50% of the voting power of our outstanding securities;
the individuals who, during any twelve month period, constitute our board of directors cease to constitute at least a majority
of the board of directors;
we enter into a merger or consolidation; or
we sell substantially all our assets.
The term “cause” means:
the occurrence of (i) the executive’s material breach of, or habitual neglect or failure to perform the material duties which
he is required to perform under, the terms of his employment agreement; (ii) the executive’s material failure to follow the
reasonable directives or policies established by or
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53
Table of Contents
(b)
(c)
at the direction of our board of directors; or (iii) the executive’s engaging in conduct that is materially detrimental to our
interests such that we sustain a material loss or injury as a result thereof, provided that the breach or failure of
performance is not cured, to the extent cure is possible, within ten days of the delivery to the executive of written notice
thereof;
the willful breach by the executive of his obligations to us with respect to confidentiality, invention and non-disclosure, non-
competition or non-solicitation; or
the conviction of the executive of, or the entry of a pleading of guilty or nolo contendere by the executive to, any crime
involving moral turpitude or any felony.
The term “good reason” means the occurrence of any of the following, with our failure to cure such circumstances within 30 days of the
delivery to us of written notice by the executive of such circumstances:
(a)
(b)
(c)
(d)
any material adverse change in the executive’s duties, authority or responsibilities, which causes the executive’s position
with us to become of significantly less responsibility, or assignment of duties and responsibilities inconsistent with the
executive’s position;
a material reduction in the executive’s salary;
our failure to continue in effect any material compensation or benefit plan in which the executive participates, unless an
equitable arrangement has been made with respect to such plan, or our failure to continue the executive’s participation
therein (or in a substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of
benefits provided and the level of the executive’s participation relative to other participants;
our failure to continue to provide the executive with benefits substantially similar to those enjoyed by the executive under
any of our health and welfare insurance, retirement and other fringe-benefit plans, the taking of any action by us which
would directly or indirectly materially reduce any of such benefits, or our failure to provide the executive with the number of
paid vacation days to which he is entitled; or
(e)
the relocation of the executive to a location which is a material distance from Cranbury, New Jersey.
Director Compensation
The following table sets forth the compensation we paid to all directors during fiscal 2010, except for Dr. Spana, whose compensation is set
forth above in the Summary Compensation Table and related disclosure. Dr. Spana did not receive any separate compensation for his
services as a director.
Name
Fees earned or paid in
cash ($)
Option awards
($) (1) (2)
John K.A. Prendergast, Ph.D.
Perry B. Molinoff, M.D.
Robert K. deVeer, Jr.
Zola P. Horovitz, Ph.D.
Robert I. Taber, Ph.D.
Errol De Souza, Ph.D.
J. Stanley Hull
60,000
30,000
34,000
30,000
32,000
30,000
30,000
14,953
9,969
9,969
9,969
9,969
9,969
9,969
Total ($)
74,953
39,969
43,969
39,969
41,969
39,969
39,969
(1)
Amounts in this column represent the aggregate grant date fair value for option awards granted in fiscal 2010 computed in
accordance with FASB ASC Topic 718. For a description of the assumptions we used to calculate these amounts, see Note 9 to
the consolidated financial statements included in this Annual Report.
(2)
The aggregate number of shares underlying option awards outstanding at June 30, 2010 for each director was:
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Dr. Prendergast 76,100
Dr. Molinoff 56,458
Mr. deVeer 45,500
Dr. Horovitz 39,500
Dr. Taber 39,000
Dr. De Souza 34,875
Mr. Hull 30,666
Non-Employee Directors’ Option Grants. Non-employee directors receive an annual option grant on the first day of each fiscal year, or
such later date as may be determined by the board. On July 1, 2009, the first day of our last completed fiscal year, the chairman of the
board received an option to purchase 6,000 shares of common stock and each other non-employee director received an option to purchase
4,000 shares of common stock. All of these options have an exercise price of $2.80 per share, the closing price of our common stock on
the date of grant, vested in twelve monthly installments beginning July 31, 2009, expire ten years from the date of grant and provide for
accelerated vesting in the event of involuntarily termination as a director following a change in control, with exercise permitted following
accelerated vesting for up to the earlier of one year after termination or the expiration date of the option. In addition, on the same date Mr.
deVeer received an additional option to purchase 3,500 shares of common stock, with an exercise price of $2.80 per share, relating to his
services as member and chairman of the Audit Committee and as an Audit Committee financial expert. The additional option granted to Mr.
deVeer vests in four annual installments on the anniversary of the date of grant, expires ten years from the date of grant and provides for
accelerated vesting in the event of involuntary termination as a director following a change in control, with exercise permitted following
accelerated vesting for up to the earlier of one year after termination or the expiration of the option.
On July 21, 2010, as the annual option grant for the current fiscal year, the chairman of the board received an option to purchase 6,000
shares of common stock and each other non-employee director received an option to purchase 4,000 shares of common stock. All of these
options have an exercise price of $1.70 per share, the closing price of our common stock on the date of grant, vest in twelve monthly
installments beginning on July 31, 2010, expire ten years from the date of grant and provide for accelerated vesting in the event of
involuntarily termination as a director following a change in control, with exercise permitted following accelerated vesting for up to the
earlier of one year after termination or the expiration date of the option.
Non-Employee Directors’ Cash Compensation. Dr. Prendergast serves as chairman of the board and receives an annual retainer of
$60,000, payable quarterly. Other non-employee directors receive an annual retainer of $30,000, payable on a quarterly basis, with the
Audit Committee chairperson and Compensation Committee chairperson receiving an additional $4,000 and $2,000, respectively, payable
on a quarterly basis.
Non-Employee Directors’ Expenses. Non-employee directors are reimbursed for expenses incurred in performing their duties as directors,
including attending all meetings of the board and any committees on which they serve.
Employee Directors. Employee directors are not separately compensated for services as directors, but are reimbursed for
expenses incurred in performing their duties as directors, including attending all meetings of the board and any committees on which they
serve.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Securities Authorized for Issuance Under Equity Compensation Plans. The table below provides information on our equity compensation
plans as of June 30, 2010:
55
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Table of Contents
Equity Compensation Plan Information
as of June 30, 2010
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average exercise
price of outstanding options,
warrants
and rights
(b)
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities
reflected in column (a))
(c)
957,374
3,000
960,374
$13.20
$34.10
$13.30
459,006
0
459,006
Plan category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
We have authorized the issuance of equity securities under the compensation plans described below, without the approval of stockholders.
· Wistar Institute of Anatomy and Biology warrants, dated December 15, 2000 - provided common stock purchase warrants to a
technology licensor to purchase 1,500 shares at $40.00 per share, with an expiration date of December 15, 2010.
· Wistar Institute of Anatomy and Biology warrants, dated May 13, 2002 - provided common stock purchase warrants to a
technology licensor to purchase 1,500 shares at $28.20 per share, with an expiration date of May 13, 2012.
Beneficial Ownership Tables. The tables below show the beneficial stock ownership and voting power, as of September 27, 2010,
of:
· each director, each of the named executive officers, and all current directors and officers as a group; and
· all persons who, to our knowledge, beneficially own more than five percent of the common stock or Series A preferred stock.
“Beneficial ownership” here means direct or indirect voting or investment power over outstanding stock and stock which a person has the
right to acquire now or within 60 days after September 27, 2010. See the footnotes for more detailed explanations of the holdings. To our
knowledge, the persons named in the tables beneficially own and have sole voting and investment power over all shares listed.
The common stock has one vote per share and the Series A preferred stock has approximately 5.38 votes per share. Voting power
is calculated on the basis of the aggregate of common stock and Series A preferred stock outstanding as of September 27, 2010, on which
date 11,824,574 shares of common stock and 4,997 shares of Series A preferred stock were outstanding.
The address for all members of our management is c/o Palatin Technologies, Inc., 4C Cedar Brook Drive, Cranbury, NJ 08512.
Addresses of other beneficial owners are in the table.
MANAGEMENT:
Class
Name of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of
class
Percent of voting
power
Common
Carl Spana, Ph.D.
Common
Stephen T. Wills
150,606 (1)
1.3%
123,324 (2)
1.0%
*
*
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Table of Contents
Class
Name of Beneficial Owner
Amount and Nature of
Beneficial Ownership
Percent of
class
Percent of voting
power
Common
Trevor Hallam, Ph.D.
120,448 (3)
1.0%
Common
John K.A. Prendergast, Ph.D.
Common
Perry B. Molinoff, M.D.
Common
Robert K. deVeer, Jr.
Common
Zola P. Horovitz, Ph.D.
Common
Robert I. Taber, Ph.D.
Common
Errol De Souza, Ph.D.
Common
J. Stanley Hull
57,367 (4)
51,291 (5)
34,308 (6)
33,833 (7)
33,333 (8)
28,708 (9)
24,499 (10)
*
*
*
*
*
*
*
*
*
*
*
*
*
*
*
All current directors and executive officers as a group
(ten persons)
635,164 (11)
5.3%
1.3%
*Less than one percent.
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Includes 95,800 shares which Dr. Spana has the right to acquire under options.
Includes 75,300 shares which Mr. Wills has the right to acquire under options.
Includes 75,000 shares which Dr. Hallam has the right to acquire under options.
Includes 55,600 shares which Dr. Prendergast has the right to acquire under options.
Includes 50,291 shares which Dr. Molinoff has the right to acquire under options.
Includes 34,208 shares which Mr. deVeer has the right to acquire under options.
Includes 33,333 shares which Dr. Horovitz has the right to acquire under options.
Includes 32,833 shares which Dr. Taber has the right to acquire under options.
Shares which Dr. De Souza has the right to acquire under options.
(10)
Shares which Mr. Hull has the right to acquire under options.
(11)
Includes 505,572 shares which directors and officers have the right to acquire under options.
MORE THAN 5% BENEFICIAL OWNERS:
Class
Name and address of beneficial owner
Amount and nature of
beneficial ownership
Percent of
class
Percent of total
voting
power
Series A
Preferred
Series A
Preferred
Tokenhouse PTE LTD
9 – 11 Reitergasse
Zurich 8027, Switzerland
Steven N. Ostrovsky
43 Nikki Ct.
Morganville, NJ 07751
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
667
13.3%
500
10.0%
*
*
Series A
Preferred
Thomas L. Cassidy IRA Rollover
38 Canaan Close
New Canaan, CT 06840
500
10.0%
*
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Table of Contents
Class
Name and address of beneficial owner
Amount and nature of
beneficial ownership
Percent of
class
Percent of total
voting
power
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Series A
Preferred
Jonathan E. Rothschild
300 Mercer St., #28F
New York, NY 10003
103336 Canada Inc.
168 Forest Hill Rd.
Toronto, Ontario, M5P2M9
Arthur J. Nagle
19 Garden Avenue
Bronxville, NY 10708
Thomas P. and Mary E. Heiser, JTWROS
10 Ridge Road
Hopkinton, MA 01748
Carl F. Schwartz
31 West 87th St.
New York, NY 10016
Michael J. Wrubel
3650 N. 36 Avenue, #39
Hollywood, FL 33021
Myron M. Teitelbaum, M.D.
175 Burton Lane
Lawrence, NY 11559
Laura Gold Galleries Ltd. Profit Sharing Trust Park
South Gallery at Carnegie Hall
154 West 57th Street, Suite 114
New York, NY 10019-3321
Laura Gold
180 W. 58th Street
New York, NY 10019
500
10.0%
300
6.0%
250
5.0%
250
5.0%
250
5.0%
250
5.0%
250
5.0%
250
5.0%
250
5.0%
*
*
*
*
*
*
*
*
*
*Less than one percent.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
As a condition of employment, we require all employees to disclose in writing actual or potential conflicts of interest, including related party
transactions. Our code of corporate conduct and ethics, which applies to employees, officers and directors, requires that the Audit
Committee review and approve related party transactions. Since July 1, 2009, there have been no transactions or proposed transactions in
which we were or are to be a participant, in which any related person had or will have a direct or indirect material interest.
Item 14. Principal Accountant Fees and Services.
KPMG LLP (KPMG) served as our independent registered public accounting firm for fiscal 2010 and fiscal 2009.
Audit Fees. For fiscal 2010, we anticipate that KPMG will bill us a total of $210,000 for professional services rendered for the audit of our
annual consolidated financial statements, review of our consolidated financial statements in our Forms 10-Q and services provided in
connection with regulatory filings. For fiscal 2009, the total billed for the same services was $210,000.
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Table of Contents
Audit-Related Fees. For fiscal 2010 and 2009, KPMG did not perform or bill us for any audit-related services.
Tax Fees. For fiscal 2010, we anticipate that KPMG will bill us a total of $15,500 for professional services rendered for tax compliance. For
fiscal 2009, KPMG billed us $15,500 for professional services rendered for tax compliance.
All Other Fees. KPMG did not perform or bill us for any services other than those described above for fiscal 2010 and 2009.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors. Consistent with SEC
policies regarding auditor independence, the Audit Committee has responsibility for appointing, setting compensation for and overseeing
the work of the independent registered public accounting firm. In recognition of this responsibility, the Audit Committee has established a
policy to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm.
The Audit Committee pre-approves fees for each category of service. The fees are budgeted and the Audit Committee requires the
independent registered public accounting firm and management to report actual fees versus the budget periodically throughout the year by
category of service. During the year, circumstances may arise when it may become necessary to engage the independent registered public
accounting firm for additional services not contemplated in the original pre-approval. In those instances, the Audit Committee requires
specific pre-approval before engaging the independent registered public accounting firm.
The Audit Committee may delegate pre-approval authority to one or more of its members. The member to whom such authority is
delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next scheduled meeting.
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Table of Contents
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) Documents filed as part of the report:
1. Financial statements: The following consolidated financial statements are filed as a part of this report under Item 8 – Financial
Statements and Supplementary Data:
— Report of Independent Registered Public Accounting Firm
— Consolidated Balance Sheets
— Consolidated Statements of Operations
— Consolidated Statements of Cash Flows
— Consolidated Statements of Stockholders’ Equity
— Notes to Consolidated Financial Statements
2. Financial statement schedules: None.
3. Exhibits:
No.
3.01
3.02
4.01
4.02
4.03
4.04
4.05
10.01
10.02
10.03
10.04
Description
Restated certificate of incorporation, as amended. *
Bylaws. Incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q for the quarter ended December 31,
2007, filed with the SEC on February 8, 2008.
Form of warrant issued to purchasers in our April 2006 private placement. Incorporated by reference to Exhibit 10.3 of our
Current Report on Form 8-K, filed with the SEC on April 12, 2006.
Form of warrant issued to purchasers in our August 2009 registered direct offering. Incorporated by reference to Exhibit 4.1
of our Current Report on Form 8-K, filed with the SEC on August 13, 2009.
Form of Series A and Series B warrant issued to purchasers in our February 2010 registered direct offering. Incorporated
by reference to Exhibit 4.1 of our Current Report on Form 8-K, filed with the SEC on March 1, 2010.
Form of warrant issued to purchasers in our June 2010 registered direct offering. Incorporated by reference to Exhibit 4.1
of our Current Report on Form 8-K, filed with the SEC on June 28, 2010.
Form of waiver agreement relating to our Series A and Series B warrants issued to purchasers in our February 2010
registered direct offering. Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed with the SEC
on June 28, 2010.
1996 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.01 of our Annual Report on Form 10-K for
the year ended June 30, 2009, filed with the SEC on September 28, 2009.†
Strategic Collaboration Agreement dated as of August 17, 1999, between Palatin and Mallinckrodt, Inc. Incorporated by
reference to Exhibit 10.21 of our amended Annual Report on Form 10-KSB/A for the year ended June 30, 1999, filed with
the SEC on December 28, 1999.
Amendment To Strategic Collaboration Agreement dated as of May 13, 2002 between Palatin and Mallinckrodt, Inc.
Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed
with the SEC on May 15, 2002. We have obtained confidential treatment of certain provisions contained in this exhibit. The
copy filed as an exhibit omits the information subject to the confidentiality request.
Amendment to Strategic Collaboration Agreement dated as of October 1, 2005, between Palatin and Mallinckrodt, Inc.
Incorporated by reference to Exhibit 10.32 of our Quarterly Report on Form 10-Q for the quarter ended September 30,
2005, filed with the SEC on November 8, 2005. We have requested confidential treatment of certain provisions contained in
this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
10.05
Form of Option Certificate (incentive option) under the 2005 Stock Plan. Incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
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Table of Contents
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Form of Incentive Stock Option Agreement – Standard under the 2005 Stock Plan. Incorporated by reference to Exhibit
10.2 of our Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
Form of Option Certificate (non-qualified option) under the 2005 Stock Plan. Incorporated by reference to Exhibit 10.3 of
our Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
Form of Non-Qualified Stock Option Agreement under the 2005 Stock Plan. Incorporated by reference to Exhibit 10.4 of our
Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
Form of stock purchase agreement for our April 2006 private placement. Incorporated by reference to Exhibit 10.2 of our
Current Report on Form 8-K, filed with the SEC on April 12, 2006.
Research Collaboration and License Agreement dated January 30, 2007, between Palatin and AstraZeneca AB.
Incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006,
filed with the SEC on February 8, 2007. We have requested confidential treatment of certain provisions contained in this
exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Palatin Technologies, Inc. 2007 Change in Control Severance Plan. Incorporated by reference to Exhibit 10.4 of our
Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed with the SEC on February 8, 2008. †
2005 Stock Plan, as amended effective December 7, 2007, March 10, 2009 and May 13, 2009. Incorporated by reference
to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2009, filed with the SEC on May
15, 2009. †
Form of Executive Officer Option Certificate. Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-
Q for the quarter ended March 31, 2008, filed with the SEC on May 14, 2008. †
Form of Amended Restricted Stock Unit Agreement. Incorporated by reference to Exhibit 10.2 of our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008, filed with the SEC on May 14, 2008. †
Form of Amended Option Certificate (incentive option) under the 2005 Stock Plan. Incorporated by reference to Exhibit
10.3 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed with the SEC on May 14, 2008. †
First Amendment dated June 27, 2008 to the Research Collaboration and License Agreement between Palatin and
AstraZeneca AB. Incorporated by reference to Exhibit 10.28 of our Annual Report on Form 10-K for the year ended June
30, 2008, filed with the SEC on September 29, 2008. We have requested confidential treatment of certain provisions
contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Second Amendment dated December 5, 2008 to the Research Collaboration and License Agreement between Palatin and
AstraZeneca AB. Incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008, filed with the SEC on February 13, 2009. We have requested confidential treatment of certain
provisions contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Clinical Trial Sponsored Research Agreement dated December 5, 2008 to the Research Collaboration and License
Agreement between Palatin and AstraZeneca AB. Incorporated by reference to Exhibit 10.3 of our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008, filed with the SEC on February 13, 2009. We have requested
confidential treatment of certain provisions contained in this exhibit. The copy filed as an exhibit omits the information
subject to the confidentiality request.
Form of Executive Officer Restricted Stock Unit Agreement. * †
Form of securities purchase agreement for our August 2009 registered direct offering. Incorporated by reference to Exhibit
10.1 of our Current Report on Form 8-K, filed with the SEC on August 13, 2009.
61
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Table of Contents
10.21
10.22
10.23
10.24
10.25
10.26
21
23
31.1
31.2
32.1
32.2
Form of securities purchase agreement for our February 2010 registered direct offering. Incorporated by reference to
Exhibit 10.1 of our Current Report on Form 8-K, filed with the SEC on March 1, 2010.
Form of securities purchase agreement for our June 2010 registered direct offering. Incorporated by reference to Exhibit
10.1 of our Current Report on Form 8-K, filed with the SEC on June 28, 2010.
Employment Agreement effective as of July 1, 2010 between Palatin and Carl Spana. * †
Employment Agreement effective as of July 1, 2010 between Palatin and Stephen T. Wills. * †
Employment Agreement effective as of July 1, 2010, between Palatin and Trevor Hallam. * †
Third Amendment dated September 24, 2009 to the Research Collaboration and License Agreement between Palatin and
AstraZeneca AB. Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009, filed with the SEC on November 13, 2009. We have requested confidential treatment of certain
provisions contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Subsidiaries of the registrant. *
Consent of KPMG LLP. *
Certification of Chief Executive Officer. *
Certification of Chief Financial Officer. *
Certification of principal executive officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
Certification of principal financial officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
_______________________________
* Exhibit filed or furnished with this report.
† Management contract or compensatory plan or arrangement.
62
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Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
PALATIN TECHNOLOGIES, INC.
By: /s/ Carl Spana
Carl Spana, Ph.D.
President and Chief Executive Officer
(principal executive officer)
Date: September 27, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Carl Spana
Carl Spana
/s/ Stephen T. Wills
Stephen T. Wills
/s/ John K.A. Prendergast
John K.A. Prendergast
/s/ Perry B. Molinoff
Perry B. Molinoff
/s/ Robert K. deVeer, Jr.
Robert K. deVeer, Jr.
/s/ Zola P. Horovitz
Zola P. Horovitz
/s/ Robert I. Taber
Robert I. Taber
/s/ Errol De Souza
Errol De Souza
/s/ J. Stanley Hull
J. Stanley Hull
Title
Date
President, Chief Executive Officer and Director
September 27, 2010
(principal executive officer)
Executive Vice President and Chief Financial Officer
September 27, 2010
(principal financial and accounting officer)
Chairman and Director
September 27, 2010
Director
Director
Director
Director
Director
Director
63
September 27, 2010
September 27, 2010
September 27, 2010
September 27, 2010
September 27, 2010
September 27, 2010
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Table of Contents
EXHIBIT LIST
No.
3.01
3.02
4.01
4.02
4.03
4.04
4.05
10.01
10.02
10.03
10.04
10.05
10.06
10.07
10.08
10.09
10.10
10.11
10.12
10.13
Description
Restated certificate of incorporation, as amended. *
Bylaws. Incorporated by reference to Exhibit 3.1 of our Quarterly Report on Form 10-Q for the quarter ended December 31,
2007, filed with the SEC on February 8, 2008.
