PROTEIN POLYMER TECHNOLOGIES INC
S-8, 1997-05-01
COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH
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<PAGE>
 
      As filed with the Securities and Exchange Commission on May 1, 1997
                                          Registration No. 33-..................

================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549
                                  ___________

                                    FORM S-8
            REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
                                  ___________

                       PROTEIN POLYMER TECHNOLOGIES, INC.
               (Exact name of registrant as specified in charter)

          DELAWARE                                           33-0311631
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization)                          Identification No.)


10655 SORRENTO VALLEY ROAD
SAN DIEGO, CALIFORNIA                                           92121
(Address of Principal Executive Offices)                      (Zip Code)

                                   _________

                       PROTEIN POLYMER TECHNOLOGIES, INC.
                          EMPLOYEE STOCK PURCHASE PLAN
                            (Full title of the plan)

                               J. THOMAS PARMETER
                       Chairman & Chief Executive Officer
                       PROTEIN POLYMER TECHNOLOGIES, INC.
                           10655 Sorrento Valley Road
                          San Diego, California  92121
                    (Name and address of agent for service)

                                 (619) 558-6064

         (Telephone number, including area code, of agent for service)
                                   _________

                        CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================================== 
                                                                Proposed              Proposed
                                                                 Maximum              Maximum
          Title of Securities              Amount to be      Offering Price          Aggregate              Amount of
           to be Registered                 Registered        Per Share (1)      Offering Price (1)     Registration Fee
- --------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>               <C>                 <C>                    <C>
Common Stock, $.01 par value                   500,000(2)            $2.25             $1,125,000               $340.91
 
Options to purchase shares of Common           500,000(3)            $ -0-(3)          $      -0-(3)            $   -0-(3)
 Stock, par value $.01 per share (3)
========================================================================================================================== 
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
    registration fee in accordance with Rule 457 under the Securities Act of
    1933, as amended.  The Proposed Maximum Offering Price Per Share and the
    Proposed Maximum Aggregate Offering Price are based on the last sale price
    as quoted on the National Association of Securities Dealers Automated
    Quotation System on April 24, 1997 of $2.25 per share with respect to the
    500,000 shares issuable upon exercise of Options to be granted under the
    Company's Employee Stock Purchase Plan.
(2) This Registration Statement covers, in addition to such number of shares
    issuable upon exercise of the Options to be granted under the Company's
    Employee Stock Purchase Plan, an indeterminate number of additional shares
    which may become subject to Options as a result of the adjustment provisions
    of the Plan.  The registration fee is calculated only on the stated number
    of shares.
(3) The Options to be registered hereunder are being registered for the sole
    purpose of permitting the Company to qualify the Options by coordination in
    California.  Because the Options will be distributed without charge to Plan
    participants, no separate registration fee is required.
================================================================================
<PAGE>
 
                                   PART II/1/


               INFORMATION REQUIRED IN THE REGISTRATION STATEMENT

ITEM 3.  INCORPORATION OF DOCUMENTS BY REFERENCE

       The following documents are hereby incorporated into this Registration
Statement and made a part hereof by this reference:

(a)    The Annual Report on Form 10-KSB of Protein Polymer Technologies, Inc.
       (the "Company" or "Registrant") for the fiscal year ended December 31,
       1996 filed with the Securities and Exchange Commission (the "Commission")
       on March 27, 1997 pursuant to the Securities Exchange Act of 1934, as
       amended (the "Exchange Act");

(b)    The description of the Company's Common Stock contained in the Company's
       Registration Statement under the Exchange Act on Form 8-A, filed with the
       Commission on December 11, 1991, as amended by Form 8 filed on January
       17, 1992.


       In addition, all documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent
to the date of this Registration Statement, and prior to the filing of a post-
effective amendment which indicates that all securities offered have been sold
or which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of the filing of such documents with the Commission.




- --------------------------------------
/1/  Information required by Part I of Form S-8 is contained in a Section 10(a)
     prospectus to be distributed to each optionee and is omitted from this
     Registration Statement in accordance with Rule 428 promulgated under the
     Securities Act and the Note to Part I of Form S-8.

                                       2
<PAGE>
 
ITEM 4.  DESCRIPTION OF SECURITIES

       PLAN OPTIONS.  The Company's Employee Stock Purchase Plan (the "Plan")
       ------------
was adopted by the Board of Directors of the Company (the "Board") on September
24, 1996, subject to approval of the Company's stockholders.  The Plan was
submitted to the stockholders of the Company for approval, and was so approved,
at the Annual Meeting of the Stockholders held on April 25, 1997.  The purpose
of the Plan is to provide eligible employees of the Company with the opportunity
to acquire a proprietary interest in the Company through participation in a plan
designed to qualify as an employee stock purchase plan under Section 423 of the
Internal Revenue Code of 1986, as amended (the "Code").  The following summary
description of the Plan is qualified in its entirety by reference to the full
text of the Plan.

       Under the Plan, the aggregate number of shares of the Company's Common
Stock which may be issued over the term of the Plan is 500,000 shares, subject
to proportionate adjustment in the event of any stock dividend, stock split,
reverse stock split, or other change affecting the outstanding Common Stock as a
class without the Company's receipt of consideration.  The shares to be issued
under the Plan will be made available from either authorized but unissued shares
of Common Stock or from shares of Common Stock reacquired by the Company,
including shares of Common Stock purchased on the open market.

       The Plan will be administered by a committee comprised of at least two
non-employee members of the Board appointed from time to time by the Board (the
"Plan Administrator").  It is currently contemplated that the Stock Option and
Compensation Committee of the Board will be the Plan Administrator.  Under the
Plan, the administrative powers of the Plan Administrator include (but are not
limited to) authority to (i) interpret and construe any provision of the Plan,
(ii) adopt such rules and regulations for administering the Plan as it may deem
necessary in order to comply with Section 423 of the Code, and (iii) make all
other determinations necessary or advisable for the administration of the Plan.

