Palatin Technologies Inc PRE 14A, filed Apr 30, 2020
Palatin Technologies Inc (PTN)
PRE 14A
2020-04-30
For: 2020-06-25
View Original
Added on
October 21, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant ☒
Filed by a Party other than the Registrant
☐
Check the appropriate box:
☒ Preliminary Proxy
Statement
☐ Confidential, For
Use of the Commission Only (As Permitted by Rule
14a-6(e)(2))
☐ Definitive Proxy
Statement
☐ Definitive
Additional Materials
☐ Soliciting
Material under Rule 14a-12
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Palatin Technologies, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
☒ No fee
required
☐ Fee computed on
table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which
transaction applies:
(2) Aggregate number of securities to which transaction
applies:
(3) Per unit price or other underlying
value of transaction computed pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it was determined):
(4) Proposed maximum aggregate value of
transaction:
(5) Total fee paid:
☐ Fee paid
previously with preliminary materials.
☐
Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the form or schedule and the date
of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement
No.:
(3) Filing Party:
(4) Date Filed:
PRELIMINARY COPY – SUBJECT TO COMPLETION
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date
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Thursday, June 25,
2020
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time
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9:00
a.m., Eastern Daylight Time
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place
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The
annual meeting will be a completely “virtual” meeting
of stockholders. You will be able to listen and participate in the
virtual annual meeting as well as vote and submit your questions
during the live webcast of the meeting by visiting
http://www.virtualshareholdermeeting.com/PTN2020 and entering the
16‐digit control number included in your Notice Regarding the
Availability of Proxy Materials, on your proxy card or in the
instructions that accompanied your proxy materials.
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record date
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April
29, 2020
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items of business
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(1)
election of eight directors nominated by our board of
directors;
(2)
ratification of appointment of our independent registered public
accounting firm for the fiscal year ending June 30,
2020;
(3)
approval of an amendment to our 2011 Stock Incentive Plan, as
amended and restated, to increase the number of shares available
for equity awards by 10,000,000 shares;
(4)
approval of an amendment to our Certificate of Incorporation to
effect an increase in authorized common stock from 300,000,000
shares to 500,000,000 shares;
(5)
approval, on an advisory, non-binding basis, of the compensation of
our named executive officers (“say-on-pay”);
and
(6)
transact such other business as may properly come before the
virtual annual meeting or any postponement or adjournment
thereof.
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stockholder list
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A list
of all stockholders entitled to vote at the meeting will be
available for examination by any stockholder, for any purpose
germane to the meeting, during ordinary business hours for 10 days
before the meeting, at our offices, Cedar Brook Corporate Center,
4B Cedar Brook Drive, Cranbury, New Jersey 08512. During the
virtual annual meeting, such list will be available for examination
at [ ∙ ].
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By
order of the board of directors,
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Stephen T. Wills, Secretary
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May [
∙ ], 2020
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The
approximate date of mailing of the Notice Regarding the
Availability of Proxy Materials to our stockholders is May [
∙ ], 2020, and this proxy statement, proxy card and annual
report, including our annual report on Form 10-K for the fiscal
year ended June 30, 2019, will be available to our stockholders on
www.proxyvote.com on that same date. On or about that date, we will
also begin mailing paper copies of our proxy materials to our
registered holders and to our beneficial holders who request paper
copies.
Important Notice Regarding the Availability of Proxy Materials for
the Stockholder Meeting to Be Held on June 25, 2020: The proxy
statement, proxy card and annual report to security holders,
including our annual report on Form 10-K for the fiscal year ended
June 30, 2019, are available at www.proxyvote.com.
PALATIN TECHNOLOGIES, INC.
2020 ANNUAL MEETING
Table of Contents
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NOTICE
OF VIRTUAL ANNUAL MEETING OF STOCKHOLDERS
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1
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VOTING
PROCEDURES AND SOLICITATION
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3
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ITEM
ONE: ELECTION OF DIRECTORS
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10
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THE
NOMINEES
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10
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ITEM
TWO: RATIFICATION OF APPOINTMENT OF KPMG LLP AS OUR INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
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21
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REPORT
OF THE AUDIT COMMITTEE
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22
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ITEM
THREE: APPROVAL OF AN INCREASE IN COMMON STOCK AVAILABLE FOR
ISSUANCE UNDER OUR 2011 STOCK INCENTIVE PLAN
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24
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ITEM
FOUR: APPROVAL OF AN AMENDMENT TO OUR RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
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36
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ITEM
FIVE: ADVISORY APPROVAL OF THE COMPENSATION OF OUR NAMED EXECUTIVE
OFFICERS
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38
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EXECUTIVE
COMPENSATION
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39
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EXECUTIVE
OFFICERS
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45
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STOCK
OWNERSHIP INFORMATION
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54
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BENEFICIAL
OWNERSHIP OF MANAGEMENT AND OTHERS
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54
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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58
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OTHER
ITEMS OF BUSINESS
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58
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STOCKHOLDER
PROPOSALS FOR NEXT ANNUAL MEETING
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58
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2
4B Cedar Brook Drive
Cranbury, New Jersey 08512
(609) 495-2200
PROXY STATEMENT FOR THE VIRTUAL ANNUAL MEETING OF
STOCKHOLDERS
TO BE HELD ON JUNE 25, 2020
VOTING PROCEDURES AND SOLICITATION
Important Notice Regarding the Availability of Proxy
Materials
for the Stockholder Meeting to Be Held on June 25,
2020:
The proxy statement, proxy card and annual report to security
holders, including our annual report on Form 10-K for the fiscal
year ended June 30, 2019, are available at
www.proxyvote.com.
YOUR VOTE IS IMPORTANT
Whether
or not you plan to attend the virtual meeting, please act as soon
as possible to vote your shares. Your prompt voting may save us the
expense of following up with a second mailing. Beginning on or
about May [ ∙ ], 2020, we are sending proxy materials to
stockholders of record at the close of business on April 29, 2020.
If your shares are registered directly in your name with our
transfer agent, American Stock Transfer & Trust Company, LLC,
you are considered, with respect to those shares, the
“stockholder of record.” We are sending a Notice
Regarding the Availability of Proxy Materials (the
“Notice”) to beneficial owners of our stock beginning
on or about May [ ∙ ], 2020. If your shares are held in a
stock brokerage account or by a bank or other holder of record (a
“brokerage firm”), you are considered the
“beneficial owner” of the shares held in street name.
Beneficial owners may view proxy materials online and may also
request and receive a paper or e-mail copy of the proxy materials
by following the instructions provided in the Notice.
3
GENERAL INFORMATION
Why
am I receiving these materials? The
Board of Directors of Palatin Technologies, Inc., or the board, has
made these materials available to you over the Internet, or has
delivered printed versions of these materials to you by mail, in
connection with the board’s solicitation of proxies for use
at the virtual-only 2020 annual meeting of stockholders, or the virtual
annual meeting. for use at the virtual-only 2020 annual meeting of
stockholders, or the virtual annual meeting. The virtual annual
meeting is scheduled to be held on Thursday, June 25, 2020, at 9:00
a.m., Eastern Daylight Time, via live webcast through the website
link below. You will need the 16‐digit control number
provided on the Notice Regarding the Availability of Proxy
Materials, your proxy card (if applicable) or your proxy materials.
This solicitation is for proxies for use at the virtual annual
meeting or at any reconvened meeting after an adjournment or
postponement of the virtual annual meeting.
How
can I vote my shares and participate in the virtual annual
meeting? This year’s
virtual annual meeting will be held entirely online and you will
not be able to attend the meeting in person. This will allow
greater participation, particularly because we do not know whether,
in light of ongoing public health concerns surrounding COVID-19, an
in-person meeting would be permissible or advisable. Shareholders
may participate in the virtual annual meeting by visiting the
following website:
http://www.virtualshareholdermeeting.com/PTN2020. To participate in
the virtual annual meeting, you will need the 16‐digit
control number included on your Notice, on your proxy card or on
the instructions that accompanied your proxy materials. Shares held
in your name as the shareholder of record may be voted
electronically during the virtual annual meeting. Shares for which
you are the beneficial owner but not the shareholder of record also
may be voted electronically during the virtual annual meeting.
However, even if you plan to participate in the virtual annual
meeting, we recommend that you vote your shares in advance, so that
your vote will be counted if you later decide not to participate in
the virtual annual meeting.
How
can I vote my shares without participating in the virtual annual
meeting? To vote your shares
without participating in the meeting, please follow the
instructions for Internet or telephone voting on the Notice. If you
request printed copies of the proxy materials by mail, you may also
vote by signing and submitting your proxy card and returning it by
mail, if you are the stockholder of record, or by signing the voter
instruction form provided by your bank or broker and returning it
by mail, if you are the beneficial owner but not the stockholder of
record. This way your shares will be represented whether or not you
are able to participate in the meeting.
What
will I need in order to participate in the virtual annual
meeting? You are entitled to
participate in the virtual annual meeting only if you were a
stockholder of record as of the record date for the virtual annual
meeting, or April 29, 2020 (the “Record Date”), or you
hold a valid proxy for the virtual annual meeting. You may
participate in the virtual annual meeting, vote, and submit a
question during the virtual annual meeting by visiting
http://www.virtualshareholdermeeting.com/PTN2020 and using your
16‐digit control number to enter the meeting. If you are not
a stockholder of record but hold shares as a beneficial owner in
street name, you may use your 16‐digit control number to
enter the meeting. If you do not use your 16-digit control number,
you may be required to provide proof of beneficial ownership, such
as your most recent account statement as of the Record Date, a copy
of the voting instruction form provided by your broker, bank,
trustee, or nominee, or other similar evidence of ownership. If you
do not comply with the procedures outlined above, you will not be
admitted to the virtual annual meeting.
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METHODS OF VOTING
If you
are a beneficial owner, you may be eligible to vote your shares
electronically over the Internet or by telephone. Many brokerage
firms participate in the Broadridge Investor Communications
Services online program. This program provides eligible
stockholders that hold shares in street name the opportunity to
vote via the Internet or by telephone. Whether or not your
brokerage firm is participating in Broadridge’s program, your
proxy materials will contain voting instructions. If you are a
stockholder of record or if you are a beneficial owner whose
brokerage firm participates in Broadridge’s program, there
are three ways to vote before the meeting:
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By Internet – www.proxyvote.com.
If you have Internet access, you may transmit your voting
instructions up until 11:59 p.m., Eastern Daylight Time, the day
before the meeting date, that is, June 24, 2020. Go to
www.proxyvote.com. You must have your proxy card or Notice in hand
when you access the web site and follow the instructions to obtain
your records and to create an electronic voting instruction
form.
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By telephone – 1-800-690-6903. You
may vote using any touch-tone telephone to transmit your voting
instructions up until 11:59 p.m., Eastern Daylight Time, the day
before the meeting date, that is, June 24, 2020. Call
1-800-690-6903 toll free. You must have your proxy card or Notice
in hand when you call this number and then follow the
instructions.
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By mail – Mark, sign and date your
proxy card and return it in the postage-paid envelope we have
provided. If you did not receive a proxy copy, you may request
proxy materials, including a proxy card, by following the
instructions in the Notice.
If you
voted by Internet or telephone or sent in a proxy card and also
participating in the virtual annual meeting, the proxy holders will
vote your shares as you previously instructed unless you inform the
Secretary during the meeting that you wish to vote your shares
electronically at the virtual annual meeting.
REVOKING OR CHANGING A PROXY
You may
revoke your proxy or change your vote by
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voting again by
proxy over the Internet or by telephone until 11:59 p.m. on June
24, 2020 (only your last Internet or telephone vote will be
counted);
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signing and
returning another proxy card on a later date;
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sending written
notice of revocation or change to the Secretary at our offices, 4B
Cedar Brook Drive, Cranbury, New Jersey 08512; or
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informing the
Secretary and voting your shares electronically at the virtual
annual meeting.
To be
effective, a later-dated proxy or written revocation or change must
arrive at our corporate offices before the start of the
meeting.
If you
are a beneficial owner, you may submit new voting instructions by
following the instructions from the brokerage firm that holds your
shares, or by obtaining a legal proxy from the brokerage firm that
holds your shares giving you the right to vote the shares. You may
vote your shares electronically at the virtual annual meeting only
if you are the stockholder of record or if you are a beneficial
owner and have obtained a legal proxy from the brokerage firm that
holds your shares.
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PROXY SOLICITATION
We are
soliciting proxies on behalf of the board, and we will pay all
costs of preparing, printing and mailing the proxy materials. In
addition to mailing proxy materials, our officers and employees may
solicit proxies by telephone, fax, e-mail or Internet, without
receiving any additional compensation for their services. We have
requested brokers, banks and other fiduciaries to forward proxy
materials to the beneficial owners of our stock and will pay for
their reasonable expenses in forwarding proxy materials to such
beneficial owners. We have engaged Alliance Advisors, LLC to assist
in the solicitation of proxies and provide related advice and
informational support for a service fee and the reimbursement of
customary disbursements that are not expected to exceed $20,000 in
the aggregate.
Proxies
and ballots will be received and tabulated by Broadridge Financial
Solutions, Inc. (“Broadridge”), and Broadridge or its
designee will serve as our Inspector of Election.
HOW PROXIES ARE VOTED
The
proxy holders are Carl Spana, Ph.D., our chief executive officer,
president and a director, and Stephen T. Wills, our chief financial
officer, chief operating officer, executive vice president,
secretary and treasurer. The proxy holders will vote your shares
according to your instructions on the proxy card or your Internet
or telephone instructions. If a signed proxy card does not contain
instructions, the proxy holders will vote the shares FOR the
election of the director nominees listed on the card; FOR ratifying
the appointment of KPMG LLP as our independent registered public
accounting firm for the fiscal year ending June 30, 2020; FOR
approval of an amendment to our 2011 Stock Incentive Plan to
increase the number of shares available for equity awards by
10,000,000 shares; FOR an amendment to our Certificate of
Incorporation to increase authorized common stock from 300,000,000
shares to 500,000,000 shares; and FOR approval of the compensation
of our named executive officers.
VOTING RIGHTS, SHARES OUTSTANDING AND VOTES PER SHARE
Holders
of common stock and of Series A preferred stock at the close of
business on the Record Date of April 29, 2020 are entitled to vote
at the meeting:
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Common stock:
229,258,400 shares outstanding, one vote per share;
and
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Series A preferred
stock: 4,030 shares outstanding with approximately 16 votes per
share, a total of 66,059 votes.
There
are no rights of appraisal or similar rights of dissenters with
respect to the items of business at this meeting.
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QUORUM AND VOTES REQUIRED
A
majority of the votes of shares of common stock and Series A
preferred stock, collectively outstanding on April 29, 2020, the
Record Date, with the Series A preferred stock counted on an as if
converted to common stock basis, represented virtually at the
meeting or by proxy, constitutes a quorum. Abstentions and broker
non-votes will count towards the quorum. If your shares are held in
street name and you do not provide voting instructions to the
brokerage firm that holds your shares, the brokerage firm can, in
its discretion, vote your unvoted shares on matters on which it is
permitted to exercise authority (“routine” matters). A
broker non-vote occurs when a broker, bank or other holder of
record holding shares for a beneficial owner does not vote on a
particular proposal because it does not have discretionary voting
power for that particular item, or chooses not to vote, and has not
received instructions from the beneficial owner. Common stock and
Series A preferred stock will vote together as one class on the
items of business listed on the proxy card. The votes required are
as follows:
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Item One: Directors are elected
by a plurality of votes cast, so the eight nominees receiving the
most votes will be elected. Stockholders who do not wish to vote
for one or more of the individual nominees may withhold their
authority to vote in the manner provided on the proxy card or
Internet or telephone voting systems. Brokerage firms do not have
authority to vote customers’ unvoted shares held by firms in
street name for the election of directors. As a result, any shares
not voted by a beneficial owner will be treated as a broker
non-vote. Such broker non-votes or abstentions will have no effect
on the results of this vote.
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Item Two: Ratifying the
appointment of our independent registered public accounting firm
for the fiscal year ending June 30, 2020 requires a majority of the
votes cast on that item. Brokerage firms have authority to
discretionarily vote customers’ unvoted shares held in street
name on this proposal. Abstentions and broker non-votes will count
neither for nor against the proposal.
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Item Three: Approval of an
increase in common stock available for issuance under our 2011
Stock Incentive Plan by 10,000,000 shares requires a majority of
the votes represented at the virtual meeting on that item. Broker
non-votes will count neither for nor against ratification, while
abstentions, under the rules of the principal exchange on which our
common stock is listed, the NYSE American LLC (the “NYSE
American”), will be considered as votes cast on the item, and
therefore count against the proposal.
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Item Four: Approval of the
amendment of our restated Certificate of Incorporation to effect an
increase in the number of shares of authorized common stock
requires a majority of all outstanding stock, consisting of common
stock and Series A preferred stock on an as if converted to common
stock basis, entitled to vote at the meeting, and a majority of
outstanding common stock voting as a class. If brokerage firms do
not vote customers’ unvoted shares held by firms in street
name on this proposal, then any shares not voted by a beneficial
owner will be treated as broker non-votes. Abstentions and broker
non-votes will count against the proposal.
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Item Five: Advisory approval of
say-on-pay for named executive officers (yes or no) will be
determined based on which of the two choices receives the most
votes. Abstentions and broker non-votes will count neither for nor
against the proposal.
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WHAT IS THE EFFECT OF NOT CASTING YOUR VOTE?
If you
hold your shares in street name, it is critical that you cast your
vote if you want to be counted for the election of directors in
Item One. Your brokerage firm will not have discretionary authority
to vote for election of directors in Item One. If you hold your
shares in street name and you do not provide instructions on how to
vote for election of directors, no votes may be cast for election
of directors on your behalf.
Your
brokerage firm cannot vote your uninstructed shares in their
discretion on any other matter unless it is considered
“routine.” Item Two, ratifying the appointment of our
independent registered public accounting firm, is a routine
proposal, and your brokerage firm will have discretionary authority
to vote on Item Two. If you hold your shares in street name and you
do not instruct your brokerage firm how to vote, your brokerage
firm may vote for Item Two.
We
believe that Item Three, an increase in common stock available for
issuance under our 2011 Stock Plan, and Item Five, advisory
approval on say-on-pay for our named executive officers, will not
be considered routine. Your brokerage firm will not have
discretionary authority to vote on Items Three or Five. If you hold
your shares in street name and you do not provide instructions on
how to vote, then no vote will be cast on these items on your
behalf.
We
believe that Item Four, amendment of our restated Certificate of
Incorporation to effect an increase in the number of shares of
authorized common stock, will be considered a routine proposal. If
it is considered a routine proposal, your brokerage firm will have
discretionary authority to vote on Item Four. If you hold your
shares in street name and you do not instruct your brokerage firm
how to vote, your brokerage firm may vote for Item
Four. However,
we understand that certain brokerage firms have elected not to vote
even on “routine” matters such as the amendment of our
restated Certificate of Incorporation without your voting
instructions. Accordingly, we urge you to provide instructions to
your bank, brokerage firm, or other nominee by voting your proxy to
ensure that your shares will be voted in accordance with your
wishes at the special meeting.
If you
are a stockholder of record and you do not cast your vote, no votes
will be cast on your behalf on any of the items of business at the
virtual annual meeting.
IS VOTING CONFIDENTIAL?
We will
keep all the proxies, ballots and voting tabulations private. We
only let Broadridge examine these documents. Management will not
know how you voted on a specific proposal unless it is necessary to
meet legal requirements. Broadridge will, however, forward to
management any written comments you make on the proxy
card.
HOUSEHOLDING OF ANNUAL DISCLOSURE DOCUMENTS
To
reduce the expense of delivering duplicate proxy materials to
stockholders who may have more than one account holding our stock
who share the same address, we have adopted a procedure approved by
the Securities and Exchange Commission (“SEC”) called
“householding.” Under this procedure, one Notice or a
single set of our annual report and proxy statement will be sent to
any household at which two or more of our stockholders reside, if
we or your broker believe that the stockholders are members of the
same family. Householding benefits both you and us. It reduces the
volume of duplicate information received at your household and
helps to reduce our expenses. The procedure applies to our annual
reports, proxy statements, other proxy materials and information
statements. Once you receive notice from your broker or from us
that communications to your address will be
“householded,” the practice will continue until you are
otherwise notified or until you revoke your consent to the
practice. Each stockholder will continue to have access to and
utilize separate proxy voting instructions.
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If you
do not wish to participate in “householding” and would
like to receive your own set of any or all of our annual disclosure
documents, or if you share an address with another Palatin
stockholder and together both of you would like to receive only a
single set of our annual disclosure documents, please contact
Broadridge Financial Solutions, Inc., either by calling toll-free
at (800) 542-1061, or by writing to Broadridge Financial Solutions,
Inc. Householding Department, 51 Mercedes Way, Edgewood, New York
11717. Alternatively, if your brokerage firm or other nominee holds
your Palatin shares, you may contact your broker or other nominee
directly and inform them of your request. Be sure to include your
name, the name of your brokerage firm and your account
number.
WHY ARE YOU HOLDING A VIRTUAL ANNUAL MEETING?
Due to
the emerging public health impact of COVID-19, and to support the
health and well-being of our stockholders, this year’s annual
meeting will be held in a virtual meeting format only. We have
designed our virtual format to enhance, rather than constrain,
stockholder access, participation and communication. It is the
present expectation of the board of directors that future annual
meetings will have an in-person format.
WHAT HAPPENS IF THERE ARE TECHNICAL DIFFICULTIES DURING THE VIRTUAL
ANNUAL MEETING?
If you
encounter any difficulties accessing the virtual meeting during the
check-in or meeting time, please call the technical support number
that will be posted on the virtual annual meeting
website.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
ITEM ONE: ELECTION OF DIRECTORS
The
board has nominated the following eight persons as directors to
serve until the next annual meeting and until their successors have
been duly elected. Each of the nominees is currently a director of
Palatin. The eight nominees who receive the most votes will be
elected as directors to serve until the next annual meeting, or
until their successors are elected and qualified.
Unless
otherwise instructed, the proxy holders will vote the proxies
received by them for the eight nominees named below. If any nominee
is unable or declines to serve as director at the time of the
Annual Meeting, the proxies will be voted for any nominee who is
designated by our present board to fill the vacancy, or the board
may reduce the number of directors.
Nominees for Election as Directors. The board unanimously
adopted a resolution proposing the nominees set forth below for
election as directors of Palatin for the next year.