Form of warrant issued to purchasers in our April 2006 private placement. Incorporated by reference to Exhibit 10.3 of our
Current Report on Form 8-K, filed with the SEC on April 12, 2006.
Form of warrant issued to purchasers in our August 2009 registered direct offering. Incorporated by reference to Exhibit 4.1
of our Current Report on Form 8-K, filed with the SEC on August 13, 2009.
Form of Series A and Series B warrant issued to purchasers in our February 2010 registered direct offering. Incorporated
by reference to Exhibit 4.1 of our Current Report on Form 8-K, filed with the SEC on March 1, 2010.
Form of warrant issued to purchasers in our June 2010 registered direct offering. Incorporated by reference to Exhibit 4.1
of our Current Report on Form 8-K, filed with the SEC on June 28, 2010.
Form of waiver agreement relating to our Series A and Series B warrants issued to purchasers in our February 2010
registered direct offering. Incorporated by reference to Exhibit 10.2 of our Current Report on Form 8-K, filed with the SEC
on June 28, 2010.
1996 Stock Option Plan, as amended. Incorporated by reference to Exhibit 10.01 of our Annual Report on Form 10-K for
the year ended June 30, 2009, filed with the SEC on September 28, 2009.†
Strategic Collaboration Agreement dated as of August 17, 1999, between Palatin and Mallinckrodt, Inc. Incorporated by
reference to Exhibit 10.21 of our amended Annual Report on Form 10-KSB/A for the year ended June 30, 1999, filed with
the SEC on December 28, 1999.
Amendment To Strategic Collaboration Agreement dated as of May 13, 2002 between Palatin and Mallinckrodt, Inc.
Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, filed
with the SEC on May 15, 2002. We have obtained confidential treatment of certain provisions contained in this exhibit. The
copy filed as an exhibit omits the information subject to the confidentiality request.
Amendment to Strategic Collaboration Agreement dated as of October 1, 2005, between Palatin and Mallinckrodt, Inc.
Incorporated by reference to Exhibit 10.32 of our Quarterly Report on Form 10-Q for the quarter ended September 30,
2005, filed with the SEC on November 8, 2005. We have requested confidential treatment of certain provisions contained in
this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Form of Option Certificate (incentive option) under the 2005 Stock Plan. Incorporated by reference to Exhibit 10.1 of our
Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
Form of Incentive Stock Option Agreement – Standard under the 2005 Stock Plan. Incorporated by reference to Exhibit
10.2 of our Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
Form of Option Certificate (non-qualified option) under the 2005 Stock Plan. Incorporated by reference to Exhibit 10.3 of
our Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
Form of Non-Qualified Stock Option Agreement under the 2005 Stock Plan. Incorporated by reference to Exhibit 10.4 of our
Current Report on Form 8-K, filed with the SEC on September 21, 2005. †
Form of stock purchase agreement for our April 2006 private placement. Incorporated by reference to Exhibit 10.2 of our
Current Report on Form 8-K, filed with the SEC on April 12, 2006.
Research Collaboration and License Agreement dated January 30, 2007, between Palatin and AstraZeneca AB.
Incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2006,
filed with the SEC on February 8, 2007. We have requested confidential treatment of certain provisions contained in this
exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Palatin Technologies, Inc. 2007 Change in Control Severance Plan. Incorporated by reference to Exhibit 10.4 of our
Quarterly Report on Form 10-Q for the quarter ended December 31, 2007, filed with the SEC on February 8, 2008. †
2005 Stock Plan, as amended effective December 7, 2007, March 10, 2009 and May 13, 2009. Incorporated by reference
to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended December 31, 2009, filed with the SEC on May
15, 2009. †
Form of Executive Officer Option Certificate. Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-
Q for the quarter ended March 31, 2008, filed with the SEC on May 14, 2008. †
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
21
23
31.1
31.2
32.1
32.2
Form of Amended Restricted Stock Unit Agreement. Incorporated by reference to Exhibit 10.2 of our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2008, filed with the SEC on May 14, 2008. †
Form of Amended Option Certificate (incentive option) under the 2005 Stock Plan. Incorporated by reference to Exhibit
10.3 of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, filed with the SEC on May 14, 2008. †
First Amendment dated June 27, 2008 to the Research Collaboration and License Agreement between Palatin and
AstraZeneca AB. Incorporated by reference to Exhibit 10.28 of our Annual Report on Form 10-K for the year ended June
30, 2008, filed with the SEC on September 29, 2008. We have requested confidential treatment of certain provisions
contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Second Amendment dated December 5, 2008 to the Research Collaboration and License Agreement between Palatin and
AstraZeneca AB. Incorporated by reference to Exhibit 10.2 of our Quarterly Report on Form 10-Q for the quarter ended
December 31, 2008, filed with the SEC on February 13, 2009. We have requested confidential treatment of certain
provisions contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Clinical Trial Sponsored Research Agreement dated December 5, 2008 to the Research Collaboration and License
Agreement between Palatin and AstraZeneca AB. Incorporated by reference to Exhibit 10.3 of our Quarterly Report on
Form 10-Q for the quarter ended December 31, 2008, filed with the SEC on February 13, 2009. We have requested
confidential treatment of certain provisions contained in this exhibit. The copy filed as an exhibit omits the information
subject to the confidentiality request.
Form of Executive Officer Restricted Stock Unit Agreement. * †
Form of securities purchase agreement for our August 2009 registered direct offering. Incorporated by reference to Exhibit
10.1 of our Current Report on Form 8-K, filed with the SEC on August 13, 2009.
Form of securities purchase agreement for our February 2010 registered direct offering. Incorporated by reference to
Exhibit 10.1 of our Current Report on Form 8-K, filed with the SEC on March 1, 2010.
Form of securities purchase agreement for our June 2010 registered direct offering. Incorporated by reference to Exhibit
10.1 of our Current Report on Form 8-K, filed with the SEC on June 28, 2010.
Employment Agreement effective as of July 1, 2010 between Palatin and Carl Spana. * †
Employment Agreement effective as of July 1, 2010 between Palatin and Stephen T. Wills. * †
Employment Agreement effective as of July 1, 2010, between Palatin and Trevor Hallam. * †
Third Amendment dated September 24, 2009 to the Research Collaboration and License Agreement between Palatin and
AstraZeneca AB. Incorporated by reference to Exhibit 10.1 of our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2009, filed with the SEC on November 13, 2009. We have requested confidential treatment of certain
provisions contained in this exhibit. The copy filed as an exhibit omits the information subject to the confidentiality request.
Subsidiaries of the registrant. *
Consent of KPMG LLP. *
Certification of Chief Executive Officer. *
Certification of Chief Financial Officer. *
Certification of principal executive officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
Certification of principal financial officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. *
_______________________________
* Exhibit filed or furnished with this report.
† Management contract or compensatory plan or arrangement.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-3 2 ex3-01.htm
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERFILM, INC.
INTERFILM, INC., a corporation duly organized and existing under the laws of the State of Delaware (the "Corporation"), hereby
certifies as follows:
The name under which the Corporation was originally incorporated was Cinedco, Inc. The original Certificate of Incorporation of the
Corporation was filed with the Secretary of State of the State of Delaware on November 21, 1986.
1. This Restated Certificate of Incorporation restates and integrates, but does not amend, the Restated Certificate of Incorporation of
the Corporation to read as set forth herein.
2. Pursuant to Section 245 of the General Corporation Law of the State of Delaware, the text of the Certificate of Incorporation as
heretofore amended or supplemented is hereby restated to read in full as follows:
The name of the Corporation is INTERFILM, INC.
ARTICLE I
Name
ARTICLE II
Registered Office and Registered Agent
The registered office of the Corporation in the State of Delaware is located at c/o the Corporation Trust Company, 1209 Orange
Street, City of Wilmington, County of New Castle, State of Delaware, and the registered agent in charge thereof is The Corporation Trust
Company.
ARTICLE III
Corporate Purpose
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware (the "General Corporation Law").
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2
ARTICLE IV
Capital Stock
Section 1. AUTHORIZED CAPITAL STOCK. The Corporation shall be authorized to issue two classes of shares of capital stock to be
designated, respectively, "Preferred Stock" and "Common Stock"; the total number of shares of capital stock which the Corporation shall
have the authority to issue is 12,000,000, comprised of 10,000,000 shares of Common Stock, par value $.01 per share, and 2,000,000
shares of Preferred Stock, par value $.01 per share.
Section 2. ISSUANCE OF PREFERRED STOCK. The Board of Directors is authorized, subject to limitations prescribed by law and the
provisions of this Article IV, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix
the designation, powers, preferences, rights and privileges of the shares of each such series and the qualifications, limitations or
restrictions thereof.
The authority of the Board of Directors with respect to each such series shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting such series and the distinctive designation of such series;
(b) The dividend rate on the shares of such series, whether dividends shall be cumulative, and, if so, from which date or dates, and
the relative
rights of priority, if any, of payment of dividends on shares of such series;
(c) Whether such series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting
rights;
(d) Whether such series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision
for adjustment of the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of such series shall be redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates;
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
3
(f) Whether such series shall have a sinking fund for the redemption or purchase of shares of such series, and, if so, the terms and
amount of such sinking fund;
(g) The rights of the shares of such series in the event of voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights of priority, if any, of payment of shares of such series;
(h) Any other relative powers, preferences, rights, privileges, qualifications, limitations and restrictions of such series.
Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment before any dividends shall be
paid or declared and set apart for payment on the Common Stock with respect to the same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding up of the corporation, the assets available for distribution to
holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are
entitled, then such assets shall be distributed ratably among the shares of all series of Preferred Stock in accordance with the respective
preferential amounts (including unpaid cumulative dividends, if any) payable with respect thereto.
Section 3. NO PREEMPTIVE RIGHTS. No holders of capital stock of the Corporation shall be entitled to preemptive rights to
purchase or subscribe for any shares of any class of capital stock of the Corporation whether now or hereafter authorized.
ARTICLE V
Directors
Section 1. ELECTION OF DIRECTORS. Elections of directors of the Corporation need not be by written ballot, except and to the
extent provided in the By-laws of the Corporation.
Section 2. POWER WITH RESPECT TO BY-LAWS. The directors of the Corporation shall have the power to adopt, amend or repeal
By-laws.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4
Section 3. PERSONAL LIABILITY OF DIRECTORS. To the fullest extent permitted by the General Corporation Law as it now exists
and as it may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for
monetary damages for breach of a fiduciary duty as a director.
ARTICLE VI
Indemnification of Directors, Officers and Others
(1) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person seeking
indemnification did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
(2) The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or
was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him or her in connection with the defense or
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
5
settlement of such action or suit if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to
the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State
of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability
but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(3) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections (1) and (2) of this Article VI, or in defense of any claim, issue or matter
therein, he or she shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
(4) Any indemnification under Sections (1) and (2) of this Article VI (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the
circumstances because he or she has met the applicable standard of conduct set forth in such Sections (1) and (2). Such determination
shall be made (a) by the Board of Directors of the Corporation by a majority vote of a quorum consisting of directors who were not parties to
such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion or (c) by the stockholders of the Corporation.
(5) Expenses (including attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Corporation authorized in this Article VI. Such expenses (including attorneys' fees) incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as the Board of Directors of the Corporation deems
appropriate.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
6
(6) The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VI shall
not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under
any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office.
(7) The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her
in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of Section 145 of the General Corporation Law.
(8) For purposes of this Article VI, references to "the Corporation" shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors, officers, employees or agents so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article VI with respect to the resulting or surviving corporation as he or she would have with respect to
such constituent corporation if its separate existence had continued.
(9) For purposes of this Article VI, references to "other enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the
Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves
service by, such director, officer, employee or agent with respect to any employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner he or she reasonably believed to be in the interest of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to
in this Article VI.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
7
(10) The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
ARTICLE VII
Amendment
The Corporation reserves the right to amend, alter, change or repeal any provision of this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights conferred on stockholders in this Restated Certificate of Incorporation are subject
to this reservation.
3. This Restated Certificate of Incorporation was duly adopted by the Board of Directors of the Corporation without the approval of the
holders of outstanding stock of the Corporation in accordance with the provisions of Section 245 of the General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed by its President, Chief Executive Officer and
Secretary this 1st day of November, 1993.
INTERFILM, INC.
By: /s/ Lawrence B. Kuppin
--------------------------
Lawrence B. Kuppin
President, Chief Executive
Officer and Secretary
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
INTERFILM, INC.
--------------------------
Under Section 242 of the
General Corporation Law
--------------------------
The undersigned officer of Interfilm, Inc., a Delaware corporation (the "Corporation"), in order to amend the Restated Certificate of
Incorporation of the Corporation, pursuant to the provisions of Section 242 of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
1. The name of the Corporation is "Interfilm, Inc."
2. The name under which the Corporation was originally incorporated was "Cinedco, Inc." The original Certificate of Incorporation of the
Corporation
was filed by the Secretary of State of the State of Delaware on November 21, 1986.
3. The purpose of this amendment to the Restated Certificate of Incorporation of the Corporation is: (i) to change the name of the
Corporation to "Palatin Technologies, Inc.", (ii) to increase the authorized shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), from 10,000,000 to 25,000,000, and (iii) to effect a 1-for-10 reverse split of the Common Stock.
4. The Restated Certificate of Incorporation of the Corporation is hereby amended by striking out Article I thereof in its entirety and by
substituting in lieu of said Article the following new Article I:
"ARTICLE I
Name
The name of the Corporation is PALATIN TECHNOLOGIES, INC."
5. The Restated Certificate of Incorporation of the Corporation is hereby amended by striking out Section 1 of Article IV thereof in its
entirety and by substituting in lieu of said Section 1 the following new Section 1:
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
"Section 1. Authorized Capital Stock. The Corporation shall be authorized to issue two classes of shares of capital stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The total number of shares of capital stock which the Corporation shall
have the authority to issue is 27,000,000, comprised of 25,000,000 shares of Common Stock, par value $.01 per share, and 2,000,000
shares of Preferred Stock, par value $.01 per share.
On the effective date of this amendment to the Restated Certificate of Incorporation (the "Effective Date"), the Common Stock of the
Corporation will be reverse split on a one-for-ten basis so that each share of Common Stock issued and outstanding immediately prior to
the Effective Date shall automatically be converted into and reconstituted as one-tenth of a share of Common Stock (the "Reverse Split").
No fractional shares will be issued by the Corporation as a result of the Reverse Split. In lieu thereof, each stockholder whose shares of
Common Stock are not evenly divisible by ten will receive an amount of cash equal to the average of the average last reported bid and
asked price of the Common Stock of the Corporation on the OTC Electronic Bulletin Board for each of the first three days subsequent to
the Effective Date on which the Common Stock of the Corporation is traded
multiplied by the fractional interest."
6. The foregoing amendment to the Corporation's Restated Certificate of Incorporation was duly authorized and adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State of Delaware by unanimous written consent of the Board of
Directors of the Corporation dated June 13, 1996, and by written consent of a majority of the Common Stockholders of the Corporation
dated June 13, 1996.
IN WITNESS WHEREOF, the undersigned has signed this Certificate and does hereby affirm, under penalty of perjury, that the
statements contained herein are true and correct, this 19th day of July 1996.
/s/ John J. McDonough
------------------------
Name: John J. McDonough
Title: Vice President
2
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATE OF DESIGNATIONS
of
SERIES A CONVERTIBLE PREFERRED STOCK
of
PALATIN TECHNOLOGIES, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
PALATIN TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of Directors of the Corporation by the Certificate of Incorporation, as
amended to date (the “Certificate of Incorporation”), of the Corporation and in accordance with Section 151 of the General Corporation Law
of the State of Delaware, the Board of Directors of the Corporation adopted the following resolution establishing a series of 264,000 shares
of Preferred Stock of the Corporation designated as "Series A Convertible Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the Board of Directors of this Corporation by the Certificate of
Incorporation, a series of Preferred Stock, par value $.01 per share, of the Corporation is hereby established and created,
and that the designation and number of shares thereof and the voting and other powers, preferences and relative,
participating, optional or other rights of the shares of such series and the qualifications, limitations and restrictions thereof
are as follows:
Series A Convertible Preferred Stock
1. Designation and Amount. There shall be a series of Preferred Stock designated as "Series A Convertible Preferred Stock" and the
number of shares constituting such series shall be 264,000. Such series is referred to herein as the "Series A Preferred Stock". Such
number of shares of Series A Preferred Stock may be increased prior to the Final Closing Date (as defined below) or decreased by
resolution of the Board of Directors of the Corporation; provided, however, that no decrease shall reduce the number of shares of Series A
Preferred Stock to less than the number of shares then issued and outstanding.
2. Dividends and Distributions. (a)
of capital stock ranking prior and superior to the shares of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A
Subject to the prior and superior rights of the holders of any shares of any series or class
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Preferred Stock shall be entitled to receive, as, when and if declared by the Board of Directors of the Corporation, out of assets legally
available for that purpose, dividends or distributions in cash, stock or otherwise.
(b) The Corporation shall not declare any dividend or distribution on any Junior Stock (as defined below) or any other capital stock of
the Company unless and until a special dividend or distribution of $100.00 per share (subject to appropriate adjustment to reflect any stock
split, combination, reclassification or reorganization of the Series A Preferred Stock) has been declared and paid on the Series A Preferred
Stock. In the event such special dividend or distribution is declared and paid on the Series A Preferred Stock, an aggregate per share
dividend or distribution equal to (i) $100.00 divided by (ii) the effective Conversion Rate at the time of such special dividend or distribution
on the Series A Preferred Stock may be declared and paid on the Common Stock. Except as aforesaid, the Corporation shall not declare
any dividend or distribution on any Junior Stock, unless the Corporation shall, concurrently with the declaration of such dividend or
distribution on the Junior Stock, declare a like dividend or distribution, as the case may be, on the Series A Preferred Stock, which in the
case of dividends or distributions on Common Stock or Junior Stock convertible into Common Stock, shall be in an amount per share equal
to at least (x) the amount of the dividend or distribution per share of Common Stock multiplied by (y) the effective Conversion Rate at the
time of such dividend or distribution.
(c) Any dividend or distribution (other than that referenced in the first sentence of Section 2(b)) payable to the holders of the Series A
Preferred Stock pursuant to this Section 2 shall be paid to such holders at the same time as the dividend or distribution on the Junior Stock
or any other capital stock of the Company by which it is measured is paid.
(d) All dividends or distributions declared upon the Series A Preferred Stock shall be declared pro rata per share.
(e) Any reference to "distribution" contained in this Section 2 shall not be deemed to include any distribution made in connection with
or in lieu of any Liquidation Event (as defined below).
(f) "Junior Stock" shall mean the Common Stock and any shares of preferred stock of any series or class of the Corporation, whether
presently outstanding or hereafter issued, which are junior to the shares of Series A Preferred Stock with respect to (i) the distribution of
assets on any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, (ii) dividends and (iii) voting.
3. Liquidation Preference. (a) In the event of a (i) liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, (ii) a sale or other disposition of all or substantially all of the assets of the Corporation or (iii) any consolidation, merger,
combination, reorganization or other transaction in which the Corporation is not the surviving entity or the shares of Common Stock
constituting in excess of 50% of the voting power of the Corporation are exchanged for or changed into stock or securities of another entity,
cash and/or any other property (a "Merger Transaction") (subparagraphs (i), (ii) and (iii) being collectively referred to as a
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
"Liquidation Event"), after payment or provision for payment of debts and other liabilities of the Corporation, the holders of the Series A
Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its
stockholders, whether such assets are capital, surplus, or earnings, before any payment or declaration and setting apart for payment of
any amount shall be made in respect of any Junior Stock or any other capital stock of the Company, an amount equal to $100.00 per share
plus an amount equal to all declared and unpaid dividends thereon; provided, however, in the case of a Merger Transaction, such $100.00
per share may be paid in cash, property (valued as provided in Section 3(b)) and/or securities (valued as provided in Section 3(b)) of the
entity surviving such Merger Transaction. If upon any Liquidation Event, whether voluntary or involuntary, the assets to be distributed to
the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such stockholders of the full preferential amounts
aforesaid, then all of the assets of the Corporation to be distributed shall be so distributed ratably to the holders of the Series A Preferred
Stock on the basis of the number of shares of Series A Preferred Stock held. A consolidation or merger of the Corporation with or into
another corporation, other than in a transaction described in this Section 3(a) above, shall not be considered a liquidation, dissolution or
winding up of the Corporation or a sale or other disposition of all or substantially all of the assets of the Corporation and accordingly the
Corporation shall make appropriate provision to ensure that the terms of this Certificate of Designations survive any such transaction. All
shares of Series A Preferred Stock shall rank as to payment upon the occurrence of any Liquidation Event senior to the Common Stock as
provided herein and, unless the terms of such series shall provide otherwise, senior to all other series of the Corporation's preferred stock.
(b) Any securities or other property to be delivered to the holders of the Series A Preferred Stock pursuant to Section 3(a) hereof shall be
valued as follows:
(i) Securities not subject to an investment letter or other similar restriction on free marketability:
(A) If traded on a securities exchange or on Nasdaq (as defined below), or if actively traded over-
the-counter, the value shall be deemed to be the Market Price (as defined below) of the securities
as of the third day prior to the date of valuation.
(B) If there is no such active public market for the securities, the value shall be the Fair Market
Value (as defined below) of the securities.
“Market Price” of a security shall mean the average Closing Bid Price (as defined below) of such security,
for twenty (20) consecutive trading days, ending with the day prior to the date as of which the Market Price
is being determined.
“Fair Market Value” of any asset (including any security) means the fair market value thereof as mutually
determined by the Corporation and the holders of a majority (measured in terms of voting power) of the
outstanding Series A Preferred Stock.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The "Closing Bid Price" for any security for each trading day shall be the reported closing bid price of such
security on the national securities exchange on which such security is listed or admitted to trading, or, if such
security is not listed or admitted to trading on any national securities exchange, shall mean the reported
closing bid price of such security on the Nasdaq SmallCap Market or the Nasdaq National Market System
(collectively referred to as, "Nasdaq") or, if such security is not listed or admitted to trading on any national
securities exchange or quoted on Nasdaq, shall mean the reported closing bid price of such security on the
principal securities exchange on which such security is listed or admitted to trading (based on the aggregate
dollar value of all securities listed or admitted to trading) or, if such security is not listed or admitted to trading
on a national securities exchange, quoted on Nasdaq or listed or admitted to trading on any other securities
exchange, shall mean the closing bid price in the over-the-counter market as furnished by any NASD
member firm selected from time to time by the Corporation for that purpose.
