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 TISSUE SCIENCES, INC.
------------------------------
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] Fee not required.
[ ] Fee computed on table below per Exchange Act rules 14a-6(i) (4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 011 (a) (2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
ADVANCED TISSUE SCIENCES, INC.
----------------------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 1999
----------------------------------------
To the Stockholders of Advanced Tissue Sciences, Inc.:
Notice is hereby given that the 1999 Annual Meeting of Stockholders of
Advanced Tissue Sciences, Inc., a Delaware corporation (the "Company"), will be
held at the Hilton La Jolla Torrey Pines, 10950 North Torrey Pines Road, La
Jolla, California 92037 on Tuesday, May 25, 1999 at 10:00 A.M. Pacific Daylight
Savings Time for the following purposes:
1. to elect eight 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, 1999;
and
3. to transact such other business as may properly come before the
Annual Meeting.
The close of business on March 31, 1999 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 20, 1999
<PAGE>
ADVANCED TISSUE SCIENCES, INC.
---------------
PROXY STATEMENT
---------------
This proxy statement and the enclosed proxy card are furnished in
connection with the 1999 Annual Meeting of Stockholders (the "Annual Meeting")
of Advanced Tissue Sciences, Inc. (the "Company") which will be held at the
Hilton La Jolla Torrey Pines, 10950 North Torrey Pines Road, La Jolla,
California, on Tuesday, May 25, 1999 at 10:00 A.M. Pacific Daylight Savings
Time. Stockholders of record at the close of business on March 31, 1999 are
entitled to notice of and to vote at the Annual Meeting and any adjournment
thereof.
On March 31, 1999, there were 41,330,719 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 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, 1998, are
scheduled to be mailed commencing on or about April 23, 1999 to stockholders of
record on March 31, 1999.
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 eight
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 55 Chairman of the Board of Directors
and Chief Executive Officer
Dr. Gail K. Naughton 43 Director, President and Chief Operating
Officer
Jerome E. Groopman, M.D. 47 Director and Chairman of the Company's
Scientific Advisory Board
Jack L. Heckel 67 Director
Ronald L. Nelson 46 Director
Dayton Ogden 54 Director
David S. Tappan, Jr. 76 Director
Dr. Gail R. Wilensky 55 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.
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 numerous issued patents and has been extensively
published in the field of tissue engineering. Dr. Naughton is on the advisory
boards of the Department of Bioengineering at Johns Hopkins University and The
Georgia Institute of Technology, and is a member of the industrial liaison board
at the University of California, San Diego, The Georgia Institute of Technology,
The Massachusetts Institute of
2
<PAGE>
Technology and the University of Washington. Dr. Naughton is a member of the
Board of Directors of Scripps Bank in La Jolla, California, the San Diego Burn
Institute and The Charles H. and Anna S. Stern Foundation.
Jerome E. Groopman, M.D. has been a Director of the Company since May 1993.
Since October 1996, Dr. Groopman has been Chief, Division of Experimental
Medicine, Beth Israel Deaconess Medical Center, having been Chief, Division of
Hematology/Oncology, New England Deaconess Hospital since 1985. Dr. Groopman
holds the Dina and Raphael Recanati Professorship in Medicine 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 in cell communication. Dr. Groopman has served on the
Biological Response Modifers Advisory Committee to the Food and Drug
Administration and as 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.
Ronald L. Nelson became a Director of the Company in June 1997. Mr. Nelson
is a founding member of the senior management team of DreamWorks L.L.C., a
multi-media entertainment company. Mr. Nelson has served as Chief Operating
Officer for DreamWorks since November 1994. Prior to joining DreamWorks, Mr.
Nelson was affiliated with Paramount Communications (formerly Gulf & Western,
Inc.) from 1979 to 1994, serving as Executive Vice President and Chief Financial
Officer from January 1990 to March 1994. In 1992, Mr. Nelson was elected to the
Paramount Communications Board of Directors and served as a Director until March
1994.
Dayton Ogden became a Director of the Company in September 1996. Mr. Ogden
was named President of Spencer Stuart Worldwide, an international executive
search firm, in October 1996 after having previously served as Chief Executive
Officer of Spencer Stuart for nine years. Mr. Ogden serves as a director of the
American Business Conference and Project HOPE. Mr. Ogden is a frequent
contributor to a wide variety of corporate governance conferences.
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
Genentech, Inc. and Allianz Insurance Company. Mr. Tappan also is a trustee for
the University of Southern California and The Scripps Research Institute.
