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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 sec.240.14a-11(c) or sec.240.14a-12
ADVANCED POLYMER SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / 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:
(2) Aggregate number of securities to which transaction applies:
(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):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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ADVANCED POLYMER SYSTEMS, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1996
------------------------
To the Stockholders of Advanced Polymer Systems, Inc.:
The Annual Meeting of Stockholders of Advanced Polymer Systems, Inc. (the
"Company") will be held at the Stanford Park Hotel, 100 El Camino Real, Menlo
Park, California, on June 5, 1996, at 10:00 a.m. local time, for the following
purposes:
1. To elect eight directors to hold office until the next annual meeting of
stockholders and until their successors are elected.
2. To approve an amendment to the Company's 1992 Stock Plan to increase the
number of shares by 750,000.
3. To transact such other business as properly may come before the meeting,
or any adjournments or postponements of the meeting.
Only stockholders of record at the close of business on April 19, 1996, are
entitled to notice of, and to vote at, the meeting and any adjournments or
postponements of the meeting.
BY ORDER OF THE BOARD OF DIRECTORS,
Julian N. Stern, Secretary
Redwood City, California
May 3, 1996
IMPORTANT
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING IN PERSON,
PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS SOON AS POSSIBLE
IN THE ENCLOSED POSTPAID ENVELOPE.
THANK YOU FOR ACTING PROMPTLY.
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ADVANCED POLYMER SYSTEMS, INC.
3696 HAVEN AVENUE
REDWOOD CITY, CALIFORNIA 94063
(415) 366-2626
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors (the
"Board") of Advanced Polymer Systems, Inc. ("APS" or the "Company"), a Delaware
corporation. The proxy is solicited for use at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held at 10:00 a.m. local time on June
5, 1996, at the Stanford Park Hotel, 100 El Camino Real, Menlo Park, California.
The approximate date on which this proxy statement and the accompanying notice
and proxy are being mailed to stockholders is May 3, 1996.
VOTING
Only stockholders of record at the close of business on April 19, 1996, are
entitled to notice of, and to vote at, the Annual Meeting and any adjournments
or postponements thereof. At the close of business on that date, the Company had
outstanding 17,839,509 shares of its Common Stock, $.01 par value (the "Common
Stock"). Holders of a majority of the outstanding shares of Common Stock of the
Company, either present in person or by proxy, will constitute a quorum for the
transaction of business at the Annual Meeting. Holders of Common Stock are
entitled to one vote for each share of Common Stock held. In the election of
directors, the eight candidates receiving the highest number of affirmative
votes of the shares represented and voting at the Annual Meeting will be elected
directors. An affirmative vote of a majority of the shares present and voting at
the meeting is generally required for approval of any other items submitted to
the stockholders for their consideration. Abstentions and broker non-votes are
each included in the determination of whether a quorum is present at the
meeting. Each is tabulated separately; abstentions are counted in tabulations of
the votes cast on proposals presented to stockholders and have the same effect
as negative votes, while broker non-votes are not counted for purposes of
determining whether a proposal has been approved or not.
REVOCABILITY OF PROXIES
Any stockholder giving a proxy has the power to revoke the proxy prior to
its exercise. A proxy can be revoked by an instrument of revocation delivered
prior to the Annual Meeting to the Secretary of the Company, by a duly executed
proxy bearing a later date or time than the date or time of the proxy being
revoked, or at the Annual Meeting if the stockholder is present and elects to
vote in person. Mere attendance at the Annual Meeting will not serve to revoke a
proxy.
SOLICITATION OF PROXIES
Solicitation of proxies may be made by directors, officers and other
employees of the Company by personal interview, telephone, telegraph or telefax.
No additional compensation will be paid for any such services. Costs of
solicitation will be borne by the Company. APS will, upon request, reimburse the
reasonable charges and expenses of brokerage houses or other nominees or
fiduciaries for forwarding proxy materials to, and obtaining authority to
execute proxies from, beneficial owners for whose accounts they hold shares of
Common Stock.
ELECTION OF DIRECTORS
Eight directors are to be elected to the Board at the Annual Meeting, each
to serve for a one year term until the Annual Meeting to be held in 1997, and
until his or her successor has been elected and qualified. All the nominees
presently are directors of APS. It is intended that proxies received will be
voted "FOR" the election of the nominees, unless marked to the contrary.
The Board has no reason to believe that any of the nominees will be unable
or unwilling to serve as a director if elected. If any nominee should become
unavailable prior to the election, the accompanying proxy
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will be voted for the election of any nominee who is designated by the present
Board of Directors to fill the vacancy.
INFORMATION CONCERNING THE BOARD OF DIRECTORS:
The nominees for Directors of APS and their ages and position with the
Company are as follows:
DIRECTOR
NAME AGE POSITION WITH COMPANY SINCE
--------------------------------------- --- ---------------------------- --------
John J. Meakem, Jr..................... 59 Chairman, President and CEO 1991
Carl Ehmann(3)......................... 53 Director 1994
Jorge Heller, Ph.D.(3)................. 68 Director 1991
Helen C. Leong(3)...................... 68 Director 1985
Peter Riepenhausen(2).................. 59 Director 1991
Toby Rosenblatt(1)(2).................. 57 Director 1983
Gregory H. Turnbull(1)................. 57 Director 1986
Dennis Winger(1)....................... 48 Director 1993
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(1) Member of the Finance and Audit Committee of the Board.
(2) Member of the Compensation and Stock Options Committee of the Board.
(3) Member of the Science Oversight Committee of the Board.
John J. Meakem, Jr. -- chief executive officer and president of APS since
June, 1991, director since July, 1991; chairman of APS board of directors since
March, 1993; chairman of Premier, Inc., a privately held company, from 1986
until its acquisition by APS in 1993. From 1970 to 1986, Mr. Meakem was
corporate executive vice president and president of Combe, North America and
Combe, Inc. Prior to that Mr. Meakem was vice president of Richardson-Vicks,
Inc.
Carl Ehmann, M.D., F.A.C.P. -- director of APS since June, 1994. Mr. Ehmann
is currently executive vice president -- research and development of R.J.
Reynolds Tobacco Company where he also serves as a member of the executive and
operating committee. He also serves as a director of Biosource Technologies,
Inc.
Jorge Heller, Ph.D. -- director of APS since April, 1991 and executive
director of the APS Research Institute since January, 1994. Dr. Heller was
director of the controlled release and biomedical polymers program at SRI
International until January, 1994, where he was a staff member since 1974. He is
also adjunct professor of pharmacy at the University of California, San
Francisco, and at the University of Utah. He is editor of the Journal of
Controlled Release and past president of the Controlled Release Society.
Helen C. Leong -- director of APS since March, 1985, and chairwoman of the
Board in 1986 and 1987. Mrs. Leong is, and has been for more than five years,
the managing partner of Leong Ventures, which makes investments in the areas of
biogenetics and health oriented technologies. She is a director of Erox
Corporation. Mrs. Leong is also a founder of the Mid-Peninsula Bank where she
has served as a director since 1988.
Peter Riepenhausen -- director of APS since April, 1991. Mr. Riepenhausen
is currently president and chief executive officer of ReSound Corporation. He
serves as a director of Chiron Vision Inc., Caradon (Europe) plc. and Weru A.G.
He served as vice chairman of the board of directors of The Cooper Companies,
Inc. from January, 1987 until September, 1989, and from January, 1984 until
December, 1986 he was executive vice president of The Cooper Companies, Inc. Mr.