       Any person (other than the Company's Chief Executive Officer) who is
regularly scheduled to work more than twenty hours per week for more than five
months per calendar year in the employ of the Company (or any affiliate of the
Company as may be authorized from time to time by the Board to extend the
benefits of the Plan to its employees) is eligible to participate in the Plan
(each an "Eligible Employee").  Each Eligible Employee actively participating in
the Plan (each a "Participant") will have the ability under the Plan to
purchase, through payroll deductions, shares of Common Stock at a discount to
the fair market value of the Common Stock.  As of March 21, 1997 the Company
employed 25 Eligible Employees.

       Under the Plan, shares of Common Stock will be made available for
purchase by Eligible Employees through a series of successive offering periods
until the earlier of 

                                       3
<PAGE>
 
(i) the purchase of the maximum number of shares available for issuance under
the Plan or (ii) the termination of the Plan. Each offering period will have a
maximum duration of 24 months. The duration of each offering period will be
designated by the Plan Administrator. The initial offering period will run from
January 2, 1997 to the last business day in December 1997. The next offering
period will begin on the first business day in January 1998, and subsequent
offering periods will commence annually unless otherwise designated by the Plan
Administrator.

       An individual who is an Eligible Employee may begin participation in the
Plan on the first business day of any calendar quarter within an offering period
in effect under the Plan.  The date on which such individual joins the offering
period will become that individual's entry date (the "Entry Date") for the
offering period, and on that date such individual will be granted his or her
purchase right for the offering period.  To participate in the Plan for a
particular offering period, the Eligible Employee must complete certain
enrollment forms prescribed by the Plan Administrator (including a purchase
agreement and a payroll deduction authorization) and file such forms with the
Plan Administrator.

       Each Participant will be granted a separate purchase right for each
offering period in which he or she participates.  The purchase right will be
granted on the Entry Date on which the Participant first joins the offering
period in effect under the Plan and will be automatically exercised on the last
business day of each calendar quarter (a "Quarterly Purchase Date") while that
purchase right remains outstanding (except that in the first offering period,
such Quarterly Purchase Date is delayed until within ten business days after
approval of the Plan by the Company's stockholders.)  Common Stock will be
issuable on each Quarterly Purchase Date within the offering period at a
purchase price per share equal to 85% of the lower of (i) the fair market value
per share on the Participant's Entry Date (which in no event may be less than
the fair market value per share on the start date of the offering period) or
(ii) the fair market value per share on the Quarterly Purchase Date.  The number
of shares purchasable by a Participant will be equal to the number of whole
shares obtained by dividing the amount collected from the Participant through
payroll deductions for the calendar quarter by the purchase price in effect for
the Quarterly Purchase Date, up to a maximum of 5,000 shares.

       The payroll deduction authorized by the Eligible Employee for the purpose
of acquiring shares of Common Stock under the Plan may be any multiple of 1% of
such employee's base salary paid to the employee during each calendar quarter
within the offering period, up to a maximum of 20%.  The authorized deduction
rate will continue in effect for the remainder of the offering period and for
subsequent offering periods, unless changed by the Participant.  A Participant
may reduce the rate of payroll deduction at any time during a calendar quarter,
but no more than once per calendar quarter, and such reduction will be effective
as soon as possible after notification is made to the Plan Administrator.  The
rate of payroll deduction may be increased prior to the commencement of any
calendar quarter within the offering period, and will be effective on the first
day of such calendar quarter.

                                       4
<PAGE>
 
       A Participant may terminate his or her outstanding purchase right under
the Plan at any time prior to the next Quarterly Purchase Date.  Upon such
termination, no further payroll deductions will be collected from the
Participant, and any payroll deductions collected for the calendar quarter will,
at the election of the Participant, be immediately refunded or held for the
purchase of shares on the next Quarterly Purchase Date.  The purchase right of a
Participant will also terminate if he or she ceases to be an Eligible Employee.
Upon such termination, all payroll deductions collected for the calendar quarter
will be refunded to the Participant.  No purchase right granted under the Plan
is assignable or transferable by the Participant other than by will or the laws
of descent and distribution following the Participant's death, and during the
Participant's lifetime the purchase right may be exercised only by the
Participant.

       No Participant will be entitled to accrue rights to acquire Common Stock
pursuant to any purchase right outstanding under the Plan if and to the extent
such accrual, when aggregated with (i) rights to purchase Common Stock accrued
under any other purchase right outstanding under the Plan and (ii) similar
rights accrued under other employee stock purchase plans of the Company, would
otherwise permit such Participant to purchase more than $25,000 of stock of the
Company for each calendar year such rights are at any time outstanding.

       In the event of (i) a merger or consolidation in which the Company is not
the surviving entity (except for a transaction the principal purpose of which is
to change the state in which the Company is incorporated), (ii) the sale,
transfer or other disposition of all or substantially all of the assets of the
Company in complete liquidation or dissolution of the Company or (iii) any
reverse merger in which the Company is the surviving entity but in which
securities possessing more than 50% of the total combined voting power of the
Corporation's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
merger, then all outstanding purchase rights under the Plan will automatically
be exercised immediately prior to the consummation of such event.