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.
Dr. Wilensky is currently chairperson of the Medicare Payment Advisory
Commission and 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 HRC ManorCare, Inc., NeoPath, Inc.,
Pharmerica, Inc., Quest Diagnostics Incorporated, Shared Medical Systems
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.
3
<PAGE>
On March 31, 1999, the directors and all officers of the Company
beneficially owned in the aggregate 4,487,129 shares of the Company's Common
Stock, including 3,335,000 shares subject to the exercise of stock options
exercisable or becoming exercisable within 60 days. This aggregate ownership
represents approximately 10.1% of the total outstanding shares, including shares
deemed to be beneficially owned. See "Principal Stockholders."
BOARD MEETINGS AND COMMITTEES
During the year ended December 31, 1998, the Board of Directors held eight
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,
the Compensation and Stock Option Committee (the "Compensation Committee") and
the Nominating and Corporate Governance 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, 1998. The
current members of the Audit Committee are Jack L. Heckel (Chairman), Ronald L.
Nelson 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. In addition, the Compensation
Committee administers the Company's 1997 Stock Incentive Plan (the "1997 Plan")
and determines the key employees to be granted options under such plan and the
number of shares to be granted. The Compensation Committee also determines the
individuals and other entities to be granted warrants which are issued other
than pursuant to the Company's stock option plan, including the number of
shares, and the terms and conditions with respect to which such warrants are
granted. The Compensation Committee met six times during the year ended
December 31, 1998. The current members of the Compensation Committee are David
S. Tappan, Jr. (Chairman), Jack L. Heckel and Dayton Ogden.
The Nominating and Corporate Governance Committee's primary function is to
assist the Board of Directors in identifying and recommending candidates with
the appropriate qualifications and experience to serve on the Company's Board of
Directors. In addition, the Nominating and Corporate Governance Committee
reviews and, as appropriate, makes recommendations with respect to such topics
as corporate governance and performance of the Board of Directors. During
1998, meetings of the Nominating and Corporate Governance Committee were held
as part of the Board of Directors' regular quarterly meetings. The full Board
of Directors serves on the Nominating and Corporate Governance Committee with
Dayton Ogden as Chairman.
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, Audit or Nominating and
Corporate Governance Committees of the Board of Directors. Dr. Groopman also
receives $20,000 annually in connection with services rendered to the Company as
Chairman of the Scientific Advisory Board. In addition, under the 1997 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. The options are
immediately exercisable for all the option shares, but any purchased shares will
be subject to repurchase by the Company, at the exercise price paid per share,
upon the non-employee director's cessation of Board service prior to vesting in
those shares. The shares subject to the option become vested and the Company's
repurchase rights lapse in three successive equal annual installments measured
from the grant date. Under the 1997 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 in the year during which the
final installment of his or her last previous grant vests. During 1998, Mr.
Tappan received such a 50,000 share option grant. These options are exercisable
at $10.13 per share and will vest in annual equal installments over three years.
4
<PAGE>
Pursuant to a consulting agreement with the Company which began in March
1999 and terminates in February 2000 or upon 30 days prior written notice, Dr.
Wilensky will provide consulting and advisory services to the Company in the
area of reimbursement and health care financing. Dr. Wilensky will be
compensated for these services at a rate of $2,500 per day (not to exceed
$25,000) plus the reimbursement of expenses.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 1999, 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 31, 1999 (1) OUTSTANDING (2)
- ------------------------------ ------------------------ --------------------- ---------------
<S> <C> <C> <C>
Arthur J. Benvenuto Chairman of the Board of 1,903,407 (3) 4.4%
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 1,660,000 (4) 3.9%
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 120,000 (5) *
Beth Israel Deaconess Medical Company's Scientific
Center Advisory Board
One Deaconess Road
Boston, MA 02215
Jack L. Heckel Director 130,847 (6) *
27390 Oak Knoll Drive
Bonita Springs, FL 33923
Ronald L. Nelson Director 70,000 (7) *
DreamWorks L.L.C.
