PALATIN TECHNOLOGIES INC
10-Ks and 10-Qs
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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 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:
PALATIN TECHNOLOGIES, INC.
4B Cedar Brook Drive ● Cranbury, New Jersey
08512
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
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date
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June 8,
2017
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time
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9:00
a.m., Eastern Time
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place
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Palatin’s
offices, Cedar Brook Corporate Center, 4B Cedar Brook Drive,
Cranbury, New Jersey 08512
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record date
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April
13, 2017
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items of
business
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(1)
election of seven 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,
2017;
(3)
approval of our 2011 Stock Incentive Plan, as amended and
restated;
(4) to
advise us as to whether you approve the compensation of our named
executive officers (“say-on-pay”); and
(5) any
other matters properly brought before the meeting or any
adjournment or postponement 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.
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By
order of the board of directors,
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Stephen T. Wills
,
Secretary
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April 21,
2017
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The
approximate date of mailing of the Notice Regarding the
Availability of Proxy Materials to our stockholders is April 28,
2017, and this proxy statement, proxy card and annual report,
including our annual report on Form 10-K for the fiscal year ended
June 30, 2016, 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 8,
2017:
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, 2016, are available at
www.proxyvote.com.
1
PALATIN TECHNOLOGIES, INC.
2017 ANNUAL MEETING
table of contents
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Notice of 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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8
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The
Nominees
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8
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Item Two: Ratification of appointment of KPMG LLP as our
independent registered public accounting firm
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12
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Report
of the audit committee
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13
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Item Three: Approval of our 2011 Stock Incentive Plan, as amended
and restated
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15
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Item Four: Advisory approval of the compensation of our named
executive officers (“say-on-pay”)
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28
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Corporate Governance
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30
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Executive Officers
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35
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Executive Compensation
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36
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Stock Ownership Information
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41
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Section
16(a) Beneficial Ownership Reporting Compliance
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41
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Beneficial
Ownership of Management and Others
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42
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Certain Relationships and Related Transactions
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46
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Other Items of Business
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46
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Stockholder Proposals for Next Annual Meeting
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47
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2
PALATIN TECHNOLOGIES, INC.
4B Cedar Brook Drive
Cranbury, New Jersey 08512
(609) 495-2200
PROXY STATEMENT FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 8, 2017
VOTING PROCEDURES AND SOLICITATION
Important Notice Regarding the Availability of Proxy
Materials
for the Stockholder Meeting to Be Held on June 8,
2017:
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, 2016, are available at
www.proxyvote.com.
YOUR VOTE IS IMPORTANT
Whether
or not you plan to attend the 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 April 28, 2017, we are sending proxy materials to
stockholders of record on April 13, 2017. 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 April 28, 2017. 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.
METHODS OF VOTING
If you
are a beneficial owner, you may be eligible to vote your shares
electronically over the Internet or by telephone. A large number of
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 Time, the day before the
meeting date, that is, June 7, 2017. 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.
3
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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 Time, the day before the
meeting date, that is, June 7, 2017. 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
attend the meeting in person, the proxy holders will vote your
shares as you previously instructed unless you inform the Secretary
at the meeting that you wish to vote in person.
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 7,
2017 (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 in person at the 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 in person at the 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.
PROXY SOLICITATION
We are
soliciting proxies on behalf of the board of directors, 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 The Proxy
Advisory Group, 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
expect to exceed $14,200 in the aggregate.
4
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, 2017; FOR the
approval of our 2011 Stock Incentive Plan, as amended and restated;
FOR approval of the compensation of our named executive officers;
and in their discretion, on any other business which may properly
come before the meeting.
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 13, 2017 are entitled to vote
at the meeting:
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Common stock:
145,893,690 shares outstanding, one vote per share;
and
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Series A preferred
stock: 4,030 shares outstanding with approximately 15.03 votes per
share, a total of 60,592 votes.
There
are no rights of appraisal or similar rights of dissenters with
respect to the items of business at this meeting.
QUORUM AND VOTES REQUIRED
A
majority of the votes of shares of common stock and Series A
preferred stock, in each case outstanding on April 13, 2017, the
record date, with the Series A preferred stock counted on an as if
converted to common stock basis, represented at the meeting in
person 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:
5
●
Item One
: Directors are elected
by a plurality of votes cast, so the seven 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, 2017 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 our
2011 Incentive Stock Plan, as amended and restated, requires a
majority of the votes cast 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 MKT LLC (the “NYSE MKT”), will be
considered as votes cast on the item, and thus count against the
proposal.
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Item Four
: Advisory approval of
say-on-pay for named executive officers (yes or no) will be
determined by which of the two choices receives the most votes.
Abstentions and broker non-votes will count neither for nor against
the proposal.
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.
Item
Three, approval of our 2011 Stock Incentive Plan, as amended and
restated, and Item Four, advisory approval on say-on-pay for named
executive officers, are not considered routine. Your brokerage firm
will not have discretionary authority to vote on Items Three or
Four. 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.
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
annual meeting.
6
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.
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.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
7
ITEM ONE: ELECTION OF DIRECTORS
Our
nominating and corporate governance committee has nominated the
seven persons listed below to serve as directors. A stockholder who
wishes to suggest a nominee to the nominating and corporate
governance committee may do so in the manner and within the time
frame explained under “Nomination of Directors” below.
We recommend voting FOR the seven nominees named in this proxy
statement. At the meeting, the seven 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. Each
of the nominees was elected at our last annual stockholders’
meeting on June 9, 2016. If any of the nominees should become
unavailable to serve on the board, which is not expected at this
time, the proxy holders will vote your shares for a board-approved
substitute, or the board may reduce the number of
directors.
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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54
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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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63
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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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71
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Director
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J.
Stanley Hull (1) (2)
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64
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Director
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Alan W.