"Trading day" shall mean a day on which the securities exchange or NASDAQ used to determine the
Closing Bid Price is open for the transaction of business or the reporting of trades or, if the Closing Bid Price
is not so determined, a day on which such securities exchange is open for the transaction of business.
(ii) For securities for which there is an active public market but which are subject to investment letter or other
restrictions on free marketability, the value shall be the Fair Market Value thereof, determined by
discounting appropriately the Market Price thereof.
(iii) For all other securities, the value shall be the Fair Market Value thereof.
If the holders of a majority of the Series A Preferred Stock and the Corporation are unable to reach agreement on any valuation matter,
such valuation shall be submitted to and determined by a nationally recognized independent investment bank selected by the Board of
Directors of the Corporation and the holders of a majority of the Series A Preferred Stock (or, if such selection cannot be agreed upon
promptly, or in any event within ten days, then such valuation shall be made by a nationally recognized independent investment banking
firm selected by the American Arbitration Association in New York City in accordance with its rules).
4. Conversion.
(a) Right of Conversion. The shares of Series A Preferred Stock shall be convertible, in whole or in part, at the option of the holder
thereof and upon notice to the Corporation as set forth in Section 4(b) below, into fully paid and nonassessable shares of Common Stock
and such other securities and property as hereinafter provided. The initial conversion price per share of Common Stock is $1.78 (the
"Conversion Price") and shall be subject to adjustment as provided herein. The rate at which each share of Series A Preferred Stock is
convertible at any time into Common Stock (the “Conversion Rate”) shall be determined by dividing the then existing Conversion Price into
$100.00.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Subject to adjustment pursuant to the provisions of Section 4(c) below, in the event that the Conversion Price in effect at the time of each
Interim Closing Date (as defined below) and the Final Closing Date (as defined below) is greater than 90% of the Market Price (as defined
in Section 3(b)) of the Common Stock as of (x) any interim closing date of the issuance and sale of the Series A Preferred Stock (each an
"Interim Closing Date") or (y) the final closing date of the issuance and sale of the Series A Preferred Stock (the "Final Closing Date")
pursuant to the subscription agreements entered into in connection therewith, then the Conversion Price shall be adjusted to equal 90% of
the lesser of any such Market Price. If there is any change in the Conversion Price as a result of the preceding sentence, then the
Conversion Rate shall be changed accordingly as set forth above. For purposes of this Section 4, in the event the prices referenced in the
definition of Closing Bid Price in Section 3(b) cannot be determined, the Market Price of the Common Stock shall be deemed to be the Fair
Market Value (as defined in Section 3(b)) of the Common Stock as of the date of determination.
The Board of Directors of the Corporation, or a committee designated by it for such purpose, may specify an initial conversion price
applicable to the shares of Series A Preferred Stock issued at any closing lower than the initial conversion price that would otherwise obtain
pursuant to the preceding paragraphs and, in the event an initial conversion price is so specified, it shall be applicable to all shares of the
Series A Preferred Stock.
The Corporation shall prepare a certificate signed by the Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Corporation setting forth the Conversion Rate as of the Final Closing Date, showing in
reasonable detail the facts upon which such adjusted Conversion Rate is based, and such certificate shall forthwith be filed with the
transfer agent of the Series A Preferred Stock. A notice stating that the Conversion Rate has been adjusted pursuant to the second
preceding paragraph, or that no adjustment is necessary, and setting forth the Conversion Rate in effect as of the Final Closing Date shall
be mailed as promptly as practicable after the Final Closing Date by the Corporation to all record holders of the Series A Preferred Stock at
their last addresses as they shall appear in the stock transfer books of the Corporation.
(b) Conversion Procedures. Any holder of shares of Series A Preferred Stock desiring to convert such shares into Common Stock
shall surrender the certificate or certificates evidencing such shares of Series A Preferred Stock at the office of the transfer agent for the
Series A Preferred Stock, which certificate or certificates, if the Corporation shall so require, shall be duly endorsed to the Corporation or in
blank, or accompanied by proper instruments of transfer to the Corporation or in blank, accompanied by irrevocable written notice to the
Corporation that the holder elects so to convert such shares of Series A Preferred Stock and specifying the name or names (with address)
in which a certificate or certificates evidencing shares of Common Stock are to be issued. The Corporation need not deem a notice of
conversion to be received unless the holder complies with all the provisions hereof. The Corporation will instruct the transfer agent (which
may be the Corporation) to make a notation of the date that a notice of conversion is received, which date shall be deemed to be the date
of receipt for purposes hereof.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Corporation shall, as soon as practicable after such deposit of certificates evidencing shares of Series A Preferred Stock accompanied
by the written notice and compliance with any other conditions herein contained, deliver at such office of such transfer agent to the person
for whose account such shares of Series A Preferred Stock were so surrendered, or to the nominee or nominees of such person,
certificates evidencing the number of full shares of Common Stock to which such person shall be entitled as aforesaid, together with a cash
adjustment of any fraction of a share as hereinafter provided. Subject to the following provisions of this paragraph, such conversion shall
be deemed to have been made as of the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person
or persons entitled to receive the Common Stock deliverable upon conversion of such Series A Preferred Stock shall be treated for all
purposes as the record holder or holders of such Common Stock on such date; provided, however, that the Corporation shall not be
required to convert any shares of Series A Preferred Stock while the stock transfer books of the Corporation are closed for any purpose,
but the surrender of Series A Preferred Stock for conversion during any period while such books are so closed shall become effective for
conversion immediately upon the reopening of such books as if the surrender had been made on the date of such reopening, and the
conversion shall be at the conversion rate in effect on such date. No adjustments in respect of any dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be made upon the conversion of any shares of Series A
Preferred Stock.
All notices of conversion shall be irrevocable; provided, however, that if the Corporation has sent notice of an event pursuant to Section 4(f)
hereof, a holder of Series A Preferred Stock may, at its election, provide in its notice of conversion that the conversion of its shares of Series
A Preferred Stock shall be contingent upon the occurrence of the record date or effectiveness of such event (as specified by such holder),
provided that such notice of conversion is received by the Corporation prior to such record date or effective date, as the case may be.
(c) Adjustment of Conversion Rate and Conversion Price.
(i) Except as otherwise provided herein, in the event the Corporation shall, at any time or from time to time after the date hereof, (1)
sell or issue any shares of Common Stock for a consideration per share less than either (i) the Conversion Price in effect on the date of
such sale or issuance or (ii) the Market Price of the Common Stock as of the date of the sale or issuance, (2) issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or (3) subdivide or combine the outstanding shares of Common Stock into a
greater or lesser number of shares (any such sale, issuance, subdivision or combination being herein called a "Change of Shares"), then,
and thereafter upon each further Change of Shares, the Conversion Price in effect immediately prior to such Change of Shares shall be
changed to a price (rounded to the nearest cent) determined by multiplying the Conversion Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of Common Stock outstanding immediately prior to the sale or
issuance of such additional shares or such subdivision or combination and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 4(c)(v)(F) below) for the issuance of such additional shares would purchase
at the greater of (i) the Conversion Price in effect on the date of such issuance or (ii) the Market Price as of such date, and the
denominator of which shall be the number of shares of Common Stock outstanding
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
immediately after the sale or issuance of such additional shares or such subdivision or combination. Such adjustment shall be made
successively whenever such an issuance is made.
(ii) In case of any reclassification, capital reorganization or other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Corporation with or into another corporation (other than a consolidation or merger in which the Corporation
is the continuing corporation and which does not result in any reclassification, capital reorganization or other change of outstanding shares
of Common Stock other than the number thereof), or in case of any sale or conveyance to another corporation of the property of the
Corporation as, or substantially as, an entirety (other than a sale/leaseback, mortgage or other financing transaction), the Corporation shall
cause effective provision to be made so that each holder of a share of Series A Preferred Stock shall be entitled to receive, upon
conversion of such share of Series A Preferred Stock, the kind and number of shares of stock or other securities or property (including
cash) receivable upon such reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock into which such share of Series A Preferred Stock was convertible immediately prior to such
reclassification, capital reorganization or other change, consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4(c). The
Corporation shall not effect any such consolidation, merger or sale unless prior to or simultaneously with the consummation thereof the
successor (if other than the Corporation) resulting from such consolidation or merger or the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed and delivered to the transfer agent for the Series A Preferred
Stock (the “Transfer Agent”), the obligation to deliver to the holder of each share of Series A Preferred Stock such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to purchase and the other obligations
under this Agreement. The foregoing provisions shall similarly apply to successive reclassifications, capital reorganizations and other
changes of outstanding shares of Common Stock and to successive consolidations, mergers, sales or conveyances.
(iii) If, at any time or from time to time, the Corporation shall issue or distribute to the holders of shares of Common Stock evidence of its
indebtedness, any other securities of the Corporation or any cash, property or other assets (excluding an issuance or distribution governed
by one of the preceding subsections of this Section 4(c) and also excluding cash dividends or cash distributions paid out of net profits
legally available therefor in the full amount thereof (any such non-excluded event being herein called a "Special Dividend")), then in each
case the holders of the Series A Preferred Stock shall be entitled to a proportionate share of any such Special Dividend as though they
were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series A Preferred Stock are
convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such
Special Dividend.
(iv) After each adjustment of the Conversion Price pursuant to this Section 4(c), the Corporation will promptly prepare a certificate
signed by the Chairman or President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the
Corporation setting forth: (i) the Conversion Price as so adjusted, (ii) the Conversion Rate corresponding to such
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Conversion and (iii) a brief statement of the facts accounting for such adjustment. The Corporation will promptly file such certificate with
the Transfer Agent and cause a brief summary thereof to be sent by ordinary first class mail to each registered holder of Series A Preferred
Stock at his last address as it shall appear on the registry books of the Transfer Agent. No failure to mail such notice nor any defect
therein or in the mailing thereof shall affect the validity of such adjustment. The affidavit of an officer of the Transfer Agent or the
Secretary or an Assistant Secretary of the Corporation that such notice has been mailed shall, in the absence of fraud, be prima facie
evidence of the facts stated therein. The Transfer Agent may rely on the information in the certificate as true and correct and has no duty
or obligation to independently verify the amounts or calculations set forth therein.
(v) For purposes of Section 4(c)(i) hereof, the following provisions (A) to (F) shall also be applicable:
(A) The number of shares of Common Stock deemed outstanding at any given time shall include all shares of capital
stock convertible into or exchangeable for Common Stock and all shares of Common Stock issuable upon the exercise of
any convertible debt, warrants outstanding on the date thereof and options outstanding on the date thereof.
(B) No adjustment of the Conversion Price shall be made unless such adjustment would require an increase or
decrease of at least $.01 in such price; provided that any adjustments which by reason of this clause (B) are not required
to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment
which, together with any adjustment(s) so carried forward, shall require an increase or decrease of at least $.01 in the
Conversion Price then in effect hereunder.
(C) In case of (1) the sale by the Corporation (including as a component of a unit) of any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or any securities convertible into or
exchangeable for Common Stock (such securities convertible, exercisable or exchangeable into Common Stock being
herein called "Convertible Securities"), or (2) the issuance by the Corporation, without the receipt by the Corporation of any
consideration therefor, of any rights or warrants to subscribe for or purchase, or any options for the purchase of, Common
Stock or Convertible Securities, whether or not such rights, warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the consideration per share for which Common Stock is issuable
upon the exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the minimum aggregate consideration, as set forth in the instrument relating thereto without
regard to any antidilution or similar provisions contained therein for a subsequent adjustment of such amount, payable to
the Corporation upon the exercise of such rights, warrants or options, plus the consideration received by the Corporation
for the issuance or sale of such rights, warrants or options, plus, in the case of such
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Convertible Securities, the minimum aggregate amount, as set forth in the instrument relating thereto without regard to any
antidilution or similar provisions contained therein for a subsequent adjustment of such amount, of additional consideration,
if any, other than such Convertible Securities, payable upon the conversion or exchange thereof, by (y) the total maximum
number, as set forth in the instrument relating thereto without regard to any antidilution or similar provisions contained
therein for a subsequent adjustment of such amount, of shares of Common Stock issuable upon the exercise of such
rights, warrants or options or upon the conversion or exchange of such Convertible Securities issuable upon the exercise
of such rights, warrants or options) is less than either the Conversion Price or the Market Price of the Common Stock as of
the date of the issuance or sale of such rights, warrants or options, then such total maximum number of shares of Common
Stock issuable upon the exercise of such rights, warrants or options or upon the conversion or exchange of such
Convertible Securities (as of the date of the issuance or sale of such rights, warrants or options) shall be deemed to be
“Common Stock” for purposes of Section 4(c)(i) hereof and shall be deemed to have been sold for an amount equal to
such consideration per share and shall cause an adjustment to be made in accordance with Section 4(c)(i).
(D) In case of the sale by the Corporation of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for which Common Stock is issuable upon the
conversion or exchange of such Convertible Securities (determined by dividing (x) the total amount of consideration
received by the Corporation for the sale of such Convertible Securities, plus the minimum aggregate amount, as set forth in
the instrument relating thereto without regard to any antidilution or similar provisions contained therein for a subsequent
adjustment of such amount, of additional consideration, if any, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number, as set forth in the instrument relating thereto without
regard to any antidilution or similar provisions contained therein for a subsequent adjustment of such amount, of shares of
Common Stock issuable upon the conversion or exchange of such Convertible Securities) is less than either the
Conversion Price or the Market Price of the Common Stock as of the date of the sale of such Convertible Securities, then
such total maximum number of shares of Common Stock issuable upon the conversion or exchange of such Convertible
Securities (as of the date of the sale of such Convertible Securities) shall be deemed to be “Common Stock” for purposes
of Section 4(c)(i) hereof and shall be deemed to have been sold for an amount equal to such consideration per share and
shall cause an adjustment to be made in accordance with Section 4(c)(i).
(E) In case the Corporation shall modify the rights of conversion, exchange or exercise of any of the securities
referred to in (C) and (D) above or any other securities of the Corporation convertible, exchangeable or exercisable for
shares of Common Stock, for any reason other than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Corporation
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
after such modification is less than either the Conversion Price or the Market Price as of the date prior to such
modification, then such securities, to the extent not theretofore exercised, converted or exchanged, shall be deemed to
have expired or terminated immediately prior to the date of such modification and the Corporation shall be deemed for
purposes of calculating any adjustments pursuant to this Section 4(c) to have issued such new securities upon such new
terms on the date of modification. Such adjustment shall become effective as of the date upon which such modification
shall take effect. On the expiration or cancellation of any such right, warrant or option or the termination or cancellation of
any such right to convert or exchange any such Convertible Securities, the Conversion Price then in effect hereunder shall
forthwith be readjusted to such Conversion Price as would have obtained (a) had the adjustments made upon the issuance
or sale of such rights, warrants, options or Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total consideration received therefor) upon the
exercise of such rights, warrants or options or upon the conversion or exchange of such Convertible Securities and (b) had
adjustments been made on the basis of the Purchase Price as adjusted under clause (a) for all transactions (which would
have affected such adjusted Purchase Price) made after the issuance or sale of such rights, warrants, options or
Convertible Securities.
(F) In case of the sale of any shares of Common Stock, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase of, Common Stock or Convertible Securities, the consideration
received by the Corporation therefor shall be deemed to be the gross sales price therefor without deducting therefrom any
expense paid or incurred by the Corporation or any underwriting discounts or commissions or concessions paid or allowed
by the Corporation in connection therewith. In the event that any securities shall be issued in connection with any other
securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated
among the securities, then each of such securities shall be deemed to have been issued for such consideration as the
Board of Directors of the Corporation determines in good faith; provided, however that if holders of in excess of 10% of the
then outstanding Series A Preferred Stock disagree with such determination, the Corporation shall retain an independent
investment banking firm for the purpose of obtaining an appraisal.
(vi) Notwithstanding any other provision hereof, no adjustment to the Conversion Price will be made
(A) upon the exercise of any of the options outstanding on the date hereof under the Corporation's existing stock
option plans; or
(B) upon the issuance or exercise of options which may hereafter be granted with the approval of the Board of
Directors, or exercised, under the Corporation’s 1996 Stock Option Plan or under any other employee benefit plan of
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
the Company to officers, directors or employees, but only with respect to such options as are exercisable at prices no
lower than the Closing Bid Price (or, if the prices referenced in the definition of Closing Bid Price cannot be determined,
the Fair Market Value) of the Common Stock as of the date of grant thereof; or
(C) upon the sale of any shares of Common Stock, warrants to purchase Common Stock or Convertible Securities in
a firm commitment underwritten public offering, including, without limitation, shares sold upon the exercise of any
overallotment option granted to the underwriters in connection with such offering; or
(D) upon issuance or exercise of the Placement Warrants (in each case as defined in the placement agency
agreement between the Corporation and the placement agent for sales of the Series A Preferred Stock), or upon the
issuance or conversion of the Preferred Stock included in Liquidity Enhanced Exchangeable Preferred Stock Units of the
Company issued (i) on or prior to the Final Closing Date or (ii) pursuant to the exercise of the Placement Warrants, or
(E) upon the issuance or sale of Common Stock or Convertible Securities pursuant to the exercise of any rights,
options or warrants to receive, subscribe for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on the date of the original sale of the Series A
Preferred Stock or were thereafter issued or sold, provided that an adjustment was either made or not required to be made
in accordance with Section 4(c)(i) in connection with the issuance or sale of such securities or any modification of the
terms thereof; or
(F) upon the issuance or sale of Common Stock upon conversion or exchange of any Convertible Securities,
provided that any adjustments required to be made upon the issuance or sale of such Convertible Securities or any
modification of the terms thereof were so made, and whether or not such Convertible Securities were outstanding on the
date of the original sale of the Series A Preferred Stock or were thereafter issued or sold.
Section 4(c)(v)(E) shall nevertheless apply to any modification of the rights of conversion, exchange or exercise of any of the securities
referred to in (A) through (C) or, to the extent effected with respect to less than all of the outstanding Series A Preferred Stock, as the case
may be, (D) above other than automatic modifications made pursuant to applicable anti-dilution provisions with respect to such securities.
(vii) As used in this Section 4(c), the term "Common Stock" shall mean and include the Corporation's Common Stock authorized on
the date of the original issue of the Units and shall also include any capital stock of any class of the Corporation thereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of the holders thereof to participate in dividends and in the
distribution of assets upon the voluntary liquidation, dissolution or winding up of the Corporation; provided, however, that the shares
issuable upon conversion of the Series A
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Preferred Stock shall include only shares of such class designated in the Corporation's Certificate of Incorporation as Common Stock on
the date of the original issue of the Units or (i), in the case of any reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 4(c)(ii) hereof, the stock, securities or property provided for in such section or (ii), in the case of any
reclassification or change in the outstanding shares of Common Stock issuable upon conversion of the Series A Preferred Stock as a result
of a subdivision or combination or consisting of a change in par value, or from par value to no par value, or from no par value to par value,
such shares of Common Stock as so reclassified or changed.
(ix) Any determination as to whether an adjustment in the Conversion Price in effect hereunder is required pursuant to Section 4(c),
or as to the amount of any such adjustment, if required, shall be binding upon the holders of the Series A Preferred Stock and the
Company if made in good faith by the Board of Directors of the Company.
(d) No Fractional Shares. No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon
conversion of shares of Series A Preferred Stock. If more than one certificate evidencing shares of Series A Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full shares issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. Instead of any fractional share of Common
Stock which would otherwise be issuable upon conversion of any shares of Series A Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fractional interest in an amount equal to the same fraction of the Market Price as of the close of business on
the day of conversion.
(e) Reservation of Shares; Transfer Taxes; Etc. The Corporation shall at all times reserve and keep available, out of its authorized
and unissued shares of Common Stock, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of
shares of its Common Stock free of preemptive rights as shall be sufficient to effect the conversion of all shares of Series A Preferred Stock
from time to time outstanding. The Corporation shall authorize and reserve a sufficient number of shares of the Common Stock to permit
the conversion in full of the Series A Preferred Stock (including in the event of a Reset Event, as defined in Section 5). The Corporation
shall use its best efforts to effect such authorization by the date which is 90 days following the Final Closing Date but in any event no
later than the date which is 270 days following the Final Closing Date. If such authorization is not effected by the date which is 270 days
following the Final Closing Date, the holder shall be entitled at its option, to require the Corporation to repurchase the shares of Series A
Preferred Stock then held by such holder at $100.00 per share. In the event that on the date that a holder of Series A Preferred Stock
elects to convert such holder's shares of Series A Preferred Stock the Corporation has not authorized and reserved a sufficient number of
shares of Common Stock to permit such conversion in full, the holder will be entitled upon conversion to receive the fair market value per
share of Common Stock on account of the shares which would have been issuable to the holder upon conversion but which the
Corporation was unable to issue due to the lack of authorized and reserved shares. The fair market value shall be paid in cash, or, if the
Corporation does not have sufficient cash, then with secured demand notes. Fair market value per share of Common Stock for purposes
of this Section 4(e) shall mean the Closing Bid Price per share of the Common Stock for the trading day immediately preceding the
conversion. The
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Corporation shall use its best efforts from time to time, in accordance with the laws of the State of Delaware, to increase the authorized
number of shares of Common Stock if at any time the number of shares of authorized, unissued and unreserved Common Stock shall not
be sufficient to permit the conversion of all the then-outstanding shares of Series A Preferred Stock (including in the event of a Reset
Event, (as defined in Section 5).
The Corporation shall pay any and all issue or other taxes that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the Series A Preferred Stock. The Corporation shall not, however, be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of Common Stock (or other securities or assets) in a name other than
that in which the shares of Series A Preferred Stock so converted were registered, and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Corporation the amount of such tax or has established, to the satisfaction of the
Corporation, that such tax has been paid.