       No taxable income will be realized by a Participant upon the purchase of
shares on a Quarterly Purchase Date.  The sale or disposition of Common Stock
purchased pursuant to the Plan is generally a taxable event.  The Participant
will realize a gain or loss in an amount equal to the difference between his or
her basis (normally the purchase price) in the Common Stock and the proceeds
from the sale or disposition.  If Common Stock acquired pursuant to the Plan is
not sold or otherwise disposed of within a specified time period after the date
of purchase (the "Holding Period"), any gain or loss resulting from the sale or
disposition of the Common Stock will be treated as long-term capital gain or
loss subject to a special rule that requires the portion of any such gain that
does not exceed the initial discount (at the time the right to purchase the
stock was granted) to be treated as compensation income.  If Common Stock
acquired pursuant to the Plan is disposed of prior to the expiration of the
Holding Period (a "Disqualifying Disposition"), the excess of the fair market
value of the Common Stock on the date the shares were purchased over the

                                       5
<PAGE>
 
purchase price will be treated as ordinary income. However, any additional gain
will be taxed as capital gain. If a Participant disposes of the Common Stock
more than one year after the date of purchase, such capital gain or loss will be
treated as long-term capital gain or loss.

       The Company normally is not entitled to a deduction with respect to the
issuance of shares of Common Stock under the Plan.  However, in the event of a
Disqualifying Disposition, the Company will be entitled to deduct the ordinary
income realized by the Participant.

       The Plan provides that the Board of Directors may amend, suspend or
terminate the Plan following any Quarterly Purchase Date; provided, however,
that approval of the stockholders is required to materially increase the
aggregate number of shares issuable under the Plan or the maximum number of
shares purchasable per Participant on any one Quarterly Purchase Date (other
than to reflect changes in the Company's capital structure), alter the purchase
price formula so as to reduce the purchase price for shares issuable under the
Plan, or materially increase the benefits accruing to Participants under the
Plan or materially modify the requirements for eligibility to participate in the
Plan.  Unless sooner terminated, the Plan will terminate on the earlier of (i)
the last business day in 2001 or (ii) the date on which all shares available for
issuance under the Plan shall have been sold pursuant to the purchase rights
exercised under the Plan.

       COMMON STOCK.  Not applicable; the class of the Company's Common Stock to
       ------------
be offered is registered under Section 12 of the Exchange Act.

ITEM 5.  INTERESTS OF NAMED EXPERTS AND COUNSEL

         Not applicable.

ITEM 6.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

         The Bylaws of the Company provide generally for indemnification of
officers, directors, agents and employees of the Company to the extent
authorized by the Delaware General Corporation Law.  Pursuant to Section 145 of
the Delaware General Corporation Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation, and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful.  With respect to suits by or in the right of a
corporation, however, indemnification is not available if such person is
adjudged to be liable to the corporation unless the court determines that
indemnification is appropriate.  In addition, a corporation has the power to
purchase and maintain insurance for such persons.  The statute also expressly
provides that the power to

                                       6
<PAGE>
 
indemnify authorized thereby is not exclusive of any rights granted under any
bylaw, agreement, vote of stockholders or disinterested directors, or otherwise.

       As permitted by Section 102 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation eliminates a director's personal
liability for monetary damages to the Company and its stockholders arising from
a breach of a director's fiduciary duty, except for liability under Section 174
of the Delaware General Corporation Law or liability for any breach of the
director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law or for any transaction in which the director derived an
improper personal benefit.

       The Company has entered into supplemental indemnification agreements with
each of its directors and executive officers.  These agreements provide broader
indemnity rights than those provided under the Delaware General Corporation Law
and the Company's Bylaws.  The indemnification agreements are not intended to
deny or otherwise limit third-party or derivative suits against the Company or
its directors or officers, but to the extent a director or officer were entitled
to indemnity or contribution under the indemnification agreement, the financial
burden of a third-party suit would be borne by the Company, and the Company
would not benefit from derivative recoveries against the director or officer.
Such recoveries would accrue to the benefit of the Company but would be offset
by the Company's obligations to the director or officer under the
indemnification agreement.  The Company's Bylaws authorize the Company to
purchase and maintain insurance on behalf of its present and former directors,
officers, employees and agents, whether or not the Company would have power to
indemnify such persons.  The Company from time to time maintains directors' and
officers' liability insurance in amounts it deems appropriate.

       The above discussion of the Company's Bylaws, Certificate of
Incorporation and indemnification agreements and of Section 145 of the Delaware
General Corporation Law is not intended to be exhaustive and is qualified in its
entirety by such Bylaws, Certificate of Incorporation, indemnification
agreements and statute.

ITEM 7.  EXEMPTION FROM REGISTRATION CLAIMED

       Not applicable.

                                       7
<PAGE>
 
ITEM 8.  EXHIBITS

       Exhibit
       -------

       4.1  The Company's Employee Stock Purchase Plan.

       5.1  Opinion of counsel as to legality of securities being registered.

       23.1  Consent of Ernst & Young LLP, independent auditors.

       23.2  Consent of counsel (included in Exhibit 5.1).

       24.1  Power of Attorney (included herein on the signature page).


ITEM 9.  UNDERTAKINGS.

       The undersigned registrant hereby undertakes:

       (1)  To file, during any period in which offers or sales are being made, 
            a post-effective amendment to this registration statement:

            (i)  To include any prospectus required by Section 10(a)(3) of the
                 Securities Act of 1933;

           (ii)  To reflect in the Prospectus any facts or events arising after 
                 the effective date of this registration statement (or the most
                 recent post-effective amendment thereof) which, individually or
                 in the aggregate, represent a fundamental change in the
                 information set forth in this registration statement;

          (iii)  To include any material information with respect to the plan of
                 distribution not previously disclosed in this registration
                 statement or any material change to such information in this
                 registration statement;

  Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
  --------  -------                                                        
  information required to be included in a post-effective amendment by those
  paragraphs is contained in periodic reports filed by the registrant pursuant
  to Section 13 or Section 15(d) of the Exchange Act that are incorporated by
  reference in this Registration Statement.

       (2) That, for the purpose of determining any liability under the
  Securities Act, each such post-effective amendment shall be deemed to be a new
  registration statement relating to the securities offered therein, and the
  offering of such securities at that time shall be deemed to be the initial
  bona fide offering thereof; and

                                       8
<PAGE>
 
       (3) To remove from registration by means of post-effective amendment any 
  of the securities which remain unsold at the termination of the offering.