Riepenhausen has also held executive positions with Blendax-Werke R. Schneider
GmbH & Co. of West Germany and Pepsico, Inc.
Toby Rosenblatt -- director of APS since September, 1983. Mr. Rosenblatt is
president of The Glen Ellen Company and Vice President of Founders Investments,
Ltd. Both companies are involved in private investment activities. Mr.
Rosenblatt serves as a director of Biosource Technologies Inc., the State Street
Investment Trust and State Street Research Family of Mutual Funds. He is also a
trustee of numerous civic and educational institutions.
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Gregory H. Turnbull -- director of APS since February, 1986. Mr. Turnbull
is currently a self-employed consultant and a director of Planar Systems. He was
managing director of Kemper Securities from mid-1992 to April, 1993. Prior to
that, he was a partner of Cable & Howse Ventures, a venture capital organization
which he first joined in 1983, and of which he is currently a special limited
partner.
Dennis Winger -- director of APS since February, 1993. Mr. Winger is
currently senior vice president, finance and administration and chief financial
officer of Chiron Corporation. He is also a member of Chiron's Strategy
Committee. Prior to joining Chiron, Mr. Winger held a series of financial
positions at The Cooper Companies, Inc., including chief financial officer.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors met four times during 1995. Except for Dr. Jorge
Heller and Dr. Carl Ehmann, each of the directors participated in at least 75%
of the total number of meetings of the Board and of the committees of the Board
on which each served. Although Dr. Heller and Dr. Ehmann were unable to attend
75% of the total number of meetings of the Board and of the committees of the
Board on which they serve, they were consulted on board actions during the year.
The Board has a Finance and Audit Committee, a Compensation and Stock
Options Committee and a Science Oversight Committee. The Finance and Audit
committee, which met two times during the last fiscal year, consisted of Messrs.
Rosenblatt, Turnbull and Winger. The Finance and Audit Committee recommends
engagement of the Company's independent auditors and reviews the scope and
results of the annual independent audit of the Company's books and records. The
Committee is also responsible for reviewing and evaluating the Company's
accounting principles and its system of internal accounting controls, and
reviewing its plans for providing appropriate financial resources to sustain the
Company's operations. The Compensation and Stock Options Committee, which met
two times during the year, consisted of Messrs. Rosenblatt and Riepenhausen. The
function of the Compensation and Stock Options Committee is to propose and
review the compensation policies of the Company and to administer the Company' s
stock options plan. The Science Oversight Committee, which met three times
during the year, consisted of Dr. Ehmann, Mrs. Leong and Dr. Heller. The
function of the Science Oversight Committee is to review the Company's research
and development activities.
COMPENSATION OF DIRECTORS
Under the Company's 1992 Stock Option Plan, each nonemployee director of
the Company is automatically granted an option to acquire 10,000 shares of
Common Stock annually and receives a one-time automatic grant to acquire 25,000
shares when first elected as a director. The Company paid no other Directors'
fees for the fiscal year ended December 31, 1995. Certain directors of the
Company have received consulting fees. See "Certain Transactions."
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COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth beneficial Common Stock ownership as of
April 19, 1996, (i) by each person who is known by the Company to own
beneficially more than 5% of the outstanding shares of Common Stock, (ii) by
each director, including nominees, and each executive officer named in the
Summary Compensation Table included in the Proxy Statement and (iii) by all
executive officers and directors as a group. Each person has sole investment and
voting power with respect to the shares indicated, subject to community property
laws where applicable and except as otherwise set forth in the footnotes to the
table.
NUMBER OF PERCENT OF
NAME SHARES(1) CLASS(1)
--------------------------------------------------------------- --------- ----------
Robert Albus(2)................................................ 410,393 2.3
Thomas Bigger(3)............................................... 47,395 *
Carl Ehmann, M.D., F.A.C.P.(4)................................. 34,500 *
Jorge Heller, Ph.D.(5)......................................... 70,000 *
Helen C. Leong(6).............................................. 179,940 1.0
John J. Meakem, Jr.(7)......................................... 698,850 3.8
Sergio Nacht(8)................................................ 182,584 1.0
Michael O'Connell(9)........................................... 148,085 *
Peter Riepenhausen(10)......................................... 68,000 *
Les Riley(11).................................................. 0 *
Toby Rosenblatt(12)............................................ 235,526 1.3
Gregory H. Turnbull(13)........................................ 45,000 *
Dennis Winger(14).............................................. 38,750 *
Johnson & Johnson Development Corporation(15).................. 2,355,107 13.1
One Johnson & Johnson Plaza
New Brunswick, NJ 08933
Smith Barney Holdings Inc. .................................... 3,334,469 18.7
1345 Avenue of the Americas
New York, NY 10105
Officers and Directors as a group (12 persons)................. 2,159,023 11.2
(2)(3)(4)(5)(6)(7)(8)(9)(10)(11)(12)(13)(14)
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* Less than one percent.
(1) Assumes the exercise of all outstanding options and warrants to purchase
Common Stock held by such person or group to the extent exercisable on or
before June 19, 1996, and that no other person has exercised any
outstanding stock options.
(2) Includes 180,729 shares underlying presently exercisable stock options.
(3) Consists of 47,395 shares underlying presently exercisable stock options.
Mr. Bigger left the Company in March 1996.
(4) Includes 32,500 shares underlying presently exercisable stock options.
(5) Consists of 70,000 shares underlying presently exercisable stock options.
(6) Includes 87,500 shares underlying presently exercisable stock options.
(7) Includes 462,081 shares underlying presently exercisable stock options.
(8) Includes 181,581 shares underlying presently exercisable stock options.
(9) Includes 147,707 shares underlying presently exercisable stock options.
(10) Includes 3,000 shares held as joint tenant with Mr. Riepenhausen's spouse
and 65,000 shares underlying presently exercisable stock options.
(11) Mr. Riley currently has no exercisable stock options, but holds 100,000
stock options which will vest annually over four years from the date on
which he joined the Company.
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(12) Includes 45,000 shares underlying presently exercisable stock options.
(13) Consists of 45,000 shares underlying presently exercisable stock options.
(14) Consists of 38,750 shares underlying presently exercisable stock options.
(15) Includes warrants to purchase 200,000 shares of common stock.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, as well as any holders of more than 10% of the Company's
Common Stock, to file with the Securities and Exchange Commission certain
reports of ownership and reports of changes in ownership of Common Stock and
other equity securities of the Company. Based solely on review of such reports
and certain representations furnished to it, the Company believes that during
the fiscal year ended December 31, 1995, all Section 16(a) filing requirements
applicable to its officers and directors were complied with.
