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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to __________
Commission file number 0-22686
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PALATIN TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 95-4078884
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
214 CARNEGIE CENTER - SUITE 100
PRINCETON, NEW JERSEY 08540
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (609) 520-1911
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of November 9, 1998, 4,712,284 shares of the Issuer's common stock, par value
$.01 per share, were outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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<PAGE>
PALATIN TECHNOLOGIES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS -- As of September 30, 1998
and June 30, 1998.......................................... Page 3
CONSOLIDATED STATEMENTS OF OPERATIONS -- For the Three Months
Ended September 30, 1998 and September 30, 1997 and
the Period from January 28, 1986 (Commencement of
Operations) through September 30, 1998..................... Page 4
CONSOLIDATED STATEMENTS OF CASH FLOWS -- For the Three Months
Ended September 30, 1998 and September 30, 1997 and the
Period From January 28, 1986 (Commencement of
Operations) through September 30, 1998..................... Page 5
Notes to Consolidated Financial Statements................... Page 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. Page 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings............................................ Page 10
Item 2. Changes in Securities and Use of Proceeds.................... Page 10
Item 3. Defaults Upon Senior Securities.............................. Page 11
Item 4. Submission of Matters to a Vote of Security Holders.......... Page 11
Item 5. Other Information............................................ Page 11
Item 6. Exhibits and Reports on Form 8-K............................. Page 11
Signatures.............................................................. Page 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 JUNE 30, 1998
----------------------- ----------------------
(unaudited) (audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents, including restricted cash of $185,000 $3,704,725 $4,511,187
Prepaid expenses and other 173,020 277,765
----------------------- ----------------------
Total current assets 3,877,745 4,788,952
Fixed assets, net of accumulated depreciation and amortization
of $509,410 and $454,705 respectively 1,571,237 1,610,117
Intangibles, net of accumulated amortization of $119,299 and
$116,247, respectively 81,804 76,000
----------------------- ----------------------
$5,530,786 $6,475,069
======================= ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $913,751 $461,546
Accrued expenses 682,389 1,134,388
Current portion of long-term debt 697,881 939,588
----------------------- ----------------------
Total current liabilities 2,294,021 2,535,522
----------------------- ----------------------
Deferred license revenue 550,000 550,000
----------------------- ----------------------
Commitments and contingencies (Note 6)
Stockholders' equity:
Preferred stock of $.01 par value - authorized 10,000,000 shares;
Series A Convertible; 78,284 and 88,329 shares issued and outstanding
as of September 30, 1998 and June 30, 1998, respectively; 783 883
Series B Convertible; 18,875 shares issued and outstanding as of
September 30, 1998 and June 30, 1998; 189 189
Common stock of $.01 par value - authorized 75,000,000 shares;
issued and outstanding 4,669,946 and 4,099,623 shares as of
September 30, 1998 and June 30, 1998, respectively; 46,700 40,996
Additional paid-in capital 28,804,498 26,610,101
Warrants 573,537 573,537
Unamortized deferred compensation (461,298) (516,179)
Deficit accumulated during development stage (26,277,644) (23,319,980)
----------------------- ----------------------
Total stockholder's equity 2,686,765 3,389,547
----------------------- ----------------------
$5,530,786 $6,475,069
======================= ======================
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
3
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PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Inception
(January 28, 1986)
Three Months Ended September 30, through
1998 1997 September 30, 1998
------------------- ------------------- ----------------------
<S> <C> <C> <C>
REVENUES:
Grants and contracts $ - $ 33,967 $ 3,244,652
License fees and royalties - - 684,296
Product - - 318,917
------------------- ------------------- --------------------
Total revenues - 33,967 4,247,865
------------------- ------------------- --------------------
OPERATING EXPENSES:
Research and development 2,137,591 1,389,782 17,055,698
General and administrative 846,290 680,234 11,389,890
Restructuring charge - - 284,000
Net intangibles write down - - 259,334
------------------- ------------------- --------------------
Total operating expenses 2,983,881 2,070,016 28,988,922
------------------- ------------------- --------------------
OTHER INCOME (EXPENSES):
Interest income 60,216 145,879 836,375
Interest expense (33,999) (75,523) (1,678,992)
Placement agent commissions and
fees on debt offering - - (168,970)
Merger costs - - (525,000)
------------------- ------------------- --------------------
Total other (expenses) 26,217 70,356 (1,536,587)
------------------- ------------------- --------------------
NET LOSS (2,957,664) (1,965,693) (26,277,644)
PREFERRED STOCK DIVIDEND - - (3,121,525)
------------------- ------------------- --------------------
NET LOSS ATTRIBUTABLE TO COMMON $(2,957,664) $(1,965,693) $(29,399,169)
=================== =================== ====================
Basic and diluted net loss per common share $ (0.66) $ (0.65) $ (33.29)
=================== =================== ====================
Weighted average number of common shares
outstanding used in computing basic and
diluted net loss per common share 4,502,090 3,038,406 882,992
=================== =================== ====================
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
4
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PALATIN TECHNOLOGIES, INC
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Inception
(January 28,
1986)
Three Months Ended September 30, Through
1998 1997 September 30, 1998
---------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,957,664) $(1,965,693) $(26,277,644)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization 57,757 29,975 662,411
License fee - - 500,000
Interest expense on note payable - 3,382 72,691
Accrued interest on long-term financing - - 796,038
Accrued interest on short-term financing - - 7,936
Intangibles and equipment write down - - 278,318
Equity and notes payable issued for expenses - - 623,688
Settlement with consultant - - (28,731)
Deferred revenue - - 550,000
Amortization of deferred compensation 254,881 215,714 2,372,574
Changes in certain operating assets and
liabilities:
Accounts receivable - (400,967) -
Prepaid expenses and other (104,578) 24,154 (382,344)
Intangibles (8,856) (7,961) (454,556)
Accounts payable 452,205 (89,090) 912,851
Accrued expenses (451,999) 249,583 222,122
---------------- -------------- ------------------
Net cash used for operating activities (2,758,254) (1,940,903) (20,144,646)
---------------- -------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (15,825) (1,115,452) (2,135,988)
---------------- -------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable, related party - - 302,000
Payments on notes payable, related party - - (389,936)
Proceeds from senior bridge notes payable - - 1,850,000
Payments on senior bridge notes - - (1,850,000)
Proceeds from notes payable and long term debt 1,951,327
Payments on notes payable and long term debt (241,707) (203,650) (1,531,494)
Proceeds from paid-in capital from common
stock warrants - - 100,000
Proceeds from common stock, stock option
issuances, net 2,209,324 6,184 12,344,803
Proceeds from preferred stock, net - - 13,210,326
Purchase of treasury stock - - (1,667)
---------------- -------------- ------------------
Net cash provided by (used for)
financing activities 1,967,617 (197,466) 25,985,359
---------------- -------------- ------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (806,462) (3,253,821) 3,704,725
CASH AND CASH EQUIVALENTS, beginning
of period 4,511,187 12,806,717 -
---------------- -------------- ------------------
CASH AND CASH EQUIVALENTS, end of period $3,704,725 $9,552,896 $3,704,725
================ ============== ==================
</TABLE>
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
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<PAGE>
PALATIN TECHNOLOGIES, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements (Unaudited)
(1) ORGANIZATION ACTIVITIES:
Nature of Business -- Palatin Technologies, Inc. ("Palatin" or the
"Company") is a development stage enterprise dedicated to developing and
commercializing products and technologies for diagnostic imaging and ethical
drug development utilizing peptide, monoclonal antibody and radiopharmaceutical
technologies.
Business Risk and Liquidity - The Company's accompanying financial
statements have been prepared in conformity with principles of accounting
applicable to a going concern. These principles contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business.
As shown in the accompanying financial statements, the Company incurred
substantial net losses of $2,957,664 for the three months ended September 30,
1998 and has a deficit accumulated during development stage of $26,277,644. The
Company anticipates incurring additional operating losses over at least the next
several years, and such losses are expected to increase as the Company expands
its research and development activities relating to various technologies. To
achieve profitability, the Company, alone or with others, must successfully
develop and commercialize its technologies and proposed products, conduct
pre-clinical studies and clinical trials, obtain required regulatory approvals
and successfully manufacture and market such technologies and proposed products.
The time required to reach profitability is highly uncertain, and there can be
no assurance that the Company will be able to achieve profitability on a
sustained basis, if at all.
Management plans to continue to refine its operations, control
expenses, evaluate alternative methods to conduct its business, and seek
available and attractive sources of debt or equity financing through a
combination of private placements and sharing of development costs, or other
resources. Management believes that through one or a combination of such factors
that it will be able to obtain adequate financing to fund the Company's
operations through fiscal 1999. There can be no assurance that the Company's
efforts will be successful. If a significant operating expense reduction plan
were implemented, it would require the Company to delay, scale back or eliminate
significant aspects of the Company's operations.
(2) BASIS OF PRESENTATION:
The accompanying financial statements have been prepared by the Company
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in the Company's audited annual financial
statements have been condensed or omitted in the Company's interim financial
statements. In the opinion of the Company, these financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of September 30, 1998
and June 30, 1998, and the results of operations for the three month period
ended September 30, 1998 and 1997 and for the period from inception (January 28,
1986) to September 30, 1998 and cash flows for the three months ended September
30, 1998 and 1997, and for the period from inception (January 28, 1986) to
September 30, 1998. The results of operations for the interim period may not
necessarily be indicative of the results of operations expected for the full
year, except that the Company expects to incur a significant loss for the fiscal
year ended June 30, 1999.
The accompanying financial statements and the related notes should be
read in conjunction with the Company's audited financial statements for the
fiscal years ended June 30, 1998 and 1997 and the ten months ended June 30,
1996, filed with the Company's Form 10-KSB for the year ended June 30, 1998.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation -- The consolidated financial statements include the
accounts of Palatin and its wholly owned subsidiary, RhoMed Incorporated
("RhoMed"). The remaining subsidiary of Palatin, Interfilm Technologies, Inc.,
is inactive. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of assets and
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liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents -- For purposes of presenting cash flows, the
Company considers cash and cash equivalents as amounts on hand, on deposit in
financial institutions and highly liquid investments purchased with an original
maturity of three months or less.
Revenue Recognition -- Grant and contract revenues are recognized as services
are provided. License and royalty revenues are recognized when earned. Product
revenues are recognized upon shipment.
Research and Development Costs -- The costs of research and development
activities are expensed as incurred.
Net Loss per Common Share -- Effective December 31, 1997 the Company adopted
SFAS No. 128, "Earnings per Share" ("SFAS 128"), which supersedes Accounting
Principles Board Opinion No. 15, "Earnings per Share." SFAS 128 requires dual
presentation of basic and diluted earnings per share ("EPS") for complex capital
structures on the face of the statement of operations. Basic EPS is computed by
dividing the income (loss) by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution from the
exercise or conversion of securities into common stock, such as stock options.
For the three months ended September 30, 1998 and 1997 and for the period from
inception (January 28, 1986) through September 30, 1998, there were no dilutive
effects of stock options or warrants as the Company incurred a net loss in each
period. Options and warrants to purchase 1,872,118 shares of common stock at
prices ranging from $0.20 to $360 per share were outstanding at September 30,
1998. In accordance with the provisions of SFAS 128, EPS for prior periods have
been restated.
(4) PROPERTY AND EQUIPMENT:
Property and equipment consists of the following at:
September 30, June 30,
1998 1998
------------- -------------
Office equipment $ 368,051 $ 361,087
Laboratory equipment 381,991 380,631
Leasehold improvements 1,330,605 1,323,104
----------- -----------
2,080,647 2,064,822
Less: Accumulated depreciation and
Amortization (509,410) (454,705)
----------- -----------
$1,571,237 $1,610,117
=========== ===========
(5) LONG - TERM DEBT:
The Company has long-term financing agreements with Phoenixcor, Inc.
("Phoenixcor"). The Company is obligated to make monthly principal and interest
payments of $91,695 through May 1, 1999. At September 30, 1998, the total
principal on the long-term debt was $697,881.
