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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-19724
PROTEIN POLYMER TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 33-0311631
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
10655 Sorrento Valley Road, San Diego, CA 92121
(Address of Principal Executive Offices)
Issuer's Telephone Number: (619) 558-6064
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Redeemable Warrants
(Title of Class)
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 registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
------ -----
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained herein, and no disclosure will be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenues for the most recent fiscal year were $755,751.
The aggregate market value of the voting stock held by non-affiliates of the
issuer on March 17, 1997 was $17,059,000.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of March 17, 1997, 9,141,228
shares of common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Definitive Proxy Statement to be filed no later than April 30, 1997 pursuant to
Regulation 14A with respect to the Registrant's 1996 Annual Meeting of
Stockholders (incorporated by reference in Part III).
Transitional Small Business Disclosure Format: Yes No X
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PROTEIN POLYMER TECHNOLOGIES, INC.
----------------------------------
FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
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Page No.
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PART I.......................................................................... 2
Item 1. Business............................................................. 2
Item 2. Properties........................................................... 12
Item 3. Legal Proceedings.................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders.................. 13
PART II......................................................................... 13
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................ 15
Item 7. Financial Statements................................................. F-1
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure................................................. 18
PART III........................................................................ 18
Items 9, 10, 11 and 12 - Incorporated by Reference
Item 13. Financial Statements, Exhibits and Reports on Form 8-K............... 18
Signatures.................................................................... 21
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PART I
Item 1. Business
Company Background
Protein Polymer Technologies, Inc., a Delaware corporation ("PPTI" or "the
Company"), is a development-stage biotechnology company engaged in the research,
development and production of proprietary protein-based biomaterials with
targeted applications in biomedical and specialty use markets. Since 1992, the
Company has primarily focused on developing materials technology and products to
be used in the surgical repair of tissue: tissue adhesives and sealants; wound
healing materials; and surgical adhesion barriers. The Company has also
developed technology that can efficiently modify and improve the surface
properties of traditional synthetic polymers used in the fabrication of
biomedical products. A common goal is to develop materials that beneficially
interact with human cells, enabling cell growth and the regeneration of tissues
with improved outcomes as compared to current products and practices.
Since late 1994, the Company has concentrated predominantly on the
development of its surgical tissue adhesive and sealant technology. As part of
this effort, the Company targeted the establishment of a strategic alliance with
a market leader in the field of surgical wound closure products, leading to the
execution of comprehensive license, supply, and development agreements in
September, 1995, with Ethicon, Inc. ("Ethicon"), a subsidiary of the Johnson &
Johnson Company ("J&J"). While PPTI continues to concentrate its development
efforts in this area, in late 1996 the PPTI initiated studies to identify its
most promising soft tissue augmentation product candidates for use in cosmetic
and reconstructive surgery. This product application is an extension of the
biomaterials platform developed in the tissue adhesives and sealants program.
The Company, to the extent resources are available, is researching the use of
its protein polymers for other surgical tissue repair and medical device
applications, including the potential development of delivery devices for the
targeted, controlled release of drugs to various body tissues.
Specialty use products currently being marketed by the Company include
SmartPlastic(TM) and ProNectin(R) F Cell Attachment Factor. ProNectin F was
launched commercially in 1991. SmartPlastic is ProNectin F Activated Cultureware
where ProNectin F is presented in ready to use form on the surfaces of
disposable plastic labware for culturing human and animal cells. SmartPlastic
was launched commercially in late 1994.
Prior to 1992, the Company's scientists had successfully demonstrated the
ability to create and produce novel protein polymer materials having important
physical, biological and chemical properties. During this period, most of the
Company's efforts were dedicated to supplying E. I. DuPont de Nemours & Co.
("DuPont") with materials under contract for its proprietary research and
testing purposes.
In early 1992, the Company raised approximately $8.9 million through its
initial public offering of common stock and redeemable warrants. The Company
used a major portion of these proceeds to generate substantive in vitro
laboratory evidence and in vivo animal test data demonstrating the
biocompatibility and performance of its protein polymers and derived
biomaterials, and to establish a materials science group which has developed
important materials modification and fabrication technology. In July 1994 the
Company raised approximately $2.1 million from the sale of its unregistered
Series C Preferred Stock to private investors. In September 1995, and related
to the signing of various development agreements with Ethicon, the Company
raised approximately $2.4 million from the sale of its unregistered Series D
Preferred Stock to the same private investors. Also at this time these
investors exchanged all of their holdings of Series C Preferred Stock and
accumulated dividends into Series D Preferred Stock.
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The Company's Technology
Biomaterials are materials that are used to direct, supplement, or replace
the functions of living systems. The interaction between materials and living
systems is dynamic and involves the response of the living system to the
materials (e.g., an immune response) and the response of the materials to the
living system (e.g., degradation). This biological performance requirement has
been a critical factor in limiting the myriad of possible metal, polymer, and
ceramic compositions to a relatively small number that to date have been proven
useful as medical devices.
The goal of biomaterials development historically has been to produce inert
materials -- materials that elicit little or no response from the living system.
However, the Company believes that such conventional biomaterials are
constrained by their inability to convey appropriate messages to the cells which
surround them -- the same messages that are conveyed by proteins in normal human
tissues.
PPTI is focused on developing a new generation of biomaterials which are
recognized and accepted by human cells for directing their growth and,
ultimately, the regeneration of tissues. The Company believes that the
successful development of such biomaterials could substantially expand the role
that artificial devices can play in the prevention and treatment of human
disability and disease and enable the culture of native tissues for successful
reimplantation.
Through its proprietary core technology, the Company produces high
molecular weight polymers than can be processed into a variety of materials
forms such as gels, sponges, films, and fibers, with their physical strength and
rate of resorption tailored to each potential product application. These
polymers are constructed of the same amino acids as natural proteins found in
the body. The Company has demonstrated that its polymers can mimic the
biological and chemical functions of natural proteins, such as the attachment of
cells through specific membrane receptors and the bonding of tissues by
enzymatic cross-linking, thus overcoming a critical limitation of conventional
biomaterials. In addition, in animal tests the Company has conducted its
polymers have demonstrated excellent biocompatibility.
These attributes of PPTI's protein polymers are achieved by combining the
advantages of both modern biotechnology and traditional polymer science. The
techniques of biotechnology are used to create synthetic genes which direct the
biological synthesis of protein polymers in recombinant microorganisms. The
design concepts of traditional polymer science are used to create novel
materials for specific applications by combining the properties of individual
"building block" components.
In contrast to natural proteins, either isolated from natural sources or
produced using traditional genetic engineering techniques, PPTI's technology
results in the creation of new proteins with unique properties. PPTI has
demonstrated its capability to create materials that:
. combine properties of different proteins found in nature;
. reproduce and amplify selected activities of natural proteins;
. eliminate undesired properties of natural proteins; and
. incorporate synthetic properties via chemical modifications.
This capability is fundamental to PPTI's current primary product research
and development focus -- tissue repair and regeneration. Tissues are highly
organized structures made up of specific cells arranged in relation to an
extracellular matrix ("ECM"), which is principally composed of proteins. The
behavior of cells is determined largely by their interactions with the ECM.
Thus, through the ability to structure a cell's ECM environment, the cell's
activity can be controlled though the protein messages it receives. Similar to
what nature has demonstrated to be essential in creating, maintaining and
restoring the body's functions, PPTI's patented core technology enables messages
that direct activities of cells to be precisely formulated and presented in a
structured environment.
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Product Candidates and Anticipated Markets
The Company's technology and materials have the potential to create
products and product applications in a variety of medical and specialty use
markets. Although the Company's current development efforts are principally
focused on tissue sealants and adhesives, efforts are also now being applied to
the development of gels for soft tissue augmentation. Additionally, PPTI
continues to evaluate opportunities for research and development of product
candidates for other medical and specialty uses. With the exception of the use
of ProNectin F for in vitro cell culture, all of the Company's product
candidates are in early stages of research and development.
The actual development of other product candidates, if any, will depend on
a number of factors, including: the availability of funds required to research,
develop, test and obtain necessary regulatory approvals; the anticipated time to
market; the potential revenues and margins that may be generated if a product
candidate is successfully developed and commercialized; and the Company's
assessment of the potential market acceptance of a product candidate.
Each of PPTI's principal targeted markets, and related product candidates,
are set forth below. There can be no assurance that such research and
development efforts will be successful or that any products, if developed, could
be effectively marketed or produce significant revenues. Further, additional
scientific progress depends upon the Company's ability to raise significant
amounts of additional capital (see "Management Discussion and Analysis -
Liquidity and Capital Resources", Item 6, below).
Tissue Adhesives and Sealants
Every surgical operation requires closure of a wound site. Current wound
closure techniques depend primarily on sutures and, in some applications,
staples. The principal inherent limitations with sutures and staples in certain
procedures are: lack of hemostatic and sealant properties to prevent fluid loss;
the length of time and difficulty in closing the wound site; and the need for
post-operative removal.
Certain tissue adhesives and sealants that seek to avoid these limitations,
such as fibrin glues and cyanoacrylates, have been developed and marketed
outside the United States. However, these adhesives and sealants have not been
approved by the FDA for domestic use in humans. Additionally, the Company
believes that these adhesives and sealants have their own limitations: fibrin
glues are derived from human and animal blood products, set slowly and have low
strength; cyanoacrylates that set fast and have high strength are toxic to
certain tissues, which have limited their use to date to bonding the outer
surfaces of skin together.
The Company is seeking to develop tissue adhesives and sealants that
combine the biocompatibility of fibrin glues (without the risks associated with
use of blood-derived products) with the high strength and desired setting times
of cyanoacrylates. The Company has successfully demonstrated the feasibility of
two different proprietary approaches to achieving biocompatibility, desired
strength and accelerated setting time.
In September 1995 PPTI entered into a licensing and development agreement
and a supply agreement with Ethicon regarding this program. (See "Collaborative
Agreements" section, below.) Tests performed by Ethicon have confirmed the
potential suitability of the Company's approach. Ethicon and the Company have
agreed to extend the time available for further development of candidate tissue
adhesives and sealants and, correspondingly, Ethicon's acceptance of such
candidates for clinical development, until December 14, 1997.
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Soft Tissue Augmentation
Conditions where there is a need to augment the body's soft tissues include
both cosmetic and medical applications. In the former, for example, current
procedures include the injection of collagen-based materials to smooth out
facial wrinkles, acne scars and to modify lip contours. The latter segment
includes the repair of tissue defects associated with tumor removal, congenital
deformities, trauma, degenerative diseases and stress incontinence. PPTI
believes there is a lack of materials with suitable properties for these
applications, principally because materials having the required durability in
vivo either lack the requisite biocompatibility or the ability to be easily
applied.
The Company has developed protein polymers that demonstrate excellent
biocompatibility, are soluble in water at room temperature, and are easily
injected into body tissues, forming soft, durable gels at body temperature.
Previously, PPTI has shown gels to have persisted at least 18 months in an
animal model. Currently, the Company is conducting studies to identify specific
product formulations for the most attractive clinical indications.
Subsequently, formal preclinical testing will be initiated to obtain FDA
approval for beginning human clinical testing.
Wound Healing Matrices
The current market for wound care products is highly segmented, involving a
variety of different approaches to wound care. Products currently marketed and
being developed by third parties include fabric dressing (such as gauze),
synthetic materials (such as polyurethane films) and biological materials (such
as growth factors and living tissue skin graft substitutes). While the type of
product varies depending on the type of wound and extent of tissue damage, the
Company believes that a principal treatment goal in all instances is to
stimulate wound healing while regenerating functional (as opposed to scar)
tissue.
The Company has developed protein polymers which it believes may be useful
in the treatment of dermal wounds, particularly chronic wounds such as
decubitous ulcers, where both reconstruction of the ECM and re-establishment of
its function are desired. These polymers, based on key ECM protein sequence
blocks, are biocompatible, fully resorbable and have been processed into gels,
sponges, films and fibrous sheets. The Company believes that such materials, if
successfully developed, could improve the wound-healing process through their
inherent properties, as delivery systems for growth factors, and as scaffolds
for the production of living tissue skin graft substitutes. This program is in
the early stages of research.
Surgical Adhesion Barriers
Adhesions are essentially the formation of unwanted bonds or scar tissue,
occurring when surgically manipulated tissues are healing. They are a common
surgical complication causing post-operative discomfort and disability.
Adhesions occur in almost two out of three abdominal procedures, and if bowel
obstruction results, surgical repair is needed. Infertility can result from
adhesions, which occur in over 50% of gynecological procedures. A successful
anti-adhesion product has the potential of both reducing the cost of medical
care by reducing the number of necessary second surgeries, and easing the
suffering of surgical patients.
Two anti-adhesion products are currently marketed in the U.S., but their
efficacy is limited. The Company believes that other adhesion barrier products
currently in development are promising, but as with the currently marketed
products, have properties which may constrain their use -- rapid resorption by
the body and limited mechanical strength. PPTI has developed biocompatible
films from protein polymers that are "tough" and whose resorption by the body
can be controlled. In vivo studies of these protein polymer films have
demonstrated their ability to block cellular adhesions. The Company is working
to determine the clinical indications where its potential products would have
the greatest advantage versus competing technologies, so as to better focus
further research efforts.
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Controlled Release Drug Delivery
Oral delivery of drugs is the most preferred route of administration.
However, for many drugs this is not possible and alternative drug delivery
routes are required. Alternative routes include transdermal, mucousal, and by
implantation or injection. For implantation or injection, it is often desirable
to extend the availability of the drug in order to minimize the frequency of
these invasive procedures. Materials exist, and in a few instances been
commercialized, which act as depots for a drug when implanted or injected,
releasing the drug over periods ranging from one month to several years. Other
material and drug combinations are being developed by third parties. PPTI
believes that the properties of these materials for such applications can be
substantially improved upon, making available the use of depot systems for a
wider range of drugs and applications.
The Company has developed unique and proprietary protein polymer material
systems that function as drug depots and can be implanted or injected. They
exhibit exceptional biocompatibility, provide for control over their rate of
resorption in the body, and are fabricated using aqueous solvent systems at low
temperatures -- attributes which can be critical in maintaining the activity of
the drug, particularly protein-based drugs emerging from the biotechnology
industry.
PPTI is collaboratively exploring the targeted delivery of FDA-approved
analgesic drugs in a controlled release format directly to nerve tissue for the
relief of chronic pain. Due to their particularly powerful and sometimes
addictive nature, such drugs are typically delivered by frequent injections of
relatively low dosage. PPTI's targeted approach may avoid systemic release of
these powerful drugs, thus potentially allowing for the delivery of a more
potent payload of pain-killer over a substantially longer time frame. Other
collaborations are also being considered.
Cell Culture Products
The market for products used to culture mammalian cells encompasses the
production of pharmaceuticals and vaccines, ex vivo cell therapy, and basic and
applied research on the cellular mechanisms of human and animal development and
disease. The common element is the need to culture cells outside the body in an
artificial, controlled environment. With the culture of many types of mammalian
cells, fetal bovine serum, animal sera factors or attachment factors must be
added to the culture medium or coated on the culture surface to enable cells to
attach and spread, initiating cell growth.
Unlike standard tissue culture treated labware, these products primarily
present to cells the RGD cell attachment ligand (protein sequence) of the serum
protein fibronectin, which is an essential requirement for the growth, proper
morphology and fully-differentiated function of many different cells. However,
the Company believes that there are disadvantages to using such products which,
depending on the application, result in variable performance, lack of storage
stability, undesirable contaminants, excessive media protein, high costs and
lost time.
PPTI developed ProNectin F to address these limitations. This product
presents multiple copies of the RGD ligand within a chemically and thermally
stable protein polymer. ProNectin F is free of animal-derived contaminants and
has a long shelf-life. Moreover, tests conducted by third parties and the
Company confirm that, compared with standard tissue culture treated labware,
labware coated with ProNectin F enhances the cell attachment process.
Since March 1991 the Company has commercially marketed ProNectin F as a
cell culture reagent for use by cell biologists and cell culture laboratories.
In December 1994 the Company launched SmartPlastic, where ProNectin F is
presented on the surfaces of disposable plastic labware in ready to use form for
culturing human and animal cells. To date, the Company has generated over
$450,000 in revenues and license fees from the marketing of these products. The
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Company is seeking new marketing and distribution alliances to increase the
sales of the product line and to support the development of new products and
formats.
Manufacturing, Marketing and Distribution
ProNectin F
PPTI currently produces ProNectin F in its laboratory facilities, and
believes its current production facilities are sufficient for the anticipated
demand of ProNectin F in the foreseeable future. The Company markets and
distributes ProNectin F and SmartPlastic directly and through foreign and
domestic distribution arrangements.
Biomedical Product Candidates
To date, PPTI has manufactured limited amounts of its biomedical materials
and products for internal testing and, in certain cases, evaluation and testing
by corporate partners and other third parties. Preclinical and clinical testing
of potential medical device products, where the results will be submitted to the
United States Food and Drug Administration ("FDA"), requires compliance with the
FDA's Good Laboratory Practices ("GLP"). The Company is currently working to
implement polymer production and quality control procedures, including certain
facilities renovations, to conform to GLP requirements. It is anticipated that
these efforts will be sufficient for supplying a number of development programs
with the required quality and quantity of materials needed for preclinical and
clinical testing.
In addition, the Company is considering alternative methods for increasing
production of its biomedical and other product candidates to meet clinical and
commercial requirements. For example, the Company may expand its existing
facility to produce needed quantities of materials under FDA's Good
Manufacturing Practice ("GMP") regulations for clinical and commercial use.
However, there can be no assurance that, if desired, the Company could
adequately develop, fund, implement and manage such a manufacturing facility.
Alternatively, the Company may establish external contract manufacturing
arrangements for needed quantities; however, there can be no assurance that such
arrangements, if desired, could be entered into or maintained on acceptable
terms, if at all, or that the existence or maintenance of such arrangements
would not adversely affect the Company's margins or its ability to comply with
applicable governmental regulations. The actual method, or combination of
methods, that the Company may ultimately pursue will depend on a number of
factors, including availability, cost, and the Company's assessment of the
ability of such production methods to meet its commercial objectives.
The development and commercialization of certain biomedical products will
require the Company, pursuant to applicable governmental regulations, to upgrade
its manufacturing facilities and to obtain manufacturing approvals from the FDA
(see "Regulatory Matters", below).
The Company currently expects that its initial biomedical products, if any
are developed, would be marketed and distributed by a corporate partner. While
this arrangement would minimize the Company's marketing costs and facilitate
wider distribution of any biomedical products it may develop, these arrangements
may adversely affect the Company's profit margins with respect to these
products.
Research and Development
Information regarding Company-sponsored research and development activities
and contract research and development revenue is set forth below under the
heading "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
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Collaborative Agreements
Because of the highly technical focus of its business, the Company must
conduct extensive research and development prior to any commercial production of
its biomaterials. During this development stage, PPTI's ability to generate
revenues is limited. Because of this limitation, the Company does not have
sufficient resources to devote to extensive testing or marketing of its
products. The Company's primary method of expanding its product development,
testing and marketing capabilities is to form collaborative arrangements with
selected corporate partners with specific resources that the Company believes
complement its business strategies and goals.
The Ethicon Agreements
In September 1995 PPTI entered into a licensing and development agreement
and a supply agreement with Ethicon regarding its tissue adhesives and sealants
program. Under these agreements, Ethicon receives exclusive worldwide
development, marketing and distribution rights to such products under PPTI's
proprietary technology rights in exchange for contract research and development
payments, milestone fees, and manufacturing and royalty payments to PPTI. The
market for such products is considered large and potentially could replace the
use of sutures and staples in certain surgical procedures.
A total of almost $11 million could be paid to PPTI under these agreements;
$1.4 million has been received through December 31, 1996. The payments are
contractually segregated into two categories --ongoing research efforts and
milestone payments. A first milestone payment to the Company is due upon
achieving product candidate acceptance, which is determined solely by Ethicon,
and could range from $1.4 million to $1.9 million, depending on whether both an
adhesive candidate and a sealant candidate were accepted. Ethicon and the
Company have agreed to extend the time available for further development of
candidate tissue adhesives and sealants and, correspondingly, Ethicon's
acceptance of such candidates for clinical development, until December 14, 1997.
Although the Company believes it can develop suitable product candidates before
this date, there can be no assurance that it will actually do so, or that if it
does, Ethicon will accept such product candidates. In conjunction with this
extension, Ethicon committed additional funds to support the ongoing R & D
efforts. Subsequent to candidate acceptance, and during the ensuing year,
research payments of from $1.3 million to $1.7 million may be received; and from
$500,000 to $800,000 may be received in the year following that. Additional
milestone payments of from $575,000 to $1,075,000 would be received upon
initiation of clinical trials, from $750,000 to $1,375,000 upon filing of a PMA,
and from $1.0 million to $2.0 million upon FDA approval.
In addition to receiving a royalty on worldwide product sales, PPTI also
retains the option of manufacturing both the protein polymer component and a
portion or all of the final product. However, there is no guarantee that
Ethicon or PPTI will continue to meet their obligations under the terms of the
agreements, that a product will be successfully developed for commercial use or,
if having done so, that Ethicon will market the resulting product(s) to the
fullest extent possible. PPTI retains the right, under certain conditions and
after a certain number of years have elapsed, to make other marketing
arrangements in geographic areas Ethicon chooses to abandon.
Other Agreements
PPTI is a party to other agreements, and is discussing potential
agreements, with other entities regarding additional biomedical and specialty
use applications of its polymers and technology, including applications in areas
other than those identified as product candidates above. These agreements
provide, or are intended to provide, for the evaluation of product feasibility.
There can be no assurance that the Company will be able to establish such
arrangements at all, or do so in a timely manner and on reasonable terms, or
that such agreements will lead to joint product development and
commercialization agreements. Certain information regarding the Company's
collaborative agreements is set forth in Note 5 to the Company's Financial
Statements included herein.
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Competition
The principal anticipated commercial uses of PPTI's biomaterials are as
components of end-use products for biomedical and other specialty applications.
End-use products using or incorporating the Company's biomaterials would compete
with other products which rely on the use of alternative materials. For
example, the use of ProNectin F in cell culture systems competes with the use of
fetal bovine serum, fibronectin, collagen and other compounds. Similarly, all
targeted applications of the Company's potential products will compete with
other products having the same or similar applications.
The areas of business in which the Company engages and proposes to engage
are characterized by rapidly evolving technology and intense competition;
competition in the biomedical and surgical repair markets is particularly
significant. The Company's competitors in the biomedical and surgical repair
markets include major pharmaceutical, surgical product, chemical and specialized
biopolymer companies, many of which have financial, technical, research and
development and marketing resources significantly greater than those of the
Company. Academic institutions and other public and private research
organizations are also conducting research and seeking patent protection, and
may commercialize products on their own or through joint ventures. The Company
believes that research into similar types of protein engineering technology is
currently being conducted by DuPont and several university laboratories.
The primary elements of competition in the biomedical and surgical repair
products market are performance, cost, safety, reliability, convenience and
commercial production capabilities. The Company believes that its ability to
compete in this market will be enhanced by its issued patent claims, the breadth
of its other pending patent applications, its early entry into its field and its
experience in protein engineering. However, the Company currently does not have
production capabilities or resources to compete commercially without the use of
collaborative agreements with third parties.
Patents and Trade Secrets
PPTI is aggressively pursuing domestic and international patent protection
for its technology, making claim to an extensive range of recombinantly prepared
structural and functional proteins, methods for preparing synthetic repetitive
DNA, methods for the production and purification of protein polymers, and end-
use products incorporating such materials.
The United States Patent and Trademark Office ("USPTO") has issued five
patents to the Company. U.S. Patent 5,235,041 (1993) relates to the Company's
method for purifying structurally ordered recombinant protein polymers. U.S.
Patent 5,243,038 (1993) covers the Company's synthetic DNA compositions that
encode polymers and copolymers comprising the amino acid "building blocks" of
silk and elastin. U.S. Patent 5,496,712, issued in March 1996, covers the
Company's family of high molecular weight collagen like polymers and the DNA
sequences encoding them. U.S. Patent 5,514,581, issued in May 1996, covers DNA
sequences encoding silk-like structural building blocks with an intervening
sequence coding for the key cell attachment ligand from human fibronectin. One
of the claimed sequences encodes ProNectin F. U.S. Patent 5,606,019 issued in
February 1997, covers the protein compositions comprising copolymers of the
amino acid "building blocks" of silk and elastin. These are the primary
materials used in the Company's current product development efforts.
The Company also received notices of allowance from the USPTO in 1995 and
1996 on two other patent applications. Additionally, PPTI has fourteen U.S.
patent applications pending covering related aspects of its core technology.
Corresponding international patent applications based on PPTI's technology have
been submitted in major market areas worldwide and are beginning to issue.
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Although the Company believes its existing issued patent claims may provide
a competitive advantage, there can be no assurance that the scope of the
Company's patent protection is or will be adequate to protect its technology or
that the validity of any patent issued will be upheld in the future.
Additionally, with respect to the Company's allowed and pending applications,
there can be no assurance that any patents will be issued, or that, if issued,
they will provide substantial protection or be of commercial benefit to the
Company. The two patents issued to PPTI in 1993 will expire in 2010, as will
one of the patents issued in 1996. The other patents issued in 1996 will expire
in 2013 and the patent issued in 1997 will expire in 2014.
Because of the uncertainty concerning patent protection and the
unavailability of patent protection for certain processes and techniques, PPTI
also relies upon trade secret protection and continuing technological innovation
to maintain its competitive position. Although all of the Company's employees
have signed confidentiality agreements, there can be no assurance that the
Company's proprietary technology will not be independently developed by other
parties, or that secrecy will not be breached. Additionally, the Company is
aware that substantial research efforts in protein engineering technology are
taking place at universities, government laboratories and other corporations and
that numerous patent applications have been filed. The Company cannot predict
whether it may have to obtain licenses to use any technology developed by third
parties or whether such licenses can be obtained on commercially reasonable
terms, or at all.
In the course of its business, PPTI employs various trademarks and trade
names in packaging and advertising its products. The Company has obtained
federal registration of its ProNectin(R) trademark and has applied for federal
registration of its SmartPlastic(TM) trademark for ProNectin F Activated
Cultureware. The Company intends to protect and promote all of its trademarks
and, where appropriate, will seek federal registration of its trademarks.
Regulatory Matters
Regulation by governmental authorities in the United States and other
countries is a significant factor affecting the success of products resulting
from biotechnological research. The Company's current operations and products
are, and anticipated products and operations will be, subject to substantial
regulation by a variety of agencies, particularly those products and operations
related to biomedical applications. Currently, the Company's activities are
subject to regulation primarily under the Occupational Safety and Health Act,
which requires the Company to provide a "material data safety sheet" to its
customers setting forth certain information regarding the Company's products.
Pre-market approval from the FDA is required for new medical devices, drugs
or vaccines, a generally costly and time-consuming process. If the Company does
not directly produce and sell medical devices, drugs or vaccines, it will not be
directly affected by these regulations. However, the Company's anticipated
customers and corporate partners would be required to obtain such approvals.
Additionally, the Company may be required to file and maintain with the FDA a
"Master File" containing information regarding the Company's products. There
can be no assurance that the Company's customers will be able to obtain or
maintain the necessary approvals from the FDA or that the Company will be able
to maintain a Master File in accordance with FDA regulations. In either case,
the Company's anticipated business could be adversely affected.
Because PPTI intends for its biomaterials to be used as medical devices, it
may be required to conform its operations to the FDA's GMP regulations. GMP
regulatory requirements are rigorous, and there can be no assurance that GMP
status could be obtained in a timely manner and without the expenditure of
substantial resources, if at all. The Company may also be required to register
its facility with the FDA as an establishment involved in the manufacture of
medical devices.
The Company's research, development and production activities are, or may
be, subject to various federal and state laws and regulations relating to
environmental quality and the use,
10
<PAGE>
discharge, storage, transportation and disposal of toxic and hazardous
substances. The Company's future activities may be subject to regulation under
the Toxic Substances Control Act, which requires the Company to obtain pre-
manufacturing approval for any new "chemical material" the Company produces for
commercial use that does not fall within the FDA's regulatory jurisdiction. The
Company believes it is currently in substantial compliance with all such laws
and regulations. Although the Company intends to use its best efforts to comply
with all environmental laws and regulations in the future, there can be no
assurance that the Company will be able to fully comply with such laws, or that
full compliance will not require substantial capital expenditures.
Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Position with the Company
- ---- --- -------------------------
<S> <C> <C>
J. Thomas Parmeter 57 Chairman of the Board of Directors,
President and Chief Executive Officer
Joseph Cappello, Ph.D. 40 Vice President, Research and Development,
Chief Technical Officer and Director,
Polymer Research
Philip J. Davis 66 Corporate Secretary
Franco A. Ferrari, Ph.D. 45 Vice President, Laboratory Operations and
Polymer Production and Director, Molecular
Genetics
John E. Flowers 40 Vice President, Planning and Operations and
Director, Business Development
Janis Y. Neves 45 Controller and Assistant Secretary
Erwin R. Stedronsky, Ph.D. 52 Vice President, Product Formulation and
Engineering and Director, Materials Science
Aron P. Stern 43 Vice President, Finance and Administration,
and Chief Financial Officer
</TABLE>
Mr. Parmeter has been the Company's President, Chief Executive Officer and
Chairman of the Board of Directors since its inception in July 1988 (and, from
July 1988 to July 1992, its Chief Financial Officer). From 1982 to November
1987, Mr. Parmeter was President, Chief Executive Officer and, from June 1987 to
June 1988, Chairman of the Board of Syntro Corporation.
Dr. Cappello has been the Company's Vice President, Research and
Development since February 1997 and Director, Polymer Research and Chief
Technical Officer since February 1993. From September 1988 to February 1993, he
was the Company's Senior Research Director, Protein Engineering.
Mr. Philip J. Davis has been the Company's Secretary since January 1989.
Mr. Davis has been a director of the Company since April 1994; he previously
served as a director of the Company from January 1989 until October 1991. Mr.
Davis has been a Senior Vice President with Donaldson, Lufkin & Jenrette since
March 1994. He was Director, Institutional Sales at Merrill Lynch, Inc.
(formerly Merrill Lynch Capital Markets) from February 1991 to March 1994, and
was a Vice President at Merrill Lynch, Inc. from 1986 to 1994.
11
<PAGE>
Mr. Flowers has been the Company's Vice President, Planning and Operations,
since February 1993. From September 1988 to February 1993, he was the Company's
Vice President, Commercial Development.
Dr. Ferrari has been the Company's Vice President, Laboratory Operations
and Director, Molecular Genetics since February 1993. From September 1988 to
February 1993, he was the Company's Senior Research Director, Genetic
Engineering.
Ms. Neves has been the Company's Controller and Assistant Secretary since
January 1990. From July 1988 until January 1990, Ms. Neves was the Company's
Business Office Manager.
Dr. Stedronsky has been the Company's Vice President, Product Formulation
and Engineering since February 1997 and Director of Materials Science since
September 1992. For approximately 20 years prior to joining PPTI, Dr. Stedronsky
held increasingly responsible R&D positions in Corporate Research at Monsanto
Company.
Mr. Stern has been the Company's Vice President, Finance and Administration
and Chief Financial Officer since July 1992. Previously Mr. Stern served as
Director, Finance and Administration of Isis Pharmaceuticals, Inc. (a
biopharmaceutical company) from May 1989 to June 1992, and as Controller and
Assistant Treasurer of Teknowledge, Inc., an expert systems company, from
November 1985 to April 1989.
All executive officers of the Company were elected by the Board of
Directors and serve at its discretion. No family relationships exist between
any of the officers or directors of the Company.
Employees
As of March 21, 1997, PPTI has 26 full-time, two part-time and three
temporary employees, of whom four hold Ph.D. degrees in the chemical or
biological sciences. The Company is highly dependent on the services of its
management and scientific staff. The loss of the services of any of its staff
may significantly hinder the achievement of the Company's development
objectives. The recruitment and retention of additional qualified management
and scientific personnel is also critical to the Company's success. There can
be no assurance that the Company will be able to attract and retain required
personnel on acceptable terms, due to the competition for such experienced
personnel from other biotechnology, pharmaceutical, medical device and chemical
companies, universities and non-profit research institutions.
Item 2. Properties
PPTI does not own any real property. The Company rents approximately
21,000 square feet in San Diego, California from Sycamore/San Diego Investors
under two leases. The leased property includes the Company's administrative
offices, which encompass approximately 4,000 square feet, and its laboratory
facilities, which encompass approximately 17,000 square feet. The current
annual rent is approximately $410,000. The leases expire in December 1998.