EXECUTIVE COMPENSATION
The following Summary Compensation Table shows the total compensation for
fiscal years 1995, 1994 and 1993 of the chief executive officer and each of the
other four most highly compensated executive officers whose salary exceeded
$100,000 in 1995.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL
COMPENSATION AWARDS
------------ ------------ ALL OTHER
NAME AND POSITION YEAR SALARY($) OPTIONS(#) COMPENSATION($)(1)
----------------------------------- ----- ------------ ------------ ------------------
John J. Meakem, Jr. ............... 1995 310,962 150,000(2) 4,500
Chairman, President and Chief 1994 290,122 50,000 1,000
Executive Officer 1993 259,222 175,000 1,000
Robert Albus(3).................... 1995 200,000 25,000 3,082
Senior Vice President, President 1994 194,790 0 1,000
of Premier 1993 166,830 100,000 750
Thomas Bigger(4)................... 1995 185,000 25,000 0
Senior Vice President 1994 42,278 100,000 0
1993 N/A N/A N/A
Sergio Nacht, Ph.D................. 1995 170,115 20,000 4,433
Senior Vice President 1994 167,727 20,000 1,000
Science and Technology 1993 157,738 15,000 1,000
Michael O'Connell.................. 1995 182,308 30,000 4,500
Executive Vice President, Chief 1994 172,779 100,000 1,000
Financial and Administrative
Officer 1993 158,771 30,000 1,000
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(1) The stated amounts are Company matching contributions to the Advanced
Polymer Systems Salary Reduction Profit Sharing Plan. In 1995, the Company
made matching contributions equal to 50% of each participant's contribution
during the plan year up to a maximum amount equal to the lesser of 3% of
each participant's annual compensation or $4,500.
(2) Mr. Meakem received a three-year option grant in 1995 of 150,000 shares
which vest monthly over the three-year period beginning May 1, 1996.
(3) Mr. Albus joined the Company in April, 1993. The annual compensation for
1993 excludes salary from Premier, Inc. prior to the acquisition on April 2,
1993.
(4) Mr. Bigger joined the Company in October, 1994 and he was compensated at an
annual rate of $185,000. Mr. Bigger left the Company in March, 1996.
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The following table sets forth certain information with respect to options
granted during 1995 to the executive officers named in the Summary Compensation
Table.
STOCK OPTION GRANTS IN 1995
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
------------------------------------------------ VALUE AT ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(1)
GRANTED EMPLOYEES IN PRICE EXPIRATION -------------------
NAME (#)(2) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- -------------------------------- --------- ------------ -------- ---------- ------- ---------
John J. Meakem, Jr. ............ 150,000(3) 23.6 $5.250 06/22/05 495,255 1,255,072
Robert Albus.................... 25,000 3.9 $5.250 06/22/05 82,542 209,179
Thomas Bigger................... 25,000 3.9 $5.250 06/22/05 82,542 209,179
Sergio Nacht, Ph.D.............. 20,000 3.1 $5.250 06/22/05 66,034 167,343
Michael O'Connell............... 30,000 4.7 $5.250 06/22/05 99,051 251,014
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(1) Potential realizable value is based on an assumption that the price of the
common stock appreciates at the annual rate shown (compounded annually) from
the date of grant until the end of the ten year option term. The numbers are
calculated based on the requirements promulgated by the Securities and
Exchange Commission ("SEC") and do not reflect the Company's estimate of
future stock price growth.
(2) The options granted under the Company's 1992 Stock Plan typically vest over
4 years at 25% annually. Payments on exercise, including any taxes the
Company is required to withhold, may be made in cash, by a full recourse
promissory note or by tender of shares. Options are granted at fair market
value on the date of grant. The options granted to Mr. Meakem in 1995 vest
over 3 years.
(3) Mr. Meakem received a three-year option grant in 1995.
The following table sets forth certain information with respect to the
value of options held at fiscal year end by the executive officers named in the
Summary Compensation Table. During 1995, none of the named officers exercised
any stock options.
AGGREGATED OPTION EXERCISES IN 1995 AND 1995 YEAR-END OPTION VALUES
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 1995 YEAR-END AT FISCAL YEAR-END(1)
----------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME (#) (#) ($) ($)
- --------------------------------------- ----------- ------------- ----------- -------------
John J. Meakem, Jr. ................... 440,598 217,316 247,273 44,832
Robert Albus........................... 153,125 46,875 78,594 5,469
Thomas Bigger.......................... 32,291 92,709 37,239 94,011
Sergio Nacht, Ph.D..................... 173,349 46,651 145,043 6,145
Michael O'Connell...................... 127,917 132,083 13,906 56,404
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(1) Market value of underlying securities at fiscal year end minus the exercise
price of "in-the-money" options.
APS did not make any awards during 1995 to any of the executive officers
named in the Summary Compensation Table under any long-term incentive plan
providing compensation intended to serve as an incentive for performance to
occur over a period longer than one fiscal year, excluding options.
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REPORT OF THE COMPENSATION AND STOCK OPTION COMMITTEE
The Compensation and Stock Option Committee of the Board of Directors (the
"Committee") is responsible for establishing compensation policies applicable to
the Company's executive officers and, pursuant to such policies, determining the
compensation payable to the Company's chief executive officer and other
executive officers of the Company. The committee consists of Peter Riepenhausen
and Toby Rosenblatt, each of whom is a non-employee director of the Company. The
following report relates to compensation payable to the Company's executive
officers for the year ended December 31, 1995.
COMPONENTS OF COMPENSATION
There are three components of compensation payable to the Company's
executive officers; base salary and equity-based incentive compensation in the
form of stock options, as well as annual incentive compensation in the form of
cash bonuses, although no incentive bonuses were paid in 1995.
COMPENSATION POLICIES
The Company's compensation policies for all employees, including executive
officers, are designed to provide targeted compensation levels that are
competitive with those of regional high technology companies of similar size,
with whom the company must compete in the recruitment of senior personnel. The
Committee also ties incentive cash bonuses to the achievement of a
pre-established plan and uses stock options to promote equity-ownership in the
Company at levels deemed appropriate by the Committee for executive officers.
The goals of the Committee are to align compensation with the Company's
objectives and performance, and to enable the Company to attract, retain and
reward executives who contribute to the long-term success of the Company. The
Company does not believe that compensation payable by it will be subject to the
limitations on deductibility provided under Section 162(m) of the Internal
Revenue Code.
The Committee retained the services of a compensation consulting firm to
provide data regarding competitive levels of salary compensation and to provide
general guidance to the Committee in evaluating executive compensation.
BASE SALARIES
The salary component of executive compensation is based on the executive's
level of responsibility for meeting the Company's objectives and performance,
and comparison to similar positions in the Company and comparable companies.
Base salaries for executive officers are reviewed and adjusted annually based on
information regarding competitive salaries, including salary survey data
provided by third parties regarding regional high technology companies.
Individual increases are established by the Committee (taking into account
recommendations of the chief executive officer concerning the overall
effectiveness of each executive.)
CASH BONUSES
Incentive cash bonuses are determined based on the Company's achievement of
certain pre-established performance objectives. No incentive bonuses were paid
in 1995.
STOCK OPTIONS
The Company's compensation policies recognize the importance of stock
ownership by senior executives and stock options are an integral part of each
executive's compensation. The Committee believes that the opportunity for stock
appreciation through stock options which vest over time promotes the
relationship between long-term interests of executive officers and stockholders.
The size of specific grants takes into account the executive officer's salary,
number of options previously granted, as well as shares of Common Stock held,
and the contributions to the Company's success.
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COMPENSATION PAYABLE TO CHIEF EXECUTIVE OFFICER
The 1995 salary for Mr. Meakem, the Company's chairman, president and chief
executive officer, was determined principally from the terms of his employment
agreement with the Company dated May 1, 1993. The Compensation Committee and
Board of Directors increased the base salary of $300,000 to $315,000 effective
April 1, 1995. This increase in base salary corresponds to the average
percentage increase in salaries payable to all employees. Mr. Meakem also
received a three-year option grant in 1995 covering 150,000 shares which will
vest over a three-year period beginning on May 1, 1996. As of April 19, 1996,
Mr. Meakem holds presently exercisable options to purchase 457,914 shares and,
including options, beneficially owns as of that date 694,683 shares of the
Company's Common Stock.