(6) COMMITMENTS AND CONTINGENCIES:
Consulting Agreements -- The Company is obligated under four consulting
agreements to make payments totaling $200,800 in fiscal 1999.
Legal Proceedings -- The Company is subject to various claims and
litigation in the ordinary course of its business. Management believes that the
outcome of such legal proceedings will not have a material adverse effect on the
Company.
(7) STOCKHOLDERS' EQUITY (DEFICIT):
As of July 8, 1998, the Company sold 363,636 shares of common stock to
TheraTech, Inc. ("TheraTech") at a sale price of $5.50 per share, for gross
proceeds of $2,000,000 and net proceeds of approximately $1,964,000.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto filed as part of
this Form 10-QSB. Unless otherwise indicated herein, all references to the
Company include Palatin and its wholly owned subsidiary, RhoMed.
Certain statements in this Form 10-QSB contain "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company, or industry results, to be materially different
from any future results, performance, or achievements express or implied by such
forward-looking statements. When used in this Form 10-QSB, statements that are
not statements of historical fact may be deemed to be forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Form 10-QSB.
The Company undertakes no obligation to publicly release the result of any
revisions to these forward-looking statements that may be made to reflect events
or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
The Company's business is subject to significant risks, including the
uncertainties associated with product development of pharmaceutical products,
problems or delays with clinical trials, failure to receive or delays in
receiving regulatory approval, lack of enforceability of patents and proprietary
rights, manufacturing capacity, industry trends, competition, material costs and
availability, changes in business strategy or development plans, quality of
management, availability of capital, availability of qualified personnel, the
effect of government regulation, the possible effect of Year 2000 issues and
other risks detailed in the Company's filings with the Commission, including the
Company's Form 10-KSB for the year ended June 30, 1998. The Company expects to
incur substantial operating losses over the next several years due to continuing
expenses associated with its research and development programs, including
pre-clinical testing, clinical trials and manufacturing. Operating losses may
also fluctuate from quarter to quarter as a result of differences in the timing
of when expenses are incurred.
RESULTS OF OPERATIONS
Three Month Period Ended September 30, 1998 Compared to Three Month
Period Ended September 30, 1997.
Grants and contracts - There was no revenue from grants and contracts
during the three month period ended September 30, 1998, compared to $33,967 from
grants in the three month period ended September 30, 1997. During the three
month period ended September 30, 1997, the Company completed its four Phase I
grants under the Small Business Innovative Research program with the National
Institutes of Health of the Department of Health and Human Services.
Sales - There was no revenue from the sale of products during the three
month periods ended September 30, 1998 and September 30, 1997. During the fiscal
year ended June 30, 1997, the Company discontinued the manufacture and sale of
RhoChek, the sole product sold by the Company, due to insufficient sales.
Research and development - Research and development expenses increased
to $2,137,591 for the three month period ended September 30, 1998 compared to
$1,389,782 for the three month period ended September 30, 1997. The Company
substantially increased research and development spending, primarily relating to
development of the LeuTech(TM) product for diagnostic imaging of infections,
including increased expenses for manufacturing scale-up, consulting and clinical
trials, and also relating to research expenses on the Company's PT-14(TM)
peptide therapeutic product and MIDAS(TM) metallopeptide technology. The Company
expects research and development expenses to continue to increase in future
quarters as the Company expands clinical trials and manufacturing efforts and
the LeuTech product and expands efforts to develop PT-14 and MIDAS technology.
General and administrative - General and administrative expenses
increased to $846,290 for the three month period ended September 30, 1998
compared to $680,234 for the three month period ended September 30, 1997. The
increase in general and administrative expenses were mainly attributable to the
amortization of deferred compensation, totaling $254,881 for the three month
period ended September 30, 1998, and the value of options granted at exercise
prices below the then current market price of the Company's common stock.
Interest income - Interest income decreased to $60,216 for the three
month period ended September 30, 1998 compared to $145,879 for the three month
period ended September 30, 1997. The decrease in interest income is primarily
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the result of the depletion of funds available for investment purposes and used
to fund the Company's operations.
Interest expense - Interest expense decreased to $33,999 for the three
month period ended September 30, 1998 compared to $75,523 for the three month
period ended September 30, 1997. The decrease is due to the repayment by the
Company of a portion of outstanding principal on long-term debt provided by
Phoenixcor.
Net loss - Net loss increased to $2,957,664 for the three month period
ended September 30, 1998 compared to $1,965,693 for the three month period ended
September 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has incurred net operating losses and
as of September 30, 1998, had a deficit accumulated during development stage of
$26,277,644. The Company has financed its net operating losses through September
30, 1998 by a series of debt and equity financings. At September 30, 1998, the
Company had cash and cash equivalents of $3,704,725.
For the three months ended September 30, 1998, the net decrease in cash
amounted to $806,462. Cash used for operating activities was $2,758,254, net
cash used for investing activities was $15,825 and cash provided by financing
activities was $1,967,617.
As of July 8, 1998, the Company completed a private placement of
363,636 shares of common stock of the Company for gross proceeds of $2,000,000
and net proceeds of approximately $1,964,000. The net proceeds will be used
for research and development of an oral dosage form of PT-14.
Pursuant to a license option agreement with Nihon Medi-Physics Ltd.
("Nihon"), Nihon can maintain its option to license certain products based on
the Company's MIDAS technology provided Nihon makes certain milestone payments
based on progress in product development. Nihon may exercise its right to
negotiate a license at any time upon notice and payment of additional monies to
the Company. In the event that the parties cannot agree on terms of a license
agreement, then the Company may be required to repay $550,000 to Nihon. There
can be no assurance that the Company and Nihon will ever enter into a definitive
license agreement, that additional payments provided for in the license option
agreement will be made, or that a strategic alliance between the Company and
Nihon will result in the development or commercialization of any product.
The Company's monthly payments on long-term debt payable to Phoenixcor
are $91,695, representing payment of current interest and principal. The final
monthly payment is scheduled to be made in May 1999.
In March 1997, the Company entered into a ten-year lease on research
and development facilities in Edison, New Jersey, which commenced August 1,
1997. Minimum future lease payments escalate from approximately $116,000 per
year to $200,000 per year after the fifth year of the lease term. The lease will
expire in fiscal year 2007.
Effective August 1, 1997, the Company entered into a five-year lease on
administrative offices in Princeton, New Jersey. Minimum future lease payments
are approximately $97,000 per year.
The Company has entered into three license agreements, which require
minimum yearly payments. Future minimum fiscal year payments under the license
agreements are as follows: 1999 - $150,000, 2000 - $200,000, 2001 - $150,000,
2002 -$200,000 and 2003 - $200,000.
The Company expects to continue actively searching for certain
products, technologies to license or acquire in the future, and corporate
partnerships, depending on the financial resources of the Company. If the
Company is successful in identifying a product or technology for acquisition,
substantial funds may be required for such acquisition and subsequent
development or commercialization. There can be no assurance that any acquisition
will be consummated in the future.
The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts. The
Company anticipates incurring additional losses over at least the next several
years, and expects such losses to increase as the Company expands its research
and development activities relating to LeuTech, PT-14 and its MIDAS technology.
The Company's future capital requirements and the adequacy of available funds
depends on numerous factors, including progress in its product development
efforts, the magnitude and scope of such efforts, progress with pre-clinical
studies and clinical trials, progress with regulatory affairs activities, the
cost of filing, prosecution, defending and enforcing patent claims and other
9
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intellectual property rights, competing technological and market developments,
and identifying and consummating suitable strategic alliances. To achieve
profitability, the Company, alone or with others, must successfully develop and
commercialize its technologies and proposed products. The time required to reach
profitability is highly uncertain, and there can be no assurance that the
Company will be able to achieve profitability on a sustained basis, if at all.
The Company expects that its existing capital resources will be adequate
to fund the Company's projected debt obligations and operations through the
first calendar quarter of 1999, based on current expenditure levels. The Company
is actively attempting to obtain additional funds through equity or debt
financing, strategic alliances with corporate partners and others, or through
other sources. Based on the Company's historical ability to raise capital and
current market conditions, the Company believes financing alternatives are
available. There can be no assurance the Company's efforts will be successful.
If adequate funds are not available, the Company may be required to delay, scale
back or eliminate certain aspects of its operations or attempt to obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely affected.
YEAR 2000 COMPATIBILITY
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among others, a temporary
inability to process transactions and information or engage in similar normal
business activities.
The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. The Company believes that it
does not have significant year 2000 issues related to its computerized
information systems and is currently reviewing these systems. This review is
expected to be completed during 1999.
In addition, it is also possible that certain computer systems or
software products of the Company's suppliers and contractors may not be year
2000 compatible. The Company is requesting assurances from all software vendors
from which it has purchased or from which it may purchase software that such
software will correctly process all date information at all times. Furthermore,
the Company is querying its suppliers and contractors as to their progress in
identifying and addressing problems that their computer systems will face in
correct processing date information as the year 2000 approaches. The Company
expects this assessment to be completed during 1999 and currently believes that
costs of addressing this issue will not have a material adverse impact on the
Company's financial position. However, if the Company and third parties upon
which it relies are unable to address this issue in a timely manner, it could
result in a material financial risk to the Company. In order to asssure that
this does not occur, the Company plans to devote all resources required to
resolve any significant year 2000 issues in a timely manner.
To date the Company has not made any contingency plans to address
third-party year 2000 risks. The Company plans to formulate contingency plans to
the extent necessary in 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As reported in Item 3 of the Company's Form 10-KSB for the year ended
June 30, 1998, and incorporated herein by reference, in July 1998 the litigation
between the Company and Sony Corporation of America and certain of its
affiliates and subsidiaries was settled.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
As of July 8, 1998, the Company sold 363,636 shares of unregistered
common stock to TheraTech at a sale price of $5.50 per share in a
non-underwritten transaction, for gross proceeds of $2,000,000. The net proceeds
of the offering, approximately $1,964,000, will be used for research and
development of the dosage form of PT-14. The common stock was sold to TheraTech,
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an accredited investor, pursuant to Rule 506 of Regulation D promulgated under
the Securities Act of 1933, as amended. TheraTech represented to the Company
that it was purchasing the common stock for its own account for investment and
not with a view toward resale or distribution to others. The certificate
representing the common stock bears a restrictive legend. On October 14, 1998,
the Commission declared a registration statement registering these shares of
common stock for resale effective.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On October 1, 1998, the Company announced that it had initiated Phase 3
clinical trials of its LeuTech infection imaging agent for diagnosis of
equivocal appendicitis at ten major medical centers around the United States.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
10.37 Employment Agreement effective August 1, 1998 between
Palatin Technologies, Inc. and Charles Putnam.*
10.38 Employment Agreement effective August 1, 1998 between Palatin
Technologies, Inc. and Carl Spana.*
10.39 Employment Agreement effective August 1, 1998 between
Palatin Technologies, Inc. and Stephen T. Wills.*
27.1 Financial Data Schedule
* A management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K
One report on Form 8-K was filed by the Company during the three months
ended September 30, 1998. The report was filed on July 9, 1998, with a date of
report of July 8, 1998, and reported on Item 5, Other Events, relating to the
sale of 363,636 shares of common stock of the Company to TheraTech.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PALATIN TECHNOLOGIES, INC.
(Registrant)
Date: November 16, 1998 /s/ Edward J. Quilty
----------------------------
Edward J. Quilty
Chairman of the Board
and Chief Executive Officer
Date: November 16, 1998 /s/ Stephen T. Wills
----------------------------
Stephen T. Wills
Vice President and Chief Financial
Officer (Principal Financial and
Accounting Officer)
12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 9th day of
October, 1998, is entered into by Palatin Technologies, Inc., a Delaware
corporation with its principal place of business at 214 Carnegie Center, Suite
100, Princeton, New Jersey 08540 (the "Company"), and Charles Putnam, residing
at 11 Woodview Drive, Belle Mead, New Jersey 08502 (the "Employee").
The Company desires to employ the Employee, and the Employee desires
to be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
Employee, and the Employee hereby accepts employment with the Company, upon the
terms set forth in this Agreement, for the period commencing on September 11,
1998 (the "Commencement Date") and ending on September 10, 2001 (such period, as
it may be extended, the "Employment Period"), unless sooner terminated in
accordance with the provisions of Section 4.
