<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PROTEIN POLYMER TECHNOLOGIES, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 19, 1998
------------------------
To Our Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Protein Polymer Technologies, Inc., which will be held at the
Company's executive offices, located at 10655 Sorrento Valley Road, San Diego,
California, on Tuesday, May 19, 1998 at 10:00 a.m. for the following purposes:
(a) To elect a Board of eight Directors for the ensuing year;
(b) To approve an amendment to the Company's 1992 Stock Option Plan
to increase the number of shares reserved for issuance under the
Plan by 500,000 shares;
(c) To ratify the appointment of Ernst & Young LLP as independent
auditors for the fiscal year ending December 31, 1998; and
(d) To consider and act upon such other matters as may properly come
before the meeting.
The close of business on March 20, 1998 has been fixed as the record date
for stockholders to receive notice of and to vote at the meeting or any
adjournment or postponement thereof. Holders of a majority of the outstanding
shares must be present either in person or by proxy in order for the meeting to
be held. The proxy is revocable at any time in the manner set forth on page 1
of the Proxy Statement and will not affect your right to vote in person in the
event you attend the meeting.
By Order of the Board of Directors,
Philip J. Davis
Secretary
April 17, 1998
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WHETHER YOU ATTEND THE MEETING OR NOT, YOU ARE REQUESTED TO SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE AT YOUR EARLIEST
CONVENIENCE. FOR THOSE ATTENDING THE MEETING, AMPLE PARKING WILL BE AVAILABLE.
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<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 19, 1998
------------------------
PROXY STATEMENT
------------------------
This Proxy Statement is furnished by Protein Polymer Technologies, Inc.
(the "Company"), 10655 Sorrento Valley Road, San Diego, CA, 92121, in connection
with the solicitation by the Company's Board of Directors (the "Board") of
proxies to be voted at the Annual Meeting of Stockholders to be held on Tuesday,
May 19, 1998 at 10:00 a.m., or any adjournments or postponements thereof (the
"Meeting"). The Board has fixed the close of business on March 20, 1998 as the
record date for determining stockholders entitled to notice of and to vote at
the Meeting. As of that date, 10,429,094 shares of the Company's Common Stock,
$.01 par value (the "Common Stock") were issued and outstanding.
Any person giving a proxy has the right to revoke it before it is
exercised. It may be revoked either by filing an instrument of revocation with
the Secretary of the Company or by delivering at the Meeting a duly executed
proxy bearing a later date. It also may be revoked by attending the Meeting and
voting in person.
All expenses incurred in connection with solicitation of the enclosed
proxy will be paid by the Company. In addition to solicitation by mail,
officers, directors and regular employees of the Company, who will receive no
additional compensation for their services, may solicit proxies by mail,
telephone, telegraph or personal call. The Company has requested brokers and
nominees who hold stock in their names to furnish this proxy material to their
customers and the Company will reimburse such brokers and nominees for their
related out-of-pocket expenses.
The approximate date on which this Proxy Statement and the enclosed proxy
are first being sent to the Company's stockholders is April 17, 1998. A copy of
the Company's Annual Report for the fiscal year ended December 31, 1997
accompanies this Proxy Statement.
VOTING RIGHTS
Each share of Common Stock outstanding on the record date is entitled to
one vote. The holders of Common Stock do not have the right to cumulate votes.
An affirmative vote of a majority of the shares voted at the Meeting, by person
or in proxy, is required for approval of each item being submitted to the
stockholders for consideration. Proxies will be received and tabulated by the
Company's transfer agent. Votes cast in person at the meeting will be tabulated
by an election inspector appointed by the Company. Abstentions and "broker non-
votes" are each included in the determination of the number of shares present
and voting, with each tabulated separately. Abstentions are counted in
tabulations of the votes cast on proposals presented to the stockholders,
whereas broker non-votes are not counted for purposes of determining whether a
proposal has been approved. Any unmarked proxies, including those submitted by
brokers or nominees, will be voted for the directors nominated and for all
proposals submitted herewith.
COMMON STOCK OWNERSHIP
The following table sets forth information as of March 20, 1998 with
respect to (i) all persons known by the Company to be the beneficial owner of
more than 5% of the Common Stock, (ii) all Directors and nominees for Director,
(iii) each executive officer named below and (iv) all directors and executive
officers as a group. The business address of each of the Company's directors
and named executive officers is the Company's address unless otherwise stated in
the table below.
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1)(2) OF CLASS(1)(2)
- ------------------- ------------------------ --------------
<S> <C> <C>
J. Thomas Parmeter(3)(6)(8)................. 541,777 5.16%
Philip J. Davis(3)(6)(9).................... 376,345 3.60%
Brent R. Nicklas(3)(10)
Lexington Partners, Inc.
660 Madison Avenue, 23/rd/ Floor
New York, New York 10021.................. 281,327 2.69%
Patricia J. Cornell(3)(7)(20)
Taurus Advisory Group
2 Landmark Square
Stamford, Connecticut 06901............... 3,105,245 28.8%
J. Paul Jones(5)(11)........................ 4,000 *
Johnson & Johnson Development Company(21)... 1,648,933 14.8%
One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
Taurus Advisory Group (20).................. 3,099,245 28.8%
2 Landmark Square
Stamford, Connecticut 06901
George R. Walker(3)(12)..................... 146,012 1.39%
Edward E. David, Ph.D.(3)(13)............... 56,107 *
Bertram I. Rowland(4)(14)................... 72,269 *
Edward J. Hartnett(3)(15)................... 20,000 *
Joseph Cappello, Ph.D.(6)(16)............... 152,177 1.45%
Franco A. Ferrari, Ph.D.(6)(17)............. 144,954 1.38%
John E. Flowers(6)(18)...................... 135,496 1.29%
Erwin R. Stedronsky, Ph.D.(6)(19)........... 87,192 *
All Directors and Executive Officers
as a Group (14 persons)(22)................. 5,118,901 45.20%
</TABLE>
- --------------------
* Amount represents less than one percent of the Common Stock.
(1) Information with respect to beneficial ownership is based upon the Company's
stock records and data supplied to the Company by the holders.
(2) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options or warrants exercisable within 60 days are deemed
outstanding for computing the percentage of the person holding such options
or warrants but are not deemed outstanding for computing the percentage of
any other person. Except as indicated by footnote, and subject to joint
ownership with spouses and community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
(3) Director and Nominee for Director.
(4) Director not standing for re-election.
(5) Nominee for Director.
(6) Executive Officer.
(7) Includes 5,000 shares subject to options exercisable within 60 days. Ms.
Cornell is also a Vice President and Director of Taurus Advisory Group, and
as such may be deemed to exercise investment power over shares held by
Taurus Advisory Group. Ms. Cornell disclaims such beneficial ownership.
(8) Includes 80,000 shares subject to options exercisable within 60 days.
(9) Includes 26,000 shares subject to options exercisable within 60 days.
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<PAGE>
(10) Includes 149,179 shares of Common Stock held by Transitions Three, L.P.
Mr. Nicklas became a general partner of this fund in December 1988, and may
be deemed to be the beneficial owner of its shares. Mr. Nicklas disclaims
such beneficial ownership. Also includes 22,000 shares subject to options
exercisable within 60 days.
(11) Includes 4,000 shares subject to options exercisable within 60 days.
(12) Includes 20,000 shares subject to options exercisable within 60 days.
(13) Includes 30,000 shares subject to options exercisable within 60 days.
(14) Includes 32,000 shares subject to options exercisable within 60 days.
(15) Represents 20,000 shares subject to options exercisable within 60 days.
(16) Includes 89,000 shares subject to options exercisable within 60 days.
(17) Includes 81,000 shares subject to options exercisable within 60 days.
(18) Includes 80,000 shares subject to options exercisable within 60 days.
(19) Includes 77,000 shares subject to options exercisable within 60 days.
(20) Includes (i) 2,764,745 shares held by clients of Taurus Advisory Group and
(ii) 334,500 shares subject to warrants exercisable within 60 days held by
clients of Taurus Advisory Group (which warrants were issued in connection
with the Company's initial public offering of its Common Stock and are
exercisable at a price of $8.00 per share). Taurus Advisory Group exercises
investment power over such shares.