Compensation and Stock Option
Committee
Peter Riepenhausen
Toby Rosenblatt
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PERFORMANCE GRAPH
The rules of the SEC require APS to include in this Proxy Statement a line
graph presentation comparing cumulative five year stockholder returns, on a
dividend reinvested basis, with broad based equity index and a published
industry index. The Company has selected the S&P 500 Stock Index and H&Q
Technology Stock Index for purposes of the comparison which appears below. The
graph assumes that $100 was invested in APS stock and each index on December 31,
1990, with all dividends reinvested. Past stock performance is not necessarily
indicative of future results.
ADVANCED HAMBRECHT &
Measurement Period POLYMER QUIST
(Fiscal Year Covered) SYSTEMS, INC. S & P 500 TECHNOLOGY
12/90 100 100 100
12/91 467 130 148
12/92 372 140 170
12/93 233 155 186
12/94 194 157 215
12/95 244 215 323
2/96 389 225 343
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CERTAIN TRANSACTIONS
On April 2, 1993, APS acquired Premier, Inc. in exchange for 454,444 shares
of APS Common Stock. Premier is a marketing and distribution company
specializing in over-the-counter drug and personal care products. Premier has
exclusive arrangements to market and distribute two sunscreens, Sundown(R) and
Johnson's Baby Sunblock(R), on behalf of Johnson & Johnson Consumer Products,
Inc. and has further licensed Take-Off (R) make-up remover from Johnson &
Johnson. Premier also markets seven APS products -- EveryStep(R), a shoe and
foot deodorant, and the Exact(R) product line for the treatment of acne:
vanishing cream, tinted cream, face wash, adult acne cream, pore treatment gel
and cleansing wipes. In addition, effective September 1995, the Company licensed
from Reckitt & Colman the exclusive U.S. rights to the Neet(R) line of
depilatory products.
John J. Meakem, Jr., the chairman, chief executive officer and president of
APS, and Robert Albus, senior vice president of APS, were founders of Premier.
Mr. Meakem and Mr. Albus each received 227,222 shares of APS common stock on the
closing of the acquisition.
The Company entered into a three-year employment agreement with Mr. Meakem
in May 1993. In 1995, the employment agreement was amended to extend the term
for an additional three years and provide for automatic yearly extensions
thereafter unless written notice of its intention not to automatically extend
the agreement is given by either party. The employment agreement provides that
Mr. Meakem may elect to terminate his employment within stated periods of a
change in control of the Company (defined to include an acquisition of more than
fifty percent of the outstanding shares of the Company) and receive an amount
equal to his prior twelve months' salary and bonus, payable over the subsequent
twelve month period. Mr. Meakem is entitled to receive an amount equal to twice
his prior twelve months' salary and bonus if the Company should terminate his
employment within stated periods of a change in control or if he elects to
terminate his employment following a change in control if his position with the
Company is reduced in terms of responsibility or indicia of status.
During 1995, the Company paid to Dr. Jorge Heller, Mrs. Helen C. Leong, and
Mr. Peter Riepenhausen, all of whom are directors of the Company for consulting
services in their fields of expertise, the respective amounts of $48,000, $0 and
$0. Payments for similar services in 1994 were $48,000, $0 and $47,000,
respectively, and in 1993 were $44,000, $3,000 and $47,000, respectively.
The Company has entered into agreements with Biosource Technologies, Inc.
("Biosource") of which Toby Rosenblatt and Dr. Carl Ehmann are directors and
Toby Rosenblatt is a stockholder. Dr. Carl Ehmann is also an executive officer
of a company that is a Biosource stockholder. All agreements between APS and
Biosource have been, and will continue to be, considered and approved by a vote
of the disinterested directors. The agreements provide APS with worldwide rights
to use and sell Biosource's biologically synthesized melanin in Microsponge
systems for all sun protection, cosmetic, ethical dermatology and
over-the-counter skin care purposes. In return, APS is required to make annual
minimum purchases of melanin, and to pay royalties on sales of
melanin-Microsponge products including certain prepayments. During 1995, the
Company paid Biosource $3,329 in royalties and accrued $600,000 for an estimated
loss on future purchase commitments. During 1994, APS paid Biosource $3,279 for
royalties on product sales and $263,403 for the supply of melanin. The 1994
financial results also include a $685,000 provision for the estimated loss on
certain future purchase commitments and related inventory on hand for product in
excess of estimated requirements. During the fiscal year ended December 31,
1993, the Company paid or accrued $893,485 for the supply of melanin, an
additional $200,000 to meet the annual minimum purchase commitment, and $40,820
for royalties on product sales. The 1993 financial results also included a
$750,000 provision for the estimated loss on certain future purchase commitments
and related inventory on hand for product in excess of estimated requirements.
10
13
APPROVAL OF THE AMENDMENT TO THE COMPANY'S 1992 STOCK PLAN
The Board of Directors has approved, subject to stockholder approval, an
amendment to the Company's 1992 Stock Plan to increase the number of shares by
750,000. The 1992 Plan is intended to strengthen the Company by providing added
incentive to officers, directors, employees and consultants for high levels of
performance and unusual efforts to increase the earnings of the Company through
the opportunity for stock ownership. The Board of Directors believes it would be
in the best interest of the Company to approve the amendment to the 1992 Plan to
increase the number of shares by 750,000 because the 1992 Plan, currently the
only Plan pursuant to which the Company grants options, has only 85,641 shares
available for grant as of March 31, 1996. In addition, the 1992 Plan includes
provisions for the automatic grant of options to nonemployee directors. As of
March 31, 1996, directors, officers, employees and consultants held unexercised
options covering 2,189,705 shares of Common Stock with an average exercise price
of $6.27.
DESCRIPTION OF THE 1992 PLAN
The following is a general summary of the principal provisions of the 1992
Stock Plan. The 1992 Plan authorizes the granting of ISOs to employees
(including employees who are officers and directors) and NSOs to officers,
directors, employees and consultants to purchase authorized, but unissued shares
of the Company's Common Stock. The number of shares reserved for issuance on the
exercise of options granted under the 1992 Plan is 3,250,000. The 1992 Plan is
administered by the Administrator who determines the terms of Options granted
under the 1992 Plan, including the exercise price, number of shares subject to
the Option, whether the Option is an ISO or an NSO, and the schedule pursuant to
which the Option shall become exercisable, except that nonemployee directors
only will receive mandatory grants of NSOs as described below. No Option may be
granted under the 1992 Plan after March, 2002, but outstanding options may
extend beyond that date.
The 1992 Plan also provides that option grants to nonemployee directors of
the Company shall be made on a mandatory basis and not on a discretionary basis.
The Company does not pay any directors fees for services as a director, and uses
NSOs as an alternative way to compensate nonemployee directors and to provide
incentives to them through an equity interest in the Company. Under the 1992
Plan, a 10 year NSO to purchase 25,000 shares of the Company's Common Stock will
be granted to each person who is neither an officer nor an employee of the
Company when such person is first elected or appointed director. Each such
option vests at the rate of 25% per year, so long as the individual is serving
as a director, with full vesting over four years. The 1992 Plan also provides
for the grant of a ten year NSO to purchase 10,000 shares of Common Stock on the
date of each annual meeting of stockholders of the Company held more than 12
months after a nonemployee director is first elected or appointed to the Board
of Directors. These options fully vest one year after the date of grant. Other
than for these mandatory grants of Options, nonemployee directors will not be
eligible to receive grants under the 1992 Plan.