(f) Prior Notice of Certain Events. In case:
(i) the Corporation shall declare any dividend (or any other distribution); or
(ii) the Corporation shall authorize the granting to the holders of Common Stock of rights or warrants to subscribe for
or purchase any shares of stock of any class or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a subdivision or combination of the outstanding Common
Stock, or a change in par value, or from par value to no par value, or from no par value to par value); or
(iv) of any consolidation or merger (including, without limitation, a Merger Transaction) to which the Corporation is a
party and for which approval of any stockholders of the Corporation shall be required, or of the sale or transfer of all or
substantially all of the assets of the Corporation or of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or other property; or
(v) of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation (including, without
limitation, a Liquidation Event);
then the Corporation shall cause to be filed with the transfer agent for the Series A Preferred Stock, and shall cause to be mailed to the
holders of record of the Series A Preferred Stock, at their last addresses as they shall appear upon the stock transfer books of the
Corporation, at least 20 days prior to the applicable record date hereinafter specified, a notice stating (x) the date on which a record (if any)
is to be taken for the purpose of such dividend, distribution or granting of rights or warrants or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend, distribution, rights or warrants are to be determined and a
description of the cash, securities or other property to be received by such holders upon such dividend, distribution
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
or granting of rights or warrants or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up or other Liquidation Event is expected to become effective, the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable
upon such exchange, dissolution, liquidation or winding up or other Liquidation Event and the consideration, including securities or other
property, to be received by such holders upon such exchange; provided, however, that no failure to mail such notice or any defect therein
or in the mailing thereof shall affect the validity of the corporate action required to be specified in such notice.
(g) Other Changes in Conversion Rate. The Corporation from time to time may increase the Conversion Rate by any amount for any
period of time if the period is at least 20 days and if the increase is irrevocable during the period. Whenever the Conversion Rate is so
increased, the Corporation shall mail to holders of record of the Series A Preferred Stock a notice of the increase at least 15 days before
the date the increased Conversion Rate takes effect, and such notice shall state the increased Conversion Rate and the period it will be in
effect.
The Corporation may make such increases in the Conversion Rate, in addition to those required or allowed by this Section 4, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be advisable in order to avoid or diminish any income tax to
holders of Common Stock resulting from any dividend or distribution of stock or issuance of rights or warrants to purchase or subscribe for
stock or from any event treated as such for income tax purposes.
Notwithstanding anything to the contrary herein, in no case shall the Conversion Price be adjusted to an amount less than $.01 per share,
the current par value of the Common Stock into which the Series A Preferred Stock is convertible.
(h) Ambiguities/Errors. The Board of Directors of the Corporation shall have the power to resolve any ambiguity or correct any error
in the provisions relating to the convertibility of the Series A Preferred Stock, and its actions in so doing shall be final and conclusive.
(5) Conversion Price Reset Event. The Conversion Price (subject to the adjustments pursuant to the provisions of Section 4(c)
above), is subject to adjustment on the date which is twelve (12) months after the Final Closing Date (the “Reset Date”) if the average
Closing Bid Price of the Common Stock for the thirty (30) consecutive trading days immediately preceding the Reset Date (the “Reset
Trading Price”) is less than 130% of the then applicable Conversion Price (a “Reset Event”). Upon a Reset Event, the then applicable
Conversion Price shall be reduced to equal the greater of (i) the Reset Trading Price divided by 1.3 and (ii) 50% of the then applicable
Conversion Price. If there is any change in the Conversion Price as a result of the preceding sentence, then the Conversion Rate shall be
changed accordingly as set forth above. The Corporation shall prepare a certificate signed by the principal financial officer of the
Corporation setting forth the Conversion Rate as of the Reset Date, showing in reasonable detail the facts upon which such Conversion
Rate is based, and such certificate shall forthwith be filed with the transfer agent of the Series A Preferred Stock. A notice stating that the
Conversion Rate has been adjusted pursuant to this paragraph, or that no adjustment is necessary, and setting forth the Conversion Rate
in effect as
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
of the Reset Date shall be mailed as promptly as practicable after the Reset Date by the Corporation to all record holders of the Series A
Preferred Stock at their last addresses as they shall appear in the stock transfer books of the Corporation.
(6) Mandatory Conversion. At any time on or after the date that is 12 months after the Final Closing Date, the Corporation, at its
option, may cause the Series A Preferred Stock to be converted in whole, or in part, on a pro rata basis, into fully paid and nonassessable
shares of Common Stock at the then effective Conversion Rate and such other securities and property as herein provided if the Closing Bid
Price of the Common Stock (or, if the prices referenced in the definition of Closing Bid Price cannot be determined, the Fair Market Value
(as defined in Section 3(b)) of the Common Stock) shall have exceeded 200% of the then applicable Conversion Price for at least 20
trading days in any 30 consecutive trading day period ending three days prior to the date of conversion. Any shares of Series A Preferred
Stock so converted shall be treated as having been surrendered by the holder thereof for conversion pursuant to Section 4 on the date of
such mandatory conversion (unless previously converted at the option of the holder).
Not more than 60 nor less than 20 days prior to the date of any such mandatory conversion, notice by first class mail, postage prepaid,
shall be given to the holders of record of the Series A Preferred Stock to be converted, addressed to such holders at their last addresses as
shown on the stock transfer books of the Corporation. Each such notice shall specify the date fixed for conversion, the place or places for
surrender of shares of Series A Preferred Stock, and the then effective Conversion Rate pursuant to Section 4.
Any notice which is mailed as herein provided shall be conclusively presumed to have been duly given by the Corporation on the date
deposited in the mail, whether or not the holder of the Series A Preferred Stock receives such notice; and failure properly to give such
notice by mail, or any defect in such notice, to the holders of the shares to be converted shall not affect the validity of the proceedings for
the conversion of any other shares of Series A Preferred Stock. On or after the date fixed for conversion as stated in such notice, each
holder of shares called to be converted shall surrender the certificate evidencing such shares to the Corporation at the place designated in
such notice for conversion. Notwithstanding that the certificates evidencing any shares properly called for conversion shall not have been
surrendered, the shares shall no longer be deemed outstanding and all rights whatsoever with respect to the shares so called for
conversion (except the right of the holders to convert such shares upon surrender of their certificates therefor) shall terminate.
(7) Voting Rights.
(a) General. Except as otherwise provided herein, in the Certificate of Incorporation or the By-laws or as required by applicable law,
the holders of shares of Series A Preferred Stock, the holders of shares of Common Stock and the holders of any other class or series of
shares entitled to vote with the Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the
Corporation. In any such vote, each share of Series A Preferred Stock shall entitle the holder thereof to cast the number of votes equal to
the number of votes which could be cast in such vote by a holder of the Common Stock into which such share of
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Series A Preferred Stock is convertible (regardless of whether the Corporation has sufficient authorized Shares of Common Stock to issue
upon the conversion of all outstanding Series A Preferred Stock) on the record date for such vote, or if no record date has been
established, on the date such vote is taken. Any shares of Series A Preferred Stock held by the Corporation or any entity controlled by the
Corporation shall not have voting rights hereunder and shall not be counted in determining the presence of a quorum.
(b) Class Voting Rights. In addition to any vote specified in Section 7(a), so long as 50% of the shares of Series A Preferred Stock
(including those shares of Series A Preferred Stock issued or issuable upon the exercise of the warrants issued to Paramount Capital, Inc.,
the placement agent in connection with the offer and sale of the Series A Preferred Stock or any other options for the purchase of Series A
Preferred Stock) shall be outstanding, the Corporation shall not, without the affirmative vote or consent of the holders of at least 66.67% of
all outstanding Series A Preferred Stock voting separately as a class, (i) amend, alter or repeal any provision of the Certificate of
Incorporation, or the Bylaws of the Corporation so as adversely to affect the relative rights, preferences, qualifications, limitations or
restrictions of the Series A Preferred Stock, (ii) declare or pay any dividend or distribution on any securities of the Corporation other than
the Series A Preferred Stock pursuant to and accordance with the provisions of this Certificate of Designations, or authorize the repurchase
of any securities of the Corporation, or (iii) authorize or issue, or increase the authorized amount of, any security ranking prior to the Series
A Preferred Stock (A) upon a Liquidation Event or (B) with respect to the payment of any dividends or distributions or (C) with respect to
voting rights. The vote as contemplated herein shall specifically not be required for (x) issuances of Common Stock or capital stock of the
Corporation on parity with the Series A Preferred Stock , (y) the authorization, issuance or increase in the amount of the Series A Preferred
Stock prior to the Final Closing Date or (z) any consolidation or merger of the Corporation with or into another corporation in which the
Corporation is not the surviving entity, a sale or transfer of all or part of the Corporation's assets for cash, securities or other property, or a
compulsory share exchange.
(8) Outstanding Shares. For purposes of this Certificate of Designations, all shares of Series A Preferred Stock shall be deemed
outstanding except (i) from the date, or the deemed date, of surrender of certificates evidencing shares of Series A Preferred Stock, all
shares of Series A Preferred Stock converted into Common Stock, (ii) from the date of registration of transfer, all shares of Series A
Preferred Stock held of record by the Corporation or any subsidiary of the Corporation and (iii) any and all shares of Series A Preferred
Stock held in escrow prior to delivery of such stock by the Corporation to the initial beneficial owners thereof.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(9) Status of Acquired Shares. Shares of Series A Preferred Stock received upon conversion pursuant to Section 4 or Section 5 or
Section 6 or otherwise acquired by the Corporation will be restored to the status of authorized but unissued shares of Preferred Stock,
without designation as to class, and may thereafter be issued, but not as shares of Series A Preferred Stock.
(10) Preemptive Rights. The Series A Preferred Stock is not entitled to any preemptive or subscription rights in respect of any
securities of the Corporation.
(11) No Amendment or Impairment. The Corporation shall not amend its Certificate of Incorporation or participate in any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, for the
purpose of avoiding or seeking to avoid the observance or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in carrying out all such action as may be reasonably necessary or appropriate in order
to protect the rights of the holders of the Series A Preferred Stock against impairment.
(12) Severability of Provisions. Whenever possible, each provision hereof shall be interpreted in a manner as to be effective and
valid under applicable law, but if any provision hereof is held to be prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without invalidating or otherwise adversely affecting the remaining provisions
hereof. If a court of competent jurisdiction should determine that a provision hereof would be valid or enforceable if a period of time were
extended or shortened or a particular percentage were increased or decreased, then such court may make such change as shall be
necessary to render the provision in question effective and valid under applicable law.
17
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
IN WITNESS WHEREOF, Palatin Technologies, Inc. has caused this certificate to be signed on its behalf by Edward J. Quilty, its
Chairman and Chief Executive Officer, this 21 day of February , 1997.
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
ATTEST:
/s/ John J. McDonough
Secretary
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
PALATIN TECHNOLOGIES, INC.
Under Section 242 of the
General Corporation Law
of the State of Delaware
The undersigned officer of Palatin Technologies, Inc., a Delaware corporation (the "Corporation"), in order to amend the Restated
Certificate of Incorporation of the Corporation, pursuant to the provisions of Section 242 of the General Corporation Law of the State of
Delaware, does hereby certify as follows:
1. The Restated Certificate of Incorporation of the Corporation is hereby amended by striking out Section 1 of Article IV thereof in its
entirety and by substituting in lieu of said Section 1 the following new Section 1:
Section 1. AUTHORIZED CAPITAL STOCK. The Corporation shall be authorized to issue two classes of
shares of capital stock to be designated, respectively, "Preferred Stock" and "Common Stock." The total
number of shares of capital stock which the Corporation shall have the authority to issue is 85,000,000,
comprised of 75,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000 shares of
Preferred Stock, par value $.01 per share.
2. The Restated Certificate of Incorporation of the Corporation is hereby amended by including a new Section 4 of Article IV thereof
as follows:
SECTION 4. Upon the date the Certificate of Amendment, including this Section 4, is filed with the Secretary
of State of the State of Delaware (the "Effective Date"), each four shares of issued and outstanding shares of
Common Stock of this Corporation shall be
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
automatically combined into one share of Common Stock of this Corporation (the "Reverse Stock Split"). In lieu of the issuance of
any fractional shares that would otherwise result from the Reverse Stock Split, the Corporation shall pay the cash value of fractions
of a share determined by the average closing price of the Common Stock for the five (5) trading days immediately preceding the
Effective Date multiplied by the fractional interest. Following the Effective Date, certificates representing the shares of Common
Stock to be outstanding thereafter shall be exchanged for certificates now outstanding pursuant to procedures adopted by the
Corporation's Board of Directors and communicated to those who are to receive new certificates.
3. The foregoing amendments to the Corporation's Restated Certificate of Incorporation were duly authorized and adopted in
accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware.
4. This Certificate of Amendment shall become effective at 11:59 p.m., EDT, on September 5, 1997.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of Amendment and does hereby affirm, under penalty of perjury, that
the statements contained herein are true and correct, this 5th day of September, 1997.
Palatin Technologies, Inc.
/s/ John J. McDonough
Name: John J. McDonough
Title: Vice President
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
PALATIN TECHNOLOGIES, INC.
The corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware does hereby certify:
FIRST: That at a meeting of the Board of Directors of Palatin Technologies, Inc., resolutions were duly adopted setting forth a proposed
amendment of the Restated Certificate of Incorporation of said corporation, declaring said amendment to be advisable and calling a
meeting of the stockholders of said corporation for consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Restated Certificate of Incorporation of this corporation be amended by striking out in its entirety Section 1 of the
Article thereof numbered "IV" and by substituting in lieu of said Section 1 of said Article a new Section 1 which shall be and read as follows:
Section 1. Authorized Capital Stock. The Corporation shall be authorized to issue two classes of shares of capital stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The total number of shares of capital stock which the
Corporation shall have the authority to issue is 160,000,000, comprised of 150,000,000 shares of Common Stock, par value $.01
per share, and 10,000,000 shares of Preferred Stock, par value $.01 per share.
SECOND: That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was
duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting
the necessary number of shares as required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the
State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by reason of said amendment.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed this 4th day of May 2005.
Chief Financial Officer
By: /s/ Stephen T. Wills
Name: Stephen T. Wills
Title: Executive Vice President and
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PALATIN TECHNOLOGIES, INC.
Palatin Technologies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby
certify:
FIRST: The name of the corporation (hereinafter called the “Corporation”) is Palatin Technologies, Inc.
SECOND: The date of filing of the Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware
was November 21, 1986 under the name Cinedco, Inc. A Restated Certificate of Incorporation was filed on November 1, 1993 which
contained a change of the name of the corporation to Interfilm, Inc. Thereafter a Certificate of Amendment was filed on July 19, 1996 which
changed the name of the Corporation to Palatin Technologies, Inc., a Certificate of Amendment was filed on September 5, 1997, and a
Certificate of Amendment was filed on May 4, 2005.
THIRD: That at a meeting of the Board of Directors of Palatin Technologies, Inc., resolutions were duly adopted setting forth a proposed
amendment of the Restated Certificate of Incorporation, as amended, of said Corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said Corporation for consideration thereof.
FOURTH: That this Certificate of Amendment was duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware by the Board of Directors and stockholders of the Corporation.
FIFTH: That the capital of the Corporation shall not be reduced under or by reason of this Certificate of Amendment.
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
SIXTH: That upon the effectiveness of this Certificate of Amendment, Section 1 of the Article thereof numbered "IV" of the Restated
Certificate of Incorporation, as amended, is hereby amended such that, as amended, said Section 1 shall read in its entirety as follows:
Section 1. Authorized Capital Stock. The Corporation shall be authorized to issue two classes of shares of capital stock to
be designated, respectively, “Preferred Stock” and “Common Stock.” The total number of shares of capital stock which the
Corporation shall have the authority to issue is 410,000,000, comprised of 400,000,000 shares of Common Stock, par
value $.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01 per share.
IN WITNESS WHEREOF, said Corporation has caused this Certificate of Amendment to be signed this 22nd day of July, 2010.
By: /s/ Stephen T. Wills
Name: Stephen T. Wills
Title: Secretary, Executive Vice President and Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
PALATIN TECHNOLOGIES, INC.
Palatin Technologies, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, does
hereby certify:
FIRST: The name of the corporation (hereinafter called the “Corporation”) is Palatin Technologies, Inc.
SECOND: That at a meeting of the Board of Directors of Palatin Technologies, Inc., resolutions were duly adopted setting forth a proposed
amendment of the Restated Certificate of Incorporation, as amended, of said Corporation, declaring said amendment to be advisable and
calling a meeting of the stockholders of said Corporation for consideration thereof.
THIRD: That this Certificate of Amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation
Law of the State of Delaware by the Board of Directors and stockholders of the Corporation.
FOURTH: That the capital of the Corporation shall not be reduced under or by reason of this Certificate of Amendment.
FIFTH: That upon the effectiveness of this Certificate of Amendment, Section 1 of the Article thereof numbered "IV" of the Restated
Certificate of Incorporation, as amended, is hereby amended such that, as amended, said Section 1 shall read in its entirety as follows:
Section 1. Authorized Capital Stock. The Corporation shall be authorized to issue two classes of shares of capital stock to
be designated, respectively, “Preferred Stock” and “Common Stock.” The total number of shares of capital stock which the
Corporation shall have the authority to issue is 50,000,000, comprised of 40,000,000 shares of Common Stock, par value
$.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01 per share.
On September 27, 2010, at 12:01 a.m. Eastern Time (the “Effective Date”), each ten (10) shares of Common Stock, par
value $0.01 per share, issued and outstanding at such time shall be combined into one (1) share of Common Stock, par
value $0.01 per share (the “Reverse Stock Split”). No fractional share shall be issued upon the Reverse Stock Split. All
shares of Common Stock (including fractions thereof) issuable upon the Reverse Stock Split to a given holder shall be
aggregated for purposes of determining whether the Reverse Stock Split would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the Reverse Stock Split would result in the issuance of a fraction of a
share of Common Stock, the Corporation shall, in lieu of issuing any such fractional share, pay the holder otherwise
entitled to such fraction a sum in cash equal to the fraction multiplied by the fair market value per share of the Common
Stock as determined in a reasonable manner by the Board of Directors. Following the Effective Date, certificates
representing the shares of Common Stock to be outstanding thereafter shall be exchanged for certificates now outstanding
pursuant to procedures adopted by the Corporation’s Board of Directors and communicated to those who are to receive
new certificates.
SIXTH: This Certificate of Amendment shall become effective on September 27, 2010 at 12:01 a.m. Eastern Time.
IN WITNESS WHEREOF, said Corporation has caused this Certificate of Amendment to be signed this 24th day of September, 2010.
By: /s/ Stephen T. Wills
Name: Stephen T. Wills
Title: Secretary, Executive Vice President
and Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-10 3 ex10-19.htm EXHIBIT 10.19
EXECUTIVE OFFICER RESTRICTED STOCK UNIT AGREEMENT
PALATIN TECHNOLOGIES, INC.
AGREEMENT made effective as of the 21st day of July, 2010 (the “Grant Date”), between Palatin Technologies, Inc., a Delaware
corporation having its principal place of business at 4C Cedar Brook Drive, Cranbury, New Jersey 08512 (the “Company”), and
________________________ (the “Participant”).
WHEREAS, the Company has adopted the 2005 Stock Plan (the “Plan”) to promote the interests of the Company by providing an
incentive for employees, directors and consultants of the Company or its Affiliates;
WHEREAS, pursuant to the provisions of the Plan, the Company desires to grant to the Participant restricted stock units (“RSUs”)
related to the Company’s common stock, $.01 par value per share (“Common Stock”), in accordance with the provisions of the Plan, all on
the terms and conditions hereinafter set forth;
WHEREAS, the Company and the Participant understand and agree that any terms used and not defined herein have the meanings
ascribed to such terms in the Plan.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Grant of Award. The Company hereby grants to the Participant an aggregate of _______ RSUs (the “Award”) which represents a
contingent entitlement of the Participant to receive shares of Common Stock, on the terms and conditions and subject to all the limitations
set forth herein and in the Plan, which is incorporated herein by reference. The Participant acknowledges receipt of a copy of the Plan.
2. Vesting of Award. Subject to the terms and conditions set forth in this Agreement and the Plan, the Award granted hereby shall vest
on the earliest of: (a) as to fifty percent (50%) of the Award, on September 15, 2010, provided that the Participant remains continuously
employed by the Company through September 15, 2010; (b) as to the balance of the Award, on March 15, 2011, provided that the
Participant remains continuously employed by the Company through March 15, 2011; (c) the Date of Termination of the Participant’s
employment with the Company, except (i) in the case of termination for Cause or (ii) at the election of the Participant; and (d) a Change in
Control (as the terms “Date of Termination”, “Change in Control” and “Cause” and the concept of termination at the election of the
Participant are defined in the Employment Agreement between the Participant and the Company and effective as of July 1, 2010).
On the vesting date, the Participant shall be entitled to receive the number of shares of Common Stock equal to the Award, or
portion thereof, vesting on such date. Such shares of Common Stock shall thereafter be delivered by the Company to the
1
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
Participant in accordance with this Agreement and the Plan and as required to comply with Section 409A of the
Code. Notwithstanding the foregoing, if the Participant is as of the vesting date a “specified employee” (as defined under Section 409A of
the Code) then such payment of shares of Common Stock, if required by Section 409A of the Code, will be made six months after the date
of such Separation from Service (as defined in Section 409A of the Code).
Except as otherwise set forth in this Agreement, if the Participant is terminated for Cause or voluntarily terminates employment at
the election of the Participant (all as defined in the Employment Agreement between the Participant and the Company and effective as of
July 1, 2010) prior to vesting as provided under Sections 2 (a) or (b), all unvested RSUs shall immediately be forfeited.