2. Title; Capacity.
2.1 The Employee shall serve as Executive Vice
President and Chief Operating Officer or in such other position as the Company
or its Board of Directors (the "Board") may determine from time to time, with
powers and duties as may be determined, from time to time, by the Board. The
Employee shall be based at the Company's headquarters in Princeton, New Jersey.
<PAGE>
2.2 The Employee hereby accepts such employment and
agrees to undertake the duties and responsibilities inherent in such position
and such other duties and responsibilities as the Board or its designee shall
from time to time reasonably assign to him. The Employee agrees to devote
substantially his entire business time, attention and energies to the business
and interests of the Company during the Employment Period. Any outside
activities will be reviewed with the Company in advance to ensure that such
activities are not in conflict with the Employee's obligations to the Company.
The Employee agrees to abide by the rules, regulations, instructions, personnel
practices and policies of the Company and any changes therein which may be
adopted from time to time by the Company. The Employee acknowledges receipt of
copies of all such rules and policies committed to writing as of the date of
this Agreement.
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3. Compensation and Benefits. During the Employment Period, unless
sooner terminated in accordance with the provisions of Section 4, the Employee
shall receive the following compensation and benefits:
3.1 Salary. The Company shall pay the Employee, in equal
semi-monthly installments or otherwise in accordance with the Company's standard
payroll policies as such policies may exist from time to time, an annual base
salary of $200,000. Such salary shall be subject to review thereafter, as
determined by the Company's Compensation Committee and approved by the Board, on
an annual basis on June 15 of each year, but the Board shall not decrease the
Employee's annual base salary at any such annual review.
3.2 Cash Performance Bonus. The Company shall pay
the Employee bonus compensation of up to one year's base salary (which base
salary shall not be less than $200,000 per year) in an amount to be decided by
the Company's Compensation Committee and approved by the Board, payable
annually, no later than March 31 of each year during the Employment Period. Such
performance bonus compensation shall be based upon, inter alia, yearly
objectives mutually agreed upon by and between the Employee and the Company.
3.3 Stock Options. As additional compensation for
services rendered, the Company grants to the Employee the right and option to
purchase all or any part of an aggregate of 50,000 shares of the Company's
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Common Stock (the "Option"), subject to the vesting schedule set forth in
subparagraph c hereof and the adjustments set forth in subparagraph g hereof,
which Option is a nonqualified stock option. The Option is in all respects
limited and conditioned as provided hereunder.
(a) Purchase Price. Except as otherwise provided in
subparagraph g hereof, the purchase price (the "Option Price") of the
shares covered by the Option ("Option Shares") shall be the closing
price of the Company's Common Stock on the National Association of
Securities Dealers Automated Quotation System (Nasdaq) on September
11, 1998, to wit: $2.50.
(b) Option Term. Except as otherwise provided herein, the
Option shall expire on the first to occur of: (i) ninety (90) days
following the Employee's termination of employment with the Company,
or (ii) September 11, 2008.
(c) Exercise of Option.
(i) Except as otherwise provided herein, the
right of the Employee to exercise the Option is conditioned upon the
Employee: (A) being in the employ of the Company, whether pursuant to
this Agreement or otherwise, or (B) serving as a director of the
Company.
(ii) The Option shall vest (except as otherwise
provided herein): (A) on the Commencement Date with respect to the
first 33% of the Option Shares, (B) on the first anniversary of the
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Commencement Date (i.e., September 11) (the "Anniversary Date") with
respect to the second 33% of the Option Shares, and (C) on the second
Anniversary Date with respect to the remaining 34% of the Option
Shares.
(iii) The Option may be exercised, to the extent
vested, in whole or in part, at any time or times prior to the
expiration or other termination thereof.
(d) Method Of Exercising Option.
(i) The Option may be exercised by giving written
notice, in form substantially as set forth in Exhibit 1 hereof, to
the Company at its principal office, specifying the number of Option
Shares to be purchased and accompanied by payment in full of the
aggregate purchase price for the Shares. Only full Shares shall be
delivered and any fractional share which might otherwise be
deliverable upon exercise of an Option granted hereunder shall be
forfeited.
(ii) The purchase price shall be payable in cash
or its equivalent.
(iii) Upon receipt of such notice and payment,
the Company, within three (3) business days after Exercise, shall
deliver or cause to be delivered a certificate or certificates
representing the Shares with respect to which the Option is
exercised. The certificate or certificates for such Shares shall be
registered in the name of the person exercising the Option (or, if
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the Employee shall so request in the notice exercising the Option, in
the name of the Employee and his spouse, jointly, with right of
survivorship) and shall be delivered as provided above to or upon the
written order of the person exercising the Option. In the event the
Option is exercised by any person after the death or Legal Disability
of the Employee, such notice shall be accompanied by appropriate
proof of the right of such person to exercise the Option. All Shares
purchased upon the exercise of the Option as provided herein shall be
fully paid and nonassessable by the Company.
(e) Non-transferability of Option. The Option is not
assignable or transferable, in whole or in part, by the Employee,
otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Employee, the Option shall be exercisable
only by the Employee or, in the event of his Legal Disability, by his
legal representative.
(f) Withholding of Taxes. The obligation of the Company to
deliver Shares upon the exercise of any Option shall be subject to
any applicable federal, state and local tax withholding requirements.
(g) Adjustments. The number of Option Shares and the
Option Price shall be adjusted as set forth herein:
(i) In the event that a stock dividend
shall be declared on the Common Stock payable in shares of the
Common Stock, the Option Shares shall be adjusted by adding to each
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<PAGE>
Option Share the number of shares which would be distributable
thereon if such Option Share had been outstanding on the date fixed
for determining the shareholders entitled to receive such stock
dividend.
(ii) In the event that the outstanding shares of
the Common Stock shall be changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company
whether through recapitalization, stock split, combination of shares,
or otherwise, then there shall be substituted for each Option Share
the number and kind of shares of stock or the securities into which
each outstanding share of the Common Stock shall be so changed or for
which each such share shall be exchanged.
(iii) In the event that the outstanding shares of
the Common Stock shall be changed into or exchanged for shares of
stock or other securities of another corporation, whether through
reorganization, sale of assets, merger or consolidation in which the
Company is the surviving corporation, then there shall be substituted
for each Option Share the number and kind of shares of stock or the
securities into which each outstanding share of the Common Stock
shall be so changed or for which each such share shall be exchanged.
(iv) In the event that any sale of shares of
Common Stock (except any such sale made pursuant to any right,
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option, warrant or convertible security outstanding prior to the date
of this Agreement), or the issuance of any rights, options, or
warrants to subscribe for or purchase Common Stock (or securities
convertible into or exchangeable for Common Stock) occurs after the
date of this Agreement, which sale or issuance, in the aggregate,
will increase the number of shares of Common Stock outstanding during
the Term by Forty percent (40%), then, upon each such sale or
issuance, the Employee shall be issued additional Option Shares such
that, when the additional Option Shares are aggregated with the
Option Shares heretofore owned by the Employee, the Employee has the
right to purchase, at the same times set forth in paragraph 4(c), the
same percentage of Common Stock at the same price per share as the
Employee maintained prior to such sale or issuance.
(h) Share Ownership. Neither the Employee nor the
Employee's legal representatives nor the executors or administrators
of his estate shall be or be deemed to be the holder of any share of
Common Stock covered by an Option unless and until a certificate for
such share shall have been issued.
3.4 Fringe-Benefits. The Employee shall be entitled
to participate in all bonus and benefit programs that the Company establishes
and makes available to its employees, if any, to the extent that the Employee's
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<PAGE>
position, tenure, salary, age, health and other qualifications make him eligible
to participate. The Employee shall also be entitled to holidays and annual
vacation leave in accordance with the Company's policy as it exists from time to
time.
3.5 Reimbursement of Expenses. The Company shall
reimburse the Employee for all reasonable travel, entertainment and other
expenses incurred or paid by the Employee in connection with, or related to, the
performance of his duties, responsibilities or services under this Agreement,
upon presentation by the Employee of documentation, expense statements, vouchers
and/or such other supporting information as the Company may request, provided,
however, that the amount available for such travel, entertainment and other
expenses may be fixed in advance by the Board.
3.6 Insurance. The Employee will be covered under
the Company's Directors' and Officers' liability insurance to the same extent
the Company's directors and officers are covered.
4. Employment Termination. The employment of the Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
4.1 Expiration of the Employment Period in accordance
with Section 1;
4.2 At the election of the Company, for Cause (as
defined in Section 7), immediately upon written notice by the Company to the
Employee, which notice of termination shall have been approved by a majority of
the Board;
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<PAGE>
4.3 Immediately upon the death or determination of
Legal Disability (as defined in Section 7) of the Employee;
4.4 At the election of the Employee, for Good Reason
(as defined in Section 7), immediately upon written notice by the Employee to
the Company;
4.5 At the election of the Employee, within twelve
(12) months following a Change in Control (as defined in Section 7), immediately
upon written notice by the Employee to the Company;
4.6 At the election of either party, upon not less
than thirty (30) days' prior written notice of termination (the "Notice of
Termination").
5. Effect of Termination.
5.1 Termination for Cause or at Election of the E
mployee other than for Good Reason or due to a Change in Control. If, prior to
the expiration of this Agreement, the Employee's employment is terminated for
Cause pursuant to Section 4.2 (except in the case where such termination occurs
within 12 months following a Change in Control), or at the election of the
Employee pursuant to Section 4.6 other than for Good Reason or due to a Change
in Control,
(a) the Company shall pay to the Employee the base salary
and benefits otherwise payable to him under Section 3 through the
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<PAGE>
last day of his actual employment by the Company (the "Date of
Termination");
(b) the Employee shall cease to have the right to exercise
any options to purchase shares of capital stock of the Company
previously granted to the Employee pursuant to any stock option plan
or other employee benefit plan with the Company, regardless of the
extent to which they have vested, on or after the Date of
Termination.
5.2 Termination by Reason of the Employee's Death or
Legal Disability. If, prior to the expiration of this Agreement, the Employee's
employment is terminated by the Employee's death or Legal Disability pursuant to
Section 4.3,
(a) the Company shall, no later than the fifth business
day following the death or determination of Legal Disability
(the "Date of Termination"), pay to the Employee, or in the case
of the Employee's death, to the estate of the Employee,
(i) the Employee's base salary and benefits
otherwise payable to him through the Date of Termination, and
(ii) an amount equal to the greater of the
aggregate base salary payments which the Employee would have received
for a six-month period after the Date of Termination if such
termination had not occurred, or $100,000, and
(b) all options to purchase shares of capital stock of the
Company previously granted to the Employee pursuant to any stock
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<PAGE>
option plan or other employee benefit plan with the Company which
have not vested at such time but which would have vested on and prior
to the next Anniversary Date shall immediately vest and become fully
exercisable in accordance with their terms for a period of ninety
(90) days following the Date of Termination.
