ADVANCED TISSUE SCIENCES, INC.
------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 22, 1996
-------------------------------
To the Stockholders of Advanced Tissue Sciences, Inc.:
Notice is hereby given that the 1996 Annual Meeting of Stockholders of
Advanced Tissue Sciences, Inc., a Delaware corporation (the "Company"), will
be held at the Sheraton Grande Torrey Pines, 10950 North Torrey Pines Road, La
Jolla, California 92037 on Wednesday, May 22, 1996 at 10:00 A.M. Pacific
Daylight Savings Time for the following purposes:
1. to elect seven directors to serve for the term of one year or
until their respective successors have been elected and qualified;
2. to approve the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending December 31,
1996; and
3. to transact such other business as may properly come before the
Annual Meeting.
The close of business on March 29, 1996 has been fixed as the record
date for the determination of stockholders entitled to notice of, and to
vote at, the Annual Meeting and any adjournment thereof and only stockholders
of record at such time will be so entitled to vote.
You are cordially invited to attend the Annual Meeting in person.
Even if you plan to attend the Annual Meeting, please promptly complete,
sign, date and return the enclosed proxy card in the enclosed self-
addressed, stamped envelope. It will assist us in keeping down the
expenses of the Annual Meeting if all stockholders return their signed proxies
promptly, whether they own a few shares or many shares.
A MAJORITY OF THE ISSUED AND OUTSTANDING SHARES OF COMMON STOCK
ENTITLED TO VOTE AT THE ANNUAL MEETING MUST BE REPRESENTED AT THE ANNUAL
MEETING, IN PERSON OR REPRESENTED IN PROXY, IN ORDER TO CONSTITUTE A QUORUM
FOR THE TRANSACTION OF BUSINESS AT THE ANNUAL MEETING. PLEASE RETURN YOUR
PROXY CARD IN ORDER TO ENSURE THAT A QUORUM IS OBTAINED AND TO AVOID THE
ADDITIONAL COSTS TO THE COMPANY OF ADJOURNING THE ANNUAL MEETING AND
RESOLICITING PROXIES.
YOUR VOTE IS IMPORTANT.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Richard A. Fink
Richard A. Fink
Secretary
La Jolla, California
April 22, 1996
<PAGE>
ADVANCED TISSUE SCIENCES, INC.
------------------------
PROXY STATEMENT
------------------------
This proxy statement and the enclosed proxy card are furnished in
connection with the 1996 Annual Meeting of Stockholders (the "Annual Meeting")
of Advanced Tissue Sciences, Inc. (the "Company") which will be held at the
Sheraton Grande Torrey Pines, 10950 North Torrey Pines Road, La Jolla,
California, on Wednesday, May 22, 1996 at 10:00 A.M. Pacific Daylight Savings
Time. Stockholders of record at the close of business on March 29, 1996 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
On March 29, 1996, there were 36,912,223 shares of Common Stock, $.01 par
value per share, issued and outstanding. Each share of Common Stock is
entitled to one vote. A majority of the shares of Common Stock entitled to
vote will constitute a quorum.
The enclosed proxy is being solicited by members of the Company's Board
of Directors (the "Directors") and is revocable at any time prior to its
exercise. A proxy may be revoked by delivery of a written revocation to the
Secretary of the Company, by presentation of a subsequent proxy, properly
signed, or by attendance at the Annual Meeting and voting in person.
Proxies will be solicited by mail and telephone by the Company and Morrow
& Co., 909 Third Avenue, New York, New York 10022, which has been engaged by
the Company for a fee of $4,000, plus expenses, for this purpose. The Company
will request banks, brokerage houses and other institutions to forward the
soliciting material to persons for whom they hold shares and to obtain
authorization for the execution of proxies. The Company will reimburse banks,
brokerage houses and other institutions for their reasonable expenses in
forwarding the Company's proxy materials to beneficial owners. All costs
associated with the solicitation of proxies will be borne by the Company.
Proxies in the accompanying form that are properly executed, duly returned to
the management and not revoked will be voted as specified thereon.
This proxy statement, the enclosed proxy card and the Company's Annual
Report to Stockholders for the fiscal year ended December 31, 1995, are
scheduled to be mailed commencing on or about April 22, 1996 to stockholders
of record on March 29, 1996.
The principal executive offices of the Company are located at 10933 North
Torrey Pines Road, La Jolla, California 92037.
<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The enclosed proxy will be voted, unless authority is withheld or the
proxy is revoked, for the election of a Board of Directors consisting of the
seven nominees named herein to hold office as directors until the next annual
meeting or until their respective successors shall be elected and qualified.
If any nominee shall be unable to serve, the proxies will be voted for a
substitute person nominated by the Directors. The holders of a majority of
shares of Common Stock voting at the Annual Meeting in person or by proxy,
assuming such shares constitute a quorum, will be able to elect all of the
Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES NAMED BELOW.
DIRECTORS AND NOMINEES
<TABLE>
<CAPTION>
Name Age Position
- -------------------------- --- ---------------------------------------
<S> <C> <C>
Arthur J. Benvenuto 52 Chairman of the Board of Directors
and Chief Executive Officer
Dr. Gail K. Naughton 40 Director, President and Chief Operating
Officer
Jerome E. Groopman, M.D. 44 Director and Chairman of the Company's
Scientific Advisory Board
Jack L. Heckel 64 Director
David S. Tappan, Jr. 73 Director
William B. Walsh, M.D. 75 Director
Dr. Gail R. Wilensky 52 Director
</TABLE>
Arthur J. Benvenuto has been Chairman of the Board and Chief Executive
Officer since September 1995 and had been Chairman of the Board, President and
Chief Executive Officer of the Company since June 1988. Prior to joining the
Company, Mr. Benvenuto was associated with Eli Lilly & Company for more than
twenty years. Mr. Benvenuto served as President and General Manager of Eli
Lilly Canada, Inc. from October 1986 to June 1988 and was President and Chief
Executive Officer of IVAC Corporation, an Eli Lilly & Company medical device
subsidiary, from January 1982 to September 1986. Prior to January 1982, Mr.