The exercise price of each Option granted under the 1992 Plan must be at
least equal to 100% of the fair market value of the underlying shares of Common
Stock on the date of grant. The 1992 Plan provides that the maximum term of an
option is ten years. With respect to any participant then owning stock
possessing more than ten percent (10%) of the voting power of the Company's
outstanding capital stock, the exercise price of any ISO must be at least 110%
of fair market value of the underlying shares of Common Stock on the date of
grant, and the term may be no longer than five years. The 1992 Plan permits the
exercise of options for cash, a check, or with the approval of the
Administrator, tender (but not more frequently than once every six months) to
the Company of shares of the Company's Common Stock owned by the optionee and
having a fair market value not less than the option exercise price or delivery
of full recourse promissory notes.
The 1992 Plan limits to $100,000 the value of option stock (measured at the
time of the option grant) with respect to which ISOs granted to any one employee
after 1986 under any Company plan may vest in any calendar year.
At the time an Option is exercised, in whole or in part, or at any time
thereafter as requested by the Company, the optionee is required to make
adequate provision for federal and state income and employment tax withholding
obligations of the Company, if any, resulting from the exercise. Subject to
certain limitations applicable to an optionee who is an officer or director of
the Company, an optionee may elect, subject to the
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14
terms of the 1992 Plan and the approval of the Administrator, to have shares of
Common Stock issuable on exercise of the Options withheld or to tender shares
then owned by the optionee to provide for these taxes.
Generally, Options are exercisable not upon grant, but in cumulative
increments over time. Options granted to officers or directors subject to
Section 16(b) of the Securities Exchange Act of 1934 are not exercisable until
at least six months after the date of grant. Options may be exercised for thirty
days after the optionee leaves the Company and, if the optionee's employment is
terminated by reason of death or permanent disability, for one year after the
optionee's death or disability, but in either case not beyond the original term
of the Option.
No Option granted under the 1992 Plan is transferable by the optionee other
than by will or under the laws of descent and distribution, and each Option is
exercisable, during the lifetime of the optionee, only by the optionee. In the
event of a merger of the Company, sale of the substantially all of its assets or
similar transaction, the Administrator may, among other things, accelerate the
expiration date and the exercisability of all Options outstanding under the 1992
Plan.
Under the 1992 Plan, the Administrator also may grant to participants a
direct right to purchase shares by notifying the grantee of the terms,
conditions and restrictions relating to the purchase right.
The 1992 Plan expires in March, 2002, unless terminated earlier by the
Board of Directors. The Board may at any time terminate or amend the 1992 Plan,
provided that without approval of stockholders there will be: (i) no increase in
the total number of shares covered by the 1992 Plan; and (ii) no change in the
class of persons eligible to receive Options. In any case, no amendment may
adversely affect any then-outstanding Option or unexercised portion thereof
without the optionee's consent unless such amendment is required to enable the
Option to qualify as an ISO.
FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTIONS
The following description of federal income tax consequences is based upon
current statutes, regulations and interpretations thereof. Because the
applicable rules are complex and because income tax consequences may vary
depending upon the individual circumstances of each optionee, optionees should
consult their personal tax advisors concerning federal, state, local and foreign
income tax consequences associated with their participation in the 1992 Plan.
ISOs granted under the 1992 Plan are intended to constitute "incentive
stock options" within the meaning of the Section 422 of the Code. ISOs may be
granted only to employees of the Company (including directors who are also
employees). An optionee does not recognize taxable income upon either the grant
or exercise of an ISO. However, the excess of the fair market value of the
shares purchased upon exercise over the option exercise price (the "Option
Spread") is includible in the optionee's "alternative minimum tax income"
("AMTI"), used to calculate the "alternative minimum tax". The Option Spread is
measured on the date of exercise and is generally includible in AMTI in the year
of exercise.
If an optionee holds the shares for at least two years from the date the
ISO was granted, and for at least one year from the date the ISO was exercised,
any long-term gain from a sale of the shares should be taxable as capital gain.
Under these circumstances, the Company would not be entitled to a tax deduction
at the time the ISO is exercised or at the time the stock is sold. If an
optionee were to dispose of stock acquired pursuant to an ISO before the end of
the required holding period (a "Disqualifying Disposition"), the amount by which
the market value of the stock at the time the ISO was exercised exceeds the
exercise price (or, if less, the amount of gain realized on the sale) would be
taxable as ordinary income, and the Company should be entitled to a
corresponding tax deduction. A gain in a Disqualifying Disposition, in excess of
the amount required to be recognized as ordinary income, if any, would be a
capital gain.
If an optionee pays for option shares with shares of the Company acquired
under an ISO or other qualified stock option ("statutory option stock") the
tender of shares is a Disqualifying Disposition of the statutory option stock if
the applicable holding periods respecting those shares have not been satisfied.
If the holding periods with respect to the statutory option stock are satisfied,
or the shares were not acquired under
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15
an ISO or other qualified stock option of the Company, then any appreciation in
value of the surrendered shares is not taxed upon surrender.
An optionee is not taxed upon the grant of an NSO. Generally, the optionee
will recognize as ordinary income the Option Spread on the date of exercise. The
Company is entitled to a deduction equal to the amount of ordinary income
recognized by an optionee. Such income is subject to income tax withholding by
the Company.
If shares of Common Stock are delivered in payment of the exercise price of
an NSO, the appreciation in value of the surrendered shares is not then taxed.
The use of shares previously acquired by exercise of an ISO or other statutory
stock option may be a Disqualifying Disposition of those shares, although the
IRS has announced that it is studying this point. It is possible, although the
Company believes it unlikely, that election by an optionee to have shares of
Common Stock withheld in satisfaction of the optionee's withholding tax
obligations upon exercise of an NSO or Disqualifying Disposition of ISO shares
may result in dividend income to the optionee.
The following table shows the number of options granted to the named
individuals and groups under the 1992 Stock Plan during 1995.
PLAN BENEFITS
1992 STOCK PLAN
NAME AND POSITION NUMBER OF OPTIONS(1)
------------------------------------------------------------------ --------------------
John J. Meakem, Jr................................................ 150,000(2)
Chairman, President and Chief Executive Officer
Robert Albus...................................................... 25,000
Senior Vice President, President of Premier
Thomas Bigger..................................................... 25,000
Senior Vice President
Sergio Nacht, Ph.D................................................ 20,000
Senior Vice President, Science & Technology
Michael O'Connell................................................. 30,000
Senior Vice President, Chief Financial and Administrative Officer
Executive Officers as a Group..................................... 250,000
Non-Executive Director Group...................................... 70,000
Non-Executive Officer Employee Group.............................. 222,500
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(1) All options granted at fair market value on the date of the grant.
(2) Mr. Meakem received a three-year option grant in 1995.
PROPOSAL
At the Annual Meeting, stockholders will be asked to approve an amendment
to the Company's 1992 Stock Plan to increase the number of shares by 750,000.
Such approval will require the affirmative vote of a majority of the voting
power of all outstanding shares of the Company. Copies of the 1992 Plan are
available by writing to the Company to the attention of Marea Fabrique, Investor
Relations. The Board of Directors recommends a vote "FOR" the proposal.