5.3 Termination for Any Other Reason. If, prior to
the expiration of this Agreement, the Employee's employment is terminated by the
Employee for circumstances constituting Good Reason pursuant to Section 4.4 or
due to a Change in Control pursuant to Section 4.5, or by the Company for any
basis other than for Cause (as defined in Section 7) or for Cause pursuant to
Section 4.2 if within twelve (12) months following a Change in Control, the
Company shall provide the Employee with the following benefits:
(a) the Company shall pay to the Employee
(i) the Employee's base salary at the rate in
effect at the time the Notice of Termination is given, benefits and
all other compensation, including Employee's prorated cash
performance bonus calculated by multiplying the Applicable Percentage
(as defined in Section 7) by the greater of (x) the amount of the
cash performance bonus awarded or paid to the Employee with respect
to the Company's most recent full fiscal year for which such a bonus
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<PAGE>
was awarded or paid to the Employee or (y) in the case of a Change in
Control, the amount of cash performance bonus awarded or paid to the
Employee with respect to the Company's last full fiscal year prior to
the Change in Control for which such a bonus was awarded or paid to
the Employee, through the Date of Termination, no later than the
fifth full day following the Date of Termination, plus all other
amounts to which the Employee is entitled under any compensation plan
of the Company at the time such payments are due and
(ii) if the Employee so elects, in lieu of his
right to continue to receive deferred compensation under any deferred
compensation plan of the Company then in effect, no later than the
fifth full day following the Date of Termination, a lump-sum amount,
in cash, equal to the deferred amounts together with any earnings
credited on such amounts under such plan;
(b) the Company will pay as severance to the Employee
an amount equal to the sum of
(i) the greatest of (x) the aggregate Salary
payments which the Employee would have received during
the balance of the Term if such termination had not occurred, (y) in
the case of a Change in Control, the aggregate Salary payments which
the Employee would have received during the balance of the Term based
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<PAGE>
on the Employee's annual base salary in effect immediately prior to
the Change in Control, or (z) an amount equal to the Employee's
highest annual base salary achieved while employed by the Company,
plus
(ii) the greater of (x) the amount of the cash
performance bonus awarded or paid to the Employee with respect to the
Company's most recent full fiscal year for which such a bonus was
awarded or paid to the Employee or (y) in the case of a Change in
Control, the amount of cash performance bonus awarded or paid to the
Employee with respect to the Company's last full fiscal year prior to
the Change in Control for which such a bonus was awarded or paid to
the Employee;
(c) all options to purchase shares of capital stock of the
Company previously granted to the Employee pursuant to any stock
option plan or other employee benefit plan with the Company which
have not vested at such time shall immediately vest and become fully
exercisable in accordance with their terms for a period of ninety
(90) days following the Date of Termination;
(d) for a one-year period after the Date of Termination,
the Company shall arrange to provide the Employee with life,
disability, dental, accident, travel and group health insurance
benefits substantially similar to those which the Employee was
receiving immediately prior to the Notice of Termination.
Notwithstanding the foregoing, the Company shall not provide any
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<PAGE>
benefit otherwise receivable by the Employee pursuant to this
paragraph (d) if an equivalent benefit is actually received by the
Employee during the one-year period following the Date of Termination
and any such benefit actually received by the Employee shall be
reported to the Company; and
(e) for a six-month period after the Date of Termination,
the Company shall reimburse the Employee for reasonable fees and
expenses incurred by him for the purpose of locating employment in an
amount mutually agreed upon by and between the Employee and the
Company, including the fees and expenses of consultants and other
persons retained by him for such purpose, promptly upon receipt by
the Company of satisfactory evidence of payment of such fees and
expenses.
5.4 No Requirement to Mitigate. The Employee shall
not be required to mitigate the amount of any payment provided for herein by
seeking other employment or otherwise.
5.5 Survival. The provisions of Sections 5, 6, 7, 8 and 9
shall survive the termination of this Agreement.
6. Withholding and Deductions. All payments hereunder shall
be subject to withholding and to such other deductions as shall at the time of
such payment be required pursuant to any income tax or other law, whether of the
United States or any other jurisdiction, and, in the case of payments to the
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executors or administrators to the Employee's estate, the delivery to the
Company of all necessary tax waivers and other documents.
7. Definitions. For purposes of this Agreement the following
definitions apply:
7.1 "Cause" for termination shall mean the occurrence of
any of the following circumstances:
(a) a good faith finding by the Company of the
Employee's willful breach or habitual neglect or failure
to perform the material duties which he is required to perform under
the terms of this Agreement, materially fails to follow the
reasonable directives or policies established by or at the direction
of the Board, or conducts himself in a manner materially detrimental
to the interests of the Company such that the Company sustains a
material loss or injury as a result thereof and such breach or
failure of performance is not cured within thirty (30) days of the
delivery to the Employee of written notice thereof, which notice of
breach or failure of performance shall have been approved by a
majority of the Board,
(b) the willful breach by the Employee of Section 8 of this
Agreement or any provision of any confidentiality, invention and
non-disclosure, non-competition or similar agreement between the
Employee and the Company, or
(c) the conviction of the Employee of, or the entry of a
pleading of guilty or nolo contendere by the Employee to, any crime
involving moral turpitude or any felony.
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7.2 "Legal Disability" shall mean the inability of
the Employee, by reason of illness, accident or other physical or mental
disability, for a period of 120 days, whether or not consecutive, during any
360-day period, to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
the Employee and the Company; provided, however, that if the Employee and the
Company do not agree on a physician, the Employee and the Company shall each
select a physician and these two together shall select a third physician, whose
determination as to disability shall be binding on all parties.
7.3 "Good Reason" shall mean the occurrence of any of
the following circumstances, and the Company fails to cure such circumstances
within thirty (30) days of the delivery to the Company of written notice of such
circumstances:
(a) any significant diminution in the Employee's
duties and responsibilities as in effect on the Commencement Date;
(b) any reduction in the Employee's annual
compensation as in effect on the Commencement Date or as the
same may be increased from time to time;
(c) the failure of the Company to continue in effect any
material compensation or benefit plan in which the Employee
participates as in effect on the Commencement Date, unless an
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equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the
failure by the Company to continue the Employee's participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of the Employee's participation relative to
other participants, as in effect on the Commencement Date or the
failure by the Company to award cash bonuses to its executives in
amounts substantially consistent with past practice in light of the
Company's financial performance;
(d) the failure by the Company to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Company's insurance, medical, health and
accident, or disability plans in which the Employee was participating
as in effect on the Commencement Date, the taking of any action by
the Company which would directly or indirectly materially reduce any
of such benefits, or the failure by the Company to provide the
Employee with the number of paid vacation days to which he is
entitled in accordance with the Company's normal vacation policy in
effect on the Commencement Date or in accordance with any agreement
between the Employee and the Company existing at that time;
(e) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 9, which purported termination shall not
be effective for purposes of this Agreement.
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7.4 "Change in Control" shall mean the occurrence of
any of the following events:
(a) any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned directly or indirectly
by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the combined voting power of the
Company's then outstanding securities;
(b) individuals who, as of the Commencement Date,
constitute the Board (as of the Commencement Date, the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board, provided that any person becoming a director subsequent to the
Commencement Date whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority
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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 stockholders of the Company approve a merger or
consolidation 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)
more than 80% 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" (as hereinabove defined) acquires more than 50%
of the combined voting power of the Company's then outstanding
securities; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
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disposition by the Company of all or substantially all of the
Company's assets.
7.5 "Applicable Percentage" means the percentage
obtained by dividing the number of full or partial months worked in the most
recent fiscal year for which the Employee has not been awarded or paid a cash
performance bonus by twelve.
8. Restrictive Covenants.
(a) For the purposes of this Agreement:
(i) "Proprietary Information" means all
information and know-how, whether or not in writing, of a private,
secret or confidential nature concerning the company's business or
financial affairs, including, without limitation, inventions,
products, processes, methods, techniques, formulas, compositions,
compounds, projects, developments, plans, research data, clinical
data, financial data, personnel data, computer programs and customer
and supplier lists.
(ii) "Competing Products" means any products or
processes of any person or organization other than the Company in
existence or under development, which are substantially the same, may
be substituted for, or applied to substantially the same end use as
the products or processes that the Company is developing or has
developed or commercialized during the time of the Employee's
employment with the Company.
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(iii) "Competing Organization" means any person
or organization engaged in, or about to become engaged in, research
or development, production, distribution, marketing or selling of a
Competing Product.
(b) The Employee understands that information regarding the
Company and its affiliates including, without limitation, Proprietary
Information, is considered confidential to the Company and is of
substantial commercial value to the Company. Any entrusting of such
confidential information to the Employee by the Company is done so in
reliance upon the confidential relationship arising from the terms of
his employment with the Company. Therefore, in consideration of his
employment with the Company,
(i) the Employee will not, during or after the
Employment Period, disclose any such confidential information to any
person, firm, corporation, association, or other entity for any
reason or purpose whatsoever, except within the scope of his duties
and responsibilities in the ordinary course of business, unless
ordered to do so by a court or other tribunal or government agency
with jurisdiction over the subject matter and Employee;
(ii) the Employee acknowledges that he has, on or
prior to the date of the Agreement, executed and delivered to the
Company a Non-Disclosure Agreement (the "Confidentiality Agreement")
and the Employee hereby affirms and ratifies his obligations
thereunder; and
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(iii) the Employee agrees that after termination
by the Company for Cause pursuant to Section 4.2 (except in the case
where such termination occurs within 12 months following a Change in
Control), or by the Employee pursuant to Section 4.6 other than for
Good Reason or due to a Change in Control, he will not render
services of any nature, directly or indirectly, to any Competing
Organization in connection with any Competing Product within such
geographical territory as the Company and such Competing Organization
are or would be in actual competition, for a period of eighteen (18)
months, commencing on the Date of Termination, provided, however, the
aforementioned restrictions shall not be applicable to activities in
which the Employee was, and continued to be, engaged in on the
Commencement Date. The Employee understands that services rendered to
such Competing Organization may have the effect of supporting actual
competition in various geographic areas, and may be prohibited by
this Agreement regardless of the geographic area in which such
services are physically rendered. The Company may, in its sole
discretion, elect to waive, in whole or in part, the obligation set
forth in the previous sentence, such waiver to be effective only if
given in writing by the Company.
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(c) The Employee agrees that he will not, during the
Employment Period and for a period of nine (9) months commencing on
the Date of Termination, directly or indirectly employ, solicit for
employment, or advise or recommend to any other person that they
employ or solicit for employment, any person whom he knows to be an
employee of the Company or any parent, subsidiary or affiliate of the
Company.
(d) In the event a court of competent jurisdiction should
find any provision in this Section 8 to be unfair or unreasonable,
such finding shall not render such provision unenforceable, but,
rather, this provision shall be modified as to subject matter, time
and geographic area so as to render the entire Section valid and
enforceable.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
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11. Entire Agreement. This Agreement, together with the
Confidentiality Agreement, constitutes the entire agreement between the parties
and supersedes all prior agreements and understandings, whether written or oral,
relating to the subject matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of New Jersey, without regard to its
principles of conflict of laws.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business; provided, however, that
the obligations of the employee are unique and personal and shall not be
assigned by him.
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15. Waiver of Breach.
15.1 Waiver by the Company. No delay or omission by
the Company in exercising any right under this Agreement shall operate as a
waiver of that or any other right. A waiver or consent given by the Company on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion. No waiver by
the Company shall be valid unless in a writing signed by an authorized officer
of the Company and approved by an absolute majority of the Board.
15.2 Waiver by the Employee. No delay or omission by
the Employee in exercising any right under this Agreement shall operate as a
waiver of that or any other right. A waiver or consent given by the Employee on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion. No waiver by
the Employee shall be valid unless in a writing signed by the Employee.
16. Miscellaneous.
16.1 The captions of the sections of this Agreement
are for convenience of reference only and in no way define, limit or affect the
scope or substance of any section of this Agreement.
16.2 In case any provision of this Agreement shall be
invalid, illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall be no way be affected or
impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
an instrument under seal as of the day and year set forth above.
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
-----------------------
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
EMPLOYEE
/s/ Charles Putnam
--------------------------
Charles Putnam
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 9th day of
October, 1998, is entered into by Palatin Technologies, Inc., a Delaware
corporation with its principal place of business at 214 Carnegie Center, Suite
100, Princeton, New Jersey 08540 (the "Company"), and Carl Spana, residing at
117 Winnebago Road, Yonkers, New York 10710 (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
Employee, and the Employee hereby accepts employment with the Company, upon the
terms set forth in this Agreement, for the period commencing on September 11,
1998 (the "Commencement Date") and ending on September 10, 2001 (such period, as
it may be extended, the "Employment Period"), unless sooner terminated in
accordance with the provisions of Section 4.
2. Title; Capacity.
2.1 The Employee shall serve as Executive Vice President and
Chief Technology Officer or in such other position as the Company or its Board
of Directors (the "Board") may determine from time to time, with powers and
duties as may be determined, from time to time, by the Board. The Employee shall
be based at the Company's headquarters in Princeton, New Jersey.