       The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

       Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.  In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.

                                       9
<PAGE>
 
                                   SIGNATURES


     Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies  that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on April 29, 1997.


                            PROTEIN POLYMER TECHNOLOGIES, INC.,
                            a Delaware corporation



                            By: /s/ J. THOMAS PARMETER
                                -----------------------------------
                                J. Thomas Parmeter
                                President & Chief Executive Officer

                                      10
<PAGE>
 
                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints J. Thomas Parmeter and Aron P. Stern, and
each of them, his true and lawful attorney-in-fact and agent, each acting alone,
with full power of substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign this Registration Statement
and any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorney-in-
fact and agent or his substitute or substitutes, may lawfully do or cause to be
done by virtue thereof.

     Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
 
        Signature                            Title                         Date
- -------------------------   ---------------------------------------   --------------
<S>                         <C>                                       <C>
 
/s/ J. Thomas Parmeter      Chairman of the Board, President          April 29, 1997
- -------------------------   and Chief Executive Officer
J. Thomas Parmeter          (Principal Executive Officer)
 
 
/s/ Aron P. Stern           Vice President-Finance and Chief          April 29, 1997
- -------------------------   Financial Officer (Principal Financial
Aron P. Stern               and Accounting Officer)
 
 
/s/ Edward E. David         Director                                  April 29, 1997
- -------------------------
Edward E. David
 
 
/s/ George R. Walker        Director                                  April 29, 1997
- -------------------------
George R. Walker

                            Director
- -------------------------
Brent R. Nicklas


/s/ Patricia J. Cornell     Director                                  April 29, 1997
- --------------------------
Patricia J. Cornell
 
 
/s/ Bertram I. Rowland      Director                                  April 29, 1997
- --------------------------
Bertram I. Rowland
 

/s/ Phillip J. Davis        Director                                  April 29, 1997
- --------------------------
Philip J. Davis
 

/s/ Edward J. Hartnett      Director                                  April 29, 1997
- --------------------------
Edward J. Hartnett
</TABLE>

                                      11
<PAGE>
 
                                 EXHIBIT INDEX


Exhibits
- --------

4.1    Employee Stock Purchase Plan.

5.1    Opinion of counsel as to legality of securities
       being registered.

23.1   Consent of Ernst & Young LLP, independent auditors.

23.2   Consent of counsel (included in Exhibit 5.1).

24.1   Power of Attorney (included herein on the signature page).

                                      12

<PAGE>

                                                                     EXHIBIT 4.1

 
                       PROTEIN POLYMER TECHNOLOGIES, INC.
                          EMPLOYEE STOCK PURCHASE PLAN
                          ----------------------------


      I.  PURPOSE
          -------

          The Protein Polymer Technologies, Inc. Employee Stock Purchase Plan
(the "Plan") is intended to provide eligible employees of the Corporation and
one or more of its Corporate Affiliates with the opportunity to acquire a
proprietary interest in the Corporation through participation in a plan designed
to qualify as an employee stock purchase plan under Section 423 of the Code.

     II.  DEFINITIONS
          -----------

          For purposes of administration of the Plan, the following terms
shall have the meanings indicated:

          Base Salary means the regular base salary paid to a Participant by one
          -----------                                                           
or more Participating Companies during such individual's period of participation
in the Plan, plus any pre-tax contributions made by the Participant to any Code
Section 401(k) salary deferral plan or any Code Section 125 cafeteria benefit
program now or hereafter established by the Corporation or any Corporation
Affiliate.  The following items of compensation shall not be included in Base
Salary:  (i) all overtime payments, bonuses, commissions (other than those
functioning as base salary equivalents), profit-sharing distributions and other
incentive-type payments and (ii) any and all contributions (other than Code
Section 401(k) or Code Section 125 contributions) made on the Participant's
behalf by the Corporation or one or more Corporate Affiliates under any employee
benefit or welfare plan now or hereafter established.

          Board means the Board of Directors of the Corporation.
          -----                                                 

          Code means the Internal Revenue Code of 1986, as amended from time
          ----                                                              
to time.

          Common Stock means shares of the Corporation's common stock, par
          ------------                                                    
value $0.01 per share.

          Corporate Affiliate means any parent or subsidiary corporation of the
          -------------------                                                  
Corporation (as determined in accordance with Code Section 424), including any
parent or subsidiary corporation which becomes such after the Effective Date.
<PAGE>
 
          Corporation means Protein Polymer Technologies, Inc., a Delaware
          -----------                                                     
corporation, and any corporate successor to all or substantially all of the
assets or voting stock of Protein Polymer Technologies, Inc. which shall by
appropriate action adopt the Plan.

          Effective Date means the first day of the initial offering period
          --------------                                                   
under the Plan, which is scheduled to commence on January 2, 1997.  However, for
any Corporate Affiliate which becomes a Participating Corporation in the Plan
after the first day of the initial offering period, a subsequent Effective Date
shall be designated with respect to participation by its Eligible Employees.

          Eligible Employees means any person who is regularly scheduled to work
          ------------------                                                    
more than twenty (20) hours per week for more than five (5) months per calendar
year in the employ of the Corporation or any other Participating Corporation for
earnings considered wages under Code Section 3401(a).  However, in no event
shall the Corporation's Chief Executive Officer be an Eligible Employee.

          Entry Date means the date an Eligible Employee first joins the
          ----------                                                    
offering period in effect under the Plan.  The earliest Entry Date under the
Plan shall be the Effective Date.