Dunton, M.D. (1) (2)
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62
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Director
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Angela
Rossetti (1) (3)
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64
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Director
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Arlene
M. Morris (2) (3)
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65
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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.
8
Dr.
Spana’s qualifications for our board include his leadership
experience, business judgment and industry experience. As a senior
executive of Palatin for over nineteen 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 a director
and executive chairman of the board of directors of Antyra, Inc., a
privately held biopharmaceutical firm. 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
and marketing. Mr. Hull joined GlaxoSmithKline, a research-based
pharmaceutical company, in October 1987 and retired as Senior Vice
President, Pharmaceuticals in May 2010, having previously served in
the R&D organization of Glaxo Wellcome as Vice President and
Worldwide Director of Therapeutic Development and Product Strategy
– Neurology and Psychiatry. Prior to that, he was Vice
President of Marketing – Infectious Diseases and
Gastroenterology for Glaxo Wellcome. 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.
9
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. Since
November 2015, he has been senior vice president of research and
development for Purdue Pharma L.P., with responsibilities for
overall research strategy and development programs. He founded
Danerius, LLC, a biotechnology consulting company, in 2006. 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 company Oragenics, 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. 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 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. In June
2015 she became Executive Vice President of Cell Machines, Inc., an
early stage biopharmaceutical company developing transformational
biosimilars and 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. In May 2016 Ms. Rossetti was
appointed as a member of the board of directors of Viramal Limited,
a privately held London-based emerging pharmaceutical company, and
is currently acting chair of the board of directors. 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.
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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.
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 trade female
healthcare medical device company, Dimension Therapeutics, Inc., a
publicly traded gene 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. 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, current senior management and
board service, and experience as chief executive officer of
companies with product candidates in phase 3 clinical
trials.
RECOMMENDATION OF THE BOARD
The
board recommends a vote FOR the election of the seven nominees
listed above.
[END OF
ITEM ONE]
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
11
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 as our independent registered public accounting firm for the
fiscal year ending June 30, 2017. KPMG served as our independent
registered public accounting firm for the fiscal year ended June
30, 2016. We expect that a representative of KPMG will attend the
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, 2016, KPMG billed us a total of $235,500 for professional
services rendered for the audit of our annual consolidated
financial statements, review of our consolidated financial
statements in our Forms 10-Q and services provided in connection
with regulatory filings. For the fiscal year ended June 30, 2015,
the total billed for the same services was $419,200.
Audit-Related Fees
. For the fiscal
years ended June 30, 2016 and 2015, KPMG did not perform or bill us
for any audit-related services.
Tax Fees
. For the fiscal year ended
June 30, 2016, KPMG billed us a total of $16,000 for professional
services rendered for tax compliance. For the fiscal year ended
June 30, 2015, KPMG billed us $15,500 for professional services
rendered for tax compliance.
All Other Fees
. KPMG did not perform or
bill us for any services other than those described above for the
fiscal years ended June 30, 2016 and 2015.
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;
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
12
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. All services provided by our
independent registered public accounting firm in fiscal year 2016
and 2015 were pre-approved.
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 MKT, 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, 2016 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 the 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.
13
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, 2016.
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, 2017.
[END OF
ITEM TWO]
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
14
ITEM THREE: APPROVAL OF OUR 2011 STOCK INCENTIVE PLAN, AS AMENDED
AND RESTATED
The
company is asking stockholders to approve our 2011 Stock Incentive
Plan, as amended and restated (the “2011 Plan”), in
order to (i) increase the number of shares available for equity
awards under the 2011 Plan by 10,000,000 shares; (ii) extend the
term of the 2011 Plan, such that awards may be granted under the
2011 Plan until March 10, 2025, or such earlier date as the board
of directors shall determine; (iii) limit grants under the 2011
Plan to members of the board of directors, such that the aggregate
grant fair value (determined as of the applicable date or dates 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; (iv) continue to
authorize the grant of awards that are intended to qualify as
“performance-based compensation” for purposes of
Section 162(m) of the Internal Revenue Code of 1986, as amended
(the “Code”); and (v) continue to provide for favorable
federal income tax treatment for any grants of incentive stock
options under Section 422 of the Code.
INCREASE IN PLAN SHARES
On
March 30, 2017, the board of directors authorized an increase in
the number of shares of common stock available for issuance under
the 2011 Plan from 12,500,000 shares to 22,500,000 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. Additionally,
595,726 shares have been available under the 2011 Plan upon
reversion from its predecessor plan, our 2005 Stock Plan (the
“Prior Plan”). As of April 13, 2017, options to
purchase 6,295,132 shares were outstanding under the 2011 Plan and
3,448,705 shares were issuable under outstanding restricted stock
units. Restricted stock units for 1,378,750 have vested but have
not been delivered under deferred delivery provisions providing for
delivery after the grantee’s separation from service or a
defined change in control event, and restricted stock units for
2,289,081 shares have vested and been delivered under the 2011
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. As of April 13, 2017,
the number of shares issued or potentially issuable under all
options and stock awards was 12,032,918, which leaves only
1,455,778 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 unless additional stock
becomes available for issuance.
Stockholders are
also asked to extend the term of the 2011 Plan, such that awards
may be granted under the 2011 Plan until March 10, 2025, or such
earlier date as the board of directors shall determine. Unless the
amended and restated 2011 Plan is adopted, no awards may be granted
under the 2011 Plan after March 10, 2021. Stockholders are also
asked to approve a limit on non-employee director compensation set
forth in the amended and restated 2011 Plan, such that the
aggregate grant fair value (determined as of the applicable date or
dates of grant in accordance with applicable financial accounting
rules) of all awards granted to any non-employee 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.
15
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 22,500,000,
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.
●
The 2011 Plan is
designed to allow awards made under the plan to qualify as
“performance-based compensation” under
Section 162(m) of the Code.
●
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.
●
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
MKT.