Benvenuto was the Director and then the Vice President of Marketing and Sales
at IVAC Corporation. Mr. Benvenuto also held various positions in marketing
planning, human resources and sales management within the pharmaceutical
division of Eli Lilly & Company. He received his B.S. in Pharmacy from St.
John's University. Mr. Benvenuto currently serves as a Director of Project
HOPE and GalaGen, Inc.
Gail K. Naughton, Ph.D., a co-founder of the Company and a co-inventor of
its core technology, has been a Director of the Company since its inception
and has been President and Chief Operating Officer of the Company since
September 1995. Prior to September 1995, Dr. Naughton had been Executive Vice
President and Chief Operating Officer of the Company since June 1991. Dr.
Naughton served as Senior Vice President and Chief Scientific Officer of the
Company from January 1989 to June 1991, and Principal Scientist of the Company
from its inception to December 1988. Dr. Naughton received her M.S. in
histology in 1978 and her Ph.D. in Basic Medical Sciences from New York
University Medical Center in 1981, and completed her post-doctoral training at
New York University Medical Center in the Department of Dermatology. Dr.
Naughton was an Assistant Professor of Research at New York University Medical
Center for two years prior to joining City University of New York in 1985.
Dr. Naughton's primary fields of research include cell and tissue culture
technology, dermatology and hematology. Dr. Naughton holds seven issued
patents and eight allowed United States patents with thirteen United States
patents pending and has numerous publications in the field of tissue
engineering. Dr. Naughton is on the advisory boards of the Department of
Bioengineering at Johns Hopkins
2
<PAGE>
University and The Georgia Institute of Technology, and is a member of the
industrial liaison board at the University of California, San Diego and The
Georgia Institute of Technology. Dr. Naughton is a member of the Board of
Directors of Scripps Bank in La Jolla, California and the San Diego Burn
Institute.
Jerome E. Groopman, M.D. has been a Director of the Company since May
1993. He has been Chief, Division of Hematology/Oncology, New England
Deaconess Hospital since 1985. Dr. Groopman holds the Dina and Raphael
Recanati Professorship in Immunology at Harvard Medical School and has been a
Professor of Medicine, Harvard Medical School since 1993. Dr. Groopman's
primary expertise is in human retroviruses, specifically in the AIDS virus and
human leukemia viruses. Dr. Groopman is on the Biological Response Modifers
Advisory Committee to the Food and Drug Administration and is an advisor to
the National Heart Lung Blood Institute.
Jack L. Heckel has been a Director of the Company since September 1990.
Mr. Heckel served as President and Chief Operating Officer of GenCorp Inc., a
technology-based company with strong positions in aerospace, automotive and
related polymer products from January 1987 until his retirement in November
1993. Mr. Heckel served as Chairman of the Board of Aerojet, a division of
GenCorp Inc., from 1985 to January 1987, and as President prior to 1985. Mr.
Heckel serves as a director of the WD-40 Company and Applied Power,
Incorporated.
David S. Tappan, Jr. has been a Director of the Company since October
1992. Mr. Tappan served as Chairman of the Board and Chief Executive Officer
of Fluor Corporation, an international engineering, construction and technical
services company, from 1984 until his retirement in 1990. Mr. Tappan is a
director of Beckman Instruments, Inc., Genentech, Inc. and Allianz Insurance
Company. Mr. Tappan also is a Trustee for the University of Southern
California and The Scripps Research Institute.
William B. Walsh, M.D. has been a Director of the Company since February
1989. In 1958, Dr. Walsh founded The People-to-People Health Foundation,
Inc., parent organization for Project HOPE, and served as its President and
Chief Executive Officer until 1992. Dr. Walsh currently serves as Project
HOPE's Chairman Emeritus. In 1981, Dr. Walsh established Project HOPE's
Center for Health Affairs, which conducts national and international health
policy research and publishes "Health Affairs," a health policy journal. Dr.
Walsh has served as a health policy advisor to several Presidents and is a
recipient of the Presidential Medal of Freedom.
Gail R. Wilensky, Ph.D. has been a Director of the Company since January
1993. Since January 1993, Dr. Wilensky has been serving as a Senior Fellow at
Project HOPE. From March 1992 to January 1993, Dr. Wilensky served in the
Bush Administration as Deputy Assistant to the President for Policy
Development, responsible for advising the President on health and welfare
issues. Prior to her tenure in the White House, from January 1990 to March
1992, Dr. Wilensky served as the Administrator of the Health Care Financing
Administration (HCFA) in the Department of Health and Human Services, where
she directed the Medicare and Medicaid programs. From April 1983 to January
1990, Dr. Wilensky was Vice President, Division of Health Affairs at Project
HOPE. Dr. Wilensky is an elected member of the Institute of Medicine of the
National Academy of Sciences. She has also served as a member of the
Physician Payment Review Commission and the Health Advisory Committee of the
General Accounting Office. Dr. Wilensky serves as a director of Capstone
Pharmacy, Coram Healthcare Corporation, St. Jude Medical, Inc., Syncor
International Corporation and United HealthCare Corporation.