3. Prohibitions on Transfer and Sale. This Award (including any additional RSUs received by the Participant as a result of stock
dividends, stock splits or any other similar transaction affecting the Company's securities without receipt of consideration) shall not be
transferable by the Participant otherwise than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations
order as defined by the Code or Title I of the Employee Retirement Income Security Act or the rules thereunder. Except as provided in the
previous sentence, the shares of Common Stock to be issued pursuant to this Agreement shall be issued, during the Participant's lifetime,
only to the Participant (or, in the event of legal incapacity or incompetence, to the Participant's guardian or representative). This Award
shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to
execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of this Award or
of any rights granted hereunder contrary to the provisions of this Section 3, or the levy of any attachment or similar process upon this
Award shall be null and void.
4. Adjustments. The Plan contains provisions covering the treatment of RSUs and shares of Common Stock in a number of
contingencies such as stock splits and mergers. Provisions in the Plan for adjustment with respect to this Award and the related provisions
with respect to successors to the business of the Company are hereby made applicable hereunder and are incorporated herein by
reference.
5. Securities Law Compliance. The Participant specifically acknowledges and agrees that any sales of shares of Common
Stock sold shall be made in accordance with the requirements of the Securities Act of 1933, as amended (the “Securities Act”).
6. Rights as a Stockholder. The Participant shall have no right as a stockholder, including voting and dividend rights, with
respect to the RSUs subject to this Agreement.
7. Tax Liability of the Participant and Payment of Taxes.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
The Participant acknowledges and agrees that any income or other taxes due from the Participant with respect to this Award or the
shares of Common Stock to be issued pursuant to this Agreement or otherwise sold shall be the Participant’s responsibility. Without
limiting the foregoing, the Participant agrees that the Participant will owe taxes as of the vesting of the Award and that the Company shall
be entitled to immediate payment from the Participant of the amount of any tax required to be withheld by the Company.
Prior to any event in connection with the Award (e.g., vesting) that the Company determines may result in any domestic or foreign
tax withholding obligation, whether national, federal, state or local, including any social tax obligation (the “Tax Withholding Obligation”), the
Participant must arrange for the satisfaction of the minimum amount of such Tax Withholding Obligation in a manner acceptable to the
Company:
(i) Unless the Participant chooses to satisfy the Tax Withholding Obligation by some other means in accordance with clauses (ii) or (iii)
below, the Participant’s acceptance of this Award constitutes the Participant’s instruction and authorization to the Company to pay any Tax
Withholding Obligation by reducing the number of shares of Common Stock actually issued to the Participant on the date of vesting of the
Award (or portion thereof) in an amount equal in value, based on the closing price for such Common Stock on such date, to the amount of
the statutory minimum withholding tax due and payable by the Company. Fractional shares will not be retained to satisfy any portion of the
withholding tax. Accordingly, the Participant agrees that in the event that the amount of withholding owed would result in a fraction of a
share being issued, that amount will be satisfied by deduction of that withholding amount in cash from the Participant’s compensation.
(ii) At any time not less than five (5) business days before any Tax Withholding Obligation arises, the Participant may elect to satisfy a Tax
Withholding Obligation by delivering to the Company an amount that the Company determines is sufficient to satisfy the Tax Withholding
Obligation by (a) wire transfer to such account as the Company may direct, (b) delivery of a certified check payable to the Company, c/o
Director, Human Resources & Administration, 4-C Cedar Brook Drive, Cranbury, NJ 08512, or such other address as the Company may
from time to time direct, or
(iii) such other means as the Company may establish or permit.
8. Participant Acknowledgements and Authorizations.
The Participant acknowledges the following:
(a) The Company is not by the Plan, this Agreement or the Award obligated to continue the Participant as an employee of
the Company.
(b) The Plan is discretionary in nature and may be suspended or terminated by the Company at any time.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(c) The grant of this Award is considered an extraordinary one-time benefit and does not create a contractual or other right to
receive any other award under the Plan, benefits in lieu of awards or any other benefits in the future.
(d) The Plan is a voluntary program of the Company and future awards, if any, will be at the sole discretion of the Company,
including, but not limited to, the timing of any grant, the amount of the award, vesting provisions and the purchase price.
(e) The value of this Award is an extraordinary item of compensation outside of the scope of any employment. As such the
Award is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service
payments, bonuses, long-service awards, pension or retirement benefits or similar payments. The future value of the shares of Common
Stock is unknown and cannot be predicted with certainty.
(f) The Participant agrees to provide the Company (and any agent administering the Plan or providing recordkeeping services) with
such information and data as it shall request in order to facilitate the grant of the Award and the administration of the Plan, and the
Participant waives any data privacy rights he or she may have with respect to such information or the sharing of such information.
(g) The Company currently has an effective registration statement on file with the Securities and Exchange Commission with respect
to the shares of Common Stock subject to the Award. The Company intends to maintain this registration but has no obligation to do so. If
the registration ceases to be effective, the Participant will not be able to transfer or sell shares of Common Stock issued to the Participant
pursuant to the Award unless exemptions from registration under applicable securities laws are available. Such exemptions from
registration are very limited and might be unavailable. The Participant agrees that any resale by Participant of the shares of Common Stock
issued pursuant to the Award shall comply in all respects with the requirements of all applicable securities laws, rules and regulations
(including, without limitation, the provisions of the Securities Act, the Exchange Act and the respective rules and regulations promulgated
thereunder) and any other law, rule or regulation applicable thereto, as such laws, rules, and regulations may be amended from time to
time. The Company shall not be obligated to either issue the Common Stock or permit the resale of any shares of Common Stock if such
issuance or resale would violate any such requirements.
9. Notices. Any notices required or permitted by the terms of this Agreement or the Plan shall be given by personal delivery,
recognized courier service, or registered or certified mail, return receipt requested, addressed as follows:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
If to the Company, to:
Director, Human Resources & Administration
Palatin Technologies, Inc.
4-C Cedar Brook Drive
Cranbury, NJ 08512
If to the Participant, by personal delivery to the Participant at the Company if the Participant is then employed by the Company, and
otherwise to the last known address of the Participant as shown in the employment records of the Participant with the Company; or to such
other address or addresses of which notice in the same manner has previously been given. Any such notice shall be deemed to have
been given on the earliest of receipt, one business day following delivery by the sender to a recognized courier service, or three business
days following mailing by registered or certified mail.
10. Benefit of Agreement. Subject to the provisions of the Plan and the provisions of this Agreement, the Award shall be for
the benefit of and shall be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto.
11. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Delaware,
without giving effect to the conflict of law principles thereof. For the purpose of litigating any dispute that arises under this Agreement,
whether at law or in equity, the parties hereby consent to exclusive jurisdiction in the State of New Jersey and agree that such litigation
shall be conducted in the state courts of New Jersey or the federal courts of the United States for the District of New Jersey.
12. Severability. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction,
then such provision or provisions shall be modified to the extent necessary to make such provision valid and enforceable, and to the extent
that this is impossible, then such provision shall be deemed to be excised from this Agreement, and the validity, legality and enforceability
of the rest of this Agreement shall not be affected thereby.
13. Entire Agreement. This Agreement, together with the Plan, and to the extent incorporated by reference, the Employment
Agreement, constitutes the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to the subject matter hereof. No statement, representation,
warranty, covenant or agreement not expressly set forth in this Agreement shall affect or be used to interpret, change or restrict the
express terms and provisions of this Agreement provided, however, in any event, this Agreement shall be subject to and governed by the
Plan.
14. Modifications and Amendments; Waivers and Consents. The terms and provisions of this Agreement may be modified or
amended as provided in the Plan. Except as provided in the Plan, the terms and provisions of this Agreement may be waived, or consent
for the departure therefrom granted, only by written document
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
executed by the party entitled to the benefits of such terms or provisions. No such waiver or consent shall be deemed to be or shall
constitute a waiver or consent with respect to any other terms or provisions of this Agreement, whether or not similar. Each such waiver or
consent shall be effective only in the specific instance and for the purpose for which it was given, and shall not constitute a continuing
waiver or consent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
PALATIN TECHNOLOGIES, INC.
By:
John K.A. Prendergast
Chairman, Board of Directors
Participant:
Print Name:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-10 4 ex10-23.htm
EXHIBIT 10.23
[GRAPHIC OMTTED]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), effective as of this 1st day of July, 2010, is entered into by Palatin Technologies,
Inc., a Delaware corporation with its principal place of business at 4C Cedar Brook Drive, Cranbury, NJ, 08512 (the “Company”), and Carl
Spana (“Employee”).
The Company desires to continue employing the Employee, and the Employee desires to continue to be employed by the Company. In
consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties agree that the following terms of this Employment
Agreement shall supersede in all respects any prior agreements governing employment between the parties:
1.0
Term of Employment. The Company hereby agrees to continue employing the Employee, and the Employee hereby accepts the
continuation of employment with the Company, upon the terms set forth in this Agreement, for the period commencing on July 1,
2010 (the “Commencement Date”) and ending on June 30, 2013 unless sooner terminated in accordance with the provisions of
Section 4 (the “Employment Period”).
2.0
Position Title & Capacity.
2.1
The Employee shall serve as Chief Executive Officer and President, with responsibilities consistent with this position and
as the Company’s Board of Directors (the "Board") may determine from time to time, with powers and duties as may be
determined, from time to time, by the Board, consistent with the Employee’s position. The Employee shall report to the
Company’s Board of Directors. The Employee shall be based at the Company’s corporate headquarters, which is based in
Cranbury, New Jersey. The Employee shall also be available for travel at such times and to such places as may be
reasonably necessary in connection with the performance of his duties hereunder.
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2.2
2.3
2.4
The Employee may serve as an employee director on the Board as determined and approved by the Board during the
Employment Period and for no additional compensation; however, upon termination of employment for any reason, the
Employee will no longer serve as a member of the Company’s Board of Directors and will take any and all actions
necessary to effectuate such resignation as may be reasonably requested by the Company.
The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such
position and such other duties and responsibilities as the Board shall from time to time reasonably assign to him. The
Employee agrees to devote substantially all of his business time, attention and energies to the business and interests of the
Company during the Employment Period. The Employee agrees to abide by the rules, regulations, instructions, personnel
practices and policies of the Company and any changes therein which may be adopted from time to time by the
Company. The Employee acknowledges receipt of copies of all such rules and policies committed to writing as of the date
of this Agreement.
The Employee specifically covenants, warrants and represents to the Company that he has the full, complete and entire
right and authority to enter into this Agreement, that he has no agreement, duty, commitment or responsibility of any kind
or nature whatsoever with any corporation, partnership, firm, company, joint venture or other entity or other person which
would conflict in any manner whatsoever with any of his duties, obligations or responsibilities to the Company pursuant to
this Agreement, that he is not in possession of any document or other tangible property of any corporation, partnership,
firm, company, joint venture or other entity or other person of a confidential or proprietary nature which would conflict in
any manner whatsoever with any of his duties, obligations or responsibilities to the Company pursuant to his Agreement,
and that he is fully ready, willing and able to perform each and all of his duties, obligations and responsibilities to the
Company pursuant to this Agreement.
3.0
Compensation and Benefits. During the Employment Period, unless sooner terminated in accordance with the provisions of
Section 4, the Employee shall receive the following compensation and benefits:
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3.1
3.2
3.3
Salary. The Company shall pay the Employee, in equal semi-monthly installments or otherwise in accordance with the
Company’s standard payroll policies as such policies may exist from time to time, an annual base salary of $390,000,
effective July 1,2010. Such salary shall be subject to review, as determined by the Company’s Compensation Committee
and approved by the Board, on an annual basis, but the Board shall not decrease the Employee’s annual base salary at
any such annual review.
Cash Performance Bonus. The Employee will be included in the Company’s annual discretionary bonus compensation
program based on a June 30th year end in an amount to be decided by the Company’s Compensation Committee and
approved by the Board, payable no later than September 30th of each year during the Employment Period.
Stock Options. As additional compensation for services rendered, the Company has granted to the Employee the right
and option to purchase shares of the Company’s Common Stock and in the future may grant additional options to
purchase shares of the Company’s Common Stock to the Employee in accordance with the terms of the Company’s stock
plan then in effect. Notwithstanding any option certificate or agreement to the contrary, the following provisions apply to all
options granted to the Employee either prior to or after the Commencement Date:
(a)
(b)
All such options that are not vested as of the Date of Termination (as defined in Section 6) shall immediately vest
and become fully exercisable as of the Date of Termination, except in the case of termination: (i) for Cause (as
defined in Section 6) or (ii) at the election of the Employee pursuant to Section 4.6. Notwithstanding the foregoing
if upon a Change in Control as defined in Section 6.5 (c) or (d), any of the options are terminated in connection
with the Change in Control, then all such options that are not vested as of the date of the Change in Control shall
immediately vest and become fully exercisable immediately prior to the Change in Control; and
All of such options that are vested as of the Date of Termination shall expire on the first to occur of: (i) 24 months
following the Employee’s retirement; (ii) 24 months following the Employee’s Date of Termination other than (A) for
Cause (as defined in Section 6), or
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(B) termination at the election of the Employee pursuant to Section 4.6; (iii) the expiration date of the option as set
forth in the applicable option certificate or agreement; or (iv) as otherwise provided in the applicable option plan in
the event of the dissolution or liquidation of the Company, or a merger, reorganization or consolidation in which the
Company is not the surviving corporation. For purposes of this subsection, “retirement” requires that the
Employee not render services of any nature for any entity as a regular employee, and not render services of any
nature for any entity for more than an average of twenty (20) hours per week as a consultant or term employee.
Nothing in this Section 3.3 shall apply to or affect any equity award that is not either an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or a non-qualified stock option.
3.4
Restricted Stock Units. As additional compensation for services rendered, the Company has granted to the Employee
restricted stock units for the issuance of the Company’s Common Stock and in the future may grant additional restricted
stock units for the issuance of the Company’s Common Stock to the Employee in accordance with the terms of the
Company’s stock plan then in effect. Notwithstanding any restricted stock unit certificate or agreement to the contrary, the
following provisions apply to all restricted stock units granted to the Employee either prior to or after the Commencement
Date:
(a)
All such restricted stock units that are not vested as of the Date of Termination (as defined in Section 6) shall
immediately vest and shares of the Company’s Common Stock issuable upon vesting of such restricted stock units
shall be issued as of the Date of Termination, except in the case of termination: (i) for Cause (as defined in
Section 6) or (ii) at the election of the Employee pursuant to Section 4.6. Notwithstanding the foregoing if upon a
Change in Control as defined in Section 6.5 (c) or (d), any of the restricted stock units are terminated in connection
with the Change in Control, then all such restricted stock units that are not vested as of the date of the Change in
Control shall
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
vest as of the date of the Change in Control and the shares of Common Stock to be issued pursuant to such
restricted stock units shall be issued immediately prior to the Change in Control; and
(b)
If and to the extent the Employee owes withholding taxes on account of vesting of any restricted stock unit, any
taxes due shall be paid, at the option of the Employee, through reducing the number of shares of Common Stock
actually issued to the Employee on the date of vesting of each such restricted stock unit in an amount equal to the
amount of the statutory minimum withholding tax due and payable by the Company. Fractional shares will not be
retained to satisfy any portion of the withholding tax. Accordingly, the Employee agrees that in the event that the
amount of withholding owed would result in a fraction of a share being issued, that amount will be satisfied by
deduction of the withholding amount in cash from the Employee’s compensation.
3.5
3.6
Fringe-Benefits. The Employee shall be entitled to participate in all benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that the Employee’s position, tenure, salary, age, health and other
qualifications make him eligible to participate. The Employee shall also be entitled to holidays and annual vacation leave
in accordance with the Company’s policy as it exists from time to time.
Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and
other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties,
responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting information as the Company may request, provided however, that the
amount available for such travel, entertainment and other expenses may be fixed in advance by the Board.
3.7
Insurance. The Employee will be covered under the Company’s Directors’ and Officers’ liability insurance to the same
extent the Company’s directors and other officers are covered.
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4.0
4.1
4.2
Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall
terminate upon the occurrence of any of the following:
Expiration of the Employment Period in accordance with Section 1, unless the Company and Employee agree to extend
the Agreement term or otherwise continue Employee’s employment on mutually agreeable terms.
At the election of the Company, for Cause (as defined in Section 6), immediately upon written notice by the Company to
the Employee, which notice of termination shall have been approved by a majority of the Board.
4.3
Immediately upon the death or determination of Disability (as defined in Section 6) of the Employee.
4.4
4.5
At the election of the Employee, for Good Reason (as defined in Section 6), immediately upon written notice of not less
than sixty (60) days prior to termination by the Employee to the Company.
At the election of the Company upon or within twelve (12) months following a Change in Control (as defined in Section 6),
or at the election of the Employee for Good Reason (as defined in Section 6) upon or within twelve (12) months following a
Change in Control (as defined in Section 6), immediately upon written notice of termination.
4.6
At the election of either party, upon written notice of termination.
5.0
Effect of Termination.
5.1
Compensation & Benefits.
(a)
(b)
As referenced in this section, compensation following the Employee’s termination shall be in the form of
severance. Severance will be based on the employee’s base salary in effect as of the employee’s last day of
employment, and will be paid in one lump-sum amount.
Severance is not considered compensation for purposes of employee and employer matching contributions under
the 401(k) plan.
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(c)
(d)
As referenced in this section, upon termination of the Employee’s employment with the Company, medical and
dental benefits will be available to the Employee, at his election, solely pursuant to the provisions of COBRA with
the Company paying the full cost of COBRA coverage for a period up to 24 months if employment is terminated for
any reason except an Employee resignation without Good Reason (as defined in Section 6) and a Company
discharge for Cause (as defined in Section 6). If the Employee is discharged for Cause or the Employee resigns
without Good Reason, the Employee will be required to remit the COBRA cost (102% of total benefit cost) of
coverage.
Upon termination of the Employee’s employment with the Company, apart from the Employee’s election under
COBRA to continue medical and dental benefits (as described in Section 5.1(c)), the Employee will cease to be
eligible for participation in the Company’s health and welfare insurance and any other fringe benefit programs that
pursuant to their contracts or Company policy require an active employee status.
5.2
Termination By The Company or at Election of the Employee (other than for Good Reason).
(a)
(b)
If the Employee elects to terminate his employment (other than for Good Reason) pursuant to Section 4.6, no
severance and/or benefits shall be paid, and the Employee shall be entitled only to receive payment of his earned
but unpaid salary, and accrued vacation, as of his last day of actual employment by the Company;
If the Company elects to terminate the Employee (other than for Cause) pursuant to Section 4.6, or, within sixty
(60) days prior to the expiration of this Agreement, the Company and Executive fail to agree to extend this
Agreement or otherwise reach a mutually acceptable agreement to continue Executive’s employment, the
Company shall pay to the Employee twenty-four (24) months of his salary in effect on the Date of Termination in
one-lump sum amount following the Date of Termination (but in no event no later than March 15 of the year
following the year in which the Date of Termination occurs), plus medical and dental benefits (as described in
Section 5.1(c));
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(c)
If the Company terminates the Employee for Cause pursuant to Section 4.2, no severance and/or benefits shall be
paid, and the Employee shall be entitled only to receive payment of his earned but unpaid salary, and accrued
vacation, as of the Date of Termination. Employee may elect COBRA medical and dental benefits, in which case
the Employee will be required to remit the COBRA cost (102% of total benefit cost) of coverage.
5.3
5.4
Termination By Employee Election For Good Reason. If the Employee terminates employment at his election for
Good Reason pursuant to Section 4.4, other than as provided for in Section 5.4, the Company shall pay to the Employee
twenty-four (24) months of his salary in effect on the Date of Termination in one-lump sum amount following the Date of
Termination (but in no event no later than March 15 of the year following the year in which the Date of Termination
occurs), plus medical and dental benefits (as described in Section 5.1(c)).
Termination Following a Change In Control. If the Company terminates the employment relationship upon or following
a Change In Control pursuant to Section 4.5, or if the Employee terminates employment at his election for Good Reason
upon or following a Change in Control pursuant to Section 4.5:
(a)
(b)
The Company shall pay to the Employee his annual salary in effect at that time in a lump sum amount, calculated
at two (2.0) times such annual salary, within ten (10) business days following the Date of Termination (but in no
event no later than March 15 of the year following the year in which the Date of Termination occurs) plus
medical/dental care benefits (as described in Section 5.1(c)); and
For a six (6) month period after the Date of Termination, the Company shall reimburse the Employee for
reasonable fees and expenses actually incurred by him for the purpose of locating employment in an amount, not
to exceed $25,000, mutually agreed upon by and between the Employee and the Company, including the fees and
expenses of consultants and other persons retained by him for such purpose, promptly, within ten days, receipt by
the Company of satisfactory evidence of payment of such fees and
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expenses, but in no event no later than March 15 of the year following the year in which the expenses were
actually incurred.
5.5
Termination by Reason of the Employee’s Death or Disability. If, prior to the expiration of the Employment Period, the
Employee’s employment is terminated by the Employee’s death or Disability pursuant to Section 4.3, the Company shall
pay to the Employee, or in the case of the Employee’s death, to the estate of the Employee, twenty-four (24) months of his
salary in effect on the Date of Termination in one-lump sum amount following the Date of Termination (but in no event no
later than March 15 of the year following the year in which the Date of Termination occurs), plus medical and dental
benefits (as described in Section 5.1(c)).
5.6
Withholding and Deductions, 409A.
(a)
(b)
(c)
All payments hereunder shall be subject to withholding and to such other deductions as shall at the time of such
payment be required pursuant to any income tax or other law, whether of the United States or any other
jurisdiction, and, in the case of payments to the executors or administrators to the Employee's estate, the delivery
to the Company of all necessary tax waivers and other documents.
In the event the Employee is required pursuant to Section 4999 of the Code to pay (through withholding or
otherwise) an excise tax on “excess parachute payments” (as defined in Section 280G(b) of the Code) made by
the Company pursuant to Section 5.4 of this Agreement, the Company shall pay the Employee within thirty (30)
days of the Change in Control, such additional amounts as are necessary to place the Employee in the same after
tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the
Code.
In the event the Employee is required to pay any federal, state or local income taxes as a result of the Company’s
payment of the Employee’s COBRA premiums under this Section 5, the Company shall pay the Employee not later
than the end of the year after the year in which the taxes are paid such additional amounts as are necessary to
place the
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Employee in the same after-tax financial position that he would have been in if he had not incurred any such tax
liability.