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16
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected KPMG Peat Marwick LLP as independent public
accountants to audit the financial statements of the Company for the fiscal year
ending December 31, 1996. KPMG Peat Marwick LLP has acted as the Company's
auditors since the Company's inception in 1983. A representative of KPMG Peat
Marwick LLP will be present at the Annual Meeting and will have an opportunity
to make a statement if such representative desires to do so. The representative
of KPMG Peat Marwick LLP also will be available to respond to questions raised
during the meeting.
FINANCIAL STATEMENTS
The Company's annual report to stockholders for the fiscal year ended
December 31, 1996, containing audited consolidated balance sheets as of the end
of each of the past two fiscal years and audited consolidated statements of
operations, shareholders' equity and cash flows for each of the last three
fiscal years, is being mailed with this proxy statement to stockholders entitled
to notice of the Annual Meeting.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Under the applicable rules of the Securities and Exchange Commission, a
stockholder who wishes to submit a proposal for inclusion in the proxy statement
of the Board of Directors for the annual meeting of stockholders to be held in
the spring of 1997 must submit such proposal in writing to the Secretary of the
Company at the Company's principal executive offices no later than January 6,
1997.
OTHER MATTERS
The Board knows of no other matters which will be presented to the Annual
Meeting. If, however, any other matter is properly presented at the Annual
Meeting, the proxy solicited by this Proxy Statement will be voted in accordance
with the judgment of the person or persons holding such proxy.
BY ORDER OF THE BOARD OF DIRECTORS,
Julian N. Stern, Secretary
Redwood City, California
May 3, 1996
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN
TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND RETURN
THE ACCOMPANYING PROXY IN THE ENCLOSED POSTPAID ENVELOPE.
14
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ADVANCED POLYMER SYSTEMS, INC.
1992 STOCK PLAN
1. Purpose. The purpose of the Advanced Polymer Systems, Inc., 1992 Stock
Plan (the "Plan") is to attract, retain and motivate directors, officers, key
employees and consultants of Advanced Polymer Systems, Inc. (the "Company"),
and its subsidiaries by giving them the opportunity to acquire stock ownership
in the Company. Grants under this Plan may be either incentive stock options
("ISOs") intended to satisfy the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonstatutory stock options
("NSOs"), and this Plan and any options granted hereunder shall be
appropriately construed to conform to such requirements. This Plan also
provides for the direct sale of shares to eligible participants.
2. Effective Date and Term of Plan. This Plan was adopted by the Company's
Board of Directors (the "Board") and became effective on March 24, 1992. This
Plan shall terminate automatically 10 years after its effective date unless
terminated earlier by the Board under Section 12. No options or purchase
rights shall be granted after termination of this Plan but all options and
purchase rights granted prior to termination shall remain in effect in
accordance with their terms.
3. Number and Source of Shares Subject to the Plan. Subject to the
provisions of Section 10, the total number of shares of stock with respect to
which options or purchase rights may be granted under this Plan is 3,250,000
shares of Common Stock, $.01 par value, of the Company (the "Stock"). The
shares covered by any terminated or expired option or purchase right or
18
the unexercised portion thereof shall become available again for grant under
this Plan. The shares to be issued hereunder upon exercise of an option or
purchase right may consist of authorized and unissued shares or treasury
shares.
4. Administration of the Plan. This Plan shall be administered by a
committee of at least two members of the Board each of whom is a disinterested
person within the meaning set forth in Rule 16b-3 under the Securities Exchange
Act of 1934, as amended (the "Adminstrator"). So long as not otherwise required
for the Plan to comply with Rule 16b-3, the Administrator may delegate
nondiscretionary administrative duties to such employees of the Company or a
subsidiary as it deems proper. The Administrator may also make rules and
regulations which it deems useful to administer this Plan. Any decision or
action of the Administrator in connection with this Plan or any options or
purchase rights granted or shares purchased under this Plan shall be final and
binding. No member of the Board shall be liable for any decision, action or
omission respecting this Plan, or any options or purchase rights granted or
shares issued under this Plan.
5. Persons Eligible to Participate in this Plan.
(a) ISOs may be granted under this Plan only to employees of the
Company or any subsidiary of the Company, including employees who may also be
officers or directors of the Company or any subsidiary. NSOs and purchase
rights may be granted to employees, including employees who may also be
officers or directors, directors, consultants and potential employees (in
contemplation of employment) of the Company or any
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subsidiary; provided, however, that, notwithstanding anything to the contrary
elsewhere herein, grants to directors who are not employees of the Company and
are disinterested persons within the meaning set forth in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, ("Nonemployee Directors") may be
made only in accordance with Section 5(b) below; provided, further, that no
director who has received an option or purchase right grant under this Plan
other than pursuant to Section 5(b) shall be eligible to serve as a member of
the Administrator for one year after the date of grant. All grants shall be
made by the Administrator. Determination by the Administrator as to
eligibility shall be conclusive.
(b) Notwithstanding any other provision of this Plan, Nonemployee
Directors may receive grants under this Plan only in accordance with this
Section 5(b).
(i) Subject to the terms and conditions of this Plan, when any
Nonemployee Director who has not previously been a member of the Board is first
elected or appointed as a member of the Board, then on the effective date of
such appointment or election the Company shall grant to such new Nonemployee
Director an NSO to purchase 25,000 shares at an exercise price equal to the
fair market value of such shares on the date of such option grant.
(ii) Subject to the terms and conditions of this Plan, on the
date of the first meeting of the Board immediately following the annual
meeting of stockholders of the Company (even if held on the same day as the
meeting of stockholders) which is held more than 12 months after a Non-
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employee Director is first elected or appointed to the Board, commencing with
the annual meeting of stockholders held in May 1992 (or, if no annual meeting
is held that month or, in the case of any year after 1992, if no annual meeting
is held before the last business day of July of that year, then on the last
business day of July 1992 or of such other July, as the case may be), the
Company shall grant to each Nonemployee Director then in office an NSO to
purchase 10,000 shares at an exercise price equal to the fair market value of
such shares on the date of such option grant.
(iii) Subject to the other provisions of this Plan, each option
granted pursuant to this Section 5(b) shall be for a term of ten years. Each
option granted under Section 5(b)(i) shall become exercisable with respect to
one-fourth of the number of shares covered by such option on the first, second,
third and fourth anniversary of the date such option was granted, so that such
option shall be fully exercisable beginning on such fourth anniversary of the
date such option was granted. Each option granted under Section 5(b)(ii) shall
be fully exercisable beginning on the first anniversary of the date such
option was granted.
6. Grant of Options. The Administrator may, in its discretion, grant
options under this Plan at any time and from time to time before the expiration
of 10 years from the effective date of this Plan. The Administrator shall
specify the date of grant or, if it fails to, the date of grant shall be the
date of the action taken by the Administrator to grant the option (in either
case, the "Grant Date"). If an ISO is approved in
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21
anticipation of employment of any employee, the Grant Date shall be the date
the intended optionee is first treated as an employee of the Company or any
subsidiary for payroll purposes. As soon as practicable after the Grant Date,
the Company will provide the optionee a written stock option agreement in the
form approved by the Administrator (the "Option Agreement"), which designates
the option as an ISO or an NSO, and identifies the Grant Date, the number of
shares of Stock covered by the option, the option price and the other terms and
conditions of the option.
7. Terms and Conditions of Options. Options granted under this Plan shall
be subject to the following terms and conditions and such other terms and
conditions not inconsistent with this Plan as the Administrator may impose:
(a) Exercise of Option. In order to exercise all or a portion of any
option granted under this Plan, an optionee must remain as an employee (in the
case of an ISO), or as an employee, officer, director or consultant (in the
case of an NSO) of the Company or a subsidiary of the Company until the date on
which the option or portion thereof, becomes exercisable (the "Vesting Date").