Directors are elected by the Company's stockholders at each annual
meeting or, in the case of a vacancy, are appointed by the directors then in
office, to serve until the next annual meeting or until their successors are
elected and qualified.
On March 29, 1996, the directors and all officers of the Company
beneficially owned in the aggregate 3,783,991 shares of the Company's Common
Stock, including 2,240,334 shares subject to the exercise of stock options
exercisable or becoming exercisable within 60 days. This aggregate ownership
represents approximately 9.7% of the total outstanding shares, including
shares deemed to be beneficially owned. See "Principal Stockholders."
3
<PAGE>
BOARD MEETINGS AND COMMITTEES
During the year ended December 31, 1995, the Board of Directors held six
meetings. All directors participated in at least 75% of the meetings of the
Board of Directors and the committees of the Board of Directors on which they
served. The committees of the Board of Directors include the Audit Committee
and the Compensation and Stock Option Committee (the "Compensation
Committee"). The Board of Directors does not have a separate nominating
committee.
The Audit Committee recommends the appointment of the independent
auditors for the Company, reviews and approves the scope of the annual audit
undertaken by the independent auditors and reviews the independence of the
accounting firm. The Audit Committee also reviews the audit and non-audit
fees of the independent auditors and the adequacy of the Company's internal
control procedures. The Audit Committee met four times during the year ended
December 31, 1995. The current members of the Audit Committee are Jack L.
Heckel, William B. Walsh, M.D. and Dr. Gail R. Wilensky.
The Compensation Committee reviews and recommends to the Board of
Directors remuneration arrangements for the Company's officers and key
employees and reviews and recommends compensation plans. The Compensation
Committee also administers the Company's 1992 Stock Option/Stock Issuance Plan
(the "1992 Plan") and determines the key employees to be granted options under
such plan and the number of shares to be granted. In addition, the
Compensation Committee determines the individuals and other entities to be
granted stock options which are issued other than pursuant to the 1992 Plan,
including the number of shares, and the terms and conditions with respect to
which such options are granted. The Compensation Committee met four times
during the year ended December 31, 1995. The current members of the
Compensation Committee are Jack L. Heckel, David S. Tappan, Jr. and William B.
Walsh, M.D.
Director Compensation. Each member of the Board of Directors who is not an
officer or employee of the Company receives travel and expense reimbursement
and $1,000 in connection with attending regular or special (except for
telephonic) meetings of the Board of Directors or Compensation or Audit
Committees of the Board of Directors. In addition, under the 1992 Plan, each
non-employee member of the Board of Directors is automatically granted a
non-statutory stock option to purchase 50,000 shares of Common Stock at an
exercise price equal to 100% of the market price of the Common Stock at the
time of initial election or appointment to the Board of Directors. In
general, one-third of the option becomes exercisable upon each subsequent
Annual Meeting of Stockholders, as long as such individual remains a
non-employee director. Under the 1992 Plan, each non-employee director will
receive an additional 50,000 share option grant upon re-election to the Board
of Directors at each Annual Meeting of Stockholders that the final installment
of his or her last previous grant becomes exercisable. Upon their re-election
to the Board of Directors at the Company's 1995 Annual Meeting, Mr. Tappan and
Dr. Walsh each received such an automatic 50,000 share option grant, which
will become exercisable in installments at $5.75 per share as specified above.
4
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 29, 1996, certain information
as to the stock ownership of each of (a) the Company's Directors and Director
nominees, (b) the Named Executive Officers under "Executive Compensation -
Summary Compensation Table," (c) each person who is known by the Company to
own beneficially more than 5% of the Company's voting securities and (d) all
Directors, Nominees and executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK AS OF COMMON STOCK
BENEFICIAL OWNER POSITION MARCH 29, 1996 (1) OUTSTANDING (2)
- ------------------------------ ------------------------------ ---------------------- ---------------
<S> <C> <C> <C>
Arthur J. Benvenuto Chairman of the Board of 1,950,000 (3) 5.1%
Advanced Tissue Sciences, Inc. Directors and Chief
10933 North Torrey Pines Road Executive Officer
La Jolla, CA 92037
Dr. Gail K. Naughton Director, President and 1,300,000 (4) 3.5
Advanced Tissue Sciences, Inc. Chief Operating Officer
10933 North Torrey Pines Road
La Jolla, CA 92037
Jerome E. Groopman, M.D. Director and Chairman of 70,000 (5) *
New England Deaconess Hospital Company's Scientific Advisory
110 Francis Street, Suite 4A Board
Boston, MA 02215
Jack L. Heckel Director 104,657 (6) *
27390 Oak Knoll Drive
Bonita Springs, FL 33923
David S. Tappan, Jr. Director 66,667 (7) *
Fluor Corporation
3333 Michelson Drive
Irvine, CA 92730
William B. Walsh, M.D. Director 87,667 (8) *
Project HOPE
7500 Old Georgetown Road
Bethesda, MD 20814
Dr. Gail R. Wilensky Director 53,000 (9) *
Project HOPE
7500 Old Georgetown Road
Bethesda, MD 20814
Terry Gibson Vice President, Operations 60,000 (10) *
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, CA 92037
Frederick C. Schramm Vice President/General Manager 24,000 (11) *
Advanced Tissue Sciences, Inc. In Vitro Laboratory Technology
10933 North Torrey Pines Road
La Jolla, CA 92037
</TABLE>
(Continued on following page)
5
<PAGE>
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP PERCENTAGE OF
NAME AND ADDRESS OF COMMON STOCK AS OF COMMON STOCK
BENEFICIAL OWNER POSITION MARCH 29, 1996 (1) OUTSTANDING (2)
- ---------------------------------- --------------------------- ---------------------- ---------------
<S> <C> <C> <C>
Michael V. Swanson Vice President, Finance and 68,000 (11) *
Advanced Tissue Sciences, Inc. Administration
10933 North Torrey Pines Road
La Jolla, CA 92037
Directors and officers as a group 3,783,991 (12) 9.7%
(consisting of 10 persons)
_________________
* Less than one percent.