THE NOMINEES
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Name
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Age
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Position with Palatin
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Carl
Spana, Ph.D.
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57
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Chief
Executive Officer, President and a Director
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John
K.A. Prendergast, Ph.D. (3)
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66
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Director, Chairman
of the Board of Directors
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Robert
K. deVeer, Jr. (1) (2)
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74
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Director
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J.
Stanley Hull (1) (2)
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67
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Director
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Alan W.
Dunton, M.D. (1) (2)
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65
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Director
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Angela
Rossetti (1) (3)
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67
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Director
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Arlene
M. Morris (2) (3)
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68
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Director
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Anthony
M. Manning, Ph.D. (3)
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58
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Director
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(1)
Member of the audit committee.
(2)
Member of the compensation committee.
(3)
Member of the nominating and corporate governance
committee.
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. He was previously a member of
the board of the life science company AVAX Technologies, Inc. Dr.
Spana received his Ph.D. in molecular biology from The Johns
Hopkins University and his B.S. in biochemistry from Rutgers
University.
10
Dr.
Spana’s qualifications for our board include his scientific
expertise, leadership experience, business judgment and industry
knowledge. As a senior executive of Palatin for over twenty 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 served as the
non-executive Chairman of the board since June 14, 2000, and as a
director since August 1996. While Mr. Prendergast has served as a
member of the board, he does not, and has not, served in a
management or operational role with the company. Dr. Prendergast
has been president and sole stockholder of Summercloud Bay, Inc.,
an independent consulting firm providing services to the
biotechnology industry, since 1993. Dr. Prendergast is lead
director of Heat Biologics, Inc., a publicly traded clinical stage
immunotherapy company, and a director and non-executive chairman of
Recce Pharmaceuticals Ltd., a publicly traded Australian
pharmaceutical company developing antibiotic drugs. He was
previously a member of the board of the life science companies AVAX
Technologies, Inc., Avigen, Inc. and MediciNova, Inc. 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 brings a historical perspective to our board coupled
with extensive industry experience in corporate development and
finance in the life sciences field. His prior service on other
publicly traded company boards provides experience relevant to good
corporate governance practices.
ROBERT
K. deVEER, Jr. has been a director of Palatin since November 1998.
Since January 1997, Mr. deVeer has been the president of deVeer
Capital LLC, a private investment company. He was a director of
Solutia Inc., a publicly-held chemical-based materials company,
until its merger with Eastman Chemical Company in July 2012. 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.
J. STANLEY
HULL has been a director of Palatin since September 2005. Mr. Hull
has over three decades of experience in the field of sales,
marketing and drug development. Mr. Hull joined GlaxoSmithKline, a
research-based pharmaceutical company, in October 1987 and retired
as Senior Vice President, Pharmaceuticals – North America in
May 2010. Mr. Hull was responsible for all commercial activities
including sales, marketing, sales training and office operations.
Previously Mr. Hull served in the R&D organization of Glaxo
Wellcome as Vice President and Worldwide Director of Therapeutic
Development and Product Strategy – Neurology and Psychiatry.
Prior to his service in the R&D organization he was Vice
President of Marketing – Infectious Diseases and
Gastroenterology for Glaxo Wellcome-U.S. 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.
11
Mr. Hull has
extensive experience in commercial operations, development and
marketing of pharmaceutical drugs and corporate alliances between
pharmaceutical companies and biotechnology companies.
ALAN W.
DUNTON, M.D., has been a director of Palatin since June 2011. He
founded Danerius, LLC, a biotechnology consulting company, in 2006.
From November 2015 through March 2018 he was senior vice president
of research, development and regulatory affairs for Purdue Pharma
L.P., with responsibilities for overall research strategy and
development programs. From January 2007 to March 2009, Dr. Dunton
served as president and chief executive officer of Panacos
Pharmaceuticals Inc. and he served as a managing director of
Panacos from March 2009 to January 2011. Dr. Dunton is currently a
member of the board of directors of the publicly traded companies
Regeneus Ltd, an Australian company traded on the Australian
Securities Exchange, Oragenics, Inc. and CorMedix Inc. He
previously served on the board of directors of the publicly traded
companies Targacept, Inc., EpiCept Corporation (as Non-Executive
Chairman), Adams Respiratory Therapeutics, Inc. (acquired by
Reckitt Benckiser Group plc), MediciNova, Inc. and Panacos
Pharmaceuticals, Inc. Dr. Dunton has served as a director or
executive officer of various pharmaceutical companies, and from
1994 to 2001, Dr. Dunton was a senior executive in various
capacities in the Pharmaceuticals Group of Johnson & Johnson,
including president and managing director of the Janssen Research
Foundation, the primary global R&D organization for Johnson
& Johnson. Dr. Dunton received his M.D. degree from New York
University School of Medicine, where he completed his residency in
internal medicine. He also was a Fellow in Clinical Pharmacology at
the New York Hospital/Cornell University Medical
Center.
Dr. Dunton
has extensive drug development, regulatory and clinical research
experience, having played a key role in the development of more
than 20 products to regulatory approval, and also has extensive
experience as an executive and officer for both large
pharmaceutical companies and smaller biotechnology and
biopharmaceutical companies.
ANGELA
ROSSETTI has been a director of Palatin since June 2013. Ms.
Rossetti consults with pharmaceutical companies, including
consultation on rare disease indications and pharmaceutical
utilization in low- and middle-income markets. From June 2015
through July 2017, she served as Executive Vice President of Cell
Machines, Inc., an early stage biopharmaceutical company developing
novel protein therapies. Previously, Ms. Rossetti served in
pharmaceutical marketing, communications and financial roles,
including as Vice President at Pfizer Inc., where she led a global
commercial medicine team for smoking cessation, and as an Assistant
Vice President at Wyeth, managing a global hemophilia business.
Previously, she was President of Ogilvy Healthworld, an advertising
business in the pharmaceutical and biotechnology sectors, and
served on the Biotech and Pharmaceutical Advisory Board of Danske
Capital for six years. Ms. Rossetti graduated from a joint program
of the Albert Einstein College of Medicine and Benjamin N. Cardozo
School of Law with an M.S.in Bioethics in 2014, has an M.B.A. in
Finance from Columbia University Graduate School of Business and a
B.A. in Biology from the University of Pennsylvania, and is an
adjunct Assistant Professor at New York Medical
College.
Ms. Rossetti
has extensive experience in worldwide development and marketing of
specialty pharmaceuticals, including prefilled syringe products, in
communications and development of commercialization plans and in
pharmaceutical and biotechnology finance.
12
ARLENE
M. MORRIS has been a director of Palatin since June 2015. Since May
2015 she has served as the chief executive officer of Willow
Advisors, LLC. From April 2012 until May 2015 she was President and
Chief Executive Officer of Syndax Pharmaceuticals, Inc., a
privately held biopharmaceutical company focused on the development
and commercialization of an epigenetic therapy for
treatment-resistant cancers, and was a member of the board of
directors from May 2011 until May 2015. From 2003 to January 2011,
Ms. Morris served as the President, Chief Executive Officer and a
member of the board of directors of Affymax, Inc., a publicly
traded biotechnology company. Ms. Morris has also held various
management and executive positions at Clearview Projects, Inc., a
corporate advisory firm, Coulter Pharmaceutical, Inc., a publicly
traded pharmaceutical company, Scios Inc., a publicly traded
biopharmaceutical company, and Johnson & Johnson, a publicly
traded healthcare company. She is currently a member of the board
of directors of Viveve Medical, Inc., a publicly traded female
healthcare medical device company, miRagen Therapeutics, Inc., a
publicly traded microRNA therapeutics company, Unum Therapeutics
Inc., a publicly traded solid tumor cancer therapy company, and
Neovacs, SA, a French publicly traded biotechnology company, and
was a director of Biodel Inc., a publicly traded specialty
pharmaceutical company, from 2015 until its merger with Albireo
Limited in 2016, and Dimension Therapeutics, Inc., a publicly
traded gene therapy company, until its acquisition by Ultragenyx
Pharmaceutical Inc. in 2017. Ms. Morris received a B.A. in Biology
and Chemistry from Carlow College.
Ms.
Morris has extensive experience in the biotechnology industry,
including prior leadership positions, senior management and board
service, and experience as chief executive officer of companies
with product candidates in phase 3 clinical trials.
ANTHONY
M. MANNING, Ph.D., has been a director of Palatin since September
2017. Since 2013, Dr. Manning has been senior vice president of
research, and since 2018 chief scientific officer, at Momenta
Pharmaceuticals, Inc., a publicly traded biopharmaceutical company
developing innovative therapeutics for rare immune-related
diseases. From 2011 to 2013, he was senior vice president of
research and development at Aileron Therapeutics, Inc., a publicly
traded biopharmaceutical company developing stapled peptide
therapeutics for cancers and other diseases. From 2007 to 2011, he
was vice president and head of inflammation and autoimmune diseases
research at Biogen, Inc., a publicly traded biopharmaceutical
company developing medicines for neurological and neurodegenerative
conditions. From 2002 to 2007, he was vice president and global
therapy area head for Inflammation, Autoimmunity and
Transplantation Research at Roche Pharmaceuticals, the
pharmaceutical division of Roche Holding AG, and from 2000 to 2002
he was vice president of Pharmacia, a global pharmaceutical company
acquired by Pfizer in 2002. Dr. Manning received his Ph.D., M.Sc.
and B.Sc. from the University of Otago, Dunedin, New
Zealand.
Dr.
Manning has extensive experience in translational research and
development of new pharmaceutical products, and in pharmaceutical
and biotechnology research, development and business
strategy.
13
RECOMMENDATION OF THE BOARD
The board recommends a vote FOR the election of the eight nominees
listed above.
Board Composition and Nominating Process
The
nominating and corporate governance committee conducts an annual
director performance evaluation process and proposes nominees for
election as directors. Nominees must be well-regarded and
experienced participants in their field(s) of specialty, familiar
with our business, willing to devote the time and attention
necessary to deepen and refine their understanding of Palatin and
the issues we face, and must have an understanding of the demands
and responsibilities of service on a public company board of
directors. The committee considers individual merits, such as
personal integrity and sound judgment, business and professional
skills and experience, independence, knowledge of the industry in
which we operate, possible conflicts of interest, diversity, the
extent to which the candidate would fill a present need on the
board and concern for the long-term interests of the stockholders.
While we do not have a formal diversity policy, to ensure that the
board of directors benefits from diverse perspectives, the
committee seeks qualified nominees from a variety of backgrounds,
including candidates of gender and ethnic diversity. Twenty-five
percent of the nominees to the board of directors are female. The
committee also considers each candidate in relation to existing or
other potential members of the board, with a view to establishing a
well-rounded, diverse, knowledgeable, and experienced
board.
The
board amended its written charter for the nominating and corporate
governance committee effective October 1, 2013 to provide that
directors will not be nominated for election to the board after
their 75th
birthday, although the full board, upon the recommendation of the
committee, may nominate candidates over 75 years of age in special
circumstances. There are no nominees for director who are over 75
years of age.
The
committee will consider stockholder recommendations of nominees if
they are accompanied by a comprehensive written resume of the
recommended nominee’s business experience and background, and
a signed consent from the recommended nominee stating that he or
she is willing to be considered as a nominee and, if nominated and
elected, will serve as a director. The committee will consider
candidates recommended by stockholders on the same basis as
candidates from other sources. The committee may retain outside
consultants to assist in identifying suitable director candidates.
Stockholders may send their written recommendations with the
required documentation to our executive offices at 4B Cedar Brook
Drive, Cranbury, NJ 08512, Attention: Secretary.
Director Independence
The
board of directors has determined that all the directors and
nominees except for Dr. Spana (our Chief Executive Officer and
President) are independent directors, as defined in the listing
standards of the NYSE American, on which our common stock is
listed, and under Rule 10A-3 of the Securities Exchange Act of
1934, as amended.
14
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 the fiscal year ended June
30, 2019, or fiscal 2019, the board met five times, the audit
committee met four times, the compensation committee met two times
and the nominating and corporate governance committee met two
times. Each director attended at least 75% of the total number of
meetings of the board and committees of the board on which he
served. The independent directors meet in executive sessions at
least annually, and typically meet in executive session at each
non-telephonic board meeting. We do not have a policy requiring our
directors to attend or participate in stockholder meetings. Except
for Drs. Prendergast and Spana, the directors did not attend the
annual meeting of stockholders held on June 20, 2019.
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 four
independent directors, Mr. deVeer (chair), and Dr. Dunton, Ms.
Rossetti and Mr. Hull. The board has determined that the members of
the audit committee are independent, as defined in the listing
standards of the NYSE American, and satisfy the requirements of the
NYSE American as to financial literacy and expertise. The board has
determined that at least one member of the committee, Mr. deVeer,
is the audit committee financial expert as defined by Item 407 of
Regulation S-K. The responsibilities of the audit committee are set
forth in a written charter adopted by the board and updated as of
October 1, 2013, 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 2011
Stock Incentive Plan, as amended and restated (the “2011
Plan”), and the options still outstanding which were granted
under previous stock option plans. The compensation committee is
composed of Dr. Dunton (chair), Ms. Morris and Messrs. deVeer and
Hull. The board has determined that the members of the compensation
committee are independent, as defined in the listing standards of
the NYSE American. Our Chief Executive Officer aids the
compensation committee by providing annual recommendations
regarding the compensation of all executive officers, other than
himself. Our Chief Financial Officer supports the committee in its
work by gathering, analyzing and presenting data on our
compensation arrangements and compensation in the
marketplace.
The
responsibilities of the compensation committee are set forth in a
written charter adopted by the board effective October 1, 2013, a
copy of which is available on our web site at www.palatin.com. The
committee administers our 2011 Plan, under which it has delegated
to an officer its authority to grant stock options to employees and
to a single-member committee of the board its authority to grant
restricted stock units to officers and to grant options and
restricted stock units to our consultants, but in either instance
not to grant options or restricted stock units to themselves, any
member of the board or officer, or any person subject to Section 16
of the Securities Exchange Act of 1934, as amended.
15
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 and updated as of October 1, 2013, a
copy of which is available on our web site at www.palatin.com. The
nominating and corporate governance committee is composed of Dr.
Prendergast (chair), Mss. Rossetti and Morris and Dr. Manning, each
of whom meets the independence requirements established by the NYSE
American.
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.
Communicating with Directors
Generally,
stockholders or other interested parties who have questions or
concerns should contact Stephen T. Wills, Secretary, Palatin
Technologies, Inc., 4B Cedar Brook Drive, Cranbury, NJ 08512.
However, any stockholder or other interested party who wishes to
address questions regarding our business directly to the board of
directors, or any individual director, including the Chairman or
non-management directors as a group, can direct questions to the
board members or a director by regular mail to the Secretary at the
address above or by e-mail at boardofdirectors@palatin.com.
Stockholders or other interested parties may also submit their
concerns anonymously or confidentially by postal mail.
Communications are
distributed to the board, or to any individual directors as
appropriate, depending on the facts and circumstances outlined in
the communication, unless the Secretary determines that the
communication is unrelated to the duties and responsibilities of
the board, such as product inquiries, resumes, advertisements or
other promotional material. Communications that are unduly hostile,
threatening, illegal or similarly unsuitable will also not be
distributed to the board or any director. All communications
excluded from distribution will be retained and made available to
any non-management director upon request.
Board Role in Risk Oversight
Our
board, as part of its overall responsibility to oversee the
management of our business, considers risks generally when
reviewing our strategic plan, financial results, business
development activities, legal and regulatory matters. The board
satisfies this responsibility through regular reports directly from
our officers responsible for oversight of particular risks. The
board’s risk management oversight also includes full and open
communications with management to review the adequacy and
functionality of the risk management processes used by management.
The board’s role in risk oversight has no effect on the
board’s leadership structure. In addition, committees of the
board assist in its risk oversight responsibility,
including:
16
●
The audit committee
assists the board in its oversight of the integrity of the
financial reporting and our compliance with applicable legal and
regulatory requirements. It also oversees our internal controls and
compliance activities, and meets privately with representatives
from our independent registered public accounting
firm.
●
The compensation
committee assists the board in its oversight of risk relating to
compensation policies and practices. The compensation committee
annually reviews our compensation policies, programs and
procedures, including the incentives they create and mitigating
factors that may reduce the likelihood of excessive risk taking, to
determine whether they present a significant risk to our
company.
Board Leadership Structure
Since
2000, the roles of chairman of the board and chief executive
officer have been held by separate persons. John K.A. Prendergast,
Ph.D., a non-employee director, has served as Chairman of the board
since June 2000. Carl Spana, Ph.D., has been our Chief Executive
Officer and President since June 2000. Generally, the Chairman is
responsible for advising the Chief Executive Officer, assisting in
long-term strategic planning, and presiding over meetings of the
board, and the Chief Executive Officer, together with our Chief
Financial Officer and Chief Operating Officer, is responsible for
leading our day-to-day performance and operations. While we do not
have a written policy with respect to separation of the roles of
chairman of the board and chief executive officer, the board
believes that the existing leadership structure, with the
separation of these roles, provides several important advantages,
including: enhancing the accountability of the chief executive
officer to the board; strengthening the board’s independence
from management; assisting the board in reaching consensus on
particular strategies and policies; and facilitating robust
director, board, and executive officer evaluation
processes.
Code of Corporate Conduct and Ethics
We have
adopted a code of corporate conduct and ethics, updated as of March
11, 2016, 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 American permit website posting of any such
amendments or waivers.
DIRECTOR COMPENSATION
The
following table sets forth the compensation we paid to all
directors during fiscal 2019, except for Dr. Spana, whose
compensation is set forth below in the Fiscal 2019 Summary
Compensation Table and related disclosure. Dr. Spana did not
receive any separate compensation for his services as a
director.
17
|
Name
|
Fees earned or paid in cash ($)
|
Stock awards ($) (1) (2)
|
Option awards
($) (1) (2)
|
Total ($)
|
|
John K.A.
Prendergast, Ph.D.
|
97,500
|
112,600
|
57,800
|
267,900
|
|
Robert K. deVeer,
Jr.
|
62,500
|
42,900
|
42,900
|
148,300
|
|
J. Stanley
Hull
|
55,000
|
42,900
|
42,900
|
140,800
|
|
Alan W. Dunton,
M.D.
|
84,375
|
42,900
|
42,900
|
170,175
|
|
Angela
Rossetti
|
52,500
|
42,900
|
42,900
|
138,300
|
|
Arlene
Morris
|
52,500
|
42,900
|
42,900
|
138,300
|
|
Anthony Manning,
Ph.D.
|
45,000
|
42,900
|
42,900
|
130,800
|
(1)
The aggregate
number of shares underlying option awards and stock awards
outstanding at June 30, 2019 for each director was:
|
|
Option awards
|
Stock awards
|
|
Dr.
Prendergast
|
642,250
|
244,000
|
|
Mr.
deVeer
|
365,500
|
112,000
|
|
Mr.
Hull
|
362,000
|
112,000
|
|
Dr.
Dunton
|
314,000
|
102,000
|
|
Ms.
Rossetti
|
266,500
|
92,000
|
|
Ms.
Morris
|
221,500
|
82,000
|
|
Dr.
Manning
|
149,000
|
87,500
|
(2)
Amounts in these
columns represent the aggregate grant date fair value for stock
awards and option awards. For a description of the assumptions we
used to calculate these amounts, see Note 13 to the consolidated
financial statements included in our annual report on Form 10-K for
the year ended June 30, 2019 (our “Annual Report”).
Amounts in this column include options granted on June 24, 2019 for
our current fiscal year ending June 30, 2020.
Our
director compensation program is designed to enhance our ability to
attract and retain highly qualified directors and to align their
interests with the long-term interests of our stockholders. The
program includes an equity component, which is designed to align
the interests of non-employee directors and stockholders, and a
cash component, which is designed to compensate non-employee
directors for their service on the board. Directors who are
employees of the company receive no additional compensation for
their service on the board.
The
compensation committee annually reviews compensation paid to our
non-employee directors and makes recommendations for adjustments,
as appropriate, to the full board. As part of this annual review,
the compensation committee considers the significant time
commitment and skill level required by each non-employee director
in serving on the board and its various committees. The
compensation committee seeks to maintain a market competitive
director compensation program and, with the assistance of its
independent compensation consultant, Korn Ferry Hay Group
(“Hay Group”), benchmarks our director compensation
program against the peer group we use to evaluate our executive
compensation program.
18
Non-Employee Directors’ Equity
Grants. Our non-employee directors receive an annual equity
grant at the board meeting closest to the beginning of each fiscal
year, or such other date as may be determined by the
board.
On June
24, 2019, the Chairman of the board received 84,000 restricted
stock units which vest on June 24, 2020 and an option to purchase
70,000 shares of common stock, and each other serving non-employee
director received 32,000 restricted stock units which vest on June
24, 2020 and an option to purchase 52,000 shares of common stock.
All of the options have an exercise price of $1.34 per share, the
closing price of our common stock on the business day immediately
preceding the date of grant, vest in twelve monthly installments
beginning July 31, 2019, expire ten years from the date of grant
and provide 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 date of the
option.
On June
26, 2018, the Chairman of the board received 56,000 restricted
stock units which vested on June 26, 2019, and an option to
purchase 56,000 shares of common stock, and each other serving
non-employee director received 28,000 restricted stock units which
vested on June 26, 2019, and an option to purchase 28,000 shares of
common stock. All of the options have an exercise price of $1.00
per share, the closing price of our common stock on the date of
grant, vest in twelve monthly installments beginning on July 31,
2018, 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 for fiscal 2019 received an annual retainer of $87,500,
payable quarterly. Other non-employee directors received an annual
base retainer of $40,000, payable on a quarterly basis. The
chairperson of the audit committee received an additional annual
retainer of $15,000, the chairperson of the compensation committee
received an additional annual retainer of $15,000 and the
chairperson of the corporate governance committee received an
additional annual retainer of $10,000. Members of the foregoing
committees, other than the non-employee Chairman, received an
additional retainer of one-half the retainer payable to the
committee chairperson. For the fiscal year ending June 30, 2020,
Dr. Prendergast serves as Chairman of the board and will received
an annual retainer of $87,500, payable quarterly. Other
non-employee directors will receive an annual base retainer of
$40,000, payable on a quarterly basis. The chairperson of the audit
committee will receive an additional annual retainer of $17,500
(increased from $15,000), the chairperson of the compensation
committee will receive an additional annual retainer of $17,500
(increased from $15,000) and the chairperson of the corporate
governance committee will receive an additional annual retainer of
$10,000. Members of the foregoing committees, other than the
non-employee Chairman, receive an additional retainer of one-half
the retainer payable to the committee chairperson. The increase in
compensation for services on committees was based on the May 2019
report and analysis of the Hay Group regarding non-employee
director executive compensation programs, to align committee
compensation with at least median levels among peer group
companies.