The Company believes that its current facilities are adequate to meet its
needs until the end of 1998. The Company retains the option to extend its
leases for an additional five years.
Item 3. Legal Proceedings
On or about January 17, 1997, the Company received correspondence (the
"Letters") from or on behalf of persons who hold the Company's Underwriter Unit
Warrants (the "Unit Warrants"). The Letters allege that the Company is in
breach of its obligations under the
12
<PAGE>
Underwriter Unit Warrant Certificates (the "Certificates"), particularly
concerning the calculation and notification of anti-dilution adjustments to be
made to the number of shares of the Company's common stock representred by each
Unit Warrant, the corresponding reduction of the per share exercise price for
such Unit Warrants, and notification of registration rights under the
Certificates. By their terms, the Unit Warrants expired on January 21, 1997. The
Company disagrees with the interpretation of the anti-dilution provisions cited
in the Letters and believes that this dispute will not have a material adverse
effect on the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 1996.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
The Company's Common Stock trades on the Small-Cap market of NASDAQ under
the symbol "PPTI". The trade prices set forth below represent inter-dealer
prices without retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Trade Prices
------------
1996 High Low
---- ------ ------
<S> <C> <C>
First Quarter $3.297 $1.563
Second Quarter 5.375 2.000
Third Quarter 4.500 2.125
Fourth Quarter 3.500 2.000
1995
----
First Quarter $0.750 $0.438
Second Quarter 0.625 0.156
Third Quarter 2.000 0.500
Fourth Quarter 2.125 1.500
</TABLE>
As of March 21, 1997, the Company had approximately 156 shareholders of
record; it estimates it has approximately 1,868 beneficial holders. The Company
has never paid cash dividends on its Common Stock. The Company currently
intends to retain earnings, if any, for use in the operation and expansion of
its business and therefore does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future.
Unregistered Offerings
On January 7, 1997, the Company received $4,760,000, less estimated
expenses of approximately $160,000, from a private placement of 1,904,000 shares
of the Company's common stock, at $2.50 per share, with a number of accredited
investors. No underwriters were engaged by the Company in connection with such
issuance and, accordingly, no underwriting discounts or commissions were paid.
The issuance was exempt from registration under Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"), and met the requirements of Rule
506 of Regulation D promulgated under the Securities Act. The Company agreed to
register the shares with the Securities and Exchange Commission promptly after
the closing. The registration was declared effective on January 24, 1997.
13
<PAGE>
On September 14, 1995, the Company issued 49,187 shares of its Series D
Convertible Preferred Stock in a private placement to certain accredited
investors. Of this amount, 24,139 shares of Series D Convertible Preferred Stock
were issued in exchange for 21,600 shares of the Company's Series C Convertible
Preferred Stock, plus accrued and unpaid dividends thereon. An additional 5,048
shares of the Series D Convertible Preferred Stock were issued in exchange for
cancellation of a $500,000 bridge loan, plus accrued interest thereon. The
remaining 20,000 shares of Series D Convertible Preferred Stock were issued to
the same investors for cash at a price of $100.00 per share. No underwriters
were engaged by the Company in connection with such issuance and, accordingly,
no underwriting discounts or commissions were paid. The issuance was exempt from
registration under Section 4(2) of the Securities Act and met the requirements
of Rule 506 of Regulation D promulgated under the Securities Act.
Each share of Series D Convertible Preferred Stock earns a cumulative
dividend at the annual rate of $10 per share, payable as and when declared by
the Company's Board of Directors in the form of cash, common stock or any
combination thereof. The Series D Convertible Preferred Stock is convertible
into common stock after two years from the date of issuance at the holder's
option. The conversion price at the time of conversion is the lesser of $3.75 or
the market price. The Series D Convertible Preferred Stock is redeemable at the
Company's option after four years from the date of issuance. Automatic
conversion of all of the Series D Convertible Preferred Stock will occur if: (a)
the Company completes a public offering of common stock at a price of $2.50 or
higher; or (b) the holders of a majority thereof elect to convert. The Company
has the option to demand conversion of the Series D Convertible Preferred Stock
if the average market price of its common stock equals or exceeds $5.00 per
share over a period of twenty business days. The Series D Convertible Preferred
Stock has a liquidation preference of $100.00 per share.
In addition, the Series D Convertible Preferred stockholders received
warrants to purchase, at an exercise price of $1.25 per share, twenty shares of
the Company's common stock for each share of Series D Convertible Preferred
Stock acquired for cash, or upon conversion of the outstanding bridge loan and
accrued interest thereon, described above. Warrants to acquire a total of
500,960 shares of common stock were issued. All of these warrants were exercised
during 1996, from which the Company received aggregate gross proceeds of
$626,200. The Series D Convertible Preferred stockholders were granted certain
registration rights relating to their shares of common stock issuable upon
conversion of the Series D Convertible Preferred Stock and upon the exercise of
their warrants.
In July 1994, the Company received $2,160,000 from a private placement of
the Company's Series C Convertible Preferred Stock with certain accredited
investors, consisting of 21,600 shares at $100.00 per share. No underwriters
were engaged by the Company in connection with such issuance and, accordingly,
no underwriter discounts or commissions were paid. The issuance was exempt from
registration under Section 4(2) of the Securities Act and met the requirements
under Rule 506 of Regulation D promulgated under the Securities Act. As
described above, the investors exchanged 21,600 shares of Series C Convertible
Preferred Stock, plus accrued and unpaid dividends thereon, for 24,139 shares of
Series D Convertible Preferred Stock. There are currently no shares of Series C
Convertible Preferred Stock outstanding.
Each share of Series C Convertible Preferred Stock earned a cumulative
dividend at the annual rate of $10 per share payable as and when declared by the
Company's Board of Directors in the form of cash, common stock or any
combination thereof. The Series C Convertible Preferred Stock was convertible
into common stock one year after issuance at the holder's option. The conversion
price ranged between $1.25 and $3.75 per share, depending on market price. The
Series C Convertible Preferred Stock was redeemable at the Company's option five
years after issuance. Automatic conversion of all of the Series C Convertible
Preferred Stock would have occurred if : (a) the Company completed a public
offering of common stock at a price of $2.50 or higher; or (b) holders of a two-
thirds majority thereof decided to convert their stock. The Company had the
option to demand conversion of the Series C Convertible Preferred Stock if the
average market price of its common stock equaled or exceeded $5.00 per share
over a period of twenty
14
<PAGE>
business days. The Series C Convertible Preferred Stock had a liquidation
preference of $100.00 per share.
In connection with the issuance of the Series C Convertible Preferred
Stock, warrants were also issued to acquire a total of 432,000 shares of the
Company's common stock at a price of $1.25 per share. All of these warrants were
exercised during 1996, from which the Company received aggregate gross proceeds
of $540,000.
In July 1996, holders of warrants to acquire 322,663 shares of common stock
(all of whom were accredited investors) exercised such warrants at $2.50 per
share, resulting in approximately $807,000 in gross proceeds to the Company.
These warrants were originally issued in 1991 in connection with the issuance of
the Company's Series B Convertible Preferred Stock. The issuance upon exercise
of these warrants was exempt from registration under Section 4(2) of the
Securities Act and met the requirements under Rule 506 of Regulation D
promulgated under the Securities Act. The Company agreed to register the resale
of the common stock received upon exercise of these warrants, and the applicable
registration was declared effective on July 19, 1996.
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General Overview
Incorporated in 1988, Protein Polymer Technologies, Inc. has concentrated
its research and development efforts on establishing a scientific and technical
leadership position in the manufacture of unique protein-based materials. The
Company has identified biomedical market and product opportunities for further
research and development that management believes will exploit the unique
properties of the Company's technology to competitive advantage. The Company
has been unprofitable to date, and as of December 31, 1996 has an accumulated
deficit of $19,207,000.
The Company's medical product candidates for surgical repair and
regeneration of tissues are in various stages of research and development. Its
more advanced programs are in the areas of tissue adhesives and sealants, and
tissue augmentation, where the company is devoting over 90% of its scientific
effort currently. The Company's first commercial products, ProNectin F and
SmartPlastic, are used by biologists and cell culture laboratories, principally
to grow mammalian cells for biomedical research purposes.
In 1995 the Company entered into a collaborative relationship with Ethicon
regarding its tissue adhesives and sealants program. The Company's strategy
with most of its other programs is to enter into similar collaborative
development agreements with major medical product marketing and distribution
companies. Although these relationships may provide significant near-term
revenues through up-front licensing fees, research and development
reimbursements and milestone payments, the Company expects to incur continuing
operating losses for the next several years.
Results of Operations
Contract research revenue for the year ended December 31, 1996 was
$610,000, compared to $810,000 and $100,000 for 1995 and 1994, respectively.
During 1996 the Company received research and development reimbursements
totaling $600,000 from Ethicon related to the Company's tissue adhesives and
sealants program. In September 1995 the Company received a payment of $800,000
from Ethicon upon the signing of the various agreements related to the Company's
tissue adhesives and sealants program. The 1994 revenues were derived from
materials evaluation agreements entered into with divisions of J&J.
Interest income was $87,000 for the year ended December 31, 1996, as
compared to $59,000 for 1995 and $95,000 for 1994. The year-to-year variability
resulted from timing
15
<PAGE>
differences with regard to the receipt of equity capital and the amounts of
excess cash available for investment.
Product sales for the years ended December 31, 1996 were $58,000, compared
to $118,000 and $94,000 in 1995 and 1994, respectively. Product sales consist
of ProNectin F related product revenues and licensing fees. Sales in 1995
reflect the launch of the SmartPlastic line of ProNectin F Activated Cultureware
and the resultant distributor stocking orders. Additionally, during 1995 the
Company stopped promotional expenditures for these products.
Cost of sales was $47,000 for the year ended December 31, 1996, versus
$125,000 and $57,000 for the years 1995 and 1994, respectively. The 1996 and
1995 totals reflect certain inventory adjustments and reserves. Royalty expenses
paid to Stanford University and Telios Pharmaceuticals, Inc. aggregated $35,000
for each of the three years ended December 31, 1996, 1995 and 1994.
Research and development expenses for the year ended December 31, 1996 were
$2,021,000, compared to $1,722,000 in 1995, an increase of 17%. This increase in
1996 spending over 1995 was due to expanded activities, including the
establishment of a quality assurance department as part of the Company's efforts
to implement GLP. The 1995 expenses decreased 12% compared to $1,951,000
incurred in 1994. This decrease in 1995 spending versus 1994 resulted from the
continued focusing of the Company's research and development efforts, with fewer
programs sponsored and the consequent lowering of expenses incurred. The
Company expects its research and development expenses will increase in the
future due to the expansion of product directed research and development
efforts, an increased number of programs funded, laboratory upgrading and
expansion, and increased outside product testing.
Selling, general and administrative expenses for the year ended December
31, 1996 were $1,516,000, as compared to $1,329,000 for 1995, an increase of
14%. This increase in 1996 spending over 1995 was due to additional legal,
patent and risk insurance expenses, and increased investor relations activities.
The 1995 expenses decreased 12% compared to $1,512,000 incurred in 1994. This
decrease in 1995 spending versus 1994 was due to reduced product marketing,
legal and investor relations expenses. The Company expects its selling, general
and administrative expenses will increase in the future consistent with
supporting its research and development efforts and as business development,
patent and investor relations activities require.
For the year ended December 31, 1996, the Company recorded a net loss
applicable to common shareholders of $3,356,000, or $.51 per share, as compared
to $2,610,000, or $.45 per share for 1995, and $3,353,000, or $.58 per share for
1994. The 1996, 1995 and 1994 losses and per share calculations include
$492,000, $385,000 and $108,000, respectively, of accumulated and/or paid
dividends from the Company's Preferred Stock. The Company expects to incur
increasing operating losses for the next several years, to the extent additional
capital is raised, based upon the successful continuation of the tissue
adhesives program and the tissue augmentation program, as well as expected
increases in the Company's other research and development, manufacturing and
business development activities. The Company's results depend on its ability to
establish strategic alliances and generate contract revenues, increased
research, development and manufacturing efforts, preclinical and clinical
product testing and commercialization expenditures, expenses incurred for
regulatory compliance and patent prosecution, and other factors. The Company's
results will also fluctuate from period to period due to timing differences.
To date the Company believes that inflation and changing prices have not
had a material impact on its continuing operations. Effective January 1, 1994,
the Company adopted Statement No. 109, "Accounting for Income Taxes". There is
no current year or cumulative impact of the adoption of Statement No. 109.
Based upon Company earnings history, a valuation allowance of $7,363,000 is
required to reduce the Company's net deferred tax assets to the amount
realizable.
16
<PAGE>
Liquidity and Capital Resources
As of December 31, 1996, the Company had cash, cash equivalents and short-
term investments totaling $1,260,000, as compared to $2,011,000 at December 31,
1995. As of December 31, 1996, the Company had working capital of $840,000,
compared to $1,803,000 at December 31, 1995. These decreases in 1996 as
compared to 1995 were due to increased operating expenses, reduced revenues and
less equity capital raised. During the first week of January 1997 the Company
received $4,760,000 before expenses of approximately $160,000 from a private
placement of common stock to institutional and qualified individual investors.
Accounting on a pro forma basis as though this capital influx had occurred on
December 31, 1996, the Company's cash, cash equivalents and short-term
investments would have totaled $6,020,000, and working capital would have
increased to $5,600,000.
The Company had no long-term debt obligations as of December 31, 1996 and
December 31, 1995. For the twelve month period ending December 31, 1996 the
Company's expenditures for capital equipment and leasehold improvements totaled
$184,000, compared with $84,000 for the same period last year. The Company
anticipates that these expenditures will increase as laboratory renovations and
additional equipment are required to meet current GLP regulations and production
requirements. The Company currently has no equipment lease lines of credit,
although it may enter into such arrangements in the future if available at
appropriate rates and terms.
The Company believes its existing available cash, cash equivalents and
short-term investments, including the equity capital received during the first
week of January 1997, will be sufficient to meet its anticipated capital
requirements until mid 1998. Substantial additional capital resources will be
required to fund continuing expenditures related to the Company's research,
development, manufacturing and product marketing activities. The Company
believes there may be reasonable alternatives to meet the continuing financial
needs of its operations, such as additional collaborative agreements and public
or private financings, and is actively pursuing all available approaches.
However, there can be no assurance that the requisite fundings will be
consummated in the necessary time frame or on terms favorable to the Company.
If adequate funds are not available, the Company will be required to
significantly curtail its operating plans and may have to relinquish rights to
significant portions of the Company's technology or products.
17
<PAGE>
Item 7. Financial Statements
Filed herewith are the following Audited Financial Statements for Protein
Polymer Technologies, Inc. (a development stage company):
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Balance Sheets at December 31, 1996 and 1995................................ F-3
Statements of Operations for the years ended December 31, 1996, 1995
and 1994 and the period July 6, 1988 to December 31, 1996................ F-4
Statements of Stockholders Equity for the period July 6, 1988 (inception)
to December 31, 1996..................................................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994 and the period July 6, 1988 to December 31, 1996................ F-7
Notes to Financial Statements............................................... F-8
</TABLE>
F-1
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Stockholders
Protein Polymer Technologies, Inc.
We have audited the accompanying balance sheets of Protein Polymer
Technologies, Inc. (a Development Stage Company) as of December 31, 1996 and
1995, and the related statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1996 and for
the period July 6, 1988 (inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Protein Polymer
Technologies, Inc. (a Development Stage Company) at December 31, 1996 and 1995,
and the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996 and for the period July 6, 1988
(inception) to December 31, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
January 30, 1997
F-2
<PAGE>
Protein Polymer Technologies
(A Development Stage Company)
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) $ 267,357 $ 471,296
Short-term investments (Note 2) 993,042 1,540,000
Inventory, net 20,694 54,534
Other current assets 56,561 48,277
-------------------------------
Total current assets 1,337,654 2,114,107
Deposits 22,257 22,257
Deferred offering costs 17,356 --
Equipment and leasehold improvements,
net (Note 1) 369,314 302,795
-------------------------------
$ 1,746,581 $ 2,439,159
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 251,321 $ 157,971
Accrued employee benefits 117,612 101,284
Other accrued expenses 53,525 51,598
Deferred revenue 75,000 --
-------------------------------
Total current liabilities 497,458 310,853
Commitments (Note 4) -- --
Stockholders' equity (Note 3):
Series D convertible preferred stock,
$.01 par value, 71,600 shares
authorized, 49,187 shares issued and
outstanding at December 31, 1996
and 1995, respectively - liquidation
preference $4,918,700 4,764,745 4,764,745
Common stock, $.01 par value,
25,000,000 shares authorized,
7,233,228 and 5,832,925 shares
issued and outstanding at
December 31, 1996 and 1995,
respectively 72,333 58,330
Additional paid-in capital 15,619,282 13,648,036
Deficit accumulated during
development stage (19,207,237) (16,342,805)
-------------------------------
Total stockholders' equity 1,249,123 2,128,306
-------------------------------
$ 1,746,581 $ 2,439,159
===============================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 6, 1988
(INCEPTION) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Contract revenue (Note 5) $ 610,000 $ 810,000 $ 100,000 $ 3,845,455
Interest income 87,317 58,702 94,941 759,420
Product and other income 58,434 117,991 114,294 482,251
-------------------------------------------------------------
Total revenues 755,751 986,693 309,235 5,087,126
Expenses:
Cost of sales 47,364 124,824 56,843 249,380
Research and development 2,021,413 1,721,776 1,951,120 14,120,011
Selling, general and administrative 1,516,406 1,329,497 1,511,631 9,440,926
Royalties 35,000 35,000 35,000 230,171
-------------------------------------------------------------
Total expenses 3,620,183 3,211,097 3,554,594 24,040,488
-------------------------------------------------------------
Net loss (2,864,432) (2,224,404) (3,245,359) (18,953,362)
Undeclared and/or paid dividends on
preferred stock (491,867) (385,143) (108,000) (985,010)
-------------------------------------------------------------
Net loss applicable to common
shareholders $(3,356,299) $(2,609,547) $(3,353,359) $(19,938,372)
=============================================================
Net loss per common share $ (.51) $ (.45) $ (.58)
===========================================
Shares used in computing net loss per
common share 6,638,814 5,831,446 5,830,925
===========================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
For the period July 6, 1988 (inception) to December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock at
$.01 per share for cash 400,000 $ 4,000 -- $ --
Issuance of common stock at
$.62 per share for cash and
receivables 1,116,245 11,162 -- --
Receivables from sale of
common stock -- -- -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1988 1,516,245 15,162 -- --
Repayment of receivables
from sale of common stock -- -- -- --
Issuance of common stock at
$.62 per share 359,136 3,594 -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1989 1,875,381 18,756 -- --
Exercise of common stock
options at $.01 per share
for cash 60,000 600 -- --
Issuance of common stock at
$.68 per share for cash and
compensation 5,000 50 -- --
Common stock repurchased at
$.01 per share for cash (25,000) (250) -- --
Common stock issued at $.68
per share for cash and
compensation 25,000 250 -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1990 1,940,381 19,406 -- --
Exercise of common stock
options at $.68 per share
for cash 5,000 50 -- --
Exercise of warrants for
common stock 483,755 4,837 -- --
Conversion of notes payable
to common stock 339,230 3,391 -- --
Conversion of notes payable
to preferred stock -- -- 278,326 2,783
Issuance of preferred stock
at $2.00 per share for
cash, net of
issuance costs -- -- 400,000 4,000
Issuance of warrants for cash -- -- -- --
Issuance of warrants in
connection with convertible
notes payable -- -- -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1991 2,768,366 27,684 678,326 6,783
Initial public offering at
$6.50 per unit, net of
issuance costs 1,667,500 16,676 -- --
Conversion of Series B
preferred stock into common
stock in connection with
initial public offering 678,326 6,783 (678,326) (6,783)
Conversion of Series A
preferred stock into common
stock at 1.13342 per share 713,733 7,137 -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1992 5,827,925 58,280 -- --
Exercise of common
stock options at $.68
per share 3,000 30 -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1993 5,830,925 58,310 -- --
Issuance of preferred stock
at $100 per share for cash,
net of issuance costs -- -- 21,600 2,073,925
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1994 5,830,925 58,310 21,600 2,073,925
Issuance of preferred stock
at $100 per share for cash,
net of issuance costs -- -- 25,000 2,432,150
Series C dividends paid in
Series D preferred stock -- -- 2,539 253,875
Interest paid in Series D
stock -- -- 48 4,795
Exercise of common stock
options at $.53 per share 2,000 20 -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1995 5,832,925 58,330 49,187 4,764,745
<CAPTION>
DEFICIT
ACCUMULATED
DURING RECEIVABLES FROM
ADDITIONAL DEVELOPMENT SALE OF COMMON TOTAL STOCKHOLDERS'
PAID-IN CAPITAL STAGE STOCK EQUITY
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issuance of common stock at
$.01 per share for cash $ -- $ -- $ -- $ 4,000
Issuance of common stock at
$.62 per share for cash and
receivables 681,838 -- -- 693,000
Receivables from sale of
common stock -- -- (86,000) (86,000)
Net loss -- (322,702) -- (322,702)
------------------------------------------------------------------
Balance at December 31, 1988 681,838 (322,702) (86,000) 288,298
Repayment of receivables
from sale of common stock -- -- 86,000 86,000
Issuance of common stock at
$.62 per share 219,358 -- -- 222,952
Net loss -- (925,080) -- (925,080)
------------------------------------------------------------------
Balance at December 31, 1989 901,196 (1,247,782) -- (327,830)
Exercise of common stock
options at $.01 per share
for cash -- -- -- 600
Issuance of common stock at
$.68 per share for cash and
compensation 3,350 -- -- 3,400
Common stock repurchased at
$.01 per share for cash -- -- -- (250)
Common stock issued at $.68
per share for cash and
compensation 16,750 -- -- 17,000
Net loss -- (1,501,171) -- (1,501,171)
------------------------------------------------------------------
Balance at December 31, 1990 921,296 (2,748,953) -- (1,808,251)
Exercise of common stock
options at $.68 per share
for cash 3,350 -- -- 3,400
Exercise of warrants for
common stock 295,493 -- -- 300,330
Conversion of notes payable
to common stock 508,414 -- -- 511,805
Conversion of notes payable
to preferred stock 553,869 -- -- 556,652
Issuance of preferred stock
at $2.00 per share for
cash, net of issuance costs 703,475 -- -- 703,475
Issuance of warrants for cash 3,000 -- -- 3,000
Issuance of warrants in
connection with convertible
notes payable 28,000 -- -- 28,000
Net loss -- (1,143,119) -- (1,143,119)
------------------------------------------------------------------
Balance at December 31, 1991 3,016,897 (3,892,072) -- (840,708)
Initial public offering at
$6.50 per unit, net of
issuance costs 8,911,024 -- -- 8,927,700
Conversion of Series B
preferred stock into common
stock in connection with
initial public offering -- -- -- --
Conversion of Series A
preferred stock into common
stock at 1.13342 per share 1,717,065 -- -- 1,724,202
Net loss -- (3,481,659) -- (3,481,659)
------------------------------------------------------------------
Balance at December 31, 1992 13,644,986 (7,373,731) -- 6,329,535
Exercise of common
stock options at $.68
per share 2,010 -- -- 2,040
Net loss -- (3,245,436) -- (3,245,436)
------------------------------------------------------------------
Balance at December 31, 1993 13,646,996 (10,619,167) -- 3,086,139
Issuance of preferred stock
at $100 per share for cash,
net of issuance costs -- -- -- 2,073,925
Net loss -- (3,245,359) -- (3,245,359)
------------------------------------------------------------------
Balance at December 31, 1994 13,646,996 (13,864,526) -- 1,914,705
Issuance of preferred stock
at $100 per share for cash,
net of issuance costs -- -- -- 2,432,150
Series C dividends paid in
Series D preferred stock -- (253,875) -- --
Interest paid in Series D
stock -- -- -- 4,795
Exercise of common stock
options at $.53 per share 1,040 -- -- 1,060
Net loss -- (2,224,404) -- (2,224,404)
------------------------------------------------------------------
Balance at December 31, 1995 13,648,036 (16,342,805) -- 2,128,306
</TABLE>
F-5
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity
For the period July 6, 1988 (inception) to December 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
----------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Exercise of common stock
warrants at $1.25 per share 932,960 $ 9,330 -- $ --
Exercise of common stock
warrants at $2.50 per
share, net of issuance costs
of $25,020 322,663 3,226 -- --
Exercise of common stock
warrants at $1.00 per share 25,000 250 -- --
Exercise of common stock
options 136,000 1,360 -- --
Stock repurchases (16,320) (163) -- --
Net loss -- -- -- --
----------------------------------------------------------------
Balance at December 31, 1996 7,233,228 $ 72,333 49,187 $ 4,764,745
================================================================
<CAPTION>
DEFICIT
ACCUMULATED
DURING RECEIVABLES FROM
ADDITIONAL DEVELOPMENT SALE OF COMMON TOTAL STOCKHOLDERS'
PAID-IN CAPITAL STAGE STOCK EQUITY
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exercise of common stock
warrants at $1.25 per share $ 1,156,870 $ -- $ -- $ 1,166,200
Exercise of common stock
warrants at $2.50 per
share, net of issuance costs
of $25,020 779,413 -- -- 782,639
Exercise of common stock 24,750 -- -- 25,000
warrants at $1.00 per share
Exercise of common stock 91,650 -- -- 93,010
options
Stock repurchases (81,437) -- -- (81,600)
Net loss -- (2,864,432) -- (2,864,432)
------------------------------------------------------------------
Balance at December 31, 1996 $15,619,282 $(19,207,237) $ -- $ 1,249,123
===================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 6, 1988
(INCEPTION) TO
YEARS ENDED DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,864,432) $ (2,224,404) $ (3,245,359) $(18,953,362)
Adjustments to reconcile net loss to
net cash used for operating activities:
Stock issued for
compensation -- -- -- 20,100
Stock issued for interest -- 4,795 -- 4,795
Increase in inventory
reserve 20,717 50,805 -- 71,522
Depreciation and
amortization 117,203 138,866 171,588 1,075,419
Write-off of purchased
technology -- -- -- 503,500
Changes in assets and
liabilities:
Inventory 13,123 (63,173) (36,006) (92,216)
Deposits -- 6,300 (6,300) (22,257)
Other current assets (8,284) (8,770) (3,061) (56,561)
Accounts payable 93,350 (75,189) 82,052 251,321
Accrued employee
benefits 16,328 21,977 18,361 117,612
Other accrued
expenses 1,927 (32,320) 56,661 53,525
Deferred revenue 75,000 (5,000) 834 75,000
----------------------------------------------------------------
Net cash used for operating
activities (2,535,068) (2,186,113) (2,961,230) (16,951,602)
INVESTING ACTIVITIES
Purchase of technology -- -- -- (570,000)
Purchase of equipment and improvements (183,722) (84,192) (209,320) (1,291,476)
Short-term investments 546,958 (1,052,972) 1,011,575 (993,042)
----------------------------------------------------------------
Net cash provided by (used for)
investing activities 363,236 (1,137,164) 802,255 (2,854,518)
FINANCING ACTIVITIES
Net proceeds from issuance of warrants
and sale of common stock 1,985,249 1,060 -- 11,843,051
Net proceeds from issuance and
conversion of preferred stock -- 2,432,150 2,073,925 6,937,752
Proceeds from convertible notes and
detachable warrants -- -- -- 1,068,457
Payment on note payable -- -- -- (92,750)
Proceeds from note payable -- -- -- 334,323
Deferred offering costs (17,356) -- -- (17,356)
----------------------------------------------------------------
Net cash provided by financing
activities 1,967,893 2,433,210 2,073,925 20,073,477
Net increase (decrease) in cash and
cash equivalents (203,939) (890,067) (85,050) 267,357
Cash and cash equivalents at beginning
of the period 471,296 1,361,363 1,446,413 --
----------------------------------------------------------------
Cash and cash equivalents at end of the
period $ 267,357 $ 471,296 $ 1,361,363 $ 267,357
================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Interest paid $ -- $ -- $ -- $ 63,473
Series D stock issued for Series C stock $ -- $ 2,073,925 $ -- $ 2,073,925
Series C dividends paid with Series D
stock $ -- $ 253,875 $ -- $ 253,875
================================================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITIES
Protein Polymer Technologies, Inc. (the "Company") was incorporated in Delaware
on July 6, 1988. The Company was established for the purpose of designing,
producing and marketing genetically engineered protein polymers for a variety of
biomedical and specialty materials applications. For the period from its
inception to date, the Company has been a development stage enterprise, and
accordingly, the Company's operations have been directed primarily toward
developing business strategies, raising capital, exploring marketing channels,
recruiting personnel, and research and development activities.
LIQUIDITY
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. In January 1997 the Company received
$4.76 million, before expenses of approximately $160,000, from a private
placement of common stock to certain qualified institutions and individuals (see
Note 8. Subsequent Event, below). The Company believes that these funds,
combined with its cash, cash equivalents and short-term investments of $1.26
million as of December 31, 1996, and anticipated contract revenues and interest
income, will be sufficient to meet its anticipated capital requirements until
mid 1998. Substantial additional capital resources will be required to fund
continuing expenditures related to the Company's research, development and
product marketing activities.
NET LOSS PER COMMON SHARE
Net loss per common share is computed using the weighted average number of
common shares outstanding during the period as adjusted for the effects of
certain rules of the Securities and Exchange Commission for the period prior to
the Company's initial public offering. For purposes of this calculation, net
loss in 1996 and 1995 have been adjusted for cumulative dividends on the Series
C and D Preferred Stock.
RESEARCH AND DEVELOPMENT REVENUES AND EXPENSES
Research and development contract revenues are recorded as earned based on the
performance requirements of the contracts. Payments received in advance of
amounts earned are recorded as deferred revenue. Research and development costs
are expensed as incurred.
PRODUCT REVENUE RECOGNITION
Revenue from product sales are recognized when orders are shipped.
F-8
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the amount of revenue and expense reported during the period. Actual results
could differ from those estimates.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Short-term investments consist primarily of commercial paper, notes and short-
term U.S. Government securities with original maturities beyond three months and
are stated at estimated fair value. Similar items with original maturities of
three months or less are considered cash equivalents. The Company has
established guidelines relative to diversification and maturities that maintain
safety and liquidity. The Company has not experienced any losses on its short-
term investments.
INVENTORY
Inventory is stated at the lower of cost (first-in, first-out method) or market.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are stated at cost. Equipment is
depreciated over the estimated useful life of the asset, typically one to seven
years, using the straight-line method.
Leasehold improvements are amortized over the shorter of the lease term or life
of the asset. Equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
-----------------------
<S> <C> <C>
Laboratory equipment $1,079,945 $ 917,080
Office equipment 131,801 128,440
Leasehold improvements 79,730 62,234
-----------------------
1,291,476 1,107,754
Less accumulated depreciation and amortization 922,162 804,959
-----------------------
$ 369,314 $ 302,795
=======================
</TABLE>
F-9
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
2. INVESTMENTS
The following is a summary of the estimated fair value of available-for-sale
securities by balance sheet classification:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------------------
<S> <C> <C>
Cash and cash equivalents:
Commercial paper $250,000 $ -
Money market funds 17,357 471,296
----------------------
$267,357 $ 471,296
======================
Short-term investments:
Commercial paper $908,042 $1,200,000
U.S. Treasury obligations 85,000 340,000
----------------------
$993,042 $1,540,000
======================
</TABLE>
All of the available-for-sale securities are due in one year or less.
The estimated fair value of each investment approximates the amortized cost, and
therefore, there are no unrealized gains or losses as of December 31, 1996.
3. STOCKHOLDERS' EQUITY
SERIES D PREFERRED STOCK
During 1995 a total of 49,187 shares of Series D Stock were issued, including
the exchange of Series C Stock for Series D Stock (see "Series C Preferred
Stock" below). Each share of Series D Stock earns a cumulative dividend at the
annual rate of $10 per share payable as and when declared by the Company in the
form of cash, common stock or any combination thereof. The Series D Stock is
convertible into common stock after two years at the stockholder's option. The
conversion price at the time of conversion is the lesser of $3.75 or the market
price. The Series D Stock is redeemable at the Company's option after four
years. Automatic conversion of all of the Series D Stock will occur if: (a)
the Company completes a public offering of common stock at a price of $2.50 or
higher; or (b) a majority of stockholders decide to convert their stock. The
Company has the option to demand conversion of the Series D Stock if the average
market price of its common stock equals or exceeds $5.00 per share over a period
of twenty business days. The Series D Stock has a liquidation preference value
of $100.00 per share.