(21) Includes shares issuable upon conversion of 27,317 shares of the Company's
Series D Preferred Stock convertible within 60 days at an assumed
conversion price of $3.75. The conversion price of each share of Series D
Preferred Stock is equal to $100 divided by the lesser of (i) $3.75 or (ii)
the market price at the time of conversion.
(22) Includes 562,000 shares subject to options exercisable within 60 days and
334,500 warrants convertible within 60 days.
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<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
At the Meeting, it is intended that the persons named in the proxy will
vote for the election of the eight nominees listed below, each director to serve
until the next annual meeting or until his or her successor is elected and
qualified. All of the nominees other than J. Paul Jones are now members of the
Board. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF THE
NOMINEES LISTED BELOW. The persons named in the accompanying proxy intend to
vote for the election of the nominees listed below unless authority to vote for
one or more of such nominees is specifically withheld in the proxy. If any
nominee, for any reason currently unknown, cannot be a candidate for election,
proxies will be voted for the election of a substitute recommended by the Board.
INFORMATION CONCERNING NOMINEES FOR DIRECTOR
The following information is furnished concerning the Company's nominees
for director:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
J. Thomas Parmeter 58 Chairman of the Board of Directors,
Chief Executive Officer and
President
Edward E. David, Ph.D.(1)(3) 72 Director
George R. Walker (1)(2)(4) 73 Director
Brent R. Nicklas (2) 50 Director
Patricia J. Cornell (2)(4) 49 Director
J. Paul Jones 56 None
Philip J. Davis (3)(4) 67 Director, Secretary
Edward J. Hartnett (1)(3) 66 Director
</TABLE>
_______________________
(1) Member of the Stock Option and Compensation Committee of Board of
Directors.
(2) Member of the Audit Committee of Board of Directors.
(3) Member of the Nominating Committee of Board of Directors.
(4) Member of the Finance Committee of Board of Directors
Mr. J. Thomas Parmeter has been the Company's President, Chief Executive
Officer and Chairman of the Board of Directors since its inception in July 1988.
He also served as its Chief Financial Officer from its inception until July
1992. 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. Edward E. David has served as a Director of the Company since January
1989. Dr. David has been a private consultant since 1986. In addition, he is
now a principal in the Washington Advisory Group, LLC, advisor to industry,
universities and institutions. From 1977 to 1986, he was the President of Exxon
Research and Engineering. From 1981 to 1988, Dr. David sat on the White House
Science Council. Among his current responsibilities and affiliations, Dr. David
is a Director of Intermagnetics General Corp., Spacehab, Inc., InterView, Inc.,
Acquasearch Inc., and is a life member of the Massachusetts Institute of
Technology Corporation. Dr. David is also Chairman of the Company's Technical
Advisory Group.
Mr. George R. Walker has served as a Director of the Company since
January 1989. Mr. Walker, retired since January 1985, was formerly the Vice
President - Finance for Esso Europe, an operating division of the Exxon
Corporation.
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<PAGE>
Mr. Brent R. Nicklas has served as a director of the Company since
September 1991. He is a Managing Director of LPNY Advisors, Inc., an affiliate
of Lexington Partners, Inc., a venture capital and merchant banking firm
("Lexington"). From December 1988 to December 1993, Mr. Nicklas was a Managing
Director of Lexington. From June 1976 to May 1988, Mr. Nicklas was with Merrill
Lynch Capital Markets, most recently as Vice President of the Technology and
Emerging Growth Group.
Ms. Patricia J. Cornell, CFA, has served as vice president and director
of Taurus Advisory Group, a registered investment adviser, since March 1984.
From 1976 through 1984, Ms. Cornell held senior positions in portfolio
management at Morris Offit Associates and Lionel D. Edie & Company. Although
clients of Taurus Advisory Group hold significant amounts of the Company's
Common Stock, Ms. Cornell does not serve as a member of the Board pursuant to
any arrangement, agreement or understanding with either the Company or Taurus
Advisory Group.
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 formerly Director, Institutional Sales, at Merrill Lynch,
Inc. (formerly Merrill Lynch Capital Markets) from February 1991 until March
1994, and had been a Vice President at Merrill Lynch, Inc. since 1986.
Mr. Edward J. Hartnett has served as a director of the Company since
March 1996. Mr. Hartnett, retired since January 1996, previously served as a
Company Group Chairman for the Johnson & Johnson Company, a diversified drug and
medical products company. Mr. Hartnett is a past president of the American
Medical Manufacturers Association. Although Johnson & Johnson Development
Company, an affiliate of Mr. Hartnett's previous employer (Johnson & Johnson
Company), is a significant holder of the Company's Series D Preferred Stock and
Common Stock, Mr. Hartnett does not serve as a member of the Board pursuant to
any arrangement, agreement or understanding with either the Company or Johnson &
Johnson Company.
Dr. J. Paul Jones, retired since January 1998, was previously with
Procter & Gamble Company since 1969, most recently as its Vice President,
Research & Product Development, OTC Health Care Products Worldwide, and was
formerly a member of the Analgesics subcommittee of the American Society of
Clinical Pharmacology and Toxicology.
COMMITTEES AND COMPENSATION OF THE BOARD OF DIRECTORS
In 1997 the Company had standing Stock Option and Compensation and Audit
Committees. At its meeting in February 1998, the Board resolved to form a
Nominating Committee and a Finance Committee. During the Company's last fiscal
year, the Board of Directors held six meetings. Each of Edward E. David and
Brent R. Nicklas attended less than 75% of the aggregate of all regular Board
meetings and, in the case of Mr. Nicklas, less than 75% of the aggregate of all
meetings of the Committees on which he served.
Stock Option and Compensation Committee
The Stock Option and Compensation Committee met five times during the
last fiscal year. During 1997, the Stock Option and Compensation Committee
determined grants of stock options under, and administered, the 1989 and 1992
stock option plans of the Company, as well as its 1996 non-employee directors'
stock option plan and employee stock purchase plan. The Stock Option and
Compensation Committee also made recommendations to the Board on the annual
salaries of all elected officers of the Company and made recommendations to the
Board on compensation matters of the Company.
-5-
<PAGE>
Audit Committee
The Audit Committee met two times during the last fiscal year. The Audit
Committee makes recommendations concerning the engagement of the Company's
independent auditors, consults with the independent auditors concerning the
audit plan and reviews the comments and recommendations resulting from the
auditors' report.
Nominating Committee
The Nominating Committee was formed in February 1998. The Nominating
Committee makes recommendations concerning potential nominees to serve on the
Board. Stockholders desiring the Nominating Committee to consider a recommended
candidate may submit such recommendation in writing to the Nominating Committee
at the Company's executive offices.
Finance Committee
The Finance Committee was formed in February 1998. The Finance Committee
reviews and makes recommendations concerning potential private financing
transactions for the Company.
Directors' Compensation
No directors received any cash compensation for their services as directors
during the 1997 fiscal year. Edward E. David, Inc., of which Dr. David is the
sole shareholder, received $16,000 during 1997 for Dr. David's services as
Chairman of the Company's Technical Advisory Group. All directors were
reimbursed for their out-of-pocket expenses in attending meetings of the Board
or committees thereof.
Outside directors may be granted options to purchase Common Stock under the
Company's 1996 Non-Employee Directors' Stock Option Plan (the "1996 Option
Plan"). Non-employee directors are currently granted options to purchase 5,000
shares of Common Stock of the Company upon their election to the Board and on
the first business day in June of each calendar year. Such options are
exercisable six months after the date of grant at a price equal to the fair
market value of the Common Stock on the date of grant. During 1997, Ms. Cornell
and each of Messrs. David, Davis, Hartnett, Nicklas, Rowland and Walker received
options to purchase 5,000 shares of Common Stock under the 1996 Option Plan at
an exercise price of $2.16 per share.