<PAGE>
2.2 The Employee hereby accepts such employment and agrees to
undertake the duties and responsibilities inherent in such position and such
other duties and responsibilities as the Board or its designee shall from time
to time reasonably assign to him. The Employee agrees to devote substantially
his entire business time, attention and energies to the business and interests
of the Company during the Employment Period. Any outside activities will be
reviewed with the Company in advance to ensure that such activities are not in
conflict with the Employee's obligations to the Company. The Employee agrees to
abide by the rules, regulations, instructions, personnel practices and policies
of the Company and any changes therein which may be adopted from time to time by
the Company. The Employee acknowledges receipt of copies of all such rules and
policies committed to writing as of the date of this Agreement.
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3. Compensation and Benefits. During the Employment Period, unless
sooner terminated in accordance with the provisions of Section 4, the Employee
shall receive the following compensation and benefits:
3.1 Salary. The Company shall pay the Employee, in equal
semi-monthly installments or otherwise in accordance with the Company's standard
payroll policies as such policies may exist from time to time, an annual base
salary of $176,000. Such salary shall be subject to review thereafter, as
determined by the Company's Compensation Committee and approved by the Board, on
an annual basis on June 15 of each year, but the Board shall not decrease the
Employee's annual base salary at any such annual review.
3.2 Cash Performance Bonus. The Company shall pay the Employee
bonus compensation of up to one year's base salary (which base salary shall not
be less than $176,000 per year) in an amount to be decided by the Company's
Compensation Committee and approved by the Board, payable annually, no later
than March 31 of each year during the Employment Period. Such performance bonus
compensation shall be based upon, inter alia, yearly objectives mutually agreed
upon by and between the Employee and the Company.
3.3 Stock Options. As additional compensation for services
rendered, the Company grants to the Employee the right and option to purchase
all or any part of an aggregate of 50,000 shares of the Company's Common Stock
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(the "Option"), subject to the vesting schedule set forth in subparagraph c
hereof and the adjustments set forth in subparagraph g hereof, which Option is a
nonqualified stock option. The Option is in all respects limited and conditioned
as provided hereunder.
(a) Purchase Price. Except as otherwise provided in
subparagraph g hereof, the purchase price (the "Option Price") of the
shares covered by the Option ("Option Shares") shall be the closing
price of the Company's Common Stock on the National Association of
Securities Dealers Automated Quotation System (Nasdaq) on September 11,
1998, to wit: $2.50.
(b) Option Term. Except as otherwise provided herein, the
Option shall expire on the first to occur of: (i) ninety (90) days
following the Employee's termination of employment with the Company, or
(ii) September 11, 2008.
(c) Exercise of Option.
(i) Except as otherwise provided herein, the right of
the Employee to exercise the Option is conditioned upon the Employee:
(A) being in the employ of the Company, whether pursuant to this
Agreement or otherwise, or (B) serving as a director of the Company.
(ii) The Option shall vest (except as otherwise
provided herein): (A) on the Commencement Date with respect to the
first 33% of the Option Shares, (B) on the first anniversary of the
Commencement Date (i.e., September 11) (the "Anniversary Date") with
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respect to the second 33% of the Option Shares, and (C) on the second
Anniversary Date with respect to the remaining 34% of the Option
Shares.
(iii) The Option may be exercised, to the extent
vested, in whole or in part, at any time or times prior to the
expiration or other termination thereof.
(d) Method Of Exercising Option.
(i) The Option may be exercised by giving written
notice, in form substantially as set forth in Exhibit 1 hereof, to the
Company at its principal office, specifying the number of Option Shares
to be purchased and accompanied by payment in full of the aggregate
purchase price for the Shares. Only full Shares shall be delivered and
any fractional share which might otherwise be deliverable upon exercise
of an Option granted hereunder shall be forfeited.
(ii) The purchase price shall be payable in cash or
its equivalent.
(iii) Upon receipt of such notice and payment,
the Company, within three (3) business days after Exercise, shall
deliver or cause to be delivered a certificate or certificates
representing the Shares with respect to which the Option is exercised.
The certificate or certificates for such Shares shall be registered in
the name of the person exercising the Option (or, if the Employee shall
so request in the notice exercising the Option, in the name of the
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Employee and his spouse, jointly, with right of survivorship) and shall
be delivered as provided above to or upon the written order of the
person exercising the Option. In the event the Option is exercised by
any person after the death or Legal Disability of the Employee, such
notice shall be accompanied by appropriate proof of the right of such
person to exercise the Option. All Shares purchased upon the exercise
of the Option as provided herein shall be fully paid and nonassessable
by the Company.
(e) Non-transferability of Option. The Option is not
assignable or transferable, in whole or in part, by the Employee,
otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Employee, the Option shall be exercisable
only by the Employee or, in the event of his Legal Disability, by his
legal representative.
(f) Withholding of Taxes. The obligation of the Company to
deliver Shares upon the exercise of any Option shall be subject to any
applicable federal, state and local tax withholding requirements.
(g) Adjustments. The number of Option Shares and the Option
Price shall be adjusted as set forth herein:
(i) In the event that a stock dividend shall be
declared on the Common Stock payable in shares of the Common Stock, the
Option Shares shall be adjusted by adding to each Option Share the
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number of shares which would be distributable thereon if such Option
Share had been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend.
(ii) In the event that the outstanding shares of the
Common Stock shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company whether
through recapitalization, stock split, combination of shares, or
otherwise, then there shall be substituted for each Option Share the
number and kind of shares of stock or the securities into which each
outstanding share of the Common Stock shall be so changed or for which
each such share shall be exchanged.
(iii) In the event that the outstanding shares of the
Common Stock shall be changed into or exchanged for shares of stock or
other securities of another corporation, whether through
reorganization, sale of assets, merger or consolidation in which the
Company is the surviving corporation, then there shall be substituted
for each Option Share the number and kind of shares of stock or the
securities into which each outstanding share of the Common Stock shall
be so changed or for which each such share shall be exchanged.
(iv) In the event that any sale of shares of Common
Stock (except any such sale made pursuant to any right, option, warrant
or convertible security outstanding prior to the date of this
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Agreement), or the issuance of any rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into
or exchangeable for Common Stock) occurs after the date of this
Agreement, which sale or issuance, in the aggregate, will increase the
number of shares of Common Stock outstanding during the Term by Forty
percent (40%), then, upon each such sale or issuance, the Employee
shall be issued additional Option Shares such that, when the additional
Option Shares are aggregated with the Option Shares heretofore owned by
the Employee, the Employee has the right to purchase, at the same times
set forth in paragraph 4(c), the same percentage of Common Stock at the
same price per share as the Employee maintained prior to such sale or
issuance.
(h) Share Ownership. Neither the Employee nor the Employee's
legal representatives nor the executors or administrators of his estate
shall be or be deemed to be the holder of any share of Common Stock
covered by an Option unless and until a certificate for such share
shall have been issued.
3.4 Fringe-Benefits. The Employee shall be entitled to
participate in all bonus and benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that the Employee's
position, tenure, salary, age, health and other qualifications make him eligible
to participate. The Employee shall also be entitled to holidays and annual
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vacation leave in accordance with the Company's policy as it exists from time to
time.
3.5 Reimbursement of Expenses. The Company shall reimburse the
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, provided, however, that the
amount available for such travel, entertainment and other expenses may be fixed
in advance by the Board.
3.6 Insurance. The Employee will be covered under the
Company's Directors' and Officers' liability insurance to the same extent the
Company's directors and officers are covered.
4. Employment Termination. The employment of the Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
4.1 Expiration of the Employment Period in accordance with
Section 1;
4.2 At the election of the Company, for Cause (as defined in
Section 7), immediately upon written notice by the Company to the Employee,
which notice of termination shall have been approved by a majority of the Board;
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4.3 Immediately upon the death or determination of Legal
Disability (as defined in Section 7) of the Employee;
4.4 At the election of the Employee, for Good Reason (as
defined in Section 7), immediately upon written notice by the Employee to the
Company;
4.5 At the election of the Employee, within twelve (12) months
following a Change in Control (as defined in Section 7), immediately upon
written notice by the Employee to the Company;
4.6 At the election of either party, upon not less than thirty
(30) days' prior written notice of termination (the "Notice of Termination").
5. Effect of Termination.
5.1 Termination for Cause or at Election of the Employee other
than for Good Reason or due to a Change in Control. If, prior to the expiration
of this Agreement, the Employee's employment is terminated for Cause pursuant to
Section 4.2 (except in the case where such termination occurs within 12 months
following a Change in Control), or at the election of the Employee pursuant to
Section 4.6 other than for Good Reason or due to a Change in Control,
(a) the Company shall pay to the Employee the base salary and
benefits otherwise payable to him under Section 3 through the last day
of his actual employment by the Company (the "Date of Termination");
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(b) the Employee shall cease to have the right to exercise any
options to purchase shares of capital stock of the Company previously
granted to the Employee pursuant to any stock option plan or other
employee benefit plan with the Company, regardless of the extent to
which they have vested, on or after the Date of Termination.
5.2 Termination by Reason of the Employee's Death or
Legal Disability. If, prior to the expiration of this Agreement, the Employee's
employment is terminated by the Employee's death or Legal Disability pursuant
to Section 4.3,
(a) the Company shall, no later than the fifth business day
following the death or determination of Legal Disability (the "Date of
Termination"), pay to the Employee, or in the case of the Employee's
death, to the estate of the Employee,
(i) the Employee's base salary and benefits otherwise
payable to him through the Date of Termination, and
(ii) an amount equal to the greater of the aggregate
base salary payments which the Employee would have received for a
six-month period after the Date of Termination if such termination had
not occurred, or $88,000, and
(b) all options to purchase shares of capital stock of the
Company previously granted to the Employee pursuant to any stock option
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<PAGE>
plan or other employee benefit plan with the Company which have not
vested at such time but which would have vested on and prior to the
next Anniversary Date shall immediately vest and become fully
exercisable in accordance with their terms for a period of ninety (90)
days following the Date of Termination.
5.3 Termination for Any Other Reason. If, prior to the
expiration of this Agreement, the Employee's employment is terminated by the
Employee for circumstances constituting Good Reason pursuant to Section 4.4 or
due to a Change in Control pursuant to Section 4.5, or by the Company for any
basis other than for Cause (as defined in Section 7) or for Cause pursuant to
Section 4.2 if within twelve (12) months following a Change in Control, the
Company shall provide the Employee with the following benefits:
(a) the Company shall pay to the Employee
(i) the Employee's base salary at the rate in effect
at the time the Notice of Termination is given, benefits and all other
compensation, including Employee's prorated cash performance bonus
calculated by multiplying the Applicable Percentage (as defined in
Section 7) by the greater of (x) the amount of the cash performance
bonus awarded or paid to the Employee with respect to the Company's
most recent full fiscal year for which such a bonus was awarded or paid
to the Employee or (y) in the case of a Change in Control, the amount
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<PAGE>
of cash performance bonus awarded or paid to the Employee with respect
to the Company's last full fiscal year prior to the Change in Control
for which such a bonus was awarded or paid to the Employee, through the
Date of Termination, no later than the fifth full day following the
Date of Termination, plus all other amounts to which the Employee is
entitled under any compensation plan of the Company at the time such
payments are due and
(ii) if the Employee so elects, in lieu of his right
to continue to receive deferred compensation under any deferred
compensation plan of the Company then in effect, no later than the
fifth full day following the Date of Termination, a lump-sum amount, in
cash, equal to the deferred amounts together with any earnings credited
on such amounts under such plan;
(b) the Company will pay as severance to the Employee an
amount equal to the sum of
(i) the greatest of (x) the aggregate Salary payments
which the Employee would have received during the balance of the Term
if such termination had not occurred, (y) in the case of a Change in
Control, the aggregate Salary payments which the Employee would have
received during the balance of the Term based on the Employee's
annual base salary in effect immediately prior to the Change in
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<PAGE>
Control, or (z) an amount equal to the Employee's highest annual
base salary achieved while employed by the Company, plus
(ii) the greater of (x) the amount of the cash
performance bonus awarded or paid to the Employee with respect to the
Company's most recent full fiscal year for which such a bonus was
awarded or paid to the Employee or (y) in the case of a Change in
Control, the amount of cash performance bonus awarded or paid to the
Employee with respect to the Company's last full fiscal year prior to
the Change in Control for which such a bonus was awarded or paid to the
Employee;
(c) all options to purchase shares of capital stock of the
Company previously granted to the Employee pursuant to any stock option
plan or other employee benefit plan with the Company which have not
vested at such time shall immediately vest and become fully exercisable
in accordance with their terms for a period of ninety (90) days
following the Date of Termination;
(d) for a one-year period after the Date of Termination, the
Company shall arrange to provide the Employee with life, disability,
dental, accident, travel and group health insurance benefits
substantially similar to those which the Employee was receiving
immediately prior to the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit otherwise
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<PAGE>
receivable by the Employee pursuant to this paragraph (d) if an
equivalent benefit is actually received by the Employee during the
one-year period following the Date of Termination and any such benefit
actually received by the Employee shall be reported to the Company; and
(e) for a six-month period after the Date of Termination, the
Company shall reimburse the Employee for reasonable fees and expenses
incurred by him for the purpose of locating employment in an amount
mutually agreed upon by and between the Employee and the Company,
including the fees and expenses of consultants and other persons
retained by him for such purpose, promptly upon receipt by the Company
of satisfactory evidence of payment of such fees and expenses.