F-10
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. STOCKHOLDERS' EQUITY (CONTINUED)
In addition, the Series D stockholders received warrants to purchase, at an
exercise price of $1.25 per share, twenty shares of the Company's common stock
for each share of Series D Stock acquired. Warrants to acquire a total of
500,960 shares of common stock were issued. All of the warrants have been
exercised during 1996.
The Series D stockholders were granted certain registration rights relating to
their shares of common stock issuable upon conversion of the Series D Stock or
upon exercise of their warrants.
SERIES C PREFERRED STOCK
In July 1994 the Company received $2,160,000 from the sale of 21,600 shares of
unregistered Series C Convertible Preferred Stock ("Series C Stock") to JJDC and
certain investors. The terms of the sale were similar to those of the Company's
Series D Stock.
At the time of the sale of the Series D Stock, JJDC and these investors
exchanged 21,600 shares of Series C Stock, plus accumulated dividends, for
24,139 shares of Series D Stock. There are currently no remaining shares of
Series C Stock outstanding.
In connection with the Series C offering, warrants were also issued to acquire a
total of 432,000 shares of the Company's common stock at an exercise price of
$1.25 per share. All of the warrants have been exercised during 1996.
STOCK OPTION PLANS
The Company has elected to follow APB 25 and related accounting Interpretations.
Under APB 25 whenever the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant no
compensation expense is recognized. The effects of using the fair value
accounting method, as described in FASB Statement No. 123, "Accounting for
Stock-Based Compensation", are described below under its own subheading to Note
3.
The Company adopted the 1989 Stock Option Plan which provides for the issuance
of incentive and non-statutory stock options for the purchase of up to 500,000
shares of common stock to key employees and certain other individuals. The
options will expire ten years from their respective dates of grant. Options
become exercisable ratably over periods of up to five years from the date of
grant. At December 31, 1996, options for 310,500 shares were exercisable, and
179,500 shares were available for future grant.
F-11
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. STOCKHOLDERS' EQUITY (CONTINUED)
The Company adopted the 1992 Stock Option Plan which provides for the issuance
of incentive and non-statutory stock options for the purchase of up to 1,000,000
shares of common stock to its key employees and certain other individuals. The
options will expire ten years from their respective dates of grant. Options
become exercisable ratably over periods of up to five years from the dates of
grant. At December 31, 1996, options for 93,500 shares were exercisable, and
279,000 shares were available for future grant.
Since inception, the Company has granted non-qualified options outside the Plan
to purchase a total of 525,100 shares of common stock (net of options cancelled)
to employees, directors and consultants of the Company. At December 31, 1996,
options for 293,100 shares were exercisable.
In June 1996 the Company adopted the 1996 Non-Employee Directors Stock Option
Plan ("Plan"), which provides for the granting of nonqualified options to
purchase up to 250,000 shares of common stock to directors of the Company. Such
grants shall be awarded automatically on the first business day of June during
each calendar year to every Participating Director then in office, and consist
of 5,000 shares of common stock, subject to certain adjustments. No
Participating Director shall receive more than one grant per year. The purchase
price of each option shall be the fair market value of the common stock on the
date of grant. Each option has a duration of ten years, and is exercisable six
months after the grant date. The Board (or a designated committee of the Board)
shall administer the Plan. On June 3, 1996, an initial grant of 35,000 shares
was made to all non-employee directors then eligible.
In September 1996 the Board of Directors approved, subject to stockholder
approval at the 1997 Annual Meeting of Stockholders, the Protein Polymer
Technologies, Inc. Employee Stock Purchase Plan ("Plan"). The Plan commences
January 2, 1997, and allows for offering periods of up to two years with
quarterly purchase dates occurring the last business day of each quarter. The
purchase price per share is generally calculated at 85% of the lower of the fair
market value on an eligible employee's entry date or the quarterly purchase
date. The maximum number of shares available for issuance under the Plan is
500,000; an eligible employee may purchase up to 5,000 shares per quarter. The
Plan Administrator consists of a committee of at least two non-employee
directors of the Company. The Board may modify the Plan at any time.
In November 1993 the Company repriced a total of 272,500 outstanding stock
options to $1.00 per share, the then current fair market value.
F-12
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------- ----------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year 1,064,600 $ 0.90 910,600 $ 0.91 885,600 $ 1.40
Granted 465,000 $ 2.27 183,500 $ 0.86 90,000 $ 0.82
Exercised (136,000) $(0.68) (2,000) $(0.53) -- --
Forfeited -- -- (27,500) $(0.93) (65,000) $(0.96)
--------- ------ --------- ------ ------- ------
Outstanding - end of year 1,393,600 $ 1.38 1,064,600 $ 0.90 910,600 $ 0.91
========= ====== ========= ====== ======= ======
Exercisable - end of year 732,100 $ 1.08 714,500 $ 0.87 612,880 $ 0.84
========= ====== ========= ====== ======= ======
</TABLE>
The exercise prices for options outstanding as of December 31, 1996 range from
$0.53 to $3.75. The weighted average remaining contractual life of these
options is approximately 6.5 years.
STATEMENT 123 PRO FORMA INFORMATION
Pro forma information regarding net income and net income per share is required
by Statement 123. This information has been calculated as if the Company has
accounted for its stock options granted under the fair value method as described
in this Statement, using the Black-Scholes option pricing model. The following
were the weighted average assumptions used for 1996 and 1995: risk-free interest
rates of 5.6% to 7.1% for 1996 and 5.7% to 7.7% for 1995; a volatility factor of
the expected market price of the Company's common stock of 110%; expected option
lives of 7.9 years; and dividend yields of 0% for both years.
The Black-Scholes option valuation model was originally developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-13
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
3. STOCKHOLDERS' EQUITY (CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the expected life of the options. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net loss as reported $(3,356,299) $(2,609,547)
Net loss per share as reported $ (0.51) $ (0.45)
Net loss pro forma $(3,492,030) $(2,632,144)
Net loss per share pro forma (0.53) $ (0.45)
Weighted average fair value per share
of options granted during the year $ 2.06 $ 0.84
</TABLE>
The pro forma effect on net loss for 1996 and 1995 is not representative of the
pro forma effect on net loss in future years because it does not take into
consideration pro forma compensation expense from option grants made prior to
1995.
COMMON STOCK WARRANTS
As a result of the Company's initial public offering, unit holders were granted
redeemable warrants for 1,667,500 shares of common stock, which are exercisable
at $8.00 per share until January 21, 1997, and are redeemable at the option of
the Company at a redemption price of $.10 at any time after January 21, 1993,
based on the price of the common stock and other requirements. In November 1996
the Company extended the expiration date of these warrants one year, to January
21, 1998. The underwriter was granted warrants to purchase 145,000 units at
$8.06 per unit, subject to certain antidilution adjustments.
At December 31, 1996, including the unit and underwriter warrants, there were
outstanding warrants to purchase a total of 2,007,500 shares of common stock at
a weighted average exercise price of $7.95 per share. All of these warrants
were exercisable at December 31, 1996, and as of January 21, 1997 the
underwriter warrants expired.
4. COMMITMENTS
The Company leases its office and research facilities under two operating leases
that expire in December 1998. During 1996 the Company leased additional
laboratory space.
F-14
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
4. COMMITMENTS (CONTINUED)
Future minimum payments under operating leases as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $412,200
1998 412,200
--------
$824,400
========
</TABLE>
Rent expense was approximately $320,000, $306,000, $300,000 and $2,366,000 for
the years ended December 31, 1996, 1995 and 1994 and for the period July 6, 1988
(inception) through December 31, 1996, respectively.
5. RESEARCH AND DEVELOPMENT CONTRACTS AND ROYALTIES
On September 14, 1995, the Company signed supply, licensing and development
agreements with Ethicon, Inc., a subsidiary of the Johnson & Johnson Company,
whose affiliate is a preferred stockholder, related to the Company's tissue
adhesives and sealants program. The licensing and development agreement calls
for Ethicon to make licensing, milestone and contract revenue payments TO THE
COMPANY AS CERTAIN SCIENTIFIC PROGRESS IS ACHIEVED. SUCH PAYMENTS COULD TOTAL
ALMOST $11 MILLION OVER THE NEXT SEVERAL YEARS IF ALL MILESTONES ARE MET. IN
1996 AND 1995, THE COMPANY RECOGNIZED $600,000 AND $800,000 OF REVENUE
RESPECTIVELY, RELATED TO THESE AGREEMENTS. IN DECEMBER 1996 ETHICON EXTENDED
THE RESEARCH PHASE OF THESE AGREEMENTS FOR ONE YEAR, UNTIL DECEMBER 1997, AND
WILL PAY THE COMPANY $75,000 EVERY THREE MONTHS FOR ONE YEAR IN ADVANCE OF THE
RESEARCH WORK TO BE PERFORMED. THE COMPANY RECEIVED ITS FIRST INSTALLMENT IN
DECEMBER 1996, AND CLASSIFIED IT AS DEFERRED REVENUE.
In 1994 the Company entered into agreements with subsidiaries of the Johnson &
Johnson Company. These agreements concluded in the first quarter of 1995.
Total contract revenue recognized from these agreements was $100,000 for the
year ended December 31, 1994.
Under an agreement completed in October 1991 with Telios Pharmaceuticals, Inc.,
("Telios"), now a wholly-owned subsidiary of Integra Life Sciences Corp., Telios
granted the Company a worldwide, exclusive sublicense to use Telios patent
rights to develop and sell protein polymers containing RGD amino acid sequence
in two or more polymer segments for the purpose of in vitro cell culture. In
exchange for this sublicense, the Company has agreed to pay Telios royalties on
net revenues derived by the Company from its sales of RGD containing polymers at
a rate equal to 5% of net revenues, until such net revenues reach $500,000, and
3.5% of net revenues in excess of $500,000. There is a required minimum royalty
payment by the Company of $25,000 per year.
F-15
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
5. RESEARCH AND DEVELOPMENT CONTRACTS AND ROYALTIES (CONTINUED)
In 1992 Stanford University granted the Company a non-exclusive, non-
transferable right to use their recombinant DNA technology patents to develop
and sell protein polymers. In exchange for this license, the Company has agreed
to pay royalties on products sold employing this technology ranging from 1/2% to
10%, depending on the product. There is a required minimum royalty payment by
the Company of $10,000 per year.
6. INCOME TAXES
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $17,090,000 for federal income tax purposes, which may be applied
against future income, if any, and will begin expiring in 2004 unless previously
utilized. In addition, the Company has California net operating loss
carryforwards of approximately $7,891,000 for California tax purposes which have
begun expiring in 1996. The difference between the tax loss carryforwards for
federal and California purposes is attributable to the capitalization of
research and development expenses for California tax purposes and a required 50%
limitation in the utilization of California loss carryforwards.
The Company also has federal and California research and development tax credit
carryforwards of approximately $496,000 and $200,000, respectively, which will
begin expiring in 2004 unless previously utilized.
Because of the ownership change that occurred in January 1992 as a result of the
Company's initial public offering, approximately $2,700,000 of the Company's
federal net operating loss carryforwards will be subject to an annual limitation
regarding utilization against taxable income in future periods. However, the
Company believes that such limitations will not have a material impact upon the
utilization of the carryforwards.
Significant components of the Company's deferred tax assets as of December 31,
1996 are shown below. A valuation allowance of $7,363,000 has been recognized
to offset the deferred tax assets as realization of such assets is uncertain.
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 6,455,000 $ 5,343,000
Research and development credits 626,000 597,000
Other 282,000 445,000
----------- -----------
Total deferred tax assets 7,363,000 6,385,000
Valuation allowance for deferred tax assets (7,363,000) (6,385,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
F-16
<PAGE>
Protein Polymer Technologies, Inc.
(A Development Stage Company)
Notes to Financial Statements (continued)
7. EMPLOYEE BENEFITS PLAN
On January 1, 1993, the Company established a 401(k) Savings Plan for
substantially all employees who meet certain service and age requirements.
Participants may elect to defer up to 20% of their compensation per year. Each
year the Company may provide a discretionary matching contribution. As of
December 31, 1996, the Company had not made a contribution to the Savings Plan.
8. SUBSEQUENT EVENT
During the first week of January 1997 the Company received $4.76 million, less
estimated expenses of approximately $160,000, from a private placement of the
Company's common stock with a number of institutional and qualified individual
investors, consisting of 1,904,000 shares at $2.50 per share. The Company
agreed to register the shares with the Securities and Exchange Commission
promptly after the closing. The registration was declared effective on January
24, 1997.
F-17
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Items 9, 10, 11 and 12 are incorporated by reference from the Company's
definitive Proxy Statement to be filed by the Company with the Commission no
later than April 30, 1997.
Item 13. Exhibits, Financial Statements and Reports on Form 8-K
(a)(1) and (2) Financial Statements and Schedules
The Financial Statements are incorporated herein as a part of Item 7.
(a)(3) Exhibits
The following documents are included or incorporated by reference:
Exhibit
Number Description
------ -----------
3.1 (6) Certificate of Incorporation of the Company, as amended.
3.2 (6) Bylaws of the Company, as amended.
4.1 (4) Warrant Agreement, dated January 21, 1992, between the
Company
and Continental Stock Transfer and Trust Company.
4.2 (1) Revised Form of Redeemable Warrant.
10.1 (2) Lease, with exhibits, dated October 16, 1991, between the
Company and Sycamore/San Diego Investors, together with an
amendment thereto dated April 21, 1992.
10.2 (3) Amendment to lease, between the Company and Sycamore/San
Diego Investors, dated June 22, 1992.
10.3 (1) Sublicense Agreement for RGD-Containing Engineered Protein
Polymers, with exhibit attached, dated October 1, 1991,
between the Company and Telios Pharmaceuticals, Inc.
10.4 (1) 1989 Stock Option Plan, together with forms of Incentive
Stock Option Agreement and Nonstatutory Option Agreement.
10.5 (4) 1992 Stock Option Plan of the Company, together with forms
of Incentive Stock Option Agreement and Nonstatutory Option
Agreement.
18
<PAGE>
10.6 (1) Form of Employee's Proprietary Information and Inventions
Agreement.
10.7 (1) Form of Consulting Agreement.
10.8 (1) Form of Indemnification Agreement.
10.9 (4) License Agreement, dated as of April 15, 1992, between the
Board of Trustees of the Leland Stanford Junior University
and the Company.
10.10 (5) Replacement ProNectin F License Agreement between Cellco,
Inc. and the Company, dated February 15, 1995.
10.11 (6) License and Development Agreement between the Company and
Ethicon, Inc., dated September 14, 1995.
10.12 (6) Supply Agreement between the Company and Ethicon, Inc.,
dated September 14, 1995.
10.13 (6) Escrow Agreement between Protein Polymer Technologies, Inc.
and Ethicon, Inc., dated September 14, 1995.
10.14 (6) Amended and Restated Registration Rights Agreement dated
September 14, 1995 among the Company and the holders of its
Series D Preferred Stock.
10.15 (6) Securities Purchase Agreement related to the sale of the
Company's Series D Preferred Stock.
10.16 (6) Form of Warrant to Purchase Common Stock issued in
connection with the Series D Preferred Stock.
10.17 (7) Letter Agreement dated as of October 4, 1996 between the
Company and MBF I, LLC ("MBF") relating to the provision of
consulting and advisory services.
10.18 (7) Form of Warrant with respect to a warrant for 50,000 shares
issued to MBF, and to be used with respect to additional
warrants which may be issued to MBF.
10.19 (7) Registration Rights Agreement dated as of October 4, 1996
between the Company and MBF.
10.20 (7) Letter Agreement dated December 9, 1996 between the Company
and Ethicon, Inc. with respect to an extension of the
License and Development Agreement between them dated
September 14, 1995.
10.21 (7) Securities Purchase Agreement dated as of January 6, 1997
among the Company and the investors named therein relating
to the sale and purchase of 1,904,000 shares of the
Company's common stock.
10.22 Lease, with exhibits, dated March 1, 1996 between the
Company and Sycamore/San Diego Investors.
19
<PAGE>
10.23 Second Amendment to Lease between the Company and
Sycamore/San Diego Investors, dated March 1, 1996.
10.24 1996 Non-Employee Directors' Stock Option Plan.
10.25 Employment Agreement, dated as of November 1, 1996, between
the Company and J. Thomas Parmeter.
10.26 Employment Agreement, dated as of November 1, 1996, between
the Company and John E. Flowers.
10.27 Employment Agreement, dated as of November 1, 1996, between
the Company and Joseph Cappello.
10.28 Employment Agreement, dated as of November 1, 1996, between
the Company and Franco A. Ferrari.
10.29 Employment Agreement, dated as of November 1, 1996, between
the Company and Erwin R. Stedronsky.
10.30 Employment Agreement, dated as of November 1, 1996, between
the Company and Aron P. Stern.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
27 Financial Data Schedule
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 (No. 33-43875) filed with the Commission on November 12, 1991, as
amended by Amendments Nos. 1, 2, 3 and 4 thereto filed on November 25,
1991, December 23, 1991, January 17, 1992 and January 21, 1992,
respectively.
(2) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended March 31, 1992, as filed with the Commission on May 14,
1992.
(3) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1992, as filed with the Commission on
November 13, 1992.
(4) Incorporated by reference to Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1992, as filed with the Commission on
March 31, 1993.
(5) Incorporated by reference to Registrant's Report on Form 10-KSB for the
fiscal year ended December 31, 1994, as filed with the Commission on
March 30, 1995.
(6) Incorporated by reference to Registrant's Report on Form 10-Q for the
quarter ended September 30, 1995, as filed with the Commission on October
24, 1995.
(7) Incorporated by reference to Registrant's current Report on Form 8-K, as
filed with the Commission on January 7, 1997.
(b) Reports on Form 8-K.
None.
20
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PROTEIN POLYMER TECHNOLOGIES, INC.
March 17, 1997 By /S/ J. THOMAS PARMETER
-----------------------
J. Thomas Parmeter
Chairman of the Board, Chief
Executive Officer, President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
- --------- -------- ----
<S> <C> <C>
/S/ J. THOMAS PARMETER Chairman of the Board, Chief March 17, 1997
- ----------------------- Executive Officer, President
J. Thomas Parmeter
/S/ ARON P. STERN Vice President, Chief Financial March 17, 1997
- ------------------ Officer (Principal Accounting
Aron P. Stern Officer)
/S/ EDWARD E. DAVID Director March 17, 1997
- --------------------
Edward E. David
/S/ PHILIP J. DAVIS Director March 17, 1997
- --------------------
Philip J. Davis
/S/ EDWARD J. HARTNETT Director March 17, 1997
- -----------------------
Edward J. Hartnett
/S/ BRENT R. NICKLAS Director March 17, 1997
- ---------------------
Brent R. Nicklas
/S/ BERTRAM I. ROWLAND Director March 17, 1997
- -----------------------
Bertram I. Rowland
/S/ RUSSELL T. STERN Director March 17, 1997
- ---------------------
Russell T. Stern
/S/ GEORGE R. WALKER Director March 17, 1997
- ---------------------
George R. Walker
</TABLE>
21
<PAGE>
Exhibit 10.22
TABLE OF CONTENTS Protein Polymer Technologies
Suite 200 8586 SF
Bldg 1 10665 Sorrento Valley Rd
MULTI-TENANT OFFICE R & D BUILDING LEASE - MODIFIED GROSS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Article 1 LEASE OF PREMISES............................................. 1
Article 2 DEFINITIONS................................................... 1
Article 3 EXHIBITS AND ADDENDA.......................................... 2
Article 4 DELIVERY OF POSSESSION........................................ 2
Article 5 RENT.......................................................... 2
Article 6 INTEREST AND LATE CHARGES..................................... 4
Article 7 SECURITY DEPOSIT.............................................. 4
Article 8 TENANT'S USE OF THE PREMISES.................................. 5
Article 9 SERVICES AND UTILITIES........................................ 5
Article 10 CONDITION OF THE PREMISES..................................... 6
Article 11 CONSTRUCTION, REPAIRS AND MAINTENANCE......................... 6
Article 12 ALTERATIONS AND ADDITIONS..................................... 6
Article 13 LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY..................... 7
Article 14 RULES AND REGULATIONS......................................... 7
Article 15 CERTAIN RIGHTS RESERVED BY LANDLORD........................... 7
Article 16 ASSIGNMENT AND SUBLETTING..................................... 7
Article 17 HOLDING OVER.................................................. 8
Article 18 SURRENDER OF PREMISES......................................... 8
Article 19 DESTRUCTION OR DAMAGE......................................... 8
Article 20 EMINENT DOMAIN................................................ 9
Article 21 INDEMNIFICATION............................................... 9
Article 22 TENANT'S INSURANCE............................................ 10
Article 23 WAIVER OF SUBROGATION......................................... 10
Article 24 SUBORDINATION AND ATTORNMENT.................................. 10
Article 25 TENANT ESTOPPEL CERTIFICATES.................................. 10
Article 26 TRANSFER OF LANDLORD'S INTEREST............................... 11
Article 27 DEFAULT....................................................... 11
Article 28 BROKERAGE FEES................................................ 12
Article 29 NOTICES....................................................... 12
Article 30 GOVERNMENT ENERGY OR UTILITY CONTROLS......................... 12
Article 31 RELOCATION OF PREMISES........................................ 12
Article 32 QUIET ENJOYMENT............................................... 13
Article 33 OBSERVANCE OF LAW............................................. 13
Article 34 FORCE MAJEURE................................................. 13
Article 35 CURING TENANT'S DEFAULTS...................................... 13
Article 36 SIGN CONTROL.................................................. 13
Article 37 MISCELLANEOUS................................................. 13
</TABLE>
Addendum Quality of Construction; Landlord's Representations; Audit
Provision Oper Exp Exclusions; Abatement of Rent/Casualty; Limit
on Tenant's Indemnity; Landlord's Reciprocal Indemnity; Rules &
Regs Changes; NonDisturbance Agreements; Real Prop Tax Limit;
Landlord's Estoppel; Option to Renew; Services, Utils & Cost
Proration; Alterations & Additions; Damage & Destruction; Adj Base
Rent; Temp Premises; Landlord's Common Area Improvements
<PAGE>
<TABLE>
MULTI-TENANT OFFICE R & D BUILDING LEASE - MODIFIED GROSS
This Lease between Sycamore/San Diego Investors
---------------------------------------------------------------------------------------------------------------
an Illinois Limited Partnership
-----------------------------------------------------------------------------------------------------------------------------
("Landlord"), and Protein Polymer Technologies, INC.
----------------------------------------------------------------------------------------------------------------
a Delaware Corporation ("Tenant"), is
------------------------------------------------------------------------------------------------------------------
dated March 1, 1996
-----------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. LEASE OF PREMISES.
In consideration of the Rent (as defined at Section 5.4) and the provisions of this Lease, Landlord leases to Tenant and Tenant
leases from Landlord the Premises shown by diagonal lines on the floor plan attached hereto as Exhibit "A," and further described at
Section 2l. The Premises are located within the Building and Project described in Section 2m. Tenant shall have the non-exclusive
right (unless otherwise provided herein) in common with Landlord, other tenants, subtenants and invitees, to use of the Common
Areas (as defined at Section 2e.)
2. DEFINITIONS.
As used in this Lease, the following terms shall have the following meanings:
a. Base Rent: $167,736.00 One Hundred Sixty Seven Thousand Seven Hundred Thirty Six $ no/00 per year.
----------------------------------------------------------------------------------------------------------
b. Base Year: The calendar year of 1997
---------------------------------------------------------------------------------------------
c. Broker(s) and Sales Agent(s): Thomas M. Crowley
---------------------------------------------------------------------------------------------------
d. Commencement Date: January 1, 1997
-------------------------------------------------------------------------------------------------------------
e. Common Areas: the building lobbies, common corridors and hallways, restrooms, garage and parking areas, stairways, elevators and
other generally understood public or common areas. Landlord shall have the right to regulate or reasonably restrict the use of
the Common Areas.
f. Expense Stop: (fill in if applicable): $ N/A
-------------------------------------------------------------------------------------
g. Expiration Date: December 31, 1998 , unless otherwise
------------------------------------------------------------------------------------------
sooner terminated in accordance with the provisions of this Lease.
h. Index (Section 5.2): United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for All Urban
Consumers, All Items Index for San Diego area (1982-84 = 100) 2nd 1/2 1996 = Base.
--------------------------------------------------------------------------------------------------------------------
i. Landlord's Mailing Address: c/o Shell Properties Corporation
----------------------------------------------------------------------------------------------------
10665 Sorrento Valley Road Suite 101
San Diego, CA 92121
- -----------------------------------------------------------------------------------------------------------------------------------
Tenant's Mailing Address: 10655 Sorrento Valley Road Suite 100
-------------------------------------------------------------------------------------------------------
San Diego, CA 92121
- -----------------------------------------------------------------------------------------------------------------------------------
j. Monthly Installments of Base Rent: $ 13,978.00 Thirteen Thousand Nine Hundred Seventy Eight & no/00 per month.
--------------------------------------------------------------------------------
k. Parking: Tenant shall be permitted at no charge to park 3.26 cars per 1000SF cars on a non-exclusive basis in the area(s)
--------------------
designated by Landlord for parking. Tenant shall abide by any and all parking regulations and rules reasonably established
from time to time by Landlord or Landlord's parking operator.
l. Premises: that portion of the Building containing approximately 8586 square feet of Rentable Area,
---------------------------------
shown by diagonal lines on Exhibit "A," located on the 2nd floor of the Building and known as Suite 200 in
----------------- ------
Building 1 at 10655 Sorrento Valley Road.
----------------------------------------
m. Project: the building of which the Premises are a part (the "Building") and any other buildings or improvements on the real
property (the "Property") located at 10655 - 65 - 75 Sorrento Valley Road, San Diego, California and further described at
----------------------------------------------------------
Exhibit "B." The Project is known as Sycamore Creek Office Park.
---------------------------
n. Rentable Area: as to both the Premises and the Project, the respective measurements of floor area as may from time to time be
subject to lease by Tenant and all tenants of the Project, respectively, as determined by Landlord according to B.O.M.A.
standards and applied on a consistent basis throughout the Project.
(1)
</TABLE>
<PAGE>
o. Security Deposit (Article 7): $13,978.00 ($6,556.50 received previously and
--------------------------------------------
applied hereto, balance of $7,421.50 due on Commencement Date.)
--------------------------------------------------------------------------.
p. State: the State of California
-------------------------------------------------------.
q. Tenant's First Adjustment Date (Section 5.2): the first day of the calendar
month following the Commencement Date plus 12 months.
--
r. Tenant's Proportionate Share: 11.02%. Such share is a fraction, the
------
numerator of which is the Rentable Area of the Premises and the denominator
of which is the Rentable Area of the Project, as determined by Landlord
according to B.O.M.A. standards from time to time. The Project consists of 3
-
building(s) containing a total Rentable Area of 77,880 square feet.
------
s. Tenant's Use Clause (Article 8): Biomedical Laboratory and Related Office
-------------------------------------------
Uses.
--------------------------------------------------------------------------.
t. Term: the period commencing on the Commencement Date and expiring at
midnight on the Expiration Date.
3. EXHIBITS AND ADDENDA.
The exhibits and addenda listed below (unless lined out) are incorporated by
reference in this Lease:
a. Exhibit "A"--Floor Plan showing the Premises. Exhibit "A2" - floor plan
showing temporary premises.
b. Exhibit "B"--Site Plan of the Project.
c. Exhibit "C"--Landlord's Improvements to 2nd floor common area.
d. Exhibit "D"--Rules and Regulations.
e. Exhibit "E"--
f. Addenda:
Quality of Construction/Standard for Maint & Repair; Landlord's
---------------------------------------------------------------------------
Representations; Audit Provision; Operating Expense Exclusions;
---------------------------------------------------------------------------
Abatement of Rent/Casualty; Limitation of Tenant's Indemnity;
---------------------------------------------------------------------------
Landlord's Reciprocal Indemnity; Rules & Regulations/Changes; Non
---------------------------------------------------------------------------
Disturbance Agreements; Real Prop Tax/Limit on Pass-Thru;
---------------------------------------------------------------------------
Landlord's Estoppel; Option to Extend Lease Term; Services &
---------------------------------------------------------------------------
Utilities and Proration of 2nd Fl Costs; Alterations & Additions;
---------------------------------------------------------------------------
Damage & Destruction; Adjusted Base Rent; Tenant's Temporary
---------------------------------------------------------------------------
Premises; Landlord's Improvements to 2nd Fl Common Area.
--------------------------------------------------------------------------.
4. DELIVERY OF POSSESSION.
Intentionally left blank
5. RENT
5.1. Payment of Base Rent. Tenant agrees to pay the Base Rent for the Premises.
Monthly Installments of Base Rent shall be payable in advance on the first day
of each calendar month of the Term. If the Term begins (or ends) on other than
the first (or last) day of a calendar month, the Base Rent for the partial month
shall be prorated on a per diem basis. Tenant shall pay Landlord the first
Monthly Installment of Base Rent when Tenant executes the Lease.
5.2 Adjusted Base Rent.
SEE ADDENDUM
5.3 Project Operating Costs.
a. In order that the Rent payable during the Term reflect any increase in
Project Operating Costs, Tenant agrees to pay to Landlord as Rent, Tenant's
Proportionate Share of all increases in costs, expenses and obligations
attributable to the Project and its operation, all as provided below.
b. If, during any calendar year during the Term, Project Operating Costs
exceed the Project Operating Costs for the Base Year, Tenant shall pay to
Landlord, in addition to the Base Rent and all other payments due under this
Lease, an amount equal to Tenant's Proportionate Share of such excess
Project Operating Costs in accordance with the provisions of this Section
5.3b.
(2)
<PAGE>
(1) The term "Project Operating Costs" shall include all those items described
in the following subparagraphs (a) and (b).
(a) All taxes, assessments, water and sewer charges and other similar
governmental charges levied on or attributable to the Building or Project
or their operation, including without limitation, (i) real property taxes
or assessments levied or assessed against the Building or Project, (ii)
assessments or charges levied or assessed against the Building or Project
by any redevelopment agency, and (iii) any tax measured by gross rentals
received from the leasing of the Premises, Building or Project, excluding
any net income, franchise, capital stock, estate or inheritance taxes
imposed by the State or federal government or their agencies, branches or
departments; provided that if at any time during the Term any
governmental entity levies, assesses or imposes on Landlord any (1) general
or special, ad valorem or specific, excise, capital levy or other tax,
assessment, levy or charge directly on the Rent received under this Lease
or on the rent received under any other leases of space in the Building or
Project, or (2) any license fee, excise or franchise tax, assessment, levy
or charge measured by or based, in whole or in part, upon such rent, or (3)
any transfer, transaction, or similar tax, assessment, levy or charge based
directly or indirectly upon the transaction represented by this Lease or
such other leases, or (4) any occupancy, use, per capita or other tax,
assessment, levy or charge based directly or indirectly upon the use or
occupancy of the Premises or other premises within the Building or Project,
then any such taxes, assessments, levies and charges shall be deemed to be
included in the term Project Operating Costs. If at any time during the
Term the assessed valuation of, or taxes on, the Project are not based on a
completed Project having at least eighty-five percent (85%) of the Rentable
Area occupied, then the "taxes" component of Project Operating Costs shall
be adjusted by Landlord to reasonably approximate the taxes which would
have been payable if the Project were completed and at least eighty-five
percent (85%) occupied.
(b) Operating costs incurred by Landlord in maintaining and operating the
Building and Project, including without limitation the following: costs of
(1) utilities; (2) supplies; (3) insurance (including public liability,
property damage, earthquake, and fire and extended coverage insurance for
the full replacement cost of the Building and Project as required by
Landlord or its lenders for the Project; (4) services of independent
contractors; (5) compensation (including employment taxes and fringe
benefits) of all persons who perform duties connected with the operation,
maintenance, repair or overhaul of the Building or Project, and equipment,
improvements and facilities located within the Project, including without
limitation engineers, janitors, painters, floor waxers, window washers,
security and parking personnel and gardeners (but excluding persons
performing services not uniformly available to or performed for
substantially all Building or Project tenants); (6) operation and
maintenance of a room for delivery and distribution of mail to tenants of
the Building or Project as required by the U.S. Postal Service; (7)
management of the Building or Project, whether managed by Landlord or an
independent contractor; (8) rental expenses for (or a reasonable
depreciation allowance on) personal property used in the maintenance,
operation or repair of the Building or Project; (9) costs, expenditures or
charges (whether capitalized or not) required by any governmental or quasi-
governmental authority; (12) amortization of capital expenses (i) required
by a governmental entity for energy conservation or life safety purposes or
(ii) made by Landlord to reduce Project Operating Costs; and (13) any other
costs or expenses reasonably incurred by Landlord under this Lease and not
otherwise reimbursed by tenants of the Project. If at any time during the
Term, less than eighty-five percent (85%) of the Rentable Area of the
Project is occupied, the "operating costs" component of Project Operating
Costs shall be adjusted by Landlord to reasonably approximate the operating
costs which would have been incurred if the Project had been at least
eighty-five percent (85%) occupied.