The option shall be partially exercisable on or after each Vesting Date with
respect to the percentage of total shares covered by the option as set out in
the Option Agreement; provided, however, that the Vesting Date with respect to
any options granted to officers or directors, as those terms are used in
Section 16 of the Securities Exchange Act of 1934, as amended, shall be not
earlier than 6 months from the grant date.
If an option (or portion thereof) is not exercised on the earliest
Vesting Date on which it becomes exercisable, it
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22
may be exercised, in whole or in part, prior to its expiration date; provided,
however, that no option granted under this Plan may be exercised more than 10
years from the Grant Date. If, at the time the Company grants an ISO, the
optionee directly or by attribution owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
subsidiary, the ISO shall not be exercisable more than five years after the
Grant Date.
Notwithstanding any other provisions of this Plan, to the extent
required by Section 422 of the Code, the aggregate fair market value of Common
Stock first becoming exercisable by an optionee in any calendar year under all
ISOs granted to the optionee together with all other incentive stock options
granted to such optionee covering stock of the Company (or any company which,
at the time of the grant, was a parent or subsidiary of the Company) shall not
exceed $100,000 (or such other amount as may be in effect from time to time).
If, by their terms such ISOs and other incentive stock options, when taken
together, would first become exercisable at a rate which would exceed such
limit then, unless otherwise provided in the Option Agreement, the portion
thereof which exceeds such limit shall be NSOs. For this purpose, value shall
be the fair market value of the Common Stock when the options were granted and
options shall be taken into account in the order in which they were granted.
(b) Option Price. The option price shall be at least 100% of the fair
market value of the shares covered by the option on the Grant Date, as
determined in good faith by the Administrator. If, at the time the Company
grants an ISO, the
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optionee directly or by attribution owns stock possessing more than 10% of the
total commbined voting power of all classes of stock of the Company or any
subsidiary, the option price shall be at least 110% of the fair market value of
the shares covered by the ISO on the Grant Date determined in the same manner.
(c) Method of Exercise. To the extent the right to purchase shares has
accrued, an option (or portion thereof) may by exercised from time to time in
accordance with its terms by written notice from the optionee to the Company
stating the number of shares with respect to which the option is being
exercised and accompanied by payment in full of the exercise price of the
shares. Payment may be made in cash, by check or, at the absolute discretion of
the Administrator, by delivery of an interest-bearing, full recourse promissory
note or shares of Common Stock of the Company, endorsed in favor of the Company
or accompanied by an appropriate stock power, or by a combination of the above,
or any other form of consideration approved by the Administrator (including
payment in accordance with any cashless exercise program permitted by applicable
law, including, without limitation Regulation T promulgated by the Federal
Reserve Board, as amended from time to time). Any share delivered to the
Company as payment upon exercise of an option shall be valued at the fair
market value on the date of exercise of the option determined in good faith by
the Administrator. Options may not be exercised by any optionee by the delivery
of shares of Common Stock more frequently than once every 6 months.
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24
(d) Nonassignability of Option Rights. No option shall be transferable
other than by will or by the laws of descent and distribution and, during the
lifetime of an optionee, only the optionee may exercise an option.
(e) Exercise After Termination or Death. If, for any reason other than
permanent and total disability or death, an optionee ceases to be employed by
or to serve as a consultant to or a director of the Company or a subsidiary (if
such relationship forms the sole basis for the option grant), options held at
the date of such termination (to the extent then exercisable) may be exercised
in whole or in part at any time within 30 days after the date of termination
(but in no event after the expiration date of the option as set forth in the
Option Agreement). Notwithstanding, if an optionee becomes permanently and
totally disabled (within the meaning of Section 22(e)(3) of the Code) or dies
while employed by or serving as a consultant to or director of the Company or a
subsidiary (or, if the optionee dies within the period that the option remains
exercisable after termination of employment, consultancy or directorship),
options then held (to the extent then exercisable) may be exercised by the
optionee, the optionee's personal representative, or by the person to whom the
option is transferred by will or the laws of descent and distribution in whole
or in part, at any time within one year after the disability or death or any
lesser period specified in the Option Agreement (but in no event after the
expiration date of the option as set forth in the Option Agreement).
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25
(f) Compliance with Securities Laws. The Company shall not be
obligated to issue any shares upon exercise of an option unless the shares are
at that time effectively registered or exempt from registration under the
federal securities laws and the offer and sale of the shares are otherwise in
compliance with all applicable securities laws. The Company shall have no
obligation to register the shares under the federal securities laws or to take
any other steps necessary to enable the shares to be offered and sold under
federal or other securities laws. Upon exercising all or any portion of an
option, an optionee may be required to furnish representations or undertakings
deemed appropriate by the Company to enable the offer and sale of the option
shares or subsequent transfers of any interest in the shares to comply with
applicable securities laws. Stock certificates evidencing shares acquired upon
exercise of options shall bear any legend required by, or useful, for purposes
of compliance with, applicable securities laws, this Plan or the Option
Agreement evidencing the option.
8. Purchase Rights.
(a) Grant. The Administrator may, in its discretion, permit direct
sales of Common Stock under this Plan at any time before expiration of 10 years
from the effective date of this Plan. Shares may be issued at a price not less
than the fair market value on the date of sale, payable at the option of the
Administrator in cash or other lawful consideration. As soon as practicable
after the grant of a purchase right, the Administrator shall advise the grantee
in writing of the terms, conditions and restrictions relating to the grant,
including the
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26
number of shares, the purchase price, the method of payment (which may include,
in the absolute discretion of the Administrator, delivery of an
interest-bearing, full recourse promissory note), the time within which the
purchase right must be exercised, and the repurchase right, if any, available
to the Company.
(b) Purchase Agreement. Each sale of shares pursuant to a purchase
right shall be evidenced by an agreement between the purchaser and the Company
in such form and containing such terms, conditions and restrictions as are
approved by the Administrator, which agreement, need not be identical for
different purchasers. Stock certificates evidencing shares acquired pursuant to
a purchase right shall bear any legend required by, or useful for purposes of
compliance with, applicable securities laws, this Plan or the agreement
evidencing the purchase right.
9. Payment of Taxes. Regardless of the form of payment, exercise of an
option may be conditioned on payment in cash, or provision satisfactory to the
Administrator for payment to the Company, of all local, state and federal
withholding taxes which, in the Administrator's judgment, are payable in
connection therewith.
In addition, if and to the extent consented to by the Administrator in its
sole discretion at any time after an election pursuant to this paragraph is
made, an optionee may elect in writing to have Common Stock to be obtained upon
exercise of an option withheld by the Company on behalf of the optionee or to
deliver previously-owned shares of Common Stock to
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27
the Company to pay the amount of tax required by law (as determined by the
Company) to be withheld as a result of the exercise of such option. Any such
election by an optionee subject (in the view of the Company) to the "short
swing" profit rules of the Securities and Exchange Commission shall be subject
to the following limitations:
(a) such election must be made at least 6 months before the date that
the amount of tax to be withheld in connection with such exercise is determined
(the "Tax Date"), and shall be irrevocable; or
(b) (i) such election must be made in (or made earlier to take effect
in) any 10-day period beginning on the third business day following the date of
release for publication of the Company's quarterly or annual summary statements
of earnings; (ii) the option must be held at least 6 months prior to the Tax
Date and the approval of the Administrator must be given after the election is
made and prior to exercise of the option; and (iii) the option must be
exercised in any such 10-day period. Any shares or other securities so withheld
or delivered shall be valued by the Company as of the date of exercise of the
option. The right to so withhold or deliver shares shall relate separately to
each option or any portion thereof.