SUMMARY OF THE 2011 PLAN
The
following is a summary of the amended and restated 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 amended and restated 2011
Plan as amended and restated, the share increase and other changes
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.
16
Plan Limits.
Assuming stockholder
approval of the 2011 Plan as amended and restated, 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
22,500,000, 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.
The
2011 Plan imposes various sub-limits on the number of shares of our
common stock that may be issued or transferred under the 2011 Plan.
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 order to comply with
the exemption from Section 162(m) of the Code relating to
performance-based compensation, the 2011 Plan imposes the following
additional individual sub-limits on awards intended to satisfy that
exemption:
●
the maximum
aggregate number of shares that may be subject to stock options or
SARs granted in any calendar year to any one participant is 750,000
shares,
●
the maximum
aggregate number of shares of restricted shares and shares subject
to restricted share units granted in any calendar year to any one
participant is 750,000 shares,
●
the maximum
aggregate compensation that can be paid pursuant to other
share-based awards or cash-based awards granted in any calendar
year to any one participant is $750,000 or a number of shares
having an aggregate fair market value not in excess of such amount,
and
●
the maximum
dividend equivalents that may be paid in any calendar year to any
one participant is $100,000 or a number of shares having an
aggregate fair market value not in excess of such
amount.
In
addition, the amended and restated 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.
17
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 Code, and an
“independent director” under the NYSE MKT 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. Six
non-employee directors and 20 employees, together with consultants
we utilize, would currently be eligible to participate in the 2011
Plan.
Duration and Modification.
As amended and restated, the 2011
Plan will terminated 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 MKT 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 MKT on the record date,
April 13, 2017, was $0.31 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.
18
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.
19
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.
20
Moreover, the
compensation committee may designate any restricted share,
restricted share unit, other share-based award or cash-based award
as a qualified performance-based award in order to make the award
fully deductible for federal income tax purposes without regard to
the $1 million limit imposed by Section 162(m) of the Code. If an
award is so designated, the compensation committee must establish
objectively determinable performance objectives for the award
within certain time limits. Performance objectives for such awards
will 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. To the extent
consistent with Section 162(m) of the Code, 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. Unless our compensation committee otherwise determines,
any such adjustment that is made with respect to an award that is
intended to qualify for the performance-based exception of Section
162(m) of the Code will be specified at such times and in such
manner as will not cause such awards to fail to qualify under the
performance-based exception. Additionally, 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.
21
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.
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 MKT.
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.
22
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:
●
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.
23
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.
To the extent
that a participant recognizes ordinary income in the circumstances
described above, our company or our subsidiary for which the
participant performs services will be entitled to a corresponding
compensation deduction provided that, among other things, the
compensation meets the test of reasonableness, is an ordinary and
necessary business expense, is not an “excess parachute
payment” within the meaning of Section 280G of the Code,
and is not disallowed by the $1 million limitation on
executive compensation under Section 162(m) of the
Code.
24
AWARDS GRANTED TO MANAGEMENT, DIRECTORS AND EMPLOYEES
The
following table shows all outstanding options and restricted stock
units as of April 13, 2017, whether currently exercisable or not,
granted under the 2011 Plan to our executive officers, directors
and employees. These options and restricted stock units are not
subject to stockholder approval of the amended and restated 2011
Plan. The closing price of our common stock as reported on NYSE MKT
was $0.31 on April 13, 2017.
NEW PLAN BENEFITS
OUTSTANDING AWARDS TABLE – 2011 PLAN
|
Name and
Position
|
Number
of
option
shares
|
Number
of
restricted
stock units
(1)
|
|
Carl Spana, Ph.D.,
chief executive officer, president and director
|
1,632,000
|
1,045,500
|
|
Stephen T. Wills,
MST, CPA, chief financial officer, chief operating officer and
executive vice president
|
1,451,000
|
963,000
|
|
John K.A.
Prendergast, Ph.D., director and chairman of the board
|
336,250
|
175,000
|
|
Robert K. deVeer,
Jr., director
|
190,000
|
87,500
|
|
J. Stanley Hull,
director
|
190,000
|
87,500
|
|
Alan W. Dunton,
M.D., director
|
150,000
|
77,500
|
|
Angela Rossetti,
director
|
102,500
|
67,500
|
|
Arlene Morris,
director
|
57,500
|
57,500
|
|
TWO EXECUTIVE
OFFICERS AS A GROUP:
|
3,083,000
|
2,008,000
|
|
SIX NON-EXECUTIVE
DIRECTORS AS A GROUP:
|
1,026,250
|
552,500
|
|
NON-EXECUTIVE
EMPLOYEES AS A GROUP:
|
1,344,350
|
888,205
|
(1)
Includes restricted
stock units which have vested but have not been delivered under
deferred delivery provisions providing for delivery after the
grantee’s separation from service or a defined change in
control event. Restricted stock units that have been vested but not
delivered under deferred delivery provisions are subject to
forfeiture in the event of termination for cause.
Our
compensation committee will determine, in its discretion, all
awards under the 2011 Plan, but except as set forth above no future
awards to our officers, employees or non-employee directors under
the 2011 Plan are currently determinable.
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 of the 2011 Plan.
25
Securities Authorized for
Issuance Under Equity Compensation Plans.
The table below provides information on our
equity compensation plans as of June 30, 2016:
Equity Compensation Plan Information
as of June 30, 2016
|
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
|
7,927,508
(1)
|
$
1.21
(2)
|
3,314,419
|
|
Equity compensation
plans not approved by security holders
|
-
|
-
|
-
|
|
Total
|
7,927,508
|
|
3,314,419
|
(1)
Consists of
4,825,550 options and 2,665,768 restricted stock units granted
under our 2011 Stock Incentive Plan and 436,190 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 2,665,768 shares reserved for issuance on vesting
of outstanding restricted stock units, granted under our 2011 Stock
Incentive Plan, which vest on various dates through January 11,
2020, subject to the fulfillment of service 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.