5.4 No Requirement to Mitigate. The Employee shall not be
required to mitigate the amount of any payment provided for herein by seeking
other employment or otherwise.
5.5 Survival. The provisions of Sections 5, 6, 7, 8 and 9
shall survive the termination of this Agreement.
6. Withholding and Deductions. All payments hereunder shall be subject
to withholding and to such other deductions as shall at the time of such payment
be required pursuant to any income tax or other law, whether of the United
States or any other jurisdiction, and, in the case of payments to the executors
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or administrators to the Employee's estate, the delivery to the Company of all
necessary tax waivers and other documents.
7. Definitions. For purposes of this Agreement the following
definitions apply:
7.1 "Cause" for termination shall mean the occurrence of
any of the following circumstances:
(a) a good faith finding by the Company of the
Employee's willful breach or habitual neglect or failure to perform the
material duties which he is required to perform under the terms of this
Agreement, materially fails to follow the reasonable directives or
policies established by or at the direction of the Board, or conducts
himself in a manner materially detrimental to the interests of the
Company such that the Company sustains a material loss or injury as a
result thereof and such breach or failure of performance is not cured
within thirty (30) days of the delivery to the Employee of written
notice thereof, which notice of breach or failure of performance shall
have been approved by a majority of the Board,
(b) the willful breach by the Employee of Section 8 of this
Agreement or any provision of any confidentiality, invention and
non-disclosure, non-competition or similar agreement between the
Employee and the Company, or
(c) the conviction of the Employee of, or the entry of a
pleading of guilty or nolo contendere by the Employee to, any crime
involving moral turpitude or any felony.
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7.2 "Legal Disability" shall mean the inability of the
Employee, by reason of illness, accident or other physical or mental disability,
for a period of 120 days, whether or not consecutive, during any 360-day period,
to perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Employee and
the Company; provided, however, that if the Employee and the Company do not
agree on a physician, the Employee and the Company shall each select a physician
and these two together shall select a third physician, whose determination as to
disability shall be binding on all parties.
7.3 "Good Reason" shall mean the occurrence of any of the
following circumstances, and the Company fails to cure such circumstances within
thirty (30) days of the delivery to the Company of written notice of such
circumstances:
(a) any significant diminution in the Employee's duties
and responsibilities as in effect on the Commencement Date;
(b) any reduction in the Employee's annual compensation as in
effect on the Commencement Date or as the same may be increased from
time to time;
(c) the failure of the Company to continue in effect any
material compensation or benefit plan in which the Employee
participates as in effect on the Commencement Date, unless an equitable
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arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the Company to
continue the Employee's participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of the
Employee's participation relative to other participants, as in effect
on the Commencement Date or the failure by the Company to award cash
bonuses to its executives in amounts substantially consistent with past
practice in light of the Company's financial performance;
(d) the failure by the Company to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Company's insurance, medical, health and
accident, or disability plans in which the Employee was participating
as in effect on the Commencement Date, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits, or the failure by the Company to provide the Employee
with the number of paid vacation days to which he is entitled in
accordance with the Company's normal vacation policy in effect on the
Commencement Date or in accordance with any agreement between the
Employee and the Company existing at that time;
(e) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying
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the requirements of Section 9, which purported termination shall not be
effective for purposes of this Agreement.
7.4 "Change in Control" shall mean the occurrence of any
of the following events:
(a) any "person," as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the
Company in substantially the same proportion as their ownership of
stock of the Company) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 40% or more of the combined
voting power of the Company's then outstanding securities;
(b) individuals who, as of the Commencement Date, constitute
the Board (as of the Commencement Date, the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the Commencement Date
whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the
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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 stockholders of the Company approve a merger or
consolidation 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) more
than 80% 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" (as hereinabove defined) acquires more than 50% of the
combined voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
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7.5 "Applicable Percentage" means the percentage obtained by
dividing the number of full or partial months worked in the most recent fiscal
year for which the Employee has not been awarded or paid a cash performance
bonus by twelve.
8. Restrictive Covenants.
(a) For the purposes of this Agreement:
(i) "Proprietary Information" means all information
and know-how, whether or not in writing, of a private, secret or
confidential nature concerning the company's business or financial
affairs, including, without limitation, inventions, products,
processes, methods, techniques, formulas, compositions, compounds,
projects, developments, plans, research data, clinical data, financial
data, personnel data, computer programs and customer and supplier
lists.
(ii) "Competing Products" means any products or
processes of any person or organization other than the Company in
existence or under development, which are substantially the same, may
be substituted for, or applied to substantially the same end use as the
products or processes that the Company is developing or has developed
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or commercialized during the time of the Employee's employment with the
Company.
(iii) "Competing Organization" means any person or
organization engaged in, or about to become engaged in, research or
development, production, distribution, marketing or selling of a
Competing Product.
(b) The Employee understands that information regarding the
Company and its affiliates including, without limitation, Proprietary
Information, is considered confidential to the Company and is of
substantial commercial value to the Company. Any entrusting of such
confidential information to the Employee by the Company is done so in
reliance upon the confidential relationship arising from the terms of
his employment with the Company. Therefore, in consideration of his
employment with the Company,
(i) the Employee will not, during or after the
Employment Period, disclose any such confidential information to any
person, firm, corporation, association, or other entity for any reason
or purpose whatsoever, except within the scope of his duties and
responsibilities in the ordinary course of business, unless ordered to
do so by a court or other tribunal or government agency with
jurisdiction over the subject matter and Employee;
(ii) the Employee acknowledges that he has, on or
prior to the date of the Agreement, executed and delivered to the
Company a Non-Disclosure Agreement (the "Confidentiality Agreement")
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and the Employee hereby affirms and ratifies his obligations
thereunder; and
(iii) the Employee agrees that after termination by
the Company for Cause pursuant to Section 4.2 (except in the case where
such termination occurs within 12 months following a Change in
Control), or by the Employee pursuant to Section 4.6 other than for
Good Reason or due to a Change in Control, he will not render services
of any nature, directly or indirectly, to any Competing Organization in
connection with any Competing Product within such geographical
territory as the Company and such Competing Organization are or would
be in actual competition, for a period of eighteen (18) months,
commencing on the Date of Termination, provided, however, the
aforementioned restrictions shall not be applicable to activities in
which the Employee was, and continued to be, engaged in on the
Commencement Date. The Employee understands that services rendered to
such Competing Organization may have the effect of supporting actual
competition in various geographic areas, and may be prohibited by this
Agreement regardless of the geographic area in which such services are
physically rendered. The Company may, in its sole discretion, elect to
waive, in whole or in part, the obligation set forth in the previous
sentence, such waiver to be effective only if given in writing by the
Company.
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(c) The Employee agrees that he will not, during the
Employment Period and for a period of nine (9) months commencing on the
Date of Termination, directly or indirectly employ, solicit for
employment, or advise or recommend to any other person that they employ
or solicit for employment, any person whom he knows to be an employee
of the Company or any parent, subsidiary or affiliate of the Company.
(d) In the event a court of competent jurisdiction should find
any provision in this Section 8 to be unfair or unreasonable, such
finding shall not render such provision unenforceable, but, rather,
this provision shall be modified as to subject matter, time and
geographic area so as to render the entire Section valid and
enforceable. 9. Notices. All notices required or permitted under this
Agreement shall be in writing and shall
be deemed effective upon personal delivery or upon deposit in the United States
Post Office, by registered or certified mail, postage prepaid, addressed to the
other party at the address shown above, or at such other address or addresses as
either party shall designate to the other in accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
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11. Entire Agreement. This Agreement, together with the Confidentiality
Agreement, constitutes the entire agreement between the parties and supersedes
all prior agreements and understandings, whether written or oral, relating to
the subject matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of New Jersey, without regard to its
principles of conflict of laws.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business; provided, however, that
the obligations of the employee are unique and personal and shall not be
assigned by him.
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15. Waiver of Breach.
15.1 Waiver by the Company. No delay or omission by the
Company in exercising any right under this Agreement shall operate as a waiver
of that or any other right. A waiver or consent given by the Company on any one
occasion shall be effective only in that instance and shall not be construed as
a bar or waiver of any right on any other occasion. No waiver by the Company
shall be valid unless in a writing signed by an authorized officer of the
Company and approved by an absolute majority of the Board.
15.2 Waiver by the Employee. No delay or omission by the
Employee in exercising any right under this Agreement shall operate as a waiver
of that or any other right. A waiver or consent given by the Employee on any one
occasion shall be effective only in that instance and shall not be construed as
a bar or waiver of any right on any other occasion. No waiver by the Employee
shall be valid unless in a writing signed by the Employee.
16. Miscellaneous.
16.1 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
16.2 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall be no way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
an instrument under seal as of the day and year set forth above.
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
-----------------------
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
EMPLOYEE
/s/ Carl Spana
--------------------------
Carl Spana
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made this 9th day of
October, 1998, is entered into by Palatin Technologies, Inc., a Delaware
corporation with its principal place of business at 214 Carnegie Center, Suite
100, Princeton, New Jersey 08540 (the "Company"), and Stephen T. Wills, residing
at 13 Highview Lane, Yardley, Pennsylvania 19067 (the "Employee").
The Company desires to employ the Employee, and the Employee desires to
be employed by the Company. In consideration of the mutual covenants and
promises contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the parties agree as follows:
1. Term of Employment. The Company hereby agrees to employ the
Employee, and the Employee hereby accepts employment with the Company, upon the
terms set forth in this Agreement, for the period commencing on September 11,
1998 (the "Commencement Date") and ending on September 10, 2001 (such period, as
it may be extended, the "Employment Period"), unless sooner terminated in
accordance with the provisions of Section 4.
2. Title; Capacity.
2.1 The Employee shall serve as Executive Vice President and
Chief Financial Officer or in such other position as the Company or its Board of
Directors (the "Board") may determine from time to time, with powers and duties
as may be determined, from time to time, by the Board. The Employee shall be
based at the Company's headquarters in Princeton, New Jersey.
<PAGE>
2.2 The Employee hereby accepts such employment and agrees to
undertake the duties and responsibilities inherent in such position and such
other duties and responsibilities as the Board or its designee shall from time
to time reasonably assign to him. The Employee agrees to devote as much of his
business time, attention and energies to the business and interests of the
Company during the Employment Period as may be reasonably necessary to
adequately perform his duties hereunder, provided, however, that the Company
recognizes that the Employee serves as the Chief Financial Officer of Derma
Sciences, Inc., a publicly traded biopharmaceutical company and that such
service does not present a conflict of interest with the Employee's employment
with the Company insofar as Derma Sciences, Inc. is not a Competing Organization
(as defined in Section 8). Nothing contained herein shall be deemed to restrict
the Employee's right to continue in such a capacity. The Employee agrees to
abide by the rules, regulations, instructions, personnel practices and policies
of the Company and any changes therein which may be adopted from time to time by
the Company. The Employee acknowledges receipt of copies of all such rules and
policies committed to writing as of the date of this Agreement.