-6-
<PAGE>
APPROVAL OF AMENDMENT TO THE
COMPANY'S 1992 STOCK OPTION PLAN
(PROPOSAL NO. 2)
The Company's 1992 Stock Option Plan (the "1992 Plan") was adopted by the
Board in December 1992 and approved by the stockholders in April 1993. The 1992
Plan initially reserved an aggregate of 1,000,000 shares of Common Stock for
issuance upon the exercise of options under the 1992 Plan. As of March 20,
1998, the Company has only 96,000 shares available for grant to new and existing
employees.
The stockholders are being asked to approve an amendment to the 1992 Plan
at the Meeting to increase the shares reserved for issuance under the 1992 Plan
by 500,000 shares, bringing the total shares reserved for issuance under the
1992 Plan to 1,500,000 shares. Approval of the amendment to the 1992 Plan
requires the affirmative vote of a majority of the voting shares. THE BOARD OF
DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE 1992 PLAN.
Proxies solicited by the Board will be voted for this proposal unless a vote
against the proposal or abstention is specifically indicated.
The following description of the 1992 Plan is qualified in its entirety
by reference to the full text of the 1992 Plan.
The purpose of the 1992 Plan is to attract, and provide incentives to,
key employees, directors and consultants. The Board believes that the Company's
long term success is dependent upon the ability of the Company to attract,
retain and motivate outstanding individuals. It is the view of the Board that
the 1992 Plan constitutes an important part of the Company's compensation of its
officers and key employees and consultants by providing them with an incentive
to increase their participation in the Company's long-term success.
The 1992 Plan provides that it be administered by the Board or such
committee as the Board may appoint (the "1992 Plan Administrator"). The 1992
Plan is administered by the Stock Option and Compensation Committee. The 1992
Plan provides that, so long as the Common Stock remains registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 16
Participants may receive options, any committee authorized by the Board to
administer the 1992 Plan must be comprised solely of two or more directors of
the Company who are Non-Employee Directors within the meaning of Rule 16b-
3(b)(3)(i) promulgated under the Exchange Act.
The 1992 Plan Administrator has complete discretion to select the
eligible individuals who are to receive grants of either "incentive stock
options" or "non-qualified stock options." A committee or Board member
participating in the administration of the 1992 Plan may not participate in any
determination relating to options held by or to be granted to such committee or
Board member. Only employees may be granted incentive stock options under the
Federal tax laws. The exercise price of incentive stock options granted under
the 1992 Plan may not be less than 100% of the fair market value of the Common
Stock on the date of grant; for non-qualified stock options, the exercise price
must be at least 85% of the fair market value on the date of grant. No option
may be granted with a term exceeding ten years. With respect to any participant
who owns stock possessing more than 10% of the voting rights of the Company's
outstanding capital stock, the exercise price of any incentive stock option
granted must equal 110% or more of the fair market value of the Common Stock on
the grant date, and the maximum term of the incentive stock option must not
exceed five years. Under the terms of the 1992 Plan, the aggregate fair market
value (as of the respective date or dates of grant) of the shares of Common
Stock for which option grants may for the first time become exercisable as
incentive stock options under the Federal tax laws in a single calendar year may
not exceed $100,000 per optionee.
Options granted under the 1992 Plan may be immediately exercisable for
the full number of shares purchasable thereunder or may become exercisable in
cumulative increments over a period of months or years as determined by the 1992
Plan Administrator. The exercise price may be paid in cash or, if permitted by
the 1992 Plan Administrator, with shares of the Company's Common Stock having a
fair market value on
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<PAGE>
the exercise date equal to the exercise price or by delivery of a promissory
note, the terms and conditions of which will be determined by the 1992 Plan
Administrator. Options granted under the 1992 Plan generally expire ten years
from the date of grant, subject to earlier termination if the optionee leaves
the Company's employee or service. The 1992 Plan will terminate on December 8,
2002, unless sooner terminated by the Board.
The Board may, from time to time, insofar as is permitted by law, suspend
or discontinue the 1992 Plan with respect to any shares not subject to options
at that time, or revise or amend the 1992 Plan in any respect whatsoever, except
that, without the approval of the stockholders of the Company, no such revision
or amendment may materially increase the benefits accruing to participants under
the 1992 Plan, increase the number of shares subject to the 1992 Plan, change
the designation in the 1992 Plan with respect to the classes of persons eligible
to receive options under the 1992 Plan or alter the amendment requirements of
the 1992 Plan to defeat such requirements' purposes. The number of shares
subject to the 1992 plan may be reduced or the issuance of options may be
restricted, if the Board finds that such limitations are necessary or desirable.
The Internal Revenue Code of 1986, as amended (the "Code"), provides
favorable tax treatment for incentive stock options. Incentive stock options
are subject to certain requirements which are set forth in the 1992 Plan.
Generally, upon the grant of an incentive stock option, and upon the exercise of
the incentive stock option during employment or within three months after
termination of employment, the optionee will not realize any income. However,
any appreciation in the value of the shares from the date of grant will
generally be an item of tax preference at the time of exercise in determining
the optionee's potential liability for alternative minimum tax. The alternative
minimum tax may produce a higher tax than the regular income tax applicable to
the optionee.
The sale or disposition of Common Stock purchased upon exercise of an
incentive stock option is generally a taxable event. The optionee will realize
a gain or loss in an amount equal to the difference between his or her basis
(normally the exercise price) in the Common Stock and the proceeds from the sale
or disposition. If Common Stock acquired pursuant to an incentive stock option
is not sold or otherwise disposed of within two years from the date of grant of
the incentive stock option and is held for at least one year after exercise of
the incentive stock option (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. If Common Stock acquired upon exercise of an incentive
stock option 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 of exercise over the exercise price will be treated as
ordinary income. However, any additional gain will be taxed as capital gain.
If an optionee disposes of the Common Stock more than one year after the date of
exercise, 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
incentive stock options. However, in the event of a Disqualifying Disposition,
the Company will be entitled to deduct the ordinary income realized by the
optionee. Optionees must notify the Company of any Disqualifying Dispositions.
No taxable income will be realized by an optionee upon the grant of a
non-qualified stock option. Upon exercise of a non-qualified stock option, the
optionee must include in his or her income the excess of the fair market value
of the Common Stock on the date of exercise over the exercise price. The
Company may deduct this amount. An optionee's new basis in the Common Stock
acquired upon exercise of a non-qualified stock option will generally be the
fair market value of the shares on the date of exercise. Upon a subsequent
disposition of such shares of Common Stock, the optionee will ordinarily realize
a capital gain or loss to the extent of any intervening appreciation or
depreciation. If an optionee disposes of the Common Stock more than one year
after the date of exercise, such capital gain or loss will be treated as long-
term capital gain or loss.
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<PAGE>
Optionees who are officers, directors or 10% stockholders of the Company,
and thus subject to Section 16(b) of the Exchange Act, should be aware of
significant tax consequences under Section 83 of the Code.
The summary contained herein of the effect of Federal income taxation
upon optionees and the Company with respect to the grant and exercise of options
under the 1992 Plan does not purport to be complete, and does not discuss the
income tax laws of any state, foreign country or municipality in which an
optionee may reside.
Options are evidenced by stock option agreements between the Company and
the respective optionees. These agreements must conform to the 1992 Plan. The
1992 Plan Administrator may include such terms, consistent with the 1992 Plan,
as it determines in its discretion.
In the event of certain sales, mergers or consolidations of the Company,
each outstanding option will automatically become exercisable as to all vested
and unvested shares subject to the option prior to the effective date of such
transaction, unless the Company's obligations under the options are assumed by
the successor corporation. In such a case, the right to exercise options will
last for twenty days. Five days prior to the effective date of the transaction,
all outstanding options, to the extent not exercised by the optionees or assumed
by the successor corporation, will terminate. In addition, in the event of an
actual or threatened takeover bid, tender offer or exchange offer for 20% or
more of the Common Stock or other class of stock of the Company, or of certain
filings by any person under Section 13(d) or 14(d) of the Exchange Act, the
Board may (i) accelerate the vesting of outstanding options, (ii) pay cash to
option holders in cancellation of their options and (iii) make adjustments and
amendments to the 1992 Plan and outstanding options to permit substitution of
new options for outstanding options.