Current Equity Compensation Plan
Information.
As
of April 13, 2017, there were 6,295,132 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 $0.97, and with a weighted average
remaining life of 2.2 years. There were a total of 3,448,705 shares
subject to outstanding restricted stock unit awards that remain
subject to forfeiture. As of April 21, 2017, there were 1,455,778
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.
26
Equity Compensation Plan Information
as of April 13, 2017
|
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
|
9,743,837
(1)
|
$
0.97
(2)
|
1,455,778
|
|
Equity compensation
plans not approved by security holders
|
25,000
(3)
|
$
0.70
|
-
|
|
Total
|
9,768,837
|
|
1,455,778
|
(1)
Consists of
5,902,162 options and 3,448,705 restricted stock units granted
under our 2011 Stock Incentive Plan and 392,970 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 3,448,705 shares reserved for issuance on vesting
of outstanding restricted stock units, granted under our 2011 Stock
Incentive Plan, which vest on various dates through September 7,
2020, subject to the fulfillment of service 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 13, 2017 and the date of this
proxy statement, April 21, 2017.
RECOMMENDATION OF THE BOARD
The
board recommends a vote FOR the 2011 Stock Incentive Plan, as
amended and restated.
[END OF
ITEM THREE]
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
27
ITEM FOUR: 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, 2016, 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 2013 annual meeting, has adopted an annual
frequency for a say-on-pay advisory vote. The next say-on-pay
advisory vote will occur at the annual meeting for the fiscal year
ending June 30, 2017, to be held in 2018.
At our
2016 annual meeting, our say-on-pay proposal was supported by
approximately 88% of the votes cast. The compensation committee did
not implement any changes based on the advisory vote of the
stockholders on say-on-pay at the last annual meeting because the
committee considered the vote results to support the
company’s existing compensation practices.
We
compensate our NEOs in accordance with three-year employment
agreements that are designed to motivate our NEOs to achieve both
annual and long-term financial and strategic objectives. See
“Employment Agreements” under the Executive
Compensation section below. Here is a summary of how we determine
compensation under those agreements:
●
Base salary
. The employment agreement
sets a base salary which reflects the market for executive talent
in our industry at the time we entered into the agreement, along
with each NEO’s experience and particular expertise, both in
the industry and with Palatin. The fact that the employment
agreements are for a term of three years gives us the opportunity
to do a thorough re-evaluation of market conditions at reasonable
intervals, and gives us and the NEO the opportunity to renegotiate
any terms which experience has indicated ought to
change.
●
Annual salary adjustment
. Each year the
compensation committee evaluates whether the NEO’s salary is
keeping pace with inflation and market conditions and adequately
reflecting the NEO’s overall contributions to the company.
This may result in a salary increase.
●
Annual discretionary bonus
. Each year
the compensation committee evaluates the NEO’s contributions
to annual operating results and achievement of annual objectives.
This may result in a cash bonus.
●
Stock-based incentives
. Each year the
compensation committee evaluates the non-cash portion of the
NEO’s compensation, consisting of grants of stock options and
restricted stock units. The stock-based compensation can vest over
longer or shorter terms, usually from one to four years. Providing
a significant portion of the NEO’s total compensation in the
form of stock or stock options is intended to align the NEO’s
motivation with long-term stock value. Our stock-based awards are
simple and straightforward, just stock options and restricted stock
units, the dollar value of which is set forth under Executive
Compensation.
28
None of
the compensation we award above the base salary is automatic or
perfunctory. There have been years in which we did not increase
salaries, grant any cash bonuses or grant any stock-based awards.
We believe that NEO compensation for the fiscal year ended June 30,
2016 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.
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, 2016 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.
Approval of this
proposal requires that votes cast in favor of the proposal exceed
the votes cast against the proposal. Because your vote is advisory,
the result will not be binding on the board or the compensation
committee. Nonetheless, the board and the compensation committee
value the opinions of our stockholders and will consider the
outcome of the vote, along with other relevant factors, when making
future compensation decisions for NEOs.
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 FOUR]
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
29
CORPORATE GOVERNANCE
NOMINATION OF DIRECTORS
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
at the time of their appointment 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-nine 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 75
th
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 of 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 MKT, on which our common stock is
listed.
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, 2016, or fiscal 2016, the board met five times, the audit
committee met four times, the compensation committee met twice and
the nominating and corporate governance committee met twice. 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, with the chairman presiding, meet in
executive sessions at least annually, following the annual board
meeting. We do not have a policy requiring our directors to attend
stockholder meetings. With the exception of Drs. Prendergast and
Spana, the directors did not attend the annual meeting of
stockholders held on June 9, 2016.
30
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 MKT, and satisfy the requirements of the NYSE
MKT 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
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
MKT. 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.
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) and Ms. Rossetti and Ms. Morris, each of whom
meets the independence requirements established by the NYSE
MKT.
31
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:
●
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.
32
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 is responsible for leading
our day-to-day performance. 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 MKT 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 2016, except for Dr. Spana, whose
compensation is set forth above in the Summary Compensation Table
and related disclosure. Dr. Spana did not receive any separate
compensation for his services as a director.
|
Name
|
Fees earned or
paid in cash ($)
|
Stock
awards
($)
(2)
|
Option awards
($) (1) (2)
|
Total
($)
|
|
John K.A.
Prendergast, Ph.D.
|
95,000
|
105,500
|
23,267
|
223,767
|
|
Robert K. deVeer,
Jr.
|
58,750
|
52,750
|
11,634
|
123,134
|
|
Zola P. Horovitz,
Ph.D. (3)
|
43,750
|
25,000
|
-
|
68,750
|
|
J. Stanley
Hull
|
52,500
|
52,750
|
11,634
|
116,884
|
|
Alan W. Dunton,
M.D.
|
58,750
|
45,950
|
11,634
|
116,334
|
|
Angela
Rossetti
|
50,000
|
39,150
|
11,634
|
100,784
|
|
Arlene
Morris
|
50,000
|
32,350
|
11,634
|
93,984
|
(1)
The aggregate
number of shares underlying option awards and stock awards
outstanding at June 30, 2016 for each director was:
|
|
Option
awards
|
Stock
awards
|
|
Dr.