19
The board
also formed a program development committee, charged with reviewing
new product opportunities and product development strategy. The
chairperson of the program development committee receives $3,500
per day of service, and members of the committee receive $2,500 per
day of service.
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.
[END OF ITEM ONE]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
ITEM TWO: RATIFICATION OF APPOINTMENT OF KPMG LLP
AS OUR
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
recommend voting FOR the ratification of the appointment of KPMG
LLP (“KPMG”) as our independent registered public
accounting firm for the fiscal year ending June 30, 2020. KPMG
served as our independent registered public accounting firm for the
fiscal year ended June 30, 2019. We expect that a representative of
KPMG will participate in the virtual annual meeting. The
representative will have an opportunity to make a statement, if he
or she desires, and will be available to respond to appropriate
questions from stockholders.
Audit Fees. For the fiscal year ended
June 30, 2019, fees for professional services rendered for the
audit of our annual consolidated financial statements, the audit of
internal control over financial reporting as of June 30, 2019,
review of our consolidated financial statements in our Forms 10-Q,
services provided in connection with regulatory filings and comfort
letters were $504,000. For the fiscal year ended June 30, 2018,
fees for professional services rendered for the audit of our annual
consolidated financial statements and the audit of internal control
over financial reporting as of June 30, 2018, review of our
consolidated financial statements in our Forms 10-Q, services
provided in connection with regulatory filings and comfort letters
were $526,000.
Audit-Related Fees. For the fiscal
years ended June 30, 2019 and 2018, KPMG did not perform or bill us
for any audit-related services.
Tax Fees. For the fiscal year ended
June 30, 2019, KPMG billed us a total of $37,000 for professional
services rendered for tax compliance and consulting services. For
the fiscal year ended June 30, 2018, KPMG billed us a total of
$380,354 for professional services rendered for tax compliance and
consulting services.
All Other Fees. KPMG did not perform or
bill us for any services other than those described above for the
fiscal years ended June 30, 2019 and 2018.
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.
Before
engaging the independent registered public accounting firm for the
next year’s audit, management will submit to the audit
committee for approval an estimate of fees for services expected to
be rendered during that year in each of four
categories:
1.
Audit services, including work that generally only our independent
registered public accounting firm can reasonably be expected to
provide, such as services provided in connection with regulatory
filings, statutory audits and attest services and consultation
regarding financial accounting and/or reporting
standards;
2.
Audit-related services, including assurance and related services
that are traditionally performed by the independent registered
public accounting firm, including due diligence related to mergers
and acquisitions, employee benefit plan audits and special
procedures required to meet certain regulatory
requirements;
21
3. Tax
services, including services performed by our independent
registered public accounting firm’s tax personnel except
those services specifically related to the audit of the
consolidated financial statements, including fees in the areas of
tax compliance, tax planning and tax advice; and
4. All
other services not described in the preceding categories. We
generally do not request other services from our 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.
Although
stockholder approval of KPMG LLP’s appointment as our
independent registered public accounting firm is not required by
law or binding on the board or the audit committee, the board and
the audit committee believe that stockholders should have an
opportunity to express their views. In the event the stockholders
do not ratify the appointment of KPMG LLP as our independent
registered public accounting firm, the audit committee will
reconsider its appointment.
REPORT OF THE AUDIT COMMITTEE
The
audit committee of the board of directors, which consists entirely
of directors who meet the independence and experience requirements
of the NYSE American, has furnished the following
report:
The
audit committee assists the board in overseeing and monitoring the
integrity of its financial reporting process, compliance with legal
and regulatory requirements and the quality of internal and
external audit processes. This committee reviews and reassesses our
charter annually and recommends any changes to the board for
approval. The audit committee is responsible for overseeing our
overall financial reporting process, and for the appointment,
compensation, retention, and oversight of the work of KPMG
LLP.
The
audit committee has reviewed and discussed the audited consolidated
financial statements for the fiscal year ended June 30, 2019 with
Palatin’s management and has discussed with KPMG LLP the
matters required to be discussed under Public Company Accounting
Oversight Board standards. In addition, the audit committee has
received from KPMG LLP the written disclosures and a letter from
KPMG LLP regarding its independence as required by applicable
requirements of the Public Company Accounting Oversight Board
regarding KPMG LLP communications with the audit committee, and the
audit committee further discussed with KPMG LLP its independence.
The audit committee also considered the status of pending
litigation, taxation matters and other areas of oversight relating
to the financial reporting and audit process, among other factors,
that the committee determined appropriate.
22
Based
on these reviews and discussions, we recommended to the board of
directors that the audited consolidated financial statements be
included in Palatin’s annual report on Form 10-K for the
fiscal year ended June 30, 2019.
The Audit Committee
Robert
K. deVeer, Jr., Chairman
Alan W.
Dunton, M.D.
J.
Stanley Hull
Angela
Rossetti
RECOMMENDATION OF THE BOARD
The board recommends a vote FOR the ratification of the appointment
of KPMG LLP as our independent registered public accounting firm
for the fiscal year ending June 30, 2020.
[END OF ITEM TWO]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
ITEM THREE: APPROVAL OF AN INCREASE IN COMMON STOCK AVAILABLE FOR
ISSUANCE UNDER OUR 2011 STOCK INCENTIVE PLAN
The
company is asking stockholders to approve an amendment to its 2011
Stock Incentive Plan, as amended and restated (the “2011
Plan”) in order to increase the number of shares available
for equity awards under the 2011 Plan by 10,000,000 shares, from
32,500,000 shares to 42,500,000 shares.
INCREASE IN PLAN SHARES
On
March 24, 2020, the board of directors authorized an increase in
the number of shares of common stock available for issuance under
the 2011 Plan from 32,500,000 shares to 42,500,000 shares.
3,500,000 shares were initially available under the 2011 Plan. An
increase of 3,500,000 shares, to a total of 7,000,000 shares, was
authorized by the board of directors on April 25, 2013, and
approved by stockholders on June 27, 2013. An increase of 3,000,000
shares, to a total of 10,000,000 shares, together with amendments
to and restatement of the 2011 Plan, was authorized by the board of
directors on March 3, 2015, and approved by stockholders on June 9,
2015. An increase of 2,500,000 shares, to a total of 12,500,000
shares, was authorized by the board of directors on April 1, 2016,
and approved by the stockholders on June 9, 2016. An increase of
10,000,000 shares, to a total of 22,500,000, was authorized by the
board of directors on March 30, 2017, and approved by the
stockholders on June 8, 2017. An increase of 10,000,000 shares, to
a total of 32,500,000, was authorized by the board of directors on
April 5, 2018 and approved by the stockholders on June 26, 2018.
Additionally, 974,696 shares have been available under the 2011
Plan upon reversion from its predecessor plan, our 2005 Stock Plan
(the “Prior Plan”). All of the delivered shares under
restricted stock units are no longer available for issuance, and
shares under restricted stock units that have vested but not been
delivered are no longer available for issuance unless the
restricted share units are forfeited by reason of termination for
cause.
Reasons for Amendment. As of April 29,
2020, the number of shares issued or potentially issuable under all
options and stock awards was 28,864,484, which leaves only
4,610,212 shares available for future grants of awards under the
2011 Plan. The board believes that it will not be able to continue
carrying out the purposes of the 2011 Plan for more than one
additional year unless additional stock becomes available for
issuance.
By
reserving an additional 10,000,000 shares for issuance under the
2011 Plan, a total of 14,610,212 shares will be available for
future issuance. We expect that the shares authorized for issuance
under the 2011 Plan will meet our equity compensation needs for
approximately [three] to [four] years.
The
board considers equity-based compensation an essential tool to
attract, motivate and retain our officers, key employees and
directors and to align their interests with the interests of our
stockholders. If we are unable to grant equity awards in the
future, we may be required to increase the cash component of our
compensation mix, which would inhibit our ability to meet our
compensation objectives, including aligning our executives’
and directors’ interests with the interests of our
stockholders and motivating our executives over a long-term
horizon. As a result, the board believes that it is in the best
interests of the company for our stockholders to approve the
amendment to the 2011 Plan. In determining the number of additional
shares to reserve for issuance under the amended Plan, our Board
considered our burn rate (see below), the potential dilution
resulting from the proposed increase (see below), and advice
provided by the compensation committee’s independent
compensation consultant.
24
Burn Rate. A key equity metric utilized
by the board in determining awards under the 2011 Plan is our
“burn rate,” which is generally the total number of
shares we award pursuant to the 2011 Plan each year relative to our
weighted average number of shares of common stock outstanding. As
noted above, our board considered our burn rate in determining the
number of additional shares to reserve for issuance under the 2011
Plan. The following table shows our use of equity under the 2011
Plan during the last three fiscal years:
|
Year
|
Time-Based RSUs
|
Performance-Based RSUs (at target)
|
Time-Based Stock Options
|
Performance-Based Stock Options (at target)
|
Total Awards
|
Weighted
Average # of Common
Shares
|
Burn rate
|
|
2017
|
3,192,000
|
0
|
4,119,000
|
0
|
7,311,000
|
184,087,719
|
3.97%
|
|
2018
|
3,169,500
|
1,745,000
|
2,982,550
|
1,200,000
|
9,097,050
|
198,101,060
|
4.59%
|
|
2019
|
896,725
|
620,725
|
2,340,200
|
0
|
3,857,650
|
207,677,721
|
1.86%
|
|
Average Burn Rate
(2017-2019)
|
|
|
|
|
|
|
3.47%
|
Overhang. Overhang measures the
dilutive impact of equity programs. Our overhang is equal to the
number of shares of our common stock subject to outstanding equity
awards plus the number of shares available to be granted, divided
by the total shares of common stock outstanding. The 10,000,000
shares of common stock being requested under the 2011 Plan would
bring our aggregate overhang in 2020 to approximately
16.8%.
Plan Highlights. The 2011 Plan authorizes the grant
of equity-based and cash-based compensation to our key employees,
consultants and non-employee directors in the form of stock
options, stock appreciation rights (“SARs”), restricted
shares, restricted stock units, other share-based awards and
cash-based awards. Some of the key features of the 2011 Plan,
assuming authorization of an increase in the number of shares of
common stock available for issuance, are highlighted below and are
more fully described under the heading “Summary of the
Plan.”
●
The maximum number
of shares that may be issued under the 2011 Plan is 42,500,000,
plus the number of shares available to be granted under the Prior
Plan on May 11, 2011, the date of the initial stockholder approval
of the 2011 Plan, and shares which become available under the 2011
Plan if they are forfeited or otherwise become available under the
Prior Plan on or after May 11, 2011.
●
The 2011 Plan does
not permit what has been labeled by some stockholder groups as
“liberal share counting” when determining the number of
shares that have been granted. Only awards that are cancelled,
forfeited or which are paid in cash can be added back to the share
reserve.
●
Dividends or
dividend equivalents provided with respect to awards will be
accumulated or deemed reinvested until such award is earned and
vested, including the satisfaction of any service vesting
conditions and any applicable performance goals.
●
The 2011 Plan
prohibits the use of “discounted” stock options or
SARs.
25
●
The 2011 Plan
prohibits the re-pricing of stock options and SARs without
stockholder approval.
●
Any awards granted
under the 2011 Plan are subject to forfeiture or repayment if a
participant has engaged in detrimental activity (as described
below). Awards may also be subject to forfeiture or repayment
pursuant to the terms of any compensation recovery policy adopted
to comply with the Dodd-Frank Wall Street Reform and Consumer
Protection Act or any rules issued by the SEC or the NYSE
American.
SUMMARY OF THE 2011 PLAN
The
following is a summary of the 2011 Plan and is qualified in its
entirety by reference to the full text of the 2011 Plan, which is
attached as Appendix A to this Proxy Statement. If our
stockholders do not approve the amendment to the 2011 Plan, the
share increase to the 2011 Plan will not take effect. However, the
2011 Plan will remain in full effect according to its existing
terms, and we will be able to continue to make awards under the
2011 Plan subject to existing authorized share limits.
Plan Limits. Assuming stockholder
approval of the amendment to the 2011 Plan, the maximum number of
shares of our common stock that may be issued or transferred with
respect to awards under the 2011 Plan will be 42,500,000, plus the
number of shares available to be granted under the Prior Plan on
May 11, 2011, and shares that become available under the 2011 Plan
if they are forfeited or otherwise become available under the Prior
Plan on or after May 11, 2011. Shares issued or delivered pursuant
to an award under the 2011 Plan may include authorized but unissued
shares, treasury shares, or a combination of the foregoing. Shares
covering awards that terminate or are forfeited, or shares that are
returned to the company pursuant to a compensation recovery policy,
will again be available for issuance under the 2011 Plan, and upon
payment in cash of the benefit provided by any award granted under
the 2011 Plan, any shares that were covered by that award will be
available for issue or transfer under the 2011 Plan.
Notwithstanding the
foregoing, shares surrendered for the payment of the exercise price
under stock options, repurchased by us with option proceeds, or
withheld for taxes upon exercise or vesting of an award, are not
again available for issuance under the 2011 Plan. In addition, if a
stock appreciation right is exercised and settled in shares, all of
the shares underlying the stock appreciation right are counted
against the 2011 Plan limit regardless of the number of shares used
to settle the stock appreciation right.
In
order to comply with the rules applicable to incentive stock
options, the 2011 Plan provides that all of the shares available
may be issued as incentive stock options. In addition, the 2011
Plan provides that the maximum value of grants in any calendar year
under the 2011 Plan to non-employee members of the board of
directors, taken together with any cash fees paid to such person
during such calendar year, shall not exceed $350,000, with the
aggregate grant fair value determined as of the applicable date or
dates of grant in accordance with applicable financial accounting
rules.
26
Administration. The 2011 Plan is
administered by our compensation committee or such other committee
as our board selects consisting of two or more directors, each of
whom is intended to be a “non-employee director” within
the meaning of Rule 16b-3 of the Securities Exchange Act of 1934,
as amended, an “outside director” under regulations
promulgated under Section 162(m) of the Internal Revenue Code of
1986, as amended (the “Code”), and an
“independent director” under the NYSE American listing
standards. The compensation committee has full and final authority
in its discretion to take all actions determined to be necessary in
the administration of the 2011 Plan.
Our
board may reserve to itself any or all of the authority and
responsibility of the compensation committee under the 2011 Plan or
may act as administrator of the 2011 Plan for any and all purposes.
In addition, to the extent permitted by applicable laws, our board
or compensation committee may expressly delegate to one or more
directors or officers some or all of the compensation
committee’s authority, within specified parameters, to
administer the 2011 Plan.
Eligibility. The 2011 Plan provides
that awards may be granted to our employees (including employees of
our subsidiaries), consultants and non-employee directors who are
selected by the compensation committee, in its discretion, except
that incentive stock options may be granted only to employees.
Seven non-employee directors and 17 employees, together with
consultants we utilize, would currently be eligible to participate
in the 2011 Plan.
Duration and Modification. The 2011 Plan will terminate on
March 10, 2025, or such earlier date as our board of directors may
determine. The 2011 Plan will remain in effect for outstanding
awards until no awards remain outstanding. The board may amend,
suspend or terminate the 2011 Plan at any time but stockholder
approval is required for any further amendment to the extent
necessary to comply with the NYSE American rules or applicable
laws. An amendment of the 2011 Plan or any award may not adversely
affect in a material way any outstanding award without the consent
of the affected participant, provided that the compensation
committee may amend the plan or any award without a
participant’s consent to the extent the compensation
committee deems necessary to comply with applicable
law.
Stock Options. Our compensation
committee may, at any time and from time to time, grant stock
options to participants in such number as the compensation
committee determines in its discretion. Stock options may consist
of incentive stock options (“ISOs”), non-qualified
stock options or any combinations of the foregoing
awards.
Stock
options provide the right to purchase common shares at a price not
less than their fair market value on the date of grant (which date
may not be earlier than the date that the compensation committee
takes action with respect to such grants). The fair market value of
our common stock as reported on the NYSE American on the Record
Date, April 29, 2020, was $[ ∙ ] per share. No stock options
may be exercised more than 10 years from the date of
grant.
Each
grant must specify (i) the period of continuous employment that is
necessary (or the performance objectives that must be achieved)
before the stock options become exercisable, and (ii) the extent to
which the option holder will have the right to exercise the stock
options following termination. Our compensation committee will
determine the terms in its discretion, which terms need not be
uniform among all option holders. No dividend equivalents may be
provided with respect to any award of stock options.
27
The
option price is payable at the time of exercise (i) in cash, (ii)
by tendering unrestricted shares of our common stock that are
already owned by the option holder and have a value at the time of
exercise equal to the option price, (iii) by a cashless exercise
(including by withholding shares deliverable upon exercise and
through a broker-assisted arrangement to the extent permitted by
applicable law), (iv) by any combination of the foregoing methods
of payment, or (v) through any other method approved by the
compensation committee.
Stock Appreciation Rights. Our compensation committee may, at
any time and from time to time, grant SARs to participants in such
number as the compensation committee determines in its discretion.
The grant price for each SAR will be determined by the compensation
committee, in its discretion, and will be at least equal to the
fair market value of a share on the date of grant. No SAR may be
exercised more than 10 years from the date of grant.
Upon
the exercise of a SAR, the holder is entitled to receive payment in
an amount determined by multiplying (i) the excess of the fair
market value of a common share on the date of exercise over the
grant price, by (ii) the number of shares with respect to which the
SAR is exercised. Each grant will specify whether the payment will
be in cash, common shares of equivalent value, or in some
combination thereof.
Each
grant of a SAR must specify (i) the period of continuous employment
that is necessary (or the performance objectives that must be
achieved) before the SAR becomes exercisable and (ii) the extent to
which the holder will have the right to exercise the SAR following
termination. Our compensation committee will determine these terms
in its discretion, and these terms need not be uniform among all
participants. No dividend equivalents may be provided with respect
to any award of SARs.
Restricted Shares. Our compensation committee may, at
any time and from time to time, grant or sell restricted shares to
participants in such number as the compensation committee
determines in its discretion.
An
award of restricted shares constitutes an immediate transfer of
ownership of a specified number of common shares to the recipient
in consideration of the performance of services. Unless otherwise
provided by the compensation committee, the participant is entitled
immediately to voting, dividend and other ownership rights in the
shares. However, any dividends with respect to unvested restricted
shares will be accumulated or reinvested subject to the same terms
and conditions as the restricted shares. The transfer may be made
without additional consideration or in consideration of a payment
by the recipient that is less than the fair market value per share
on the date of grant.
Restricted shares
must be subject to a “substantial risk of forfeiture,”
within the meaning of Section 83 of the Code, based on
continued service, the achievement of performance objectives, or
upon the occurrence of other events as determined by our
compensation committee, at its discretion. In order to enforce
these forfeiture provisions, the transferability of restricted
shares will be prohibited or restricted in the manner prescribed by
the compensation committee on the date of grant for the period
during which such forfeiture provisions are to
continue.
28
Restricted Share Units. Our compensation committee may, at
any time and from time to time, grant or sell restricted share
units, which are also sometimes called “restricted stock
units,” to participants in such number as the compensation
committee determines in its discretion.
Restricted share
units constitute an agreement to deliver common shares to the
recipient in the future at the end of a restriction period and
subject to the fulfillment of such conditions as the compensation
committee may specify. To the extent earned, the participant will
receive payment of such performance-based restricted share units at
the time and in the manner determined by our compensation
committee, in cash, common shares, restricted shares, or any
combination thereof.
During
the restriction period the participant has no right to transfer any
rights under his or her award and no right to vote or receive
dividends on the shares covered by the restricted share units, but
the compensation committee may authorize the payment of dividend
equivalents with respect to the restricted share units on a
deferred basis, either accumulated or deemed reinvested until
vesting of the underlying award.
Other Share-Based Awards. Our compensation committee may, at
any time and from time to time, grant or sell other share-based
awards that may be denominated or payable in, valued in whole or in
part by reference to, or otherwise based on or related to, shares
of our common stock or factors that may influence the value of such
shares. For example, the awards may include common shares granted
as a stock bonus, convertible or exchangeable debt securities or
other securities, purchase rights for shares, or awards with value
and payment contingent upon performance of our company or our
subsidiaries or other factors determined by the compensation
committee.
The
compensation committee will determine the terms and conditions of
these other share-based awards. Common shares delivered pursuant to
these types of awards will be purchased for such consideration, by
such methods and in such forms as the compensation committee
determines. Other share-based awards may be granted with a right to
receive dividend equivalents on a deferred basis, either
accumulated or deemed reinvested until vesting of the underlying
award.
Cash-Based Awards. We may also grant cash-based
awards under the 2011 Plan. A cash-based award gives a participant
a right to receive a specified amount of cash, subject to terms and
conditions established by the compensation committee, which may
include continued service and/or the achievement of performance
objectives.
Performance Objectives. Our
compensation committee may condition the vesting, exercise or
payment of any award upon the achievement of one or more
performance objectives. Performance objectives may be described in
terms of either company-wide objectives or objectives that are
related to the performance of the individual participant or the
performance of our company or one or more of its subsidiaries,
divisions, departments, units, functions, partnerships, joint
ventures or minority investments, product lines or products, or the
performance of an individual participant. The performance
objectives may be relative to the performance of a group of
comparable companies, a published or special index that our
compensation committee, in its discretion, deems appropriate, or we
may also select performance objectives as compared to various stock
market indices.
29
For
example, performance objectives may be based on one or more of the
following criteria: revenues, earnings from operations, operating
income, earnings before or after interest and taxes, operating
income before or after interest and taxes, net income, cash flow,
earnings per share, return on total capital, return on invested
capital, return on equity, return on assets, total return to
stockholders, earnings before or after interest, or extraordinary
or special items, operating income before or after interest, taxes,
depreciation, amortization or extraordinary or special items,
return on investment, free cash flow, cash flow return on
investment (discounted or otherwise), net cash provided by
operations, cash flow in excess of cost of capital, operating
margin, profit margin, contribution margin, stock price and/or
strategic business criteria consisting of one or more objectives
based on meeting specified product development, strategic
partnering, research and development milestones, clinical trial
status, product approvals in geographic regions, market
penetration, geographic business expansion goals, cost targets,
customer satisfaction, management of employment practices and
employee benefits, supervision of litigation and information
technology, and goals relating to acquisitions or divestitures of
subsidiaries, affiliates and joint ventures. The performance
objectives may be calculated without regard to extraordinary items
or adjusted, as the compensation committee deems equitable, in
recognition of unusual or non-recurring events affecting our
company or its subsidiaries or changes in applicable tax laws or
accounting principles.
