# PALATIN TECHNOLOGIES, INC.

# 1996 STOCK OPTION PLAN

## 1. Purpose.

The purposes of
the 1996 Stock Option Plan (the Plan) are to induce certain
employees, consultants and directors to remain in the employ or service, or to
continue to serve as directors, of Palatin Technologies, Inc. (the
Company) and its present and future subsidiary corporations (each a
Subsidiary), as defined in Section 424(f) of the Internal Revenue
Code of 1986, as amended (the Code), to attract new individuals to
enter into such employment or service and to encourage such individuals to
secure or increase on reasonable terms their stock ownership in the Company. The
Board of Directors of the Company (the Board) believes that the
granting of stock options (the Options) under the Plan will promote
continuity of management and increased incentive and personal interest in the
welfare of the Company by those who are or may become primarily responsible for
shaping and carrying out the long range plans of the Company and securing its
continued growth and financial success. Options granted hereunder are intended
to be either (a) incentive stock options (which term, when used
herein, shall have the meaning ascribed thereto by the provisions of Section
422(b) of the Code) or (b) options which are not incentive stock options
(non-incentive stock options) or (c) a combination thereof, as
determined by the Committee (the Committee) referred to in Section 4
hereof at the time of the grant thereof.

## 2. Effective Date of the Plan.

The Plan became
effective on August 28, 1996, by action of the Board, subject to ratification by
stockholders of the Company.

## 3. Stock Subject to Plan.

5,000,000 of the
authorized but unissued shares of the Common Stock, $0.01 par value, of the
Company (the Common Stock) are hereby reserved for issue upon the
exercise of Options granted under the Plan; provided, however,
that the number of shares so reserved may from time to time be reduced to the
extent that a corresponding number of issued and outstanding shares of the
Common Stock are purchased by the Company and set aside for issue upon the
exercise of Options. If any Options expire or terminate for any reason without
having been exercised in full, the unpurchased shares subject thereto shall
again be available for the purposes of the Plan.

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## 4. Committee.

The Committee
shall consist of two or more members of the Board both or all of whom shall be
non-employee directors within the meaning of Rule 16b-3(b)(3)(i)
promulgated under the Securities Exchange Act of 1934, as amended (the
Exchange Act) and outside directors within the
contemplation of Section 162(m)(4)(C)(i) of the Code. The President of the
Company shall also be a member of the Committee, ex-officio, whether or not he
or she is otherwise eligible to be a member of the Committee. The Committee
shall be appointed annually by the Board, which may at any time and from time to
time remove any members of the Committee, with or without cause, appoint
additional members to the Committee and fill vacancies, however caused, in the
Committee. In the event that no Committee shall have been appointed, the Board
shall serve as the Committee. A majority of the members of the Committee shall
constitute a quorum. All determinations of the Committee shall be made by a
majority of its members present at a meeting duly called and held. Any decision
or determination of the Committee reduced to writing and signed by all of the
members of the Committee shall be fully as effective as if it had been made at a
meeting duly called and held.

## 5. Administration.

Subject to the
express provisions of the Plan, the Committee shall have complete authority, in
its discretion, to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to it, to determine the terms and provisions of the
respective option agreements or certificates (which need not be identical), to
determine the individuals (each a Participant) to whom and the times
and the prices at which Options shall be granted, the periods during which each
Option shall be exercisable, the number of shares of the Common Stock to be
subject to each Option and whether such Option shall be an incentive stock
option or a non-incentive stock option and to make all other determinations
necessary or advisable for the administration of the Plan. In making such
determinations, the Committee may take into account the nature of the services
rendered by the respective employees and consultants, their present and
potential contributions to the success of the Company and the Subsidiaries and
such other factors as the Committee in its discretion shall deem relevant. The
Committees determination on the matters referred to in this Section 5
shall be conclusive. Any dispute or disagreement which may arise under or as a
result of or with respect to any Option shall be determined by the Committee, in
its sole discretion, and any interpretations by the Committee of the terms of
any Option shall be final, binding and conclusive. The Board may, at any time,
exercise any of the powers of the Committee.