(2) Tenant's Proportionate Share of Project Operating Costs shall be payable by
Tenant to Landlord as follows:
(a) Beginning with the calendar year following the Base Year and for each
calendar year thereafter ("Comparison Year"), Tenant shall pay Landlord an
amount equal to Tenant's Proportionate Share of the Project Operating Costs
incurred by Landlord in the Comparison Year which exceeds the total amount
of Project Operating Costs payable by Landlord for the Base Year. This
excess is referred to as the "Excess Expenses."
(b) To provide for current payments of Excess Expenses, Tenant shall, at
Landlord's request, pay as additional rent during each Comparison Year, an
amount equal to Tenant's Proportionate Share of the Excess Expenses payable
during such Comparison Year, as reasonably estimated by Landlord from time
to time. Such payments shall be made in monthly installments, commencing on
the first day of the month following the month in which Landlord notifies
Tenant of the amount it is to pay hereunder and continuing until the first
day of the month following the month in which Landlord gives Tenant a new
notice of estimated Excess Expenses. It is the intention hereunder to
estimate from time to time the amount of the Excess Expenses for each
Comparison Year and Tenant's Proportionate Share thereof, and then to make
an adjustment in the following year based on the actual Excess Expenses
incurred for that Comparison Year.
(c) On or before April 1 or each Comparison Year after the first Comparison
Year (or as soon thereafter as is practical), Landlord shall deliver to
Tenant a statement setting forth Tenant's Proportionate Share of the Excess
Expenses for the preceding Comparison Year. If Tenant's Proportionate Share
of the actual Excess Expenses for the previous Comparison Year exceeds the
total of the estimated monthly payments made by Tenant for such year,
Tenant shall pay Landlord the amount of the deficiency within twenty (20)
days of the receipt of the statement. If such total exceeds Tenant's
Propor-
(3)
<PAGE>
ionate Share of the actual Excess Expenses for such Comparison Year, then
Landlord shall reimburse to Tenant an amount equal to the difference
within 20 days of delivery of that statement. The obligations of Tenant
and Landlord to make payments required under this Section 5.3 shall survive
the Expiration Date.
(d) Tenant's Proportionate Share of Excess Expenses in any Comparison Year
having less than 365 days shall be appropriately prorated.
(e) If any dispute arises as to the amount of any additional rent due
hereunder, Tenant shall have the right after reasonable notice and at
reasonable times to inspect Landlord's accounting records at Landlord's
accounting office and, if after such inspection Tenant still disputes the
amount of additional rent owed, a certification as to the proper amount
shall be made by Landlord's certified public accountant, which
certification shall be final and conclusive. Tenant agrees to pay to the
cost of such certification unless it is determined that Landlord's original
statement overstated Project Operating Costs by more than five percent
(5%).
5.4 Definition of Rent. All costs and expenses which Tenant assumes or agrees to
pay to Landlord under this Lease shall be deemed additional rent (which,
together with the Base Rent is sometimes referred to as the "Rent"). The Rent
shall be paid to the Building manager (or other person) and at such place, as
Landlord may from time to time designate in writing, without any prior demand
therefor and without deduction or offset, in lawful money of the United States
of America.
5.5 Rent Control. If the amount of Rent or any other payment due under this
Lease violates the terms of any governmental restrictions on such Rent or
payment, then the Rent or payment due during the period of such restrictions
shall be the maximum amount allowable under those restrictions. Upon termination
of the restrictions, Landlord shall, to the extent it is legally permitted,
recover from Tenant the difference between the amounts received during the
period of the restrictions and the amounts Landlord would have received had
there been no restrictions.
5.6 Taxes Payable by Tenant. In addition to the Rent and any other charges to be
paid by Tenant hereunder, Tenant shall reimburse Landlord upon demand for any
and all taxes payable by Landlord (other than net income taxes) which are not
otherwise reimbursable under this Lease, whether or not now customary or within
the contemplation of the parties, where such taxes are upon, measured by or
reasonably attributable to (a) the cost or value of Tenant's equipment,
furniture, fixtures and other personal property located in the Premises, or the
cost or value of any leasehold improvements made in or to the Premises by or for
Tenant, other than Building Standard Work made by Landlord, regardless of
whether title to such improvements is held by Tenant or Landlord; (b) the gross
or net Rent payable under this Lease, including, without limitation, any rental
or gross receipts tax levied by any taxing authority with respect to the receipt
of the Rent hereunder; (c) the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy by Tenant of the Premises or
any portion thereof; or (d) this transaction or any document to which Tenant is
a party creating or transferring an interest or an estate in the Premises. If it
becomes unlawful for Tenant to reimburse Landlord for any costs as required
under this Lease, the Base Rent shall be revised to net Landlord the same net
Rent after imposition of any tax or other charge upon Landlord as would have
been payable to Landlord but for the reimbursement being unlawful.
6. INTEREST AND LATE CHARGES.
If Tenant fails to pay when due any Rent or other amounts or charges which
Tenant is obligated to pay under the terms of this Lease, the unpaid amounts
shall bear interest at the maximum rate then allowed by law. Tenant acknowledges
that the late payment of any Monthly Installment of Base Rent will cause
Landlord to lose the use of that money and incur costs and expenses not
contemplated under this Lease, including without limitation, administrative and
collection costs and processing and accounting expenses, the exact amount of
which is extremely difficult to ascertain. Therefore, in addition to interest,
if any such installment is not received by Landlord within ten (10) days from
the date it is due, Tenant shall pay Landlord a late charge equal to five
percent (5%) of such installment. Landlord and Tenant agree that this late
charge represents a reasonable estimate of such costs and expenses and is fair
compensation to Landlord for the loss suffered from such nonpayment by Tenant.
Acceptance of any interest or late charge shall not constitute a waiver of
Tenant's default with respect to such nonpayment by Tenant nor prevent Landlord
from exercising any other rights or remedies available to Landlord under this
Lease.
7. SECURITY DEPOSIT.
Tenant agrees to deposit with Landlord the Security Deposit set forth at Section
2o upon execution of this Lease, as security for Tenant's faithful performance
of its obligations under this Lease. Landlord and Tenant agree that the
Security Deposit may be commingled with funds of Landlord and Landlord shall
have no obligation or liability for payment of interest on such deposit. Tenant
shall not mortgage, assign, transfer or encumber the Security Deposit without
the prior written consent of Landlord and any attempt by Tenant to do so shall
be void, without force or effect and shall not be binding upon Landlord.
If Tenant fails to pay any Rent or other amount when due and payable under this
Lease, or fails to perform any of the terms hereof, Landlord may appropriate and
apply or use all or any portion of the Security Deposit for Rent payments or any
other amount then due and unpaid, for payment of any amount for which Landlord
has become obligated as a result of Tenant's default or breach, and for any loss
or damage sustained by Landlord as a result of Tenant's default or breach, and
Landlord may so apply or use this deposit without prejudice to any other remedy
Landlord may have by reason of Tenant's default or breach. If Landlord so uses
any of the Security Deposit
(4)
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Tenant shall, within ten (10) days after written demand therefor, restore the
Security Deposit to the full amount originally deposited; Tenant's failure to do
so shall constitute an act of default hereunder and Landlord shall have the
right to exercise any remedy provided for at Article 27 hereof. Within fifteen
(15) days after the Term (or any extension thereof) has expired or Tenant has
vacated the Premises, whichever shall last occur, and provided Tenant is not
then in default on any of its obligations hereunder, Landlord shall return the
Security Deposit to Tenant, or, if Tenant has assigned its interest under this
Lease, to the last assignee of Tenant. If Landlord sells its interest in the
Premises, Landlord may deliver this deposit to the purchaser of Landlord's
interest and thereupon be relieved of any further liability or obligation with
respect to the Security Deposit.
8. TENANT'S USE OF THE PREMISES.
Tenant shall use the Premises solely for the purposes set forth in Tenant's Use
Clause. Tenant shall not use or occupy the Premises in violation of law or any
covenant, condition or restriction affecting the Building or Project or the
certificate of occupancy issued for the Building or Project, and shall, upon
notice from Landlord, immediately discontinue any use of the Premises which is
declared by any governmental authority having jurisdiction to be a violation of
law or the certificate of occupancy. Tenant, at Tenant's own cost and expense,
shall comply with all laws, ordinances, regulations, rules and/or any directions
of any governmental agencies or authorities having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the Premises, impose any
duty upon Tenant or Landlord with respect to the Premises or its use or
occupation. A judgment of any court of competent jurisdiction or the admission
by Tenant in any action or proceeding against Tenant that Tenant has violated
any such laws, ordinances, regulations, rules and/or directions in the use of
the Premises shall be deemed to be a conclusive determination of that fact as
between Landlord and Tenant. Tenant shall not do or permit to be done anything
which will invalidate or increase the cost of any fire, extended coverage or
other insurance policy covering the Building or Project and/or property located
therein, and shall comply with all rules, orders, regulations, requirements and
recommendations of the Insurance Services Office or any other organization
performing a similar function. Tenant shall promptly upon demand reimburse
Landlord for any additional premium charged for such policy by reason of
Tenant's failure to comply with the provisions of this Article. Tenant shall not
do or permit anything to be done in or about the Premises which will in any way
unreasonably obstruct or interfere with the rights of other tenants or occupants
of the Building or Project, or injure or annoy them, or use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant cause, maintain
or permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer to be committed any waste in or upon the Premises.
9. SERVICES AND UTILITIES.
Landlord shall provide and install at its expense a separate electric meter for
the Premises. Landlord shall maintain and keep lighted the common areas of the
Project, including parking areas, building entries, lobbies, corridors,
staircases, and restrooms, and Landlord shall furnish restroom supplies and
lightbulb replacement for Building Standard (ie Landlord installed) light
fixtures within the Premises. See Addendum 2
Landlord shall not be in default hereunder or be liable for any damages directly
or indirectly resulting from, nor shall rent be abated by reason of (i) the
installation, use or interruption of use of any equipment in connection with the
furnishing of any of the foregoing services or utilities, (ii) failure to
furnish or delay in furnishing any such services or utilities where such failure
or delay is caused by accident or any condition or event beyond the reasonable
control of Landlord, or by the making of necessary repairs or improvements to
the Premises, Building or Project, or (iii) the limitation, curtailment or
rationing of, or restrictions on, use of water, electricity, gas or any other
form of energy serving the Premises, Building or Project. Landlord shall not be
liable under any circumstances, unless directly attributable to Landlord's
wrongful or negligent acts, for the loss or damage to Tenant's property or
business, through or in connection with or incidental to failure to furnish or
delay in the furnishing of any of the foregoing services or utilities.
Tenant shall arrange for the initiation of service for any separately metered
utilities to the Premises, including telephone service, directly with the
appropriate utility vendor or supplier, and all billing invoices, security
deposits, and any other charges relating to the initiation and continued
provision of such separately metered utilities and telephone service shall be
the responsibility of and in the name of Tenant.
(5)
<PAGE>
10. CONDITION OF THE PREMISES.
Tenant's taking possession of the Premises shall be deemed conclusive evidence
that as of the date of taking possession the Premises are in good order and
satisfactory condition, except for such matters as to which Tenant gave Landlord
notice on or before the Commencement Date. No promise of Landlord to alter,
remodel, repair or improve the Premises, the Building or the Project and no
representation, express or implied, respecting any matter or thing relating to
the Premises, Building, Project or this Lease (including, without limitation,
the condition of the Premises, the Building or the Project) have been made to
Tenant by Landlord or its Broker or Sales Agent, other than as may be contained
herein or in a separate exhibit or addendum signed by Landlord and Tenant.
11. CONSTRUCTION, REPAIRS AND MAINTENANCE.
a. Landlord's Obligations. Landlord shall perform any Landlord's Work to
the Premises as described in Exhibit "C". Landlord shall maintain in good
order, condition and repair the Building and all other portions of the
Premises not the obligation of Tenant or of any other tenant in the
Building.
b. Tenant's Obligations.
(1) Tenant shall perform any Tenant's Work to the Premises as
described in Exhibit "C".
(2) Tenant at Tenant's sole expense shall, except for services
furnished by Landlord pursuant to Article 9 hereof, maintain the
Premises in good order, condition and repair, including the interior
surfaces of the ceilings, walls and floors, all doors, all interior
windows, all plumbing, pipes and fixtures, electrical wiring, switches
and fixtures, Building Standard furnishings and special items and
equipment installed by or at the expense of Tenant.
(3) Tenant shall be responsible for all repairs and alterations in and
to the Premises, Building and Project and the facilities and systems
thereof, the need for which directly arises out of (i) Tenant's use or
occupancy of the Premises, (ii) the installation, removal, use or
operation of Tenant's Property (as defined in Article 13) in the
Premises, (iii) the moving of Tenant's Property into or out of the
Building, or (iv) the wrongful act, omission, misuse or negligence of
Tenant, its agents, contractors, employees or invitees.
(4) If Tenant fails to maintain the Premises in good order, condition
and repair, Landlord shall give Tenant notice to do such acts as are
reasonably required to so maintain the Premises. If Tenant fails to
promptly commence such work and diligently prosecute it to completion,
then Landlord shall have the right to do such acts and expend such
funds at the expense of Tenant as are reasonably required to perform
such work. Any amount so expended by Landlord shall be paid by Tenant
promptly after demand with interest at the prime commercial rate then
being charged by Bank of America NT & SA plus two percent (2%) per
annum, from the date of such work, but not to exceed the maximum rate
then allowed by law. Landlord shall have no liability to Tenant for
any damage, inconvenience, or interference with the use of the
Premises by Tenant as a result of performing any such work.
c. Compliance with Law. Landlord and Tenant shall each do all acts required
to comply with all applicable laws, ordinances, and rules of any public
authority relating to their respective maintenance obligations as set forth
herein.
d. Waiver by Tenant. Tenant expressly waives the benefits of any statute
now or hereafter in effect which would otherwise afford the Tenant the
right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to keep the Premises in good order, condition
and repair, except as otherwise expressly set forth herein.
e. Load and Equipment Limits. Tenant shall not place a load upon any floor
of the Premises which exceeds the load per square foot which such floor was
designed to carry, as determined by Landlord's structural engineer. The
reasonable cost of any such determination made by Landlord's structural
engineer shall be paid for by Tenant upon demand. Tenant shall not install
business machines or mechanical equipment which cause noise or vibration to
such a degree as to be objectionable to Landlord or other Building tenants.
f. Except as otherwise expressly provided in this Lease, Landlord shall
have no liability to Tenant nor shall Tenant's obligations under this Lease
be reduced or abated in any manner whatsoever by reason of any
inconvenience, annoyance, interruption or injury to business arising from
Landlord's making any repairs or changes which Landlord is required or
permitted by this Lease or by any other tenant's lease or required by law
to make in or to any portion of the Project, Building or the Premises.
Landlord shall nevertheless use reasonable efforts to minimize any
interference with Tenant's business in the Premises.
g. Tenant shall give Landlord prompt notice following discovery by Tenant
of any damage to or defective condition in any part or appurtenance of the
Building's mechanical, electrical, plumbing, HVAC or other systems serving,
located in, or passing through the Premises.
h. Upon the expiration or earlier termination of this Lease, Tenant shall
return the Premises to Landlord clean and in the same condition as on the
date Tenant took possession, except for normal wear and tear. Any damage to
the Premises, including any structural damage, resulting from Tenant's use
or from the removal of Tenant's fixtures, furnishings and equipment
pursuant to Section 13b shall be repaired by Tenant at Tenant's expense.
12. ALTERATIONS AND ADDITIONS.
a. Tenant shall not make any additions, alterations or improvements to the
Premises without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld or delayed. Landlord's consent
may be conditioned on Tenant's removing any such additions, alterations or
improvements upon the expiration of the Term and restoring the Premises to
the same condition as on the date Tenant took possession. All work with
respect to any addition, alteration or improvement shall be done in a good
and workmanlike manner by properly qualified and licensed personnel as
mutually approved by Landlord and Tenant, and such work shall be diligently
prosecuted to completion. Landlord may, at Landlord's option, require that
Landlord's contractor supervise and/or perform that portion of any such
alteration or additions involving the Building's roof, exterior metal
siding and/or stucco surfaces, windows and/or window frames, waterproofing
elements associated with any of the above, underground work, landscaping,
building entry doors and/or building security system, common area equipment
or improvements, and/or any item or element within the Premises building or
project subject to a warranty to Landlord.
<PAGE>
b. Except as expressly provided for herein, Tenant shall pay the costs of
any work done on the Premises pursuant to Section 12a, and shall keep the
Premises, Building and Project free and clear of liens of any kind related
to such work. Tenant shall indemnify, defend against and keep Landlord free
and harmless from all liability, loss, damage, costs, attorneys' fees and
any other expense incurred on account of claims by any person performing
work or furnishing materials or supplies for Tenant or any person claiming
under Tenant.
Tenant shall keep Tenant's leasehold interest, and any additions or
improvements which are or become the property of Landlord under this Lease,
free and clear of all attachment or judgement liens filed against Tenant.
Before the actual commencement of any work for which a claim or lien may be
filed, Tenant shall give Landlord notice of the intended commencement date
a sufficient time before that date to enable Landlord to post notices of
nonresponsibility or any other notices which Landlord deems necessary for
the proper protection of Landlord's interest in the Premises, Building or
the Project, and Landlord shall have the right to enter the Premises and
post such notices at any reasonable time.
c. Landlord may require, at Landlord's sole option, that Tenant provide to
Landlord, at Tenant's expense, a lien and completion bond in an amount
equal to at least one and one-half (1 1/2) times the total estimated cost
of any additions, alterations or improvements to be made in or to the
Premises, to protect Landlord against any liability for mechanic's and
materialmen's liens and to insure timely completion of the work. Nothing
contained in this Section 12c shall relieve Tenant of its obligation under
Section 12b to keep the Premises, Building and Project free of all liens as
set forth in said Section 12b.
d. Unless their removal is required by Landlord as provided in Section 12a,
all additions, alterations and improvements made to the Premises shall
become the property of Landlord and be surrendered with the Premises upon
the expiration of the Term; provided, however, Tenant's equipment,
machinery and trade fixtures which can be removed without damage to the
Premises shall remain the property of Tenant and may be removed, subject to
the provisions of Section 13b.
13. LEASEHOLD IMPROVEMENTS; TENANT'S PROPERTY.
a. All fixtures, equipment, improvements and appurtenances attached to or
built into the Premises at the commencement of or during the Term, whether
or not by or at the expense of Tenant ("Leasehold Improvements"), shall be
and remain a part of the Premises, shall be the property of Landlord and
shall not be removed by Tenant, except as expressly provided in Section
13b.
b. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office equipment located in the
Premises and acquired by or for the account of Tenant, without expense to
Landlord, which can be removed without structural damage to the Building,
and all furniture, furnishings and other articles of movable personal
property owned by Tenant and located in the Premises (collectively
"Tenant's Property") shall be and shall remain the property of Tenant and
may be removed by Tenant at any time during the Term; provided that if any
of Tenant's Property is removed. Tenant shall promptly repair any damage to
the Premises or to the Building resulting from such removal.
14. RULES AND REGULATIONS.
Tenant agrees to comply with (and cause its agents, contractors, employees and
invitees to comply with) the rules and regulations attached hereto as Exhibit
"D" and with such reasonable modifications thereof and reasonable additions
thereto as Landlord may from time to time make and notify Tenant of in writing.
Landlord shall not be responsible for any violation of said rules and
regulations by other tenants or occupants of the Building or Project.
15. CERTAIN RIGHTS RESERVED BY LANDLORD.
Landlord reserves the following rights, exercisable without liability to Tenant
for (a) damage or injury to property, person, or business, (b) causing an actual
or constructive eviction from the Premises, or (c) disturbing Tenant's use or
possession of the Premises:
a. To name the Building and Project and to change the name or street
address of the Building or Project;
b. To install and maintain all signs on the exterior and interior of the
Building and Project;
c. To have pass keys to the Premises and all doors within the Premises,
excluding Tenant's vaults and safes;
d. At any time during the Term, without unreasonably interfering with
Tenant's operations, and on reasonable prior notice to Tenant, to inspect
the Premises, and to show the Premises to any prospective purchaser or
mortgagee of the Project, or to any assignee of any mortgage on the
Project, or to others having an interest in the Project or Landlord, and
during the last six months of the Term, to show the Premises to
prospective tenants thereof; and
e. To enter the Premises for the purpose of making inspections, repairs,
alterations, additions or improvements to the Premises or the Building
(including, without limitation, checking, calibrating, adjusting or
balancing controls and other parts of the HVAC system), and to take all
steps as may be necessary or desirable for the safety, protection,
maintenance or preservation of the Premises or the Building or Landlord's
interest therein, or as may be necessary or desirable for the operation or
improvement of the Building or in order to comply with laws, orders or
requirements of governmental or other authority. Landlord agrees to use its
best efforts (except in an emergency) to minimize interference with
Tenant's business in the Premises in the course of any such entry.
16. ASSIGNMENT AND SUBLETTING.
No assignment of this Lease or sublease of all or any part of the Premises shall
be permitted, except as provided in this Article 16.
a. Tenant shall not, without the prior written consent of Landlord, assign
or hypothecate this Lease or any interest herein or sublet the Premises or
any part thereof, or permit the use of the Premises by any party other than
Tenant. Any of the foregoing acts without such consent shall be void and
shall, at the option of Landlord, terminate this Lease. This Lease shall
not, nor shall any interest of Tenant herein, be assignable by operation
(7)
<PAGE>
of law without the written consent of Landlord.
b. If at any time or from time to time during the Term Tenant desires to
assign this Lease or sublet all or any part of the Premises, Tenant shall
give notice to Landlord setting forth the terms and provisions of the
proposed assignment or sublease, and the identity of the proposed assignee
or subtenant. Tenant shall promptly supply Landlord with such information
concerning the business background and financial condition of such proposed
assignee or subtenant as Landlord may reasonably request. Landlord shall
have the option, exercisable by notice given to Tenant within twenty (20)
days after Tenant's notice is given, either to sublet such space from
Tenant at the rental and on the other terms set forth in this Lease for the
term set forth in Tenant's notice, or, in the case of an assignment, to
terminate this Lease. If Landlord does not exercise such option, Tenant may
assign the Lease or sublet such space to such proposed assignee or
subtenant on the following further conditions:
(1) Landlord shall have the right to approve such proposed assignee or
subtenant, which approval shall not be unreasonably withheld; or
delayed;
(2) The assignment or sublease shall be on substantially the same
terms set forth in the notice given to Landlord;
(3) No assignment or sublease shall be valid and no assignee or
sublessee shall take possession of the Premises until an executed
counterpart of such assignment or sublease has been delivered to
Landlord;
(4) No assignee or sublessee shall have a further right to assign or
sublet except on the terms herein contained; and
(5) Any sums or other economic consideration received by Tenant as a
result of such assignment or subletting, however denominated under the
assignment or sublease, which exceed, in the aggregate, (i) the total
sums which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to any portion of the
Premises subleased), plus (ii) any real estate brokerage commissions
or fees payable in connection with such assignment or subletting,
shall be paid to Landlord as additional rent under this Lease without
affecting or reducing any other obligations of Tenant hereunder.
c. Notwithstanding the provisions of paragraphs a and b above, Tenant may
assign this Lease or sublet the Premises or any portion thereof, without
Landlord's consent and without extending any recapture or termination
option to Landlord, to any corporation which controls, is controlled by or
is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which
acquires all the assets of Tenant's business as a going concern, provided
that (i) the assignee or sublessee assumes, in full, the obligations of
Tenant under this Lease, (ii) Tenant remains fully liable under this Lease,
and (iii) the use of the Premises under Article 8 remains unchanged.
d. No subletting or assignment shall release Tenant of Tenant's obligations
under this Lease or alter the primary liability of Tenant to pay the Rent
and to perform all other obligations to be performed by Tenant hereunder.
The acceptance of Rent by Landlord from any other person shall not be
deemed to be a waiver by Landlord of any provision hereof. Consent to one
assignment or subletting shall not be deemed consent to any subsequent
assignment or subletting. In the event of default by an assignee or
subtenant of Tenant or any successor of Tenant in the performance of any of
the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against such assignee subtenant or
successor. Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with assignees of
Tenant, without notifying Tenant, or any successor of Tenant, and without
obtaining its or their consent thereto and any such actions shall not
relieve Tenant of liability under this Lease.
e. If Tenant assigns the Lease or sublets the Premises or requests the
consent of Landlord to any assignment or subletting or if Tenant requests
the consent of Landlord where such consent is required under this Lease for
the act that Tenant proposes to do, then Tenant shall, upon demand, pay
Landlord any attorneys' fees reasonably incurred by Landlord in connection
with such act or request.
17. HOLDING OVER.
If after expiration of the term, Tenant remains in possession of the Premises
Tenant shall become a tenant from month to month only, upon all the provisions
of this Lease (except as to term and Base Rent), but the "Monthly Installments
of Base Rent" payable by Tenant shall be increased to one hundred fifty percent
(150%) of the Monthly Installments of Base Rent payable by Tenant at the
expiration of the Term. Such monthly rent shall be payable in advance on or
before the first day of each month. If either party desires to terminate such
month to month tenancy, it shall give the other party not less than thirty (30)
days advance written notice of the date of termination.
18. SURRENDER OF PREMISES.
a. Tenant shall peaceably surrender the Premises to Landlord on the
Expiration Date, in broom-clean condition and in as good condition as when
Tenant took possession, except for (i) reasonable wear and tear, (ii) loss
by fire or other casualty, and (iii) loss by condemnation. Tenant shall, on
Landlord's request, remove Tenant's Property on or before the Expiration
Date and promptly repair all damage to the Premises or Building caused by
such removal.
b. If Tenant abandons or surrenders the Premises, or is dispossessed by
process of law or otherwise, any of Tenant's Property left on the Premises
shall be deemed to be abandoned, and, at Landlord's option, title shall
pass to Landlord under this Lease as by a bill of sale. If Landlord elects
to remove all of any part of such Tenant's Property, the cost of removal,
including repairing any damage to the Premises or Building caused by such
removal, shall be paid by Tenant. On the Expiration Date Tenant shall
surrender all keys to the Premises.
19. DESTRUCTION OR DAMAGE.
a. If the Premises or the portion of the Building necessary for Tenant's
occupancy is damaged by fire, earthquake, act of God, the elements or other
casualty, Landlord shall, subject to the provisions of this Article,
(8)
<PAGE>
promptly repair the damage, if such repairs can, in Landlord's reasonable
opinion, be completed within ninety (90) days. If Landlord reasonably
determines that repairs can be completed within ninety (90) days, this
Lease shall remain in full force and effect, except that if such damage is
not the result of the negligence or willful misconduct of Tenant or
Tenant's agents and employees, the Base Rent shall be abated to the extent
Tenant's use of the Premises is impaired, commencing with the date of
damage and continuing until completion of the repairs required of Landlord
under Section 19d.
b. If in Landlord's reasonable opinion, such repairs to the Premises or
portion of the Building necessary for Tenant's occupancy cannot be
completed within ninety (90) days, Landlord may elect, upon notice to
Tenant given within thirty (30) days after the date of such fire or other
casualty, to repair such damage, in which event this Lease shall continue
in full force and effect, but the Base Rent shall be partially abated as
provided in Section 19a. If Landlord does not so elect to make such
repairs, this Lease shall terminate as of the date of such fire or other
casualty.
c. If any other portion of the Building or Project is totally destroyed or
damaged to the extent that in Landlord's reasonable opinion repair thereof
cannot be completed within ninety (90) days, Landlord may elect upon notice
to Tenant given within thirty (30) days after the date of such fire or
other casualty, to repair such damage, in which event this Lease shall
continue in full force and effect, but the Base Rent shall be partially
abated as provided in Section 19a. If Landlord does not elect to make such
repairs, this Lease shall terminate as of the date of such fire or other
casualty.
d. If the Premises are to be repaired under this Article, Landlord shall
repair at its cost any injury or damage to the Building and Building
Standard Work in the Premises. Tenant shall be responsible at its sole cost
and expense for the repair, restoration and replacement of any other
Leasehold Improvements and Tenant's Property. Landlord shall not be liable
for any loss of business, inconvenience or annoyance arising from any
repair or restoration of any portion of the Premises, Building or Project
as a result of any damage from fire or other casualty, except where such
damages are the result of the negligence or willful misconduct of Landlord
or Landlord's agents and employees.
e. This Lease shall be considered an express agreement governing any case
of damage to or destruction of the Premises, Building or Project by fire or
other casualty, and any present or future law which purports to govern the
rights of Landlord and Tenant in such circumstances in the absence of
express agreement, shall have no application.
20. EMINENT DOMAIN
a. If the whole of the Building or Premises is lawfully taken by
condemnation or in any other manner for any public or quasi-public purpose,
this Lease shall terminate as of the date of such taking, and Rent shall be
prorated to such date. If less than the whole of the Building or Premises
is so taken, this Lease shall be unaffected by such taking, provided that
(i) Tenant shall have the right to terminate this Lease by notice to
Landlord given within ninety (90) days after the date of such taking if
twenty percent (20%) or more of the Premises or parking is taken and the
remaining area of the Premises or parking is not reasonably sufficient for
Tenant to continue operation of its business, and (ii) Landlord shall have
the right to terminate this Lease by notice to Tenant given within ninety
(90) days after the date of such taking. If either Landlord or Tenant so
elects to terminate this Lease, the Lease shall terminate as of the date of
such taking. The Rent shall be prorated to the date of termination. If this
Lease continues in force upon such partial taking, the Base Rent and
Tenant's Proportionate Share shall be equitably adjusted according to the
remaining Rentable Area of the Premises and Project.
b. In the event of any taking, partial or whole, all of the proceeds of any
award, judgement or settlement payable by the condemning authority shall be
the exclusive property of Landlord, and Tenant hereby assigns to Landlord
all of its right, title and interest in any award, judgement or settlement
from the condemning authority. Tenant, however, shall have the right, to
the extent that Landlord's award is not reduced or prejudiced, to claim
from the condemning authority (but not from Landlord) such compensation as
may be recoverable by Tenant in its own right for relocation expenses and
damage to Tenant's personal property.
c. In the event of a partial taking of the Premises which does no result in
a termination of this Lease, Landlord shall restore the remaining portion
of the Premises as nearly as practicable to its condition prior to the
condemnation or taking, but only to the extent of Building Standard Work.
Tenant shall be responsible at its sole cost and expense for the repair,
restoration and replacement of any other Leasehold Improvements and
Tenant's Property.
21. INDEMNIFICATION.
a. Tenant shall indemnify and hold Landlord harmless against and from
liability and claims of any kind for loss or damage to property of Tenant
or any other person, or for any injury to or death of any person, arising
out of: (1) Tenant's use and occupancy of the Premises, or any work,
activity or other things allowed or suffered by Tenant to be done in, on or
about the Premises; (2) any breach or default by Tenant of any of Tenant's
obligations under this Lease; or (3) any negligent or otherwise tortious
act or omission of Tenant, its agents, employees, invitees or contractors.
Tenant shall, at Tenant's expense, and by counsel satisfactory to Landlord,
defend Landlord in any action or proceeding arising from any such claim and
shall indemnify Landlord against all costs, attorneys' fees, expert witness
fees and any other expenses reasonably incurred in such action or
proceeding. As a material part of the consideration for Landlord's
execution of this Lease, Tenant hereby assumes all risk of damage or injury
to any person or property in, on or about the Premises from any cause,
except where such damages are the result of the negligence or willful
misconduct of Landlord or Landlord's agents and employees.
b. Except as otherwise expressly provided for herein, Landlord shall not be
liable for injury or damage which may be sustained by the person or
property of Tenant, its employees, invitees or customers, or any other
person in or about the Premises, caused by or resulting from fire, steam,
electricity, gas, water or rain which may leak or flow from or into any
part of the Premises, or from the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning
or lighting fixtures, whether such damage or injury results from conditions
arising upon the Premises or upon other portions of the Building or Project
or from other sources. Landlord shall not be liable for any damages arising
from any act or omission of any other tenant of the Building or Project.