Acceleration of Awards. Our compensation committee may in
its discretion determine at any time that: (i) all or a portion of
a participant’s stock options, SARs and other awards in the
nature of rights that may be exercised will become fully or
partially exercisable; (ii) all or a part of the time-based vesting
restrictions on all or a portion of the outstanding awards will
lapse; (iii) any performance-based criteria with respect to any
awards will be deemed to be wholly or partially satisfied; and/or
(iv) any other limitation or requirement under any such award will
be waived, in each case, as of such date as the compensation
committee, in its discretion, declares. Any such decisions by the
compensation committee need not be uniform among all participants
or awards. The compensation committee will not make any adjustment
that would cause an award that is otherwise exempt from Section
409A of the Code to become subject to Section 409A or that would
cause an award that is subject to Section 409A of the Code to fail
to satisfy the requirements of Section 409A.
Change in Control. If we experience a change in
control, the compensation committee generally has discretion to
take action with respect to outstanding awards, including, without
limitation, the ability to (i) accelerate the vesting, settlement
or exercisability of an award; (ii) cancel an award in exchange for
a cash payment; (iii) cancel a stock option or SAR without payment
if the fair market value of a share on the date of the change in
control does not exceed the exercise price per share of the stock
option or SAR; or (iv) issue substitute awards.
A
change in control generally means any of the following:
(i) the acquisition of 50% or more of our outstanding voting
securities; (ii) a change in the membership of our board of
directors, so that the current incumbents and their approved
successors no longer constitute a majority; (iii) consummation
of a merger, reorganization or consolidation, unless the owners of
our voting securities own 50% or more of the resulting corporation;
or (iv) the sale or other disposition of all or substantially all
of our assets.
30
Forfeiture or Repayment of
Awards. If a
participant has engaged in detrimental activity, then, upon notice
from the compensation committee, the participant shall forfeit all
outstanding awards, return any shares held by the participant that
were acquired under the 2011 Plan within two years prior to the
date of participant’s initial commencement of the detrimental
activity, and repay the company in cash for any shares that were
acquired under the 2011 Plan within two years prior to the date of
participant’s initial commencement of the detrimental
activity, but previously disposed of by the participant.
Detrimental activity generally means violations of any non-compete,
non-solicitation, confidentiality, or ownership of works covenants,
each as set forth in any agreement between the participant and the
company or a subsidiary, including, but not limited to, the award
agreement or any severance plan maintained by the company or a
subsidiary that covers the participant. Detrimental activity also
includes (i) participant’s commission of any act of fraud,
misappropriation or embezzlement against or in connection with the
company or any of its subsidiaries, or (ii) a conviction, guilty
plea or plea of nolo contendere of participant for any crime
involving dishonesty or for any felony.
Awards
may also be subject to forfeiture or repayment pursuant to the
terms of any compensation recovery policy adopted to comply with
the Dodd-Frank Wall Street Reform and Consumer Protection Act or
any rules issued by the SEC or the NYSE American.
Transferability. Except as our board of directors
or compensation committee otherwise determines, awards granted
under the 2011 Plan will not be transferable by a participant other
than by will or the laws of descent and distribution. Except as
otherwise determined by our compensation committee, any stock
options and SARs will be exercisable during a participant’s
lifetime only by him or her or, in the event of the
participant’s legal incapacity to do so, by his or her
guardian or legal representative. Any award made under the 2011
Plan may provide that any common shares issued or transferred as a
result of the award will be subject to further restrictions upon
transfer.
Adjustments.
In the event of any
equity restructuring, such as a stock dividend, stock split,
spinoff, rights offering or recapitalization through a large,
nonrecurring cash dividend, our compensation committee will adjust
the number and kind of shares that may be delivered under the 2011
Plan, the individual award limits, and, with respect to outstanding
awards, the number and kind of shares subject to outstanding
awards, the exercise price, and the grant price or other price of
shares subject to outstanding awards, to prevent dilution or
enlargement of rights. In the event of any other change in
corporate capitalization, such as a merger, consolidation or
liquidation, the compensation committee may, in its discretion,
cause there to be such equitable adjustment as described in the
foregoing sentence, to prevent dilution or enlargement of rights.
However, unless otherwise determined by the compensation committee,
we will always round down to a whole number of shares subject to
any award. Any such adjustment will be made by our compensation
committee, whose determination will be conclusive.
Prohibition on Re-Pricing. Subject to adjustment as described
under “Adjustments” immediately above, the 2011 Plan
does not permit, without the approval of our stockholders, what is
commonly known as the “re-pricing” of stock options or
SARs, including:
31
●
an amendment to
reduce the exercise price of any outstanding stock option or base
price of any outstanding SAR;
●
the cancellation of
an outstanding stock option or SAR and replacement with a stock
option having a lower exercise price or with a SAR having a lower
base price; and
●
the cancellation of
an outstanding stock option or SAR and replacement with another
award under the 2011 Plan.
FEDERAL INCOME TAX CONSEQUENCES
The
following discussion is limited to a summary of the U.S. federal
income tax provisions relating to the grant, exercise and vesting
of awards under the 2011 Plan. The tax consequences of awards may
vary according to country of participation. Also, the tax
consequences of the grant, exercise or vesting of awards vary
depending upon the particular circumstances, and it should be noted
that income tax laws, regulations and interpretations change
frequently. Participants should rely upon their own tax advisors
for advice concerning the specific tax consequences applicable to
them, including the applicability and effect of state, local and
foreign tax laws.
Tax Consequences to Participants
Nonqualified Stock Options. In general, (i) a
participant will not recognize income at the time a nonqualified
option is granted; (ii) a participant will recognize ordinary
income at the time of exercise in an amount equal to the excess of
the fair market value of the shares on the date of exercise over
the option price paid for the shares; and (iii) at the time of
sale of shares acquired pursuant to the exercise of the
nonqualified option, appreciation (or depreciation) in value of the
shares after the date of exercise will be treated as either
short-term or long-term capital gain (or loss) depending on how
long the shares have been held.
Incentive Stock Options. A participant
will not recognize income at the time an ISO is granted or
exercised. However, the excess of the fair market value of the
shares on the date of exercise over the option price paid may
constitute a preference item for the alternative minimum tax. If
shares are issued to the optionee pursuant to the exercise of an
ISO, and if no disqualifying disposition of such shares is made by
such optionee within two years after the date of the grant or
within one year after the issuance of such shares to the optionee,
then upon sale of such shares, any amount realized in excess of the
option price will be taxed to the optionee as a long-term capital
gain and any loss sustained will be a long-term capital loss. If
shares acquired upon the exercise of an ISO are disposed of prior
to the expiration of either holding period described above, the
optionee generally will recognize ordinary income in the year of
disposition in an amount equal to the excess (if any) of the fair
market value of such shares as of the time of exercise (or, if
less, the amount realized on the disposition of such shares if a
sale or exchange) over the option price paid for such shares. Any
further gain (or loss) realized by the participant generally will
be taxed as short-term or long-term capital gain (or loss)
depending on the holding period.
32
SARs. A participant will not recognize
income upon the grant of a SAR. The participant generally will
recognize ordinary income when the SAR is exercised in an amount
equal to the cash and the fair market value of any unrestricted
shares received on the exercise.
Restricted Shares. A participant will not be subject
to tax until the shares of restricted shares are no longer subject
to forfeiture or restrictions on transfer for purposes of
Section 83 of the Code. At that time, the participant will be
subject to tax at ordinary income rates on the fair market value of
the restricted shares (reduced by any amount paid by the
participant for such restricted shares). However, a participant who
so elects under Section 83(b) of the Code within
30 days of the date of transfer of the shares will have
taxable ordinary income on the date of transfer of the shares equal
to the excess of the fair market value of such shares over the
purchase price, if any, of such restricted shares. Any appreciation
(or depreciation) realized upon a later disposition of such shares
will be treated as long-term or short-term capital gain depending
upon how long the shares have been held.
Restricted Share Units. A participant
will not recognize income upon the grant of restricted share units.
Upon payment of the awards, the participant generally will
recognize ordinary income in an amount equal to the cash and the
fair market value of any unrestricted shares received.
Other Share-Based Awards and Cash-Based
Awards. A participant generally will recognize ordinary
income upon the payment of other share-based awards or cash-based
awards in an amount equal to the cash and the fair market value of
any unrestricted shares received.
Dividend Equivalents. Any dividend
equivalents awarded with respect to awards granted under the 2011
Plan and paid in cash or unrestricted shares will be taxed to the
participant at ordinary income rates when received by the
participant.
Section 409A. The 2011 Plan permits the
grant of various types of awards that may or may not be exempt from
Section 409A of the Code. If an award is subject to Section 409A,
and if the requirements of Section 409A are not met, the taxable
events as described above could apply earlier than described and
could result in the imposition of additional taxes and penalties.
Restricted shares awards, unrestricted shares awards, stock options
and SARs that comply with the terms of the 2011 Plan are designed
to be exempt from the application of Section 409A. Restricted share
units and dividend equivalents granted under the 2011 Plan will be
subject to Section 409A unless they are designed to satisfy the
short-term deferral exemption (or another applicable exception). If
not exempt, those awards will be designed to meet the requirements
of Section 409A in order to avoid early taxation and
penalties.
Tax Consequences to Us. When a
participant recognizes ordinary compensation income as a result of
an award granted under the 2011 Plan, we may be permitted to claim
a federal income tax deduction for such compensation, subject to
various limitations that may apply under applicable
law.
33
OTHER MATTERS
Registration with the SEC. We intend to file a Registration
Statement on Form S-8 relating to the issuance of additional common
shares under the 2011 Plan with the SEC under the Securities Act of
1933, as soon as is practicable after approval by our stockholders
of the increase in shares available under the 2011
Plan.
Securities Authorized for Issuance Under
Equity Compensation Plans. The table below provides
information on our equity compensation plans as of June 30,
2019:
|
Equity Compensation Plan Information
as of June 30, 2019
|
|||
|
Plan category
|
Number of securities to be issued upon
exercise of outstanding options, warrants and rights
|
Weighted-average exercise price of
outstanding options, warrants and rights
|
Number of securities remaining
available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation
plans approved by security holders
|
24,763,483(1)
|
$0.85(2)
|
4,293,461
|
|
Equity compensation
plans not approved by security holders
|
25,000(3)
|
$0.70
|
-
|
|
Total
|
24,788,483
|
|
4,293,461
|
(1)
Includes 14,344,550
options and 10,327,833 restricted stock units granted under our
2011 Stock Incentive Plan and 91,100 options granted under our 2005
Stock Plan. Our 2005 Stock Plan has terminated, but termination
does not affect awards that are currently outstanding under this
plan. The shares subject to outstanding awards under the 2005 Stock
Plan, if forfeited prior to exercise, will become available for
issuance under the 2011 Stock Incentive Plan.
(2)
The amount in
column (a) for equity compensation plans approved by security
holders includes 10,327,833 shares reserved for issuance on vesting
of outstanding restricted stock units, granted under our 2011 Stock
Incentive Plan, which vest on various dates through June 24, 2023,
subject to the fulfillment of service, market conditions, or
performance conditions. Because no exercise price is required for
issuance of shares on vesting of the restricted stock units, the
weighted-average exercise price in column (b) does not take the
restricted stock units into account.
(3)
Consists of two
warrants to purchase 12,500 shares at $0.70 per share issued in
connection with a contract for financial advisory
services.
34
Current Equity Compensation Plan
Information. As
of April 29, 2020, there were 14,242,337 shares subject to issuance
upon exercise of outstanding options under all of our equity
compensation plans referred to in the table below, at a weighted
average exercise price of $0.84, and with a weighted average
remaining life of 6.5 years. There were a total of 9,567,620 shares
subject to outstanding restricted stock unit awards. As of April
29, 2020, there were 4,610,212 shares available for future issuance
under the 2011 Plan, which is the only equity compensation plan for
which any shares are available for future issuance.
|
Equity Compensation Plan Information
as of April 29, 2020
|
|||
|
Plan category
|
Number of securities to be issued upon
exercise of outstanding options, warrants and rights
|
Weighted-average exercise price of
outstanding options, warrants and rights
|
Number of securities remaining
available for future issuance under equity compensation plans
(excluding securities reflected in column (a))
|
|
|
(a)
|
(b)
|
(c)
|
|
Equity compensation
plans approved by security holders
|
23,809,957(1)
|
$0.84(2)
|
4,610,212
|
|
Equity compensation
plans not approved by security holders
|
25,000(3)
|
$0.70
|
-
|
|
Total
|
23,834,957
|
|
4,610,212
|
(1)
Includes 14,228,337
options and 9,567,620 restricted stock units granted under our 2011
Stock Incentive Plan and 14,000 options granted under our 2005
Stock Plan. Our 2005 Stock Plan has terminated, but termination
does not affect awards that are currently outstanding under this
plan. The shares subject to outstanding awards under the 2005 Stock
Plan, if forfeited prior to exercise, will become available for
issuance under the 2011 Stock Incentive Plan.
(2)
The amount in
column (a) for equity compensation plans approved by security
holders includes 9,567,620 shares reserved for issuance on vesting
of outstanding restricted stock units, granted under our 2011 Stock
Incentive Plan, which vest on various dates through June 24, 2023,
subject to the fulfillment of service, market conditions, or
performance conditions. Because no exercise price is required for
issuance of shares on vesting of the restricted stock units, the
weighted-average exercise price in column (b) does not take the
restricted stock units into account.
(3)
Consists of two
warrants to purchase 12,500 shares at $0.70 per share issued in
connection with a contract for financial advisory
services.
There
have been no grants of any options, warrants or rights under the
2011 Plan or otherwise between April 29, 2020 and the date of this
proxy statement, May [ ∙ ], 2020.
RECOMMENDATION OF THE BOARD
The board recommends a vote FOR an increase in common stock
available for issuance under our 2011 Stock Incentive Plan by
10,000,000 shares.
[END OF ITEM THREE]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
35
ITEM FOUR: APPROVAL OF AN AMENDMENT TO OUR RESTATED CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON
STOCK
Increase in authorized capital resolution and
amendment. On March 24, 2020, the board of directors adopted
a resolution which authorizes, subject to stockholder approval, an
amendment to our restated Certificate of Incorporation to increase
our authorized common stock, $0.01 par value per share, from
300,000,000 shares to 500,000,000 shares. The additional common
stock to be authorized by adoption of this amendment would have
rights identical to our currently authorized and outstanding common
stock. The number of authorized shares of our preferred stock,
10,000,000 shares, will not be affected by this
amendment.
Text of the increase in authorized capital
resolution and amendment. The complete text of the increase
in authorized capital resolution and amendment is set forth as
Appendix B to this proxy statement. If this proposal is approved,
the amendment will become immediately effective upon its filing
with the Secretary of State of Delaware, which is expected to occur
promptly after the virtual annual meeting.
Purpose and background of increase in
authorized capital. The increase in authorized capital will
increase the number of shares of our common stock available to be
issued. Due in part to a series of offerings, including offerings
of stock and warrants, which we made in order to complete required
clinical trials and prepare regulatory filings for Vyleesi®
(bremelanotide), approximately 91% of our authorized common stock
is now either issued, reserved for issuance on conversion of Series
A preferred stock, or reserved for issuance under existing
warrants, options, restricted stock units and stock incentive
plans. We are seeking this increase in authorized common stock in
order to:
●
have sufficient
authorized common stock available for future financings or other
business reasons, including strategic acquisitions,
●
enable us to
provide equity incentives through warrants to key contractors,
and
●
increase the number
of shares available under our 2011 Stock Incentive Plan, as
discussed in Item Three above.
For the
reasons listed above and as discussed below, the board and
management believe it is in the best interests of Palatin and its
stockholders to increase the authorized common stock.
The
following table shows our common stock outstanding and issuable or
reserved for issuance as of April 29, 2020.
36
|
|
Common Stock Outstanding or Reserved
|
|
Common stock
outstanding
|
229,258,400
|
|
Shares of common
stock issuable upon conversion of Series A preferred
stock
|
66,059
|
|
Shares of common
stock issuable upon exercise of outstanding warrants
|
15,083,374
|
|
Shares of common
stock issuable upon exercise or vesting of outstanding stock
options and restricted stock units under all plans
|
23,809,957
|
|
Shares of common
stock available for issuance under our 2011 Stock Incentive
Plan
|
4,610,212
|
|
Total
|
272,828,002
|
The
board of directors believes it is in the best interests of Palatin
and its stockholders to have sufficient additional authorized but
unissued shares of common stock available in order to provide
flexibility for corporate action in the future. Management believes
that the availability of additional authorized shares for issuance
from time to time in the board’s discretion, such as in
connection with stock options and rights, including our 2011 Stock
Incentive Plan, future financings, incentives for key contractors,
possible acquisitions of other companies, investment opportunities
or for other corporate purposes, is desirable to allow Palatin to
enter into such transactions in a timely way.
We
currently have no specific understandings, arrangements, agreements
or other plans to issue, in connection with future financings,
acquisitions or otherwise, any of the additional authorized but
unissued shares that would be available as a result of the proposed
increase in the number of authorized shares of our common stock.
However, the board believes that the currently unissued shares do
not provide sufficient flexibility for corporate action in the
future, including future financings.
An
increase in the number of authorized shares of our common stock
could have the effect of making it more difficult to, or
discouraging an attempt to, obtain control of Palatin by means of a
takeover bid that our board determines is not in our best interests
and the best interests of our stockholders. However, our board does
not intend or view the proposed increase in authorized common stock
as an anti-takeover measure and is not proposing the increase in
response to any attempt or plan to obtain control of
Palatin.
If the
increase in authorized common stock is approved, we will not
solicit further authorization by vote of the stockholders for
issuance of the additional shares of common stock, except as
required by law, regulatory authorities, the rules of the NYSE
American or any other stock exchange on which our shares may then
be listed. The issuance of additional shares of common stock could
have the effect of diluting existing stockholder earnings per
share, book value per share and voting power. Our stockholders do
not have any preemptive right to purchase or subscribe for any part
of any new or additional issuance of our securities.
RECOMMENDATION OF THE BOARD
The board recommends that stockholders vote FOR the increased
common stock authorization.
[END OF ITEM FOUR]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
37
ITEM FIVE: ADVISORY APPROVAL OF THE COMPENSATION OF OUR NAMED
EXECUTIVE OFFICERS
As
required by Section 14A of the Securities Exchange Act of 1934, as
amended, we are seeking an advisory, non-binding stockholder vote
with respect to the compensation of our named executive officers
listed in the Summary Compensation Table in the “Executive
Compensation” section of this proxy statement (sometimes
referred to as the “NEOs”) for the fiscal year ended
June 30, 2019 (“fiscal 2019”), as disclosed in this
proxy statement pursuant to Item 402 of Regulation S-K. This vote
is not intended to address any specific item of compensation, but
rather the overall compensation of our NEOs and the philosophy,
policies and practices described in this proxy statement. This vote
is commonly known as a “say-on-pay” advisory
vote.
The
board of directors, consistent with the advisory vote of the
stockholders at the 2019 annual meeting, has adopted an annual
frequency for a say-on-pay advisory vote.
Our
executive compensation program is based on pay for performance. Our
NEOs are compensated based on advancing our product candidates,
developing partnerships with pharmaceutical companies that add
value to our product candidates, and seeking financing to support
our development programs. We believe that our NEO compensation
program aligns incentive compensation with the long-term interests
of our stockholders. The board encourages you to review the
Executive Compensation section of this proxy statement, including
the Compensation Discussion and Analysis, for additional details of
our executive compensation program.
This
past year we sought feedback from our largest 25 institutional
investors, representing approximately 22% of outstanding shares.
Discussions with investors who responded to our outreach efforts
(and others with whom we had discussions) touched on several
themes, including stockholders’ desires that a meaningful
portion of long-term incentives be allocated to performance-based
equity based on achieving longer-term performance goals closely
linked to our business strategy. Consistent with discussions with
investors both this past year and last year, changes to our
executive compensation that were implemented in fiscal 2018 and
2019 included a performance-based component.
We
believe that NEO compensation for the fiscal year ended June 30,
2019 was effective in retaining and motivating our NEOs to work
toward our annual and long-term goals, and well within the range of
normal practices for companies of our size and in our industry. See
“Compensation Discussion and Analysis” under the
Executive Compensation section below. Our NEOs are compensated in
accordance with three-year employment agreements that are designed
to motivate our NEOs to achieve both annual and long-term
financial, operational and strategic objectives. See
“Employment Agreements” under the Executive
Compensation section below Accordingly, we ask for our stockholders
to indicate their support for the compensation paid to our NEOs by
voting FOR the following non-binding resolution at the
meeting:
RESOLVED, that the
stockholders approve the compensation of the named executive
officers for the fiscal year ended June 30, 2019 listed in the
Summary Compensation Table in the Executive Compensation section of
the proxy statement, as disclosed pursuant to Item 402 of
Regulation S-K, including the compensation tables and narrative
discussion.
RECOMMENDATION
OF THE BOARD
The board recommends a vote FOR the approval of the compensation of
the NEOs, as stated in the above non-binding
resolution.
[END OF ITEM FIVE]
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
38
EXECUTIVE COMPENSATION
Compensation Discussion and Analysis
The following compensation discussion and analysis contains
statements regarding future individual and corporate performance
targets and goals. These targets and goals are disclosed and
discussed in the context of Palatin’s compensation programs
and should not be understood to be statements of management’s
expectations or guidance.
This
Compensation Discussion and Analysis describes the compensation
program for our NEOs. During fiscal 2019 our NEOs
were:
●
Carl Spana, Ph.D.,
our President and Chief Executive Officer (our “CEO”);
and
●
Stephen T. Wills,
our Chief Financial Officer and Chief Operating Officer (our
“CFO/COO”).
The
material elements of our executive compensation program during
fiscal 2019 are also described in this Compensation Discussion and
Analysis, as well as an overview of our executive compensation
philosophy and our related policies and practices.