Prendergast
|
388,750
|
175,000
|
|
Mr.
deVeer
|
224,500
|
87,500
|
|
Dr.
Horovitz
|
-
|
-
|
|
Mr.
Hull
|
221,000
|
87,500
|
|
Dr.
Dunton
|
150,000
|
77,500
|
|
Ms.
Rossetti
|
102,500
|
67,500
|
|
Ms.
Morris
|
57,500
|
57,500
|
(2)
Amounts in these
columns represent the aggregate grant date fair value for stock
awards and option awards computed using the Black-Scholes model.
For a description of the assumptions we used to calculate these
amounts, see Note 12 to the consolidated financial statements
included in this Annual Report. Amounts in this column include
options granted on June 9, 2016 for our current fiscal year ending
June 30, 2017.
(3)
Dr. Horovitz ceased
serving as a director effective June 9, 2016.
33
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
9, 2016, as the annual equity grant for our current fiscal year
ending June 30, 2017, the chairman of the board received 75,000
restricted stock units which vest on June 9, 2017, and an option to
purchase 75,000 shares of common stock, and each other serving
non-employee director received 37,500 restricted stock units which
vest on June 9, 2017, and an option to purchase 37,500 shares of
common stock. All of the options have an exercise price of $0.50
per share, the closing price of our common stock on the date of
grant, vest in twelve monthly installments beginning on July 31,
2016, 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.
On
December 8, 2015, the compensation committee determined that
additional equity grants were necessary in order to reward,
motivate and retain the non-employee directors, and we granted the
chairman of the board 100,000 restricted stock units and the other
serving non-employee directors a total of 240,000 restricted stock
units, consisting of 50,000 to each of Mr. deVeer, Mr. Hull and Dr.
Horovitz, 40,000 to Dr. Dunton, 30,000 to Ms. Rossetti and 20,000
to Ms. Morris. The restricted stock units vest as to 50% on the
first and second anniversary of the grant date, conditioned on
continued service as a director through the applicable vesting
dates.
On June
11, 2015, as the annual equity grant for our fiscal year ending
June 30, 2016, the chairman of the board received 40,000 restricted
stock units which vest on June 11, 2016, and an option to purchase
40,000 shares of common stock, and each other serving non-employee
director received 20,000 restricted stock units which vest on June
11, 2016, and an option to purchase 20,000 shares of common stock.
All of the options have an exercise price of $1.08 per share, the
closing price of our common stock on the date of grant, vest in
twelve monthly installments beginning on July 31, 2015, 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 our fiscal year ended June 30, 2016 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 $12,500, the chairperson of the
compensation committee received an additional annual retainer of
$12,500 and the chairperson of the corporate governance committee
received an additional annual retainer of $7,500. 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,
2017, cash compensation is unchanged.
34
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.
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.
|
|
54
|
|
Chief
Executive Officer, President and Director
|
|
Stephen
T. Wills, MST, CPA
|
|
60
|
|
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, has been Executive Vice President, Secretary,
Treasurer and Chief Financial Officer since 1997 and was Executive
Vice President of Operations from 2005 until June 2011, when he was
appointed Chief Operating Officer and Executive Vice President. Mr.
Wills served as executive chairman and interim principal executive
officer of Derma Sciences, Inc. (“Derma”), a
publicly-held company providing advanced wound care products, from
December 2015 until February 2017 when Derma was acquired by
Integra LifeSciences Holding Corporation. Mr. Wills also served as
the lead director of Derma until December 2015 and as Derma’s
chief financial officer from 1997 to 2000. Mr. Wills serves on the
board of trustees and executive committee of The Hun School of
Princeton, and from 1991 to 2000 he was the president and chief
operating officer of Golomb, Wills & Company, P.C., a public
accounting firm. Mr. Wills, a certified public accountant, received
his B.S. in accounting from West Chester University, and an M.S. in
taxation from Temple University.
35
EXECUTIVE
COMPENSATION
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 our
fiscal years ended June 30, 2016 and 2015. We have no defined
benefit or actuarial pension plan, and no deferred compensation
plan.
|
Name and
Principal Position
|
Fiscal
Year
|
Salary
($)
|
Bonus
(2)($)
|
Stock
awards (1)
($)
|
Option
awards (1)
($)
|
All
other
compensation
(3)($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
Carl Spana, Ph.D.,
Chief Executive Officer
|
2016
|
476,400
|
101,000
(4)
|
354,250
|
-
|
13,598
|
945,248
|
|
and
President
|
2015
|
462,500
|
195,000
|
226,800
|
234,832
|
18,937
|
1,138,069
|
|
|
|
|
|
|
|
|
|
|
Stephen T. Wills,
MST, CPA,
|
2016
|
435,200
|
92,000
(4)
|
327,000
|
-
|
13,568
|
867,768
|
|
Chief Financial
Officer,
|
2015
|
422,500
|
203,000
|
205,200
|
211,916
|
18,438
|
1,061,054
|
|
Chief Operating
Officer
|
|
|
|
|
|
|
|
| and Executive Vice President |
|
|
|
|
|
|
|
(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. For a description of
the assumptions we used to calculate these amounts, see Note 12 to
the consolidated financial statements included in our Annual Report
on Form 10-K for fiscal year 2016.
(2)
Bonus
amounts.
(3)
Consists of
matching contributions to 401(k) plan.
(4)
Bonus amount for
fiscal year 2016 paid after fiscal year end but accrued as of June
30, 2016.
Employment
Agreements
Effective July 1,
2016, we entered into employment agreements with Dr. Spana and Mr.