(9)
<PAGE>
22. TENANT'S INSURANCE.
a. All insurance required to be carried by Tenant hereunder shall be issued
by responsible insurance companies with a minimum rating by "Best's Key
Rating Guide of A: XII" and qualified to do business in the State. Each
policy shall name Landlord, and at Landlord's request any mortgagee of
Landlord, as an additional insured, as their respective interests may
appear. Each policy shall contain (i) a cross-liability endorsement, (ii) a
provision that such policy and the coverage evidenced thereby shall be
primary and non-contributing with respect to any policies carried by
Landlord and that any coverage carried by Landlord shall be excess
insurance, and (iii) a waiver by the insurer of any right of subrogation
against Landlord, its agents, employees and representatives, which arises
or might arise by reason of any payment under such policy or by reason of
any act or omission of Landlord, its agents, employees or representatives.
A copy of each paid up policy (authenticated by the insurer) or certificate
of the insurer evidencing the existence and amount of each insurance policy
required hereunder shall be delivered to Landlord within thirty (30) days
after any demand by Landlord therefor. Landlord may, at any time and from
time to time, inspect and/or copy any insurance policies required to be
maintained by Tenant hereunder. No such policy shall be cancellable except
after twenty (20) days written notice to Landlord and Landlord's lender.
Tenant shall furnish Landlord with renewals or "binders" of any such policy
at least ten (10) days prior to the expiration thereof. Tenant agrees that
if Tenant does not take out and maintain such insurance, Landlord may (but
shall not be required to) procure said insurance on Tenant's behalf and
charge the Tenant the premiums, payable upon demand. Tenant shall have the
right to provide such insurance coverage pursuant to blanket policies
obtained by the Tenant, provided such blanket policies expressly afford
coverage to the Premises, Landlord, Landlord's mortgagee and Tenant as
required by this Lease.
b. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect policies of casualty insurance covering (i)
all Leasehold improvements (including any alterations, additions or
improvements as may be made by Tenant pursuant to the provisions of Article
12 hereof), and (ii) trade fixtures, merchandise and other personal
property from time to time in, on or about the Premises, in an amount not
less than one hundred percent (100%) of their actual replacement cost from
time to time, providing protection against any peril included with the
classification "Fire and Extended Coverage" together with insurance against
sprinkler damage, vandalism and malicious mischief. The proceeds of such
insurance shall be used for the repair or replacement of the property so
insured. Upon termination of this Lease following a casualty as set forth
herein, the proceeds under (i) shall be paid to Landlord, and the proceeds
under (ii) above shall be paid to Tenant.
c. Beginning on the date Tenant is given access to the Premises for any
purpose and continuing until expiration of the Term, Tenant shall procure,
pay for and maintain in effect workers' compensation insurance as required
by law and comprehensive public liability and property damage insurance
with respect to the construction of improvements on the Premises, the use,
operation or condition of the Premises and the operations of Tenant in, on
or about the Premises, providing personal injury and broad form property
damage coverage for not less than One Million Dollars ($1,000,000.00)
combined single limit for bodily injury, death and property damage
liability.
d. Not less than every three (3) years during the Term, Landlord and Tenant
shall mutually agree to increases in all of Tenant's insurance policy
limits for all insurance to be carried by Tenant as set forth in this
Article. In the event Landlord and Tenant cannot mutually agree upon the
amounts of said increases, then Tenant agrees that all insurance policy
limits as set forth in this Article shall be adjusted for increases in the
cost of living in the same manner as is set forth in Section 5.2 hereof for
the adjustment of the Base Rent.
23. WAIVER OF SUBROGATION.
Landlord and Tenant each hereby waive all rights of recovery against the other
and against the officers, employees, agents and representatives of the other, on
account of loss by or damage to the waiving party or its property or the
property of others under its control, to the extent that such loss or damage is
insured against under any fire and extended coverage insurance policy which
either may have in force at the time of the loss or damage. Tenant shall, upon
obtaining the policies of insurance required under this Lease, give notice to
its insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
24. SUBORDINATION AND ATTORNMENT.
Upon written request of Landlord, or any first mortgagee or first deed of trust
beneficiary of Landlord, or ground lessor of Landlord, Tenant shall, in writing,
subordinate its rights under this Lease to the lien of any first mortgage or
first deed of trust, or to the interest of any lease in which Landlord is
lessee, and to all advances made or hereafter to be made thereunder. However,
before signing any subordination agreement, Tenant shall have the right to
obtain from any lender or lessor of Landlord requesting such subordination, an
agreement in writing providing that, as long as Tenant is not in default
hereunder, this Lease shall remain in effect for the full Term. The holder of
any security interest may, upon written notice to Tenant, elect to have this
Lease prior to its security interest regardless of the time of the granting or
recording of such security interest.
In the event of any foreclosure sale, transfer in lieu of foreclosure or
termination of the lease in which Landlord is lessee, Tenant shall attorn to the
purchaser, transferee or lessor as the case may be, and recognize that party as
Landlord under this Lease, provided such party acquires and accepts the Premises
subject to this Lease.
25. TENANT ESTOPPEL CERTIFICATES.
Within ten working (10) days after written request from Landlord, Tenant shall
execute and deliver to Landlord or Landlord's designee, a written statement
certifying (a) that this Lease is unmodified and in full force and effect, or is
in full force and effect as modified and stating the modifications; (b) the
amount of Base Rent and the date to which Base Rent and additional rent have
been paid in advance; (c) the amount of any security deposited with Landlord;
and (d) that Landlord is not in default hereunder or, if Landlord is claimed to
be in default, stating the nature any claimed default. Any such statement may be
relied upon by a purchaser, assignee or lender. Tenant's failure to
(10)
<PAGE>
execute and deliver such statement within the time required shall at Landlord's
election be a default under this Lease and shall also be conclusive upon Tenant
that: (1) this Lease is in full force and effect and has not been modified
except as represented by Landlord; (2) there are no uncured defaults in
Landlord's performance and that Tenant has no right of offset, counter-claim or
deduction against Rent; and (3) not more than one month's Rent has been paid in
advance.
26. TRANSFER OF LANDLORD'S INTEREST.
In the event of any sale or transfer by Landlord of the Premises, Building or
Project, and assignment of this Lease by Landlord, Landlord shall be and is
hereby entirely freed and relieved of any and all liability and obligations
contained in or derived from this Lease arising out of any act occurrence or
omission relating to the Premises, Building, Project or Lease occurring after
the consummation of such sale or transfer, providing the purchaser shall
expressly assume all of the covenants and obligations of Landlord under this
Lease. If any security deposit or prepaid Rent has been paid by Tenant,
Landlord may transfer the security deposit or prepaid Rent to Landlord's
successor and upon such transfer, Landlord shall be relieved of any and all
further liability with respect thereto.
27. DEFAULT.
27.1 Tenant's Default. The occurrence of any one or more of the following events
shall constitute a default and breach of this Lease by Tenant:
a. If Tenant abandons or vacates the Premises; or
b. If Tenant fails to pay any Rent or any other charges required to be paid
by Tenant under this Lease and such failure continues for ten (10) days
after such payment is due and payable; or
c. If Tenant fails to promptly and fully perform any other covenant,
condition or agreement contained in this Lease and such failure continues
for thirty (30) days after written notice thereof from Landlord to Tenant;
or
d. If a writ of attachment of execution is levied on this Lease or on any
of Tenant's Property; or
e. If Tenant makes a general assignment for the benefit of creditors, or
provides for an arrangement, composition, extension or adjustment with its
creditors; or
f. If Tenant files a voluntary petition for relief or if a petition against
Tenant in a proceeding under the federal bankruptcy laws or other
insolvency laws is filed and not withdrawn or dismissed within forty-five
(45) days thereafter, or if under the provisions of any law providing for
reorganization or winding up of corporations, any court of competent
jurisdiction assumes jurisdiction, custody or control of Tenant or any
substantial part of its property and such jurisdiction, custody or
control remains in force unrelinquished, unstayed or unterminated for a
period of forty-five (45) days; or
g. If in any proceeding or action in which Tenant is a party, a trustee,
receiver, agent or custodian is appointed to take charge of the Premises or
Tenant's Property (or has the authority to do so) for the purpose of
enforcing a lien against the Premises or Tenant's Property; or
h. If Tenant is a partnership or consists of more than one (1) person or
entity, if any partner of the partnership or other person or entity is
involved in any of the acts or events described in subparagraphs d through
g above.
27.2 Remedies, in the event of Tenant's default hereunder, then in addition to
any other rights or remedies Landlord may have under any law, Landlord shall
have the right, at Landlord's option, without further notice or demand of any
kind to do the following:
a. Terminate this Lease and Tenant's right to possession of the Premises
and reenter the Premises and take possession thereof, and Tenant shall have
no further claim to the Premises or under this Lease; or
b. Continue this Lease in effect, reenter and occupy the Premises for the
account of Tenant and collect any unpaid Rent or other charges which have
or thereafter become due and payable; or
c. Reenter the Premises under the provisions of subparagraph b, and
thereafter elect to terminate this Lease and Tenant's right to possession
of the Premises.
If Landlord reenters the Premises under the provisions of subparagraphs b or c
above, Landlord shall not be deemed to have terminated this Lease or the
obligation of Tenant to pay any Rent or other charges thereafter accruing,
unless Landlord notifies Tenant in writing of Landlord's election to terminate
this Lease. In the event of any reentry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, to remove all or any part
of Tenant's Property in the Premises and to place such property in storage at a
public warehouse at the expense and risk of Tenant. If Landlord elects to relet
the Premises for the account of Tenant, the rent received by Landlord from such
reletting shall be applied as follows: first to the payment of any indebtedness
other than Rent due hereunder from Tenant to Landlord,; second, to the payment
of any costs of such reletting; third, to the payment of the cost of any
alterations or repairs to the Premises; fourth, to the payment of Rent due and
unpaid hereunder; and the balance, if any, shall be held by Landlord and applied
in payment of future Rent as it becomes due. If that portion of rent received
from the reletting which is applied against the Rent due hereunder is less than
the amount of the Rent due, Tenant shall pay the deficiency to Landlord promptly
upon demand by Landlord. Such deficiency shall be calculated and paid monthly.
Tenant shall also pay to Landlord, as soon as determined, any costs and expenses
incurred by Landlord in connection with such reletting or in making alterations
and repairs to the Premises, which are not covered by the rent received from the
reletting.
Should Landlord elect to terminate this Lease under the provisions of
subparagraph a or c above, Landlord may recover as damages from Tenant the
following:
1. Past Rent. The worth at the time of the award of any unpaid Rent which
has been earned at the time of termination; plus
2. Rent Prior to Award. The worth at the time of the award of the amount by
which the unpaid Rent which would have been earned after termination
until the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided; plus
(11)
<PAGE>
3. Rent After Award. The worth at the time of the award of the amount by which
the unpaid Rent for the balance of the Term after the time of award exceeds the
amount of the rental loss that Tenant proves could be reasonably avoided; plus
4. Proximately Caused Damages. Any other amount necessary to compensate
Landlord for all detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things
would be likely to result therefrom, including, but not limited to, any costs
or expenses (including attorney's fees), incurred by Landlord in (a) retaking
possession of the Premises, (b) maintaining the Premises after Tenant's default,
(c) preparing the Premises for reletting to a new tenant, including any repairs
or alterations, and (d) reletting the Premises, including brokers' commissions.
"The worth at the time of the award" as used in subparagraphs 1 and 2 above, is
to be computed by allowing interest at the rate of ten percent (10%) per annum.
"The worth at the time of the award" as used in subparagraph 3 above, is to be
computed by discounting the amount at the discount rate of the Federal Reserve
Bank situated nearest to the Premises at the time of the award plus one percent
(1%).
The waiver by Landlord of any breach of any term, covenant or condition of this
Lease shall not be deemed a waiver of such term, covenant or condition or of any
subsequent breach of the same or any other term, covenant or condition.
Acceptance of Rent by Landlord subsequent to any breach hereof shall not be
deemed a waiver of any preceding breach other than the failure to pay the
particular Rent so accepted, regardless of Landlord's knowledge of any breach at
the time of such acceptance of Rent. Landlord shall not be deemed to have waived
any term, covenant or condition unless Landlord gives Tenant written notice of
such waiver.
27.3 Landlord's Default. If Landlord fails to perform any covenant, condition or
agreement contained in this Lease within thirty (30) days after receipt of
written notice from Tenant specifying such default, or if such default cannot
reasonably be cured within thirty (30) days, if Landlord fails to commence to
cure within that thirty (30) day period, then Landlord shall be liable to Tenant
for any damages sustained by Tenant as a result of Landlord's breach; provided,
however, it is expressly understood and agreed that if Tenant obtains a money
judgment against Landlord resulting from any default or other claim arising
under this Lease, that judgment shall be satisfied only out of the rents,
issues, profits, and other income actually received on account of Landlord's
right, title and interest in the Premises, Building or Project, and no other
real, personal or mixed property of Landlord (or of any of the partners which
comprise Landlord, if any) wherever situated, shall be subject to levy to
satisfy such judgment. If, after notice to Landlord of default, Landlord (or any
first mortgagee or first deed of trust beneficiary of Landlord) fails to cure
the default as provided herein, then Tenant shall have the right to cure that
default at Landlord's expense. Tenant shall not have the right to terminate this
Lease or to withhold, reduce or offset any amount against any payments of Rent
or any other charges due and payable under this Lease except as otherwise
specifically provided herein.
28. BROKERAGE FEES.
Tenant warrants and represents that it has not dealt with any real estate broker
or agent in connection with this Lease or its negotiation except Broker and
Sales Agent. Tenant shall indemnify and hold Landlord harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any other real estate broker
or agent in connection with this Lease or its negotiation by reason of any act
of Tenant.
29. NOTICES
All notices, approvals and demands permitted or required to be given under this
Lease shall be in writing and deemed duly served or given if personally
delivered or sent by certified or registered U.S. mail, postage prepaid, and
addressed as follows: (a) if to Landlord, to Landlord's Mailing Address and to
the Building manager, and (b) if to Tenant, to Tenant's Mailing Address;
provided, however, notices to Tenant shall be deemed duly served or given if
delivered or mailed to Tenant at the Premises. Landlord and Tenant may from time
to time by notice to the other designate another place for receipt of future
notices.
30. GOVERNMENT ENERGY OR UTILITY CONTROLS.
In the event of imposition of federal, state or local government controls,
rules, regulations, or restrictions on the use or consumption of energy or other
utilities during the Term, both Landlord and Tenant shall be bound thereby, and
Landlord shall have the right to enforce compliance therewith, including the
right of entry into the Premises to effect compliance.
31. RELOCATION OF PREMISES
(12)
<PAGE>
32. QUIET ENJOYMENT.
Tenant, upon paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to the terms of
this Lease and to any mortgage, lease, or other agreement to which this Lease
may be subordinate.
33. OBSERVANCE OF LAW.
Tenant shall not use the Premises or permit anything to be done in or about the
Premises which will in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force, and with the
requirements of any board of fire insurance underwriters or other similar bodies
now or hereafter constituted, relating to, or affecting the condition, use or
occupancy of the Premises, excluding structural changes not related to or
affected by Tenant's improvements or acts. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action against Tenant,
whether Landlord is a party thereto or not, that Tenant has violated any law,
statute, ordinance or governmental rule, regulation or requirement, shall be
conclusive of that fact as between Landlord and Tenant.
34. FORCE MAJEURE.
Any prevention, delay or stoppage of work to be performed by Landlord or Tenant
which is due to strikes, labor disputes, inability to obtain labor, materials,
equipment or reasonable substitutes therefor, acts of God, governmental
restrictions or regulations or controls, judicial orders, enemy or hostile
government actions, civil commotion, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform hereunder, shall
excuse performance of the work by that party for a period equal to the duration
of that prevention, delay or stoppage. Nothing in this Article 34 shall excuse
or delay Tenant's obligation to pay Rent or other charges under this Lease.
35. CURING TENANT'S DEFAULTS.
If Tenant defaults in the performance of any of its obligations under this
Lease, Landlord may (but shall not be obligated to) without waiving such
default, perform the same for the account and at the expense of Tenant. Tenant
shall pay Landlord all costs of such performance promptly upon receipt of a bill
therefor.
36. SIGN CONTROL.
Tenant shall not affix, paint, erect or inscribe any sign, projection, awning,
signal or advertisement of any kind to any part of the Premises, Building or
Project, including without limitation, the inside or outside of windows or
doors, without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed. Landlord shall have the right to remove any
signs or other matter, installed without Landlord's permission, without being
liable to Tenant by reason of such removal, and to charge the cost of removal to
Tenant as additional rent hereunder, payable within ten (10) days of written
demand by Landlord.
37. MISCELLANEOUS.
a. Accord and Satisfaction; Allocation of Payments. No payment by Tenant or
receipt by Landlord of a lesser amount than the Rent provided for in this Lease
shall be deemed to be other than on account of the earliest due Rent, nor shall
any endorsement or statement on any check or letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of the Rent or pursue any other remedy provided for in this Lease. In
connection with the foregoing, Landlord shall have the absolute right in its
sole but reasonable discretion to apply any payment received from Tenant to any
account or other payment of Tenant then not current and due or delinquent.
b. Addenda. If any provision contained in an addendum to this Lease is
inconsistent with any other provision herein, the provision contained in the
addendum shall control, unless otherwise provided in the addendum.
c. Attorneys' Fees. If any action or proceeding is brought by either party
against the other pertaining to or arising out of this Lease, the finally
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
d. Captions, Articles and Section Numbers. The captions appearing within the
body of this Lease have been inserted as a matter of convenience and for
reference only and in no way define, limit or enlarge the scope or meaning of
this Lease. All references to Article and Section numbers refer to Articles and
Sections in this Lease.
e. Changes Requested by Lender. Neither Landlord or Tenant shall unreasonably
withhold its consent to administrative changes or amendments to this Lease
requested by the Lender on Landlord's interest, so long as these changes do not
alter the basic business terms of this Lease or otherwise materially diminish
any rights or materially increase any obligations of the party from whom the
consent to such change or amendment is requested.
f. Choice of Law. This Lease shall be construed and enforced in accordance with
the laws of the State.
g. Consent. Notwithstanding anything contained in this Lease to the contrary,
Tenant shall have no claim, and hereby waives the right to any claim against
Landlord for money damages by reason of any reasonable refusal, withholding or
delaying by Landlord of any consent, approval or statement of satisfaction, and
in such event, Tenant's only remedies therefor shall be an action for specific
performance, injunction or declaratory judgment to enforce any right to such
consent, etc.
h. Corporate Authority. If Tenant is a corporation, each individual signing
this Lease on behalf of Tenant represents
<PAGE>
and warrants that he is duly authorized to execute and deliver this Lease on
behalf of the corporation, and that this Lease is binding on Tenant in
accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of a resolution of its board of directors authorizing such
execution.
i. Counterparts. This lease may be executed in multiple counterparts, all
of which shall constitute one and the same Lease.
j. Execution of Lease; No Option. The submission of this Lease to Tenant shall
be for examination purposes only, and does not and shall not constitute a
reservation of or option for Tenant to lease, or otherwise create any interest
of Tenant in the Premises or any other premises within the Building or Project.
Execution of this Lease by Tenant and its return to Landlord shall not be
binding on Landlord notwithstanding any time interval, pending Landlord's
Lender's approval of this Lease and execution and delivery of this Lease to
Tenant.
k. Furnishings of Financial Statement; Tenant's Representations. In order to
induce Landlord to enter into this Lease or any extention thereof Tenant agrees
that it shall promptly furnish Landlord for Landlord's review and approval, upon
Landlord's written request, with financial statements reflecting Tenant's
current financial condition. Tenant represents and warrants that all financial
statements, records and information furnished by Tenant to Landlord in
connection with this Lease or any extention thereof are true, correct and
complete in all respects.
l. Further Assurances. The parties agree to promptly sign all documents
reasonably requested to give effect to the provisions of this Lease.
m. Mortgagee Protection. Tenant agrees to send by certified or registered mail
to any first mortgagee or first deed of trust beneficiary of Landlord whose
address has been furnished to Tenant, a copy of any notice of default served by
Tenant to Landlord. If Landlord fails to cure such default within the time
provided for in this Lease, such mortgagee or beneficiary shall have an
additional thirty (30) days to cure such default; provided that if such default
cannot reasonably be cured within that thirty (30) day period, then such
mortgagee or beneficiary shall have such additional time to cure the default as
is reasonably necessary under the circumstances.
n. Prior Agreements; Amendments. This Lease contains all of the agreements of
the parties with respect to any matter covered or mentioned in this Lease, and
no prior agreement or understanding pertaining to any such matter shall be
effective for any purpose. No provisions of this Lease may be amended or added
to except by an agreement in writing signed by the parties or their respective
successors in interest.
o. Recording. Tenant shall not record this Lease without the prior consent of
Landlord. Tenant, upon the request of Landlord, shall execute and acknowledge a
"short form" memorandum of this Lease for recording purposes.
p. Severability. A final determination by a court of competent jurisdiction
that any provision of this Lease is invalid shall not affect the validity of any
other provision, and any provision so determined to be invalid shall, to the
extent possible, be construed to accomplish its intended effect.
q. Successors and Assigns. This Lease shall apply to and bind the heirs,
personal representatives, and permitted successors and assigns of the parties.
r. Time of the Essence. Time is of the essence of this Lease.
s. Waiver. No delay or omission in the exercise of any right or remedy of a
party upon any default by the other party shall impair such right or remedy or
be construed as a waiver of such default.
The receipt and acceptance by Landlord of delinquent Rent shall not constitute a
waiver of any other default; it shall constitute only a waiver of timely payment
for the particular Rent payment involved.
No act or conduct of Landlord, including, without limitation, the acceptance of
keys to the Premises, shall constitute an acceptance of the surrender of the
Premises by Tenant before the expiration of the Term. Only a written notice
from Landlord to Tenant shall constitute acceptance of the surrender of the
Premises and accomplish a termination of the Lease.
A party's consent to or approval of any act by the other party requiring the
first party consent or approval shall not be deemed to waive or render
unnecessary the first party's consent to or approval of any subsequent act by
the other party.
Any waiver by a party of any default must be in writing and shall not be a
waiver of any other default concerning the same or any other provision of the
Lease.
The parties hereto have executed this Lease of the date set forth on page 1.
Sycamore/San Diego Investors Protein Polymer Technologies, Inc.
- -------------------------------------- -------------------------------------
By: Shell Properties Corp., Agent
- -------------------------------------- -------------------------------------
/s/ Jeffrey P. Server /s/ J. Thomas Parmeter
- -------------------------------------- -------------------------------------
By: Jeffrey P. Server, President By: J. Thomas Parmeter, President
3-15-96 March 8, 1996
- -------------------------------------- -------------------------------------
Landlord Tenant
SEE YOUR ATTORNEY
-----------------
This lease should be given to your attorney for review before your sign
it. Landlord and Landlord's agent make no representation or
recommendation concerning the tax or legal effects or the legal
sufficiency of this lease. These are questions for legal counsel.
(14)
<PAGE>
ADDENDUM TO LEASE DATED MARCH 1, 1996, BY AND
BETWEEN SYCAMORE/SAN DIEGO INVESTORS, LANDLORD,
AND PROTEIN POLYMER TECHNOLOGIES, INC., TENANT.
-----------------------------------------------
Landlord and Tenant hereby agree that notwithstanding anything contained
in the Lease to the contrary, the provisions set forth below will be deemed to
be a part of the Lease and shall supercede, to the extent appropriate, any
contrary provision in the Lease. All references in the Lease and in this
Addendum to "Lease" shall be construed to mean the Lease, as amended and
supplemented by this Addendum. All terms used in this Addendum, unless
specifically defined in this Addendum, shall have the same meaning as the terms
used in the Lease.
1. Quality of Construction - Standard for Maintenance, Repairs &
-------------------------------------------------------------
Operation. Landlord hereby represents and warrants to Tenant that the
- ---------
improvements to be completed by Landlord as provided in Paragraph 18 herein and
as depicted in Exhibit "C" of this Lease shall be constructed according to plans
and specifications as may be mutually agreed upon between Tenant and Landlord,
but, in any event, according to plans and specifications as may be mutually
agreed upon between Tenant and Landlord, but, in any event, according to plans
and specifications as approved by all interested governmental agencies.
Otherwise, Landlord shall maintain, repair and operate the Project (subject to
Tenant's maintenance and repair obligations set forth in the Lease) in a
condition customary in the industry for comparable buildings, and shall operate
the Project in a like manner.
2. Landlord's Representations. Landlord hereby represents and
--------------------------
warrants that to the best of Landlord's knowledge the use by Tenant of the
Premises for the purposes set forth in the Tenant Use Clause is not, as of the
date of this Lease, in violation of any law or covenant, condition or
restriction affecting the Building or Project or the certificate of occupancy
issued for the Building or Project. Landlord further represents and warrants
that to the best of Landlord's knowledge Tenant's use of the Premises for the
purposes set forth in the Tenant Use Clause will not, as of the date of this
Lease, invalidate any fire, extended coverage or other insurance policy covering
the Building or Project and/or property located therein, and to the best of
Landlord's knowledge complies with all rules, orders, regulations, requirements
and recommendations of the Insurance Services Office or any other organization
performing a similar function.
3. Audit Provision. If, after any inspection conducted by Tenant
under Section 5.3(e) of the Lease, Tenant continues to dispute the amount of
additional rent owed, Tenant shall have the right, exercisable not more than
once in any calendar year, to retain an independent, certified public accounting
firm, which firm shall be subject to Landlord's consent, (which consent shall
not be unreasonably withheld or delayed), to audit and/or review
<PAGE>
Landlord's records to determine the proper amount of Tenant's Proportionate
Share of Project Operating Costs and any other additional rent. If such audit or
review reveals that Landlord has overcharged Tenant, then within thirty (30)
days after the results of such audit are made available to Landlord, Landlord
shall reimburse Tenant the amount of such overcharge plus interest at the
Interest Rate. The "Interest Rate" is defined as the lesser of (a) the prime
rate of Bank of America NT & SA, plus two percent (2%) or (ii) the maximum rate
permitted by law. If the audit reveals that Tenant was undercharged, then,
within thirty (30) days after the results of the audit are made available to
Tenant, Tenant shall reimburse Landlord the amount of such undercharge plus
interest thereon at the Interest Rate. Tenant agrees to pay the cost of any such
audits; provided, however, that if any audit reveals that Landlord's
determination of Tenant's Proportionate Share of Project Operating Costs of
other additional rent was in error in Landlord's favor by more than five percent
(5%), then Landlord shall pay the cost of such audit. Landlord shall be required
to maintain records of the Project Operating Costs for the entirety of the three
(3) year period following Landlord's delivery to Tenant of each operating cost
statement setting forth Tenant's Proportionate Share of Project Operating Costs.
The payment by Tenant of any amounts pursuant to Article 5 of the Lease shall
not preclude Tenant from questioning the correctness of any operating cost
statement provided by Landlord. If Landlord's books and records are audited or
reviewed by any independent certified public accountant or accounting firm
retained by Landlord, the existence of such audit or review, together with a
copy of the results, shall be disclosed and transmitted to Tenant by Landlord
within twenty (20) days of Landlord's receipt of such review or audit results.
4. Project Operating Costs Exclusions.
----------------------------------
Notwithstanding anything to the contrary set forth in Article 5 of the Lease,
Project Operating Costs shall not include the following:
(i) Any ground lease rental;
(ii) Any principal, interest, points or other fees on debts or
amortization on any mortgage or mortgages or any other debt instrument with
regard to the project;
(iii) That portion of any costs of capital repairs, replacements,
improvements or equipment, including interest thereon if any, which would result
in Tenant's prorata share (for such capital items) exceeding the hereby agreed
upon amount of $1,600.00 per month during the Lease Term where such items are
described as those having a useful life in excess of one (l) year and where the
cost of such items are amortized over their reasonably anticipated lives
pursuant to generally accepted accounting principles consistently applied;
(iv) Rentals for items not directly required or involved in Landlord's
performance of its obligations pursuant to this Lease;
(v) Costs incurred by Landlord for the repair of damage to the Project
to the extent that Landlord is reimbursed by insurance proceeds;
(vi) Costs incurred by Landlord with respect to the negotiation or
installation of past, present, future or prospective tenants or occupants within
the Project including tenant improvement and refurbishment costs, space
planning, leasing commissions and other marketing costs, attorney costs and
other fees, and any other costs and expenses connected therewith;
(vii) Expenses for items and services not offered to Tenant, or for
which Tenant or any other tenant or occupant directly reimburses Landlord (other
than through Tenant's Proportionate Share of Project Operating Cost Increases);
<PAGE>
(viii) Costs incurred by Landlord due to the violation by Landlord and/or
other tenant or occupant of the terms and conditions of any other lease
agreement.
(ix) Overhead and profit increments paid to Landlord or to subsidiaries
or affiliates of Landlord for goods and/or services in the Project to the extent
the same exceeds the costs of such goods and/or services rendered by
unaffiliated third parties on a competitive basis;
(x) Landlord's general corporate overhead and administrative expenses;
(xi) Electric power costs for which any tenant or occupant directly
contracts with the local public service company;
(xii) Governmental fines and/or tax penalties incurred as a result of
Landlord's negligence, inability or unwillingness to make payments when due;
(xiii) Landlord's charitable or political contributions;
(xiv) Costs, attorney fees, judgements and payments arising from claims,
disputes, arbitration, litigation or the threat of litigation pertaining to the
Landlord and/or the Building and/or the Project or any other tenant or occupant
therein except where the tenants of the project would receive benefits if
Landlord prevails.
(xv) Costs incurred by Landlord which are not customarily treated as
"operating expenses" or "operating costs" at comparable office buildings.
5. Abatement of Rent When Tenant is Prevented from Using Premises.
--------------------------------------------------------------
Notwithstanding anything to the contrary contained in the Lease, in the event
that Tenant is prevented from using, and does not use, the Premises or any
portion of the Premises greater than five percent (5%) of the Rentable Area of
the Premises for ten (10) consecutive days (the "Eligibility Period") as a
result of any damage or destruction to the Premises, or the taking of all or any
part of the Premises by eminent domain, or any failure on the part of Landlord
or Landlord's agents, employees, contractors or representatives, to provide
services or access to the Premises, except for those provided by public
utilities or other public entities over which Landlord has no control, then
Tenant's obligation to pay Rent shall be abated or reduced, as the case may be,
after expiration of the Eligibility Period, for such time that Tenant continues
to be so prevented from using, and does not use, the Premises or a portion
thereof, in the proportion that the Rentable Area of the portion of the Premises
that Tenant is prevented from using, and does not use, bears to the total
Rentable area of the Premises. If Tenant's right to abatement occurs because of
an eminent domain taking and/or because of damage or destruction to the Premises
or Tenant's personal property, Tenant's abatement period shall commence
immediately and shall continue until Tenant has been given sufficient time (as
reasonably determined by Landlord and Tenant), and sufficient access to the
Premises (as reasonably determined by Landlord and Tenant), to rebuild the
portion of the Premises it is required to rebuild, to install its property,
furniture, fixtures, and equipment, and to move in over a weekend.
6. Limitation on Tenant's Indemnity.
--------------------------------
Notwithstanding anything to the contrary contained in the Lease, Tenant shall
not be required to indemnify and hold Landlord harmless from any loss, cost,
liability, damage and expense, including, but not limited to, penalties, fines
and actual attorneys' fees and costs, (collectively "Claims"), to any person,
property or entity resulting from any breach
<PAGE>
of the Lease by Landlord or any default by Landlord thereunder or from the
negligence or the willful misconduct of Landlord or its agents, employees, in
connection with Landlord's activities in the Project and/or the Building (except
for damage to the tenant improvements and Tenant's personal property, fixtures,
furniture and equipment in the Premises as to which Tenant is required to obtain
the requisite insurance coverage) and Landlord hereby so indemnifies and saves
Tenant harmless from any such Claims. However, Tenant's agreement to indemnify
and hold Landlord harmless pursuant to Article 21 of the Lease, and the
agreement by Landlord to indemnify and hold Tenant harmless set forth above are
not intended to, and shall not relieve any insurance carrier of its obligations
under policies required to be carried by Landlord or Tenant, respectively,
pursuant to the provisions of the Lease to the extent that such policies cover
the results of such acts or conduct. The parties hereby agree that if either
party breaches this Addendum No. 2 provision by its failure to carry required
insurance, such failure shall automatically be deemed to be the covenant and
agreement by such party to self-insure said required coverage, with full waiver
of subrogation in favor of the other party. The parties further agree that to
the extent any damage or repair obligation of Tenant is covered by insurance
obtained by Landlord or would have been covered by insurance had Landlord
maintained the insurance required to be maintained by Landlord under the Lease
as part of the Project Operating Costs, but is not covered by insurance obtained
by Tenant, then Tenant shall be relieved of its indemnity obligation up to the
amount of the insurance proceeds which the Landlord actually receives (or would
have received had Landlord maintained insurance as aforesaid).