          Fair Market Value means the fair market value per share of Common
          -----------------                                                
Stock on any date in question under the Plan and shall be equal to the closing
selling price per share of Common Stock on such date, as officially quoted on
the principal securities exchange or automatic quotation system on which the
Common Stock is at the time listed for trading.  If there are no sales of Common
Stock on the date in question, then the closing selling price for the Common
Stock on the next preceding day for which such closing selling price is quoted
shall be determinative of Fair Market Value.

          Participant means any Eligible Employee who is actively
          -----------                                            
participating in the Plan.

          Participating Corporation means the Corporation and such Corporate
          -------------------------                                         
Affiliate or Affiliates as may be authorized from time to time by the Board to
extend the benefits of the Plan to their Eligible Employees.  The Corporation is
the sole Participating Corporation, as of the Effective Date.

          Plan Administrator shall have the meaning given such term in Article 
          ------------------                                                  
III.

          Quarterly Entry Date means the first business day of each calendar
          --------------------                                              
quarter within an offering period in effect under 

                                      -2-
<PAGE>
 
the Plan. The earliest Quarterly Entry Date shall be the Effective Date.

          Quarterly Purchase Date means the last business day of each calendar
          -----------------------                                             
quarter, on which date shares of Common Stock are to be automatically purchased
for Participants under the Plan.  However, the Quarterly Purchase Date for each
calendar quarter within the first offering period shall be postponed to a date,
as set by the Plan Administrator, within 10 business days after approval of the
Plan by the Stockholders of the Corporation.

    III.  ADMINISTRATION
          --------------

          The Plan shall be administered by a committee (the "Plan
Administrator") comprised of two (2) or more non-employee Board members
appointed from time to time by the Board.  The Plan Administrator shall have
full authority to administer the Plan, including authority to interpret and
construe any provision of the Plan and to adopt such rules and regulations for
administering the Plan as it may deem necessary in order to comply with the
requirements of Code Section 423.  Decisions of the Plan Administrator shall be
final and binding on all parties who have an interest in the Plan.

     IV.  OFFERING PERIODS
          ----------------

          A.    Shares of Common Stock shall be made available for purchase
under the Plan through a series of successive offering periods until such time
as (i) the maximum number of shares of Common Stock available for issuance under
the Plan shall have been purchased or (ii) the Plan shall have been sooner
terminated in accordance with the provisions of Subsection I of Article VII,
Subsection B of Article IX or Subsection B of Article X.

          B.    Each offering period shall have a maximum duration of twenty-
four (24) months.  The duration of each offering period shall be designated by
the Plan Administrator prior to the start date.  However, the initial offering
period shall run from January 2, 1997 to the last business day in December,
1997.  The next offering period shall commence on the first business day in
January, 1998, and subsequent offering periods shall commence annually unless
otherwise designated by the Plan Administrator.

          C.    The Participant shall be granted a separate purchase right for
each offering period in which he/she participates. The purchase right shall be
granted on the Entry Date on which such individual first joins the offering
period in effect under the Plan and shall be automatically exercised on each

                                      -3-
<PAGE>
 
Quarterly Purchase Date while that purchase right remains outstanding.

          D.    The Participant's acquisition of Common Stock under the Plan
on any Quarterly Purchase Date shall neither limit nor require the Participant's
acquisition of Common Stock on any subsequent Quarterly Purchase Date, whether
within the same or a different offering period.

      V.  ELIGIBILITY AND PARTICIPATION
          -----------------------------

          A.    Each Eligible Employee shall be eligible to participate in the
Plan in accordance with the following provisions:

            -   An individual who is an Eligible Employee on the start date of
       any offering period under the Plan may enter that offering period on the
       Quarterly Entry Date coincident with that start date or on any subsequent
       Quarterly Entry Date within the offering period on which he/she remains
       an Eligible Employee.  The Quarterly Entry Date on which such individual
       first joins the offering period shall become such individual's Entry Date
       for the offering period, and on that date such individual shall be
       granted his/her purchase right for the offering period.

            -   An individual who first becomes an Eligible Employee after the
       start date of any offering period under the Plan may enter that offering
       period on the first Quarterly Entry Date on which he/she is an Eligible
       Employee or on any subsequent Quarterly Entry Date within that offering
       period on which he/she remains an Eligible Employee.  The Quarterly Entry
       Date on which such individual first joins the offering period shall
       become that individual's Entry Date for the offering period, and on that
       date such individual shall be granted his/her purchase right for the
       offering period.

          B.    To participate in the Plan for a particular offering period,
the Eligible Employee must complete the enrollment forms prescribed by the Plan
Administrator (including a purchase agreement and a payroll deduction
authorization) and file such forms with the Plan Administrator (or its
designate).

          C.    The payroll deduction authorized by the Participant for
purposes of acquiring shares of Common Stock under the Plan may be any multiple
of one percent (1%) of the Base

                                      -4-
<PAGE>
 
Salary paid to the Participant during each calendar quarter within the offering
period, up to a maximum of twenty percent (20%).  The deduction rate so
authorized shall continue in effect for the remainder of the offering period and
for subsequent offering periods, except to the extent such rate is changed in
accordance with the following guidelines:

            -   The Participant may, at any time during a calendar quarter,
       reduce his/her rate of payroll deduction.  Such reduction shall become
       effective as soon as possible after filing of the requisite reduction
       form with the Plan Administrator (or its designate), but the Participant
       may not effect more than one such reduction during a calendar quarter.

            -   The Participant may, prior to the commencement of any calendar
       quarter within the offering period, increase the rate of his/her payroll
       deduction by filing the appropriate form with the Plan Administrator (or
       its designate).  The new rate (which may not exceed the twenty percent
       (20%) maximum) shall become effective as of the first day of the first
       calendar quarter following the filing of such form.

          Payroll deductions will automatically cease upon the termination of
the Participant's purchase right in accordance with the applicable provisions of
Article VII below.