## 6. Eligibility.

A. An Option may
be granted only to (i) an employee or consultant of the Company or a Subsidiary,
(ii) a director of the Company who is not employed by the Company or any of the
Subsidiaries (a Non-Employee Director) and (iii) employees of a
corporation or other business enterprise which has been acquired by the Company
or a Subsidiary, whether by exchange or

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purchase of stock, purchase of assets, merger or reverse merger
or otherwise, who hold options with respect to the stock of such corporation
which the Company has agreed to assume or for which the Company has agreed to
provide substitute options.

B. (i) On August
28, 1996, each Non-Employee Director shall be granted an Option (a
Non-Employee Directors Formula Option) to purchase 20,000
shares of the Common Stock at the initial per share option price of $1.36 per
share.

(ii) At the
first meeting of the Board immediately following the annual meeting of the
Stockholders of the Company held following the effective date of the Plan, and
at the first meeting of the Board immediately following each subsequent annual
meeting of the Stockholders of the Company, each Non-Employee Director shall be
granted an Option (a Non-Employee Directors Formula Option) to
purchase 10,000 shares (after giving effect to the reverse stock split effected
on September 5, 1997) of the Common Stock at the initial per share option price
equal to the fair market value of a share of the Common Stock on the date of
grant.

(iii) Each
Non-Employee Director who becomes a director subsequent to the adoption date of
the Plan shall be granted, as of a date determined by the Board, which date
shall be not earlier than the date he or she agrees to become a director and not
later than the date he or she becomes a director, an Option (a
Non-Employee Directors InitialOption) to purchase the
number of shares (after giving effect to the reverse stock split effected on
September 5, 1997) of the Common Stock determined by the Board, but not more
than 10,000 shares, at the initial per share option price equal to the fair
market value of a share of the Common Stock on the date of grant.

(iv)
Unless otherwise provided by the Board at any time, a Non-Employee Director's Formula
Option will become exercisable as provided in this section. A Non-Employee Director may
not exercise a Non-Employee Directors Formula Option during the period commencing
on the date of the granting of such Option to him or her and ending on the day next
preceding the first anniversary of such date. A Non-Employee Director may (i) during the
period commencing on the first anniversary of the date of the granting of a Non-Employee
Directors Formula Option to him or her and ending on the day next preceding the
second anniversary of such date, exercise such Option with respect to one-fourth of the
shares granted thereby, (ii) during the period commencing on such second anniversary and
ending on the day next preceding the third anniversary of the date of the granting of
such Option, exercise such Option with respect to one-half of the shares granted thereby,
(iii) during the period commencing on such third anniversary and ending on the date next
preceding the fourth anniversary of the date of the granting of such Option, exercise
such Option with respect to three-fourths of the shares granted thereby and (iv) during
the period commencing on such fourth anniversary and ending on the date of the expiration
of such Option, exercise such Option with respect to all of the shares granted thereby.

## 7. Option Prices.

A. Except as
otherwise provided in Sections 6 and 17, the initial per share option price of
any Option shall be the price determined by the Committee, but not less than the
fair market value of a share of the Common Stock on the date of grant;
provided, however, that, in the case of a Participant who owns
(within the meaning of Section 424(d) of the Code) more than 10% of

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the total combined voting power of the Common Stock at the time
an Option which is an incentive stock option is granted to him or her, the
initial per share option price shall not be less than 110% of the fair market
value of a share of the Common Stock on the date of grant.

B. For all
purposes of the Plan, the fair market value of a share of the Common Stock on
any date shall be determined by the Committee as follows:

(i) If the
Common Stock is listed on the OTC Electronic Bulletin Board, its fair market
value shall be the closing selling price on such date for the Common Stock as
reported on the OTC Electronic Bulletin Board. If there are no sales of the
Common Stock on that date, then the reported closing selling price for the
Common Stock on the next preceding date for which such closing selling price is
quoted shall be determinative of fair market value; or,

(ii) If the
Common Stock is listed on any established stock exchange or a national market
system, including without limitation, the Nasdaq National Market System or the
Nasdaq SmallCap Market System, its fair market value shall be the reported
closing selling price for the Common Stock on the principal securities exchange
or national market system on which the Common Stock is at such date listed for
trading. If there are no sales of Common Stock on that date, then the reported
closing selling price for the Common Stock on the next preceding day for which
such closing selling price is quoted shall be determinative of fair market
value; or,

(iii) If the
Common Stock is not traded on the OTC Electronic Bulletin Board, an exchange, or
a national market system, its fair market value shall be determined in good
faith by the Committee, and such determination shall be conclusive and binding
on all persons.