All rights to exercise options terminate no later than thirty days after
the optionee ceases to be an employee of the Company for any reason other than
death, disability or retirement. In the case of termination of employment by
reason of disability or in the event of transfer upon death, the optionee (or
transferee, in the case of death) may exercise his or her options for a period
of twelve months following the date the optionee ceases to be an employee, but
only to the extent that they could have been exercised at the date of such
termination. In the case of retirement, the permissible period for exercise is
ninety days from the date of termination, and such exercise is permissible only
to the extent that options were exercisable at the date of retirement.
The 1992 Plan terminates on December 8, 2002 and no options may be
granted thereunder after such date. Options outstanding on the date of
termination of the 1992 Plan expire in accordance with their terms.
The 1992 Plan Administrator may, insofar as is permitted by law and
subject to the 1992 Plan, modify an option or, once an option is exercisable,
may accelerate the date or dates at which it may be exercised, may extend or
renew outstanding options and may accept the surrender of outstanding options
(to the extent not theretofore exercised) and authorize the granting of new
options in substitution therefor (to the extent not theretofore exercised).
However, without the consent of the optionee, the 1992 Plan Administrator cannot
modify an option to alter or impair any rights or obligations under any option
theretofore granted. The 1992 Plan Administrator has the authority to cancel
outstanding options from time to time and to issue in replacement options with
exercise prices based on the lower market price of the Common Stock at the time
of the new grant.
Under the 1992 Plan, the number of shares of Common Stock which may be
issued pursuant to options is subject to proportionate adjustment in certain
circumstances, including merger, consolidation, sale of all or substantially all
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, or other distribution with
respect to such shares or other securities. The shares to be delivered under the
1992 Plan are made available from authorized but unissued shares of
-9-
<PAGE>
Common Stock. If any option granted under the 1992 Plan terminates for any
reason or expires before such option is exercised in full, the shares covered by
the unexercised portion of such option may again be subject to an option granted
under the 1992 Plan.
APPOINTMENT OF AUDITORS
(PROPOSAL NO. 3)
The firm of Ernst & Young LLP, independent auditors, has been the Company's
independent auditors since the Company's inception in 1988 and has been selected
by the Board of Directors to serve as its independent auditors for the fiscal
year ending December 31, 1998.
The independent auditors meet periodically with the Audit Committee of the
Board. The members of the Audit Committee are Ms. Cornell and Messrs. Walker
and Nicklas.
Professional services performed by Ernst & Young LLP for the fiscal year
ended December 31, 1997 consisted of an audit of the financial statements of the
Company, consultation on interim financial information, services related to
filings with the Securities and Exchange Commission, meetings with the Company's
Audit Committee, and consultation on various matters relating to accounting and
financial reporting.
The Audit Committee approved in advance or ratified each of the major
professional services provided by Ernst & Young LLP and considered the possible
effect of each such service on the independence of that firm.
Representatives of Ernst & Young LLP are expected to be present at the
meeting with the opportunity to make a statement, if they desire, and will be
available to respond to appropriate questions during the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION.
-10-
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
--------------------------
The following table shows for the periods indicated the compensation paid
to or accrued to, or for the benefit of, each of the named executive officers of
the Company for services rendered to the Company during 1997.
<TABLE>
<CAPTION>
OTHER ANNUAL SECURITIES
SALARY BONUS COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS
- --------------------------- ---- --------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
J. Thomas Parmeter 1997 $180,000 -0- -0- -0-
President, Chief Executive 1996 $150,000 -0- -0- 200,000
Officer and Chairman of the 1995 $140,155 -0- -0- -0-
Board
Joseph Cappello, Ph.D. 1997 $120,000 -0- -0- 25,000
Vice President - Research 1996 $108,000 -0- -0- 35,000
and Development, Director- 1995 $ 98,791 $6,105 -0- 17,000
Polymer Research and Chief
Technical Officer
Franco A. Ferrari, Ph.D. 1997 $114,000 -0- -0- -0-
Vice President - Laboratory 1996 $105,000 -0- -0- 30,000
Operations and Polymer 1995 $ 97,208 $6,105 -0- 12,500
Productions, Director-
Molecular Genetics
John E. Flowers 1997 $112,000 -0- -0- -0-
Vice President-Planning 1996 $103,000 -0- -0- 30,000
and Operations 1995 $ 95,916 $6,105 -0- 10,000
Erwin R. Stedronsky, Ph.D.
Vice President-Product 1997 $114,000 -0- -0- 25,000
Formulation and Engineering, 1996 $103,000 -0- -0- 35,000
Director, Materials Science 1995 $ 94,217 $6,105 -0- 15,000
</TABLE>
-11-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
The following table provides information about the number of options
granted to each of the named executive officers of the Company during the fiscal
year ended December 31, 1997. No stock appreciation rights were granted to any
executive officer during the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING OPTIONS GRANTED TO EMPLOYEES EXERCISE EXPIRATION
NAME GRANTED IN FISCAL YEAR PRICE ($/SH) DATE
- --------------------------- -------------------- --------------------- ------------ ----------
<S> <C> <C> <C> <C>
J. Thomas Parmeter -0- -0-% n/a n/a
Joseph Cappello, Ph.D. 25,000 16.1% 3.00 2/20/07
Franco A. Ferrari, Ph.D. -0- -0-% n/a n/a
John E. Flowers -0- -0-% n/a n/a
Erwin R. Stedronsky, 25,000 16.1% 3.00 2/20/07
Ph.D.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
- --------------------------------------------------------------------------------
The following table provides information about the number of unexercised
options held by each of the named executive officers of the Company at December
31, 1997. None of the executive officers exercised options during the fiscal
year. The Company has not granted stock appreciation rights to any named
executive officer.
<TABLE>
<CAPTION>
SHARES
ACQUIRED NUMBER OF SECURITIES VALUE OF UNEXERCISED
ON VALUE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
NAME EXERCISE REALIZED OPTIONS AT FISCAL YEAR END AT FISCAL YEAR END/(1)/
- ------------------- -------- -------- --------------------------- ------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Thomas -0- -0- 40,000 160,000 $ 2,800 $11,200
Parmeter
Joseph Cappello, -0- -0- 84,000 63,500 $56,170 $10,605
Ph.D.
Franco A. -0- -0- 81,000 31,500 $54,150 $ 7,575
Ferrari, Ph.D.
John E. Flowers -0- -0- 80,000 30,000 $53,140 $ 6,060
Erwin R. -0- -0- 72,000 73,000 $47,670 $18,480
Stedronsky,
Ph.D.
</TABLE>
- -----------------------------
(1) calculated using the closing price of $1.625 per share as of December 31,
1997
-12-
<PAGE>
The Company does not have a defined benefit or actuarial pension plan.
The Company does not have a long-term incentive plan and did not make any long
term awards in 1997.
EMPLOYMENT AGREEMENTS
As of November 1, 1996, the Company entered into three-year employment
agreements with certain of its officers. As permitted by these agreements, on
November 25, 1996, the Compensation Committee of the Board determined that
sufficient progress had been made by the Company to warrant an increase
specified in the agreements in the stated annual salary of these officers. As
of November 25, 1996, the agreement with: Mr. Parmeter (provides for an annual
salary of $180,000, a term life insurance policy in the amount of $250,000 and
certain other benefits); Mr. Flowers (provides for an annual salary of $112,000
and certain other benefits); Dr. Cappello (provides for an annual salary of
$120,000 and certain other benefits); Dr. Ferrari (provides for an annual salary
of $114,000 and certain other benefits); Dr. Stedronsky (provides for an annual
salary of $114,000 and certain other benefits); and Mr. Aron Stern (provides for
an annual salary of $102,000 and certain other benefits).
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities ("Section 16 Participants"),
to file reports of ownership and changes in ownership with the SEC. Such persons
are required to furnish the Company with copies of all forms they file pursuant
to Section 16(a). Based solely on review of the copies of such forms furnished
to the Company, or written representations that no such forms were required, the
Company believes that during 1997 all Section 16 Participants complied with all
applicable Section 16(a) filing requirements, except for the inadvertent failure
to file a report on Form 3 for Patricia Cornell within ten days of her becoming
a director, which report was subsequently made on Form 5 filed February 17,
1998.