Our Company
We are
a specialized biopharmaceutical company developing first-in-class
medicines based on molecules that modulate the activity of the
melanocortin and natriuretic peptide receptor systems.
Vyleesi®, the trade name for bremelanotide, a peptide
melanocortin receptor 4 (MC4r) agonist, was approved by the U.S.
Food and Drug Administration (“FDA”) in June 2019 for
the treatment of premenopausal women with acquired, generalized
hypoactive sexual desire disorder (“HSDD”), which is a
type of female sexual disorder (“FSD”), defined as low
desire with associated distress or interpersonal difficulty. Our
product candidates are targeted, receptor-specific therapeutics for
the treatment of diseases with significant unmet medical need and
commercial potential.
Vyleesi. Vyleesi is a subcutaneous
injectable product for the treatment of HSDD in premenopausal
women. Vyleesi is a synthetic peptide analog of the naturally
occurring hormone alpha-MSH (melanocyte-stimulating hormone). Our
exclusive North American licensee for Vyleesi is AMAG
Pharmaceuticals, Inc. (“AMAG”). We have also licensed
rights to Vyleesi for the People’s Republic of China, Taiwan,
Hong Kong S.A.R. and Macau S.A.R. (collectively, the “Chinese
Territories”) and the Republic of Korea
(“Korea”).
We
retain worldwide rights for Vyleesi for HSDD and all other
indications outside North America, Korea and the Chinese
Territories. We are actively seeking potential partners for
marketing and commercialization rights for Vyleesi for HSDD outside
the licensed territories. However, we may not be able to enter into
suitable agreements with potential partners on acceptable terms, if
at all.
39
Melanocortin Receptor Systems. There are
five melanocortin receptors, MC1r through MC5r. Modulation of these
receptors, through use of receptor-specific agonists, which
activate receptor function, or receptor-specific antagonists, which
block receptor function, can have significant pharmacological
effects. Our new product development activities primarily focus on
MC1r agonists, with potential to treat inflammatory and autoimmune
diseases such as dry eye disease, also known as
keratoconjunctivitis sicca, uveitis, diabetic retinopathy and
inflammatory bowel disease. We believe that MC1r agonists,
including the MC1r agonist peptides we are developing, have broad
anti-inflammatory effects and appear to utilize mechanisms engaged
by the endogenous melanocortin system in regulation of the immune
system and resolution of inflammatory responses. We are also
developing peptides that are active at more than one melanocortin
receptor, and MC4r agonists, with potential utility in certain
obesity and metabolic-related disorders, including rare disease and
orphan indications.
●
PL8177, a selective
MC1r agonist peptide, is our lead clinical development candidate
for inflammatory bowel diseases, with potential applicability for
non-infectious uveitis and a number of other diseases. We filed an
Investigational New Drug (“IND”) application on PL-8177
in late 2017 and have completed subcutaneous dosing of human
subjects in a Phase 1 single and multiple ascending dose clinical
safety study. A microdose study utilizing an oral formulation of
PL-8177 in human subjects was completed in the fourth quarter of
calendar year 2018.
●
PL9643, a
pan-melanocortin receptor peptide agonist, is a development
candidate for treating ocular inflammation, including dry eye
disease. We filed an IND in December 2019 and initiated Phase 2
human clinical trials for treatment of dry eye disease in February
2020.
●
We have initiated
preclinical programs with MC4r peptides and orally-active small
molecules for treatment of rare genetic metabolic and obesity
disorders, and if results are favorable, anticipate selecting a
lead clinical development candidate and completing IND-enabling
activities in calendar year 2020.
Natriuretic Peptide Receptor Systems.
The natriuretic peptide receptor (“NPR”) system has
numerous cardiovascular functions, and therapeutic agents
modulating this system may be useful in treatment of cardiovascular
diseases, including reducing cardiac hypertrophy and fibrosis,
heart failure, acute asthma, other pulmonary diseases and
hypertension. We have designed and are developing potential NPR
candidate drugs that are selective for one or more different
natriuretic peptide receptors, including natriuretic peptide
receptor-A (“NPR-A and natriuretic peptide receptor C
(“NPR-C”).
●
PL3994 is an NPR-A
agonist we developed which has completed Phase 1 clinical safety
studies. In
conjunction with clinicians at a major research institution, PL3994
is scheduled to enter a Phase 2A clinical trial supported by a
grant from the American Heart Association in 2020.
●
PL5028, a dual
NPR-A and NPR-C agonist we developed, is in preclinical development
for cardiovascular diseases, including reducing cardiac hypertrophy
and fibrosis. We have ongoing academic collaborations with several
institutions related to PL-5028.
40
The
following chart illustrates the status of our drug development
programs.
Financial Highlights
●
Revenue – Generated revenue of
$60.3 million for fiscal 2019, compared to revenue of $67.1 million
for fiscal 2018.
●
Net Income – Reported net income
of $35.8 million for fiscal 2019, compared to net income of $24.7
million for fiscal 2018.
●
Net Income Per Share – Recorded
net income per share (basic and diluted) of $0.16 for fiscal 2019,
compared to net income per share (basic and diluted) of $0.12 for
fiscal 2018.
●
Cash at end of fiscal 2019 – Cash
and cash equivalents were $43.5 million with accounts receivable of
$60.3 million at June 30, 2019, compared to cash and cash
equivalents of $38.0 million at June 30, 2018.
41
Executive Compensation Highlights
Advisory Vote to Approve Named Executive
Officer Compensation. At our last annual meeting of
stockholders in June 2019, our non-binding stockholder advisory
vote to approve the compensation of our NEOs (commonly known as a
“Say-on-Pay” vote) was supported by approximately 96%
of the votes cast for or against advisory approval. This
represented a substantial increase from the preceding annual
meeting, at which our say-on-pay proposal was supported by
approximately 48% of the votes cast. Based on the vote two years
ago and subsequent feedback from our stockholders, we substantially
expanded our disclosure in this proxy and our proxy last year
compared to prior years and adopted significant new policies
consistent with good corporate governance. We attribute the
increase in support last year on our say-on-pay proposal to the
following policies and practices the compensation committee and
board have implemented:
●
Stockholder Engagement. We attend investor conferences in
the biotechnology and pharmaceutical industries and meet with our
institutional and other investors at those conferences. We also
reached out to our top twenty-five largest institutional
stockholders (which represented 22% of the outstanding stock of
Palatin), and held teleconference meetings, led by our Chief
Financial Officer, with stockholders seeking to engage with us.
Some stockholders expressed concerns with certain elements of our
executive compensation program, which are addressed below. We
intend to continue engaging with our stockholders on a regular
basis.
|
What We Heard
|
|
Our Response
|
|
We
would like more disclosure, and more accessible disclosure, on
compensation practices.
|
|
We have
revised our proxy disclosure this year and include more disclosure
on what we have done and how our compensation process works. We
have expanded disclosure on the work of our independent
compensation advisor.
|
|
We
would like increased disclosure on metrics used for bonuses and
incentive compensation.
|
|
We have
increased our disclosure. Annual bonuses are tied to specific
performance metrics for the fiscal year, such as advancing clinical
and regulatory of our product candidates, entering into licensing
and related agreements, and our financial condition.
|
|
We
would like at least half of long-term incentives to be
performance-based
|
|
We
incorporated performance-based elements into our long-term
incentive program for 2019 and intend to structure the 2020
long-term incentive program so that half of the awards will be
subject to the achievement of pre-established performance
goals.
|
|
A
formal policy on stock ownership by NEOs and board members should
be adopted.
|
|
We have
adopted a stock ownership policy that requires our NEOs, as well as
our board members, to maintain a minimum ownership level of our
common stock. As of June 30, 2019, the most recent
“Determination Date” under the stock ownership policy,
all current NEOs and board members meet the target ownership levels
of shares with a value equal to at least five times the annual base
salary of NEOs and at least two times the annual retainer for board
members. Our stock ownership policy is on our website at
www.palatin.com/about/corporate-governance/. In addition, both
time-based and performance-based restricted stock unit awards
contain deferred delivery provisions providing for delivery of the
common stock after the grantee’s separation from service or a
defined changed in control.
|
|
A
formal “clawback” policy should be
adopted.
|
|
We have
adopted a clawback policy allowing Palatin to recover related
compensation should the board determine that compensation paid to
NEOs resulted from material noncompliance with financial reporting
requirements under federal securities law. Our clawback policy is
on our website at
www.palatin.com/about/corporate-governance/.
|
|
Elimination
of “golden parachute” gross-up provisions in NEO
employment agreements.
|
|
Prior
to July 1, 2019, our employment agreements for the named executive
officers provided that they were entitled to a tax gross-up for any
golden parachute excise tax imposed on payments received in
connection with a change in control. Most investors disfavor this
type of tax gross-up benefit. In response to stockholder feedback,
effective with new employment agreements for our NEOs commencing
July 1, 2019, we removed all golden parachute excise tax gross-up
provisions. As a result, the company no longer provides tax
gross-ups for named executive officers or any other employees in
the event they are subject to golden parachute excise taxes on
payments received in connection with a change in
control.
|
42
●
Retain an Independent Compensation Advisor. The compensation
committee engaged Korn Ferry Hay Group (“Hay Group”), a
nationally-recognized global human resources consulting firm, as
its independent compensation advisor in May 2019. Hay Group
principally provided analysis, advice and recommendations on named
executive officer and non-employee director compensation. The
compensation committee intends to conduct an independent
compensation advisor review at least every other fiscal year, with
the most recent review by our independent compensation advisor made
for awards in June 2019 for the fiscal year ending June 30,
2020.
●
Compensation at Risk. Our executive compensation program is
designed so that a significant portion of compensation is “at
risk” based on our performance, as well as short-term cash
and long-term equity incentives to align the interests of our
executive officers and stockholders. Long-term equity incentives
will be no less than base salaries, with at least half of long-term
equity incentives being performance-based.
●
Use a Pay-for-Performance Philosophy. The compensation
committee employs a mixture of compensation elements designed to
balance short-term goals with longer-term performance. Our
executive compensation program includes these principal
elements:
o
Base salary, which
targets the comparable position median salary for our peer
group;
o
An annual incentive
compensation opportunity, with a target bonus payout, effective for
fiscal 2020, of no less than 60% of base salary, depending on
performance, and a maximum of 100% of base salary;
and,
o
A long-term
incentive program consisting of stock option and restricted stock
unit awards. In fiscal 2019, approximately 81% of all long-term
incentive awards were allocated to time-based stock options and
performance-based restricted share units, with performance-based
restricted share units comprising 50% of issued restricted share
units. 2019 average NEO compensation is shown graphically
below.
43
The
compensation committee and board also reviewed our existing
compensation practices, and intend to continue the following
policies and practices:
●
Maintain an Independent Compensation Committee. The
compensation committee consists entirely of independent
directors.
●
Annual Executive Compensation Review. The compensation
committee conducts an annual review and approval of our
compensation strategy, utilizing an independent compensation
advisor at least every other year. This review, including a peer
group review, is intended to ensure that our compensation programs
appropriately reward corporate growth without encouraging excessive
or inappropriate risk-taking.
●
“Double Trigger” Feature for Acceleration of CE0 and
CFO/COO Equity Awards. Under employment agreements with our
NEOs, outstanding equity awards granted to our NEOs provide that,
upon a change in control of Palatin, the vesting of such awards
will accelerate only in the event of a subsequent involuntary
termination of employment (a “double-trigger”
provision).
●
No Stock Option Re-pricing. Our 2011 Stock Incentive Plan
does not permit options to purchase shares of our common stock to
be repriced to a lower exercise or strike price without the
approval of our stockholders.
●
No Dividends or Dividend Equivalents Payable on Unvested or
Undelivered Equity Awards. Under our restricted share unit
agreements, we do not pay dividends or dividend equivalents on
unvested RSU awards or vested RSU awards subject to delayed
delivery.
●
No Executive Retirement Plans. We do not offer pension
arrangements or retirement plans or arrangements to our executive
officers that are different from or in addition to those offered to
our other employees.
●
No Special Welfare or Health Benefits. Our executive
officers participate in broad-based Company-sponsored health and
welfare benefit programs on the same basis as our other full-time,
salaried employees.
Independent Compensation Advisor –
Competitive Positioning. A competitive assessment of both
our NEOs and our non-employee directors was conducted in May and
June 2019, prior to setting salaries, equity award and bonus
targets and objectives for the fiscal year starting July 1, 2019.
The compensation committee engaged Hay Group to assess total
compensation and compensation elements for both NEOs and directors,
including a comparison against a compensation peer group consisting
of the following companies:
|
AcelRx
Pharmaceuticals, Inc.
|
MEI
Pharma, Inc.
|
|
Ardelyx,
Inc.
|
Protagonist
Therapeutics, Inc.
|
|
ArQule,
Inc.
|
Rigel
Pharmaceuticals, Inc.
|
|
Calithera
Biosciences, Inc.
|
Savara
Inc.
|
|
ChemoCentryx,
Inc.
|
Stemline
Therapeutics, Inc.
|
|
Cytokinetics,
Inc.
|
Sutro
Biopharma, Inc.
|
|
Geron
Corporation
|
Syndax
Pharmaceuticals, Inc.
|
|
ImmunoGen,
Inc.
|
Verastem,
Inc.
|
|
La
Jolla Pharmaceutical
|
|
The
peer group was designed to reflect the industry and sector in which
Palatin competes, as well as companies comparable to Palatin in
terms of company life cycle, phase of development of potential
products, market capitalization and talent market.
44
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.
|
|
57
|
|
Chief
Executive Officer, President and Director
|
|
Stephen
T. Wills, MST, CPA
|
|
63
|
|
Chief
Financial Officer, Chief Operating Officer, Executive Vice
President, Secretary and Treasurer
|
Additional
information about Dr. Spana is included above under the heading
“Item One: Election of Directors.”
STEPHEN
T. WILLS, CPA, MST, currently serves as the Chief Financial Officer
(since 1997), Chief Operating Officer (since 2011), Treasurer and
Secretary of Palatin. Mr. Wills serves on the boards of directors
of MediWound Ltd. (Nasdaq: MDWD), a biopharmaceutical company
focused on treatment in the fields of severe burns, chronic and
other hard to heal wounds, since April 2017, and as Chairman since
January 2018, of Gamida Cell Ltd. (Nasdaq: GMDA), a leading
cellular and immune therapeutics company, since March 2019 (audit
and finance committee member), and of Amryt Pharma, a
biopharmaceutical company focused on developing and delivering
treatments to help improve the lives of patients with rare and
orphan diseases, since September 2019 (chairman of audit committee
and member of the finance committee). Mr. Wills also serves on the
board of trustees and executive committee of The Hun School of
Princeton, a college preparatory day and boarding school, since
2013, and as its Chairman since June 2018. Mr. Wills served on the
board of directors of Caliper Corporation, a psychological
assessment and talent development company, since March 2016, and as
Chairman from December 2016 to December 2019, when Caliper was
acquired by PSI. Mr. Wills served as Executive Chairman and Interim
Principal Executive Officer of Derma Sciences, Inc., a provider of
advanced wound care products, from December 2015 to February 2017,
when Derma Sciences was acquired by Integra Lifesciences (Nasdaq:
IART). Previously, Mr. Wills served on the board of directors of
Derma Sciences as the lead director and chairman of the audit
committee from June 2000 to December 2015. Mr. Wills served as the
Chief Financial Officer of Derma Sciences from 1997 to 2000. Mr.
Wills served as the President and Chief Operating Officer of Wills,
Owens & Baker, P.C., a public accounting firm, from 1991 to
2000. Mr. Wills, a certified public accountant, earned his Bachelor
of Science in accounting from West Chester University, and a Master
of Science in taxation from Temple University.
Fiscal 2019 Summary Compensation Table
The
following table summarizes the compensation earned by or paid to
our principal executive officer and our principal financial
officer, who constitute all of our executive officers, for fiscal
2019 and fiscal 2018. We have no defined benefit or actuarial
pension plan, and no deferred compensation plan.
45
|
Name and Principal Position
|
Fiscal
Year
|
Salary
($)
|
Stock
awards (1) ($)
|
Option
awards (1) ($)
|
Nonequity incentive plan compensation (2) ($)
|
All
other
compensation
(3) ($)
|
Total
($)
|
|
Carl Spana, Ph.D.,
Chief Executive Officer and President
|
2019
|
505,400
|
616,668
|
632,225
|
506,000
|
14,118
|
2,274,411
|
|
|
2018
|
490,700
|
1,418,500
|
1,029,882
|
263,000
|
13,857
|
3,215,939
|
|
Stephen T. Wills,
MST, CPA, Chief Financial Officer, Chief Operating Officer and
Executive Vice President
|
2019
|
461,700
|
527,826
|
542,151
|
462,000
|
14,085
|
2,007,762
|
|
|
2018
|
448,300
|
1,189,125
|
869,371
|
240,000
|
13,827
|
2,760,623
|
(1)
Amounts in these
columns represent the aggregate grant date fair value for stock
awards and option awards computed using either the Black-Scholes
model or a multifactor Monte Carlo simulation. The aggregate grant
date fair value of the performance-based restricted stock units
granted in fiscal 2019, assuming that the highest level of
performance would be achieved, was $300,428 for Dr. Spana and
$257,146 for Mr. Wills. The aggregate grant date fair value of the
performance-based stock options and performance-based restricted
stock units granted in fiscal 2018, assuming that the highest level
of performance would be achieved, was as follows: for Dr. Spana,
$313,938 for performance-based stock options and $531,250 for
performance-based restricted stock units; and for Mr. Wills,
$234,985 for performance-based stock options and $382,500 for
performance-based restricted stock units. For a description of the
assumptions we used to calculate these amounts, see Note 13 to the
consolidated financial statements included in our Annual
Report.
(2)
Annual incentive
amounts.
(3)
Consists of
matching contributions to 401(k) plan.
Base Salary
The
salary for each named executive officer is based, among other
factors, upon job responsibilities, level of experience, individual
performance, comparisons to the salaries of executives in similar
positions obtained from market surveys, and internal comparisons.
The compensation committee considers changes in the base salaries
of our named executive officers annually. In fiscal 2019, the
compensation committee approved merit increases of 3.0% for each
named executive officer, which was consistent with our overall
merit pool for employees.
Annual Incentive Program
We
provide annual incentive opportunities to our named executive
officers to promote the achievement of annual performance
objectives. Each year, the compensation committee establishes the
target annual incentive opportunity for each named executive
officer, which is based on a percentage of his base salary. For
fiscal 2019, the target annual incentive opportunity for each named
executive officer equaled 50% of his annual base salary, which
remained unchanged from fiscal 2018.
46
The
2019 annual incentive bonus for the named executive officers was
determined based on corporate performance and individual
achievements and performance, as warranted. In determining the
annual incentive bonus opportunity for executives, the
executive’s annual base salary is multiplied by the target
bonus percentage. The resulting amount is then multiplied by the
corporate performance percentage approved by the compensation
committee, which is dependent on the achievement of corporate
performance goals, and also potentially adjusted upwards or
downwards for individual executives based on their individual
contribution toward the corporate results during the relevant year.
The corporate objectives are established so that target attainment
is not assured. Instead, our executives are required to demonstrate
significant effort, dedication, and achievement to attain payment
for performance at target or above.
The
following table briefly describes each category of corporate
objectives, the relative weighting of each objective, and the
related achievement level:
|
Corporate
Objectives
Related to:
|
Weight
|
Achievement Level
|
Discretionary Adjustment*
|
Total Weighted Achievement
|
|
FSD (Bremelanotide)
Program
|
70%
|
100%
|
100%
|
140%
|
|
Anti-Inflammatory
Program
|
10%
|
100%
|
100%
|
20%
|
|
Natriuretic Peptide
Program
|
10%
|
100%
|
100%
|
20%
|
|
Corporate
|
10%
|
100%
|
100%
|
20%
|
|
Total
Payout
|
200%
|
|||
*Discretionary
adjustments were primarily related to approval of the bremelanotide
NDA by FDA, which resulted in earning a $60 million milestone
payment from AMAG, our North American licensee, and secondarily for
development and implementation of a melanocortin-based
anti-inflammatory program.
For
fiscal 2019, the compensation committee determined that our named
executive officers achieved 200% of their target objectives,
consisting primarily of progress relating to the Vyleesi program,
including FDA approval for Vyleesi and secondarily to advances in
MC1r anti-inflammatory programs and other corporate items, and our
financial condition, including earning a milestone payment of
$60,000,000 based on FDA approval for Vyleesi. Each named executive
officer received a payout under the 2019 annual incentive program
equal to 200% of his target annual incentive opportunity, or
$506,000 for Dr. Spana and $462,000 for Mr. Wills (subject to
rounding conventions).
Long-Term Incentive Program
The
total direct compensation levels for our named executive officers
are heavily weighted to long-term incentive opportunities. This
structure is intended to align executives’ interests with
those of our stockholders, enhance our retention incentives and
focus our executives on delivering sustainable performance over the
longer-term.
47
The
design of this program has evolved over the past several years to
reflect core performance metrics and an incentive structure the
compensation committee believes is necessary to drive our long-term
success and that reflects feedback received from investors during
our stockholder engagement process.
Each
year, the compensation committee establishes the target long-term
incentive opportunity for each named executive officer, which is
based on a percentage of his base salary. For fiscal 2019, the
target long-term incentive opportunity for each named executive
officer equaled 250% of base salary for Dr. Spana and 235% of base
salary for Mr. Wills.
On June
26, 2018, we granted 356,000 restricted stock units to Dr. Spana
and 303,000 restricted stock units to Mr. Wills, which vest as to
50% of the number of shares granted on each anniversary of the
grant date. We also granted 533,000 stock options to Dr. Spana and
454,000 stock options to Mr. Wills, which vest as to 25% of the
number of shares granted on each anniversary of the grant date.
These options have an exercise price of $1.00, the fair market
value of the common stock on the date of grant, and they expire on
June 26, 2028.
On June
20, 2017 we granted 595,000 restricted stock units to Dr. Spana and
545,000 restricted stock units to Mr. Wills, which vest as to
50% on each anniversary of the grant date. We also granted 938,000
stock options to Dr. Spana and 859,000 stock options to Mr.
Wills, which vest as to 25% on each anniversary of the grant date.
These options have an exercise price of $0.37, the fair market
value of the common stock on the date of grant, and they expire on
June 20, 2027.