3. Compensation and Benefits. During the Employment Period, unless
sooner terminated in accordance with the provisions of Section 4, the Employee
shall receive the following compensation and benefits:
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3.1 Salary. The Company shall pay the Employee, in equal
semi-monthly installments or otherwise in accordance with the Company's standard
payroll policies as such policies may exist from time to time, an annual base
salary of $65,000. Such salary shall be subject to review thereafter, as
determined by the Company's Compensation Committee and approved by the Board, on
an annual basis on June 15 of each year, but the Board shall not decrease the
Employee's annual base salary at any such annual review.
3.2 Cash Performance Bonus. The Company shall pay the Employee
bonus compensation of up to one year's base salary (which base salary shall not
be less than $65,000 per year) in an amount to be decided by the Company's
Compensation Committee and approved by the Board, payable annually, no later
than March 31 of each year during the Employment Period. Such performance bonus
compensation shall be based upon, inter alia, yearly objectives mutually agreed
upon by and between the Employee and the Company.
3.3 Stock Options. As additional compensation for services
rendered, the Company grants to the Employee the right and option to purchase
all or any part of an aggregate of 50,000 shares of the Company's Common Stock
(the "Option"), subject to the vesting schedule set forth in subparagraph c
hereof and the adjustments set forth in subparagraph g hereof, which Option is a
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<PAGE>
nonqualified stock option. The Option is in all respects limited and conditioned
as provided hereunder.
(a) Purchase Price. Except as otherwise provided in
subparagraph g hereof, the purchase price (the "Option Price") of the
shares covered by the Option ("Option Shares") shall be the closing
price of the Company's Common Stock on the National Association of
Securities Dealers Automated Quotation System (Nasdaq) on September 11,
1998, to wit: $2.50.
(b) Option Term. Except as otherwise provided herein, the
Option shall expire on the first to occur of: (i) ninety (90) days
following the Employee's termination of employment with the Company, or
(ii) September 11, 2008.
(c) Exercise of Option.
(i) Except as otherwise provided herein, the right of
the Employee to exercise the Option is conditioned upon the Employee:
(A) being in the employ of the Company, whether pursuant to this
Agreement or otherwise, or (B) serving as a director of the Company.
(ii) The Option shall vest (except as otherwise
provided herein): (A) on the Commencement Date with respect to the
first 33% of the Option Shares, (B) on the first anniversary of the
Commencement Date (i.e., September 11) (the "Anniversary Date") with
respect to the second 33% of the Option Shares, and (C) on the second
Anniversary Date with respect to the remaining 34% of the Option
Shares.
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(iii) The Option may be exercised, to the extent
vested, in whole or in part, at any time or times prior to the
expiration or other termination thereof.
(d) Method Of Exercising Option.
(i) The Option may be exercised by giving written
notice, in form substantially as set forth in Exhibit 1 hereof, to the
Company at its principal office, specifying the number of Option Shares
to be purchased and accompanied by payment in full of the aggregate
purchase price for the Shares. Only full Shares shall be delivered and
any fractional share which might otherwise be deliverable upon exercise
of an Option granted hereunder shall be forfeited.
(ii) The purchase price shall be payable in cash or
its equivalent.
(iii) Upon receipt of such notice and payment, the
Company, within three (3) business days after Exercise, shall deliver
or cause to be delivered a certificate or certificates representing the
Shares with respect to which the Option is exercised. The certificate
or certificates for such Shares shall be registered in the name of the
person exercising the Option (or, if the Employee shall so request in
the notice exercising the Option, in the name of the Employee and his
spouse, jointly, with right of survivorship) and shall be delivered as
provided above to or upon the written order of the person exercising
the Option. In the event the Option is exercised by any person after
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<PAGE>
the death or Legal Disability of the Employee, such notice shall be
accompanied by appropriate proof of the right of such person to
exercise th Option. All Shares purchased upon the exercise of the
Option as provided herein shall be fully paid and nonassessable by the
Company.
(e) Non-transferability of Option. The Option is not
assignable or transferable, in whole or in part, by the Employee,
otherwise than by will or by the laws of descent and distribution.
During the lifetime of the Employee, the Option shall be exercisable
only by the Employee or, in the event of his Legal Disability, by his
legal representative.
(f) Withholding of Taxes. The obligation of the Company to
deliver Shares upon the exercise of any Option shall be subject to any
applicable federal, state and local tax withholding requirements.
(g) Adjustments. The number of Option Shares and the Option
Price shall be adjusted as set forth herein:
(i) In the event that a stock dividend shall be
declared on the Common Stock payable in shares of the Common Stock, the
Option Shares shall be adjusted by adding to each Option Share the
number of shares which would be distributable thereon if such Option
Share had been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend.
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<PAGE>
(ii) In the event that the outstanding shares of the
Common Stock shall be changed into or exchanged for a different number
or kind of shares of stock or other securities of the Company whether
through recapitalization, stock split, combination of shares, or
otherwise, then there shall be substituted for each Option Share the
number and kind of shares of stock or the securities into which each
outstanding share of the Common Stock shall be so changed or for which
each such share shall be exchanged.
(iii) In the event that the outstanding shares of the
Common Stock shall be changed into or exchanged for shares of stock or
other securities of another corporation, whether through
reorganization, sale of assets, merger or consolidation in which the
Company is the surviving corporation, then there shall be substituted
for each Option Share the number and kind of shares of stock or the
securities into which each outstanding share of the Common Stock shall
be so changed or for which each such share shall be exchanged.
(iv) In the event that any sale of shares of Common
Stock (except any such sale made pursuant to any right, option, warrant
or convertible security outstanding prior to the date of this
Agreement), or the issuance of any rights, options, or warrants to
subscribe for or purchase Common Stock (or securities convertible into
or exchangeable for Common Stock) occurs after the date of this
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<PAGE>
Agreement, which sale or issuance, in the aggregate, will increase the
number of shares of Common Stock outstanding during the Term by Forty
percent (40%), then, upon each such sale or issuance, the Employee
shall be issued additional Option Shares such that, when the additional
Option Shares are aggregated with the Option Shares heretofore owned by
the Employee, the Employee has the right to purchase, at the same times
set forth in paragraph 4(c), the same percentage of Common Stock at the
same price per share as the Employee maintained prior to such sale or
issuance.
(h) Share Ownership. Neither the Employee nor the Employee's
legal representatives nor the executors or administrators of his estate
shall be or be deemed to be the holder of any share of Common Stock
covered by an Option unless and until a certificate for such share
shall have been issued.
3.4 Fringe-Benefits. The Employee shall be entitled to
participate in all bonus and benefit programs that the Company establishes and
makes available to its employees, if any, to the extent that the Employee's
position, tenure, salary, age, health and other qualifications make him eligible
to participate. The Employee shall also be entitled to holidays and annual
vacation leave in accordance with the Company's policy as it exists from time to
time.
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3.5 Reimbursement of Expenses. The Company shall reimburse the
Employee for all reasonable travel, entertainment and other expenses incurred or
paid by the Employee in connection with, or related to, the performance of his
duties, responsibilities or services under this Agreement, upon presentation by
the Employee of documentation, expense statements, vouchers and/or such other
supporting information as the Company may request, provided, however, that the
amount available for such travel, entertainment and other expenses may be fixed
in advance by the Board.
3.6 Insurance. The Employee will be covered under the
Company's Directors' and Officers' liability insurance to the same extent the
Company's directors and officers are covered.
4. Employment Termination. The employment of the Employee by the
Company pursuant to this Agreement shall terminate upon the occurrence of any of
the following:
4.1 Expiration of the Employment Period in accordance with
Section 1; 4.2 At the election of the Company, for Cause (as
defined in Section 7), immediately upon written notice by the
Company to the Employee, which notice of termination shall
have been approved by a majority of the Board;
4.3 Immediately upon the death or determination of Legal
Disability (as defined in Section 7) of the Employee;
4.4 At the election of the Employee, for Good Reason (as
defined in Section 7), immediately upon written notice by the Employee to the
Company;
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<PAGE>
4.5 At the election of the Employee, within twelve (12) months
following a Change in Control (as defined in Section 7), immediately upon
written notice by the Employee to the Company;
4.6 At the election of either party, upon not less than thirty
(30) days' prior written notice of termination (the "Notice of Termination").
5. Effect of Termination.
5.1 Termination for Cause or at Election of the Employee other
than for Good Reason or due to a Change in Control. If, prior to the expiration
of this Agreement, the Employee's employment is terminated for Cause pursuant to
Section 4.2 (except in the case where such termination occurs within 12 months
following a Change in Control), or at the election of the Employee pursuant to
Section 4.6 other than for Good Reason or due to a Change in Control,
(a) the Company shall pay to the Employee the base salary and
benefits otherwise payable to him under Section 3 through the last day
of his actual employment by the Company (the "Date of Termination");
(b) the Employee shall cease to have the right to exercise any
options to purchase shares of capital stock of the Company previously
granted to the Employee pursuant to any stock option plan or other
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<PAGE>
employee benefit plan with the Company, regardless of the extent to
which they have vested, on or after the Date of Termination.
5.2 Termination by Reason of the Employee's Death or
Legal Disability. If, prior to the expiration of this Agreement, the Employee's
employment is terminated by the Employee's death or Legal Disability pursuant to
Section 4.3,
(a) the Company shall, no later than the fifth business day
following the death or determination of Legal Disability (the "Date of
Termination"), pay to the Employee, or in the case of the Employee's
death, to the estate of the Employee,
(i) the Employee's base salary and benefits otherwise
payable to him through the Date of Termination, and
(ii) an amount equal to the greater of the aggregate
base salary payments which the Employee would have received for a
six-month period after the Date of Termination if such termination had
not occurred, or $32,500, and
(b) all options to purchase shares of capital stock of the
Company previously granted to the Employee pursuant to any stock option
plan or other employee benefit plan with the Company which have not
vested at such time but which would have vested on and prior to the
next Anniversary Date shall immediately vest and become fully
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<PAGE>
exercisable in accordance with their terms for a period of ninety (90)
days following the Date of Termination.
5.3 Termination for Any Other Reason. If, prior to the
expiration of this Agreement, the Employee's employment is terminated by the
Employee for circumstances constituting Good Reason pursuant to Section 4.4 or
due to a Change in Control pursuant to Section 4.5, or by the Company for any
basis other than for Cause (as defined in Section 7) or for Cause pursuant to
Section 4.2 if within twelve (12) months following a Change in Control, the
Company shall provide the Employee with the following benefits:
(a) the Company shall pay to the Employee
(i) the Employee's base salary at the rate in effect
at the time the Notice of Termination is given, benefits and all other
compensation, including Employee's prorated cash performance bonus
calculated by multiplying the Applicable Percentage (as defined in
Section 7) by the greater of (x) the amount of the cash performance
bonus awarded or paid to the Employee with respect to the Company's
most recent full fiscal year for which such a bonus was awarded or paid
to the Employee or (y) in the case of a Change in Control, the amount
of cash performance bonus awarded or paid to the Employee with respect
to the Company's last full fiscal year prior to the Change in Control
for which such a bonus was awarded or paid to the Employee, through the
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<PAGE>
Date of Termination, no later than the fifth full day following the
Date of Termination, plus all other amounts to which the Employee is
entitled under any compensation plan of the Company at the time such
payments are due and
(ii) if the Employee so elects, in lieu of his right
to continue to receive deferred compensation under any deferred
compensation plan of the Company then in effect, no later than the
fifth full day following the Date of Termination, a lump-sum amount, in
cash, equal to the deferred amounts together with any earnings credited
on such amounts under such plan;
(b) the Company will pay as severance to the Employee an
amount equal to the sum of
(i) the greatest of (x) the aggregate Salary
payments which the Employee would have received during the balance of
the Term if such termination had not occurred, (y) in the case of a
Change in Control, the aggregate Salary payments which the Employee
would have received during the balance of the Term based on the
Employee's annual base salary in effect immediately prior to the Change
in Control, or (z) an amount equal to the Employee's highest annual
base salary achieved while employed by the Company, plus
(ii) the greater of (x) the amount of the cash
performance bonus awarded or paid to the Employee with respect to the
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<PAGE>
Company's most recent full fiscal year for which such a bonus was
awarded or paid to the Employee or (y) in the case of a Change in
Control, the amount of cash performance bonus awarded or paid to the
Employee with respect to the Company's last full fiscal year prior to
the Change in Control for which such a bonus was awarded or paid to the
Employee;
(c) all options to purchase shares of capital stock of the
Company previously granted to the Employee pursuant to any stock option
plan or other employee benefit plan with the Company which have not
vested at such time shall immediately vest and become fully exercisable
in accordance with their terms for a period of ninety (90) days
following the Date of Termination;
(d) for a one-year period after the Date of Termination, the
Company shall arrange to provide the Employee with life, disability,
dental, accident, travel and group health insurance benefits
substantially similar to those which the Employee was receiving
immediately prior to the Notice of Termination. Notwithstanding the
foregoing, the Company shall not provide any benefit otherwise
receivable by the Employee pursuant to this paragraph (d) if an
equivalent benefit is actually received by the Employee during the
one-year period following the Date of Termination and any such benefit
actually received by the Employee shall be reported to the Company; and
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(e) for a six-month period after the Date of Termination, the
Company shall reimburse the Employee for reasonable fees and expenses
incurred by him for the purpose of locating employment in an amount
mutually agreed upon by and between the Employee and the Company,
including the fees and expenses of consultants and other persons
retained by him for such purpose, promptly upon receipt by the Company
of satisfactory evidence of payment of such fees and expenses.