     VI.  STOCK SUBJECT TO PLAN
          ---------------------

          A.    The Common Stock purchasable under the Plan shall, solely in
the discretion of the Plan Administrator, be made available from either
authorized but unissued shares of Common Stock or from shares of Common Stock
reacquired by the Corporation, including shares of Common Stock purchased on the
open market.  The total number of shares which may be issued over the term of
the Plan shall not exceed 500,000 shares (subject to adjustment under Section
VI.B below).

          B.    In the event any change is made to the outstanding Common
Stock by reason of any stock dividend, stock split, combination of shares or
other change affecting such outstanding Common Stock as a class without the
Corporation's receipt of consideration, appropriate adjustments shall be made by
the Plan Administrator to (i) the class and maximum number of securities
issuable over the term of the Plan, (ii) the class and maximum number of
securities purchasable per Participant on any Quarterly Purchase Date and (iii)
the class and number of securities and the price per share in effect under each
purchase price at the time outstanding under the Plan.  Such adjustments

                                      -5-
<PAGE>
 
shall be designed to preclude the dilution or enlargement of the rights and
benefits of Participants under the Plan.

    VII.  PURCHASE RIGHTS
          ---------------

          An Eligible Employee who participates in the Plan for a particular
offering period shall have the right to purchase shares of Common Stock, at
successive quarterly intervals during such offering period, upon the terms and
conditions set forth below and shall execute a purchase agreement embodying such
terms and conditions and such other provisions (not inconsistent with the Plan)
as the Plan Administrator may deem advisable.

          A.      Purchase Price.  Common Stock shall be issuable on each
                  --------------                                         
Quarterly Purchase Date within the offering period at a purchase price per share
equal to eighty-five percent (85%) of the lower of (i) the Fair Market Value per
                                          -----                                 
share on the Participant's Entry Date or (ii) the Fair Market Value per share on
the Quarterly Purchase Date.  However, for each Participant whose Entry Date is
other than the start date of the offering period, the clause (i) amount shall in
no event be less than the Fair Market Value per share on the start date of that
offering period.

          B.      Number of Purchasable Shares.  The number of shares
                  ----------------------------                       
purchasable per Participant on each Quarterly Purchase Date during the offering
period shall be the number of whole shares obtained by dividing the amount
collected from the Participant through payroll deductions during the calendar
quarter ending with such Quarterly Purchase Date by the purchase price in effect
for that Quarterly Purchase Date.  However, the maximum number of shares of
Common Stock purchasable per Participant on any Quarterly Purchase Date shall
not exceed five thousand (5,000) shares, subject to periodic adjustment under
Section VI.B.

          Notwithstanding the above limitation of 5,000 shares, the limit with
regard to Quarterly Purchase Dates postponed while awaiting approval of the Plan
by the stockholders of the Corporation shall be 5,000 shares multiplied by the
number of Quarterly Purchase Dates so postponed.

          Under no circumstances shall purchase rights be granted under the Plan
to any Eligible Employee if such individual would, immediately after the grant,
own (within the meaning of Code Section 424(d)) or hold outstanding options or
other rights to purchase, stock possessing five percent (5%) or more of the
total combined voting power or value of all classes of stock of the Corporation
or any of its Corporate Affiliates.

          C.      Payment.  Payment for the Common Stock purchased under the
                  -------                                                   
Plan shall be effected by means of the Participant's

                                      -6-
<PAGE>
 
authorized payroll deductions.  Such deductions shall begin on the first pay day
following the Participant's Entry Date into the offering period and shall
(unless sooner terminated by the Participant) continue through the pay day
ending with or immediately prior to the last day of the offering period.  The
amount so collected shall be credited to the Participant's individual account
upon the Corporation's books, but no interest shall be paid on the outstanding
balance credited to such book account.  The amounts collected from a Participant
will not be held in any segregated account or trust fund and may be commingled
with the general assets of the Corporation and used for general corporate
purposes.

          D.      Termination of Purchase Rights.  The following provisions
                  ------------------------------                           
shall govern the termination of outstanding purchase rights:

            -   A  Participant may, at any time prior to the next Quarterly
       Purchase Date, terminate his/her outstanding purchase right under the
       Plan by filing the prescribed notification form with the Plan
       Administrator (or its designate).  No further payroll deductions shall be
       collected from the Participant with respect to the terminated purchase
       right, and any payroll deductions collected for the calendar quarter in
       which such termination occurs shall, at the Participant's election, be
       immediately refunded or held for the purchase of shares on the next
       Quarterly Purchase Date.  If no such election is made at the time such
       purchase right is terminated, then the payroll deductions collected with
       respect to the terminated right shall be refunded as soon as possible.

            -   The termination of such purchase right shall be irrevocable,
       and the Participant may not subsequently rejoin the offering period for
       which the terminated purchase right was granted.  In order to resume
       participation in any subsequent offering period, such individual must re-
       enroll in the Plan (by making a timely filing of a new purchase agreement
       and payroll deduction authorization) on or before his/her scheduled Entry
       Date into the new offering period.

            -   If the Participant ceases to remain an Eligible Employee for
       any reason (including death, disability or change in status) while
       his/her purchase right remains outstanding, then that purchase right
       shall immediately terminate, and the payroll deductions made to date by
       that Participant in the calendar quarter which such cessation of Eligible
       Employee status occurs shall be refunded as soon as possible.