In the
fall of 2017, the compensation committee retained the Hay Group, a
nationally-recognized global human resources consulting firm, as
its independent compensation advisor. Hay Group principally
provided analysis, advice and recommendations regarding named
executive officer and non-employee director compensation. Hay Group
developed a peer group of similarly-situated public companies which
was used as the basis for competitive market analysis both for
beneficial ownership and target total cash compensation. It was
determined that beneficial ownership levels, on a fully diluted
basis, for the named executive officers was below the peer group
twenty-fifth percentile, and significantly below the peer group
median. It was determined by the compensation committee to make a
special grant to the named executive officers to position each
executive around peer group median levels, and to promote
performance and retention.
As a
result, on December 12, 2017, we granted 625,000 time-based
restricted stock units to Dr. Spana and 575,000 time-based
restricted stock units to Mr. Wills, each of which vest as to 25%
of the number of shares granted on each anniversary of the grant
date. We also granted 625,000 performance-based stock units to Dr.
Spana and 467,500 performance-based stock units to Mr. Wills. The
performance-based stock units vest, if at all, during a performance
period ending December 31, 2020, as follows:
●
100% of the granted
stock units upon achievement of a closing price for Palatin common
stock equal to or greater than $1.50 per share for 20 consecutive
trading days,
●
30% of the granted
stock units if the FDA accepts for filing an NDA for Vyleesi for
HSDD,
●
50% of the granted
stock units upon approval by the FDA of an NDA for Vyleesi for
HSDD, or
●
20% of the granted
stock units upon entry into one or more licensing agreements for
the commercialization of Vyleesi in selected
countries.
48
We also
granted 625,000 performance-based stock options to Dr. Spana and
467,500 performance-based stock options to Mr. Wills, each having
an exercise price of $0.85, the fair market value of the common
stock on the date of grant. The performance-based stock options
vest, if at all, during a performance period ending December 31,
2020, upon the same performance criteria as for the
performance-based stock units.
Eighty
percent of the performance-based stock units and the
performance-based stock options had vested as of June 30, 2019,
upon ratification by the Board of the compensation
committee’s determination that the FDA had accepted for
filing an NDA for Vyleesi for HSDD in June 2018 and FDA approval of
Vyleesi in June 2019.
The
following table shows the allocation of performance and time-based
awards on a share basis for fiscal 2019 and fiscal 2018. Awards
included restricted stock unit awards and stock option
awards.
|
Name and Principal Position
|
Fiscal
Year
|
Time-based stock awards (RSUs) (1)
|
Performance-based stock awards (RSUs) (1)
|
Time-based option
awards (1)
|
Performance-based option awards (1)
|
|
Carl Spana, Ph.D.,
Chief Executive Officer and President
|
2019
|
236,000
|
236,000
|
744,000
|
-
|
|
|
2018
|
981,000
|
625,000
|
1,158,000
|
625,000
|
|
Stephen T. Wills,
MST, CPA, Chief Financial Officer, Chief Operating Officer and
Executive Vice President
|
2019
|
202,000
|
202,000
|
638,000
|
-
|
|
|
2018
|
878,000
|
467,500
|
1,029,000
|
467,500
|
(1)
Amounts in these
columns represent the aggregate maximum number of shares obtainable
based on awards in the relevant fiscal year, and assuming all
awards ultimately vest.
On June
24, 2019, as part of our 2020 long-term incentive program, we
granted 236,000 time-based restricted stock units and 236,000
performance-based restricted stock units to Dr. Spana, and 202,000
time-based restricted stock units and 202,000 performance-based
restricted stock units to Mr. Wills. The time-based restricted
stock units vest as to 25% of the number of shares granted at each
anniversary of the date of grant. The performance-based restricted
stock units vest on performance criteria relating to advancement of
MC1r programs, including initiation of clinical trials, and
licensing of Vyleesi in additional countries or regions. On June
24, 2019, we also granted 744,000 stock options to Dr. Spana and
638,000 stock options to Mr. Wills, which vest as to 25% of the
number of shares granted on each anniversary of the date of grant.
The options have an exercise price of $1.34, the fair market value
of the common stock on the business day immediately preceding the
date of grant, and they expire on June 24, 2029.
49
Employment Agreements
Effective July 1,
2019, we entered into employment agreements with Dr. Spana and Mr.
Wills which continue through June 30, 2022 unless terminated
earlier. Under these agreements, which replaced substantially
similar agreements that expired on June 30, 2019, Dr. Spana is
serving as Chief Executive Officer and President at a base salary
of $600,000 per year and Mr. Wills is serving as Chief Financial
Officer and Chief Operating Officer at a base salary of $550,000
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 performance 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. 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 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.
50
Outstanding Equity Awards at 2019 Fiscal Year-End
The
following table summarizes all of the outstanding equity-based
awards granted to our named executive officers as of June 30, 2019,
the end of our fiscal year.
|
|
|
Option awards (1)
|
Stock awards (2)
|
|||||||
|
Name
|
Option or
stock
award
grant
date
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Equity incentive plan award: number of securities underlying
unexercised unearned options (#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number of shares or units of stock that have not
vested
(#)
|
Market value of shares or units of stock that have not
vested
($) (3)
|
Equity incentive plan awards: number of unearned shares, unit or
other rights that have not vested (#)
|
Equity incentive plan awards: market or payout value of unearned
shares, units or other rights that have not vested ($)
|
|
Carl
Spana
|
07/01/09
|
25,000
|
-
|
|
2.80
|
07/01/19
|
|
|
|
|
|
|
06/22/11
|
300,000
|
-
|
|
1.00
|
06/22/21
|
|
|
|
|
|
|
07/17/12
|
150,000
|
-
|
|
0.72
|
07/17/22
|
|
|
|
|
|
|
06/27/13
|
275,000
|
-
|
|
0.62
|
06/27/23
|
|
|
|
|
|
|
06/25/14
|
175,000
|
-
|
|
1.02
|
06/25/24
|
|
|
|
|
|
|
06/11/15
|
300,000
|
-
|
|
1.08
|
06/11/25
|
|
|
|
|
|
|
09/07/16
|
277,000
|
155,000
|
|
0.68
|
09/07/26
|
|
|
|
|
|
|
06/20/17
|
469,000
|
469,000
|
|
0.37
|
06/20/27
|
|
|
|
|
|
|
12/12/17
|
156,250
|
487,750
|
|
0.85
|
12/12/27
|
|
|
|
|
|
|
12/12/17
|
500,000
|
-
|
125,000
|
0.85
|
12/12/27
|
|
|
|
|
|
|
6/26/18
|
133,250
|
399,750
|
|
1.00
|
6/26/28
|
|
|
|
|
|
|
6/24/19
|
-
|
744,000
|
|
1.34
|
6/24/29
|
|
|
|
|
|
|
12/12/17
|
|
|
|
|
|
468,750
|
543,750
|
125,000
|
145,000
|
|
|
6/26/18
|
|
|
|
|
|
178,000
|
206,480
|
-
|
-
|
|
|
6/24/19
|
|
|
|
|
|
236,000
|
273,760
|
236,000
|
273,760
|
|
|
Total
Stock Awards
|
|
|
|
882,750
|
$1,023,990
|
361,000
|
$418,760
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
StephenT.
Wills
|
07/01/09
|
20,000
|
-
|
|
2.80
|
07/01/19
|
|
|
|
|
|
|
06/22/11
|
250,000
|
-
|
|
1.00
|
06/22/21
|
|
|
|
|
|
|
07/17/12
|
135,000
|
-
|
|
0.72
|
07/17/22
|
|
|
|
|
|
|
06/27/13
|
250,000
|
-
|
|
0.62
|
06/27/23
|
|
|
|
|
|
|
06/25/14
|
150,000
|
-
|
|
1.02
|
06/25/24
|
|
|
|
|
|
|
06/11/15
|
270,000
|
-
|
|
1.08
|
06/11/25
|
|
|
|
|
|
|
09/07/16
|
253,500
|
142,500
|
|
0.68
|
09/07/26
|
|
|
|
|
|
|
06/20/17
|
429,500
|
429,500
|
|
0.37
|
06/20/27
|
|
|
|
|
|
|
12/12/17
|
143,750
|
431,250
|
|
0.85
|
12/12/27
|
|
|
|
|
|
|
12/12/17
|
372,500
|
-
|
95,000
|
0.85
|
12/12/27
|
|
|
|
|
|
|
6/26/18
|
113,500
|
340,500
|
|
1.00
|
6/26/28
|
|
|
|
|
|
|
6/24/19
|
-
|
638,000
|
|
1.34
|
6/24/29
|
|
|
|
|
|
|
12/12/17
|
|
|
|
|
|
431,250
|
500,250
|
95,000
|
110,200
|
|
|
6/26/18
|
|
|
|
|
|
151,500
|
175,740
|
-
|
-
|
|
|
6/24/19
|
|
|
|
|
|
202,000
|
234,320
|
202,000
|
234,320
|
|
|
Total
Stock Awards
|
|
|
|
784,750
|
$910,310
|
297,000
|
$344,520
|
||
(1)
Stock option
vesting schedules: all options granted on or September 6, 2016 have
fully vested. Options granted after September 6, 2016 vest over
four years with 1/4 of the shares vesting per year starting on the
first anniversary of the grant date, provided that the named
executive officer remains an employee. See “Termination and
Change-In-Control Arrangements” below, except for
performance-based options granted on December 12, 2017, which vest
according to the terms of the grant described above.
51
(2)
Time-based stock
award vesting schedule: restricted stock units granted on December
12, 2017, as to 625,000 shares for Dr. Spana and 575,000 shares for
Mr. Wills, which vest in equal amounts over a four year period,
provided that the named executive officer remains an employee;
restricted stock units granted on June 26, 2018, as to 356,000
shares for Dr. Spana and 303,000 shares for Mr. Wills, which vest
in equal amounts over a two year period, provided that the named
executive officer remains an employee; and restricted stock units
granted on June 24, 2019 as to 236,000 shares for Dr. Spana and
202,000 shares for Mr. Wills, which vest in equal amounts over a
four year period, provided that the named executive officer remains
an employee. Both time-based and performance-based restricted stock
unit awards prior to fiscal 2019 contain deferred delivery
provisions providing for delivery of the common stock after the
grantee’s separation from service or a defined change in
control. See “Stock Options and Restricted Stock Unit
Awards” above and “Termination and Change-In-Control
Arrangements” below.
(3)
Calculated by
multiplying the number of restricted stock units by $1.16, the
closing market price of our common stock on June 28, 2019, the last
trading day of our most recently completed fiscal
year.
Termination and Change-In-Control Arrangements
The
employment agreements, stock option agreements and restricted stock
unit agreements with Dr. Spana and Mr. Wills 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 will receive 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 two
years, 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 After Death or
Disability. In the event of the executive’s death or
disability, we will provide lump sum severance pay equal to 24
months of base pay, as well as the opportunity for COBRA benefits
as described above under “Termination Without Severance
Compensation.”
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 in a lump sum, plus medical and
dental benefits at our expense, for a period of two years 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%
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 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. 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.
52
Option and Restricted Stock Unit Vesting Upon a Change in
Control. Pursuant to the employment agreements, options and
restricted stock units granted under the 2011 Stock Incentive Plan
vest upon termination of the employee within twelve months
following a change in control. If any options granted under the
2005 Stock Plan 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)
any person or
entity acquires more than 50% of the voting power of our
outstanding securities;
(b)
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;
(c)
the consummation of
a merger or consolidation; or
(d)
we sell
substantially all our assets.
The
term “cause” means:
(a)
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 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;
(b)
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
(c)
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)
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;
(b)
a material
reduction in the executive’s salary;
(c)
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;
53
(d)
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.
STOCK OWNERSHIP INFORMATION
The
rules of the SEC require us to disclose failures to file or late
filings of reports of stock ownership and changes in stock
ownership required to be filed by our directors, officers and
holders of more than 10% of our common stock. To the best of our
knowledge, all of the filings for our directors, officers and
holders of more than 10% of our common stock were made on a timely
basis in fiscal 2019.
BENEFICIAL OWNERSHIP OF MANAGEMENT AND OTHERS
The
tables below show the beneficial stock ownership and voting power,
as of May [ ∙ ], 2020, of:
●
each director, each
nominee for 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 our
common stock or Series A preferred stock.
“Beneficial
ownership” here means direct or indirect voting or
dispositive power over outstanding stock and stock that a person
has the right to acquire now or within 60 days after May [ ∙
], 2020. See the footnotes for more detailed explanations of the
holdings. Except as noted, to our knowledge, the persons named in
the tables beneficially own and have sole voting and dispositive
power over all shares listed.
The
common stock has one vote per share and the Series A preferred
stock has approximately 16 votes per share of Series A preferred
stock. Voting power is calculated on the basis of the aggregate of
common stock and Series A preferred stock outstanding as of May [
∙ ], 2020, on which date 229,258,400 shares of common stock
and 4,030 shares of Series A preferred stock, convertible into
66,059 shares of common stock, were outstanding.
Under
our Insider Trading and Securities Law Compliance Policy,
employees, directors and officers may not engage in hedging,
monetization or pledging transactions of our securities. None of
the shares of our management and directors shown on the table below
are pledged.
The
address for all members of our management and directors is c/o
Palatin Technologies, Inc., 4B Cedar Brook Drive, Cranbury, NJ
08512. Addresses of other beneficial owners are in the applicable
table.
54
MANAGEMENT:
|
Class
|
Name of beneficial owner
|
Amount and nature of beneficial ownership
|
Percent of class
|
Percent of total voting power
|
|
Common
|
Carl Spana,
Ph.D.
|
7,008,102(1)
|
3.0%
|
*
|
|
Common
|
Stephen T.
Wills
|
6,291,489(2)
|
2.7%
|
*
|
|
Common
|
John K.A.
Prendergast, Ph.D.
|
1,151,017(3)
|
*
|
*
|
|
Common
|
Robert K. deVeer,
Jr.
|
659,140(4)
|
*
|
*
|
|
Common
|
J. Stanley
Hull
|
611,800(5)
|
*
|
*
|
|
Common
|
Alan W. Dunton,
M.D.
|
568,352(6)
|
*
|
*
|
|
Common
|
Angela
Rossetti
|
493,000(7)
|
*
|
*
|
|
Common
|
Arlene M.
Morris
|
435,000(8)
|
*
|
*
|
|
Common
|
Anthony M. Manning,
Ph.D.
|
214,000(9)
|
*
|
*
|
|
|
|
|
|
|
|
All current
directors and executive officers as a group (nine
persons)
|
17,431,900(10)
|
7.1%
|
1.2%
|
|
*Less
than one percent.
(1)
Includes 3,523,000
shares of common stock underlying outstanding options and 2,673,500
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(2)
Includes 3,070,500
shares of common stock underlying outstanding options and 2,426,500
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
55
(3)
Includes 616,250
shares of common stock underlying outstanding options and 224,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(4)
Includes 348,000
shares of common stock underlying outstanding options and 102,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(5)
Includes 348,000
shares of common stock underlying outstanding options and 102,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(6)
Includes 304,000
shares of common stock underlying outstanding options and 92,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(7)
Includes 256,500
shares of common stock underlying outstanding options and 82,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(8)
Consists of 211,500
shares of common stock underlying outstanding options and 72,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
56
(9)
Consists of 117,000
shares of common stock underlying outstanding options and 42,000
shares of common stock underlying restricted stock units, all of
which shares of common stock underlying restricted stock units have
vested but not been delivered under deferred delivery provisions
providing for delivery after the grantee’s separation from
service or a defined change in control, but does not include shares
of common stock underlying outstanding options or restricted stock
unit awards that have not vested and will not vest within 60
days.
(10)
Includes 14,610,750
shares of common stock underlying outstanding options and
restricted stock units.
MORE THAN 5% BENEFICIAL OWNERS:
|
Class
|
Name
and address of beneficial owner
|
Amount and nature of beneficial ownership (1)
|
Percent
of class
|
Percent of total voting
power
|
|
Common
|
BlackRock,
Inc.
55 East 52nd
Street
New York, NY
10055
|
15,743,167(2)
|
6.9%
|
6.7%
|
|
Series
A
Preferred
|
Steven N.
Ostrovsky
43 Nikki
Ct.
Morganville, NJ
07751
|
500
|
12.4%
|
*
|
|
Series
A
Preferred
|
Thomas L. Cassidy
IRA Rollover
38 Canaan
Close
New Canaan, CT
06840
|
500
|
12.4%
|
*
|
|
Series
A
Preferred
|
Jonathan E.
Rothschild
300 Mercer St.,
#28F
New York, NY
10003
|
500
|
12.4%
|
*
|
|
Series
A
Preferred
|
Arthur J.
Nagle
19 Garden
Avenue
Bronxville, NY
10708
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Thomas P. and Mary
E. Heiser, JTWROS
10 Ridge
Road
Hopkinton, MA
01748
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Carl F.
Schwartz
31 West 87th
St.
New York, NY
10016
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Michael J.
Wrubel
3650 N. 36 Avenue,
#39
Hollywood, FL
33021
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Myron M.
Teitelbaum, M.D.
175 Burton
Lane
Lawrence, NY
11559
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Laura Gold
Galleries Ltd. Profit Sharing Trust Park South Gallery at Carnegie
Hall
154 West 57th
Street, Suite 114
New York, NY
10019
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Laura
Gold
180 W. 58th
Street
New York, NY
10019
|
250
|
6.2%
|
*
|
|
Series
A
Preferred
|
Nadji T.
Richmond
20 E. Wedgewood
Glen
The Woodlands, TX
77381
|
230
|
5.7%
|
*
|
*Less
than one percent.
(1)
Unless otherwise indicated by footnote, all share amounts represent
outstanding shares of the class indicated, and all beneficial
owners listed have, to our knowledge, sole voting and dispositive
power over the shares listed.
57
(2)
Based on a report filed on Schedule 13G/A (the “BlackRock
13G”) on February 5, 2020 by BlackRock, Inc. According to the
BlackRock 13G, BlackRock, Inc. has sole voting power with respect
to 15,409,456 of the Palatin common shares it beneficially owns and
has sole dispositive power with respect to all the Palatin common
shares it beneficially owns.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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. Our code of corporate conduct and ethics is available
at our website, www.palatin.com. Since July 1, 2018, 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.
OTHER ITEMS OF BUSINESS
We are
not aware of any matters, other than the items of business
discussed in this proxy statement, which may come before the
meeting. If other items of business properly come before the
meeting, the proxy holders will vote shares in accordance with
their judgment.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders may
submit proposals on matters appropriate for stockholder action at
annual meetings in accordance with regulations adopted by the SEC.
To be considered for inclusion in the proxy statement and form of
proxy relating to the next annual meeting of stockholders, such
proposals must be received no later than January [ ∙ ], 2021.
To be considered for presentation at the 2021 annual meeting,
although not included in the proxy statement, proposals must be
received no later than March [ ∙ ], 2021. Proposals that are
not received in a timely manner will not be voted on at the 2021
annual meeting. If a proposal is received on time, the proxies that
management solicits for the meeting may still exercise
discretionary voting authority on the proposal under circumstances
consistent with the proxy rules of the SEC. All stockholder
proposals should be marked for the attention of the Secretary at
our executive offices, 4B Cedar Brook Drive, Cranbury, NJ
08512.
Your
cooperation in giving these matters your immediate attention and
voting by Internet or telephone or by returning your proxy card is
greatly appreciated.
|
|
By order of the
board of directors,
|
|
|
|
|
|
 |
|
|
Stephen T. Wills, Secretary
|
|
|
May [ ∙ ],
2020
|
58
APPENDIX A
PALATIN TECHNOLOGIES, INC.
2011 STOCK INCENTIVE PLAN, AS AMENDED AND RESTATED
1.
Establishment, Purpose, Duration.
a. Establishment. Palatin
Technologies, Inc. (the “Company”) established an
equity compensation plan known as the Palatin Technologies, Inc.
2011 Stock Incentive Plan (the “Plan”) effective as of
March 11, 2011 (the “Effective Date”). The
Company’s stockholders originally approved the Plan on May
11, 2011 (the “Approval Date”). The Plan was amended
and restated as of March 3, 2015, amended as of April 1, 2016 and
re-approved by the Company’s stockholders on June 9, 2016,
amended and restated as of June 8, 2017, and amended as of June 26,
2018. On March 24, 2020, the Board approved an amendment to the
Plan to increase the common stock available for issuance by
10,000,000 shares, subject to approval by the Company’s
stockholders. Definitions of capitalized terms used in the Plan are
contained in Section 2 of the Plan.
b. Purpose. The purpose of the
Plan is to attract and retain Directors, Consultants, officers and
other key employees of the Company and its Subsidiaries and to
provide to such persons incentives and rewards for superior
performance.
c. Duration. No Award may be
granted under the Plan after March 10, 2025, or such earlier date
as the Board shall determine. The Plan will remain in effect with
respect to outstanding Awards until no Awards remain
outstanding.
d. Prior Plans. The Palatin
Technologies, Inc. 2005 Stock Plan, as amended (the “Prior
Plan”) terminated in its entirety effective on the Approval
Date; provided that all outstanding awards under the Prior Plan as
of the Approval Date remain outstanding and shall be administered
and settled in accordance with the provisions of the Prior
Plan.
2.
Definitions. As used in the Plan, the following definitions
shall apply.
“Applicable
Laws” means the applicable requirements relating to the
administration of equity-based compensation plans under U.S. state
corporate laws, U.S. federal and state securities laws, the Code,
the rules of any stock exchange or quotation system on which the
Shares are listed or quoted and the applicable laws of any other
country or jurisdiction where Awards are granted under the
Plan.
“Approval
Date” has the meaning given such term in Section
1(a).
“Award”
means a Nonqualified Stock Option, Incentive Stock Option, Stock
Appreciation Right, Restricted Shares Award, Restricted Share Unit,
Other Share-Based Award, or Cash-Based Award granted pursuant to
the terms and conditions of the Plan.
“Award
Agreement” means either: (i) an agreement, either in written
or electronic format, entered into by the Company and a Participant
setting forth the terms and provisions applicable to an Award
granted under the Plan; or (ii) a statement, either in written or
electronic format, issued by the Company to a Participant
describing the terms and provisions of such Award, which need not
be signed by the Participant.
A-1
“Board”
means the Board of Directors of the Company.
“Cash-Based
Award” shall mean a cash Award granted pursuant to Section 12
of the Plan.