5.4 No Requirement to Mitigate. The Employee shall not be
required to mitigate the amount of any payment provided for herein by seeking
other employment or otherwise.
5.5 Survival. The provisions of Sections 5, 6, 7, 8 and 9
shall survive the termination of this Agreement.
6. Withholding and Deductions. All payments hereunder shall be subject
to withholding and to such other deductions as shall at the time of such payment
be required pursuant to any income tax or other law, whether of the United
States or any other jurisdiction, and, in the case of payments to the executors
or administrators to the Employee's estate, the delivery to the Company of all
necessary tax waivers and other documents.
7. Definitions. For purposes of this Agreement the following
definitions apply:
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7.1 "Cause" for termination shall mean the occurrence of any
of the following circumstances:
(a) a good faith finding by the Company of the Employee's
willful breach or habitual neglect or failure to perform the
material duties which he is required to perform under the terms of this
Agreement, materially fails to follow the reasonable directives or
policies established by or at the direction of the Board, or conducts
himself in a manner materially detrimental to the interests of the
Company such that the Company sustains a material loss or injury as a
result thereof and such breach or failure of performance is not cured
within thirty (30) days of the delivery to the Employee of written
notice thereof, which notice of breach or failure of performance shall
have been approved by a majority of the Board,
(b) the willful breach by the Employee of Section 8 of this
Agreement or any provision of any confidentiality, invention and
non-disclosure, non-competition or similar agreement between the
Employee and the Company, or
(c) the conviction of the Employee of, or the entry of a
pleading of guilty or nolo contendere by the Employee to, any crime
involving moral turpitude or any felony.
7.2 "Legal Disability" shall mean the inability of the
Employee, by reason of illness, accident or other physical or mental disability,
for a period of 120 days, whether or not consecutive, during any 360-day period,
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to perform the services contemplated under this Agreement. A determination of
disability shall be made by a physician satisfactory to both the Employee and
the Company; provided, however, that if the Employee and the Company do not
agree on a physician, the Employee and the Company shall each select a physician
and these two together shall select a third physician, whose determination as to
disability shall be binding on all parties.
7.3 "Good Reason" shall mean the occurrence of any of the
following circumstances, and the Company fails to cure such circumstances within
thirty (30) days of the delivery to the Company of written notice of such
circumstances:
(a) any significant diminution in the Employee's duties
and responsibilities as in effect on the Commencement Date;
(b) any reduction in the Employee's annual compensation as in
effect on the Commencement Date or as the same may be increased from
time to time;
(c) the failure of the Company to continue in effect any
material compensation or benefit plan in which the Employee
participates as in effect on the Commencement Date, unless an equitable
arrangement (embodied in an ongoing substitute or alternative plan) has
been made with respect to such plan, or the failure by the Company to
continue the Employee's participation therein (or in such substitute or
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alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of the
Employee's participation relative to other participants, as in effect
on the Commencement Date or the failure by the Company to award cash
bonuses to its executives in amounts substantially consistent with past
practice in light of the Company's financial performance;
(d) the failure by the Company to continue to provide the
Employee with benefits substantially similar to those enjoyed by the
Employee under any of the Company's insurance, medical, health and
accident, or disability plans in which the Employee was participating
as in effect on the Commencement Date, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits, or the failure by the Company to provide the Employee
with the number of paid vacation days to which he is entitled in
accordance with the Company's normal vacation policy in effect on the
Commencement Date or in accordance with any agreement between the
Employee and the Company existing at that time;
(e) any purported termination of the Employee's employment
which is not effected pursuant to a Notice of Termination satisfying
the requirements of Section 9, which purported termination shall not be
effective for purposes of this Agreement.
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7.4 "Change in Control" shall mean the occurrence of any
of the following events:
(a) any "person," as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 40% or more of
the combined voting power of the Company's then outstanding securities;
(b) individuals who, as of the Commencement Date, constitute
the Board (as of the Commencement Date, the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board, provided
that any person becoming a director subsequent to the Commencement Date
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
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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 stockholders of the Company approve a merger or
consolidation 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) more
than 80% 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" (as hereinabove defined) acquires more than 50% of the
combined voting power of the Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
7.5 "Applicable Percentage" means the percentage obtained by
dividing the number of full or partial months worked in the most recent fiscal
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year for which the Employee has not been awarded or paid a cash performance
bonus by twelve.
8. Restrictive Covenants.
(a) For the purposes of this Agreement:
(i) "Proprietary Information" means all information
and know-how, whether or not in writing, of a private, secret or
confidential nature concerning the company's business or financial
affairs, including, without limitation, inventions, products,
processes, methods, techniques, formulas, compositions, compounds,
projects, developments, plans, research data, clinical data, financial
data, personnel data, computer programs and customer and supplier
lists.
(ii) "Competing Products" means any products or
processes of any person or organization other than the Company in
existence or under development, which are substantially the same, may
be substituted for, or applied to substantially the same end use as the
products or processes that the Company is developing or has developed
or commercialized during the time of the Employee's employment with the
Company.
(iii) "Competing Organization" means any person or
organization engaged in, or about to become engaged in, research or
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development, production, distribution, marketing or selling of a
Competing Product.
(b) The Employee understands that information regarding the
Company and its affiliates including, without limitation, Proprietary
Information, is considered confidential to the Company and is of
substantial commercial value to the Company. Any entrusting of such
confidential information to the Employee by the Company is done so in
reliance upon the confidential relationship arising from the terms of
his employment with the Company. Therefore, in consideration of his
employment with the Company,
(i) the Employee will not, during or after the
Employment Period, disclose any such confidential information to any
person, firm, corporation, association, or other entity for any reason
or purpose whatsoever, except within the scope of his duties and
responsibilities in the ordinary course of business, unless ordered to
do so by a court or other tribunal or government agency with
jurisdiction over the subject matter and Employee;
(ii) the Employee acknowledges that he has, on or
prior to the date of the Agreement, executed and delivered to the
Company a Non-Disclosure Agreement (the "Confidentiality Agreement")
and the Employee hereby affirms and ratifies his obligations
thereunder; and
(iii) the Employee agrees that after termination by
the Company for Cause pursuant to Section 4.2 (except in the case where
-22-
<PAGE>
such termination occurs within 12 months following a Change in
Control), or by the Employee pursuant to Section 4.6 other than for
Good Reason or due to a Change in Control, he will not render services
of any nature, directly or indirectly, to any Competing Organization in
connection with any Competing Product within such geographical
territory as the Company and such Competing Organization are or would
be in actual competition, for a period of eighteen (18) months,
commencing on the Date of Termination, provided, however, the
aforementioned restrictions shall not be applicable to activities in
which the Employee was, and continued to be, engaged in on the
Commencement Date, including the activities provided for in Section 2.2
hereof. The Employee understands that services rendered to such
Competing Organization may have the effect of supporting actual
competition in various geographic areas, and may be prohibited by this
Agreement regardless of the geographic area in which such services are
physically rendered. The Company may, in its sole discretion, elect to
waive, in whole or in part, the obligation set forth in the previous
sentence, such waiver to be effective only if given in writing by the
Company.
(c) The Employee agrees that he will not, during the
Employment Period and for a period of nine (9) months commencing on the
Date of Termination, directly or indirectly employ, solicit for
-23-
<PAGE>
employment, or advise or recommend to any other person that they employ
or solicit for employment, any person whom he knows to be an employee
of the Company or any parent, subsidiary or affiliate of the Company.
(d) In the event a court of competent jurisdiction should find
any provision in this Section 8 to be unfair or unreasonable, such
finding shall not render such provision unenforceable, but, rather,
this provision shall be modified as to subject matter, time and
geographic area so as to render the entire Section valid and
enforceable.
9. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed effective upon personal delivery or upon
deposit in the United States Post Office, by registered or certified mail,
postage prepaid, addressed to the other party at the address shown above, or at
such other address or addresses as either party shall designate to the other in
accordance with this Section 9.
10. Pronouns. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular forms of nouns and pronouns shall include the plural,
and vice versa.
11. Entire Agreement. This Agreement, together with the Confidentiality
Agreement, constitutes the entire agreement between the parties and supersedes
-24-
<PAGE>
all prior agreements and understandings, whether written or oral, relating to
the subject matter of this Agreement.
12. Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.
13. Governing Law. This Agreement shall be construed, interpreted and
enforced in accordance with the laws of New Jersey, without regard to its
principles of conflict of laws.
14. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the Company may be
merged or which may succeed to its assets or business; provided, however, that
the obligations of the employee are unique and personal and shall not be
assigned by him.
15. Waiver of Breach.
15.1 Waiver by the Company. No delay or omission by the
Company in exercising any right under this Agreement shall operate as a waiver
of that or any other right. A waiver or consent given by the Company on any one
occasion shall be effective only in that instance and shall not be construed as
a bar or waiver of any right on any other occasion. No waiver by the Company
shall be valid unless in a writing signed by an authorized officer of the
Company and approved by an absolute majority of the Board.
-25-
<PAGE>
15.2 Waiver by the Employee. No delay or omission by the
Employee in exercising any right under this Agreement shall operate as a waiver
of that or any other right. A waiver or consent given by the Employee on any one
occasion shall be effective only in that instance and shall not be construed as
a bar or waiver of any right on any other occasion. No waiver by the Employee
shall be valid unless in a writing signed by the Employee.
16. Miscellaneous.
16.1 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or affect the scope or
substance of any section of this Agreement.
16.2 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and enforceability of
the remaining provisions shall be no way be affected or impaired thereby.
-26-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
an instrument under seal as of the day and year set forth above.
PALATIN TECHNOLOGIES, INC.
By: /s/ Edward J. Quilty
-----------------------
Name: Edward J. Quilty
Title: Chairman and Chief Executive Officer
EMPLOYEE
/s/ Stephen T. Wills
--------------------------
Stephen T. Wills
-27-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements for the three month period ended September 30, 1998 and is qualified
in its entirety be reference to such financial statements.
</LEGEND>
<CIK> 0000911216
<NAME> Palatin Technologies, Inc.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,704,725
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,877,745
<PP&E> 2,080,647
<DEPRECIATION> 509,410
<TOTAL-ASSETS> 5,530,786
<CURRENT-LIABILITIES> 2,294,021
<BONDS> 0
0
972
<COMMON> 46,700
<OTHER-SE> 2,686,765
<TOTAL-LIABILITY-AND-EQUITY> 5,530,786
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 2,983,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 33,999
<INCOME-PRETAX> (2,957,664)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,957,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,957,664)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