(d)
The payments and benefits provided for in Sections 5.2(b), 5.3, 5.4 and 5.5 of this Agreement constitute a short-
term deferral pursuant to Treas. Reg. § 1.409A-1(b)(4) and thus not “nonqualified deferred compensation” subject
to Section 409A. If the payments and benefits provided for in Sections 5.2(b), 5.3, 5.4 or 5.5 of this Agreement are
deemed to provide for the payment of non-qualified deferred compensation benefits in connection with a
separation of service under Section 409A(2)(a)(i) of the Code, the following interpretations apply to Sections 5.2(b),
5.3, 5.4 and 5.5: (i) Any termination of the Employee’s employment triggering payment of benefits under Sections
5.2(b), 5.3, 5.4 or 5.5 must constitute a “separation from service” under Section 409A(a)(2)(A)(i) of the Code and
Treas. Reg. §1.409A-1(h) before distribution of such benefits can commence. To the extent that the termination of
Employee’s employment does not constitute a separation of service under Section 409A(a)(2)(A)(i) of the Code
and Treas. Reg. §1.409A-1(h) (as the result of further services that are reasonably anticipated to be provided by
Employee to the Company at the time the Employee’s employment terminates, any benefits payable under
Sections 5.2(b), 5.3, 5.4 or 5.5 that constitute deferred compensation under Section 409A of the Code shall be
delayed until after the date of a subsequent event constituting a separation of service under Section 409A(a)(2)(A)
(i) of the Code and Treas. Reg. §1.409A-1(h). For purposes of clarification, this Section 5.6(d) shall not cause any
forfeiture of benefits on the Employee’s part, but shall only act as a delay until such time as a “separation from
service” occurs; (ii) If the Employee is a “specified employee” (as that term is used in Section 409A of the Code
and regulations and other guidance issued thereunder) on the date his separation from service becomes effective,
any benefits payable under Sections 5.2(b), 5.3, 5.4 or 5.5 that constitute non-qualified deferred compensation
under Section
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409A of the Code shall be delayed until the earlier of (A) business day following the six-month anniversary of the
date his separation from service becomes effective, and (B) the date of his death, but only to the extent necessary
to avoid such penalties under Section 409A of the Code. On the earlier of (A) the business day following the six-
month anniversary of the date his separation from service becomes effective, and (B) the Employee’s death, the
Company shall pay the Employee in a lump sum the aggregate value of the non-qualified deferred compensation
that the Company otherwise would have paid to the Employee prior to that date under Sections 5.2(b), 5.3, 5.4 and
5.5 of this Agreement; (iii) It is intended that each installment of the payments and benefits provided under Sections
5.2(b), 5.3, 5.4 and 5.5 of this Agreement shall be treated as a separate “payment” for purposes of Section 409A of
the Code; and (iv) Neither the Company nor the Employee shall have the right to accelerate or defer the delivery
of any such payments or benefits except to the extent specifically permitted or required by Section 409A of the
Code).
5.7
Release of Claims. The Employee’s entitlement to severance, payment of COBRA premiums, and accelerated vesting of
options and restricted stock units, is contingent upon the Employee’s execution of a general release of claims in a form
prepared by the Company and presented to the Employee upon termination of his employment hereunder, as well as the
Employee’s compliance with the provisions of Section 7 hereof.
5.8
No Requirement to Mitigate. The Employee shall not be required to mitigate the amount of any payment provided for in
this Section 5 by seeking other employment or otherwise.
6.0
Definitions. For purposes of this Agreement the following definitions apply:
6.1
“Cause” shall mean the occurrence of any of the following circumstances:
(a)
(i) the Employee’s material breach of, or habitual neglect or failure to perform the material duties which he is
required to perform under, the terms of this Agreement; (ii) the Employee’s material failure to follow the reasonable
directives or policies established
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by or at the direction of the Board; or (iii) the Employee’s engaging in conduct that is materially detrimental to the
interests of the Company such that the Company sustains a material loss or injury as a result thereof, provided
that the breach or failure of performance by the Employee under subparagraphs (i) through (iii) hereof is not cured,
to the extent cure is possible, within ten (10) days of the delivery to the Employee of written notice thereof;
(b)
(c)
the willful breach by the Employee of Section 7 of this Agreement or any provision of any confidentiality, invention
and non-disclosure, non-competition or similar agreement between the Employee and the Company; or
the conviction of the Employee of, or the entry of a pleading of guilty or nolo contendere by the Employee to, any
crime involving moral turpitude or any felony.
“Date of Termination” shall mean the Employee’s last day of actual employment by the Company (or its successor) for
any reason including death or Disability.
“Disability” shall mean the inability of the Employee, by reason of illness, accident or other physical or mental disability,
for a period of 120 days, whether or not consecutive, during any 360-day period, to perform the services contemplated
under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and
the Company; provided, however, that if the Employee and the Company do not agree on a physician, the Employee and
the Company shall each select a physician and these two together shall select a third physician, whose determination as
to disability shall be binding on all parties.
“Good Reason” shall mean the occurrence of any of the following circumstances, and the Company’s failure to cure such
circumstances within thirty (30) days of the delivery to the Company of written notice by the Employee of such
circumstances:
(a)
any material adverse change in the Employee’s duties, authority or responsibilities as described in Section 2.1
hereof which causes the Employee’s position with the Company
6.2
6.3
6.4
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(b)
(c)
(d)
to become of significantly less responsibility or assignment of duties and responsibilities inconsistent with the
Employee’s position;
a material reduction in the Employee’s salary as in effect on the Commencement Date or as the same may be
increased from time to time;
the failure of the Company to continue in effect any material compensation or benefit plan in which the Employee
participates as in effect on the Commencement Date, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue
the Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level of the Employee’s participation relative to
other participants, as in effect on the Commencement Date;
the failure by the Company to continue to provide the Employee with benefits substantially similar to those enjoyed
by the Employee under any of the Company’s health and welfare insurance, retirement and other fringe-benefit
plans insurance, which the Employee was participating as in effect on the Commencement Date, the taking of any
action by the Company which would directly or indirectly materially reduce any of such benefits, or the failure by
the Company to provide the Employee with the number of paid vacation days to which he is entitled in accordance
with the Company’s normal vacation policy in effect on the Commencement Date or in accordance with any
agreement between the Employee and the Company existing at that time; or
(e)
the relocation of the Employee to a location which is a material distance from Cranbury, New Jersey.
(f)
For purposes of this Agreement, “Good Reason” shall be interpreted in a manner, and limited to the extent
necessary, so that it will not cause adverse tax consequences for
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either party with respect to Section 409A, and any successor statute, regulation and guidance thereto.
6.5
“Change in Control” shall mean the occurrence of any of the following events:
(a)
(b)
(c)
any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (other than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportion as their ownership of stock of the Company) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power of the Company’s then outstanding
securities;
the date the individuals who, during any twelve month period, constitute the Board (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board, provided that any person becoming a director during
the twelve month period whose election, or nomination for election by the Company’s stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board;
a merger or consolidation of the Company approved by the stockholders of the Company with any other
corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) 50% or more of the combined voting power of the voting
securities
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of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in which
no “person” (as defined in Section 6.4(a)) acquires more than 50% of the combined voting power of the Company’s
then outstanding securities; or
(d)
a sale of all or substantially all of the assets of the Company.
7.0
Restrictive Covenants.
(a)
For the purposes of this Agreement:
(i)
(ii)
“Competing Products” means any products or processes of any person or organization other than the
Company in existence or under development, which are substantially the same, may be substituted for, or
applied to substantially the same end use as the products or processes that the Company is developing or
has developed or commercialized during the time of the Employee’s employment with the Company.
“Competing Organization” means any person or organization engaged in, or with definitive plans to
become engaged in, research or development, production, distribution, marketing or selling of a
Competing Product.
(b)
The Employee acknowledges that he has, on or prior to the date of the Agreement, executed and delivered to the
Company an Employee Agreement on Confidentiality, Intellectual Property, Debarment Certification and Conflict of
Interest (the “Confidentiality Agreement”) and the Employee hereby affirms and ratifies his obligations thereunder;
and the Employee agrees that after termination by the Company for Cause pursuant to Section 4.2 (except in the
case where such termination occurs within 12 months following a Change in Control), by the Employee pursuant
to Section 4.6, or by either party upon expiration of the Employment Period, he will not render services of any
nature, directly or indirectly, to any Competing Organization in
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connection with any Competing Product within any geographical territory as the Company and such Competing
Organization are or would be in actual competition, for a period of twenty-four (24) months, commencing on the
Date of Termination.
The Employee agrees that he will not, during the Employment Period and for a period of nine (9) months
commencing on the Date of Termination, directly or indirectly employ, solicit for employment, or advise or
recommend to any other person that they employ or solicit for employment, any person whom he knows to be an
employee of the Company or any parent, subsidiary or affiliate of the Company.
In the event a court of competent jurisdiction should find any provision in this Section 7 to be unfair or
unreasonable, such finding shall not render such provision unenforceable, but, rather, this provision shall be
modified as to subject matter, time and geographic area so as to render the entire section valid and enforceable.
(c)
(d)
8.0
9.0
10.0
Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon either: (a)
personal delivery; or (b) three (3) days following deposit with the United States Postal Service for delivery by registered or certified
mail, postage prepaid, or one (1) day following deposit with a reputable overnight courier service, addressed to the other party at
the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with
this Section 8.
Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
Entire Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this
Agreement.
11.0
Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the
Employee. Any such amendment shall comply with the requirements of Section 409A, if applicable.
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12.0
13.0
Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of New Jersey,
without regard to its principles of conflict of laws.
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective
successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to
its assets or business; provided, however, that the obligations of the Employee are unique and personal and shall not be assigned
by him.
14.0 Waiver of Breach.
14.1 Waiver by the Company. No delay or omission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. No waiver
by the Company shall be valid unless in writing signed by an authorized officer of the Company and approved by a
majority of the Board.
14.2 Waiver by the Employee. No delay or omission by the Employee in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Employee on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. No waiver
by the Employee shall be valid unless in a writing signed by the Employee.
15.0 Miscellaneous.
15.1
15.2
The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect
the scope or substance of any section of this Agreement.
In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or impaired thereby.
16.0
Survival. The provisions of Sections 3.3, 5, 6, 7 and 8 shall survive the termination of this Agreement.
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17.0
18.0
Attorney’s Fees. The Company shall reimburse the Employee for all legal fees and expenses associated with the negotiation and
drafting of this Agreement, upon reasonable documentation thereof, up to a maximum of $5,000.
Timing of Reimbursements. All reimbursements made by the Company pursuant to this Agreement will be made within 30 days
from the date the Employee submits documentation of the expenses. Employee will submit documentation substantiating
expenses within 30 days from the date the expenses are incurred.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as an instrument under seal effective as of the day and year
set forth above.
PALATIN TECHNOLOGIES, INC.
EMPLOYEE
By:_____________________________ ________________________________
Name: Stephen T. Wills
Title: Executive V.P. of Operations and
President
Chief Financial Officer
Chief Executive Officer and
Carl Spana
Date:____________________________
____________________________
Date:
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EX-10 5 ex10-24.htm
EXHIBIT 10.24
[GRAPHIC OMITTED]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), effective as of this 1st day of July, 2010, is entered into by Palatin Technologies,
Inc., a Delaware corporation with its principal place of business at 4C Cedar Brook Drive, Cranbury, NJ, 08512 (the “Company”), and
Stephen T. Wills (“Employee”).
The Company desires to continue employing the Employee, and the Employee desires to continue to be employed by the Company. In
consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties agree that the following terms of this Employment
Agreement shall supersede in all respects any prior agreements governing employment between the parties:
1.0
Term of Employment. The Company hereby agrees to continue employing the Employee, and the Employee hereby accepts the
continuation of employment with the Company, upon the terms set forth in this Agreement, for the period commencing on July 1,
2010 (the “Commencement Date”) and ending on June 30, 2013 unless sooner terminated in accordance with the provisions of
Section 4 (the “Employment Period”).
2.0
Position Title & Capacity.
2.1
The Employee shall serve as Chief Financial Officer, with responsibilities consistent with this position and as the
Company’s Board of Directors (the "Board") may determine from time to time, with powers and duties as may be
determined, from time to time, by the Board, consistent with the Employee’s position. The Employee shall report to the
Company’s Board of Directors. The Employee shall be based at the Company’s corporate headquarters, which is based in
Cranbury, New Jersey. The Employee shall also be available for travel at such times and to such places as may be
reasonably necessary in connection with the performance of his duties hereunder.
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2.2
2.3
2.4
The Employee may serve as an employee director on the Board as determined and approved by the Board during the
Employment Period and for no additional compensation; however, upon termination of employment for any reason, the
Employee will no longer serve as a member of the Company’s Board of Directors and will take any and all actions
necessary to effectuate such resignation as may be reasonably requested by the Company.
The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such
position and such other duties and responsibilities as the Board shall from time to time reasonably assign to him. The
Employee agrees to devote substantially all of his business time, attention and energies to the business and interests of the
Company during the Employment Period. The Employee agrees to abide by the rules, regulations, instructions, personnel
practices and policies of the Company and any changes therein which may be adopted from time to time by the
Company. The Employee acknowledges receipt of copies of all such rules and policies committed to writing as of the date
of this Agreement.
The Employee specifically covenants, warrants and represents to the Company that he has the full, complete and entire
right and authority to enter into this Agreement, that he has no agreement, duty, commitment or responsibility of any kind
or nature whatsoever with any corporation, partnership, firm, company, joint venture or other entity or other person which
would conflict in any manner whatsoever with any of his duties, obligations or responsibilities to the Company pursuant to
this Agreement, that he is not in possession of any document or other tangible property of any corporation, partnership,
firm, company, joint venture or other entity or other person of a confidential or proprietary nature which would conflict in
any manner whatsoever with any of his duties, obligations or responsibilities to the Company pursuant to his Agreement,
and that he is fully ready, willing and able to perform each and all of his duties, obligations and responsibilities to the
Company pursuant to this Agreement.
3.0
Compensation and Benefits. During the Employment Period, unless sooner terminated in accordance with the provisions of
Section 4, the Employee shall receive the following compensation and benefits:
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3.1
3.2
3.3
Salary. The Company shall pay the Employee, in equal semi-monthly installments or otherwise in accordance with the
Company’s standard payroll policies as such policies may exist from time to time, an annual base salary of $321,000,
effective July 1, 2010. Such salary shall be subject to review, as determined by the Company’s Compensation Committee
and approved by the Board, on an annual basis, but the Board shall not decrease the Employee’s annual base salary at
any such annual review.
Cash Performance Bonus. The Employee will be included in the Company’s annual discretionary bonus compensation
program based on a June 30th year end in an amount to be decided by the Company’s Compensation Committee and
approved by the Board, payable no later than September 30th of each year during the Employment Period.
Stock Options. As additional compensation for services rendered, the Company has granted to the Employee the right
and option to purchase shares of the Company’s Common Stock and in the future may grant additional options to
purchase shares of the Company’s Common Stock to the Employee in accordance with the terms of the Company’s stock
plan then in effect. Notwithstanding any option certificate or agreement to the contrary, the following provisions apply to all
options granted to the Employee either prior to or after the Commencement Date:
(a)
All such options that are not vested as of the Date of Termination (as defined in Section 6) shall immediately vest
and become fully exercisable as of the Date of Termination, except in the case of termination: (i) for Cause (as
defined in Section 6) or (ii) at the election of the Employee pursuant to Section 4.6. Notwithstanding the foregoing
if upon a Change in Control as defined in Section 6.5 (c) or (d), any of the options are terminated in connection
with the Change in Control, then all such options that are not vested as of the date of the Change in Control shall
immediately vest and become fully exercisable immediately prior to the Change in Control; and
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(b)
All of such options that are vested as of the Date of Termination shall expire on the first to occur of: (i) 24 months
following the Employee’s retirement; (ii) 24 months following the Employee’s Date of Termination other than (A) for
Cause (as defined in Section 6), or (B) termination at the election of the Employee pursuant to Section 4.6; (iii) the
expiration date of the option as set forth in the applicable option certificate or agreement; or (iv) as otherwise
provided in the applicable option plan in the event of the dissolution or liquidation of the Company, or a merger,
reorganization or consolidation in which the Company is not the surviving corporation. For purposes of this
subsection, “retirement” requires that the Employee not render services of any nature for any entity as a regular
employee, and not render services of any nature for any entity for more than an average of twenty (20) hours per
week as a consultant or term employee.
Nothing in this Section 3.3 shall apply to or affect any equity award that is not either an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or a non-qualified stock option.
3.4
Restricted Stock Units. As additional compensation for services rendered, the Company has granted to the Employee
restricted stock units for the issuance of the Company’s Common Stock and in the future may grant additional restricted
stock units for the issuance of the Company’s Common Stock to the Employee in accordance with the terms of the
Company’s stock plan then in effect. Notwithstanding any restricted stock unit certificate or agreement to the contrary, the
following provisions apply to all restricted stock units granted to the Employee either prior to or after the Commencement
Date:
(a)
All such restricted stock units that are not vested as of the Date of Termination (as defined in Section 6) shall
immediately vest and shares of the Company’s Common Stock issuable upon vesting of such restricted stock units
shall be issued as of the Date of Termination, except in the case of termination: (i) for Cause (as defined in
Section 6) or (ii) at the election of the Employee pursuant to Section 4.6. Notwithstanding the foregoing if upon a
Change in Control as defined in Section 6.5 (c) or (d), any of the
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restricted stock units are terminated in connection with the Change in Control, then all such restricted stock units
that are not vested as of the date of the Change in Control shall vest as of the date of the Change in Control and
the shares of Common Stock to be issued pursuant to such restricted stock units shall be issued immediately prior
to the Change in Control; and
(b)
If and to the extent the Employee owes withholding taxes on account of vesting of any restricted stock unit, any
taxes due shall be paid, at the option of the Employee, through reducing the number of shares of Common
Stock actually issued to the Employee on the date of vesting of each such restricted stock unit in an amount equal
to the amount of the statutory minimum withholding tax due and payable by the Company. Fractional shares will
not be retained to satisfy any portion of the withholding tax. Accordingly, the Employee agrees that in the event
that the amount of withholding owed would result in a fraction of a share being issued, that amount will be satisfied
by deduction of the withholding amount in cash from the Employee’s compensation.
3.5
3.6
Fringe-Benefits. The Employee shall be entitled to participate in all benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that the Employee’s position, tenure, salary, age, health and other
qualifications make him eligible to participate. The Employee shall also be entitled to holidays and annual vacation leave
in accordance with the Company’s policy as it exists from time to time.
Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and
other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties,
responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting information as the Company may request, provided however, that the
amount available for such travel, entertainment and other expenses may be fixed in advance by the Board.
3.7
Insurance. The Employee will be covered under the Company’s Directors’ and Officers’ liability insurance to the same
extent the Company’s directors and other officers are covered.
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4.0
4.1
4.2
Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall
terminate upon the occurrence of any of the following:
Expiration of the Employment Period in accordance with Section 1, unless the Company and Employee agree to extend
the Agreement term or otherwise continue Employee’s employment on mutually agreeable terms.
At the election of the Company, for Cause (as defined in Section 6), immediately upon written notice by the Company to
the Employee, which notice of termination shall have been approved by a majority of the Board.
4.3
Immediately upon the death or determination of Disability (as defined in Section 6) of the Employee.
4.4
4.5
At the election of the Employee, for Good Reason (as defined in Section 6), immediately upon written notice of not less
than sixty (60) days prior to termination by the Employee to the Company.
At the election of the Company upon or within twelve (12) months following a Change in Control (as defined in Section 6),
or at the election of the Employee for Good Reason (as defined in Section 6) upon or within twelve (12) months following a
Change in Control (as defined in Section 6), immediately upon written notice of termination.
4.6
At the election of either party, upon written notice of termination.
5.0
Effect of Termination.
5.1
Compensation & Benefits.
(a)
(b)
As referenced in this section, compensation following the Employee’s termination shall be in the form of
severance. Severance will be based on the employee’s base salary in effect as of the employee’s last day of
employment, and will be paid in one lump-sum amount.
Severance is not considered compensation for purposes of employee and employer matching contributions under
the 401(k) plan.
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(c)
(d)
As referenced in this section, upon termination of the Employee’s employment with the Company, medical and
dental benefits will be available to the Employee, at his election, solely pursuant to the provisions of COBRA with
the Company paying the full cost of COBRA coverage for a period up to 18 months if employment is terminated for
any reason except an Employee resignation without Good Reason (as defined in Section 6) and a Company
discharge for Cause (as defined in Section 6). If the Employee is discharged for Cause or the Employee resigns
without Good Reason, the Employee will be required to remit the COBRA cost (102% of total benefit cost) of
coverage.
Upon termination of the Employee’s employment with the Company, apart from the Employee’s election under
COBRA to continue medical and dental benefits (as described in Section 5.1(c)), the Employee will cease to be
eligible for participation in the Company’s health and welfare insurance and any other fringe benefit programs that
pursuant to their contracts or Company policy require an active employee status.
5.2
Termination By The Company or at Election of the Employee (other than for Good Reason).
(a)
(b)
If the Employee elects to terminate his employment (other than for Good Reason) pursuant to Section 4.6, no
severance and/or benefits shall be paid, and the Employee shall be entitled only to receive payment of his earned
but unpaid salary, and accrued vacation, as of his last day of actual employment by the Company;
If the Company elects to terminate the Employee (other than for Cause) pursuant to Section 4.6, or, within sixty
(60) days prior to the expiration of this Agreement, the Company and Executive fail to agree to extend this
Agreement or otherwise reach a mutually acceptable agreement to continue Executive’s employment, the
Company shall pay to the Employee eighteen (18) months of his salary in effect on the Date of Termination in one-
lump sum amount following the Date of Termination (but in no event no later than March 15 of the year following
the year in which the Date of Termination occurs), plus medical and dental benefits (as described in Section
5.1(c));
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(c)
If the Company terminates the Employee for Cause pursuant to Section 4.2, no severance and/or benefits shall be
paid, and the Employee shall be entitled only to receive payment of his earned but unpaid salary, and accrued
vacation, as of the Date of Termination. Employee may elect COBRA medical and dental benefits, in which case
the Employee will be required to remit the COBRA cost (102% of total benefit cost) of coverage.