100 Universal City Plaza
Universal City, CA 91608
Dayton Ogden Director 53,875 (8) *
Spencer Stuart
695 East Main Street
Stamford, CT 06901
David S. Tappan, Jr. Director 150,000 (9) *
620 Newport Center Drive
Newport Beach, CA 92660
Dr. Gail R. Wilensky Director 103,000 (10) *
Project HOPE
7500 Old Georgetown Road
Bethesda, MD 20814
Joseph R. Kletzel, II Executive Vice President 20,000 (11) *
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, CA 92037
(Continued on following page)
5
<PAGE>
David L. Horwitz, M.D., Ph.D. Senior Vice President, 15,000 (12) *
Advanced Tissue Sciences, Inc. Technology
10933 North Torrey Pines Road
La Jolla, CA 92037
Michael V. Swanson Vice President, Finance 120,000 (12) *
Advanced Tissue Sciences, Inc. and Administration
10933 North Torrey Pines Road
La Jolla, CA 92037
State of Wisconsin Investment Board 3,670,500 8.9%
P.O. Box 7842
Madison, WI 53707
Directors and executive officers as a 4,487,129 (13) 10.1%
group (consisting of 14 persons)
</TABLE>
_________________
* Less than one percent.
(1) Sole voting and investment power unless otherwise stated.
(2) Based on 41,330,719 shares of Common Stock outstanding, plus each
beneficial owner's options to purchase shares of Common Stock currently
exercisable or becoming exercisable within sixty days and any other
beneficially owned shares.
(3) Includes options to purchase 1,650,000 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 825,000 shares of Common Stock
which are currently exercisable.
(5) Includes options to purchase (i) 103,333 shares of Common Stock which
are currently exercisable and (ii) 16,667 shares of Common Stock becoming
exercisable within sixty days.
(6) Includes 5,847 shares of Common Stock held by a trust and options to
purchase (i) 83,333 shares of Common Stock which are currently exercisable
and (ii) 16,667 shares of Common Stock becoming exercisable within sixty
days.
(7) Includes options exercisable to purchase 50,000 shares of Common Stock
of which 33,333 shares are subject to repurchase rights by the Company.
(8) Includes options to purchase (i) 33,333 shares of Common Stock which are
currently exercisable and (ii) 16,667 shares of Common Stock becoming
exercisable within sixty days.
(9) Includes options to purchase 150,000 shares of Common Stock of which
50,000 shares are subject to repurchase rights by the Company.
(10) Includes 3,000 shares of Common Stock held by Dr. Wilensky's spouse in
a retirement plan and options to purchase (i) 83,333 shares of Common
Stock which are currently exercisable and (ii) 16,667 shares of Common
Stock becoming exercisable within sixty days.
(11) Beneficial ownership consists of options granted to purchase shares of
Common Stock becoming exercisable within sixty days.
(12) Beneficial ownership consists of options granted to purchase shares of
Common Stock which are currently exercisable.
(13) Includes options to purchase (i) 3,248,332 shares of Common Stock which
are currently exercisable, 83,333 shares of which are subject to
repurchase rights by the Company, and (ii) 86,668 shares of Common Stock
becoming exercisable within sixty days.
6
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires directors and
officers of the Company, and persons who own more than ten percent of a
registered class of the Company's equity securities ("Reporting Persons") to
file with the Securities and Exchange Commission (the "SEC") reports on Forms 3,
4 and 5 of initial ownership and of changes in beneficial ownership of Common
Stock. Based solely on the Company's review of the reporting forms received by
it, and written representations from certain persons that no Form 5 reports were
required to be filed by those persons, the Company believes that all statements
of beneficial ownership required to be filed with the SEC in fiscal 1998 were
timely filed.
EXECUTIVE OFFICERS
The following table names the Company's executive officers as of March 31,
1999. 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 55 Chairman of the Board of Directors and
Chief Executive Officer
Dr. Gail K. Naughton 43 Director, President and Chief Operating
Officer
Joseph R. Kletzel, II 49 Executive Vice President
David L. Horwitz, M.D., Ph.D. 56 Senior Vice President, Technology
Charles E. Anderson 50 Vice President, Quality
Julie A. DeMeules 46 Vice President, Human Resources
Terry E. Gibson 58 Vice President, Operations
Michael V. Swanson 44 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."
Joseph R. Kletzel was appointed Executive Vice President of the Company in
May 1998. From March 1996 to April 1998, Mr. Kletzel served as President of
Fisher Scientific International, an international manufacturer and distributor
of laboratory supplies and equipment, and from March 1992 to February 1996 as
President and Chief Operating Officer of Devon Industries, an international
manufacturer of surgical products. From 1990 to 1992, Mr. Kletzel was General
Manager of Toshiba America Medical Systems, a manufacturer of diagnostic imaging
equipment. Mr. Kletzel also spent 13 years at Baxter Healthcare International
most recently as Vice President, Sales and Operations in the Operating Room
Division. Mr. Kletzel holds a B.S. in Biology from Villanova University.