AFFILIATE TRANSACTIONS
In February 1997, the Compensation Committee approved a loan of up to
$250,000, of which a loan of $140,000 was made at a rate of 8% per annum, to Mr.
Parmeter, secured by a pledge of stock, solely to meet his tax obligations
arising from the exercise of a stock option. In February 1998, the Stock Option
and Compensation Committee extended the term of the loan until February 1999.
The Company does not anticipate seeking stockholder ratification of the loan to
Mr. Parmeter.
During 1997, the Company paid $194,167 to Flehr, Hohbach, Test, Abritton
& Herbert, patent counsel to the Company. Mr. Bertram I. Rowland, a director of
the Company since February 1993 but not standing for reelection, is counsel to
such law firm.
OTHER MATTERS
Management knows of no other business to be presented at the annual
meeting. If other matters do properly come before the meeting, or any
adjournments or postponements thereof, it is the intention of the persons named
in the proxy to vote on such matters according to their best judgment.
-13-
<PAGE>
STOCKHOLDER INFORMATION
ANY PERSON FROM WHOM PROXIES FOR THE MEETING ARE SOLICITED MAY OBTAIN, IF
NOT ALREADY RECEIVED, FROM THE COMPANY, WITHOUT CHARGE, A COPY OF THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE 1997 FISCAL YEAR BY WRITTEN REQUEST
ADDRESSED TO THE COMPANY, 10655 SORRENTO VALLEY ROAD, SAN DIEGO, CALIFORNIA
92121, ATTENTION: INVESTOR RELATIONS DEPARTMENT. THE ANNUAL REPORT ON FORM 10-
KSB IS NOT SOLICITING MATERIAL AND IS NOT INCORPORATED IN THIS DOCUMENT BY
REFERENCE.
STOCKHOLDER PROPOSALS
Proposals by stockholders to be presented at the Company's 1999 annual
meeting must be received by the Company no later than 120 days prior to April
17, 1999, in order to be considered for inclusion in the Company's proxy
statement and form of proxy for such meeting.
By Order of the Board of Directors,
PHILIP J. DAVIS
Secretary
Dated: April 17, 1998
-14-
<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
1992 STOCK OPTION PLAN
1. PURPOSE.
-------
The Plan is intended to provide incentive to key employees, directors
and consultants of the Corporation and its Subsidiaries, to encourage
proprietary interest in the Corporation, to encourage such key employees to
remain in the employ of the Corporation and its Subsidiaries or such key
directors and consultants to remain in the service of the Corporation and its
Subsidiaries, and to attract new employees, directors and consultants with
outstanding qualifications.
2. DEFINITIONS. Unless otherwise defined herein or the context
-----------
otherwise requires, the capitalized terms used herein shall have the following
meanings:
(a) "Administrator" shall mean the Board or the Committee,
-------------
whichever shall be administering the Plan from time to time in the discretion of
the Board, as described in Section 4 of the Plan.
(b) "Board" shall mean the Board of Directors of the Corporation.
-----
(c) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(d) "Commission" shall mean the Securities and Exchange
----------
Commission.
(e) "Committee" shall mean the committee appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" shall mean the $.01 par value Common Stock of
------------
the Corporation and any class of shares into which such Common Stock hereafter
may be converted or reclassified.
(g) "Corporation" shall mean PROTEIN POLYMER TECHNOLOGIES, INC.,
-----------
a Delaware corporation.
(h) "Disability" shall mean a medically determinable physical or
----------
mental impairment which has made an individual incapable of engaging in any
substantial gainful activity. A condition shall be considered a Disability only
<PAGE>
if (i) it can be expected to result in death or has lasted or it can be expected
to last for a continuous period of not less than twelve (12) months, and (ii)
the Administrator, based upon medical evidence, has expressly determined that
Disability exists.
(i) "Disinterested Person" shall mean a member of the Board who
--------------------
is a "disinterested person" within the meaning of Rule 16b-3(c)(2)(i)
promulgated by the Commission under the Exchange Act, or any successor rule.
(j) "Employee" shall mean an individual who is employed (within
--------
the meaning of Section 3401 of the Code and the regulations thereunder) by the
Corporation or a Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended.
(l) "Exercise Price" shall mean the price per Share of Common
--------------
Stock, determined by the Administrator, at which an Option may be exercised.
(m) "Fair Market Value" shall mean the value of one (1) Share of
-----------------
Common Stock, determined as follows:
(i) If the Shares are traded on an exchange or over-the-
counter on the National Market System (the "NMS") of the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ"), (A) if listed on
an exchange, the closing price as reported for composite transactions on the
business day immediately prior to the date of valuation or, if no sale occurred
on that date, then the mean between the closing bid and asked prices on such
exchange on such date, and (B) if traded on the NMS, the last sale price on the
business day immediately prior to the date of valuation or, if no sale occurred
on such date, then the mean between the highest bid and lowest asked prices as
of the close of business on the business day immediately prior to the date of
valuation, as reported in the NASDAQ system;
(ii) If the Shares are not traded on an exchange or the NMS
but are otherwise traded over-the-counter, the mean between the highest bid and
lowest asked prices quoted in the NASDAQ system as of the close of business on
the business day immediately prior to the date of valuation or, if on such day
such security is not quoted in the NASDAQ system, the mean between the
representative bid and asked prices on
-2-
<PAGE>
such date in the domestic over-the-counter market as reported by the National
Quotation Bureau, Inc., or any similar successor organization; and
(iii) If neither clause (i) nor (ii) above applies, the fair
market value as determined by the Administrator in good faith. Such
determination shall be conclusive and binding on all persons.
(n) "Incentive Stock Option" shall mean an option described in
----------------------
Section 422 of the Code.
(o) "Nonstatutory Stock Option" shall mean an option that does
-------------------------
not meet the requirements of Section 422(b) of the Code or is not intended to be
an Incentive Stock Option.
(p) "Option" shall mean any stock option granted pursuant to the
------
Plan. An Option shall be granted on the date the Administrator takes the
necessary action to approve the grant. However, if the minutes or appropriate
resolutions of the Administrator provide that an Option is to be granted as of a
date in the future, the date of grant shall be that future date.
(q) "Option Agreement" shall mean a written stock option
----------------
agreement evidencing a particular Option.
(r) "Optionee" shall mean a Participant who has received an
--------
Option.
(s) "Participant" shall have the meaning assigned to it in
-----------
Section 5(a) hereof.
(t) "Plan" shall mean this PROTEIN POLYMER TECHNOLOGIES, INC.
----
1992 Stock Option Plan, as it may be amended from time to time.
(u) "Purchase Price" shall mean the Exercise Price multiplied by
--------------
the number of Shares with respect to which an Option is exercised.
(v) "Retirement" shall mean the voluntary cessation of employment
----------
by an Employee upon the attainment of age sixty-five (65) and the completion of
not less than twenty (20) years of service with the Corporation or a Subsidiary.
-3-
<PAGE>
(w) "Section 16 Participant" shall mean a Participant who is (or,
----------------------
in the opinion of the Administrator, may be) generally subject to the Section 16
Requirements with respect to purchases and sales of Common Stock or other equity
securities of the Corporation.
(x) "Section 16 Requirements" shall mean the those obligations
-----------------------
and requirements imposed by Sections 16(a) and 16(b) of the Exchange Act and the
rules of the Commission promulgated thereunder.
(y) "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended.
(z) "Share" shall mean one share of Common Stock, adjusted in
-----
accordance with Section 10 of the Plan (if applicable).
(aa) "Subsidiary" shall mean any subsidiary corporation as
----------
defined in Section 424(f) of the Code.
3. EFFECTIVE DATE.
--------------
The Plan was adopted by the Board effective December 8, 1992, subject
to the approval of the Corporation's shareholders pursuant to Section 15 hereof.
4. ADMINISTRATION.
--------------
(a) Administrator. Subject to subsection (c) below, the Plan
-------------
shall be administered, in the discretion of the Board from time to time, by the
Board or by a Committee which shall be appointed by the Board. The Board may
from time to time remove members from, or add members to, the Committee.