</TABLE>
(1) Sole voting and investment power unless otherwise stated.
(2) Based on 36,912,223 shares of Common Stock outstanding, plus each
beneficial owner's options to purchase shares of Common Stock currently
exercisable or becoming exercisable within 60 days and any other
beneficially owned shares.
(3) Includes options to purchase 1,250,000 shares of Common Stock which
are currently exercisable.
(4) Includes 283,616 shares of Common Stock held as custodian for her
minor children; and options granted to purchase 465,000 shares of Common
Stock which are currently exercisable.
(5) Includes options to purchase (i) 53,334 shares of Common Stock which
are currently exercisable and (ii) 16,666 shares of Common Stock
becoming exercisable within sixty days.
(6) Includes 4,000 shares of Common Stock held by Mr. Heckel's spouse and
options to purchase (i) 83,334 shares of Common Stock which are
currently exercisable and (ii) 16,666 shares of Common Stock becoming
exercisable within sixty days.
(7) Includes options to purchase (i) 50,000 shares of Common Stock which
are currently exercisable and (ii) 16,667 shares of Common Stock
becoming exercisable within sixty days.
(8) Includes options to purchase (i) 70,000 shares of Common Stock which
are currently exercisable and (ii) 16,667 shares of Common Stock
becoming exercisable within sixty days.
(9) Includes 3,000 shares of Common Stock held by Dr. Wilensky's spouse in
a retirement plan and options to purchase (i) 33,334 shares of Common
Stock which are currently exercisable and (ii) 16,666 shares of Common
Stock becoming exercisable within sixty days.
(10) Includes options to purchase (i) 45,000 shares of Common Stock which
are currently exercisable and (ii) 15,000 shares of Common Stock
becoming exercisable within sixty days.
(11) Beneficial ownership consists of options granted to purchase shares
of Common Stock which are currently exercisable.
(12) Includes options to purchase (i) 2,142,002 shares of Common Stock
which are currently exercisable and (ii) 98,332 shares of Common Stock
becoming exercisable within sixty days.
6
<PAGE>
EXECUTIVE OFFICERS
The following table names the Company's executive officers as of March
29, 1996. The officers of the Company serve at the discretion of the Board of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------- --- ------------------------------------------
<S> <C> <C>
Arthur J. Benvenuto 52 Chairman of the Board of Directors and
Chief Executive Officer
Dr. Gail K. Naughton 40 Director, President and Chief Operating
Officer
Terry E. Gibson 55 Vice President, Operations
Frederick C. Schramm 53 Vice President/General Manager
In Vitro Laboratory Technology
Michael V. Swanson 41 Vice President, Finance and Administration
</TABLE>
Information on the business backgrounds of Arthur J. Benvenuto and Dr.
Gail K. Naughton is set forth above under the heading "Directors and
Nominees."
Terry E. Gibson joined the Company as Vice President, Operations, in
April 1992. From October 1990 to April 1992, Mr. Gibson provided consulting
services in areas such as strategic planning, facilities planning, and
production and operating performance to biotechnology, diagnostic and health
care companies. Mr. Gibson served as Vice President, Operations for Meridian
Diagnostics, Inc., which develops, manufactures and markets diagnostic
products, from August 1988 to October 1990. From June 1986 to August 1988,
Mr. Gibson was Director of Manufacturing for Ortho Diagnostic Systems Inc., a
Johnson & Johnson Company, which produces a full line of diagnostic and blood
banking products. Prior to June 1986, he spent over twelve years with
Amersham Corporation, a diversified medical, research and industrial products
company. Mr. Gibson holds B.S. degrees in Chemistry and Biological Sciences,
and Pharmacy and an M.S. in Bionucleonics from Purdue University.
Frederick C. Schramm was appointed Vice President/General Manager, In
Vitro Laboratory Technology in March 1996 and had been Vice President, Project
Planning and Development since March 1994. Mr. Schramm joined the Company as
Executive Director, Program Administration in January 1994. He was associated
with Eli Lilly and Company and its affiliates for twenty-nine years. Mr.
Schramm was Vice President of Operations at Hybritech Inc. from 1991 through
1993. Between 1978 and 1991, he held various positions at IVAC Corporation
including Vice President of Operations, Vice President of Product Development
and Vice President of International Marketing and Sales. Mr. Schramm also
spent five years in Lilly International Pharmaceutical Operations in Europe
and was involved initially in the design and construction of parenteral
pharmaceutical facilities in France, followed by an assignment as Plant
Manager of Lilly's pharmaceutical plant in Giessen, West Germany. Mr.
Schramm's educational background includes an Engineering degree from Purdue
University and an M.B.A. from Indiana University.