Wills which continue through June 30, 2019 unless terminated
earlier. Under these agreements, which replaced substantially
similar agreements that expired on June 30, 2016, Dr. Spana is
serving as Chief Executive Officer and President at a base salary
of $476,400 per year and Mr. Wills is serving as Chief Financial
Officer and Chief Operating Officer at a base salary of $435,200
per year. Each agreement also provides for:
36
●
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 (Dr. Spana) or 18 months (Mr. Wills). 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.
The
compensation committee awarded performance-based discretionary
bonuses to our named executive officers for fiscal 2016 and fiscal
2015, which were paid in September 2016 and June 2015,
respectively, based on results of operations, including clinical
trial operations and our financial condition.
Stock Option and Restricted Stock Unit Grants
The
compensation committee determined that additional equity grants
were necessary in order to reward, motivate and retain our
executive officers. On December 8, 2015, we granted 325,000
performance-based restricted stock units and 325,000
non-performance-based restricted stock units to Dr. Spana and
300,000 performance-based restricted stock units and 300,000
restricted stock units to Mr. Wills. The performance-based
restricted stock units vest during the performance period, ending
December 31, 2017, if and upon the earlier of: (i) achievement of a
closing price for the Company’s common stock equal to or
greater than $1.20 per share for 20 consecutive trading days, which
is considered a market condition, or (ii) entering into a
collaboration agreement (U.S. or global) of bremelanotide for
female sexual dysfunction (“FSD”), which is considered
a performance condition. The performance-based restricted stock
units were deemed vested as of February 2, 2017, the effective date
of our license agreement with AMAG Pharmaceuticals, Inc. for North
American rights to develop and commercialize bremelanotide for FSD.
The non-performance-based restricted stock units vest 25% on the
date of grant and 25% on the first, second and third anniversary
dates from the date of grant.
On June
11, 2015, we granted 210,000 restricted stock units to Dr. Spana
and 190,000 restricted stock units to Mr. Wills, which vest as to
50% on each anniversary of the grant date. We also granted 300,000
stock options to Dr. Spana and 270,000 stock options to Mr. Wills,
which vest as to 25% on each anniversary of the grant date. These
options have an exercise price of $1.08, the fair market value of
the common stock on the date of grant, and they expire on June 11,
2025.
37
Outstanding Equity Awards at 2016 Fiscal Year-End
The
following table summarizes all of the outstanding equity-based
awards granted to our named executive officers as of June 30, 2016,
the end of our fiscal year.
|
|
|
Option awards
(1)
|
Stock
awards
|
||||||
|
Name
|
Option or
stock
award
grant
date
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number of shares
or units of stock that have not vested
(#)
(2)
|
Market value of
shares or units of stock that have not vested
($)
(3)
|
Equity incentive
plan awards: number of unearned shares, units or other rights that
have not vested
(#)
(4)
|
Equity incentive
plan awards: market value of unearned shares, units or other rights
that have not vested
($)
(3)
|
|
Carl
Spana
|
10/06/06
|
12,500
|
-
|
24.90
|
10/06/16
|
|
|
|
|
|
|
03/26/08
|
28,125
|
-
|
2.80
|
03/26/18
|
|
|
|
|
|
|
03/26/08
|
4,687
|
-
|
5.00
|
03/26/18
|
|
|
|
|
|
|
03/26/08
|
4,688
|
-
|
6.60
|
03/26/18
|
|
|
|
|
|
|
07/01/08
|
25,000
|
-
|
1.80
|
07/01/18
|
|
|
|
|
|
|
07/01/09
|
25,000
|
-
|
2.80
|
07/01/19
|
|
|
|
|
|
|
06/22/11
|
300,000
|
-
|
1.00
|
06/22/21
|
|
|
|
|
|
|
07/17/12
|
112,500
|
37,500
|
0.72
|
07/17/22
|
|
|
|
|
|
|
06/27/13
|
206,250
|
68,750
|
0.62
|
06/27/23
|
|
|
|
|
|
|
06/25/14
|
87,500
|
87,500
|
1.02
|
06/25/24
|
|
|
|
|
|
|
06/11/15
|
75,000
|
225,000
|
1.08
|
06/11/25
|
|
|
|
|
|
|
06/11/15
|
|
|
|
|
105,000
|
46,200
|
|
|
|
|
12/08/15
|
|
|
|
|
243,750
|
107,250
|
|
|
|
|
12/08/15
|
|
|
|
|
|
|
325,000
|
143,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen T.
Wills
|
10/06/06
|
10,000
|
-
|
24.90
|
10/06/16
|
|
|
|
|
|
|
03/26/08
|
22,500
|
-
|
2.80
|
03/26/18
|
|
|
|
|
|
|
03/26/08
|
3,750
|
-
|
5.00
|
03/26/18
|
|
|
|
|
|
|
03/26/08
|
3,750
|
-
|
6.60
|
03/26/18
|
|
|
|
|
|
|
07/01/08
|
20,000
|
-
|
1.80
|
07/01/18
|
|
|
|
|
|
|
07/01/09
|
20,000
|
-
|
2.80
|
07/01/19
|
|
|
|
|
|
|
06/22/11
|
250,000
|
-
|
1.00
|
06/22/21
|
|
|
|
|
|
|
07/17/12
|
101,250
|
33,750
|
0.72
|
07/17/22
|
|
|
|
|
|
|
06/27/13
|
187,500
|
62,500
|
0.62
|
06/27/23
|
|
|
|
|
|
|
06/25/14
|
75,000
|
75,000
|
1.02
|
06/25/24
|
|
|
|
|
|
|
06/11/15
|
67,500
|
202,500
|
1.08
|
06/11/25
|
|
|
|
|
|
|
06/11/15
|
|
|
|
|
95,000
|
41,800
|
|
|
|
|
12/08/15
|
|
|
|
|
225,000
|
99,000
|
|
|
|
|
12/08/15
|
|
|
|
|
|
|
300,000
|
132,000
|
38
(1)
Stock option
vesting schedules: all options granted on or before June 22, 2011
have fully vested. Options granted after June 22, 2011 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.