Vacancies on the Committee, however caused, shall be filled by the Board. The
Board shall appoint one of the members of the Committee as Chairman. The
Administrator shall hold meetings at such times and places as it may determine.
Acts of a majority of the Administrator at which a quorum is present, or acts
reduced to or approved in writing by the unanimous consent of the members of the
Administrator, shall be the valid acts of the Administrator.
(b) Powers of Administrator. The Administrator shall from time
-----------------------
to time at its discretion select the Employees, directors and consultants who
are to be granted Options, determine the number of Shares to be subject to
Options to be granted to each Optionee and designate such
-4-
<PAGE>
Options as Incentive Stock Options or Nonstatutory Stock Options, except that no
Incentive Stock Option may be granted to a non-Employee director or a non-
Employee consultant. A Committee or Board member shall in no event participate
in any determination relating to Options held by or to be granted to such
Committee or Board member. The interpretation and construction by the
Administrator of any provision of the Plan or of any Option or Option Agreement
shall be final. No member of the Administrator shall be liable for any action or
determination made in good faith with respect to the Plan or any Option.
(c) Disinterested Administration. For so long as the Common
----------------------------
Stock remains registered under the Exchange Act and Section 16 Participants are
(or, in the opinion of the Board, may be) eligible to receive Options hereunder,
this Plan shall be administered by a Committee consisting of two or more Board
members who are Disinterested Persons.
5. PARTICIPATION.
-------------
(a) Eligibility.
-----------
The Optionee shall be such persons (collectively, "Participants";
individually a "Participant") as the Administrator may select from among the
following classes of persons, subject to the terms and conditions of Section
5(b) below:
(i) Employees (who may be officers, whether or not they are
directors);
(ii) Directors of the Corporation or of a Subsidiary; and
(iii) Consultants engaged by the Corporation or a Subsidiary.
Notwithstanding provisions of the first paragraph of this Section
5(a), the Administrator may at any time or from time to time designate one or
more directors as being ineligible for selection as Participants in the Plan for
any period or periods of time.
(b) Ten-Percent Shareholders.
------------------------
A Participant who owns more than ten percent (10%) of the total
combined voting power of all classes of
-5-
<PAGE>
outstanding stock of the Corporation, its parent or any of its Subsidiaries
shall not be eligible to receive an Option unless (i) the Exercise Price of the
Shares subject to such Option is at least one hundred ten percent (110%) of the
Fair Market Value of such Shares on the date of grant and (ii) such Option by
its terms is not exercisable after the expiration of five (5) years from the
date of grant.
(c) Stock Ownership.
---------------
For purposes of Section 5(b) above, in determining stock
ownership, a Participant shall be considered as owning the stock owned, directly
or indirectly, by or for his or her brothers and sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which such Participant holds an Option shall not be counted.
(d) Outstanding Stock.
-----------------
For purposes of Section 5(b) above, "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
the Option to the Optionee. "Outstanding stock" shall not include shares
authorized for issue under outstanding Options held by the Optionee or by any
other person.
6. STOCK.
-----
The stock subject to Options granted under the Plan shall be Shares of
the Corporation's authorized but unissued or reacquired Common Stock. The
aggregate number of Shares which may be issued upon exercise of Options under
the Plan shall not exceed 1,500,000. The number of Shares subject to Options
outstanding at any time shall not exceed the number of Shares remaining
available for issuance under the Plan. The limitations established by this
Section 6 shall be subject to adjustment in the manner provided in Section 10
hereof upon the occurrence of an event specified in that Section.
-6-
<PAGE>
7. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) Stock Option Agreements.
-----------------------
Each Option shall be evidenced by an Option Agreement
substantially in the form of Annex A or Annex B (as applicable) to this Plan, or
in such other form as the Administrator shall from time to time determine. Such
Option Agreements need not be identical but shall comply with and be subject to
the terms and conditions set forth in this Section 7.
(b) Nature of Option.
----------------
Each Option shall state whether it is an Incentive Stock Option
or a Nonstatutory Stock Option.
(c) Optionee's Undertaking.
----------------------
Each Optionee shall agree to remain in the employ or service of
the Corporation or a Subsidiary and to render services for a period as shall be
determined by the Administrator, from the date of the granting of the Option,
but such agreement shall not impose upon the Corporation or its Subsidiaries any
obligation to retain the Optionee in their employ or service for any period.
(d) Number of Shares.
----------------
Each Option shall state the number of Shares to which it pertains
and shall provide for the adjustment thereof in accordance with the provisions
of Section 10 hereof.
(e) Exercise Price.
--------------
Each Option shall state the Exercise Price. The Exercise Price in
the case of any Incentive Stock Option shall not be less than the Fair Market
Value on the date of grant and, in the case of an Incentive Stock Option granted
to an Optionee described in Section 5(b) hereof, shall not be less than one
hundred ten percent (110%) of the Fair Market Value on the date of grant. The
Exercise Price in the case of any Nonstatutory Stock Option shall not be less
than eighty-five percent (85%) of the Fair Market Value on the date of grant.
-7-
<PAGE>
(f) Medium and Time of Payment; Notice.
----------------------------------
The Purchase Price shall be payable in full in United States
dollars upon the exercise of the Option; provided, however, that if the
applicable Option Agreement so provides, or the Administrator in its sole
discretion otherwise approves thereof, the Purchase Price may (to the extent
permitted by applicable law) be paid (i) by the surrender of Shares in good form
for transfer, owned by the person exercising the Option and having a Fair Market
Value on the date of exercise equal to the Purchase Price, or in any combination
of cash and Shares, so long as the sum of the cash so paid and the Fair Market
Value of the Shares so surrendered equals the Purchase Price, or (ii) so long as
at least the par value of the Shares being purchased is paid in cash and/or
Shares as above, the balance of the Purchase Price may be paid with a full
recourse promissory note executed by the Optionee. The interest rate and other
terms and conditions of such promissory note shall be determined by the
Administrator. The Administrator may require that the Optionee grant a security
interest in the Shares being purchased to the Corporation for the purpose of
securing the payment of such promissory note, and the Corporation or its
designee may retain possession of the stock certificate(s) representing such
Shares in order to perfect its security interest.
In the event the Corporation determines that it is required to
withhold state or Federal income tax as a result of the exercise of an Option,
as a condition to the exercise thereof, an Optionee must make arrangements
satisfactory to the Corporation to enable it to satisfy such withholding
requirements before the Optionee shall be permitted to exercise the Option.
Payment of such withholding requirements may be made, in the discretion of the
Administrator, (i) in cash, (ii) by delivery of Shares registered in the name of
the Optionee, or by the Corporation not issuing such number of Shares subject to
the Option, having a Fair Market Value at the time of exercise equal to the
amount to be withheld or (iii) any combination of (i) and (ii) above.
The Optionee shall exercise an Option by completing and delivering to
the Corporation, concurrently with the payment of the Purchase Price in the
manner described above, an exercise notice substantially in the form attached as
Annex C hereto, or in such other form as the Administrator shall from time to
time determine.
-8-
<PAGE>
(g) Term and Non-Transferability of Options.
---------------------------------------
Each Option shall state the time or times when all or part
thereof becomes exercisable. No Option, including Incentive Stock Options, shall
be exercisable after the expiration of ten (10) years from the date it was
granted. During the lifetime of the Optionee, the Option shall be exercisable
only by the Optionee or the Optionee's guardian or legal representative and
shall not be assignable or transferable. In the event of the Optionee's death,
the Option shall not be transferable by the Optionee other than by will or the
laws of descent and distribution. Any other attempted alienation, assignment,
pledge, hypothecation, attachment, execution or similar process, whether
voluntary or involuntary, with respect to all or any part of any Option or right
thereunder, shall be null and void and, at the Corporation's option, shall cause
all of the Optionee's rights under the Option to terminate.
(h) Cessation of Employment (Except by Death, Disability or
-------------------------------------------------------
Retirement).