5.3
5.4
Termination By Employee Election For Good Reason. If the Employee terminates employment at his election for
Good Reason pursuant to Section 4.4, other than as provided for in Section 5.4, the Company shall pay to the Employee
eighteen (18) months of his salary in effect on the Date of Termination in one-lump sum amount following the Date of
Termination (but in no event no later than March 15 of the year following the year in which the Date of Termination
occurs), plus medical and dental benefits (as described in Section 5.1(c)).
Termination Following a Change In Control. If the Company terminates the employment relationship upon or following
a Change In Control pursuant to Section 4.5, or if the Employee terminates employment at his election for Good Reason
upon or following a Change in Control pursuant to Section 4.5:
(a)
(b)
The Company shall pay to the Employee his annual salary in effect at that time in a lump sum amount, calculated
at one and one-half (1.5) times such annual salary, within ten (10) business days following the Date of Termination
(but in no event no later than March 15 of the year following the year in which the Date of Termination occurs)
plus medical/dental care benefits (as described in Section 5.1(c)); and
For a six (6) month period after the Date of Termination, the Company shall reimburse the Employee for
reasonable fees and expenses actually incurred by him for the purpose of locating employment in an amount, not
to exceed $25,000, mutually agreed upon by and between the Employee and the Company, including the fees and
expenses of consultants and other persons retained by him for such purpose, promptly, within ten days, receipt by
the Company of satisfactory evidence of payment of such fees and
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expenses, but in no event no later than March 15 of the year following the year in which the expenses were
actually incurred.
5.5
Termination by Reason of the Employee’s Death or Disability. If, prior to the expiration of the Employment Period, the
Employee’s employment is terminated by the Employee’s death or Disability pursuant to Section 4.3, the Company shall
pay to the Employee, or in the case of the Employee’s death, to the estate of the Employee, eighteen (18) months of his
salary in effect on the Date of Termination in one-lump sum amount following the Date of Termination (but in no event no
later than March 15 of the year following the year in which the Date of Termination occurs), plus medical and dental
benefits (as described in Section 5.1(c)).
5.6
Withholding and Deductions, 409A.
(a)
(b)
(c)
All payments hereunder shall be subject to withholding and to such other deductions as shall at the time of such
payment be required pursuant to any income tax or other law, whether of the United States or any other
jurisdiction, and, in the case of payments to the executors or administrators to the Employee's estate, the delivery
to the Company of all necessary tax waivers and other documents.
In the event the Employee is required pursuant to Section 4999 of the Code to pay (through withholding or
otherwise) an excise tax on “excess parachute payments” (as defined in Section 280G(b) of the Code) made by
the Company pursuant to Section 5.4 of this Agreement, the Company shall pay the Employee within thirty (30)
days of the Change in Control, such additional amounts as are necessary to place the Employee in the same after
tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the
Code.
In the event the Employee is required to pay any federal, state or local income taxes as a result of the Company’s
payment of the Employee’s COBRA premiums under this Section 5, the Company shall pay the Employee not later
than the end of the year after the year in which the taxes are paid such additional amounts as are necessary to
place the
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Employee in the same after-tax financial position that he would have been in if he had not incurred any such tax
liability.
(d)
The payments and benefits provided for in Sections 5.2(b), 5.3, 5.4 and 5.5 of this Agreement constitute a short-
term deferral pursuant to Treas. Reg. § 1.409A-1(b)(4) and thus not “nonqualified deferred compensation” subject
to Section 409A. If the payments and benefits provided for in Sections 5.2(b), 5.3, 5.4 or 5.5 of this Agreement are
deemed to provide for the payment of non-qualified deferred compensation benefits in connection with a
separation of service under Section 409A(2)(a)(i) of the Code, the following interpretations apply to Sections 5.2(b),
5.3, 5.4 and 5.5: (i) Any termination of the Employee’s employment triggering payment of benefits under Sections
5.2(b), 5.3, 5.4 or 5.5 must constitute a “separation from service” under Section 409A(a)(2)(A)(i) of the Code and
Treas. Reg. §1.409A-1(h) before distribution of such benefits can commence. To the extent that the termination of
Employee’s employment does not constitute a separation of service under Section 409A(a)(2)(A)(i) of the Code
and Treas. Reg. §1.409A-1(h) (as the result of further services that are reasonably anticipated to be provided by
Employee to the Company at the time the Employee’s employment terminates, any benefits payable under
Sections 5.2(b), 5.3, 5.4 or 5.5 that constitute deferred compensation under Section 409A of the Code shall be
delayed until after the date of a subsequent event constituting a separation of service under Section 409A(a)(2)(A)
(i) of the Code and Treas. Reg. §1.409A-1(h). For purposes of clarification, this Section 5.6(d) shall not cause any
forfeiture of benefits on the Employee’s part, but shall only act as a delay until such time as a “separation from
service” occurs; (ii) If the Employee is a “specified employee” (as that term is used in Section 409A of the Code
and regulations and other guidance issued thereunder) on the date his separation from service becomes effective,
any benefits payable under Sections 5.2(b), 5.3, 5.4 or 5.5 that constitute non-qualified deferred compensation
under Section 409A of the Code shall be delayed until the earlier of (A) business day following the six
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
month anniversary of the date his separation from service becomes effective, and (B) the date of his death, but
only to the extent necessary to avoid such penalties under Section 409A of the Code. On the earlier of (A) the
business day following the six-month anniversary of the date his separation from service becomes effective, and
(B) the Employee’s death, the Company shall pay the Employee in a lump sum the aggregate value of the non-
qualified deferred compensation that the Company otherwise would have paid to the Employee prior to that date
under Sections 5.2(b), 5.3, 5.4 and 5.5 of this Agreement; (iii) It is intended that each installment of the payments
and benefits provided under Sections 5.2(b), 5.3, 5.4 and 5.5 of this Agreement shall be treated as a separate
“payment” for purposes of Section 409A of the Code; and (iv) Neither the Company nor the Employee shall have
the right to accelerate or defer the delivery of any such payments or benefits except to the extent specifically
permitted or required by Section 409A of the Code).
5.7
Release of Claims. The Employee’s entitlement to severance, payment of COBRA premiums, and accelerated vesting of
options and restricted stock units, is contingent upon the Employee’s execution of a general release of claims in a form
prepared by the Company and presented to the Employee upon termination of his employment hereunder, as well as the
Employee’s compliance with the provisions of Section 7 hereof.
5.8
No Requirement to Mitigate. The Employee shall not be required to mitigate the amount of any payment provided for in
this Section 5 by seeking other employment or otherwise.
6.0
Definitions. For purposes of this Agreement the following definitions apply:
6.1
“Cause” shall mean the occurrence of any of the following circumstances:
(a)
(i) the Employee’s material breach of, or habitual neglect or failure to perform the material duties which he is
required to perform under, the terms of this Agreement; (ii) the Employee’s material failure to follow the reasonable
directives or policies established by or at the direction of the Board; or (iii) the Employee’s engaging in conduct that
is materially detrimental to the interests of the Company such that the Company sustains a material loss or injury
as a result thereof, provided that the breach or failure of
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
6.2
6.3
6.4
performance by the Employee under subparagraphs (i) through (iii) hereof is not cured, to the extent cure is
possible, within ten (10) days of the delivery to the Employee of written notice thereof;
the willful breach by the Employee of Section 7 of this Agreement or any provision of any confidentiality, invention
and non-disclosure, non-competition or similar agreement between the Employee and the Company; or
the conviction of the Employee of, or the entry of a pleading of guilty or nolo contendere by the Employee to, any
crime involving moral turpitude or any felony.
(b)
(c)
“Date of Termination” shall mean the Employee’s last day of actual employment by the Company (or its successor) for
any reason including death or Disability.
“Disability” shall mean the inability of the Employee, by reason of illness, accident or other physical or mental disability,
for a period of 120 days, whether or not consecutive, during any 360-day period, to perform the services contemplated
under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and
the Company; provided, however, that if the Employee and the Company do not agree on a physician, the Employee and
the Company shall each select a physician and these two together shall select a third physician, whose determination as
to disability shall be binding on all parties.
“Good Reason” shall mean the occurrence of any of the following circumstances, and the Company’s failure to cure such
circumstances within thirty (30) days of the delivery to the Company of written notice by the Employee of such
circumstances:
(a)
(b)
any material adverse change in the Employee’s duties, authority or responsibilities as described in Section 2.1
hereof which causes the Employee’s position with the Company to become of significantly less responsibility or
assignment of duties and responsibilities inconsistent with the Employee’s position;
a material reduction in the Employee’s salary as in effect on the Commencement Date or as the same may be
increased from time to time;
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(c)
(d)
the failure of the Company to continue in effect any material compensation or benefit plan in which the Employee
participates as in effect on the Commencement Date, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue
the Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level of the Employee’s participation relative to
other participants, as in effect on the Commencement Date;
the failure by the Company to continue to provide the Employee with benefits substantially similar to those enjoyed
by the Employee under any of the Company’s health and welfare insurance, retirement and other fringe-benefit
plans insurance, which the Employee was participating as in effect on the Commencement Date, the taking of any
action by the Company which would directly or indirectly materially reduce any of such benefits, or the failure by
the Company to provide the Employee with the number of paid vacation days to which he is entitled in accordance
with the Company’s normal vacation policy in effect on the Commencement Date or in accordance with any
agreement between the Employee and the Company existing at that time; or
(e)
the relocation of the Employee to a location which is a material distance from Cranbury, New Jersey.
(f)
For purposes of this Agreement, “Good Reason” shall be interpreted in a manner, and limited to the extent
necessary, so that it will not cause adverse tax consequences for either party with respect to Section 409A, and
any successor statute, regulation and guidance thereto.
6.5
“Change in Control” shall mean the occurrence of any of the following events:
(a)
any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (other than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(b)
(c)
corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company) becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing more than 50% of the combined
voting power of the Company’s then outstanding securities;
the date the individuals who, during any twelve month period, constitute the Board (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board, provided that any person becoming a director during
the twelve month period whose election, or nomination for election by the Company’s stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board;
a merger or consolidation of the Company approved by the stockholders of the Company with any other
corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) 50% or more of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or
(ii) a merger or consolidation effected to implement a re-capitalization of the Company (or similar transaction) in
which no “person” (as defined in Section 6.4(a)) acquires more than 50% of the combined voting power of the
Company’s then outstanding securities; or
(d)
a sale of all or substantially all of the assets of the Company.
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7.0
Restrictive Covenants.
(a)
For the purposes of this Agreement:
(i)
(ii)
“Competing Products” means any products or processes of any person or organization other than the
Company in existence or under development, which are substantially the same, may be substituted for, or
applied to substantially the same end use as the products or processes that the Company is developing or
has developed or commercialized during the time of the Employee’s employment with the Company.
“Competing Organization” means any person or organization engaged in, or with definitive plans to
become engaged in, research or development, production, distribution, marketing or selling of a
Competing Product.
(b)
The Employee acknowledges that he has, on or prior to the date of the Agreement, executed and delivered to the
Company an Employee Agreement on Confidentiality, Intellectual Property, Debarment Certification and Conflict of
Interest (the “Confidentiality Agreement”) and the Employee hereby affirms and ratifies his obligations thereunder;
and the Employee agrees that after termination by the Company for Cause pursuant to Section 4.2 (except in the
case where such termination occurs within 12 months following a Change in Control), by the Employee pursuant
to Section 4.6, or by either party upon expiration of the Employment Period, he will not render services of any
nature, directly or indirectly, to any Competing Organization in connection with any Competing Product within any
geographical territory as the Company and such Competing Organization are or would be in actual competition, for
a period of eighteen (18) months, commencing on the Date of Termination.
(c)
The Employee agrees that he will not, during the Employment Period and for a period of nine (9) months
commencing on the Date of Termination, directly or indirectly employ, solicit for employment, or advise or
recommend to any other person that they employ or
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
solicit for employment, any person whom he knows to be an employee of the Company or any parent, subsidiary
or affiliate of the Company.
(d)
In the event a court of competent jurisdiction should find any provision in this Section 7 to be unfair or
unreasonable, such finding shall not render such provision unenforceable, but, rather, this provision shall be
modified as to subject matter, time and geographic area so as to render the entire section valid and enforceable.
8.0
9.0
10.0
11.0
12.0
13.0
Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon either: (a)
personal delivery; or (b) three (3) days following deposit with the United States Postal Service for delivery by registered or certified
mail, postage prepaid, or one (1) day following deposit with a reputable overnight courier service, addressed to the other party at
the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with
this Section 8.
Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
Entire Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this
Agreement.
Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the
Employee. Any such amendment shall comply with the requirements of Section 409A, if applicable.
Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of New Jersey, without
regard to its principles of conflict of laws.
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective
successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to
its assets or business; provided, however, that the obligations of the Employee are unique and personal and shall not be assigned
by him.
14.0 Waiver of Breach.
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14.1 Waiver by the Company. No delay or omission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. No waiver
by the Company shall be valid unless in writing signed by an authorized officer of the Company and approved by a
majority of the Board.
14.2 Waiver by the Employee. No delay or omission by the Employee in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Employee on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. No waiver
by the Employee shall be valid unless in a writing signed by the Employee.
15.0 Miscellaneous.
15.1
15.2
The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect
the scope or substance of any section of this Agreement.
In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or impaired thereby.
16.0
Survival. The provisions of Sections 3.3, 5, 6, 7 and 8 shall survive the termination of this Agreement.
17.0
18.0
Attorney’s Fees. The Company shall reimburse the Employee for all legal fees and expenses associated with the negotiation and
drafting of this Agreement, upon reasonable documentation thereof, up to a maximum of $5,000.
Timing of Reimbursements. All reimbursements made by the Company pursuant to this Agreement will be made within 30 days
from the date the Employee submits documentation of the expenses. Employee will submit documentation substantiating
expenses within 30 days from the date the expenses are incurred.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as an instrument under seal effective as of the day and year
set forth above.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
PALATIN TECHNOLOGIES, INC. EMPLOYEE
By:_____________________________ ________________________________
Name: Carl Spana
Stephen T. Wills
Title: Chief Executive Officer and President Executive V.P. of Operations and
Chief
Financial Officer
Date:____________________________ Date: ____________________________
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EX-10 6 ex10-25.htm
EXHIBIT 10.25
[GRAPHIC OMITTED]
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), effective as of this 1st day of July, 2010, is entered into by Palatin Technologies,
Inc., a Delaware corporation with its principal place of business at 4C Cedar Brook Drive, Cranbury, NJ, 08512 (the “Company”), and
Trevor Hallam (“Employee”).
The Company desires to continue employing the Employee, and the Employee desires to continue to be employed by the Company. In
consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties agree that the following terms of this Employment
Agreement shall supersede in all respects any prior agreements governing employment between the parties:
1.0
Term of Employment. The Company hereby agrees to continue employing the Employee, and the Employee hereby accepts the
continuation of employment with the Company, upon the terms set forth in this Agreement, for the period commencing on July 1,
2010 (the “Commencement Date”) and ending on June 30, 2013 unless sooner terminated in accordance with the provisions of
Section 4 (the “Employment Period”).
2.0
Position Title & Capacity.
2.1
The Employee shall serve as Executive Vice President of Research and Development, with responsibilities consistent with
this position and as the Company’s Chief Executive Officer (“CEO”) or its Board of Directors (the “Board”) may determine
from time to time, with powers and duties as may be determined, from time to time, by the CEO or the Board, consistent
with the Employee’s position as Executive Vice President of Research and Development. The Employee shall report to
the Company’s CEO. The Employee shall be based at the Company’s corporate headquarters, which is based in
Cranbury, New Jersey. The Employee shall also be available for
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
2.2
2.3
2.4
travel at such times and to such places as may be reasonably necessary in connection with the performance of his duties
hereunder.
The Employee may serve as an employee director on the Board as determined and approved by the Board during the
Employment Period and for no additional compensation; however, upon termination of employment for any reason, the
Employee will no longer serve as a member of the Company’s Board of Directors and will take any and all actions
necessary to effectuate such resignation as may be reasonably requested by the Company.
The Employee hereby accepts such employment and agrees to undertake the duties and responsibilities inherent in such
position and such other duties and responsibilities as the CEO and the Board shall from time to time reasonably assign to
him. The Employee agrees to devote substantially all of his business time, attention and energies to the business and
interests of the Company during the Employment Period. The Employee agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to
time by the Company. The Employee acknowledges receipt of copies of all such rules and policies committed to writing as
of the date of this Agreement.
The Employee specifically covenants, warrants and represents to the Company that he has the full, complete and entire
right and authority to enter into this Agreement, that he has no agreement, duty, commitment or responsibility of any kind
or nature whatsoever with any corporation, partnership, firm, company, joint venture or other entity or other person which
would conflict in any manner whatsoever with any of his duties, obligations or responsibilities to the Company pursuant to
this Agreement, that he is not in possession of any document or other tangible property of any corporation, partnership,
firm, company, joint venture or other entity or other person of a confidential or proprietary nature which would conflict in
any manner whatsoever with any of his duties, obligations or responsibilities to the Company pursuant to his Agreement,
and that he is fully ready, willing and able to perform each and all of his duties, obligations and responsibilities to the
Company pursuant to this Agreement.
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3.0
Compensation and Benefits. During the Employment Period, unless sooner terminated in accordance with the provisions of
Section 4, the Employee shall receive the following compensation and benefits:
3.1
3.2
3.3
Salary. The Company shall pay the Employee, in equal semi-monthly installments or otherwise in accordance with the
Company’s standard payroll policies as such policies may exist from time to time, an annual base salary of $321,000,
effective July 1, 2010. Such salary shall be subject to review, as determined by the Company’s Compensation Committee
and approved by the Board, on an annual basis, but the Board shall not decrease the Employee’s annual base salary at
any such annual review.
Cash Performance Bonus. The Employee will be included in the Company’s annual discretionary bonus compensation
program based on a June 30th year end in an amount to be decided by the Company’s Compensation Committee and
approved by the Board, payable no later than September 30th of each year during the Employment Period.
Stock Options. As additional compensation for services rendered, the Company has granted to the Employee the right
and option to purchase shares of the Company’s Common Stock and in the future may grant additional options to
purchase shares of the Company’s Common Stock to the Employee in accordance with the terms of the Company’s stock
plan then in effect. Notwithstanding any option certificate or agreement to the contrary, the following provisions apply to all
options granted to the Employee either prior to or after the Commencement Date:
(a)
All such options that are not vested as of the Date of Termination (as defined in Section 6) shall immediately vest
and become fully exercisable as of the Date of Termination, except in the case of termination: (i) for Cause (as
defined in Section 6) or (ii) at the election of the Employee pursuant to Section 4.6. Notwithstanding the foregoing
if upon a Change in Control as defined in Section 6.5 (c) or (d), any of the options are terminated in connection
with the Change in Control, then all such options that are not vested as of the date of the Change in Control shall
immediately vest and become fully exercisable immediately prior to the Change in Control; and
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(b)
All of such options that are vested as of the Date of Termination shall expire on the first to occur of: (i) 24 months
following the Employee’s retirement; (ii) 24 months following the Employee’s Date of Termination other than (A) for
Cause (as defined in Section 6), or (B) termination at the election of the Employee pursuant to Section 4.6; (iii) the
expiration date of the option as set forth in the applicable option certificate or agreement; or (iv) as otherwise
provided in the applicable option plan in the event of the dissolution or liquidation of the Company, or a merger,
reorganization or consolidation in which the Company is not the surviving corporation. For purposes of this
subsection, “retirement” requires that the Employee not render services of any nature for any entity as a regular
employee, and not render services of any nature for any entity for more than an average of twenty (20) hours per
week as a consultant or term employee.
Nothing in this Section 3.3 shall apply to or affect any equity award that is not either an incentive stock
option under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) or a non-
qualified stock option.
3.4
Restricted Stock Units. As additional compensation for services rendered, the Company has granted to the Employee
restricted stock units for the issuance of the Company’s Common Stock and in the future may grant additional restricted
stock units for the issuance of the Company’s Common Stock to the Employee in accordance with the terms of the
Company’s stock plan then in effect. Notwithstanding any restricted stock unit certificate or agreement to the contrary, the
following provisions apply to all restricted stock units granted to the Employee either prior to or after the Commencement
Date:
(a)
All such restricted stock units that are not vested as of the Date of Termination (as defined in Section 6) shall
immediately vest and shares of the Company’s Common Stock issuable upon vesting of such restricted stock units
shall be issued as of the Date of Termination, except in the case of termination: (i) for Cause (as defined in
Section 6) or (ii) at the election of the Employee pursuant to Section 4.6. Notwithstanding the
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foregoing if upon a Change in Control as defined in Section 6.5 (c) or (d), any of the restricted stock units are
terminated in connection with the Change in Control, then all such restricted stock units that are not vested as of
the date of the Change in Control shall vest as of the date of the Change in Control and the shares of Common
Stock to be issued pursuant to such restricted stock units shall be issued immediately prior to the Change in
Control; and
(b)
If and to the extent the Employee owes withholding taxes on account of vesting of any restricted stock unit, any
taxes due shall be paid, at the option of the Employee, through reducing the number of shares of Common Stock
actually issued to the Employee on the date of vesting of each such restricted stock unit in an amount equal to the
amount of the statutory minimum withholding tax due and payable by the Company. Fractional shares will not be
retained to satisfy any portion of the withholding tax. Accordingly, the Employee agrees that in the event that the
amount of withholding owed would result in a fraction of a share being issued, that amount will be satisfied by
deduction of the withholding amount in cash from the Employee’s compensation.
3.5.
3.6.
Fringe-Benefits. The Employee shall be entitled to participate in all benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that the Employee’s position, tenure, salary, age, health and other
qualifications make him eligible to participate. The Employee shall also be entitled to holidays and annual vacation leave
in accordance with the Company’s policy as it exists from time to time.