(2)
Time-based stock
award vesting schedule: stock awards consist of restricted stock
units granted on June 11, 2015, which will vest on June 11, 2017,
provided that the named executive officer remains an employee;
restricted stock units granted on December 8, 2015, as to 243,750
shares for Dr. Spana and 225,000 shares for Mr. Wills, which will
vest in equal amounts over a three year period, provided that the
named executive officer remains an employee.
(3)
Calculated by
multiplying the number of restricted stock units by $0.44, the
closing market price of our common stock on June 30, 2016, the last
trading day of our most recently completed fiscal
year.
(4)
Performance-based
stock award vesting schedule: performance-based restricted stock
units granted on December 8, 2015 as to 325,000 shares as to Dr.
Spana and 300,000 shares as to Mr. Wills, which expire December 31,
2017 unless the specified performance criteria is met. The
performance-based restricted stock units were deemed vested as of
February 2, 2017, the effective date of our license agreement with
AMAG Pharmaceuticals, Inc. for North American rights to develop and
commercialize bremelanotide for FSD. See “Stock Options and
Restricted Stock Unit Awards” above and “Termination
and Change-In-Control Arrangements” below.
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 the executive’s 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 (Dr. Spana) or 18 months (Mr. Wills), 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.
39
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 (for Dr. Spana) or 18 months (for Mr. Wills) 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 (Dr.
Spana) or 18 months (Mr. Wills) after the termination date. In
addition, upon such event all unvested options would immediately
vest and be exercisable for two years after the termination date
or, if earlier, the expiration of the option term, and all unvested
restricted stock units would accelerate and become fully
vested.
Severance Compensation After a Change in
Control
. If, within one year after a change in control, we
terminate employment or the executive terminates employment with
good reason, then the executive will receive as severance pay 200%
(Dr. Spana) or 150% (Mr. Wills) of his salary then in effect, paid
in a lump sum, plus medical and dental benefits at our expense, for
a period of two years (Dr. Spana) or 18 months (Mr. Wills) after
the termination date. We would also reimburse the executive for up
to $25,000 in fees and expenses during the six months following
termination, for locating employment. We would also reimburse the
executive for any excise tax he might incur on “excess
parachute payments” (as defined in Section 280G(b) of the
Internal Revenue Code). All unvested options would immediately vest
and be exercisable for two years after the termination date or, if
earlier, the expiration of the option term. All unvested restricted
stock units would vest upon a change in control, without regard to
whether the executive’s employment is
terminated.
Option and Restricted Stock Unit Vesting Upon
a Change in Control
. Options and restricted stock units
granted under the 2011 Stock Incentive Plan vest upon 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” generally includes:
(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.
40
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;
(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
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING
COMPLIANCE
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 2016, except that a report on Form 4 relating to an
acquisition of our common stock by a director was inadvertently
filed late on behalf of J. Stanley Hull on December 3,
2015.
41
BENEFICIAL OWNERSHIP OF MANAGEMENT AND OTHERS
The
tables below show the beneficial stock ownership and voting power,
as of April 21, 2017, 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 which a person
has the right to acquire now or within 60 days after April 21,
2017. 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 15 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 April
21, 2017, on which date 150,801,806 shares of common stock and
4,030 shares of Series A preferred stock, convertible into 60,592
shares of common stock, were outstanding.
Under
our Insider Trading and Securities Law Compliance Policy 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, directors and nominees
for director is c/o Palatin Technologies, Inc., 4B Cedar Brook
Drive, Cranbury, NJ 08512. Addresses of other beneficial owners are
in the table.
42
MANAGEMENT:
|
Title of
Class
|
Name of
beneficial owner
|
Amount and
nature of beneficial ownership
|
Percent of
class
|
Percent of total
voting power
|
|
Common
|
Carl Spana,
Ph.D.
|
2,249,176
(1)
|
1.5
%
|
*
|
|
Common
|
Stephen T.
Wills
|
2,055,888
(2)
|
1.4
%
|
*
|
|
Common
|
John K.A.
Prendergast, Ph.D.
|
575,267
(3)
|
*
|
*
|
|
Common
|
Robert K. deVeer,
Jr.
|
348,935
(4)
|
*
|
*
|
|
Common
|
J. Stanley
Hull
|
319,875
(5)
|
*
|
*
|
|
Common
|
Alan W. Dunton,
M.D.
|
246,895
(6)
|
*
|
*
|
|
Common
|
Angela
Rossetti
|
186,875
(7)
|
*
|
*
|
|
Common
|
Arlene M.
Morris
|
121,875
(8)
|
*
|
*
|
|
|
|
|
|
|
|
|
All current
directors and executive officers as a group (eight
persons)
|
6,104,786
(9)
|
3.9
%
|
1.1
%
|
*Less
than one percent.
(1)
Includes 981,250
shares of common stock underlying outstanding options and 592,500
shares of common stock underlying restricted stock units, of which
487,500 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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 852,500
shares of common stock underlying outstanding options and 545,000
shares of common stock underlying restricted stock units, of which
450,000 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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.
(3)
Includes 378,500
shares of common stock underlying outstanding options and 125,000
shares of common stock underlying restricted stock units, of which
50,000 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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 219,375
shares of common stock underlying outstanding options and 62,500
shares of common stock underlying restricted stock units, of which
25,000 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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.