7. Reciprocal Indemnity. Notwithstanding anything contained in this Lease
--------------------
to the contrary, Landlord hereby indemnifies and holds Tenant harmless from any
loss, cost, liability, damage or expense (including, but not limited to,
penalties, fines, and reasonable actual attorneys' fees and costs) to any person
or property outside of the Premises or unrelated to the Premises, (except if
resulting from the sole or joint and several negligent acts or omissions of
Tenant or those of its employees, licensees or agents) to the extent such loss,
costs, liability, damage or expenses are covered by the insurance obtained by
Landlord. In the event the Premises, the Building or the Project are damaged or
destroyed and such damage or destruction is covered by insurance obtained by
Landlord but not covered by insurance obtained by Tenant, and further, that
Tenant is not in default hereunder and Tenant has fully complied with all
insurance required to be carried by Tenant hereunder, Landlord shall use the
proceeds of its insurance to repair the damage or destruction to the Premises,
the Building and/or the Project, subject to any rights either Landlord or Tenant
may have to terminate this Lease in the event such damage or destruction occurs.
8. Rules and Regulations. Landlord agrees that the Rules and Regulations
---------------------
of the Project, attached to and made a part of this Lease as Exhibit "D" shall
not be changed or revised at Landlord's will in a manner which materially
interferes with the purposes permitted under Tenant's Use Clause.
9. Non-Disturbance Agreements. Landlord also agrees (a) to provide Tenant
with commercially reasonable Non-Disturbance Agreements in favor of Tenant from
any ground lessors, mortgage holders or lien holders of Landlord in existence as
of the date of this Lease on or before December 10, 1991, and (b) to provide
Tenant with commercially reasonable Non-Disturbance Agreements in favor of
Tenant from any ground lessors, mortgage holders or lien holders of Landlord who
later come into existence at any time during the term of the Lease in
consideration of, and as a condition precedent to, Tenant's agreement to be
bound by Article 24 of the Lease. Such Non-Disturbance Agreement(s) shall
provide that such Holders shall be responsible for fulfilling all of Landlord's
obligations pursuant to the Lease.
19
<PAGE>
10. Real Property. Notwithstanding any contrary provision of
-------------
Article 5 of the Lease, Tenant's Proportionate Share of Project Operating Costs
shall not include (i) any increases in real property taxes resulting from any
assessment or reassessment of the Building or the Project or the real property
on which the Project is located, to the extent that any such increase arises out
of or results from: (a) the sale or transfer of ownership or ground lease of all
or any part of the Project or any part of the real property on which the Project
is located, or (b) the refinancing or placement of any debt related to or
secured by all or any part of the Project or any part of the real property on
which the Project is located.
11. Landlord's Estoppel Certificates. Provided that Tenant is not
--------------------------------
at the time in default hereunder, then Landlord within (20) days after written
request from Tenant, Landlord shall execute and deliver to Tenant or Tenant's
designee, a written statement certifying (a) this Lease is unmodified and in
full force and effect, or in full force and effect as modified in stating the
modifications; (b) the amount of Base Rent and date to which Base Rent and
additional rent have been paid in advance; (c) the amount of any security
deposit held by Landlord; and (d) that Tenant is not in default hereunder or, if
Tenant is claimed in default, stating the nature of any claim default. Any such
statement may be relied upon by any assignee, sublessee or lender. Landlord's
failure to execute and deliver such statement within the time required shall at
Tenant's election be a default under this Lease and shall be conclusive upon
Landlord that: (1) this Lease is in full force and effect and has not been
modified except as represented by Tenant; and (2) there are no uncured defaults
in Tenant's performance.
12. Option to Extend Lease Term. Tenant shall have the option
---------------------------
(provided that Tenant shall not at the time of exercise of said option or at any
subsequent time thru commencement date of said option term be in default
hereunder) to extend the term of this Lease for an additional Sixty (60) months
subject to all of the terms and conditions contained in this Lease. Said option
shall be exercised by Tenant by giving to Landlord written notice of Tenant's
election to exercise said option not later than September 1, 1998. During said
option term Base Rent shall be adjusted pursuant to the provisions of Paragraph
16 hereof.
13. Services and Utilities. Landlord shall furnish to the Premises,
----------------------
subject to the provisions of paragraph 5.3 of the Lease, lighting, water,
electricity, gas, sewer and other utilities, elevator service, janitorial
service, exterior window-washing, HVAC equipment and filter maintenance services
pursuant to the standard set forth in Section 1, above. All utilities,
including, without limitation, water, electricity, gas and sewer, shall be
available to the Premises 24 hours per day, every day throughout the term, in
quantities sufficient for Tenant's normal business operations. Landlord shall
also provide to Tenant access to the Premises 24 hours per day, every day
throughout the term. In the event that Tenant consumes services or utilities in
excess of that usually supplied to the Premises for use of the Premises as
general office space, as reasonably determined by Landlord, and such services of
utilities are not separately metered or otherwise directly paid for by Tenant,
then Landlord may under such circumstances establish a monthly prorata charge
for Tenant's excess use or consumption of such services and utilities.
<PAGE>
notwithstanding any provisions of Article 9 of the Lease to the contrary,
Landlord shall provide natural gas and electricity, including UPS and emergency
power, to the second floor of Building 1 and to the Premises through the
Building's second floor house meters. Landlord, Tenant and Tenant's second floor
co-tenant, shall cooperate to establish fair and equitable methods for the
proration of second floor costs of the natural gas and electricity supplied by
Landlord. Such agreed upon methods shall be in writing and incorporated within
the Lease. If no such methods can be agreed upon, the costs of such utilities
shall be prorated by Landlord on a straight square-footage basis; provided,
however, in the event that said formula does not lead to a fair and equitable
proration because the second floor tenants do not use electricity or other
utilities in proportionally equal amounts, Landlord shall adjust said formula as
necessary to lead to such fair and equitable proration. Any such proration shall
be reviewed from time to time so that it accomplishes the purposes intended
hereby. In either case, the prorated costs of such utilities shall be additional
rent due under the Lease.
14. Alterations and Additions. Notwithstanding any limitations set
-------------------------
forth in Article 12 of the Lease, Tenant shall have the right to make minor,
non-structural alterations, improvements and additions to the Premises, except
for any life safety systems, without obtaining Landlord's prior written consent
where the cost of each such alteration, improvement and addition does not exceed
$1,000, so long as Tenant meets all of the other requirements of said Article
12.
15. Damage and Destruction. Notwithstanding any language to the
----------------------
contrary in Article 19 of the Lease, if the Premises or the portion of the
Building or parking areas necessary for Tenant's occupancy is damaged by fire,
earthquake, act of God, the elements, or other casualty, Landlord shall notify
Tenant within thirty (30) days of said casualty if Landlord, in its reasonable
judgment, believes that the repairs will take longer than sixty (60) days to
complete, which notice shall include Landlord's best estimate of the total time
that said repairs will take to complete (the "Estimate"). If the Estimate
exceeds ninety (90) days, then Tenant shall have the right to terminate the
Lease by providing Landlord written notice of Tenant's receipt of the Estimate,
in which case the Lease shall terminate as of the date of the casualty.
16. (Article 5 Paragraph 2) Adjusted Base Rent. The amount of Base
------------------------------------------
Rent Per Year set forth in Article 2(a) hereof (and the corresponding Monthly
Installments of Base Rent set forth in Article 2(j) hereof) shall be adjusted
annually commencing with Tenant's First Adjustment Date set forth in Article
2(q) hereof, by the same percentage (%) increase, if any, in the Index set forth
in Article 2(h) hereof. The Base Index shall be the Index as it stands as of
the end of the 2nd 1/2 of 1996 and the Comparison Index shall be the same Index
as it stands at the end of each twelve (12) month interval from the date of the
Base Index. The Base Index shall be subtracted from the Comparison Index of the
time and the positive difference, if any, shall be divided by the Base Index to
yield the cumulative percentage (%) increase in the Index between the Base Index
date and the Comparison Index date of the time. The yearly and monthly Base
Rent set forth in Article 2 (a & j) hereof shall be multiplied by the percentage
increase in the Index as above calculated (rounded to the nearest hundredth of a
percent) and those respective products shall be added to said yearly and monthly
Base Rent to determine the Adjusted Base Rent payable yearly and monthly between
each such anniversary date. No such adjustment made pursuant to the preceding
formula shall exceed seven (7%) of the Base Rent of Article 2 (a & j)
nor shall any such adjustment be less than three (3%) of said Base Rent. When
the Adjusted Base Rent payable as of each
<PAGE>
adjustment date has been determined, Landlord shall give Tenant written notice
setting forth the calculation of Base Rent as adjusted. Delay in Landlord's
notice to Tenant shall not relieve Tenant of Tenant's obligation to pay Adjusted
Base Rent as of the adjustment date.
17. Tenant's Temporary Premises. Commencing March 1, 1996 and continuing
---------------------------
through to the Commencement Date of the term of the Lease for the Premises
Tenant shall be entitled to occupy and use those temporary premises known as
Suite 201 on the second floor at 10655 Sorrento Valley Road (containing
approximately 4,371 square feet and as depicted on Lease Exhibit "A2") under all
of the same terms and conditions of this Lease with the exception of Monthly
Base Rent which rent shall be in the amount of $6,721.72 and which rent shall be
subject to adjustment pursuant to Paragraph 16 above for any percentage change
in the "Index" over the period 2nd 1/2 1994 thru 2nd 1/2 1995. For the purposes
of this paragraph, the initial base rent for the Temporary Premises is $6,557
per month.
18. Landlord's Improvements. Prior to the Commencement Date of the term
-----------------------
of the Lease for the Premises Landlord shall, at Landlord's sole cost and
expense, construct or cause to be constructed the 1 Hr rated fire corridor
depicted in Exhibit "C" of the Lease. Tenant, Tenant's 2nd floor co-tenant and
Landlord shall cooperate in their final design, location of doorways, etc. to
permit Landlord's timely completion of said improvements.
SYCAMORE/SAN DIEGO INVESTORS
By: Shell Properties Corporation, Agent
By: /s/ Jeffrey P. Server
--------------------------------
Jeffrey P. Server,
President
PROTEIN POLYMER TECHNOLOGIES, INC.
By: /s/ J. Thomas Parmeter
--------------------------------
J. Thomas Parmeter,
President
<PAGE>
EXHIBIT "A"
Suite 200
10655 Sorrento Valley Road
(DIAGRAM OF FLOOR PLAN)
<PAGE>
EXHIBIT "A2"
Suite 201
10655 Sorrento Valley Road
[DIAGRAM OF FLOOR PLAN]
<PAGE>
EXHIBIT "B"
Site Plan
---------
SYCAMORE CREEK OFFICE R&D PARK
10655 10665 10675 Sorrento Valley Rd.
San Diego, CA
I 805
(Diagram of Site Plan)
SORRENTO VALLEY ROAD
<PAGE>
EXHIBIT "C"
-----------
2nd Fl.
10655 Sorrento Valley Road
(Diagram of 2nd Floor for Sycamore Creek Office)
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1
No sign, placard, picture, advertisement, awning, shade, window film, name
or notice shall be inscribed, displayed or printed or affixed on or to any part
of the outside or inside of the building without the written consent of Lessor
first having been obtained and Lessor shall have the right to remove any such
sign, placard, picture, advertisement, awning, shade, window film, name or
notice without notice to and at the expense of Lessee.
All approved signs or lettering on doors and directories shall be
printed, painted, affixed or inscribed at the expense of Lessee. All such signs
and installation will be ordered through the Lessor.
Lessee shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly
from outside the premises; provided, however, that Lessor is to furnish and
install a building standard window drapery at all exterior windows.
2
3
The bulletin board or directory of the building will be provided
exclusively for the display of the name and location of Lessee only and Lessor
reserves the right to exclude any other names therefrom.
4
The sidewalks, halls, passages, exits, entrances, parking areas, elevators
and stairways shall not be obstructed by any of the lessees or used by them for
any purpose other than for ingress to and egress from their respective premises.
The halls, passages, exits, entrances, elevators, stairways, balconies and roof
are not for the use of the general public and the Lessor shall in all cases
retain the right to control and prevent access thereto by all persons whose
presence in the judgement of the Lessor shall be prejudicial to the safety,
character, reputation and interests of the building and its lessees, provided
that nothing herein contained shall be construed to prevent such access to
persons with whom the lessee normally deals in the ordinary course of Lessee's
business unless such persons are engaged in illegal activities. No lessee and
no employees or invitees of any lessee shall go upon the roof of the building.
5
Lessee shall not alter any lock or install any new or additional locks or
any bolts on any door of the premises.
6
The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the expense
of any breakage, stoppage or damage resulting from the violation of this rule
shall be born by the Lessee who, or whose employees or invitees shall have
caused it.
<PAGE>
7
Lessee shall not overload the floor of the premises or, except in the
course of normal business operations, mark, drive nails, screw or drill into
partitions, woodwork or plaster or in any way deface the premises or any part
thereof.
8
No furniture, freight or equipment of any kind shall be brought into the
building without the consent of Lessor and all moving of the same into or out of
the building shall be done at such time and in such manner as Lessor shall
designate. Lessor shall have the right to prescribe the weight, size and
position of all safes and other heavy equipment brought into the building and
also the times and manner of moving the same in and out of the building. Safes
or other heavy objects shall, if considered necessary by Lessor, stand on wood
strips of such thickness as is necessary to properly distribute the weight.
Lessor will not be responsible for loss of or damage to any such safe or
property from any cause and all damage done to the building by moving or
maintaining any such safe or other property shall be repaired at the expense of
Lessee.
9
Lessee shall not employ any person or persons other than the janitor of
Lessor for the purpose of cleaning the premises unless otherwise agreed to by
Lessor. Except with the written consent of Lessor, no person or persons other
than those approved by Lessor shall be permitted to enter the building for the
purpose of cleaning the same. Lessee shall not cause any unnecessary labor by
reason of Lessee's carelessness or indifference in the preservation of good
order and cleanliness. Lessor shall in no way be responsible to any Lessee for
any loss of property on the premises, however occurring, or for any damage done
to the effects of any Lessee by the janitor or any other employee or any other
person. Janitor service shall include ordinary dusting and cleaning by the
janitor assigned to such work and shall not include cleaning of carpets or
rugs, except normal vacuuming, or moving of furniture or other special services.
10
11
No cooking other than by microwave shall be done or permitted by any
Lessee on the premises, except as related to Tenant's normal business
operations, nor shall the premises be used for the storage of merchandise, for
washing clothes, except as related to Tenant's normal business operations, or
for lodging.
12
<PAGE>
13
Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Lessor, except as otherwise provided in the
Lease. The location of telephones, call boxes and other office equipment
affixed to the premises shall be subject to the approval of Lessor, except as
otherwise provided in the Lease.
14
Each Lessee, upon the termination of the tenancy, shall deliver to the
Lessor the keys of building access, offices, rooms and toilet rooms which shall
have been furnished to the Lessee or which the Lessee shall have had made, and
in the event of loss of any keys so furnished, shall pay the Lessor therefor.
15
No Lessee shall lay linoleum, tile, carpet of other similar floor
covering so that the same shall be affixed to the floor of the premises in any
manner except as approved by the Lessor. The expense of repairing any damage
resulting from a violation of this rule or removal of any floor covering shall
be born by the Lessee by whom, or by whose contractors, employees or invitees,
the damage shall have been caused. Lessee, at Lessee's expense, is to provide
and use carpet protection plates where roll type chairs are used to prevent
excessive carpet wear.
16
17
On Sundays and legal holidays, and on other days between the hours of
6:00 P.M. and 8:00 A.M. the following day, access to the building, or to the
halls, corridors, elevators or stairways in the building, or to the premises may
be refused unless the person seeking access is known to the person or employee
of the building in charge and has a pass or is properly identified. The Lessor
shall in no case be liable for damages for any error with regard to the
admission or exclusion from the building of any person. In case of invasion,
mob, riot, public excitement, or other commotion, the Lessor reserves the right
to prevent access to the building during the continuance of the same by closing
the doors or otherwise, for the safety of the Lessees and protection of property
in the building and the building.
18
Lessee shall see that the doors of the premises are closed and securely
locked before leaving the building and must observe strict care and caution that
all water faucets or water apparatus are entirely shut off before Lessee or
Lessee's employees leave the building, and that all electricity shall likewise
by carefully shut off, so as to prevent waste or damage, and for any default of
carelessness Lessee shall make good all injuries sustained by other tenants or
occupants of the building or Lessor. Lessee must observe strict care not to
leave windows, sliding glass doors open when it rains; and, for any default or
carelessness the Lessee shall make good all injuries and damages sustained by
other tenants and building Lessor.
<PAGE>
19
Lessor reserves the right to exclude or expel from the building any person
who, in the judgement of Lessor, is intoxicated or under the influence of liquor
or drugs, or who shall in any manner do any act in violation of any of the rules
and regulations of the building.
20
The requirements of Lessee will be attended to only by an application at
the Office of the Building. Employees of Lessor shall not perform any work or do
anything outside of their regular duties unless under special instructions from
the Lessor, and no employee will admit any person (Lessee or otherwise) to an
office without specific instructions from the Lessor.
21
22
Lessor shall have the right, exercisable without notice and without
liability to Lessee, to change the name and the street address of the building
of which the premises are a part.
23
Lessee shall not disturb, solicit, or canvass an occupant of the building
and shall cooperate to prevent the same.
24
Without the written consent of Lessor, Lessee shall not use the name of the
building in connection with or in promoting or advertising the business of
Lessee except as Lessee's address.
25
26
The word "building" as used herein means the building which the premises
are a part.
27
In the event and in each occurrence, Lessee issues a check to Lessor which
is dishonored by the bank, Lessee agrees to pay Lessor as a penalty the
amount of $15.00 which is immediately due and payable along with the redemption
of such dishonored check.
28
No monthly rent statements are issued by Lessor. If a rent statement is
requested by Lessee, a monthly fee of $5.00 will be charged to Lessee, payable
with monthly rent.
<PAGE>
29
If Lessee locks himself out of the leased premises, a copy of the key can
be obtained from the Lessor's office during normal business hours. A deposit of
$10.00 is required with the pickup of the key, refundable upon return of the key
to Lessor's office.
30
The Lessee shall not do anything in the premises, or bring or keep
anything herein, which will in any way increase or tend to increase the risk of
fire or rate of insurance, or which shall conflict with the Regulations of the
Fire Department or the fire laws or with any insurance policy on the building or
any part thereof, or with any rules or ordinances established by Public
Authority.
31
The Lessor reserves the right at any time to change or rescind any one or
more of these Rules and Regulations, or make any reasonable Rules and
Regulations as in the Lessor's judgement may from time to time be necessary for
the safety, care and cleanliness of the premises, and for the preservation of
good order therein. Lessor shall give Lessee notice of any changes or additions
to, these Rules and Regulations thirty (30) days before the effective date of
such changes or additions.
32
If an inconsistency exists or arises between the provisions of the Lease
between the Lessee and Lessor and these Rules and Regulations, the provisions of
the Lease between the Lessee and Lessor shall govern.
<PAGE>
EXHIBIT 10.23
SECOND AMENDMENT TO LEASE
-------------------------
THIS SECOND AMENDMENT TO LEASE ("Second Amendment") is made and entered
into as of March 1, 1996, by and between Sycamore/San Diego Investors, an
Illinois Limited Partnership ("Landlord") and Protein Polymer Technologies,
INC., a Delaware Corporation ("Tenant").
RECITALS
--------
A. Landlord and Tenant entered into a written lease dated October 16,
1991, whereby Landlord leased to Tenant and Tenant leased from Landlord
approximately 12,487 rentable square feet contained in the building ("Building")
situated at 10655 Sorrento Valley Road, in the City of San Diego, State of
California, commonly referred to as Suite 100 of Building 1 of Sycamore Creek
Office Park (the "Premises"). Said lease has been amended and modified by that
certain letter agreement ("Letter Agreement") dated March 27, 1992, between
Landlord and Tenant, and by that certain first amendment ("First Amendment")
dated June 22, 1992, between Landlord and Tenant. Said Lease with addendum
("Addendum") and second addendum ("Addendum NO. 2") and said Letter Agreement
and said First Amendment are collectively referred to herein as the "Lease"
B. Landlord and Tenant now desire to amend and modify the Lease in the
manner provided below.
NOW, THEREFORE, for valuable consideration the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Deletion of Letter Agreement. The provisions of the Letter Agreement
----------------------------
have been fully satisfied and said Letter Agreement is hereby deleted for the
Lease in its entirety.
2. Deletion of First Amendment. The First Amendment is hereby cancelled
---------------------------
and deleted from Lease in its entirety.
3. Extension of Initial Term. The expiration date set forth in Section
-------------------------
2(g) of the Lease shall be changed to December 31, 1998.
4. Extension of Term of Second Option and Time to Exercise. Tenant
-------------------------------------------------------
retains all right to exercise the second option to extend the initial term of
the Lease as set forth in Paragraph 12 of Addendum NO. 2 to this Lease, the
option term of which is hereby changed to Sixty (60) Months, and the exercise
deadline date of which is hereby changed to September 1, 1998. If so exercised,
the second option term will commence January 1, 1999 and expire on December 31,
2003.
5. No Further Changes. As hereby modified and amended, the Lease and
------------------
each of its provisions shall be and remains in full force and effect. In the
event of any conflict between the provisions of the Lease and the provisions of
this second amendment, the provisions of this second amendment shall control.
Unless the context clearly requires otherwise, all of the capitalized and
defined terms used herein shall have the same meanings as set forth in the
Lease.
6. Brokerage Commissions. Section 28 of the Lease shall apply to this
---------------------
amendment; provided, however, that Landlord shall be responsible for all
brokerage commissions incurred in connection with this Second Amendment.
7. Execution. This document shall be executed in triplicate originals
---------
each of which is deemed an original and all of which constitute one of the same
agreement. Landlord and Tenant shall execute this document on or before March
15, 1996 or this document shall be null and void.
8. Effective Date. The effective date of this second amendment shall be
--------------
the date first written above, but this second amendment shall not be binding
upon the parties until full execution by both parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment to Lease of original date October 16, 1991 on the day and year below
written.
"TENANT"
PROTEIN POLYMER TECHNOLOGIES, INC. a
Delaware Corporation
By: /s/ J. Thomas Parmeter
----------------------------------
J. Thomas Parmeter, President
Date: March 8, 1996
--------------------------------
"LANDLORD"
SYCAMORE/SAN DIEGO INVESTORS, an Illinois
Limited Partnership
By: SHELL PROPERTIES CORPORATION, AGENT
By: /s/ Jeffrey P. Server
----------------------------------
Jeffrey P. Server, President
Date: 3-15-96
--------------------------------
<PAGE>
EXHIBIT 10.24
PROTEIN POLYMER TECHNOLOGIES, INC.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Purpose of the Plan.
The purpose of the 1996 Non-Employee Directors' Stock Option Plan of the
Company is to provide incentives which will attract and retain highly competent
persons as directors of the Company by providing them with opportunities to
acquire a proprietary interest in the Company by the grant to such persons of
nonqualified Stock Options which may result in their ownership of Common Stock
of the Company.
2. Definitions.
(a) "Administrator" shall mean the Board or, if and to the extent the
Board delegates any of its authority hereunder in accordance with Section 4(b)
hereof, the Committee.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" means a committee appointed by the Board to administer
the Plan pursuant to Section 4(b) hereof.
(d) "Common Stock" means the common stock, $.01 par value, of the
Company.
(e) "Company" means Protein Polymer Technologies, Inc., a Delaware
corporation.
(f) "Date of Grant" means the date determined as set forth in Section 6
hereof.
(g) "Disability" means any medically determinable physical or mental
impairment of a Participant, as determined by the Administrator, in its complete
and sole discretion, which is expected to last for a period of at least 180 days
as a result of which such Participant is unable to engage in any substantial
gainful activity. All determinations as to a Participant's disabled status, and
the date and extent of any disability, shall be made by the Administrator upon
the basis of such information as it deems necessary or desirable.
(h) "Eligible Participant" means a Participating Director.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) "Fair Market Value" on a given date means (a) the mean between the
highest and the lowest reported sales prices for the Common Stock on that date
(or, if there were no such sales on that date, on the next most recent date on
which there were such sales) as reported on the New York Stock Exchange
Composite Tape; or (b) if the Common Stock is not then listed on a national
securities exchange, (i) the mean between the closing bid and asked price
quotations for the Common Stock on that date (or if none on that date, on the
next most recent date) as reported by the National Association of Securities
Dealers Automatic Quotation System or any successor thereto, or (ii) the closing
price of the Common Stock on NASDAQ if the Common Stock is designated as a
National Market Security.
A-1
<PAGE>
(k) "Normal Board Retirement" means, in conjunction with termination of a
Participant's services as a member of the Board for any reason other than death
or Disability, the determination of the Administrator or the Nominating
Committee of the Board that such termination constitutes Normal Board
Retirement. In the absence of such a determination, termination of a
Participant's services as a member of the Board shall be deemed to be for
reasons other than Normal Board Retirement.
(l) "Option" or "Stock Option" means a stock option that does not qualify
as an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended.
(m) "Option Agreement" means an option agreement signed by the Company
and the Participant in such form and including such terms and conditions not
inconsistent with the Plan as the Administrator may in its discretion from time
to time determine.
(n) "Participant" means any Eligible Participant who elects to receive
Options pursuant to Section 6 hereof.
(o) "Participating Director" means a member of the Board who is not an
employee of the Company or any of its present or future parent or subsidiary
corporations.
(p) "Plan" means the 1996 Non-Employee Directors' Stock Incentive Plan as
set forth herein, and as it may be amended from time to time.
3. Shares of Common Stock Subject to the Plan.
(a) Subject to the provisions of Section 3(c) and Section 8 of the Plan,
the aggregate number of shares of Common Stock that may be issued or transferred
or exercised pursuant to Options granted under the Plan will not exceed 250,000.
(b) The shares to be delivered under the Plan will be made available from
authorized but unissued shares of Common Stock.
(c) Shares of Common Stock subject to an unexercised portion of any Stock
Option granted under the Plan which expires or terminates or is cancelled will
again become available for the grant of further Options hereunder.
4. Administration of the Plan.
(a) The Plan shall, to the extent possible, be self-effectuating. The
Plan will be administered by the Board. The Board is authorized and empowered
to administer the Plan, which administration shall include (but is not limited
to) authority to (i) construe and interpret the plan and any agreements defining
the rights and obligations of the Company and Participants under the Plan; (ii)
prescribe, amend and rescind rules and regulations relating to the Plan; (iii)
further define the terms used in the Plan; (iv) determine the rights and
obligations of Participants under the Plan; and (v) make all other
determinations necessary or advisable for the administration of the Plan. Each
Option granted under the Plan shall be evidenced by an Option Agreement.
(b) The Board of Directors may, in its discretion, delegate any or all of
its authority under the Plan to a committee consisting of two or more directors
of the Company, so long as allowable under applicable law.
(c) No member of the Board or the Committee will be liable for any action
or determination made in good faith by the Board or the Committee with respect
to the Plan or any Option under it,
A-2
<PAGE>
including, without limitation, adjustments pursuant to Section 8. In making
determinations under the Plan, the Board or the Committee may obtain and may
rely upon the advice of independent counsel and accountants and other advisors
to the Company. No member of the Board or the Committee, nor an officer of the
Company shall be liable for any such action or determination taken or made in
good faith with respect to the Plan or any Option granted hereunder.
5. Participation.
Options shall be granted to each Participating Director exclusively in
accordance with the provisions set forth in Section 6 hereof.
6. Annual Option Grants.
(a) On June 1 (or if June 1 is not a business day, on the next succeeding
business day) in each calendar year, commencing in 1996, during the term of the
Plan, there shall be granted automatically (without any action by the
Administrator) a Stock Option (the Date of Grant which shall be such date in
June) to each Participating Director then in office to purchase 5,000 shares of
Common Stock (subject to adjustment pursuant to Section 8 hereof).
(b) In any calendar year after 1996 in which a person shall become a
Participating Director for the first time, there shall be granted automatically
(without any action by the Administrator) a Stock Option (the Date of Grant of
which shall be the date such person shall have become a Participating Director)
to such person to purchase 5,000 shares of Common Stock (subject to adjustment
pursuant to Section 8 hereof).
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no
Participating Director shall receive more than one Stock Option under this
Section 6 in any calendar year.
7. Terms and Conditions of Stock Options.
(a) Purchase Price. The purchase price of Common Stock under each Stock
--------------
Option granted under Section 6 will be equal to the Fair Market Value of the
Common Stock on the Date of Grant.
(b) Exercise Period. Stock Options may be exercised from time to time in
---------------
accordance with the terms of the applicable Option Agreement and this Section 7.
No Stock Option granted pursuant to Section 6 hereof shall be exercised prior to
the six months after its Date of Grant. Notwithstanding anything to the
contrary in the Plan or any Option Agreement hereunder, no Option granted
hereunder shall be exercised after ten years from its Date of Grant.
(c) Payment of Purchase Price. Upon the exercise of a Stock Option, the
-------------------------
purchase price will be payable in full in cash or its equivalent acceptable to
the Company. In the discretion of the Administrator, the purchase price may be
paid by the assignment and delivery to the Company of shares of Common Stock or
a combination of cash and such shares equal in value to the exercise price. Any
shares so assigned and delivered to the Company in payment or partial payment of
the purchase price will be valued at their Fair Market Value on the exercise
date.
(d) No Fractional Shares. No fractional shares will be issued pursuant
--------------------
to the exercise of a Stock Option nor will any cash payment be made in lieu of
fractional shares.
(e) Termination of Directorship. If a Participant's services as a member
---------------------------
of the Board terminate by reason of death, Disability or Normal Board
Retirement, an Option granted hereunder held by such Participant shall be
automatically accelerated with respect to its exercisability and shall become
A-3
<PAGE>
immediately exercisable in full for the remaining number of shares of Common
Stock subject to such Option for three years after the date of such termination
or until the expiration of the stated term of such Option, whichever period is
shorter, and thereafter such Option shall terminate; provided, however, that if
a Participant dies or suffers a Disability during said three year period after
Normal Board Retirement such Option shall remain exercisable in full for a
period of three years after the date of such death or Disability or until the
expiration of the stated term of such Option, whichever period is shorter, and
thereafter such Option shall terminate. If a Participant's services as a member
of the Board terminate for any other reason, any portion of an Option granted
hereunder held by such Participant which is not then exercisable shall terminate
and any portion of such Option which is then exercisable may be exercised for
three months after the date of such termination or until the expiration of the
stated term of such Option, whichever period is shorter, and thereafter such
Option shall terminate; provided, however, that if a Participant dies or suffers
a Disability during such three month period, such Option may be exercised for a
period of one year after the date of such Participant's death or Disability or
until the expiration of the stated term of such Option, whichever period is
shorter, in accordance with its terms, but only to the extent exercisable on the
date of the Participant's death or Disability.
8. Adjustment Provisions.
(a) Subject to Section 8(b), if the outstanding shares of Common Stock of
the Company are increased, decreased or exchanged for a different number or kind
of shares or other securities, or if additional shares or new or different
shares or other securities are distributed with respect to such shares of Common
Stock or other securities, through merger, consolidation, sale of all or
substantially all the property of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of Common Stock or other securities, an
appropriate and proportionate adjustment shall be made in (i) the maximum number
and kind of shares or other securities provided in Section 3(a), (ii) the number
and kind of shares or other securities subject to the then-outstanding Stock
Options, (iii) the price for each share or other unit or any other securities
subject to then-outstanding Stock Options without change in the aggregate
purchase price or value as to which such Stock Options remain exercisable and
(iv) the number, kind and price of shares or other securities to be granted
pursuant to Section 6 hereof.