## 8. Option Term.

Participants
shall be granted Options for such term as the Committee shall determine, not in
excess of ten years from the date of the granting thereof; provided,
however, that, except as otherwise provided in Section 17, in the case of
a Participant who owns (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of the Common Stock of the Company
at the time an Option which is an incentive stock option is granted to him or
her, the term with respect to such Option shall not be in excess of five years
from the date of the granting thereof; provided, further,
however, that the term of each Non-Employee Directors Formula
Option shall be ten years from the date of the granting thereof.

## 9. Limitations on Amount of Options
Granted.

A. Except as
otherwise provided in Section 17, the aggregate fair market value of the shares
of the Common Stock for which any Participant may be granted incentive stock
options which are exercisable for the first time in any calendar year (whether
under the terms of the Plan or any other stock option plan of the Company) shall
not exceed $100,000.

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B. Except as
otherwise provided in Section 17, no Participant shall, during any fiscal year
of the Company, be granted Options to purchase more than 500,000 shares of the
Common Stock.

## 10. Exercise of Options.

A.
Unless otherwise provided by the Board at any time, an Option will become exercisable as
provided in this section. Except as otherwise provided in Section 17 and except as
otherwise determined by the Committee at the time of the grant of an Option other than a
Non-Employee Directors Formula Option, a Participant may not exercise an Option
during the period commencing on the date of the granting of such Option to him or her and
ending on the day next preceding the first anniversary of such date. Except as otherwise
set forth in Sections 9A and 17 and in the preceding sentence, a Participant may (i)
during the period commencing on the first anniversary of the date of the granting of an
Option to him or her and ending on the day next preceding the second anniversary of such
date, exercise such Option with respect to one-fourth of the shares granted thereby, (ii)
during the period commencing on such second anniversary and ending on the day next
preceding the third anniversary of the date of the granting of such Option, exercise such
Option with respect to one-half of the shares granted thereby, (iii) during the period
commencing on such third anniversary and ending on the date next preceding the fourth
anniversary of the date of the granting of such Option, exercise such Option with respect
to three-fourths of the shares granted thereby and (iv) during the period commencing on
such fourth anniversary and ending on the date of the expiration of such Option, exercise
such Option with respect to all of the shares granted thereby.

B. Except as
hereinbefore otherwise set forth, an Option may be exercised either in whole at
any time or in part from time to time.

C. An Option may
be exercised only by a written notice of intent to exercise such Option with
respect to a specific number of shares of the Common Stock and payment to the
Company of the amount of the option price for the number of shares of the Common
Stock so specified.

D. Except in the
case of a Non-Employee Directors Formula Option, the Board may, in its
discretion, permit any Option to be exercised, in whole or in part, prior to the
time when it would otherwise be exercisable.

E.
Notwithstanding any other provision of the Plan to the contrary, including, but
not limited to, the provisions of Section 10D, if any Participant shall have
effected a Hardship Withdrawal from a 401(k) Plan
maintained by the Company and/or one or more of the Subsidiaries, then, during
the period of one year commencing on the date of such Hardship Withdrawal, such
Participant may not exercise any Option. For the purpose of this paragraph E, a
Hardship Withdrawal shall mean a distribution to a Participant provided for in
Reg. § 1.401(k)- 1(d)(1)(ii) promulgated under Section 401(k)(2)(B)(i)(iv)
of the Code and a 401(k) Plan shall mean a plan which is a qualified
plan within the contemplation of section 401(a) of the Code which contains
a qualified cash or deferred arrangement within the contemplation of
section 401(k)(2) of the Code.

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## 11. Transferability.

Except as
provided in this Section 11, no Option shall be assignable or transferable
except by will and/or by the laws of descent and distribution and, during the
life of any Participant, each Option granted to him or her may be exercised only
by him or her. An option which is not an incentive stock option, as
defined in Section 422(b) or any similar successor provision of the Code, may be
assigned or transferred to and exercised by a Participants family
member as defined in SEC Form S-8, General Instruction A(5), or any
similar successor provision. Transfer of an option for value is permitted under
this Section 11 only to the extent not prohibited under Form S-8, General
Instruction A(5), or any similar successor provision.