Michael V. Swanson was appointed Vice President, Finance and
Administration, of the Company in September 1992, having previously served as
Vice President, Finance from June 1991 and as Director of Finance from March
1990. Mr. Swanson served as Director of Finance of Fisher Scientific Group
Inc., a health and scientific technology holding company, from June 1987
through August 1989, and at its parent, The Henley Group, Inc., a widely
diversified holding company, from June 1986 to June 1987. From July 1977 to
June 1986, Mr. Swanson worked for the public accounting firm of Deloitte
Haskins & Sells (now Deloitte & Touche LLP) advancing to the position of audit
manager. Mr. Swanson received his B.S. in Business Administration from the
California Polytechnic State University at San Luis Obispo and received an
M.B.A. from the University of Southern California.
7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned, for services
rendered in all capacities to the Company, for each of the last three calendar
years by the Company's Chief Executive Officer and each of the four other
highest paid executive officers whose salary and bonus for calendar 1995 was
in excess of $100,000 (the "Named Executive Officers").
- -----------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------
LONG-
OTHER TERM
ANNUAL COMPEN- ALL OTHER
COMPEN- SATION - COMPEN-
NAME AND YEAR SALARY BONUS SATION OPTIONS SATION
PRINCIPAL POSITION (1) ($) (2) ($) (3) ($) (4) (SHS) (6) ($) (7)
- ----------------------- ----- -------- ------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Arthur J. Benvenuto 1995 310,000 95,000 1,354 0 1,380
Chairman and Chief 1994 284,327 75,000 1,354 0 1,380
Executive Officer 1993 261,846 85,000 1,152 0 1,380
Dr. Gail K. Naughton 1995 220,000 65,000 306 0 470
Director, President and 1994 199,519 55,000 198 0 353
Chief Operating Officer 1993 183,462 65,000 165 0 470
Terry E. Gibson 1995 132,500 23,188 675 0 0
Vice President, 1994 124,712 16,413 432 0 0
Operations 1993 115,077 20,125 21,572 (5) 0 0
Frederick C. Schramm 1995 123,600 21,630 403 0 0
Vice President/General 1994 108,000 10,281 377 0 0
Manager, In Vitro 1993 0 0 0 0 0
Laboratory Technology
Michael V. Swanson 1995 152,539 33,519 189 0 0
Vice President, Finance 1994 140,651 24,640 189 0 0
and Administration 1993 129,877 28,411 108 0 0
====================================================================================
</TABLE>
(1) The periods presented are the calendar years ended December 31, 1995,
1994 and 1993.
(2) Consists of base salary earned (including amounts deferred pursuant to
a plan established under 401(k) of the Internal Revenue Code) by the
Named Executive Officers for the periods presented. Mr. Schramm
was not employed by the Company in 1993.
(3) Includes bonuses earned, whether or not paid in such year, by the
Named Executive Officers or, for Mr. Schramm, from the date of hire to
the end of the applicable year (see (2) above).
(4) Except as noted in (5) below, the reported amounts represent the
compensation attributable to life insurance in excess of $50,000
provided the Named Executive Officers under the Company's group life
insurance plan for all employees.
(5) Includes $21,226 for the reimbursement of taxes associated with
relocation expenses.
(6) During the periods presented, the only form of long-term compensation
utilized by the Company has been the grant of stock options. The
Company has not awarded restricted stock options or stock appreciation
rights, or made any long-term incentive payouts.
(7) Amounts represent the premium paid for term life insurance coverage
provided for the Named Executive Officers in addition to their coverage
under the Company's group life insurance plan for all employees.
8
<PAGE>
Options Grants. No options or stock appreciation rights ("SARs") were
granted during 1995 to the Named Executive Officers listed in the Summary
Compensation Table.
Option Exercises and Holdings. The following table sets forth information
regarding the exercise of options in fiscal year 1995 and the number of
options held by the Named Executive Officers listed in the Summary
Compensation Table, including the value of such in-the-money options as of
December 31, 1995. The closing price of the Company's Common Stock on
December 31, 1995 used to calculate such values was $10.125 per share. No
SARs have ever been granted by the Company.
- -----------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1995
AND OPTION/SAR VALUES AS OF DECEMBER 31, 1995
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES NUMBER OF VALUE OF UNEXERCISED
ACQUIRED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ON AT YEAR END (#) AT YEAR END ($)
VALUE ------------------- -------------------
EXERCISE REALIZED EXERCIS- UNEXER- EXERCIS- UNEXER-
NAME (#) ($) ABLE CISABLE ABLE CISABLE
- -------------------- --------- ------------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur J. Benvenuto 550,000 2,244,000 1,250,000 100,000 8,005,750 200,000
Dr. Gail K. Naughton 0 0 465,000 60,000 2,377,875 120,000
Terry E. Gibson 0 0 45,000 30,000 0 0
Frederick C. Schramm 0 0 12,000 48,000 27,000 108,000
Michael V. Swanson 0 0 68,000 7,000 316,000 14,000
==================================================================================================
</TABLE>
Employment Agreements/Change in Control Arrangements. The Company has no
employment agreements with any of the Named Executive Officers or any other of
its employees. In the event the Company is acquired by merger, consolidation
or asset sale, outstanding options which are not assumed by the successor
corporation, or replaced with a comparable option to purchase shares of the
capital stock of the successor corporation, are to be automatically
accelerated in full, except to the extent such acceleration is otherwise
limited by the terms of the instrument evidencing such grant. The
Compensation Committee or the full Board of Directors has the discretionary
authority, exercisable either in advance or at the time of certain hostile
changes in control of the Company (whether effected through a tender offer for
outstanding shares of the Company's outstanding stock or a proxy contest for
Board of Directors membership), to provide for the automatic acceleration of
one or more such option grants outstanding at the time of such a hostile
change in control. They also have the authority to condition any such option
acceleration upon the subsequent termination of the optionee's service within
a specified period following the change in control. All outstanding options
held by the executive officers are either fully exercisable or provide for
automatic acceleration upon the involuntary termination of the officers'
employment following an acquisition of the Company by merger or asset sale or
upon a hostile change of control.