- ----------
If an Optionee ceases to be an Employee for any reason, other
than his or her death, Disability or Retirement, such Optionee shall have the
right, subject to the restrictions referred to in Section 7(g) above, to
exercise the Option at any time within thirty (30) days after cessation of
employment, but, except as otherwise provided in the applicable Option
Agreement, only to the extent that, at the date of cessation of employment, the
Optionee's right to exercise such Option had accrued pursuant to the terms of
the applicable Option Agreement and had not previously been exercised.
For purposes of this Section 7(h), the employment relationship
shall be treated as continuing intact while the Optionee is on military leave,
sick leave or other bona fide leave of absence (to be determined in the sole
discretion of the Administrator). The foregoing notwithstanding, in the case of
an Incentive Stock Option, employment shall not be deemed to continue beyond the
ninetieth (90th) day after the Optionee ceased active employment, unless the
Optionee's reemployment rights are guaranteed by statute or by contract.
-9-
<PAGE>
(i) Death of Optionee.
-----------------
If an Optionee dies while a Participant, or after ceasing to be a
Participant but during the period in which he or she could have exercised the
Option under this Section 7, and has not fully exercised the Option, then the
Option may be exercised in full, subject to the restrictions referred to in
Section 7(g) above, at any time within twelve (12) months after the Optionee's
death by the executor or administrator of his or her estate or by any person or
persons who have acquired the Option directly from the Optionee by bequest or
inheritance, but, except as otherwise provided in the applicable Option
Agreement, only to the extent that, at the date or death, the Optionee's right
to exercise such Option had accrued and had not been forfeited pursuant to the
terms of the applicable Option Agreement and had not previously been exercised.
(j) Disability of Optionee.
----------------------
If an Optionee ceases to be an Employee by reason of Disability,
such Optionee shall have the right, subject to the restrictions referred to in
Section 7(g) above, to exercise the Option at any time within twelve (12) months
after such cessation of employment, but, except as provided in the applicable
Option Agreement, only to the extent that, at the date of such cessation of
employment, the Optionee's right to exercise such Option had accrued pursuant to
the terms of the applicable Option Agreement and had not previously been
exercised.
(k) Retirement of Optionee.
----------------------
If an Optionee ceases to be an Employee by reason of Retirement,
such Optionee shall have the right, subject to the restrictions referred to in
Section 7(g) above, to exercise the Option at any time within ninety (90) days
after cessation of employment, but only to the extent that, at the date of
cessation of employment, the Optionee's right to exercise such Option had
accrued pursuant to the terms of the applicable Option Agreement and had not
previously been exercised.
(l) Rights as a Shareholder.
-----------------------
No one shall have rights as a shareholder with respect to any
Shares covered by an Option until the date of the issuance of a stock
certificate for such Shares. No
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adjustment shall be made for dividends (ordinary or extraordinary, whether in
cash, securities or other property), distributions or other rights for which the
record date is prior to the date such stock certificate is issued, except as
expressly provided in Section 10 hereof.
(m) Modification, Extension and Renewal of Options.
----------------------------------------------
Within the limitations of the Plan, the Administrator may modify
an Option, accelerate the rate at which an Option may be exercised (including,
without limitation, permitting an Option to be exercised in full without regard
to the installment or vesting provisions of the applicable Option Agreement or
whether the Option is at the time exercisable, to the extent it has not
previously been exercised), extend or renew outstanding Options or accept the
cancellation of outstanding Options (to the extent not previously exercised) for
the granting of new Options in substitution therefor. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, alter or impair any rights or obligations under any Option previously
granted.
(n) Notice of Sale.
--------------
Until the later of the second anniversary of the grant of any
Incentive Stock Option and the first anniversary of the issuance of any Stock
("incentive stock") pursuant to the exercise of an Incentive Stock Option, the
stock transfer records of the Corporation (whether maintained by it or by any
transfer agent of the Common Stock) shall reflect that any certificates issued
or to be issued representing incentive stock in connection with such exercise
must be registered in the name of the beneficial holder (and not in any "street
name") until transferred to a third party, and that the transfer agent shall
notify the Corporation in a case of any requested transfer of such incentive
stock during that period. In addition, the certificate or certificates
registered in the name of the beneficial holder representing the incentive stock
issued upon such exercise will bear the following legend during such period:
"Solely to assist the issuer of the shares represented by this
certificate, until the later of the second anniversary of the
date of grant of the Option under which the certificate was
originally
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issued or one year from the date of original issuance of the
shares represented by the certificate, the Transfer Agent will
notify the issuer of the shares represented hereby of any
requested transfer by the original registered holder."
(o) Other Provisions.
----------------
An Option Agreement authorized under the Plan may contain such
other provisions not inconsistent with the terms of the Plan (including, without
limitation, restrictions upon the exercise of the Option) as the Administrator
shall deem advisable.
(p) Substitution of Options.
-----------------------
Notwithstanding any inconsistent provisions or limits under the
Plan, in the event the Corporation acquires (whether by purchase, merger or
otherwise) all or substantially all of outstanding capital stock or assets of
another corporation or of any reorganization or other transaction qualifying
under Section 424 of the Code, the Administrator may, in accordance with the
provisions of that Section, substitute options under the Plan for options under
the plan of the acquired company provided (i) the excess of the aggregate fair
market value of the shares subject to an option immediately after the
substitution over the aggregate option price of such shares is not more than the
similar excess immediately before such substitution and (ii) the new option does
not give persons additional benefits, including any extension of the exercise
period.
8. LIMITATION ON ANNUAL AWARDS.
---------------------------
The aggregate Fair Market Value (determined as of the date an
Option is granted) of the Shares with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under the Plan and all other plans maintained by the Corporation, its parent or
its Subsidiaries, shall not exceed $100,000.
9. TERM OF PLAN.
------------
Options may be granted pursuant to the Plan until the expiration of
the Plan ten years after the effective date referred to in Section 3.
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10. EFFECT OF CERTAIN EVENTS.
------------------------
(a) Stock Splits and Dividends.
--------------------------
Subject to any required action by shareholders, the number of
Shares covered by the Plan as provided in Section 6 hereof, the number of Shares
covered by each outstanding Option and the Exercise Price thereof shall be
proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a subdivision or consolidation of Shares or the payment of
a stock dividend (but only if paid in Common Stock) or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Corporation.
(b) Merger, Sale of Assets, Liquidation.
-----------------------------------
Subject to any required action by shareholders, if the
Corporation shall merge with another corporation and the Corporation is the
surviving corporation in such merger and under the terms of such merger the
shares of Common Stock outstanding immediately prior to the merger remain
outstanding and unchanged, each outstanding Option shall continue to apply to
the Shares subject thereto and shall also pertain and apply to any additional
securities and other property, if any, to which a holder of the number of Shares
subject to the Option would have been entitled as a result of the merger. If the
Corporation sells or disposes of all or substantially all of its assets or
merges (other than a merger of the type described in the immediately preceding
sentence) or consolidates with or into another corporation or entity, this Plan
and each Option shall terminate, but only after each Optionee (or the successor
in interest) has been given the right to exercise any unexpired Option or
Options in full or in part , to the extent that, on the date of such sale,
disposition or merger, the Optionee's right to exercise such Option had accrued
pursuant to the terms of the applicable Option Agreement and had not previously
been exercised. This right shall be exercisable for the period of twenty (20)
days ending five (5) days before the effective date of the sale, merger, or
consolidation (or such longer period as the Administrator may specify).
Alternatively, in its sole and absolute discretion, the surviving or acquiring
corporation (or the parent company of the surviving or acquiring corporation)
may tender to any Optionee (or successor in interest) a substitute option or
options to purchase shares of the surviving or acquiring corporation (or the
parent corporation of the surviving or acquiring corporation). The
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<PAGE>
substitute option shall contain all terms and provisions required substantially
to preserve the rights and benefits of all Options then held by the Optionee (or
successor in interest) receiving the substitute option. Any other dissolution or
liquidation of the Company shall cause each Option to terminate.
At the discretion of the Administrator, an Option exercised in
contemplation of the consummation of the sale of all substantially all of the
assets of the Corporation or a merger (other than a merger of the type described
in the first sentence of the immediately preceding paragraph) or consolidation
of the Corporation with another corporation, may be conditioned upon such sale,
merger or consolidation becoming effective.