## 12. Termination of Employment.

A.
Unless otherwise provided by the Board at any time, termination will have the effect set
forth in this section. Unless otherwise provided by the Committee, in the event a
Participant leaves the employ of the Company and the Subsidiaries or ceases to serve as a
consultant to the Company and/or as a Non-Employee Director of the Company, whether
voluntarily or otherwise, each Option theretofore granted to him or her which shall not
have theretofore expired or otherwise been cancelled shall, to the extent not theretofore
exercised, terminate upon the earlier to occur of the expiration of 90 days after the
date of such Participants termination of employment or service and the date of
termination specified in such Option. Notwithstanding the foregoing, if a Participants
employment by the Company and the Subsidiaries or service as a consultant and/or as a
Non-Employee Director of the Company is terminated for cause (as defined
herein), each Option theretofore granted to him or her which shall not have theretofore
expired or otherwise been cancelled shall, to the extent not theretofore exercised,
terminate forthwith.

B. For purposes
of the foregoing, the term cause shall mean: (i) the commission by a
Participant of any act or omission that would constitute a crime under federal,
state or equivalent foreign law, (ii) the commission by a Participant of any act
of moral turpitude, (iii) fraud, dishonesty or other acts or omissions that
result in a breach of any fiduciary or other material duty to the Company and/or
the Subsidiaries or (iv) continued alcohol or other substance abuse that renders
a Participant incapable of performing his or her material duties to the
satisfaction of the Company and/or the Subsidiaries.

## 13. Adjustment of Number of Shares.

A. In the event
that a dividend shall be declared upon the Common Stock payable in shares of the
Common Stock, the number of shares of the Common Stock then subject to any
Option and the number of shares of the Common Stock reserved for issuance in
accordance with the provisions of the Plan but not yet covered by an Option and
the number of shares set forth in Sections 6B and 9B shall be adjusted by adding
to each share the number of shares which would be distributable thereon if such
shares had been outstanding on the date fixed for determining the stockholders
entitled to receive such stock dividend. 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

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of stock or other securities of the Company or of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, sale of assets, merger or consolidation in which the
Company is the surviving corporation, then, there shall be substituted for each
share of the Common Stock then subject to any Option and for each share of the
Common Stock reserved for issuance in accordance with the provisions of the Plan
but not yet covered by an Option and for each share of the Common Stock referred
to in Sections 6B and 9B, the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchanged.

B. In the event
that there shall be any change, other than as specified in Section 13, in the
number or kind of outstanding shares of the Common Stock, or of any stock or
other securities into which the Common Stock shall have been changed, or for
which it shall have been exchanged, then, if the Committee shall, in its sole
discretion, determine that such change equitably requires an adjustment in the
number or kind of shares then subject to any Option and the number or kind of
shares reserved for issuance in accordance with the provisions of the Plan but
not yet covered by an Option and the number or kind of shares referred to in
Sections 6B and 9B, such adjustment shall be made by the Committee and shall be
effective and binding for all purposes of the Plan and of each stock option
agreement or certificate entered into in accordance with the provisions of the
Plan.

C. In the case
of any substitution or adjustment in accordance with the provisions of this
Section 13, the option price in each stock option agreement or certificate for
each share covered thereby prior to such substitution or adjustment shall be the
option price for all shares of stock or other securities which shall have been
substituted for such share or to which such share shall have been adjusted in
accordance with the provisions of this Section 13.

D. No adjustment
or substitution provided for in this Section 13 shall require the Company to
sell a fractional share under any stock option agreement or certificate.

E. In the event
of the dissolution or liquidation of the Company, or a merger, reorganization or
consolidation in which the Company is not the surviving corporation, then,
except as otherwise provided in the second sentence of Section 13A, each Option,
to the extent not theretofore exercised, shall terminate forthwith.