“Cause”
as a reason for a termination of a Participant’s employment
shall have the meaning assigned such term, if any, in the
employment agreement, if any, between the Participant and the
Company or a Subsidiary, or if none, under a severance plan or
arrangement maintained by the Company or a Subsidiary that applies
to the Participant on the date of termination. If the Participant
is not a party to an employment agreement with the Company or a
Subsidiary in which such term is defined or if during the
applicable severance protection period, the Participant is not a
participant in any severance plan or arrangement maintained by the
Company or a Subsidiary, then unless otherwise defined in the
applicable Award Agreement, then the term “Cause” shall
mean: (a) (i) the Participant’s material breach of, or
habitual neglect or failure to perform the material aspects of his
or her duties; (ii) the Participant’s material failure to
follow the reasonable directives or policies established by or at
the direction of the board; or (iii) the Participant’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 Participant under subparagraphs (i) through
(iii) hereof is not cured, to the extent cure is possible, within
ten (10) days of the delivery to the Participant of written notice
thereof; (b) the willful breach by the Participant of any provision
of any confidentiality, invention and non-disclosure,
non-competition or similar agreement between the Participant and
the Company; or (c) the conviction of the Participant of, or the
entry of a pleading of guilty or nolo contendere by the Participant
to, any crime involving moral turpitude or any felony.
“Change
in Control” means 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 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) becoming 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; (b) 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) the consummation of 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 recapitalization of the Company (or similar
transaction) in which no Person 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.
A-2
“Code” means the Internal Revenue Code of 1986, as
amended.
“Committee”
means the Compensation Committee of the Board or such other
committee or subcommittee of the Board as may be duly appointed to
administer the Plan and having such powers in each instance as
shall be specified by the Board. To the extent required by
Applicable Laws, the Committee shall consist of two or more members
of the Board, each of whom is a “non-employee director”
within the meaning of Rule 16b-3 promulgated under the Exchange
Act, an “outside director” within the meaning of
regulations promulgated under Section 162(m) of the Code, and an
“independent director” within the meaning of applicable
rules of any securities exchange upon which Shares are
listed.
“Company”
has the meaning given such term in Section 1(a) and any successor
thereto.
“Consultant”
means an independent contractor that (a) performs services for the
Company or a Subsidiary in a capacity other than as an Employee or
Director and (b) qualifies as a consultant under the applicable
rules of the SEC for registration of shares on a Form S-8
Registration Statement.
“Date
of Grant” means the date as of which an Award is determined
to be effective and designated in a resolution by the Committee and
is granted pursuant to the Plan. The Date of Grant shall not be
earlier than the date of the resolution and action therein by the
Committee. In no event shall the Date of Grant be earlier than the
Effective Date.
“Detrimental
Activity” except as may be otherwise specified in a
Participant’s Award Agreement, means: (a) Engaging in any
activity of competition, as specified in any covenant not to
compete set forth in any agreement between a Participant and the
Company or a Subsidiary, including, but not limited to, the
Participant’s Award Agreement or any severance plan
maintained by the Company or a Subsidiary that covers the
Participant, during the period of restriction specified in the
agreement or plan prohibiting the Participant from engaging in such
activity; (b) Engaging in any activity of solicitation, as
specified in any covenant not to solicit set forth in any agreement
between a Participant and the Company or a Subsidiary, including,
but not limited to, the Participant’s Award Agreement or any
severance plan maintained by the Company or a Subsidiary that
covers the Participant, during the period of restriction specified
in the agreement or plan prohibiting the Participant from engaging
in such activity; (c) The disclosure of confidential information to
anyone outside the Company or a Subsidiary, or the use in other
than the Company’s or a Subsidiary’s business in
violation of any covenant not to disclose set forth in any
agreement between a Participant and the Company or a Subsidiary,
including, but not limited to, the Participant’s Award
Agreement or any severance plan maintained by the Company or a
Subsidiary that covers the Participant, during the period of
restriction specified in the agreement or plan prohibiting the
Participant from engaging in such activity; (d) The violation of
any development and inventions, ownership of works, or similar
provision set forth in any agreement between a Participant and the
Company or a Subsidiary, including, but not limited to, the
Participant’s Award Agreement or any severance plan
maintained by the Company or a Subsidiary that covers the
Participant; (e) Participant’s commission of any act of
fraud, misappropriation or embezzlement against or in connection
with the Company or any of its Subsidiaries or their respective
businesses or operations; or (f) a conviction, guilty plea or plea
of nolo contendere of Participant for any crime involving
dishonesty or for any felony.
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“Director”
means any individual who is a member of the Board who is not an
Employee.
“Effective
Date” has the meaning given such term in Section
1(a).
“Employee”
means any employee of the Company or a Subsidiary; provided,
however, that for purposes of determining whether any person may be
a Participant for purposes of any grant of Incentive Stock Options,
the term “Employee” has the meaning given to such term
in Section 3401(c) of the Code, as interpreted by the regulations
thereunder and Applicable Law.
“Exchange
Act” means the Securities Exchange Act of 1934 and the rules
and regulations thereunder, as such law, rules and regulations may
be amended from time to time.
“Fair
Market Value” means the value of one Share on any relevant
date, determined under the following rules: (a) the closing sale
price per Share on that date as reported on the principal exchange
or national market system on which Shares are then trading, or if
there are no sales on that date, on the next preceding trading day
during which a sale occurred; (b) if the Shares are not reported on
a principal exchange or national market system, the average of the
closing bid and asked prices last quoted on that date by an
established quotation service for over-the-counter securities; or
(c) if neither (a) nor (b) applies, (i) with respect to Stock
Options, Stock Appreciation Rights and any Award of stock rights
that is subject to Section 409A of the Code, the value as
determined by the Committee through the reasonable application of a
reasonable valuation method, taking into account all information
material to the value of the Company, within the meaning of Section
409A of the Code, and (ii) with respect to all other Awards, the
fair market value as determined by the Committee in good
faith.
“Incentive
Stock Option” or “ISO” means a Stock Option that
is designated as an Incentive Stock Option and that is intended to
meet the requirements of Section 422 of the Code.
“Nonqualified
Stock Option” means a Stock Option that is not intended to
meet the requirements of Section 422 of the Code or otherwise does
not meet such requirements.
“Other
Share-Based Award” means an equity-based or equity-related
Award not otherwise described by the terms of the Plan, granted in
accordance with the terms and conditions set forth in Section
10.
“Participant”
means any eligible individual as set forth in Section 5 who holds
one or more outstanding Awards.
“Performance-Based
Exception” means the performance-based exception from the tax
deductibility limitations of Section 162(m) of the
Code.
“Performance
Objectives” means the measurable performance objective or
objectives established by the Committee pursuant to the Plan. Any
Performance Objectives may relate to the performance of the Company
or one or more of its Subsidiaries, divisions, departments, units,
functions, partnerships, joint ventures or minority investments,
product lines or products, or the performance of the individual
Participant, and may include, without limitation, the Performance
Objectives set forth in Section 14(b). The Performance Objectives
may be made relative to the performance of a group of comparable
companies, or published or special index that the Committee, in its
sole discretion, deems appropriate, or the Company may select
Performance Objectives as compared to various stock market indices.
Performance Objectives may be stated as a combination of the listed
factors.
A-4
“Plan”
means this Palatin Technologies, Inc. 2011 Stock Incentive Plan, as
amended from time to time.
“Prior
Plan” has the meaning given such term in Section
1(d).
“Restricted
Shares” means Shares granted or sold pursuant to Section 8 as
to which neither the substantial risk of forfeiture nor the
prohibition on transfers referred to in such Section 8 has
expired.
“Restricted
Share Unit” means a grant or sale of the right to receive
Shares or cash at the end of a specified restricted period made
pursuant to Section 9.
“SEC”
means the United States Securities and Exchange
Commission.
“Share”
means a share of common stock, par value $.01, of the Company, or
any security into which such Share may be changed by reason of any
transaction or event of the type referred to in Section
16.
“Stock
Appreciation Right” means a right granted pursuant to Section
7.
“Stock
Option” means a right to purchase a Share granted to a
Participant under the Plan in accordance with the terms and
conditions set forth in Section 6. Stock Options may be either
Incentive Stock Options or Nonqualified Stock Options.
“Subsidiary”
means: (a) with respect to an Incentive Stock Option, a
“subsidiary corporation” as defined under Section
424(f) of the Code; and (b) for all other purposes under the Plan,
any corporation or other entity in which the Company owns, directly
or indirectly, a proprietary interest of more than fifty percent
(50%) by reason of stock ownership or otherwise.
“Ten
Percent Stockholder” shall mean any Participant who owns more
than 10% of the combined voting power of all classes of stock of
the Company, within the meaning of Section 422 of the
Code.
3.
Shares Available Under the Plan.
a. Shares Available for Awards.
The maximum number of Shares that may be issued or delivered
pursuant to Awards under the Plan shall be 42,500,000, plus the
number of Shares that, on the Approval Date, were available to be
granted under the Prior Plan but which were not then subject to
outstanding awards under the Prior Plan, all of which may be
granted with respect to Incentive Stock Options. Shares issued or
delivered pursuant to an Award may be authorized but unissued
Shares, treasury Shares, including Shares purchased in the open
market, or a combination of the foregoing. The aggregate number of
Shares available for issuance or delivery under the Plan shall be
subject to adjustment as provided in Section 16.
b. Share Usage. In addition to the
number of Shares provided for in Section 3(a), the following Shares
shall be available for Awards under the Plan: (i) Shares covered by
an Award that expires or is forfeited, canceled, surrendered or
otherwise terminated without the issuance of such Shares; (ii)
Shares covered by an Award that is settled only in cash; (iii)
Shares granted through the assumption of, or in substitution for,
outstanding awards granted by a company to individuals who become
Employees, Consultants or Directors as the result of a merger,
consolidation, acquisition or other corporate transaction involving
such company and the Company or any of its Affiliates (except as
may be required by reason of Section 422 of the Code or the rules
and regulations of any stock exchange or other trading market on
which the Shares are listed); (iv) any Shares subject to
outstanding awards under the Prior Plans as of the Approval Date
that on or after the Approval Date are forfeited, canceled,
surrendered or otherwise terminated without the issuance of such
Shares; and (v) any Shares from awards exercised for or settled in
vested and nonforfeitable Shares that are later returned to the
Company pursuant to any compensation recoupment policy, provision
or agreement. Notwithstanding the foregoing, the following Shares
issued or delivered under this Plan shall not again be available
for grant as described above: Shares tendered in payment of the
exercise price of a Stock Option, Shares withheld by the Company or
any Subsidiary to satisfy a tax withholding obligation, and Shares
that are repurchased by the Company with Stock Option proceeds.
Without limiting the foregoing, with respect to any Stock
Appreciation Right that is settled in Shares, the full number of
Shares subject to the Award shall count against the number of
Shares available for Awards under the Plan regardless of the number
of Shares used to settle the Stock Appreciation Right upon
exercise.
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c. Per Participant
Limits.
(i) Subject to
adjustment as provided in Section 16 of the Plan, the following
limits shall apply with respect to Awards that are intended to
qualify for the Performance-Based Exception: (A) the maximum
aggregate number of Shares that may be subject to Stock Options or
Stock Appreciation Rights granted in any calendar year to any one
Participant shall be 750,000 Shares; (B) the maximum aggregate
number of Restricted Shares and Shares issuable or deliverable
under Restricted Share Units granted in any calendar year to any
one Participant shall be 750,000 Shares; (C) the maximum aggregate
compensation that can be paid pursuant to Cash-Based Awards or
Other Share-Based Awards granted in any calendar year to any one
Participant shall be $750,000 or a number of Shares having an
aggregate Fair Market Value not in excess of such amount; and (D)
the maximum dividend equivalents that may be paid in any calendar
year to any one Participant shall be $100,000 or a number of Shares
having an aggregate Fair Market Value not in excess of such
amount.
(ii) Notwithstanding
any other provision of the Plan to the contrary, the aggregate
grant date fair value (determined as of the applicable Date(s) of
Grant in accordance with applicable financial accounting rules) of
all Awards granted to any Director during any single calendar year,
taken together with any cash fees paid to such person during such
calendar year, shall not exceed $350,000.
4.
Administration of the Plan.
a. In General. The Plan shall be
administered by the Committee. Except as otherwise provided by the
Board, the Committee shall have full and final authority in its
discretion to take all actions determined by the Committee to be
necessary in the administration of the Plan, including, without
limitation, discretion to: select Award recipients; determine the
sizes and types of Awards; determine the terms and conditions of
Awards in a manner consistent with the Plan; grant waivers of
terms, conditions, restrictions and limitations applicable to any
Award, or accelerate the vesting or exercisability of any Award, in
a manner consistent with the Plan; construe and interpret the Plan
and any Award Agreement or other agreement or instrument entered
into under the Plan; establish, amend, or waive rules and
regulations for the Plan’s administration; and take such
other action, not inconsistent with the terms of the Plan, as the
Committee deems appropriate. To the extent permitted by Applicable
Laws, the Committee may, in its discretion, delegate to one or more
Directors or Employees any of the Committee’s authority under
the Plan. The acts of any such delegates shall be treated hereunder
as acts of the Committee with respect to any matters so
delegated.
b. Determinations. The Committee
shall have no obligation to treat Participants or eligible
Participants uniformly, and the Committee may make determinations
under the Plan selectively among Participants who receive, or
Employees, Consultants or Directors who are eligible to receive,
Awards (whether or not such Participants or eligible Employees,
Consultants or Directors are similarly situated). All
determinations and decisions made by the Committee pursuant to the
provisions of the Plan and all related orders and resolutions of
the Committee shall be final, conclusive and binding on all
persons, including the Company, its Subsidiaries, its stockholders,
Directors, Consultants, Employees, Participants and their estates
and beneficiaries.
A-6
c. Authority of the Board. The
Board may reserve to itself any or all of the authority or
responsibility of the Committee under the Plan or may act as the
administrator of the Plan for any and all purposes. To the extent
the Board has reserved any such authority or responsibility or
during any time that the Board is acting as administrator of the
Plan, it shall have all the powers of the Committee hereunder, and
any reference herein to the Committee (other than in this Section
4(c)) shall include the Board. To the extent that any action of the
Board under the Plan conflicts with any action taken by the
Committee, the action of the Board shall control.
5.
Eligibility and
Participation. Each
Employee, Consultant and Director is eligible to participate in the
Plan. Subject to the provisions of the Plan, the Committee may,
from time to time, select from all eligible Employees, Consultants
and Directors those to whom Awards shall be granted and shall
determine, in its sole discretion, the nature of any and all terms
permissible by Applicable Law and the amount of each
Award.
6.
Stock
Options. Subject to
the terms and conditions of the Plan, Stock Options may be granted
to Participants in such number, and upon such terms and conditions,
as shall be determined by the Committee in its sole
discretion.
a. Award Agreement. Each Stock
Option shall be evidenced by an Award Agreement that shall specify
the exercise price, the term of the Stock Option, the number of
Shares covered by the Stock Option, the conditions upon which the
Stock Option shall become vested and exercisable and such other
terms and conditions as the Committee shall determine and which are
not inconsistent with the terms and conditions of the Plan. The
Award Agreement also shall specify whether the Stock Option is
intended to be an Incentive Stock Option or a Nonqualified Stock
Option.
b. Exercise Price. The exercise
price per Share of an Option shall be determined by the Committee
at the time the Stock Option is granted and shall be specified in
the related Award Agreement; provided, however, that in no event
shall the exercise price per Share of any Option be less than one
hundred percent (100%) of the Fair Market Value of a Share on the
Date of Grant.
c. Term. The term of an Option
shall be determined by the Committee and set forth in the related
Award Agreement; provided, however, that in no event shall the term
of any Option exceed ten (10) years from its Date of
Grant.
d. Exercisability. Stock Options
shall become exercisable at such times and upon such terms and
conditions as shall be determined by the Committee and set forth in
the related Award Agreement. Such terms and conditions may include,
without limitation, the satisfaction of (a) performance goals based
on one or more Performance Objectives, and (b) time-based vesting
requirements.
e. Exercise of Options. Except as
otherwise provided in the Plan or in a related Award Agreement, a
Stock Option may be exercised for all or any portion of the Shares
for which it is then exercisable. A Stock Option shall be exercised
by the delivery of a notice of exercise to the Company or its
designee in a form specified by the Company which sets forth the
number of Shares with respect to which the Stock Option is to be
exercised and full payment of the exercise price for such Shares.
The exercise price of a Stock Option may be paid: (i) in cash or
its equivalent; (ii) by tendering (either by actual delivery or
attestation) previously acquired Shares having an aggregate Fair
Market Value at the time of exercise equal to the aggregate
exercise price; (iii) by a cashless exercise (including by
withholding Shares deliverable upon exercise and through a
broker-assisted arrangement to the extent permitted by Applicable
Law); (iv) by a combination of the methods described in clauses
(i), (ii) and/or (iii); or (v) though any other method approved by
the Committee in its sole discretion. As soon as practicable after
receipt of the notification of exercise and full payment of the
exercise price, the Company shall cause the appropriate number of
Shares to be issued to the Participant.
A-7
f. Special Rules Applicable to Incentive
Stock Options. Notwithstanding any other provision in the
Plan to the contrary:
(i) Incentive Stock
Options may be granted only to Employees of the Company and its
Subsidiaries. The terms and conditions of Incentive Stock Options
shall be subject to and comply with the requirements of Section 422
of the Code.
(ii) To
the extent that the aggregate Fair Market Value of the Shares
(determined as of the Date of Grant) with respect to which an
Incentive Stock Option is exercisable for the first time by any
Participant during any calendar year (under all plans of the
Company and its Subsidiaries) is greater than $100,000 (or such
other amount specified in Section 422 of the Code), as calculated
under Section 422 of the Code, then the Stock Option shall be
treated as a Nonqualified Stock Option.
(iii) No
Incentive Stock Option shall be granted to any Participant who, on
the Date of Grant, is a Ten Percent Stockholder, unless (x) the
exercise price per Share of such Incentive Stock Option is at least
one hundred and ten percent (110%) of the Fair Market Value of a
Share on the Date of Grant, and (y) the term of such Incentive
Stock Option shall not exceed five (5) years from the Date of
Grant.
7.
Stock Appreciation
Rights. Subject to
the terms and conditions of the Plan, Stock Appreciation Rights may
be granted to Participants in such number, and upon such terms and
conditions, as shall be determined by the Committee in its sole
discretion.
a. Award Agreement. Each Stock
Appreciation Right shall be evidenced by an Award Agreement that
shall specify the exercise price, the term of the Stock
Appreciation Right, the number of Shares covered by the Stock
Appreciation Right, the conditions upon which the Stock
Appreciation Right shall become vested and exercisable and such
other terms and conditions as the Committee shall determine and
which are not inconsistent with the terms and conditions of the
Plan.
b. Exercise Price. The exercise
price per Share of a Stock Appreciation Right shall be determined
by the Committee at the time the Stock Appreciation Right is
granted and shall be specified in the related Award Agreement;
provided, however, that in no event shall the exercise price per
Share of any Stock Appreciation Right be less than one hundred
percent (100%) of the Fair Market Value of a Share on the Date of
Grant.
c. Term. The term of a Stock
Appreciation Right shall be determined by the Committee and set
forth in the related Award Agreement; provided however, that in no
event shall the term of any Stock Appreciation Right exceed ten
(10) years from its Date of Grant.
d. Exercisability of Stock Appreciation
Rights. A Stock Appreciation Right shall become exercisable
at such times and upon such terms and conditions as may be
determined by the Committee and set forth in the related Award
Agreement. Such terms and conditions may include, without
limitation, the satisfaction of (i) performance goals based on one
or more Performance Objectives, and (ii) time-based vesting
requirements.
A-8
e. Exercise of Stock Appreciation
Rights. Except as otherwise provided in the Plan or in a
related Award Agreement, a Stock Appreciation Right may be
exercised for all or any portion of the Shares for which it is then
exercisable. A Stock Appreciation Right shall be exercised by the
delivery of a notice of exercise to the Company or its designee in
a form specified by the Company which sets forth the number of
Shares with respect to which the Stock Appreciation Right is to be
exercised. Upon exercise, a Stock Appreciation Right shall entitle
a Participant to an amount equal to (a) the excess of (i) the Fair
Market Value of a Share on the exercise date over (ii) the exercise
price per Share, multiplied by (b) the number of Shares with
respect to which the Stock Appreciation Right is exercised. A Stock
Appreciation Right may be settled in whole Shares, cash or a
combination thereof, as specified by the Committee in the related
Award Agreement.
8.
Restricted
Shares. Subject to
the terms and conditions of the Plan, Restricted Shares may be
granted or sold to Participants in such number, and upon such terms
and conditions, as shall be determined by the Committee in its sole
discretion.
a. Award Agreement. Each
Restricted Shares Award shall be evidenced by an Award Agreement
that shall specify the number of Restricted Shares, the restricted
period(s) applicable to the Restricted Shares, the conditions upon
which the restrictions on the Restricted Shares will lapse and such
other terms and conditions as the Committee shall determine and
which are not inconsistent with the terms and conditions of the
Plan.
b. Terms, Conditions and
Restrictions. The Committee shall impose such other terms,
conditions and/or restrictions on any Restricted Shares as it may
deem advisable, including, without limitation, a requirement that
the Participant pay a purchase price for each Restricted Share,
restrictions based on the achievement of specific Performance
Objectives, time-based restrictions or holding requirements or sale
restrictions placed on the Shares by the Company upon vesting of
such Restricted Shares. Unless otherwise provided in the related
Award Agreement or required by Applicable Law, the restrictions
imposed on Restricted Shares shall lapse upon the expiration or
termination of the applicable restricted period and the
satisfaction of any other applicable terms and
conditions.
c. Custody of Certificates. To the
extent deemed appropriate by the Committee, the Company may retain
the certificates representing Restricted Shares in the
Company’s possession until such time as all terms, conditions
and/or restrictions applicable to such Shares have been satisfied
or lapse.
d. Rights Associated with Restricted
Shares during Restricted Period. During any restricted
period applicable to Restricted Shares: (i) the Restricted Shares
may not be sold, transferred, pledged, assigned or otherwise
alienated or hypothecated; (ii) unless otherwise provided in the
related Award Agreement, the Participant shall be entitled to
exercise full voting rights associated with such Restricted Shares;
and (iii) the Participant shall be entitled to all dividends and
other distributions paid with respect to such Restricted Shares
during the restricted period; provided, however, that any dividends
or other distributions with respect to unvested Restricted Shares
shall be accumulated or deemed reinvested in additional Restricted
Shares until such Award is earned and vested, and shall be subject
to the same terms and conditions as the original Award (including
the satisfaction of service-based vesting conditions and the
achievement of any Performance Objectives).