Compensation Committee Interlocks and Insider Participation. No member of
the Compensation Committee is a former or current officer or employee of the
Company. See "Directors and Nominees" and "Board Meetings and Committees" for
a discussion of the Compensation Committee members' background and
relationship to the Company. Until September 1995, no executive officers of
the Company had ever served as a member of the board of directors or
compensation committees of entities which have one or more of their executive
officers serving as members of the Company's Board of Directors or
Compensation Committee. Since September 1995, Mr. Benvenuto has served on
Project HOPE's Board of Directors. He is not and has not been a member of
Project HOPE's compensation committee. Two current members of the Company's
Board of Directors are affiliated with Project HOPE. Dr. Walsh is Chairman
Emeritus of Project HOPE, and Dr. Wilensky is a Senior Fellow at Project HOPE.
9
<PAGE>
Pursuant to a Consulting Agreement with the Company which terminates on
December 31, 1996, Dr. Walsh advises the Company on national and international
public policy and health care issues. Dr. Walsh received $60,000 under the
Consulting Agreement plus the reimbursement of expenses in 1995. In
connection with services rendered to the Company as Chairman of the
Scientific Advisory Board, Dr. Groopman receives $20,000 annually.
COMPENSATION COMMITTEE REPORT
The report set forth below has been provided by the Compensation
Committee and describes the philosophy and process considered by the
Compensation Committee in administering the Company's executive compensation
program.
- -----------------------------------------------------------------------------
COMPENSATION COMMITTEE REPORT*
- -----------------------------------------------------------------------------
The Company's executive compensation program is administered by the
Compensation and Stock Option Committee. The executive compensation program
is structured and administered to support the Company's mission, strategy and
values.
Compensation Philosophy
The Company's executive compensation program has been designed to enable
the Company to attract, motivate and retain senior management by providing
what the Company believes is a competitive total compensation package based on
performance. The executive compensation program is composed of three
principal elements: (1) competitive base salaries which reflect individual
performance, (2) annual performance-based incentive opportunities which are
variable and payable in cash for the achievement of corporate goals approved
by the Compensation Committee and individual goals established in consulta-
tion with the Chief Executive Officer, and (3) long-term stock-based
incentive opportunities pursuant to a stock option plan geared to strengthen
the mutuality of interests between senior management and the Company's
stockholders.
As an executive officer's level of responsibility increases, a greater
portion of his or her potential total compensation opportunity is based on
performance incentives, causing greater variability in the individual's
absolute compensation level from year to year. In addition, the higher that
one rises in the organization, the greater the mix of compensation shifts to
reliance on the value of the Company's Common Stock through stock-based
awards.
As a result of Section 162(m) of the Internal Revenue Code, which was
enacted into law in 1993, the Company will not be allowed a federal income tax
deduction for compensation paid to certain executive officers, to the extent
that compensation exceeds $1 million per officer in any one year. This
limitation does not apply to compensation paid to the Named Executive Officers
which qualifies as performance-based compensation. The Compensation Committee
has not and does not intend to set compensation levels which would exceed the
$1 million limit in 1996. In addition, the Company obtained stockholder
approval for certain amendments to the Company's 1992 Plan at its 1994 Annual
Meeting such that any compensation deemed paid in connection with the exercise
of options granted under the 1992 Plan at an exercise price equal to the
market price of the shares on the date grant will qualify as performance-based
compensation.
The Compensation Process
Early in each fiscal year, the Compensation Committee reviews with the
Chief Executive Officer and the Executive Director, Human Resources, an
annual salary plan for the Company's executive officers. This salary plan is
based on industry, peer group and national surveys conducted by a nationally-
recognized compensation consulting firm which specializes in the
biotechnology/biomedical industries, and performance evaluation based upon
past and expected future contributions of the individual executive officers.
In particular, the Compensation Committee obtains and reviews comparative
total compensation figures from (i) a group of
10
<PAGE>
approximately 50 diverse companies in the biomedical/biotechnology industries
with greater than 150 but less than 500 employees, (ii) a select group of
approximately 30 companies which are considered leaders in the biotechnology
industry by virtue of their market capitalization, and (iii) a select group
matching the Chicago Board of Exchange Biotech Index companies.
Base salary levels for each of the Company's executive officers, with the
exception of the Chief Executive Officer, are established annually within
ranges determined by analysis of comparative compensation. The mid-point of
such ranges is designed to be comparable to the 50th percentile of survey data
obtained as set forth above. Under the Company's bonus program, each
executive officer may earn an annual targeted cash incentive which is
calculated as a percentage of such officer's base salary, 50% of which is
based on the accomplishment of corporate goals (which are the same as those
discussed below for the Chief Executive Officer) and 50% on the achievement of
individual goals set at the beginning of each year. Such targeted cash
incentive amounts range from approximately 17% to approximately 35% depending
on the level of the executive officer. Long-term incentive compensation is
provided through stock options which are granted to executive officers of the
Company upon hire. The amount of stock options granted is a function of
position and level of responsibility, and options become exercisable in equal
annual installments over a five-year period. The Compensation Committee, in
its discretion, may grant additional options to executive officers for
increases in level of responsibility and promotions, in recognition of
sustained exceptional performance over a three-year period, or upon the
completion of five years of service.