## 14. Purchase for Investment, Withholding and
Waivers.

A. Unless the
shares to be issued upon the exercise of an Option by a Participant shall be
registered prior to the issuance thereof under the Securities Act of 1933, as
amended, such Par ticipant will, as a condition of the Companys obligation
to issue such shares, be required to give a representation in writing that he or
she is acquiring such shares for his or her own account as an investment and not
with a view to, or for sale in connection with, the distribution of any thereof.

B. In the event
of the death of a Participant, a condition of exercising any Option shall be the
delivery to the Company of such tax waivers and other documents as the Committee
shall determine.

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C. In the case
of each non-incentive stock option, a condition of exercising the same shall be
the entry by the person exercising the same into such arrangements with the
Company with respect to withholding as the Committee may determine.

## 15. No Stockholder Status.

Neither any
Participant nor his or her legal representatives, legatees or distributees shall
be or be deemed to be the holder of any share of the Common Stock covered by an
Option unless and until a certificate for such share has been issued. Upon
payment of the purchase price thereof, a share issued upon exercise of an Option
shall be fully paid and non-assessable.

## 16. No Restrictions on Corporate Acts.

Neither the
existence of the Plan nor any Option shall in any way affect the right or power
of the Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Companys
capital structure or its business, or any merger or consolidation of the
Company, or any issue of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Common Stock or the rights thereof, or dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding whether of a
similar character or otherwise.

## 17. Options Granted in Connection With
Acquisitions.

In the event
that the Committee determines that, in connection with the acquisition by the
Company or a Subsidiary of another corporation which will become a Subsidiary or
division of the Company or a Subsidiary (such corporation being hereafter
referred to as an Acquired Subsidiary), Options may be granted
hereunder to employees and other personnel of an Acquired Subsidiary in exchange
for then outstanding options to purchase securities of the Acquired Subsidiary.
Such Options may be granted at such option prices, may be exercisable
immediately or at any time or times either in whole or in part, and may contain
such other provisions not inconsistent with the Plan, or the requirements set
forth in Section 19 that certain amendments to the Plan be approved by the
stockholders of the Company, as the Committee, in its discretion, shall deem
appropriate at the time of the granting of such Options.

## 18. No Employment or Service Right.

Neither the
existence of the Plan nor the grant of any Option shall require the Company or
any Subsidiary to continue any Participant in the employ of the Company or such
Subsidiary or require the Company to continue any Participant as a director of
the Company.

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## 19. Termination and Amendment of the
Plan.

The Board may at
any time terminate the Plan or make such modifications of the Plan as it shall
deem advisable; provided, however, that the Board may not without
further approval of the holders of a majority of the shares of the Common Stock
present in person or by proxy at any special or annual meeting of the
stockholders, increase the number of shares as to which Options may be granted
under the Plan (as adjusted in accordance with the provisions of Section 13), or
change the manner of determining the option prices, or extend the period during
which an Option may be granted or exercised; provided,
however, the provisions of the Plan governing the grant of Non-Employee
Directors Formula Options may not be amended except by the vote of a
majority of the members of the Board and by the vote of a majority of the
members of the Board who are employees of the Company or a Subsidiary and shall
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974 or the
Rules of the Securities and Exchange Commission promulgated under Section 16 of
the Exchange Act. Except as otherwise provided in Section 13, no termination or
amendment of the Plan may, without the consent of the Participant to whom any
Option shall theretofore have been granted, adversely affect the rights of such
Participant under such Option.

## 20. Expiration and Termination of the
Plan.

The Plan shall
terminate on August 27, 2006 or at such earlier time as the Board may determine.
Options may be granted under the Plan at any time and from time to time prior to
its termination. Any Option outstanding under the Plan at the time of the
termination of the Plan shall remain in effect until such Option shall have been
exercised or shall have expired in accordance with its terms.

[END]

As adopted by the stockholders at a special meeting of
stockholders held on August 21, 1997;


as amended by the board of directors pursuant to a unanimous written consent
dated January 12, 1998;


as amended by the board of directors pursuant to a unanimous written consent
dated March 26, 1999;


as amended upon shareholder approval of amendments at the reconvened annual
meeting of stockholders on July 1, 1999;


as amended upon shareholder approval of an amendment at the reconvened annual
meeting of stockholders on November 21, 2000;


as amended by the board of directors effective January 1, 2001.

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