                                      -7-
<PAGE>
 
          E.  Stock Purchase.  Shares of Common Stock shall automatically be
              --------------                                                
purchased on behalf of each Participant (other than Participants whose payroll
deductions have previously been refunded in accordance with the Termination of
Purchase Right provisions above) on each Quarterly Purchase Date.  The purchase
shall be effected by applying each Participant's payroll deductions for the
calendar quarter ending on such Quarterly Purchase Date (together with any
carryover deductions from the preceding calendar quarter) to the purchase of
whole shares of Common Stock (subject to the limitation on the maximum number of
purchasable shares set forth above) at the purchase price in effect for the
Participant for that Quarterly Purchase Date.  Any payroll deductions not
applied to such purchase because they are not sufficient to purchase a whole
share shall be held for the purchase of Common Stock on the next Quarterly
Purchase Date.  However, any payroll deductions not applied to the purchase of
Common Stock by reason of the limitation on the maximum number of shares
purchasable by the Participant on the Quarterly Purchase Date shall be promptly
refunded to the Participant.

          F.      Proration of Purchase Rights.  Should the total number of
                  ----------------------------                             
shares of Common Stock to be purchased pursuant to outstanding purchase rights
on any particular date exceed the number of shares then available for issuance
under the Plan, the Plan Administrator shall make a pro-rata allocation of the
available shares on a uniform and nondiscriminatory basis, and the payroll
deductions of each Participant, to the extent in excess of the aggregate
purchase price payable for the Common Stock pro-rated to such individual, shall
be refunded to such Participant.

          G.      Rights as Stockholder.  A Participant shall have no
                  ---------------------                              
stockholder rights with respect to the shares subject to his/her outstanding
purchase right until the shares are actually purchased on the Participant's
behalf in accordance with the applicable provisions of the Plan.  No adjustments
shall be made for dividends, distributions or other rights for which the record
date is prior to the date of such purchase.

          A Participant shall be entitled to receive, as soon as practicable
after each Quarterly Purchase Date, a stock certificate for the number of shares
purchased on the Participant's behalf.  Such certificate may, upon the
Participant's request, be issued in the names of the Participant and his/her
spouse as community property or as joint tenants with rights of survivorship.
Alternatively, the Participant may request the issuance of such certificate in
"street name" for immediate deposit in a designated brokerage account.

          H.      Assignability.  No purchase right granted under the Plan shall
                  -------------                                                 
be assignable or transferable by the Participant

                                      -8-
<PAGE>
 
other than by will or by the laws of descent and distribution following the
Participant's death, and during the Participant's lifetime the purchase right
shall be exercisable only by the Participant.

          I.      Corporate Transaction.  Should any of the following
                  ---------------------                              
transactions (a "Corporate Transaction") occur during the offering period:

            -   a merger or consolidation in which the Corporation is not the
       surviving entity, except for a transaction the principal purpose of which
       is to change the state in which the Corporation is incorporated.

            -   the sale, transfer or other disposition of all or substantially
       all of the assets of the Corporation in complete liquidation or
       dissolution of the Corporation, or

            -   any reverse merger in which the Corporation is the surviving
       entity but in which securities possessing more than fifty percent (50%)
       of the total combined voting power of the Corporation's outstanding
       securities are transferred to a person or persons different from the
       persons holding those securities immediately prior to such merger,

then all outstanding purchase rights under the Plan shall automatically be
exercised immediately prior to the consummation of such Corporate Transaction by
applying the payroll deductions of each Participant for the calendar quarter in
which such Corporate Transaction occurs to the purchase of whole shares of
Common Stock at eighty-five percent (85%) of the lower of (i) the Fair Market
                                                 -----                       
Value per share on the Participant's Entry Date into the offering period in
which such Corporate Transaction occurs or (ii) the Fair Market Value per share
immediately prior to the consummation of such Corporate Transaction.  However,
the applicable share limitations of Articles VII and VIII shall continue to
apply to any such purchase, and the clause (i) amount above shall not, for any
Participant whose Entry Date for the offering period is other than the start
date of that offering period, be less than the Fair Market Value per share of
Common Stock on such start date.  The Corporation shall use its best efforts to
provide at least ten (10)-days advance written notice of the occurrence of any
such Corporate Transaction, and the Participants shall, following the receipt of
such notice, have the right to terminate their outstanding purchase rights in
accordance with the applicable provisions of this Article VII.

          A similar automatic exercise of outstanding purchase rights will occur
should the Corporation dispose of its equity

                                      -9-
<PAGE>
 
holdings in one or more of its operating subsidiaries by a merger or
consolidation involving that subsidiary, a sale of substantially all of the
assets of that subsidiary or the Corporation's sale of substantially all of the
outstanding capital stock of such subsidiary, but only the purchase rights of
the Participants in the employ of the subsidiary involved in such disposition
shall be so exercised.

   VIII.  ACCRUAL LIMITATIONS
          -------------------

          A.      No Participant shall be entitled to accrue rights to acquire
Common Stock pursuant to any purchase right outstanding under this Plan if and
to the extent such accrual, when aggregated with (I) rights to Purchase Common
Stock accrued under any other purchase right outstanding under this Plan and
(II) similar rights accrued under other employee stock purchase plans (within
the meaning of Code Section 423) of the Corporation or its Corporate Affiliates,
would otherwise permit such Participant to purchase more than $25,000 worth of
stock of the Corporation or any Corporate Affiliate (determined on the basis of
the fair market value of such stock on the grant date or dates of such purchase
rights) for each calendar year such rights are at any time outstanding.


          B.      For purposes of applying such accrual limitations, the right
to acquire Common Stock pursuant to each purchase right outstanding under the
Plan shall accrue as follows:

                 i)  The right to acquire Common Stock under such purchase right
       shall accrue in a series of successive quarterly installments as and when
       the purchase right first becomes exercisable for each such installment on
       the last business day of each calendar quarter for which that purchase
       right remains outstanding.

                ii)  No right to acquire Common Stock under any outstanding
       purchase right shall accrue to the extent the Participant has already
       accrued in the same calendar year the right to acquire Common Stock under
       one or more other purchase rights at a rate equal to $25,000 worth of
       Common Stock (determined on the basis of the Fair Market Value of the
       Common Stock on the date or dates of grant) for each calendar year during
       which one or more of those purchase rights were at anytime outstanding.

               iii)  If by reason of such limitations, any purchase right does
       not accrue for a particular calendar quarter, then the payroll deductions
       which the Participant

                                      -10-
<PAGE>
 
       made during that calendar quarter with respect to such purchase right
       shall be promptly refunded.