Each year, the Compensation Committee has retained an outside,
independent compensation consulting firm, which specializes in the
biotechnology/biomedical industries, to review and evaluate the Company's
process of establishing, reviewing and adjusting the compensation of the
Company's executive officers. After its most recent review, conducted in
March 1996, such consulting firm concluded that the process presently employed
by the Company in obtaining, analyzing and employing comparative data, and
implementing the Company's compensation programs for the Company's executive
officers and for the Chief Executive Officer, is consistent with industry
norms and appropriate and reasonable under the circumstances.
Compensation of the Chief Executive Officer
The Compensation Committee annually reviews and fixes the base salary of
the Chief Executive Officer based in part on the competitive compensation
data discussed above, and the Compensation Committee's assessment of his
past performance and its expectation as to his future contributions in
leading the Company and its development. As the Company is in the
development stage, the profitability of the Company is not considered in
setting the Chief Executive Officer's compensation; however, the Committee
does consider a number of financial factors, including the Company's
ability to secure financing, expense reduction and control, and the efficient
use of working capital to achieve corporate goals. In determining the Chief
Executive Officer's base salary for each year, the Committee also considers
significant accomplishments made by the Company during the prior year and
other performance factors, such as the effectiveness of the Chief Executive
Officer in establishing the Company's strategic direction. The annual cash
bonus paid to the Chief Executive Officer, if any, is entirely dependent on
the accomplishment by the Company of certain corporate goals established by
management and approved by the Board of Directors near the commencement of
each fiscal year. Factors considered by the Compensation Committee in
determining the Chief Executive Officer's annual base salary and bonus, if
any, are not subject to any specific weighting or formula.
In determining the Chief Executive Officer's base salary for 1995 as
reported in the cash compensation table, the Compensation Committee considered
1994 accomplishments as well as the comparative competitive compensation data
and performance factors discussed above. The major accomplishments of the
Company in 1994 which the Committee considered included: (i) commencing a
pivotal clinical trial with Dermagraft for diabetic foot ulcers following a
successful pilot trial in the U.S.; (ii) initiating a pivotal clinical trial
with Dermagraft (Registered) for diabetic ulcers in France with funding from
the French government; (iii) completing a successful pilot clinical trial of
Dermagraft-TC (Trademark) for severe burns and commencing a pivotal trial in
the U.S.; (iv) finalizing a 50/50 joint venture agreement to develop
orthopedic cartilage; (v) entering into an agreement to develop tissue
engineered heart valves; and (vi) completing a successful secondary stock
offering.
11
<PAGE>
In determining the Chief Executive Officer's bonus eligibility for 1995,
the Committee considered the achievement of the following corporate
objectives: (i) obtained expedited review from the FDA for Dermagraft-TC and
completed patient enrollment in the pivotal trial in the U.S.; (ii) successful
interim analysis for Dermagraft-Ulcers in the United States; (iii) continued
progress through the orthopedic cartilage joint venture with data from
preclinical trials of tissue engineered articular and meniscal cartilage;
(iv) demonstrated the feasibility of creating heart valve replacement
products and advanced the development of tissue engineered blood vessels;
(v) completed successful private placement of stock; and (vi) obtained
licensing agreement for a stem cell proliferation factor.
Jack L. Heckel, Chairman William B. Walsh, M.D. David S. Tappan, Jr.
=============================================================================
* The Compensation Committee Report is (i) not "soliciting material," (ii)
not deemed filed with the Securities and Exchange Commission and (iii) not
to be incorporated by reference in any filing of the Company under the
Securities Act of 1933, as amended (the "1933 Act") or the Securities
Exchange Act of 1934, as amended (the "1934 Act").
The following chart compares the cumulative total stockholder return on
the Company's Common Stock over the five-year period ended December 31, 1995
with the cumulative total return for (i) the NASDAQ Stock Market (U.S.
Companies) and (ii) the Chicago Board of Exchange Biotech (CBOE) Index. The
CBOE index is a price weighted, not a market weighted index. The chart
assumes $100 invested on January 1, 1990 and that dividends are reinvested.
- -----------------------------------------------------------------------------
COMMON STOCK PERFORMANCE
- -----------------------------------------------------------------------------
(Performance Graph appears here)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 1995
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Advanced Tissue Sciences, Inc. $100 $381 $356 $210 $210 $257
NASDAQ Stock Market $100 $161 $187 $215 $210 $296
Chicago Board of Exchange Biotech Index $100 $204 $160 $119 $103 $170
</TABLE>
There can be no assurance that the Company's stock performance will continue
into the future with the same or similar trends depicted in the graph above.
The market price of the Company's stock in recent years has fluctuated
significantly and it is likely that the price of the stock will fluctuate in
the future. The Company does not make or endorse any prediction as to future
stock performance. In addition, the Common Stock Performance chart above is
(i) not "soliciting material," (ii) not deemed filed with the Securities and
Exchange Commission and (iii) not to be incorporated by reference in any
filing of the Company under the 1933 Act or the 1934 Act.