(b) Notwithstanding the provisions of Section 8(a), upon dissolution or
liquidation of the Company or upon a reorganization, merger or consolidation of
the Company with one or more corpo rations as a result of which the Company is
not the surviving corporation or as a result of which the outstanding Common
Stock is converted into or exchanged for cash or securities of another issuer or
both, or upon the sale of all or substantially all the assets of the Company,
all restrictions applicable to the exercise of outstanding Stock Options shall
continue in full force and effect and provision shall be made in connection with
such transaction for the continuance of the Plan and the assumption of the
outstanding stock Options by or the substitution for such Options of new options
covering the stock of the successor corporation, or a parent or subsidiary
thereof or the Company, with appropriate and proportionate adjustment in (i) the
number and kind of shares or other securities or cash or other property subject
to such Options and (ii) the price for each share or other unit of any other
securities or cash or other property subject to such Options without change in
the aggregate purchase price or value as to which such Options remain
exercisable; provided, however, that if no public market exists for the Common
Stock or the other securities or property which would be subject to such Options
after consummation of such transaction, such Options shall be converted into the
right to receive, upon exercise thereof, an amount of cash equal to the amount
determined by the Administrator to be the fair market value of the effective
date of such transaction of the stock, other securities, cash and other property
that a share of Common Stock is entitled to receive, or into which it is
converted, pursuant to such transaction.
(c) Adjustments under Sections 8(a) and 8(b) will be made by the
Administrator, whose determination as to what adjustments will be made and the
extent thereof will be final, binding, and
A-4
<PAGE>
conclusive in the absence of manifest error or arbitrary action. No fractional
interest will be issued under the Plan on account of any such adjustments.
9. General Provisions.
(a) The grant of any Stock Option under the Plan may also be subject to
such other provisions (whether or not applicable to the Stock Option awarded to
any other Participant) as the Administrator determines appropriate including,
without limitation, provisions to assist the participant in financing the
purchase of Common Stock through the exercise of Stock Options, provisions for
the forfeiture of or restrictions on resale or other disposition of shares
acquired under any form of benefit, provisions giving the Company the right to
repurchase shares acquired under any form of benefit in the event the
Participant elects to dispose of such share, provisions to comply with federal
and state securities laws and federal and state income tax withholding
requirements and to such approvals by any regulatory or governmental agency
which may be necessary or advisable in connection therewith.
In connection with the administration of the Plan or the grant of any
Stock Option, the Administrator may impose such further limitations or
conditions as in its opinion may be required or advisable to satisfy, or secure
the benefits of, applicable regulatory requirements (including those rules
promulgated under Section 16 of the Exchange Act or those rules that facilitate
exemption from or compliance with the Act of the Exchange Act), the requirements
of any stock exchange or NASDAQ upon which such shares or shares of the same
class are then listed, and any blue sky or other securities laws applicable to
such shares.
(b) No person shall be entitled to the privileges of stock ownership in
respect of shares of stock which are subject to Options hereunder until such
person shall have become the holder of record of such shares.
(c) Options shall not be transferable by the Participants other than by
will or the laws of descent and distribution, and during the lifetime of any
Participant shall be exercisable only by such Participant, except that to the
extent permitted by applicable law, and Rule 16b-3 promulgated under the
Exchange Act, the Administrator may permit a Participant to designate in writing
during his lifetime a beneficiary to receive and exercise Stock Options in the
event of such Participant's death. Following the death of a Participant, Stock
Options held by such Participant shall be exercisable, in accordance with their
terms, by such designated beneficiary or, if no such beneficiary has been
designated, by the Participant's estate or by the person or persons who acquire
the right to exercise it by bequest or inheritance. Any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of, or to subject to execution,
attachment or similar process, any Stock Option granted hereunder, contrary to
the provisions hereof, shall be void and ineffective, shall give no rights to
the purported transferee, and shall at the sole discretion of the Administrator
result in forfeiture of such Stock Option with respect to the shares involved in
such attempt.
(d) The Plan and all Stock Options granted under the Plan and the
documents evidencing Stock Options shall be governed by, and construed in
accordance with, the laws of the state of California.
10. Amendment and Termination.
(a) The Board will have the power, in its discretion, to amend, suspend
or terminate the Plan at any time. No such amendment will, without approval of
the stockholders of the Company, except as provided in Section 8 of the Plan:
(i) Change the class of persons eligible to receive Stock Options
under the Plan; or
A-5
<PAGE>
(ii) Increase the number of shares of Common Stock subject to the
Plan.
(b) No amendment, suspension or termination of the Plan will, without the
consent of the Participant, alter, terminate, impair or adversely affect any
right or obligation under any Stock Option previously granted under the Plan.
(c) The Plan shall not be amended more than once every six months, other
than to comport with changes in the Internal Revenue Code, the Employee
Retirement Income Security Act, or the rules thereunder.
11. Effective Date of Plan and Duration of Plan.
This Plan will become effective upon adoption by the Board subject to
approval by the holders of a majority of the outstanding shares of Common Stock
present in person or by proxy and entitled to vote at a meeting of stockholders
of the Company held any time after such Board adoption. Any Options granted
hereunder prior to approval of the Plan by the stockholders shall be granted
subject to such approval and may not be exercised or realized, nor may Common
Stock be irrevocably transferred to any Participant, until and unless such
approval has occurred and the provisions of Section 9(a) have been satisfied.
Unless previously terminated, the Plan will terminate ten years and after
adoption by the Board, but such termination shall not affect any Stock Option
previously made or granted.
A-6
<PAGE>
EXHIBIT 10.25
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
---------
November 1, 1996 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and J. THOMAS PARMETER (the "Employee").
------- --------
R E C I T A L
- - - - - - -
The Company desires to continue to employ the Employee, and the Employee
desires to be so employed by the Company, on the terms and subject to the
conditions set forth in this Agreement. This Agreement supersedes that certain
employment agreement between the Company and the Employee dated November 1, 1994
(the "Prior Agreement").
---------------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual promises
set forth in this Agreement, the Company and the Employee hereby agree as
follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) November 1, 1999 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
the Board of Directors of the Company (the "Board"). The Employee shall have the
title of Chairman of the Board, Chief Executive Officer and President, or such
other title or titles, if any, as from time to time may be assigned to the
Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
<PAGE>
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
--------
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
-------------------------
2. Location of Employment. The Employee's principal place of employment
----------------------
shall be at the executive offices of the Company located at 10655 Sorrento
Valley Road, San Diego, California 92121 or, as may be requested by the Board,
at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
--------
Board, the Employee may from time to time be required to travel to various
domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee a base salary
(the "Base Salary") at a monthly rate equal to $12,500, payable in accordance
-----------
with the Company's standard payroll practices, subject to adjustment in
accordance with subsection (b) hereof. In any month in which the Employee shall
be employed for less than the entire number of days in such month, the
compensation payable under this Section 3(a) shall be prorated on the basis of
the number of days during which the Employee was actually employed divided by
the number of days in such month.
-2-
<PAGE>
(b) Notwithstanding anything to the contrary in subsection (a) hereof,
the Base Salary shall be increased by an amount equal to $2,500 per month (the
"Additional Monthly Base Salary") to the extent, and subject to the conditions,
- -------------------------------
set forth in this subsection (b). The Additional Monthly Base Salary component
of the Base Salary shall accrue without interest from the date of this
Agreement, but shall not be payable, if ever, until the earlier of (A) the
acceptance by Ethicon, Inc. ("Ethicon") of the tissue adhesive and/or sealant
-------
product of the Company has been accomplished pursuant to that certain License
and Development Agreement (the "Ethicon Agreement") dated September 14, 1995
-----------------
between the Company and Ethicon, as the same may be amended or extended from
time to time, or (B) the determination by the Compensation Committee of the
Board that sufficient progress has been made by the Company to warrant the
increase in Base Salary by the amount of the Additional Base Salary (either of
the immediately foregoing conditions, the "Increase Conditions"). Upon the
-------------------
accomplishment of either of the Increase Conditions, all accrued Additional
Monthly Base Salary shall be payable on the next standard payroll distribution
date and thereafter the Additional Monthly Base Salary shall be payable in
accordance with the Company's standard payroll practices, and the Base Salary
shall thereafter be $15,000 per month, or $180,000 per year. In the event
either of the Increase Conditions are not accomplished prior to the expiration
of this Agreement or the termination of Employee's employment hereunder, no
Additional Monthly Base Salary shall be paid or payable under this Agreement.
(c) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(d) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(e) The Employee shall be entitled to 20 business days vacation for
each full year of employment
-3-
<PAGE>
under this Agreement, which vacation time will accrue in accordance with the
vacation policy of the Company.
(f) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall be available from time to time to the domestic management
employees of the Company generally, except to the extent such participation in
any plan would, in the opinion of the Board, alter the intended tax treatment of
such plan; provided, however, that the Employee shall have no right under this
-------- -------
Agreement to participate in any stock option, stock purchase or other plan
relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(g) During the term of this Agreement, the Company shall maintain, for
the benefit of the Employee, a "term life" insurance policy in the amount of
$250,000, the proceeds of which are payable to a person designated by the
Employee.
(h) The Employee shall be entitled to use, at the expense of the
Company, a corporate automobile leased by the Company, provided that the monthly
lease payments shall be less than $550. Upon termination or expiration of this
Agreement, the Employee shall have the option to purchase such automobile from
the Company at a price equal to the book value thereof, as reflected on the most
recent regularly-prepared balance sheet of the Company. The Employee may
exercise this option by delivering a check, in the amount of such price, to the
Company within 30 days of such termination or expiration.
(i) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
-----------
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by
-4-
<PAGE>
reason of illness or injury for either (A) a period of two consecutive months or
(B) twelve weeks in any twelve-month period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Board, any duties
assigned to the Employee by the Board, (ii) committed a breach of the terms of
this Agreement or any other legal obligation to the Company, (iii) failed to
perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo contendere to
---- ----------
a felony or other serious crime, (vi) repeatedly and intemperately used alcohol
or drugs, (vii) engaged in business practices which, in the opinion of the
Board, are unethical or reflect adversely on the Company, (viii) misappropriated
assets of the Company or (ix) been repeatedly absent from work during normal
business hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an at-
will employee and may be terminated by the Company without cause or prior notice
pursuant to this subsection (e) notwithstanding any other provision contained in
this Agreement. This at-will relationship will remain in effect during the term
of this Agreement and so long thereafter provided that the Employee remains
employed by the Company,
-5-
<PAGE>
unless such at-will employment relationship is modified by a specific, express
written agreement signed by the Company.
(f) If the Employee's employment is termi nated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable business
expenses incurred, under Section 3 of this Agreement through the date of such
termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the termination date set forth in Section 1(a)(i) of this
Agreement.
(g) Employee may terminate his employment hereunder for "Good Reason"
-----------
(as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
-----------------
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
(A) All or substantially all of the assets of the
-
Company are sold or transferred to another corporation or entity; or
-6-
<PAGE>
(B) The Company is sold, transferred, merged,
-
consolidated, ventured or reorganized into or with another
corporation or entity, with the result that upon conclusion of
the transaction less than a majority of the outstanding
securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation
or entity are owned, directly or indirectly, by the shareholders
of the Company immediately prior to the sale, transfer, merger,
consolidation, venture or reorganization; or
(C) There is a report filed on Schedule 13D or
-
Schedule 14D-1 (or any successor schedule, form or report), each
as promulgated pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), disclosing that any person (as
------------
the term "person" is used in Section 13(d)(3) or Section 14(d)(2)
of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor
rule or regulation promulgated under the Exchange Act) of
securities representing more than 50% of the combined voting
power of the then-outstanding voting securities of the Company;
or
(D) The Company shall file a report or proxy
-
statement with the Securities and Exchange Commission pursuant to
the Exchange Act disclosing in response to Item 1 of Form 8-K
thereunder or Item 14 of Schedule 14A thereunder (or any
successor schedule, form or report or item therein) that a change
in control of the Company has or may have occurred or will or may
occur in the future pursuant to any then-existing contract or
transaction; or
(E) The individuals who, at the beginning of any
period of two consecutive calendar years, constituted members of
the Board cease for any reason to constitute at least a majority
thereof unless the nomination for election by the Company's
stockholders of each new director of the Company was approved by
a vote of at least two-thirds of the directors of the Company
still in office who were Directors of the Company at the
beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not
be treated as a termination for Good
-7-
<PAGE>
Reason (i) if Employee shall have specifically consented in writing to the
occurrence of the event giving rise to the claim of termination for Good Reason
or (ii) unless Employee, within 30 days after receiving written notice from the
Company specifying in reasonable detail the occurrence of one of such events,
shall have delivered a written notice to the Company stating that he intends to
terminate his employment for Good Reason and specifying the factual basis for
such termination and such event, if capable of being cured, shall not have been
cured within 30 days of the receipt by the Company of such notice.
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of 2.99. Employee will also be entitled to any
vested benefits under any employee benefit plans.
5. Employee's Representations.
--------------------------
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement or any breach
-8-
<PAGE>
hereof or the Employee's employment by the Company or termination thereof, shall
be settled by arbitration by one arbitrator in accordance with the rules of the
American Arbitration Association, and judgment upon such award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall be held in the City of San Diego or such other place as may be
agreed upon at the time by the parties to the arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to the remedies
available to the Company by law or under this Agreement, the Company shall be
entitled to obtain such equitable relief as may be permitted by law in a court
of competent jurisdiction including, without limitation, injunctive relief from
any violation or continuing violation by the Employee of any term or provision
of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal substantive laws (and not the laws of
conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, repre sentations and understandings relative thereto
(including, without limitation, the Prior Agreement) being herein merged.
10. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any other
corporation, partnership or business entity, or all or substantially all of the
Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, then such successor to the Company
shall thereupon succeed to, and be subject to, all rights, interests, duties
-9-
<PAGE>
and obligations of, and shall thereafter be deemed for all purposes hereof to
be, the "Company" under this Agreement. This Agreement shall inure to the
benefit of and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die, any amounts payable to him hereunder shall be
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee, or other designee or, if there be no such designee, to his estate.
(b) This Agreement is personal in nature and the Employee shall not,
except as set forth in subsection (a) hereof, without the written consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder.
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers
-10-
<PAGE>
of which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agree ment that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other juris diction.
14. Survival. The representations and agreements of the Employee set forth
--------
in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce his
---------------
or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By /s/ Philip J. Davis
---------------------------
Its Corporate Secretary
-----------------------
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: __________________
Telecopy: (619) 558-6477
/s/ J. Thomas Parmeter
------------------------------
J. THOMAS PARMETER
Address for Notices:
1842 Viking Way
------------------------------
La Jolla, CA 92037
------------------------------
------------------------------
-12-
<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
---------
November 1, 1996 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and JOHN FLOWERS (the "Employee").
------- --------
R E C I T A L
- - - - - - -
The Company desires to continue to employ the Employee, and the
Employee desires to be so employed by the Company, on the terms and subject to
the conditions set forth in this Agreement. This Agreement supersedes that
certain employment agreement between the Company and the Employee dated November
1, 1994 (the "Prior Agreement").
---------------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth in this Agreement, the Company and the Employee hereby agree
as follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) November 1, 1999 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
Board of Directors of the Company (the "Board") or the President of the Company
(the "Designated Officer"). The Employee shall have the title of Vice President
- - Planning and Operations, or such other title or titles, if any, as from time
to time may be assigned to the Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
<PAGE>
(i) engage in any other activity for compensation, profit or other
pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
--------
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
-------------------------
2. Location of Employment. The Employee's principal place of
----------------------
employment shall be at the executive offices of the Company located at 10655
Sorrento Valley Road, San Diego, California 92121 or, as may be requested by the
Board, at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
--------
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee a base salary
(the "Base Salary") at a monthly rate equal to $8,583.33, payable in accordance
-----------
with the Company's standard payroll practices, subject to adjustment in
accordance with subsection (b) hereof. In any month in which the Employee shall
be employed for less than the entire number of days in such month, the
compensation payable under this Section 3(a) shall be prorated on the basis of
the number of days during
which the Employee was actually employed divided by the number of days in such
month.
-2-
<PAGE>
(b) Notwithstanding anything to the contrary in subsection (a) hereof,
the Base Salary shall be increased by an amount equal to $750 per month (the
"Additional Monthly Base Salary") to the extent, and subject to the conditions,
- -------------------------------
set forth in this subsection (b). The Additional Monthly Base Salary component
of the Base Salary shall accrue without interest from the date of this
Agreement, but shall not be payable, if ever, until the earlier of (A) the
acceptance by Ethicon, Inc. ("Ethicon") of the tissue adhesive and/or sealant
-------
product of the Company has been accomplished pursuant to that certain License
and Development Agreement (the "Ethicon Agreement") dated September 14, 1995
-----------------
between the Company and Ethicon, as the same may be amended or extended from
time to time, or (B) the determination by the Compensation Committee of the
Board that sufficient progress has been made by the Company to warrant the
increase in Base Salary by the amount of the Additional Base Salary (either of
the immediately foregoing conditions, the "Increase Conditions"). Upon the
-------------------
accomplishment of either of the Increase Conditions, all accrued Additional
Monthly Base Salary shall be payable on the next standard payroll distribution
date and thereafter the Additional Monthly Base Salary shall be payable in
accordance with the Company's standard payroll practices, and the Base Salary
shall thereafter be $9,333.33 per month, or $112,000 per year. In the event
either of the Increase Conditions are not accomplished prior to the expiration
of this Agreement or the termination of Employee's employment hereunder, no
Additional Monthly Base Salary shall be paid or payable under this Agreement.
(c) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(d) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(e) The Employee shall be entitled to 20 business days vacation for
each full year of employment
-3-
<PAGE>
under this Agreement, which vacation time will
accrue in accordance with the vacation policy of the Company.
(f) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall be available from time to time to the domestic management
employees of the Company generally, except to the extent such participation in
any plan would, in the opinion of the Designated Officer, alter the intended tax
treatment of such plan; provided, however, that the Employee shall have no right
-------- -------
under this Agreement to participate in any stock option, stock purchase or other
plan relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(g) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
-----------
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to
-4-
<PAGE>
perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo contendere to
---------------
a felony or other serious crime, (vi)repeatedly and intemperately used alcohol
or drugs, (vii) engaged in business practices which, in the opinion of the
Board, are unethical or reflect adversely on the Company, (viii) misappropriated
assets of the Company or (ix) been repeatedly absent from work during normal
business hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an at-
will employee and may be terminated by the Company without cause or prior notice
pursuant to this subsection (e) notwithstanding any other provision contained in
this Agreement. This at-will relationship will remain in effect during the term
of this Agreement and so long thereafter provided that the Employee remains
employed by the Company, unless such at-will employment relationship is modified
by a specific, express written agreement signed by the Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable business
expenses incurred, under Section 3 of this Agreement through the date of such
termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
-5-
<PAGE>
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the earlier of (A) six months following such termination
or (B) the termination date set forth in Section 1(a)(i) of this Agreement.
(g) Employee may terminate his employment hereunder for "Good
----
Reason" (as hereinafter defined).
- ------
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
-----------------
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
(A) All or substantially all of the assets of the Company
-
are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged, consolidated,
-
ventured or reorganized into or with another corporation or entity, with
the result that upon conclusion of the transaction less than a majority of
the outstanding securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation or entity
are owned, directly or indirectly, by the shareholders of the Company
immediately prior to the sale, transfer, merger, consolidation, venture or
reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
-
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), disclosing that any person (as the term "person" is used in Section
---
13(d)(3) or Section
-6-
<PAGE>
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing
more than 50% of the combined voting power of the then-outstanding voting
securities of the Company; or
(D) The Company shall file a report or proxy statement with
-
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of
Schedule 14A thereunder (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred
or will or may occur in the future pursuant to any then-existing contract
or transaction; or
(E) The individuals who, at the beginning of any period of
-
two consecutive calendar years, constituted members of the Board cease for
any reason to constitute at least a majority thereof unless the nomination
for election by the Company's stockholders of each new director of the
Company was approved by a vote of at least two-thirds of the directors of
the Company still in office who were Directors of the Company at the
beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of
-7-
<PAGE>
2. Employee will also be entitled to any vested benefits under any employee
benefit plans.
5. Employee's Representations.
--------------------------
(a) The Employee represents that he has full authority to enter
into this Agreement and that he is free to enter into this Agreement and not
under any contractual restraint which would prohibit the Employee from
satisfactorily performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach hereof or the Employee's employment by the
Company or termination thereof, shall be settled by arbitration by one
arbitrator in accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held in the City of
San Diego or such other place as may be agreed upon at the time by the parties
to the arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to
-8-
<PAGE>
the remedies available to the Company by law or under this Agreement, the
Company shall be entitled to obtain such equitable relief as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Employee of
any term or provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, representations and understandings relative thereto
(including, without limitation, the Prior Agreement) being herein merged.
10. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee, or other designee or, if there be no such designee,
to his estate.
(b) This Agreement is personal in nature and the Employee shall
not, except as set forth in subsection (a) hereof, without the written consent
of the Company, assign or transfer this Agreement or any rights or obligations
hereunder.
-9-
<PAGE>
(c) Except as set forth in subsection (a) above, nothing
expressed or implied in this Agreement is intended or shall be construed to
confer upon or give to any person, other than the parties to this Agreement, any
right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-10-
<PAGE>
14. Survival. The representations and agreements of the Employee set
--------
forth in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce
---------------
his or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By /s/ J. Thomas Parmeter
-----------------------------
Its President
----------------------------
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: __________________
Telecopy: (619) 558-6477
/s/ John Flowers
------------------------------
John Flowers
Address for Notices:
1005 Santa Queta
------------------------------
Solana Beach, CA 92075
------------------------------
------------------------------
-12-
<PAGE>
EXHIBIT 10.27
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
---------
November 1, 1996 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and JOSEPH CAPPELLO (the "Employee").
------- --------
R E C I T A L
- - - - - - -
The Company desires to continue to employ the Employee, and the
Employee desires to be so employed by the Company, on the terms and subject to
the conditions set forth in this Agreement. This Agreement supersedes that
certain employment agreement between the Company and the Employee dated November
1, 1994 (the "Prior Agreement").
---------------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth in this Agreement, the Company and the Employee hereby agree
as follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the
Company hereby agrees to employ the Employee, and the Employee accepts such
employment, from the date hereof until the earlier of (i) November 1, 1999 or
(ii) the date such employment is terminated pursuant to Section 4 of this
Agreement. During the Employee's employment under this Agreement, the Employee
shall perform such duties for the Company as may from time to time be assigned
to the Employee by Board of Directors of the Company (the "Board") or the
President of the Company (the "Designated Officer"). The Employee shall have the
titles of Director-Polymer Research and Chief Technical Officer, or such other
title or titles, if any, as from time to time may be assigned to the Employee by
the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
<PAGE>
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional,
or commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
(iii) invest in or become a shareholder of another
corporation or other entity; provided, that the Employee's investment solely as
--------
a shareholder in another corporation shall not be prohibited hereby so long as
such investment is not in excess of one percent (1%) of any class of shares that
are traded on a national securities exchange.
(c) Prior to or concurrently with the execution of this
Agreement, the Employee has executed an Employee Proprietary Information, Trade
Secret and Confidentiality Agreement (the "Confidentiality Agreement").
-------------------------
2. Location of Employment. The Employee's principal place of
----------------------
employment shall be at the executive offices of the Company located at 10655
Sorrento Valley Road, San Diego, California 92121 or, as may be requested by the
Board, at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
--------
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Employee's
obligations and duties under this Agreement, the Company shall pay the Employee
a base salary (the "Base Salary") at a monthly rate equal to $9,000, payable in
-----------
accordance with the Company's standard payroll practices, subject to adjustment
in accordance with subsection (b) hereof. In any month in which the Employee
shall be employed for less than the entire number of days in such month, the
compensation payable under this Section 3(a) shall be prorated on the basis of
the number of days during which the Employee was actually employed divided by
the number of days in such month.
2
<PAGE>
(b) Notwithstanding anything to the contrary in subsection (a)
hereof, the Base Salary shall be increased by an amount equal to $1,000 per
month (the "Additional Monthly Base Salary") to the extent, and subject to the
conditions, set forth in this subsection (b). The Additional Monthly Base Salary
----------------------------------
component of the Base Salary shall accrue without interest from the date of this
Agreement, but shall not be payable, if ever, until the earlier of (A) the
acceptance by Ethicon, Inc. ("Ethicon") of the tissue adhesive and/or sealant
-------
product of the Company has been accomplished pursuant to that certain License
and Development Agreement (the "Ethicon Agreement") dated September 14, 1995
-----------------
between the Company and Ethicon, as the same may be amended or extended from
time to time, or (B) the determination by the Compensation Committee of the
Board that sufficient progress has been made by the Company to warrant the
increase in Base Salary by the amount of the Additional Base Salary (either of
the immediately foregoing conditions, the "Increase Conditions"). Upon the
-------------------
accomplishment of either of the Increase Conditions, all accrued Additional
Monthly Base Salary shall be payable on the next standard payroll distribution
date and thereafter the Additional Monthly Base Salary shall be payable in
accordance with the Company's standard payroll practices, and the Base Salary
shall thereafter be $10,000 per month, or $120,000 per year. In the event either
of the Increase Conditions are not accomplished prior to the expiration of this
Agreement or the termination of Employee's employment hereunder, no Additional
Monthly Base Salary shall be paid or payable under this Agreement.
(c) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(d) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(e) The Employee shall be entitled to 20 business days vacation
for each full year of employment
3
<PAGE>
under this Agreement, which vacation time will accrue in accordance with the
vacation policy of the Company.
(f) The Employee shall be entitled to participate in all benefit
plans (including deferred compensation plans and any medical, dental or life
insurance plans) which shall be available from time to time to the domestic
management employees of the Company generally, except to the extent such
participation in any plan would, in the opinion of the Designated Officer, alter
the intended tax treatment of such plan; provided, however, that the Employee
-------- -------
shall have no right under this Agreement to participate in any stock option,
stock purchase or other plan relating to shares of capital stock of the Company
or its affiliates. The Employee acknowledges and agrees that the Board may in
its discretion terminate at any time or modify from time to time any such
benefit plans.
(g) Other than as expressly set forth in this Section 3 or
Sections 4(f) and 4(g) below, the Employee shall not receive any other
compensation or benefits except to the extent provided by the Board.
4. Termination.
-----------
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to
4
<PAGE>
perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo contendere to
---- ----------
a felony or other serious crime, (vi) repeatedly and intemperately used alcohol
or drugs, (vii) engaged in business practices which, in the opinion of the
Board, are unethical or reflect adversely on the Company, (viii) misappropriated
assets of the Company or (ix) been repeatedly absent from work during normal
business hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
(e) In addition to the circumstances described in subsections
(a), (b), (c) and (d) above, the Company may terminate the Employee's employment
for any reason or no reason and with or without cause or prior notice. The
Employee understands that, subject to subsections (f)(iii) and (g) below, he is
an at-will employee and may be terminated by the Company without cause or prior
notice pursuant to this subsection (e) notwithstanding any other provision
contained in this Agreement. This at-will relationship will remain in effect
during the term of this Agreement and so long thereafter provided that the
Employee remains employed by the Company, unless such at-will employment
relationship is modified by a specific, express written agreement signed by the
Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination;
(ii) such benefits, if any, as may be required to be provided
by the Company under the Comprehensive Omnibus Budget Reconciliation Act
(COBRA); and
5
<PAGE>
(iii) if the Employee's employment is terminated
pursuant to subsection (e) above, the Company shall continue to pay to the
Employee the Base Salary then in effect at intervals in accordance with the
Company's standard payroll practice until the earlier of (A) six months
following such termination or (B) the termination date set forth in Section
1(a)(i) of this Agreement.
(g) Employee may terminate his employment hereunder for "Good
----
Reason" (as hereinafter defined).
- ------
(i) For purposes of this Agreement, "Good Reason" shall mean
a termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
-----------------
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in
Control" shall mean the occurrence of any of the following events with respect
to the Company:
(A) All or substantially all of the assets of the
-
Company are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged,
-
consolidated, ventured or reorganized into or with another corporation or
entity, with the result that upon conclusion of the transaction less than a
majority of the outstanding securities entitled to vote generally in the
election of directors or other capital interests of the acquiring
corporation or entity are owned, directly or indirectly, by the
shareholders of the Company immediately prior to the sale, transfer,
merger, consolidation, venture or reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
-
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), disclosing that any person (as the term "person" is used in Section
---
13(d)(3) or Section
6
<PAGE>
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing
more than 50% of the combined voting power of the then-outstanding voting
securities of the Company; or
(D) The Company shall file a report or proxy statement
-
with the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of
Schedule 14A thereunder (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred
or will or may occur in the future pursuant to any then-existing contract
or transaction; or
(E) The individuals who, at the beginning of any period
-
of two consecutive calendar years, constituted members of the Board cease
for any reason to constitute at least a majority thereof unless the
nomination for election by the Company's stockholders of each new director
of the Company was approved by a vote of at least two-thirds of the
directors of the Company still in office who were Directors of the Company
at the beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
(iv) If Employee shall terminate his employment for Good Reason, the
Company shall pay Employee (or, in the event of his death, his devisee, legatee
or, if there is none, his estate) a lump-sum amount equal to the highest level
of Employee's annual Base Salary in effect on the date of the Change in Control,
multiplied by a factor of
7
<PAGE>
2. Employee will also be entitled to any vested benefits under any employee
benefit plans.
5. Employee's Representations.
--------------------------
(a) The Employee represents that he has full authority to enter
into this Agreement and that he is free to enter into this Agreement and not
under any contractual restraint which would prohibit the Employee from
satisfactorily performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach hereof or the Employee's employment by the
Company or termination thereof, shall be settled by arbitration by one
arbitrator in accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held in the City of
San Diego or such other place as may be agreed upon at the time by the parties
to the arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to
8
<PAGE>
the remedies available to the Company by law or under this Agreement, the
Company shall be entitled to obtain such equitable relief as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Employee of
any term or provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, representations and understandings relative thereto
(including, without limitation, the Prior Agreement) being herein merged.
10. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee, or other designee or, if there be no such designee,
to his estate.
(b) This Agreement is personal in nature and the Employee shall
not, except as set forth in subsection (a) hereof, without the written consent
of the Company, assign or transfer this Agreement or any rights or obligations
hereunder.
9
<PAGE>
(c) Except as set forth in subsection (a) above, nothing
expressed or implied in this Agreement is intended or shall be construed to
confer upon or give to any person, other than the parties to this Agreement, any
right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10
<PAGE>
14. Survival. The representations and agreements of the Employee set
--------
forth in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce
---------------
his or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
11
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By /s/ J. Thomas Parmeter
------------------------------
Its President
--------------------------
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: __________________
Telecopy: (619) 558-6477
/s/ Joseph Cappello
-------------------------------
Joseph Cappello
Address for Notices:
2958 Renault St.
-------------------------------
San Diego, CA 92122
-------------------------------
-------------------------------
12
<PAGE>
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
---------
November 1, 1996 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and FRANCO A. FERRARI (the "Employee").
------- --------
R E C I T A L
- - - - - - -
The Company desires to continue to employ the Employee, and the
Employee desires to be so employed by the Company, on the terms and subject to
the conditions set forth in this Agreement. This Agreement supersedes that
certain employment agreement between the Company and the Employee dated November
1, 1994 (the "Prior Agreement").
---------------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth in this Agreement, the Company and the Employee hereby agree
as follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) November 1, 1999 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
Board of Directors of the Company (the "Board") or the President of the Company
(the "Designated Officer"). The Employee shall have the title of Vice President
- - Laboratories and Director - Genetic Engineering, or such other title or
titles, if any, as from time to time may be assigned to the Employee by the
Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
1
<PAGE>
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
--------
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
-------------------------
2. Location of Employment. The Employee's principal place of
----------------------
employment shall be at the executive offices of the Company located at 10655
Sorrento Valley Road, San Diego, California 92121 or, as may be requested by the
Board, at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
--------
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee a base salary
(the "Base Salary") at a monthly rate equal to $8,750, payable in accordance
-----------
with the Company's standard payroll practices, subject to adjustment in
accordance with subsection (b) hereof. In any month in which the Employee shall
be employed for less than the entire number of days in such month, the
compensation payable under this Section 3(a) shall be prorated on the basis of
the number of days during which the Employee was actually employed divided by
the number of days in such month.