          C.      In the event there is any conflict between the provisions of
this Article VIII and one or more provisions of the Plan or any instrument
issued thereunder, the provisions of this Article VIII shall be controlling.

     IX.  AMENDMENT AND TERMINATION
          -------------------------

          A.      The Board may alter, amend, suspend or discontinue the Plan
for one or more groups of Participants following any Quarterly Purchase Date.
However, the Board may not, without the approval of the Corporation's
stockholders:

            -   materially increase the number of shares issuable under the Plan
       or the maximum number of shares purchasable per Participant on any one
       Quarterly Purchase Date, except that the Plan Administrator shall have
       the authority, exercisable without such stockholder approval, to effect
       adjustments to the extent necessary to reflect changes in the
       Corporation's capital structure pursuant to Subsection B of Articles VI;

            -   alter the purchase price formula so as to reduce the purchase
       price payable for the shares issuable under the Plan; or

            -   materially increase the benefits accruing to Participants under
       the Plan or materially modify the requirements for eligibility to
       participate in the Plan.

          B.      The Corporation shall have the right, exercisable in the sole
discretion of the Plan Administrator, to terminate all outstanding purchase
rights under the Plan immediately following any Quarterly Purchase Date.  Should
the Corporation elect to exercise such right, then the Plan shall terminate in
its entirety.  No further purchase rights shall thereafter be granted or
exercised, and no further payroll deductions shall thereafter be collected,
under the Plan.

      X.  GENERAL PROVISIONS.
          ------------------ 

          A.      The Plan shall become effective on the designated Effective
Date, provided that no shares of Common Stock shall be issued hereunder, until
      --------                                                                
(i) the Plan shall have been approved by the stockholders of the Corporation,
and (ii) the Corporation shall have complied with all applicable requirements of
the Securities Act of 1933, as amended, all applicable listing requirements of
any securities exchange or automatic quotation

                                      -11-
<PAGE>
 
system on which shares of the Common Stock are listed and all other applicable
legal and regulatory requirements.  In the event such stockholders' approval is
not obtained or such compliance of the Corporation is not effected within twelve
(12) months after September 24, 1996, then the payroll deductions made by all
Participants shall be refunded as soon as possible and the Plan shall not be
implemented.

          B.      The Plan shall terminate upon the earlier of (i) the last
business day in 2001 or (ii) the date on which all shares available for issuance
under the Plan shall have been sold pursuant to the purchase rights exercised
under the Plan.

          C.    All costs and expenses incurred in the administration of the
Plan shall be paid by the Corporation.

          D.      Neither the action of the Corporation in establishing the
Plan, nor any action taken under the Plan by the Board or the Plan
Administrator, nor any provision of the Plan itself shall be construed so as to
grant any person the right to remain in the employ of the Corporation or any of
its Corporate Affiliates for any period of specific duration, and such person's
employment may be terminated at any time, with or without cause.

                                      -12-

<PAGE>
 
                                                                     EXHIBIT 5.1



                     Paul, Hastings, Janofsky & Walker LLP
                            555 South Flower Street
                       Los Angeles, California 90071-2371
                            Telephone (213) 683-6000
                            Facsimile (213) 627-0705



                                 April 28, 1997



                                                                     16151.74007


Protein Polymer Technologies, Inc.
10655 Sorrento Valley Road
San Diego, California  92121

Ladies and Gentlemen:

          We are furnishing this opinion of counsel to Protein Polymer
Technologies, Inc., a Delaware corporation (the "Company"), for filing as
Exhibit 5.1 to the Registration Statement on Form S-8 (the "Registration
Statement") to be filed by the Company with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the
issuance and sale by the Company of up to 500,000 shares (the "Shares") of its
Common Stock, $.01 par value, pursuant to the Company's Employee Stock Purchase
Plan (the "Plan").

          We have examined the Certificate of Incorporation and Bylaws, each as
amended to date, of the Company, and the originals, or copies certified or
otherwise identified, of records of corporate action of the Company as furnished
to us by the Company, certificates of public officials and of representatives of
the Company, and such other instruments and documents as we deemed necessary, as
a basis for the opinions hereinafter expressed.  In such examination we have
assumed the genuineness of all signatures, the authenticity of all corporate
records and other documents submitted to us and the conformity to original
documents submitted to us as certified or photostatic copies.
<PAGE>
 
Protein Polymer Technologies, Inc.
April 28, 1997
Page 2


          Based upon our examination as aforesaid, and in reliance upon our
examination of such questions of law as we deem relevant under the
circumstances, we are of the opinion that the Shares, when purchased and issued
as described in the Registration Statement and in accordance with the Plan, will
be validly issued, fully paid and nonassessable.

          We express no opinion with respect to the applicability or effect of
the laws of any jurisdiction other than the Delaware General Corporation Law as
in effect on the date hereof.

          We hereby consent to the filing of this opinion of counsel as Exhibit
5.1 to the Registration Statement.

                                       Very truly yours,

                                       /s/ PAUL, HASTINGS, JANOFSKY & WALKER LLP

<PAGE>
 
                                                                    Exhibit 23.1



               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Protein Polymer Technologies, Inc. Employee Stock
Purchase Plan of our report dated January 30, 1997, with respect to the
financial statements of Protein Polymer Technologies, Inc., included in its
Annual Report (Form 10-KSB) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.


                                       /s/ ERNST & YOUNG LLP

                                       ERNST & YOUNG LLP



San Diego, California
April 28, 1997


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