=============================================================================
12
<PAGE>
CERTAIN TRANSACTIONS
The Company has entered into indemnification agreements with each of its
directors and officers which provide such individuals with indemnification
rights, which are in addition to those provided by the Company's Bylaws. One
significant difference between the indemnification rights provided under the
Company's Bylaws and those provided under the indemnification agreements is
that, under the Bylaws determinations are made on a case-by-case basis that
the individual claiming indemnity meets certain specified standards of
conduct. Under the indemnification agreements, a determination that a
director or officer has met these standards is not required for such
indemnity, although the agreements exclude indemnity for conduct which is
adjudged to be knowingly fraudulent, deliberately dishonest or to constitute
willful misconduct. The Company also currently maintains policies of
insurance under which its directors and officers are insured, within the
limits and subject to the limitations of the policies, against certain
expenses in connection with the defense of actions, suits or proceedings, and
certain liabilities which might be imposed as a result of such actions, suits
or proceedings, to which they are parties by reason of being or having been
such directors or officers.
On March 29, 1996, Arthur J. Benvenuto, Chairman of the Board and Chief
Executive Officer, and Dr. Gail K. Naughton, President and Chief Operating
Officer, were indebted to the Company in the amount of $972,060 (including
$53,560 representing accrued interest) and $312,618 (including $12,618
representing accrued interest), respectively. Mr. Benvenuto's loan was for
the exercise of an employee stock option and is evidenced by a promissory note
bearing interest at the rate of 6.75% per annum with principal and interest
due in May 1998. Dr. Naughton's loan bears interest at the rate of 6.75% per
annum and is due in July 1998. Each loan is secured by shares of Common
Stock of the Company and becomes due and payable within 180 days of
termination (other than due to death or disability). In addition, Mr.
Benvenuto and Dr. Naughton must each use the proceeds from the sale of
shares of the Company's Common Stock securing such loans to repay amounts
owing under his or her loan.
PROPOSAL 2
SELECTION OF AUDITORS
Subject to stockholder approval at the Annual Meeting, the Board of
Directors has selected Ernst & Young LLP as the Company's independent auditors
for the fiscal year ending December 31, 1996. Ernst & Young LLP was first
engaged as the Company's independent auditors for the fiscal year ended
January 31, 1991. The affirmative vote of a majority of the votes cast on
this Proposal 2 shall constitute approval of Ernst & Young LLP as the
Company's independent auditors for fiscal year 1996.
A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting. The representative will have an opportunity to make a
statement and will be available to respond to appropriate questions from
stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
13
<PAGE>
PROPOSALS FOR THE 1997 ANNUAL MEETING
The next annual meeting of stockholders is scheduled to be held in May
1997. Stockholder proposals for inclusion in the Company's proxy statement
for that meeting must be received at the Company's principal office not later
than December 26, 1996. Stockholder proposals must be mailed to the Company's
principal executive office at 10933 North Torrey Pines Road, La Jolla,
California 92037 to the attention of the Corporate Secretary.
OTHER MATTERS
Management does not know of any other matters to be brought before the
Annual Meeting. If any other matter is properly presented for consideration
at the Annual Meeting, it is intended that the proxies will be voted by the
persons named therein in accordance with their judgment on such matters. The
Company's Annual Report to Stockholders for the fiscal year ended December 31,
1995 is enclosed herewith.
Your cooperation in giving this matter your immediate attention and
returning your proxies will be appreciated.
By Order of the Board of Directors
/s/ Richard A. Fink
Richard A. Fink
Secretary
La Jolla, California
April 22, 1996
14
<PAGE>
(Proxy Card - Front)
ADVANCED TISSUE SCIENCES, INC.
10933 NORTH TORREY PINES ROAD, LA JOLLA, CALIFORNIA 92037
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Arthur J. Benvenuto and Dr. Gail K.
Naughton, and each of them, with full power of substitution, the proxy or
proxies of the undersigned to vote all shares of Common Stock of Advanced
Tissue Sciences, Inc. (the "Company") which the undersigned is entitled to
vote at the 1996 Annual Meeting of Stockholders and at any adjournments or
postponements thereof, with the same force and effect as the undersigned might
or could do if personally present thereat. The shares represented by this
proxy shall be voted in the following manner:
(continued and to be signed on the reverse side)
(Proxy Card - Back)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1 AND 2.
------------------ -----------------
ACCOUNT NUMBER COMMON
1. TO ELECT THE FOLLOWING SEVEN-MEMBER BOARD OF DIRECTORS to serve until
their successors have been duly elected and qualified: Arthur J.
Benvenuto; Dr. Gail K. Naughton; Jerome E. Groopman, M.D.; Jack L. Heckel;
David S. Tappan, Jr.; William B. Walsh, M.D.; and Dr. Gail R. Wilensky.
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR)
[__] FOR all nominees above [__] WITHHOLD AUTHORITY
(except as marked to the contrary) to vote for the nominees
listed above
To withhold authority to vote for any nominee, strike a line through the
nominee's name set forth above. In the event a nominee is unable or
declines to serve, this proxy will be voted in the election of directors
in the manner described in the Proxy Statement for the 1996 Annual
Meeting of Stockholders.
2. TO APPROVE THE APPOINTMENT OF ERNST & YOUNG LLP as independent auditors
of the Company for the fiscal year ending December 31, 1996. (THE BOARD
OF DIRECTORS RECOMMENDS A VOTE FOR)
[__] FOR [__] AGAINST [__] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting and at any adjournment or
postponements thereof.
Please sign exactly as name appears hereon.
When shares are held by joint tenants, both
should sign. When signing as attorney,
executor, administrator, trustee, or
guardian, please give full title as such.
If a corporation, please sign in full
corporate name by president or other
authorized officer. If a partnership, please
sign in partnership name by authorized
person.
Dated: , 1996
-----------------------------
-------------------------------------------
(Signature)
-------------------------------------------
(Signature if held jointly)
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING THE ENCLOSED
SELF-ADDRESSED STAMPED ENVELOPE.