-2-
<PAGE>
(b) Notwithstanding anything to the contrary in subsection (a) hereof,
the Base Salary shall be increased by an amount equal to $750 per month (the
"Additional Monthly Base Salary") to the extent, and subject to the conditions,
- -------------------------------
set forth in this subsection (b). The Additional Monthly Base Salary component
of the Base Salary shall accrue without interest from the date of this
Agreement, but shall not be payable, if ever, until the earlier of (A) the
acceptance by Ethicon, Inc. ("Ethicon") of the tissue adhesive and/or sealant
-------
product of the Company has been accomplished pursuant to that certain License
and Development Agreement (the "Ethicon Agreement") dated September 14, 1995
-----------------
between the Company and Ethicon, as the same may be amended or extended from
time to time, or (B) the determination by the Compensation Committee of the
Board that sufficient progress has been made by the Company to warrant the
increase in Base Salary by the amount of the Additional Base Salary (either of
the immediately foregoing conditions, the "Increase Conditions"). Upon the
-------------------
accomplishment of either of the Increase Conditions, all accrued Additional
Monthly Base Salary shall be payable on the next standard payroll distribution
date and thereafter the Additional Monthly Base Salary shall be payable in
accordance with the Company's standard payroll practices, and the Base Salary
shall thereafter be $9,500 per month, or $114,000 per year. In the event either
of the Increase Conditions are not accomplished prior to the expiration of this
Agreement or the termination of Employee's employment hereunder, no Additional
Monthly Base Salary shall be paid or payable under this Agreement.
(c) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(d) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(e) The Employee shall be entitled to 20 business days vacation for
each full year of employment
-3-
<PAGE>
under this Agreement, which vacation time will accrue in accordance with the
vacation policy of the Company.
(f) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall be available from time to time to the domestic management
employees of the Company generally, except to the extent such participation in
any plan would, in the opinion of the Designated Officer, alter the intended tax
treatment of such plan; provided, however, that the Employee shall have no right
-------- -------
under this Agreement to participate in any stock option, stock purchase or other
plan relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(g) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
-----------
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to
-4-
<PAGE>
perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo contendere to
a felony or other serious crime, (vi) repeatedly and intemperately used alcohol
or drugs, (vii) engaged in business practices which, in the opinion of the
Board, are unethical or reflect adversely on the Company, (viii) misappropriated
assets of the Company or (ix) been repeatedly absent from work during normal
business hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an at-
will employee and may be terminated by the Company without cause or prior notice
pursuant to this subsection (e) notwithstanding any other provision contained in
this Agreement. This at-will relationship will remain in effect during the term
of this Agreement and so long thereafter provided that the Employee remains
employed by the Company, unless such at-will employment relationship is modified
by a specific, express written agreement signed by the Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
-5-
<PAGE>
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the earlier of (A) six months following such termination
or (B) the termination date set forth in Section 1(a)(i) of this Agreement.
(g) Employee may terminate his employment hereunder for "Good
----
Reason" (as hereinafter defined).
- ------
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
-----------------
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
(A) All or substantially all of the assets of the Company
-
are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged, consolidated,
-
ventured or reorganized into or with another corporation or entity, with
the result that upon conclusion of the transaction less than a majority of
the outstanding securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation or entity
are owned, directly or indirectly, by the shareholders of the Company
immediately prior to the sale, transfer, merger, consolidation, venture or
reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
-
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), disclosing that any person (as the term "person" is used in Section
---
13(d)(3) or Section
-6-
<PAGE>
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing
more than 50% of the combined voting power of the then-outstanding voting
securities of the Company; or
(D) The Company shall file a report or proxy statement with
-
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of
Schedule 14A thereunder (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred
or will or may occur in the future pursuant to any then-existing contract
or transaction; or
(E) The individuals who, at the beginning of any period of
-
two consecutive calendar years, constituted members of the Board cease for
any reason to constitute at least a majority thereof unless the nomination
for election by the Company's stockholders of each new director of the
Company was approved by a vote of at least two-thirds of the directors of
the Company still in office who were Directors of the Company at the
beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of
-7-
<PAGE>
2. Employee will also be entitled to any vested benefits under any employee
benefit plans.
5. Employee's Representations.
--------------------------
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach hereof or the Employee's employment by the
Company or termination thereof, shall be settled by arbitration by one
arbitrator in accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held in the City of
San Diego or such other place as may be agreed upon at the time by the parties
to the arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to
-8-
<PAGE>
the remedies available to the Company by law or under this Agreement, the
Company shall be entitled to obtain such equitable relief as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Employee of
any term or provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, representations and understandings relative thereto
(including, without limitation, the Prior Agreement) being herein merged.
10. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any other
corporation, partnership or business entity, or all or substantially all of the
Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, then such successor to the Company
shall thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes hereof to be,
the "Company" under this Agreement. This Agreement shall inure to the benefit
of and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die, any amounts payable to him hereunder shall be
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee, or other designee or, if there be no such designee, to his estate.
(b) This Agreement is personal in nature and the Employee shall not,
except as set forth in subsection (a) hereof, without the written consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder.
-9-
<PAGE>
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-10-
<PAGE>
14. Survival. The representations and agreements of the Employee set
--------
forth in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce
---------------
his or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By /s/ J. Thomas Parmeter
----------------------------
Its President
------------------------
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: __________________
Telecopy: (619) 558-6477
/s/ Franco A. Ferrari
-----------------------------
Franco A. Ferrari
Address for Notices:
7389 High Ave.
-----------------------------
La Jolla, CA 92037
-----------------------------
-----------------------------
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<PAGE>
EXHIBIT 10.29
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
---------
November 1, 1996 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and ERWIN R. STEDRONSKY (the "Employee").
------- --------
R E C I T A L
- - - - - - -
The Company desires to continue to employ the Employee, and the
Employee desires to be so employed by the Company, on the terms and subject to
the conditions set forth in this Agreement. This Agreement supersedes that
certain employment agreement between the Company and the Employee dated November
1, 1994 (the "Prior Agreement").
---------------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth in this Agreement, the Company and the Employee hereby agree
as follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the Company
hereby agrees to employ the Employee, and the Employee accepts such employment,
from the date hereof until the earlier of (i) November 1, 1999 or (ii) the date
such employment is terminated pursuant to Section 4 of this Agreement. During
the Employee's employment under this Agreement, the Employee shall perform such
duties for the Company as may from time to time be assigned to the Employee by
Board of Directors of the Company (the "Board") or the President of the Company
(the "Designated Officer"). The Employee shall have the title of Research
Director - Materials Science, or such other title or titles, if any, as from
time to time may be assigned to the Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
<PAGE>
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional, or
commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
(iii) invest in or become a shareholder of another corporation or
other entity; provided, that the Employee's investment solely as a shareholder
--------
in another corporation shall not be prohibited hereby so long as such investment
is not in excess of one percent (1%) of any class of shares that are traded on a
national securities exchange.
(c) Prior to or concurrently with the execution of this Agreement, the
Employee has executed an Employee Proprietary Information, Trade Secret and
Confidentiality Agreement (the "Confidentiality Agreement").
-------------------------
2. Location of Employment. The Employee's principal place of
----------------------
employment shall be at the executive offices of the Company located at 10655
Sorrento Valley Road, San Diego, California 92121 or, as may be requested by the
Board, at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
--------
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Employee's obligations and
duties under this Agreement, the Company shall pay the Employee a base salary
(the "Base Salary") at a monthly rate equal to $8,583.33, payable in accordance
-----------
with the Company's standard payroll practices, subject to adjustment in
accordance with subsection (b) hereof. In any month in which the Employee shall
be employed for less than the entire number of days in such month, the
compensation payable under this Section 3(a) shall be prorated on the basis of
the number of days during which the Employee was actually employed divided by
the number of days in such month.
-2-
<PAGE>
(b) Notwithstanding anything to the contrary in subsection (a) hereof,
the Base Salary shall be increased by an amount equal to $916.67 per month (the
"Additional Monthly Base Salary") to the extent, and subject to the conditions,
------------------------------
set forth in this subsection (b). The Additional Monthly Base Salary component
of the Base Salary shall accrue without interest from the date of this
Agreement, but shall not be payable, if ever, until the earlier of (A) the
acceptance by Ethicon, Inc. ("Ethicon") of the tissue adhesive and/or sealant
-------
product of the Company has been accomplished pursuant to that certain License
and Development Agreement (the "Ethicon Agreement") dated September 14, 1995
-----------------
between the Company and Ethicon, as the same may be amended or extended from
time to time, or (B) the determination by the Compensation Committee of the
Board that sufficient progress has been made by the Company to warrant the
increase in Base Salary by the amount of the Additional Base Salary (either of
the immediately foregoing conditions, the "Increase Conditions"). Upon the
-------------------
accomplishment of either of the Increase Conditions, all accrued Additional
Monthly Base Salary shall be payable on the next standard payroll distribution
date and thereafter the Additional Monthly Base Salary shall be payable in
accordance with the Company's standard payroll practices, and the Base Salary
shall thereafter be $9,500 per month, or $114,000 per year. In the event either
of the Increase Conditions are not accomplished prior to the expiration of this
Agreement or the termination of Employee's employment hereunder, no Additional
Monthly Base Salary shall be paid or payable under this Agreement.
(c) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(d) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(e) The Employee shall be entitled to 20 business days vacation for
each full year of employment
-3-
<PAGE>
under this Agreement, which vacation time will accrue in accordance with the
vacation policy of the Company.
(f) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall be available from time to time to the domestic management
employees of the Company generally, except to the extent such participation in
any plan would, in the opinion of the Designated Officer, alter the intended tax
treatment of such plan; provided, however, that the Employee shall have no right
-------- -------
under this Agreement to participate in any stock option, stock purchase or other
plan relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(g) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
-----------
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to
-4-
<PAGE>
perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo contendere to
---- ----------
a felony or other serious crime, (vi) repeatedly and intemperately used alcohol
or drugs, (vii) engaged in business practices which, in the opinion of the
Board, are unethical or reflect adversely on the Company, (viii) misappropriated
assets of the Company or (ix) been repeatedly absent from work during normal
business hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an at-
will employee and may be terminated by the Company without cause or prior notice
pursuant to this subsection (e) notwithstanding any other provision contained in
this Agreement. This at-will relationship will remain in effect during the term
of this Agreement and so long thereafter provided that the Employee remains
employed by the Company, unless such at-will employment relationship is modified
by a specific, express written agreement signed by the Company.
(f) If the Employee's employment is termi nated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable
business expenses incurred, under Section 3 of this Agreement through the date
of such termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
-5-
<PAGE>
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the earlier of (A) six months following such termination
or (B) the termination date set forth in Section 1(a)(i) of this Agreement.
(g) Employee may terminate his employment hereunder for "Good Reason"
---- ------
(as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
-----------------
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
(A) All or substantially all of the assets of the Company
-
are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged, consolidated,
-
ventured or reorganized into or with another corporation or entity, with
the result that upon conclusion of the transaction less than a majority of
the outstanding securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation or entity
are owned, directly or indirectly, by the shareholders of the Company
immediately prior to the sale, transfer, merger, consolidation, venture or
reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
-
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), disclosing that any person (as the term "person" is used in Section
---
13(d)(3) or Section
-6-
<PAGE>
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing
more than 50% of the combined voting power of the then-outstanding voting
securities of the Company; or
(D) The Company shall file a report or proxy statement with
-
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of
Schedule 14A thereunder (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred
or will or may occur in the future pursuant to any then-existing contract
or transaction; or
(E) The individuals who, at the beginning of any period of
-
two consecutive calendar years, constituted members of the Board cease for
any reason to constitute at least a majority thereof unless the nomination
for election by the Company's stockholders of each new director of the
Company was approved by a vote of at least two-thirds of the directors of
the Company still in office who were Directors of the Company at the
beginning of any such period.
(iii) Notwithstanding the foregoing, a ter mination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of
-7-
<PAGE>
2. Employee will also be entitled to any vested benefits under any employee
benefit plans.
5. Employee's Representations.
--------------------------
(a) The Employee represents that he has full authority to enter into
this Agreement and that he is free to enter into this Agreement and not under
any contractual restraint which would prohibit the Employee from satisfactorily
performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach hereof or the Employee's employment by the
Company or termination thereof, shall be settled by arbitration by one
arbitrator in accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held in the City of
San Diego or such other place as may be agreed upon at the time by the parties
to the arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to
-8-
<PAGE>
the remedies available to the Company by law or under this Agreement, the
Company shall be entitled to obtain such equitable relief as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Employee of
any term or provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of con flicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, repre sentations and understandings relative thereto
(including, without limitation, the Prior Agreement) being herein merged.
10. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any other
corporation, partnership or business entity, or all or substantially all of the
Company's business or assets shall be transferred in any manner to any other
corporation, partnership or business entity, then such successor to the Company
shall thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes hereof to be,
the "Company" under this Agreement. This Agreement shall inure to the benefit
of and be enforceable by Employee's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Employee should die, any amounts payable to him hereunder shall be
paid in accordance with the terms of this Agreement to Employee's devisee,
legatee, or other designee or, if there be no such designee, to his estate.
(b) This Agreement is personal in nature and the Employee shall not,
except as set forth in subsection (a) hereof, without the written consent of the
Company, assign or transfer this Agreement or any rights or obligations
hereunder.
-9-
<PAGE>
(c) Except as set forth in subsection (a) above, nothing expressed or
implied in this Agreement is intended or shall be construed to confer upon or
give to any person, other than the parties to this Agreement, any right, remedy
or claim under or by reason of this Agreement or of any term, covenant or
condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agree ment that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-10-
<PAGE>
14. Survival. The representations and agreements of the Employee set
--------
forth in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce
---------------
his or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By /s/ J. Thomas Parmeter
---------------------------
Its President
-----------------------
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: __________________
Telecopy: (619) 558-6477
/s/ Erwin R. Stedronsky
-------------------------------
Erwin R. Stedronsky
Address for Notices:
247 Ave. Vista Del Oceano
-------------------------------
San Clemente, CA 92672
-------------------------------
-12-
<PAGE>
EXHIBIT 10.30
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of
---------
November 1, 1996 between PROTEIN POLYMER TECHNOLOGIES, INC., a Delaware
corporation (the "Company"), and ARON STERN (the "Employee").
------- --------
R E C I T A L
- - - - - - -
The Company desires to continue to employ the Employee, and the
Employee desires to be so employed by the Company, on the terms and subject to
the conditions set forth in this Agreement. This Agreement supersedes that
certain employment agreement between the Company and the Employee dated November
1, 1994 (the "Prior Agreement").
---------------
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and the mutual
promises set forth in this Agreement, the Company and the Employee hereby agree
as follows:
1. Employment.
----------
(a) Subject to the terms and conditions contained herein, the
Company hereby agrees to employ the Employee, and the Employee accepts such
employment, from the date hereof until the earlier of (i) November 1, 1999 or
(ii) the date such employment is terminated pursuant to Section 4 of this
Agreement. During the Employee's employment under this Agreement, the Employee
shall perform such duties for the Company as may from time to time be assigned
to the Employee by Board of Directors of the Company (the "Board") or the
President of the Company (the "Designated Officer"). The Employee shall have the
titles of Vice President - Finance and Administration and Chief Financial
Officer, or such other title or titles, if any, as from time to time may be
assigned to the Employee by the Board.
(b) The Employee will devote his entire business time, energy,
attention and skill to the services of the Company and its affiliates and to the
promotion of their interests. So long as the Employee is employed by the
Company, the Employee shall not, without the written consent of the Company:
<PAGE>
(i) engage in any other activity for compensation, profit or
other pecuniary advantage, whether received during or after the term of this
Agreement;
(ii) render or perform services of a business, professional,
or commercial nature other than to or for the Company, either alone or as an
employee, consultant, director, officer, or partner of another business entity,
whether or not for compensation, and whether or not such activity, occupation or
endeavor is similar to, competitive with, or adverse to the business or welfare
of the Company; or
(iii) invest in or become a shareholder of another
corporation or other entity; provided, that the Employee's investment solely as
--------
a shareholder in another corporation shall not be prohibited hereby so long as
such investment is not in excess of one percent (1%) of any class of shares that
are traded on a national securities exchange.
(c) Prior to or concurrently with the execution of this
Agreement, the Employee has executed an Employee Proprietary Information, Trade
Secret and Confidentiality Agreement (the "Confidentiality Agreement").
-------------------------
2. Location of Employment. The Employee's principal place of
----------------------
employment shall be at the executive offices of the Company located at 10655
Sorrento Valley Road, San Diego, California 92121 or, as may be requested by the
Board, at any other office of the Company or any of its affiliates currently or
hereinafter located in San Diego County; provided, that at the direction of the
--------
Board or the Designated Officer, the Employee may from time to time be required
to travel to various domestic and foreign locations.
3. Compensation.
------------
(a) In exchange for full performance of the Employee's
obligations and duties under this Agreement, the Company shall pay the Employee
a base salary (the "Base Salary") at a monthly rate equal to $8,000, payable in
-----------
accordance with the Company's standard payroll practices, subject to adjustment
in accordance with subsection (b) hereof. In any month in which the Employee
shall be employed for less than the entire number of days in such month, the
compensation payable under this Section 3(a) shall be prorated on the basis of
the number of days during which the Employee was actually employed divided by
the number of days in such month.
-2-
<PAGE>
(b) Notwithstanding anything to the contrary in subsection (a)
hereof, the Base Salary shall be increased by an amount equal to $500 per month
(the "Additional Monthly Base Salary") to the extent, and subject to the
------------------------------
conditions, set forth in this subsection (b). The Additional Monthly Base Salary
component of the Base Salary shall accrue without interest from the date of this
Agreement, but shall not be payable, if ever, until the earlier of (A) the
acceptance by Ethicon, Inc. ("Ethicon") of the tissue adhesive and/or sealant
-------
product of the Company has been accomplished pursuant to that certain License
and Development Agreement (the "Ethicon Agreement") dated September 14, 1995
-----------------
between the Company and Ethicon, as the same may be amended or extended from
time to time, or (B) the determination by the Compensation Committee of the
Board that sufficient progress has been made by the Company, to warrant the
increase in Base Salary by the amount of the Additional Base Salary (either of
the immediately foregoing conditions, the "Increase Conditions"). Upon the
-------------------
accomplishment of either of the Increase Conditions, all accrued Additional
Monthly Base Salary shall be payable on the next standard payroll distribution
date and thereafter the Additional Monthly Base Salary shall be payable in
accordance with the Company's standard payroll practices, and the Base Salary
shall thereafter be $8,500 per month, or $102,000 per year. In the event either
of the Increase Conditions are not accomplished prior to the expiration of this
Agreement or the termination of Employee's employment hereunder, no Additional
Monthly Base Salary shall be paid or payable under this Agreement.
(c) The Base Salary is a gross amount, and the Company shall be
required to withhold from such amount deductions with respect to Federal, state
and local taxes, FICA, unemployment compensation taxes and similar taxes,
assessments or withholding requirements.
(d) During the Employee's employment under this Agreement, the
Employee shall also be reimbursed by the Company for reasonable business
expenses actually incurred or paid by the Employee, consistent with the policies
established by the Board, in rendering to the Company the services provided for
in this Agreement, upon presentation of expense statements or such other
supporting information as is consistent with the policies of the Company.
(e) The Employee shall be entitled to 20 business days vacation for
each full year of employment
-3-
<PAGE>
under this Agreement, which vacation time will accrue in accordance with the
vacation policy of the Company.
(f) The Employee shall be entitled to participate in all benefit plans
(including deferred compensation plans and any medical, dental or life insurance
plans) which shall be available from time to time to the domestic management
employees of the Company generally, except to the extent such participation in
any plan would, in the opinion of the Designated Officer, alter the intended tax
treatment of such plan; provided, however, that the Employee shall have no right
-------- -------
under this Agreement to participate in any stock option, stock purchase or other
plan relating to shares of capital stock of the Company or its affiliates. The
Employee acknowledges and agrees that the Board may in its discretion terminate
at any time or modify from time to time any such benefit plans.
(g) Other than as expressly set forth in this Section 3 or Sections
4(f) and 4(g) below, the Employee shall not receive any other compensation or
benefits except to the extent provided by the Board.
4. Termination.
-----------
(a) The employment of the Employee under this Agreement may be
terminated by the Company immediately upon giving the Employee notice if (i) the
Board determines that the Employee is unable to discharge his essential job
duties by reason of illness or injury or (ii) the Employee has been unable to
discharge his essential job duties by reason of illness or injury for either (A)
a period of two consecutive months or (B) twelve weeks in any twelve-month
period.
(b) The employment of the Employee under this Agreement shall
terminate on the date of the Employee's death.
(c) The employment of the Employee under this Agreement may be
terminated by the Company upon written notice from the Board that, in the
opinion of the Board, the Employee has (i) refused or failed (after reasonable
notice that such refusal or failure would result in termination of the
Employee's employment) to perform, to the satisfaction of the Designated Officer
or the Board, any duties assigned to the Employee by the Designated Officer or
the Board, (ii) committed a breach of the terms of this Agreement or any other
legal obligation to the Company, (iii) failed to
-4-
<PAGE>
perform any of the Employee's obligations under the Confidentiality Agreement,
(iv) demonstrated negligence or willful misconduct in the execution of the
Employee's assigned duties, (v) been convicted of or pleaded nolo contendere to
---- ----------
a felony or other serious crime, (vi) repeatedly and intemperately used alcohol
or drugs, (vii) engaged in business practices which, in the opinion of the
Board, are unethical or reflect adversely on the Company, (viii) misappropriated
assets of the Company or (ix) been repeatedly absent from work during normal
business hours for reasons other than disability.
(d) The employment of the Employee under this Agreement shall
terminate upon receipt by the Board of a written notice of resignation signed by
the Employee or, if no notice is given, on the date on which the Employee
voluntarily terminates his or her employment relationship with the Company.
(e) In addition to the circumstances described in subsections (a),
(b), (c) and (d) above, the Company may terminate the Employee's employment for
any reason or no reason and with or without cause or prior notice. The Employee
understands that, subject to subsections (f)(iii) and (g) below, he is an at-
will employee and may be terminated by the Company without cause or prior notice
pursuant to this subsection (e) notwithstanding any other provision contained in
this Agreement. This at-will relationship will remain in effect during the term
of this Agreement and so long thereafter provided that the Employee remains
employed by the Company, unless such at-will employment relationship is modified
by a specific, express written agreement signed by the Company.
(f) If the Employee's employment is terminated pursuant to this
Section 4 or for any other reason, the Employee shall not be entitled to any
compensation or benefits from the Company, under Section 3 of this Agreement or
otherwise, except for the following:
(i) Base Salary and vacation pay accrued, and reasonable business
expenses incurred, under Section 3 of this Agreement through the date of such
termination;
(ii) such benefits, if any, as may be required to be provided by
the Company under the Comprehensive Omnibus Budget Reconciliation Act (COBRA);
and
-5-
<PAGE>
(iii) if the Employee's employment is terminated pursuant to
subsection (e) above, the Company shall continue to pay to the Employee the Base
Salary then in effect at intervals in accordance with the Company's standard
payroll practice until the earlier of (A) three months following such
termination or (B) the termination date set forth in Section 1(a)(i) of this
Agreement.
(g) Employee may terminate his employment hereunder for "Good Reason"
-----------
(as hereinafter defined).
(i) For purposes of this Agreement, "Good Reason" shall mean a
termination of Employee's employment by Employee within 90 days after the
occurrence of any of the following after a "Change in Control" (as hereinafter
-----------------
defined): (i) a reduction in Employee's Base Salary then in effect; (ii) a
material reduction in Employee's positions, duties and responsibilities from
those described in Section 1(a) of this Agreement; or (iii) the failure of the
Company to obtain the assumption of this Agreement by any successor to the
extent required pursuant to Section 10(a) of this Agreement.
(ii) For purposes of this Agreement, the term "Change in Control"
shall mean the occurrence of any of the following events with respect to the
Company:
(A) All or substantially all of the assets of the Company
-
are sold or transferred to another corporation or entity; or
(B) The Company is sold, transferred, merged, consolidated,
-
ventured or reorganized into or with another corporation or entity, with
the result that upon conclusion of the transaction less than a majority of
the outstanding securities entitled to vote generally in the election of
directors or other capital interests of the acquiring corporation or entity
are owned, directly or indirectly, by the shareholders of the Company
immediately prior to the sale, transfer, merger, consolidation, venture or
reorganization; or
(C) There is a report filed on Schedule 13D or Schedule
-
14D-1 (or any successor schedule, form or report), each as promulgated
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), disclosing that any person (as the term "person" is used in Section
---
13(d)(3) or Section
-6-
<PAGE>
14(d)(2) of the Exchange Act) has become the beneficial owner (as the term
"beneficial owner" is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing
more than 50% of the combined voting power of the then-outstanding voting
securities of the Company; or
(D) The Company shall file a report or proxy statement with
-
the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Item 14 of
Schedule 14A thereunder (or any successor schedule, form or report or item
therein) that a change in control of the Company has or may have occurred
or will or may occur in the future pursuant to any then-existing contract
or transaction; or
(E) The individuals who, at the beginning of any period of
-
two consecutive calendar years, constituted members of the Board cease for
any reason to constitute at least a majority thereof unless the nomination
for election by the Company's stockholders of each new director of the
Company was approved by a vote of at least two-thirds of the directors of
the Company still in office who were Directors of the Company at the
beginning of any such period.
(iii) Notwithstanding the foregoing, a termination shall not be
treated as a termination for Good Reason (i) if Employee shall have specifically
consented in writing to the occurrence of the event giving rise to the claim of
termination for Good Reason or (ii) unless Employee, within 30 days after
receiving written notice from the Company specifying in reasonable detail the
occurrence of one of such events, shall have delivered a written notice to the
Company stating that he intends to terminate his employment for Good Reason and
specifying the factual basis for such termination and such event, if capable of
being cured, shall not have been cured within 30 days of the receipt by the
Company of such notice.
(iv) If Employee shall terminate his employment for Good Reason,
the Company shall pay Employee (or, in the event of his death, his devisee,
legatee or, if there is none, his estate) a lump-sum amount equal to the highest
level of Employee's annual Base Salary in effect on the date of the Change in
Control, multiplied by a factor of
-7-
<PAGE>
1. Employee will also be entitled to any vested benefits under any employee
benefit plans.
5. Employee's Representations.
--------------------------
(a) The Employee represents that he has full authority to enter
into this Agreement and that he is free to enter into this Agreement and not
under any contractual restraint which would prohibit the Employee from
satisfactorily performing his duties to the Company under this Agreement.
(b) The Employee hereby agrees to indemnify and hold harmless the
Company, its officers, directors and stockholders from and against any losses,
liabilities, damages or costs (including reasonable attorney's fees) arising out
of a breach, or claimed breach, of any of the representations, warranties and
covenants of the Employee set forth in this Agreement.
(c) The Employee acknowledges that he is free to seek advice from
independent counsel with respect to this Agreement. The Employee has either
obtained such advice or, after carefully reviewing this Agreement, has decided
to forego such advice. The Employee is not relying on any representation or
advice from the Company or any of its officers, directors, attorneys or other
representatives regarding this Agreement, its content or effect.
6. Arbitration. Any controversy or claim arising out of or relating
-----------
to this Agreement or any breach hereof or the Employee's employment by the
Company or termination thereof, shall be settled by arbitration by one
arbitrator in accordance with the rules of the American Arbitration Association,
and judgment upon such award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. The arbitration shall be held in the City of
San Diego or such other place as may be agreed upon at the time by the parties
to the arbitration.
7. Equitable Relief. The Employee acknowledges that the Company is
----------------
relying for its protection upon the existence and validity of the provisions of
this Agreement, that the services to be rendered by the Employee are of a
special, unique and extraordinary character, and that irreparable injury will
result to the Company from any violation or continuing violation of the
provisions of this Agreement for which damages may not be an adequate remedy.
Accordingly, the Employee hereby agrees that in addition to
-8-
<PAGE>
the remedies available to the Company by law or under this Agreement, the
Company shall be entitled to obtain such equitable relief as may be permitted by
law in a court of competent jurisdiction including, without limitation,
injunctive relief from any violation or continuing violation by the Employee of
any term or provision of this Agreement.
8. Governing Law. This Agreement shall be governed by and construed
-------------
and enforced in accordance with the internal substantive laws (and not the laws
of conflicts) of the State of California.
9. Entire Agreement. This Agreement constitutes the whole agreement
----------------
of the parties hereto in reference to any employment of the Employee by the
Company and in reference to any of the matters or things herein provided for or
hereinabove discussed or mentioned in reference to such employment; all prior
agreements, promises, representations and understandings relative thereto
(including, without limitation, the Prior Agreement) being herein merged.
10. Assignability.
-------------
(a) In the event the Company shall merge or consolidate with any
other corporation, partnership or business entity, or all or substantially all
of the Company's business or assets shall be transferred in any manner to any
other corporation, partnership or business entity, then such successor to the
Company shall thereupon succeed to, and be subject to, all rights, interests,
duties and obligations of, and shall thereafter be deemed for all purposes
hereof to be, the "Company" under this Agreement. This Agreement shall inure to
the benefit of and be enforceable by Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. If Employee should die, any amounts payable to him
hereunder shall be paid in accordance with the terms of this Agreement to
Employee's devisee, legatee, or other designee or, if there be no such designee,
to his estate.
(b) This Agreement is personal in nature and the Employee shall
not, except as set forth in subsection (a) hereof, without the written consent
of the Company, assign or transfer this Agreement or any rights or obligations
hereunder.
-9-
<PAGE>
(c) Except as set forth in subsection (a) above, nothing
expressed or implied in this Agreement is intended or shall be construed to
confer upon or give to any person, other than the parties to this Agreement, any
right, remedy or claim under or by reason of this Agreement or of any term,
covenant or condition of this Agreement.
11. Amendments; Waivers. This Agreement may be amended, modified,
-------------------
superseded, canceled, renewed or extended and the terms or covenants of this
Agreement may be waived only by a written instrument executed by the parties to
this Agreement or, in the case of a waiver, by the party waiving compliance.
Any such written instrument must be approved by the Board to be effective as
against the Company. The failure of any party at any time or times to require
performance of any provision of this Agreement shall in no manner affect the
right at a later time to enforce the same. No waiver by any party of the breach
of any term or provision contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as,
a further or continuing waiver of any such breach, or a waiver of the breach of
any other term or covenant contained in this Agreement.
12. Notice. All notices, requests or consents required or permitted
------
under this Agreement shall be made in writing and shall be given to the other
parties by personal delivery, overnight air courier (with receipt signature) or
facsimile transmission (with "answerback" confirmation of transmission), sent to
such parties' addresses or telecopy numbers as are set forth below such parties'
signatures to this Agreement, or such other addresses or telecopy numbers of
which the parties have given notice pursuant to this Section 12. Each such
notice, request or consent shall be deemed effective upon the date of actual
receipt, receipt signature or confirmation of transmission, as applicable.
13. Severability. Any provision of this Agreement that is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
-10-
<PAGE>
14. Survival. The representations and agreements of the Employee set
--------
forth in Sections 5, 6 and 7 of this Agreement shall survive the expiration or
termination of this Agreement (irrespective of the reason for such expiration of
termination).
15. Attorney's Fees. If any party to this Agreement seeks to enforce
---------------
his or its rights under this Agreement, the prevailing party or parties shall be
entitled to recover reasonable fees, costs and expenses incurred in connection
therewith including, without limitation, the fees, costs and expenses of
attorneys, accountants and experts, whether or not litigation is instituted, and
including such fees, costs and expenses of appeals.
[Signature page follows]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have executed this
Employment Agreement as of the date first above written.
PROTEIN POLYMER TECHNOLOGIES, INC.
By /s/ J. Thomas Parmeter
---------------------------
Its President
-----------------------
Address for Notices:
10655 Sorrento Valley Road
First Floor
San Diego, California 92121
Attention: __________________
Telecopy: (619) 558-6477
/s/ Aron Stern
------------------------------
Aron Stern
Address for Notices:
2405 A Sacada Cir.
-------------------------------
Carlsbad, CA 92009
-------------------------------
-------------------------------
-12-
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-3 No. 333-19695 and 333-7861 and Form S-8 No. 33-61704, 33-61708, and
33-68046 pertaining to the Protein Polymer Technologies, Inc. 1992 Stock Option
Plan, 1989 Stock Option Plan, and Options Subject to Individual Option
Agreements of our report dated January 30, 1997, with respect to the financial
statements of Protein Polymer Technologies, Inc., included in this Annual Report
(Form 10-KSB) for the year ended December 31, 1996.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
March 20, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 267,357
<SECURITIES> 993,042
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 20,694
<CURRENT-ASSETS> 1,337,654
<PP&E> 1,291,476
<DEPRECIATION> 922,162
<TOTAL-ASSETS> 1,746,581
<CURRENT-LIABILITIES> 497,458
<BONDS> 0
0
4,764,745
<COMMON> 72,333
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