Reimbursement of Expenses. The Company shall reimburse the Employee for all reasonable travel, entertainment and
other expenses incurred or paid by the Employee in connection with, or related to, the performance of his duties,
responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense
statements, vouchers and/or such other supporting information as the Company may request, provided however, that the
amount available for such travel, entertainment and other expenses may be fixed in advance by the Board.
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3.7.
Insurance. The Employee will be covered under the Company’s Directors’ and Officers’ liability insurance to the same
extent the Company’s directors and other officers are covered.
4.0
Employment Termination. The employment of the Employee by the Company pursuant to this Agreement shall terminate upon
the occurrence of any of the following:
4.1
4.2
Expiration of the Employment Period in accordance with Section 1, unless the Company and Employee agree to extend
the Agreement term or otherwise continue Employee’s employment on mutually agreeable terms.
At the election of the Company, for Cause (as defined in Section 6), immediately upon written notice by the Company to
the Employee, which notice of termination shall have been approved by a majority of the Board.
4.3
Immediately upon the death or determination of Disability (as defined in Section 6) of the Employee.
4.4
4.5
At the election of the Employee, for Good Reason (as defined in Section 6), immediately upon written notice of not less
than sixty (60) days prior to termination by the Employee to the Company.
At the election of the Company upon or within twelve (12) months following a Change in Control (as defined in Section 6),
or at the election of the Employee for Good Reason (as defined in Section 6) upon or within twelve (12) months following a
Change in Control (as defined in Section 6), immediately upon written notice of termination.
4.6
At the election of either party, upon written notice of termination.
5.0
Effect of Termination.
5.1
Compensation & Benefits.
(a)
As referenced in this section, compensation following the Employee’s termination shall be in the form of
severance. Severance will be based on the employee’s base salary in effect as of the employee’s last day of
employment, and will be paid in one lump-sum amount.
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(b)
(c)
(d)
Severance is not considered compensation for purposes of employee and employer matching contributions under
the 401(k) plan.
As referenced in this section, upon termination of the Employee’s employment with the Company, medical and
dental benefits will be available to the Employee, at his election, solely pursuant to the provisions of COBRA with
the Company paying the full cost of COBRA coverage for a period up to 18 months if employment is terminated for
any reason except an Employee resignation without Good Reason (as defined in Section 6) and a Company
discharge for Cause (as defined in Section 6). If the Employee is discharged for Cause or the Employee resigns
without Good Reason, the Employee will be required to remit the COBRA cost (102% of total benefit cost) of
coverage.
Upon termination of the Employee’s employment with the Company, apart from the Employee’s election under
COBRA to continue medical and dental benefits (as described in Section 5.1(c)), the Employee will cease to be
eligible for participation in the Company’s health and welfare insurance and any other fringe benefit programs that
pursuant to their contracts or Company policy require an active employee status.
5.2
Termination By The Company or at Election of the Employee (other than for Good Reason).
(a)
(b)
If the Employee elects to terminate his employment (other than for Good Reason) pursuant to Section 4.6, no
severance and/or benefits shall be paid, and the Employee shall be entitled only to receive payment of his earned
but unpaid salary, and accrued vacation, as of his last day of actual employment by the Company;
If the Company elects to terminate the Employee (other than for Cause) pursuant to Section 4.6, or, within sixty
(60) days prior to the expiration of this Agreement, the Company and Executive fail to agree to extend this
Agreement or otherwise reach a mutually acceptable agreement to continue Executive’s employment, the
Company shall pay to the Employee eighteen (18) months of his salary in effect on the Date of Termination in one-
lump sum amount following the Date of Termination (but in no event
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no later than March 15 of the year following the year in which the Date of Termination occurs), plus medical and
dental benefits (as described in Section 5.1(c));
(c)
If the Company terminates the Employee for Cause pursuant to Section 4.2, no severance and/or benefits shall be
paid, and the Employee shall be entitled only to receive payment of his earned but unpaid salary, and accrued
vacation, as of the Date of Termination. Employee may elect COBRA medical and dental benefits, in which case
the Employee will be required to remit the COBRA cost (102% of total benefit cost) of coverage.
5.3
5.4
Termination By Employee Election For Good Reason. If the Employee terminates employment at his election for
Good Reason pursuant to Section 4.4, other than as provided for in Section 5.4, the Company shall pay to the Employee
eighteen (18) months of his salary in effect on the Date of Termination in one-lump sum amount following the Date of
Termination (but in no event no later than March 15 of the year following the year in which the Date of Termination
occurs), plus medical and dental benefits (as described in Section 5.1(c)).
Termination Following a Change In Control. If the Company terminates the employment relationship upon or following
a Change In Control pursuant to Section 4.5, or if the Employee terminates employment at his election for Good Reason
upon or following a Change in Control pursuant to Section 4.5:
(a)
(b)
The Company shall pay to the Employee his annual salary in effect at that time in a lump sum amount, calculated
at one and one-half (1.5) times such annual salary, within ten (10) business days following the Date of Termination
(but in no event no later than March 15 of the year following the year in which the Date of Termination occurs)
plus medical/dental care benefits (as described in Section 5.1(c)); and
For a six (6) month period after the Date of Termination, the Company shall reimburse the Employee for
reasonable fees and expenses actually incurred by him for the purpose of locating employment in an amount, not
to exceed $25,000, mutually agreed upon by and between the Employee and the Company, including the fees and
expenses of
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consultants and other persons retained by him for such purpose, promptly, within ten days, receipt by the
Company of satisfactory evidence of payment of such fees and expenses, but in no event no later than March 15
of the year following the year in which the expenses were actually incurred.
5.5
Termination by Reason of the Employee’s Death or Disability. If, prior to the expiration of the Employment Period, the
Employee’s employment is terminated by the Employee’s death or Disability pursuant to Section 4.3, the Company shall
pay to the Employee, or in the case of the Employee’s death, to the estate of the Employee, eighteen (18) months of his
salary in effect on the Date of Termination in one-lump sum amount following the Date of Termination (but in no event no
later than March 15 of the year following the year in which the Date of Termination occurs), plus medical and dental
benefits (as described in Section 5.1(c)).
5.6
Withholding and Deductions, 409A.
(a)
(b)
All payments hereunder shall be subject to withholding and to such other deductions as shall at the time of such
payment be required pursuant to any income tax or other law, whether of the United States or any other
jurisdiction, and, in the case of payments to the executors or administrators to the Employee's estate, the delivery
to the Company of all necessary tax waivers and other documents.
In the event the Employee is required pursuant to Section 4999 of the Code to pay (through withholding or
otherwise) an excise tax on “excess parachute payments” (as defined in Section 280G(b) of the Code) made by
the Company pursuant to Section 5.4 of this Agreement, the Company shall pay the Employee within thirty (30)
days of the Change in Control, such additional amounts as are necessary to place the Employee in the same after
tax financial position that he would have been in if he had not incurred any tax liability under Section 4999 of the
Code.
(c)
In the event the Employee is required to pay any federal, state or local income taxes as a result of the Company’s
payment of the Employee’s COBRA premiums under this
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Section 5, the Company shall pay the Employee not later than the end of the year after the year in which the taxes
are paid such additional amounts as are necessary to place the Employee in the same after-tax financial position
that he would have been in if he had not incurred any such tax liability.
(d)
The payments and benefits provided for in Sections 5.2(b), 5.3, 5.4 and 5.5 of this Agreement constitute a short-term
deferral pursuant to Treas. Reg. § 1.409A-1(b)(4) and thus not “nonqualified deferred compensation” subject to Section
409A. If the payments and benefits provided for in Sections 5.2(b), 5.3, 5.4 or 5.5 of this Agreement are deemed to
provide for the payment of non-qualified deferred compensation benefits in connection with a separation of service
under Section 409A(2)(a)(i) of the Code, the following interpretations apply to Sections 5.2(b), 5.3, 5.4 and 5.5: (i) Any
termination of the Employee’s employment triggering payment of benefits under Sections 5.2(b), 5.3, 5.4 or 5.5 must
constitute a “separation from service” under Section 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h) before
distribution of such benefits can commence. To the extent that the termination of Employee’s employment does not
constitute a separation of service under Section 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h) (as the
result of further services that are reasonably anticipated to be provided by Employee to the Company at the time the
Employee’s employment terminates, any benefits payable under Sections 5.2(b), 5.3, 5.4 or 5.5 that constitute
deferred compensation under Section 409A of the Code shall be delayed until after the date of a subsequent event
constituting a separation of service under Section 409A(a)(2)(A)(i) of the Code and Treas. Reg. §1.409A-1(h). For
purposes of clarification, this Section 5.6(d) shall not cause any forfeiture of benefits on the Employee’s part, but shall
only act as a delay until such time as a “separation from service” occurs; (ii) If the Employee is a “specified employee”
(as that term is used in Section 409A of the Code and regulations and other guidance issued thereunder) on the
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
date his separation from service becomes effective, any benefits payable under Sections 5.2(b), 5.3, 5.4 or 5.5 that
constitute non-qualified deferred compensation under Section 409A of the Code shall be delayed until the earlier of
(A) business day following the six-month anniversary of the date his separation from service becomes effective,
and (B) the date of his death, but only to the extent necessary to avoid such penalties under Section 409A of the
Code. On the earlier of (A) the business day following the six-month anniversary of the date his separation from
service becomes effective, and (B) the Employee’s death, the Company shall pay the Employee in a lump sum the
aggregate value of the non-qualified deferred compensation that the Company otherwise would have paid to the
Employee prior to that date under Sections 5.2(b), 5.3, 5.4 and 5.5 of this Agreement; (iii) It is intended that each
installment of the payments and benefits provided under Sections 5.2(b), 5.3, 5.4 and 5.5 of this Agreement shall
be treated as a separate “payment” for purposes of Section 409A of the Code; and (iv) Neither the Company nor
the Employee shall have the right to accelerate or defer the delivery of any such payments or benefits except to
the extent specifically permitted or required by Section 409A of the Code).
5.7
Release of Claims. The Employee’s entitlement to severance, payment of COBRA premiums, and accelerated vesting of
options and restricted stock units, is contingent upon the Employee’s execution of a general release of claims in a form
prepared by the Company and presented to the Employee upon termination of his employment hereunder, as well as the
Employee’s compliance with the provisions of Section 7 hereof.
5.8
No Requirement to Mitigate. The Employee shall not be required to mitigate the amount of any payment provided for in
this Section 5 by seeking other employment or otherwise.
6.0
Definitions. For purposes of this Agreement the following definitions apply:
6.1
“Cause” shall mean the occurrence of any of the following circumstances:
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(a)
6.2
6.3
6.4
(i) the Employee’s material breach of, or habitual neglect or failure to perform the material duties which he is required to
perform under, the terms of this Agreement; (ii) the Employee’s material failure to follow the reasonable directives or
policies established by or at the direction of the Board; or (iii) the Employee’s engaging in conduct that is materially
detrimental to the interests of the Company such that the Company sustains a material loss or injury as a result thereof,
provided that the breach or failure of performance by the Employee under subparagraphs (i) through (iii) hereof is not
cured, to the extent cure is possible, within ten (10) days of the delivery to the Employee of written notice thereof;
(b)
(c)
the willful breach by the Employee of Section 7 of this Agreement or any provision of any confidentiality, invention
and non-disclosure, non-competition or similar agreement between the Employee and the Company; or
the conviction of the Employee of, or the entry of a pleading of guilty or nolo contendere by the Employee to, any
crime involving moral turpitude or any felony.
“Date of Termination” shall mean the Employee’s last day of actual employment by the Company (or its successor) for
any reason including death or Disability.
“Disability” shall mean the inability of the Employee, by reason of illness, accident or other physical or mental disability,
for a period of 120 days, whether or not consecutive, during any 360-day period, to perform the services contemplated
under this Agreement. A determination of disability shall be made by a physician satisfactory to both the Employee and
the Company; provided, however, that if the Employee and the Company do not agree on a physician, the Employee and
the Company shall each select a physician and these two together shall select a third physician, whose determination as
to disability shall be binding on all parties.
“Good Reason” shall mean the occurrence of any of the following circumstances, and the Company’s failure to cure such
circumstances within thirty (30) days of the delivery to the Company of written notice by the Employee of such
circumstances:
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(a)
(b)
(c)
(d)
any material adverse change in the Employee’s duties, authority or responsibilities as described in Section 2.1
hereof which causes the Employee’s position with the Company to become of significantly less responsibility or
assignment of duties and responsibilities inconsistent with the Employee’s position;
a material reduction in the Employee’s salary as in effect on the Commencement Date or as the same may be
increased from time to time;
the failure of the Company to continue in effect any material compensation or benefit plan in which the Employee
participates as in effect on the Commencement Date, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue
the Employee’s participation therein (or in such substitute or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided and the level of the Employee’s participation relative to
other participants, as in effect on the Commencement Date;
the failure by the Company to continue to provide the Employee with benefits substantially similar to those enjoyed
by the Employee under any of the Company’s health and welfare insurance, retirement and other fringe-benefit
plans insurance, which the Employee was participating as in effect on the Commencement Date, the taking of any
action by the Company which would directly or indirectly materially reduce any of such benefits, or the failure by
the Company to provide the Employee with the number of paid vacation days to which he is entitled in accordance
with the Company’s normal vacation policy in effect on the Commencement Date or in accordance with any
agreement between the Employee and the Company existing at that time; or
(e)
the relocation of the Employee to a location which is a material distance from Cranbury, New Jersey.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
(f)
For purposes of this Agreement, “Good Reason” shall be interpreted in a manner, and limited to the extent
necessary, so that it will not cause adverse tax consequences for either party with respect to Section 409A, and
any successor statute, regulation and guidance thereto.
6.5
“Change in Control” shall mean the occurrence of any of the following events:
(a)
(b)
any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) (other than the Company, any trustee or other fiduciary holding securities under an
employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportion as their ownership of stock of the Company) becomes the
“beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power of the Company’s then outstanding
securities;
the date the individuals who, during any twelve month period, constitute the Board (the “Incumbent Board”) cease
for any reason to constitute at least a majority of the Board, provided that any person becoming a director during
the twelve month period whose election, or nomination for election by the Company’s stockholders, was approved
by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection with an actual or threatened election
contest relating to the election of the directors of the Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Exchange Act) shall be, for purposes of this Agreement, considered as though such
person were a member of the Incumbent Board;
(c)
a merger or consolidation of the Company approved by the stockholders of the Company with any other
corporation, other than (i) a merger or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) 50%
or more of the combined voting power of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (ii) a merger or consolidation effected to implement a re-
capitalization of the Company (or similar transaction) in which no “person” (as defined in Section 6.4(a)) acquires
more than 50% of the combined voting power of the Company’s then outstanding securities; or
(d)
a sale of all or substantially all of the assets of the Company.
7.0
Restrictive Covenants.
(a)
For the purposes of this Agreement:
(i)
(ii)
“Competing Products” means any products or processes of any person or organization other than the
Company in existence or under development, which are substantially the same, may be substituted for, or
applied to substantially the same end use as the products or processes that the Company is developing or
has developed or commercialized during the time of the Employee’s employment with the Company.
“Competing Organization” means any person or organization engaged in, or with definitive plans to
become engaged in, research or development, production, distribution, marketing or selling of a
Competing Product.
(b)
The Employee acknowledges that he has, on or prior to the date of the Agreement, executed and delivered to the
Company an Employee Agreement on Confidentiality, Intellectual Property, Debarment Certification and Conflict of
Interest (the “Confidentiality Agreement”) and the Employee hereby affirms and ratifies his obligations thereunder;
and the Employee agrees that after termination by the Company for Cause pursuant to Section 4.2 (except in the
case where such termination occurs within 12 months following a Change in Control), by the Employee pursuant
to Section
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
4.6, or by either party upon expiration of the Employment Period, he will not render services of any nature, directly
or indirectly, to any Competing Organization in connection with any Competing Product within any geographical
territory as the Company and such Competing Organization are or would be in actual competition, for a period of
eighteen (18) months, commencing on the Date of Termination.
(c)
(d)
The Employee agrees that he will not, during the Employment Period and for a period of nine (9) months
commencing on the Date of Termination, directly or indirectly employ, solicit for employment, or advise or
recommend to any other person that they employ or solicit for employment, any person whom he knows to be an
employee of the Company or any parent, subsidiary or affiliate of the Company.
In the event a court of competent jurisdiction should find any provision in this Section 7 to be unfair or
unreasonable, such finding shall not render such provision unenforceable, but, rather, this provision shall be
modified as to subject matter, time and geographic area so as to render the entire section valid and enforceable.
8.0
9.0
10.0
Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon either: (a)
personal delivery; or (b) three (3) days following deposit with the United States Postal Service for delivery by registered or certified
mail, postage prepaid, or one (1) day following deposit with a reputable overnight courier service, addressed to the other party at
the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with
this Section 8.
Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa.
Entire Agreement. This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between the
parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this
Agreement.
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
11.0
12.0
13.0
Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the
Employee. Any such amendment shall comply with the requirements of Section 409A, if applicable.
Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of New Jersey, without
regard to its principles of conflict of laws.
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective
successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to
its assets or business; provided, however, that the obligations of the Employee are unique and personal and shall not be assigned
by him.
14.0 Waiver of Breach.
14.1 Waiver by the Company. No delay or omission by the Company in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. No waiver
by the Company shall be valid unless in writing signed by an authorized officer of the Company and approved by a
majority of the Board.
14.2 Waiver by the Employee. No delay or omission by the Employee in exercising any right under this Agreement shall
operate as a waiver of that or any other right. A waiver or consent given by the Employee on any one occasion shall be
effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. No waiver
by the Employee shall be valid unless in a writing signed by the Employee.
15.0 Miscellaneous.
15.1
The captions of the sections of this Agreement are for convenience of reference only and in no way define, limit or affect
the scope or substance of any section of this Agreement.
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15.2
In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be affected or impaired thereby.
16.0
Survival. The provisions of Sections 3.3, 5, 6, 7 and 8 shall survive the termination of this Agreement.
17.0
18.0
Attorney’s Fees. The Company shall reimburse the Employee for all legal fees and expenses associated with the negotiation and
drafting of this Agreement, upon reasonable documentation thereof, up to a maximum of $5,000.
Timing of Reimbursements. All reimbursements made by the Company pursuant to this Agreement will be made within 30 days
from the date the Employee submits documentation of the expenses. Employee will submit documentation substantiating
expenses within 30 days from the date the expenses are incurred.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as an instrument under seal effective as of the day and year
set forth above.
PALATIN TECHNOLOGIES, INC. EMPLOYEE
By:_____________________________ ________________________________
Name: Carl Spana
Trevor Hallam
Title: Chief Executive Officer and President Executive Vice President Research
and Development
Date:____________________________ Date: ____________________________
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EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-21 7 ex21.htm
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Name of subsidiary
RhoMed Incorporated
State of
Incorporation
New Mexico
Name Under Which
Subsidiary Does Business
RhoMed Incorporated
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-23 8 ex23.htm EXHIBIT 23
The Board of Directors
Palatin Technologies:
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the registration statements on Form S-3 (Nos. 333-33569, 333-56605, 333-64951, 333-
72873, 333-84421, 333-52024, 333-54918, 333-74990, 333-100469, 333-101764, 333-104370, 333-112908, 333-128585, 333-132369,
333-140648, and 333-146392) and registration statements on Form S-8 (Nos. 333-57079, 333-83876, 333-128854, 333-149093, and 333-
163158) of Palatin Technologies, Inc. of our report dated September 27, 2010, with respect to the consolidated balance sheets of Palatin
Technologies, Inc. and subsidiary as of June 30, 2010 and 2009, and the related consolidated statements of operations, stockholders’
equity and comprehensive loss and cash flows for each of the years in the three-year period ended June 30, 2010, which report appears in
the June 30, 2010 annual report on Form 10-K of Palatin Technologies, Inc.
Our report dated September 27, 2010 contains an explanatory paragraph that states that the Company has incurred recurring net losses
and negative cash flows from operations and will require substantial additional financing to continue to fund its planned development
activities. These conditions raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements
do not include any adjustments that might result from the outcome of that uncertainty.
/s/ KPMG LLP
Philadelphia, Pennsylvania
September 27, 2010
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-31 9 ex31-1.htm
I, Carl Spana, certify that:
EXHIBIT 31.1
Certification of Chief Executive Officer
1. I have reviewed this Annual Report on Form 10-K of Palatin Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 27, 2010
/ s/ Carl Spana
Carl Spana, President and Chief Executive Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-31 10 ex31-2.htm
I, Stephen T. Wills, certify that:
EXHIBIT 31.2
Certification of Chief Financial Officer
1. I have reviewed this Annual Report on Form 10-K of Palatin Technologies, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiary, is
made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 27, 2010
/s/ Stephen T. Wills
Stephen T. Wills, Executive Vice President and
Chief Financial Officer
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-32 11 ex32-1.htm
EXHIBIT 32.1
Certification of Principal Executive Officer
Pursuant to U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Carl Spana, President and Chief Executive Officer of Palatin Technologies, Inc., hereby certify, to my knowledge, that the Annual Report
on Form 10-K for the year ended June 30, 2010 of Palatin Technologies, Inc. (the “Form 10-K”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly presents, in all material
respects, the financial condition and results of operations of Palatin Technologies, Inc.
Dated: September 27, 2010
/ s/ Carl Spana
Carl Spana, President and Chief Executive Officer
(Principal Executive Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.
EX-32 12 ex32-2.htm
EXHIBIT 32.2
Certification of Principal Financial Officer
Pursuant to U.S.C. Section 1350
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Stephen T. Wills, Executive Vice President and Chief Financial Officer of Palatin Technologies, Inc., hereby certify, to my knowledge, that
the Annual Report on Form 10-K for the year ended June 30, 2010 of Palatin Technologies, Inc. (the “Form 10-K”) fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and the information contained in the Form 10-K fairly
presents, in all material respects, the financial condition and results of operations of Palatin Technologies, Inc.
Dated: September 27, 2010
/s/ Stephen T. Wills
Stephen T. Wills, Executive Vice President and
Chief Financial Officer (Principal Financial Officer)
EDGAR Stream is a copyright of Issuer Direct Corporation, all rights reserved.