(c) Adjustment Determination.
------------------------
To the extent that the foregoing adjustments relate to securities
of the Corporation, such adjustments shall be made by the Administrator, whose
determination shall be conclusive and binding on all persons.
(d) Limitation on Rights.
--------------------
Except as expressly provided in this Section 10, the Optionee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall not affect, and no adjustment by reason thereof shall be made with respect
to, the number or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Corporation to make adjustments, reclassifications, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve, liquidate, sell or transfer all or any part of its business or assets.
(e) Change in Control.
-----------------
In the event of a pending or threatened takeover bid, tender
offer or exchange offer for twenty percent (20%) or more of the outstanding
Common Stock or any
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<PAGE>
other class of stock or securities of the Company (other than a tender offer or
exchange offer made by the Company or any Subsidiary), whether or not deemed a
tender offer under applicable federal or state law, or in the event that any
person makes any filing under the Section 13(d) or 14(d) of the Exchange Act
with respect to the Company, other than a filing of a Schedule 13G, the
Administrator may in its sole discretion, without obtaining shareholder
approval, take one or more of the following actions to the extent not
inconsistent with other provisions of the Plan:
(i) Pay cash to any or all holders of Options at the then-
current market value of the Option Shares in exchange for
the cancellation of their outstanding Options; or
(ii) Make any other adjustments or amendments to the Plan and
outstanding Options necessary to permit the substitution
of new Options for outstanding Options.
11. SECURITIES LAW REQUIREMENTS.
---------------------------
(a) Legality of Issuance.
--------------------
No Shares shall be issued upon the exercise of any Option unless
and until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to
register the offer and sale of the Shares under the Securities Act, or to
perfect an exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and
(iii) any other applicable provision of state or Federal law
has been satisfied.
(b) Restrictions on Transfer; Representations of Optionee;
------------------------------------------------------
Legends.
- -------
Regardless of whether the offering and sale of Shares under the
Plan has been registered under the Securities
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<PAGE>
Act or has been registered or qualified under the securities laws of any state,
the Corporation may impose restrictions upon the sale, pledge or other transfer
of such Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Corporation and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with the
provisions of the Securities Act, the securities laws of any state or any other
law. In the event that the sale of Shares under the Plan is not registered
under the Securities Act but an exemption is available which requires an
investment representation or other representation, each Optionee shall be
required to represent that such Shares are being acquired for investment, and
not with a view to the sale or distribution thereof, and to make such other
representations as are deemed necessary or appropriate by the Corporation and
its counsel. Stock certificates evidencing Shares acquired under the Plan
pursuant to an unregistered transaction shall bear the following restrictive
legend and such other restrictive legends as are required or deemed advisable
under the provisions of any applicable law:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE 'ACT'). ANY TRANSFER OR PLEDGE
OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF
COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR
SUCH TRANSFER OR PLEDGE TO COMPLY WITH THE ACT."
Any determination by the Corporation and its counsel in connection
with any of the matters set forth in this Section 11 shall be conclusive and
binding on all persons.
(c) Registration or Qualification of Securities.
-------------------------------------------
The Corporation may, but shall not be obligated to, register or
qualify the sale of Shares under the Securities Act or any other applicable law.
The Corporation shall not be obligated to take any affirmative action in order
to cause the sale of Shares under the Plan to comply with any law.
(d) Exchange of Certificates.
------------------------
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing
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<PAGE>
Shares sold under the Plan is no longer required, the holder of such certificate
shall be entitled to exchange such certificate for a certificate representing
the same number of Shares but without such legend.
12. AMENDMENT OF THE PLAN.
---------------------
The Board may from time to time, with respect to any Shares at the
time not subject to Options, suspend or discontinue the Plan or revise or amend
it in any respect whatsoever except that, without the approval of the
Corporation's shareholders, no such revision or amendment shall:
(a) Materially increase the benefits accruing to Participants
under the Plan;
(b) Increase the number of Shares which may be issued under the
Plan;
(c) Change the designation in Section 5 hereof with respect to
the classes of persons eligible to receive Options; or
(d) Amend this Section 12 to defeat its purpose.
13. EXCHANGE ACT.
------------
If the Common Stock is registered under the Exchange Act, the Plan
shall be amended by the Administrator from time to time to the extent necessary
or advisable, in the judgment of the Administrator after having consulted with
Corporation's counsel, to enable Section 16 Participants to obtain the benefits
of such exclusions or exemptions from the Sections 16 Requirements as may be
established by the Commission from time to time by rule, regulation,
administrative order or interpretation (whether such interpretation is made by
the Commission or staff) with respect to (i) the receipt of Options, (ii) the
exercise, modification, extension, cancellation, exchange, termination or
expiration of Options, (iii) the purchase of Common Stock upon the exercise of
Options, (iv) the sale of Common Stock received upon the exercise of Options,
and (v) the administration of this Plan. Anything in the Plan to the contrary
notwithstanding, such amendments may be made without approval of the
Corporation's shareholders unless and to the extent that, in the judgment of the
Administrator after
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<PAGE>
consulting with the Corporation's counsel, shareholder approval of such an
amendment is a prerequisite to effectuating a desired exclusion or exemption
from the Section 16 Requirements.
With respect to Section 16 Participants, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
action by the Administrator fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Administrator.
14. APPLICATION OF FUNDS.
--------------------
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option will be used for general corporate
purposes.
15. APPROVAL OF SHAREHOLDERS.
------------------------
The Plan shall be subject to approval by the affirmative vote of the
holders of a majority of the Corporation's outstanding shares of capital stock
no later than December 8, 1993. Prior to such approval, Options may be granted
but shall not be exercisable. Any amendment described in Section 12 shall also
be subject to approval by the Corporation's shareholders.
16. EXECUTION.
---------
To record the adoption of the Plan by the Board as of December 8,
1992, the Corporation has caused an authorized officer to affix the corporate
name hereto.
PROTEIN POLYMER TECHNOLOGIES, INC.
By: ______________________________
J. Thomas Parmeter
President
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<PAGE>
PROTEIN POLYMER TECHNOLOGIES, INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 19, 1998
J. Thomas Parmeter and Philip J. Davis, and each of them, with full power of
substitution, are hereby authorized to represent and to vote the shares of
Common Stock of Protein Polymer Technologies, Inc. held of record by the
undersigned on March 20, 1998, as directed on the reverse side and, in their
discretion, on all other matters which may properly come before the Annual
Meeting of Stockholders to be held on May 19, 1998, and at any adjournment or
postponement thereof, as if the undersigned were present and voting at the
meeting.
Whether or not you expect to attend the meeting, you are urged to execute and
return this proxy, which may be revoked at any time prior to its use.
The shares represented by this proxy will be voted as directed by the
stockholder. WHERE NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS
RETURNED, SUCH SHARES WILL BE VOTED FOR ALL PROPOSALS.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED IN
PROPOSAL NO. 1, FOR PROPOSAL NO. 2 AND FOR PROPOSAL NO. 3.
PROPOSAL NO. 1:
ELECTION OF DIRECTORS: 1) J. Thomas Parmeter, 2) Edward E. David,
3) George R. Walker, 4) Brent R. Nicklas,
5) Patricia J. Cornell, 6) J. Paul Jones,
7) Philip J. Davis, 8) Edward J. Hartnett
[_] FOR ALL NOMINEES [_] WITHHOLD ALL NOMINEES
To withhold authority to vote for any individual nominee(s), write the
nominee's names on the space(s) provided below:
- --------------------------------------------------------------------------------
PROPOSAL NO. 2:
APPROVAL OF AMENDMENT TO 1992 STOCK OPTION FOR [_] AGAINST [_] ABSTAIN [_]
PLAN.
PROPOSAL NO. 3:
RATIFICATION OF APPOINTMENT OF ERNST & YOUNG FOR [_] AGAINST [_] ABSTAIN [_]
LLP AS INDEPENDENT AUDITORS.
Dated ______________, 1998
__________________________
Signature
Dated ______________, 1998
__________________________
Signature if held jointly
THIS PROXY IS SOLICITED
ON BEHALF OF THE BOARD OF
DIRECTORS