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9.
Restricted Share
Units. Subject to the
terms and conditions of the Plan, Restricted Share Units may be
granted or sold to Participants in such number, and upon such terms
and conditions, as shall be determined by the Committee in its sole
discretion.
a. Award Agreement. Each
Restricted Share Unit shall be evidenced by an Award Agreement that
shall specify the number of units, the restricted period(s)
applicable to the Restricted Share Units, the conditions upon which
the restrictions on the Restricted Share Units will lapse, the time
and method of payment of the Restricted Share Units, and such other
terms and conditions as the Committee shall determine and which are
not inconsistent with the terms and conditions of the
Plan.
b. Terms, Conditions and
Restrictions. The Committee shall impose such other terms,
conditions and/or restrictions on any Restricted Share Units as it
may deem advisable, including, without limitation, a requirement
that the Participant pay a purchase price for each Restricted Share
Unit, restrictions based on the achievement of specific Performance
Objectives or time-based restrictions or holding
requirements.
c. Form of Settlement. Restricted
Share Units may be settled in whole Shares, Restricted Shares, cash
or a combination thereof, as specified by the Committee in the
related Award Agreement.
10.
Other Share-Based
Awards. Subject to
the terms and conditions of the Plan, Other Share-Based Awards may
be granted to Participants in such number, and upon such terms and
conditions, as shall be determined by the Committee in its sole
discretion. Other Share-Based Awards are Awards that are valued in
whole or in part by reference to, or otherwise based on the Fair
Market Value of, Shares, and shall be in such form as the Committee
shall determine, including without limitation, unrestricted Shares
or time-based or performance-based units that are settled in Shares
and/or cash.
a. Award Agreement. Each Other
Share-Based Award shall be evidenced by an Award Agreement that
shall specify the terms and conditions upon which the Other
Share-Based Award shall become vested, if applicable, the time and
method of settlement, the form of settlement and such other terms
and conditions as the Committee shall determine and which are not
inconsistent with the terms and conditions of the
Plan.
b. Form of Settlement. An Other
Share-Based Award may be settled in whole Shares, Restricted
Shares, cash or a combination thereof, as specified by the
Committee in the related Award Agreement.
11.
Dividend
Equivalents. At the
discretion of the Committee, Awards granted pursuant to the Plan,
other than awards of Stock Options or Stock Appreciation Rights,
may provide Participants with the right to receive dividend
equivalents, which may be credited to an account for the
Participants, and may be settled in cash and/or Shares, as
determined by the Committee in its sole discretion; provided,
however, that any such dividend equivalents with respect to any
unvested Award shall be accumulated or deemed reinvested until such
Award is earned and vested, and shall be subject to the same terms
and conditions as the original Award (including the satisfaction of
service-based vesting conditions and the achievement of any
Performance Objectives). No dividend equivalents shall be granted
with respect to Shares underlying a Stock Option or Stock
Appreciation Right.
A-10
12.
Cash-Based
Awards. Subject to
the terms and conditions of the Plan, Cash-Based Awards may be
granted to Participants in such amounts and upon such other terms
and conditions as shall be determined by the Committee in its sole
discretion. Each Cash-Based Award shall be evidenced by an Award
Agreement that shall specify the payment amount or payment range,
the time and method of settlement and the other terms and
conditions, as applicable, of such Award which may include, without
limitation, restrictions based on the achievement of specific
Performance Objectives.
13.
Compliance with
Section 409A. Awards
granted under the Plan shall be designed and administered in such a
manner that they are either exempt from the application of, or
comply with, the requirements of Section 409A of the Code. To the
extent that the Committee determines that any award granted under
the Plan is subject to Section 409A of the Code, the Award
Agreement shall incorporate the terms and conditions necessary to
avoid the imposition of an additional tax under Section 409A of the
Code upon a Participant. Notwithstanding any other provision of the
Plan or any Award Agreement (unless the Award Agreement provides
otherwise with specific reference to this Section 13): (a) an Award
shall not be granted, deferred, accelerated, extended, paid out,
settled, substituted or modified under the Plan in a manner that
would result in the imposition of an additional tax under Section
409A of the Code upon a Participant; and (b) if an Award is subject
to Section 409A of the Code, and if the Participant holding the
award is a “specified employee” (as defined in Section
409A of the Code, with such classification to be determined in
accordance with the methodology established by the Company), then,
to the extent required to avoid the imposition of an additional tax
under Section 409A of the Code upon a Participant, no distribution
or payment of any amount shall be made before the date that is six
(6) months following the date of such Participant’s
“separation from service” (as defined in Section 409A
of the Code) or, if earlier, the date of the Participant’s
death. Although the Company intends to administer the Plan so that
Awards will be exempt from, or will comply with, the requirements
of Section 409A of the Code, the Company does not warrant that any
Award under the Plan will qualify for favorable tax treatment under
Section 409A of the Code or any other provision of federal, state,
local, or non-United States law. The Company shall not be liable to
any Participant for any tax, interest, or penalties the Participant
might owe as a result of the grant, holding, vesting, exercise, or
payment of any Award under the Plan.
14.
Compliance with Section 162(m).
a. In General. Notwithstanding
anything in the Plan to the contrary, Restricted Shares, Restricted
Share Units, Other Share-Based Awards and Cash-Based Awards may be
granted in a manner that is intended to qualify the Award for the
Performance-Based Exception. As determined by the Committee in its
sole discretion, the grant, vesting, exercisability and/or
settlement of any Awards intended to qualify the Award for the
Performance-Based Exception shall be conditioned on the attainment
of one or more Performance Objectives during a performance period
established by the Committee. Any such Award must meet the
requirements of this Section 14.
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b. Performance Objectives. If an
Award is intended to qualify for the Performance-Based Exception,
then the Performance Objectives shall be based on specified levels
of, or growth in, one or more of the following criteria: revenues,
earnings from operations, operating income, earnings before or
after interest and taxes, operating income before or after interest
and taxes, net income, cash flow, earnings per share, return on
total capital, return on invested capital, return on equity, return
on assets, total return to stockholders, earnings before or after
interest, or extraordinary or special items, operating income
before or after interest, taxes, depreciation, amortization or
extraordinary or special items, return on investment, free cash
flow, cash flow return on investment (discounted or otherwise), net
cash provided by operations, cash flow in excess of cost of
capital, operating margin, profit margin, contribution margin,
stock price and/or strategic business criteria consisting of one or
more objectives based on meeting specified product development,
strategic partnering, research and development milestones, clinical
trial status, product approvals in geographic regions, market
penetration, geographic business expansion goals, cost targets,
customer satisfaction, management of employment practices and
employee benefits, supervision of litigation and information
technology, and goals relating to acquisitions or divestitures of
subsidiaries, affiliates and joint ventures. To the extent
consistent with the Performance-Based Exception, the Performance
Objectives may be calculated without regard to extraordinary items
or adjusted, as the Committee deems equitable, in recognition of
unusual or non-recurring events affecting the Company or its
Subsidiaries or changes in applicable tax laws or accounting
principles.
c. Establishment of Performance
Goals. With respect to Awards intended to qualify for the
Performance-Based Exception, the Committee shall establish: (i) the
applicable Performance Objectives and performance period, and (ii)
the formula for computing the payout. Such terms and conditions
shall be established in writing while the outcome of the applicable
performance period is substantially uncertain, but in no event
later than the earlier of: (x) ninety days after the beginning of
the applicable performance period; or (y) the expiration of
twenty-five percent (25%) of the applicable performance
period.
d. Certification of Performance.
With respect to any Award intended to qualify for the
Performance-Based Exception, the Committee shall certify in writing
whether the applicable Performance Objectives and other material
terms imposed on such Award have been satisfied, and, if they have,
ascertain the amount of the payout or vesting of the Award.
Notwithstanding any other provision of the Plan, payment or vesting
of any such Award shall not be made until the Committee certifies
in writing that the applicable Performance Objectives and any other
material terms of such Award were in fact satisfied in a manner
conforming to applicable regulations under Section 162(m) of the
Code.
e. Negative Discretion. With
respect to any Award intended to qualify for the Performance-Based
Exception, the Committee shall not have discretion to increase the
amount of compensation that is payable upon achievement of the
designated Performance Objectives. However, the Committee may, in
its sole discretion, reduce the amount of compensation that is
payable upon achievement of the designated Performance
Objectives.
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15.
Transferability.
Except as otherwise determined by the Committee, no Award or
dividend equivalents paid with respect to any Award shall be
transferable by the Participant except by will or the laws of
descent and distribution; provided, that if so determined by the
Committee, each Participant may, in a manner established by the
Board or the Committee, designate a beneficiary to exercise the
rights of the Participant with respect to any Award upon the death
of the Participant and to receive Shares or other property issued
or delivered under such Award. Except as otherwise determined by
the Committee, Stock Options and Stock Appreciation Rights will be
exercisable during a Participant’s lifetime only by the
Participant or, in the event of the Participant’s legal
incapacity to do so, by the Participant’s guardian or legal
representative acting on behalf of the Participant in a fiduciary
capacity under state law and/or court supervision.
16.
Adjustments.
In the event of any equity restructuring (within the meaning of
Financial Accounting Standards Board Accounting Standards
Codification Topic 718, Compensation — Stock Compensation),
such as a stock dividend, stock split, reverse stock split,
spinoff, rights offering, or recapitalization through a large,
nonrecurring cash dividend, the Committee shall cause there to be
an equitable adjustment in the numbers of Shares specified in
Section 3 of the Plan and, with respect to outstanding Awards, in
the number and kind of Shares subject to outstanding Awards, the
exercise price or other price of Shares subject to outstanding
Awards, in each case to prevent dilution or enlargement of the
rights of Participants. In the event of any other change in
corporate capitalization, or in the event of a merger,
consolidation, liquidation, or similar transaction, the Committee
may, in its sole discretion, cause there to be an equitable
adjustment as described in the foregoing sentence, to prevent
dilution or enlargement of rights; provided, however, that, unless
otherwise determined by the Committee, the number of Shares subject
to any Award shall always be rounded down to a whole number.
Notwithstanding the foregoing, the Committee shall not make any
adjustment pursuant to this Section 16 that would (i) cause any
Stock Option intended to qualify as an ISO to fail to so qualify,
(ii) cause an Award that is otherwise exempt from Section 409A of
the Code to become subject to Section 409A of the Code, or (iii)
cause an Award that is subject to Section 409A of the Code to fail
to satisfy the requirements of Section 409A of the Code. The
determination of the Committee as to the foregoing adjustments, if
any, shall be conclusive and binding on all Participants and any
other persons claiming under or through any
Participant.
17.
Fractional
Shares. The Company
shall not be required to issue or deliver any fractional Shares
pursuant to the Plan and, unless otherwise provided by the
Committee, fractional shares shall be settled in cash.
18.
Withholding
Taxes. To the extent
required by Applicable Law, a Participant shall be required to
satisfy, in a manner satisfactory to the Company or Subsidiary, as
applicable, any withholding tax obligations that arise by reason of
a Stock Option or Stock Appreciation Right exercise, the vesting of
or settlement of Shares under an Award, an election pursuant to
Section 83(b) of the Code or otherwise with respect to an Award.
The Company and its Subsidiaries shall not be required to issue or
deliver Shares, make any payment or to recognize the transfer or
disposition of Shares until such obligations are satisfied. The
Committee may permit or require these obligations to be satisfied
by having the Company withhold a portion of the Shares that
otherwise would be issued or delivered to a Participant upon
exercise of a Stock Option or Stock Appreciation Right or upon the
vesting or settlement of an Award, or by tendering Shares
previously acquired, in each case having a Fair Market Value equal
to the amount required to be withheld. In no event will the Fair
Market Value of the Shares to be withheld or tendered pursuant to
this Section 18 to satisfy applicable withholding taxes exceed the
amount of taxes required to be withheld based on the maximum
statutory tax rates in the applicable taxing jurisdictions. Any
elections pursuant to this Section 18 subject to such conditions or
procedures as may be established by the Committee and may be
subject to disapproval by the Committee.
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19.
Foreign
Employees. Without
amending the Plan, the Committee may grant Awards to Participants
who are foreign nationals on such terms and conditions different
from those specified in the Plan as may in the judgment of the
Committee be necessary or desirable to foster and promote
achievement of the purposes of the Plan, and, in furtherance of
such purposes, the Committee may make such modifications,
amendments, procedures, and the like as may be necessary or
advisable to comply with provisions of Applicable Laws of other
countries in which the Company or its Subsidiaries operate or have
employees.
20.
Detrimental Activity; Forfeiture of Awards.
a. Detrimental Activity. If a
Participant has engaged in any Detrimental Activity, as determined
by the Committee in its sole discretion, either during service with
the Company or a Subsidiary or after termination of such service,
then, promptly upon receiving notice of the Committee’s
determination, the Participant shall: (i) forfeit all Awards
granted under the Plan to the extent then held by the Participant;
(ii) return to the Company or the Subsidiary all Shares that the
Participant has not disposed of that had been acquired, pursuant to
Awards granted under the Plan, within two (2) years prior to the
date of the Participant’s initial commencement of the
Detrimental Activity, in exchange for payment by the Company or the
Subsidiary of any amount actually paid therefor by the Participant;
and (iii) with respect to any Shares acquired, within two (2) years
prior to the date of the Participant’s initial commencement
of the Detrimental Activity, pursuant to an Award granted under the
Plan that were disposed of, pay to the Company or the Subsidiary,
in cash, the excess, if any, of: (A) the Fair Market Value of the
Shares on the date acquired, over (B) any amount actually paid by
the Participant for the Shares.
b. Compensation Recovery Policy.
Any Award granted to a Participant shall be subject to forfeiture
or repayment pursuant to the terms of any applicable compensation
recovery policy adopted by the Company, including any such policy
that may be adopted to comply with the Dodd-Frank Wall Street
Reform and Consumer Protection Act or any rules or regulations
issued by the Securities and Exchange Commission rule or applicable
securities exchange.
c. Set-Off and Other Remedies. To
the extent that amounts are not immediately returned or paid to the
Company as provided in this Section 20, the Company may, to the
extent permitted by Applicable Laws, seek other remedies, including
a set off of the amounts so payable to it against any amounts that
may be owing from time to time by the Company or a Subsidiary to
the Participant for any reason, including, without limitation,
wages, or vacation pay or other benefits; provided, however, that,
except to the extent permitted by Treasury Regulation Section
1.409A-3(j)(4), such offset shall not apply to amounts that are
“deferred compensation” within the meaning of Section
409A of the Code.
21.
Change in
Control. In the event
of a Change in Control, the Committee may, in its sole discretion
and without providing prior notice or receiving the consent of the
Participant, take such actions, if any, as it deems necessary or
desirable with respect to any Award that is outstanding as of the
date of the consummation of the Change in Control. Such actions may
include, without limitation: (i) the acceleration of the vesting,
settlement and/or exercisability of an Award; (ii) the payment of a
cash amount in exchange for the cancellation of an Award; (iii) the
cancellation of Stock Options and/or Stock Appreciation Rights
without payment therefor if the Fair Market Value of a Share on the
date of the Change in Control does not exceed the exercise price
per Share of the applicable Awards; and/or (iv) make provisions for
the assumption or conversion of Awards, or the issuance of
substitute Awards that, in either case, substantially preserve the
value, rights and benefits of any affected Awards.
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22.
Amendment, Modification and Termination.
a. In General. The Board may at
any time and from time to time, alter, amend, suspend or terminate
the Plan in whole or in part; provided, however, that no alteration
or amendment that requires stockholder approval in order for the
Plan to comply with any rule promulgated by the SEC or any
securities exchange on which Shares are listed or any other
Applicable Laws shall be effective unless such amendment shall be
approved by the requisite vote of stockholders of the Company
entitled to vote thereon within the time period required under such
applicable listing standard or rule.
b. Adjustments to Outstanding
Awards. The Committee may in its sole discretion at any time
(i) provide that all or a portion of a Participant’s Stock
Options, Stock Appreciation Rights, and other Awards in the nature
of rights that may be exercised shall become fully or partially
exercisable; (ii) provide that all or a part of the time-based
vesting restrictions on all or a portion of the outstanding Awards
shall lapse, and/or that any Performance Objectives or other
performance-based criteria with respect to any Awards shall be
deemed to be wholly or partially satisfied; or (iii) waive any
other limitation or requirement under any such Award, in each case,
as of such date as the Committee may, in its sole discretion,
declare. Unless otherwise determined by the Committee, any such
adjustment that is made with respect to an Award that is intended
to qualify for the Performance-Based Exception shall be made at
such times and in such manner as will not cause such Awards to fail
to qualify under the Performance-Based Exception. Additionally, the
Committee shall not make any adjustment pursuant to this Section
22(b) that would cause an Award that is otherwise exempt from
Section 409A of the Code to become subject to Section 409A of the
Code, or that would cause an Award that is subject to Section 409A
of the Code to fail to satisfy the requirements of Section 409A of
the Code.
c. Prohibition on Repricing.
Except for adjustments made pursuant to Sections 16 or 21, the
Board or the Committee will not, without the further approval of
the stockholders of the Company, authorize the amendment of any
outstanding Stock Option or Stock Appreciation Right to reduce the
exercise price. No Stock Option or Stock Appreciation Right will be
cancelled and replaced with an Award having a lower exercise price,
or for another Award, or for cash without further approval of the
stockholders of the Company, except as provided in Sections 16 or
21. Furthermore, no Stock Option or Stock Appreciation Right will
provide for the payment, at the time of exercise, of a cash bonus
or grant or sale of another Award without further approval of the
stockholders of the Company. This Section 22(c) is intended to
prohibit the repricing of “underwater” Stock Options or
Stock Appreciation Rights without stockholder approval and will not
be construed to prohibit the adjustments provided for in Sections
16 or 21.
d. Effect on Outstanding Awards.
Notwithstanding any other provision of the Plan to the contrary
(other than Sections 16, 20, 21, 22(b) and 24(d)), no termination,
amendment, suspension, or modification of the Plan or an Award
Agreement shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of
the Participant holding such Award. Notwithstanding the preceding
sentence, any ISO granted under the Plan may be modified by the
Committee to disqualify such Stock Option from treatment as an
“incentive stock option” under Section 422 of the
Code.
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23.
Applicable
Laws. The obligations
of the Company with respect to Awards under the Plan shall be
subject to all Applicable Laws and such approvals by any
governmental agencies as the Committee determines may be required.
The Plan and each Award Agreement shall be governed by the laws of
the State of Delaware, excluding any conflicts or choice of law
rule or principle that might otherwise refer construction or
interpretation of the Plan to the substantive law of another
jurisdiction.
24.
Miscellaneous.
a. Deferral of Awards. Except with
respect to Stock Options and Stock Appreciation Rights, the
Committee may permit Participants to elect to defer the issuance or
delivery of Shares or the settlement of Awards in cash under the
Plan pursuant to such rules, procedures or programs as it may
establish for purposes of the Plan. The Committee also may provide
that deferred issuances and settlements include the payment or
crediting of dividend equivalents or interest on the deferral
amounts. All elections and deferrals permitted under this provision
shall comply with Section 409A of the Code, including setting forth
the time and manner of the election (including a compliant time and
form of payment), the date on which the election is irrevocable,
and whether the election can be changed until the date it is
irrevocable.
b. No Right of Continued
Employment. The Plan shall not confer upon any Participant
any right with respect to continuance of employment or other
service with the Company or any Subsidiary, nor shall it interfere
in any way with any right the Company or any Subsidiary would
otherwise have to terminate such Participant’s employment or
other service at any time. No Employee, Consultant or Director
shall have the right to be selected to receive an Award under the
Plan, or, having been so selected, to be selected to receive future
Awards.
c. Unfunded, Unsecured Plan.
Neither a Participant nor any other person shall, by reason of
participation in the Plan, acquire any right or title to any
assets, funds or property of the Company or any Subsidiary,
including without limitation, any specific funds, assets or other
property which the Company or any Subsidiary may set aside in
anticipation of any liability under the Plan. A Participant shall
have only a contractual right to an Award or the amounts, if any,
payable under the Plan, unsecured by any assets of the Company or
any Subsidiary, and nothing contained in the Plan shall constitute
a guarantee that the assets of the Company or any Subsidiary shall
be sufficient to pay any benefits to any person.
d. Severability. If any provision
of the Plan is or becomes invalid, illegal or unenforceable in any
jurisdiction, or would disqualify the Plan or any Award under any
law deemed applicable by the Committee, such provision shall be
construed or deemed amended or limited in scope to conform to
Applicable Laws or, in the discretion of the Committee, it shall be
stricken and the remainder of the Plan shall remain in full force
and effect.
e. Acceptance of Plan. By
accepting any benefit under the Plan, each Participant and each
person claiming under or through any such Participant shall be
conclusively deemed to have indicated their acceptance and
ratification of, and consent to, all of the terms and conditions of
the Plan and any action taken under the Plan by the Committee, the
Board or the Company, in any case in accordance with the terms and
conditions of the Plan.
f. Successors. All obligations of
the Company under the Plan and with respect to Awards shall be
binding on any successor to the Company, whether the existence of
such successor is the result of a direct or indirect purchase,
merger, consolidation, or other event, or a sale or disposition of
all or substantially all of the business and/or assets of the
Company and references to the “Company” herein and in
any Award Agreements shall be deemed to refer to such
successors.
[END OF APPENDIX A]
A-16
APPENDIX B
FORM OF 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, a Certificate of Amendment was filed on May
4, 2005, a Certificate of Amendment was filed on July 23, 2010, a
Certificate of Amendment was filed on September 24, 2010, a
Certificate of Amendment was filed on May 12, 2011, a Certificate
of Amendment was filed on September 27, 2012, and a Certificate of
Amendment was filed on June 27, 2013.
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.
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 510,000,000,
comprised of 500,000,000 shares of Common Stock, par value $.01 per
share, and 10,000,000 shares of Preferred Stock, par value $.01 per
share.
B-1
IN
WITNESS WHEREOF, said Corporation has caused this Certificate of
Amendment to be signed this ___ day of _______ 2020.
By:
_____________________
Name:
Stephen T. Wills
Title:
Executive Vice President, Chief
Financial Officer
and Chief Operating Officer
[END OF
APPENDIX B]
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