10. Adjustment for Changes in Capitalization. The existence of outstanding
options shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations or other changes in its or any other
corporation's capital structure or business, any merger or consolidation, any
issuance of bonds, debentures, preferred or prior preference stock ahead
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of or affecting the Stock, the dissolution or liquidation of the Company's or
any other corporation's assets or business or any other corporate act whether
similar to the events described above or otherwise. Subject to Section 11, if
the outstanding shares of the Stock are increased or decreased in number or
changed into or exchanged for a different number or kind of securities of
the Company or any other corporation by reason of a recapitalization,
reclassification, stock split, combination of shares, stock dividend or other
event, the number and kind of securities with respect to which options may
be granted under this Plan, the number and kind of securities as to which
outstanding options may be exercised, and the option price at which
outstanding options may be exercised, may be adjusted in the sole discretion of
the Administrator and without regard to any resulting tax consequences to the
optionee.
11. Dissolution, Liquidation, Merger. In the event of a dissolution or
liquidation of the Company, a merger or consolidation in which the Company is
not the surviving corporation, a reverse merger in which the Company is the
surviving corporation but in which, more than 50% of the shares of its Common
Stock outstanding before the merger are held, after the merger, by holders
different from those immediately prior to the merger, or a sale of over 80% of
the assets of the Company, the Administrator may, in its discretion, do one or
more of the following with respect to each outstanding option upon not less
than 10 days prior written notice to the optionee:
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29
(a) accelerate the vesting of such option (subject, in the case of
ISOs, to the limitation set forth in Section 7(a) of this Plan);
(b) cancel such option to the extent then exercisable upon payment in
cash to the optionee of the amount by which any cash and the fair market value
of any other property which the optionee would have received as consideration
for the shares issuable on exercise of the option, if such option had been
exercised before such liquidation, dissolution, merger, consolidation, reverse
merger or sale, exceeds the exercise price thereof;
(c) shorten the period during which such option are exercisable,
provided such option shall remain exercisable, to the extent otherwise
exercisable, for at least 10 days after the date the notice is given; or
(d) arrange for new option rights to be substituted for such option,
or for the Company's obligations as to such option to be assumed by an employer
corporation other than the Company or by a parent or subsidiary of such
employer corporation.
The action described in this Section 11 may be taken without regard to any
resulting tax consequences to the optionee and may differ with respect to
different options.
12. Rights as Shareholder; Employee. An optionee shall have no rights as
a shareholder with respect to any shares covered by an option until the stock
certificates representing the shares are actually delivered to the optionee.
Subject to Sections 10 and 11, no adjustment shall be made for dividends or
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30
other rights for which the record date is prior to the date the certificates
are delivered. The grant of any option shall not, by itself, confer on any
person any right or inference of continued employment by, consultancy to or
membership on the Board of Directors of the Company.
13. Disqualifying Dispositions. If Stock acquired upon exercise of an
Incentive Stock Option is disposed of in a disqualifying dispostion within the
meaning of Section 422 of the Code, the holder of the Stock immediately prior
to the disposition shall notify the Company in writing of the date and the terms
of such disposition and comply with any other requirements imposed by the
Company in order to enable the Company to secure the related income tax
deduction to which it is entitled.
14. Termination or Amendment. The Board may at any time terminate or amend
this Plan except that no amendment or termination of this Plan, taken as a
whole, shall:
(a) adversely affect any rights of an optionee under the terms of an
option granted before the date of such termination or amendment;
(b) increase the number of shares of Stock which may be covered by
options under this plan, except under Section 10 above or with the approval of
the shareholders; or
(c) extend the termination date of this Plan. Notwithstanding the
foregoing, except as may be necessary to comply with changes in the Internal
Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder, the Plan shall not be amended more than once every 6
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31
months if any such amendment would have the effect of amending in any way the
provisions set forth in Section 5(b) of the Plan relating to automatic stock
option grants to directors.
15. Parent and Subsidiary. As used in this Plan, "parent" and "subsidiary"
mean any corporation in an unbroken chain of corporations which includes the
Company if, at the relevant time, each of the corporations other than the last
corporation in the chain owns stock possessing more than 50% of the total
combined voting power of all classes of stock of one of the other corporations
in the chain.
16. Rule 16b-3. Notwithstanding any provision of the Plan, the Plan shall
always be administered, and options and purchase rights shall always be granted
and exercised, in such manner as to conform to the provisions of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended.
17. Governing Law. This Plan and the rights of all persons under this
Plan shall be construed in accordance with and under applicable provisions of
the Internal Revenue Code of 1986, as amended, and the laws of the State of
California.
The Board originally adopted this Plan on March 24, 1992, and the Company's
shareholders approved it on May 19, 1992.
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32
DETACH HERE
ADVANCED POLYMER SYSTEMS, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 5, 1996
PROXY
The undersigned hereby appoints John J. Meakem, Jr., and Julian N.
Stern, or either of them, each with full power of substitution, as the
proxyholder(s) of the undersigned to represent the undersigned and vote all
shares of the Common Stock of Advanced Polymer Systems, Inc. (the "Company"),
which the undersigned would be entitled to vote if personally present at the
annual meeting of stockholders of the Company at the Stanford Park Hotel, 100
El Camino Real, Menlo Park, California at 10:00 a.m. local time on June 5,
1996, and at any adjournments or postponements of such meeting, as follows:
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE FOLLOWING
PROPOSALS. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED. WHEN NO CHOICE IS INDICATED THIS PROXY WILL BE VOTED FOR THE
FOLLOWING PROPOSAL. THIS PROXY MAY BE REVOKED BY THE UNDERSIGNED AT ANY TIME,
PRIOR TO THE TIME IT IS VOTED, BY ANY OF THE MEANS DESCRIBED IN THIS
ACCOMPANYING PROXY STATEMENT.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
SEE REVERSE
SIDE
33
DETACH HERE
/X/ Please mark
votes as in
this example.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE
ENCLOSED ENVELOPE.
1. To elect as directors, to hold office until 1997 and until their successors
are elected, the eight nominees listed below:
Nominees: Carl Ehmann, Jorge Heller, Helen C. Leong, John J. Meakem, Jr.,
Peter Riepenhausen, Toby Rosenblatt, Gregory H. Turnbull and Dennis Winger.
/ / FOR ALL NOMINEES / / WITHHELD FROM ALL NOMINEES
/ /
-----------------------------------------
For all nominees except as noted above
2. To approve an amendment to the Company's 1992 Stock Plan to increase the
number of shares by 750,000.
/ / FOR / / AGAINST / / ABSTAIN
3. In their discretion the proxyholders are authorized to transact such
other business as properly may come before the meeting or any adjournments
or postponements of the meeting. The Board of Directors at present knows
of no other business to be presented by or on behalf of the Company or the
Board of Directors at the meeting.
MARK HERE
FOR ADDRESS / /
CHANGE AND
NOTE AT LEFT
Date and sign exactly as names(s) appear(s) on this proxy. If signing for
estates, trusts, corporations or other entities, title or capacity should be
stated. If shares are held jointly, each holder should sign.
Signature: Date:
---------------------------------------- --------------------
Signature: Date:
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