43
(5)
Includes 215,875
shares of common stock underlying outstanding options and 62,500
shares of common stock underlying restricted stock units, of which
25,000 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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 146,875
shares of common stock underlying outstanding options and 57,500
shares of common stock underlying restricted stock units, of which
20,000 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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 99,375
shares of common stock underlying outstanding options and 52,500
shares of common stock underlying restricted stock units, of which
15,000 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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 54,375
shares of common stock underlying outstanding options and 47,500
shares of common stock underlying restricted stock units, of which
10,000 shares of common stock underlying restricted stock units
have vested but have not been delivered under deferred delivery
provisions providing for delivery after the grantee’s
separation from service or a defined change in control event, 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.
(9)
Includes 4,493,125
shares of common stock underlying outstanding options, warrants and
restricted stock units.
44
MORE THAN 5% BENEFICIAL OWNERS:
|
Title of
Class
|
Name and address
of beneficial owner
|
Amount and
nature of beneficial ownership (1)
|
Percent
of
class
|
Percent of total
voting
power
|
|
|
|
|
|
|
|
Common
|
QVT Financial
LP
|
16,030,751
(2)
|
9.9
%
|
4.2
%
|
|
|
1177 Avenue of the
Americas, 9th Floor
|
|
|
|
|
|
New York, New York
10036
|
|
|
|
|
Series A
Preferred
|
Steven N.
Ostrovsky
|
500
|
12.4
%
|
*
|
|
|
43 Nikki
Ct.
|
|
|
|
|
|
Morganville, NJ
07751
|
|
|
|
|
Series A
Preferred
|
Thomas L. Cassidy
IRA Rollover
|
500
|
12.4
%
|
*
|
|
|
38 Canaan
Close
|
|
|
|
|
|
New Canaan, CT
06840
|
|
|
|
|
Series A
Preferred
|
Jonathan E.
Rothschild
|
500
|
12.4
%
|
*
|
|
|
300 Mercer St.,
#28F
|
|
|
|
|
|
New York, NY
10003
|
|
|
|
|
Series A
Preferred
|
Arthur J.
Nagle
|
250
|
6.2
%
|
*
|
|
|
19 Garden
Avenue
|
|
|
|
|
|
Bronxville, NY
10708
|
|
|
|
|
Series A
Preferred
|
Thomas P. and Mary
E. Heiser, JTWROS
|
250
|
6.2
%
|
*
|
|
|
10 Ridge
Road
|
|
|
|
|
|
Hopkinton, MA
01748
|
|
|
|
|
Series A
Preferred
|
Carl F.
Schwartz
|
250
|
6.2
%
|
*
|
|
|
31 West 87th
St.
|
|
|
|
|
|
New York, NY
10016
|
|
|
|
|
Series A
Preferred
|
Michael J.
Wrubel
|
250
|
6.2
%
|
*
|
|
|
3650 N. 36 Avenue,
#39
|
|
|
|
|
|
Hollywood, FL
33021
|
|
|
|
|
Series A
Preferred
|
Myron M.
Teitelbaum, M.D.
|
250
|
6.2
%
|
*
|
|
|
175 Burton
Lane
|
|
|
|
|
|
Lawrence, NY
11559
|
|
|
|
|
Series A
Preferred
|
Laura Gold
Galleries Ltd. Profit Sharing Trust Park South Gallery at Carnegie
Hall
|
250
|
6.2
%
|
*
|
|
|
154 West 57th
Street, Suite 114
|
|
|
|
|
|
New York, NY
10019
|
|
|
|
|
Series A
Preferred
|
Laura
Gold
|
250
|
6.2
%
|
*
|
|
|
180 W. 58th
Street
|
|
|
|
|
|
New York, NY
10019
|
|
|
|
|
Series A
Preferred
|
Nadji T.
Richmond
|
230
|
5.7
%
|
*
|
|
|
20 E. Wedgewood
Glen
|
|
|
|
|
|
The Woodlands, TX
77381
|
|
|
|
*Less
than one percent.
45
(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.
(2) QVT
Financial LP (QVT Financial) is the investment manager for QVT Fund
V LP (Fund V) and other private investment funds (collectively, the
Funds). The information contained herein with respect to the Funds
is based on information included in filings by QVT Financial and
the Funds with the SEC. Based on a Form 13G/A filed by QVT
Financial on February 9, 2017 for the period ending December 31,
2016, the Funds beneficially own in the aggregate 16,030,751 shares
of common stock, including 9,666,182 shares of common stock
underlying outstanding warrants. QVT Financial has the power to
direct the vote and disposition of the common stock held by the
Funds, and accordingly QVT Financial may be deemed to be the
beneficial owner of an aggregate amount of 16,030,751 shares of
common stock, consisting of the shares beneficially owned by the
Funds.
QVT
Financial GP LLC, as General Partner of QVT Financial, may be
deemed to beneficially own the same number of shares of common
stock reported by QVT Financial. QVT Associates GP LLC, as General
Partner of the Funds may be deemed to beneficially own the
aggregate number of shares of common stock beneficially owned by
the Funds, and accordingly, QVT Associates GP LLC may be deemed to
be the beneficial owner of an aggregate amount of 16,030,751 of
common stock.
Exercise
of warrants held by the Funds is restricted if, as a result of an
exercise, the beneficial ownership of the holder and its affiliates
and any other party or person that could be deemed to be a group
would exceed 9.99% of the outstanding common stock. Beneficial
ownership as listed in the table above excludes warrants which are
not exercisable because of that restriction, but includes warrants
which are exercisable based on the common shares
outstanding.
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, 2012, 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.
46
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 1, 2018. To be
considered for presentation at the 2018 annual meeting, although
not included in the proxy statement, proposals must be received no
later than March 16, 2018. Proposals that are not received in a
timely manner will not be voted on at the 2018 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
|
|
|
April 21,
2017
|
47
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 and amended as of April 1, 2016
and re-approved by the Company’s stockholders on June 9,
2016. On March 30, 2017, the Board approved the amendment and
restated of the Plan as set forth herein, 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.
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“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.
“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.
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“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
22,500,000, 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.
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.
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(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.
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.
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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-8
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.
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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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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.
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.
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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]
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