David L. Horwitz, M.D., Ph.D. joined the Company as Senior Vice President,
Technology, in January 1998. Prior to joining the Company, Dr. Horwitz served
as Executive Vice President from March 1994 to September 1997 and Vice President
of Medical and Regulatory Affairs from April 1992 to March 1994 at SciClone
Pharmaceuticals, a biopharmaceutical company. Dr. Horwitz spent ten years at
Baxter Healthcare Corporation prior to 1992, most recently as Vice President,
Medical & Professional Affairs in the I.V. Systems Division. From 1979 to 1992,
Dr. Horwitz was on the faculty at the University of Illinois at Chicago, and
from 1972 to 1979 was a faculty member at the University of Chicago. Dr.
Horwitz holds an M.B.A. in general management from Lake Forest Graduate School
of Management, a Ph.D. in physiology and an M.D. from the University of Chicago,
and an undergraduate degree in chemistry and physics from Harvard University.
7
<PAGE>
Charles E. Anderson was appointed Vice President, Quality, in October 1998.
From October 1997 to October 1998, Mr. Anderson served as Vice President of
Quality Assurance and from October 1995 to October 1997 as Director of Quality
Assurance at Genzyme Corporation, a biopharmaceutical company. From January
1992 to August 1995, Mr. Anderson was employed by Xoma Corporation, a
biopharmaceutical company, most recently as Vice President of Quality Control
and Quality Assurance. Prior to 1992, Mr. Anderson spent 19 years in various
management positions in quality and manufacturing at Parke Davis and various
Roche Pharmaceutical subsidiaries. Mr. Anderson holds an M.S. degree in Quality
Management from Tampa College and a B.S. in Chemistry from the University of
Illinois at Chicago.
Julie A. DeMeules was appointed Vice President, Human Resources, in March
1998, having previously served as Executive Director, Human Resources from
December 1992 to March 1998 and as Director, Human Resources from February 1991
to December 1992. Before joining the Company, Ms. DeMeules served as Director,
Human Resources at Square D, a producer of computer power supply equipment, from
1990 to 1991 and as Vice President, Human Resources at Signet Armorlite, an
optical lens manufacturer, from 1984 to 1990. Prior to 1984, Ms. DeMeules
served in human resource positions for nine years in manufacturing and the
public sector. Ms. DeMeules holds an M.B.A. from San Diego State University and
a B.A. in Business Management from the University of San Diego.
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 healthcare 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 a M.S. in
Bionucleonics from Purdue 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 a M.B.A. from the University of
Southern California.
8
<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 1998 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) (5) ($) (6)
- -------------------- ---- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur J. Benvenuto 1998 399,000 0 2,936 0 (8) 7,405
Chairman and Chief 1997 367,028 102,900 1,829 0 1,380
Executive Officer 1996 348,750 129,500 1,728 500,000 1,380
Dr. Gail K. Naughton 1998 299,385 0 480 0 470
Director, President and 1997 279,193 78,400 939 0 470
Chief Operating Officer 1996 249,039 92,500 408 500,000 470
Joseph R. Kletzel 1998 174,005 0 196,546 (7) 115,000 0
Executive Vice President 1997 0 0 0 0 0
1996 0 0 0 0 0
David L. Horwitz, 1998 223,316 0 61,074 (7) 90,000 0
M.D., Ph.D. 1997 0 0 0 0 0
Senior Vice President, 1996 0 0 0 0 0
Technology
Michael V. Swanson 1998 206,661 0 295 25,000 0
Vice President, Finance 1997 189,701 47,520 286 0 0
and Administration 1996 175,448 47,250 257 75,000 0
=============================================================================================
</TABLE>
(1) The periods presented are the calendar years ended December 31, 1998, 1997
and 1996.
(2) Consists of base salary earned (including amounts deferred pursuant to
plans established under sections 125 and 401(k) of the Internal Revenue
Code) by the Named Executive Officers for the periods presented.
Executives hired during the periods presented include Mr. Kletzel (hired
in May 1998) and Dr. Horwitz (hired in January 1998).
(3) Includes bonuses earned, whether or not paid in such year, by the Named
Executive Officers. No bonuses are being paid to any executive officers
of the Company for 1998.
(4) Except as noted in (7) below, 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) 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.
(6) 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.
(7) Includes amounts paid for the reimbursement of relocation expenses of
$196,113 (including $44,940 for the reim-bursement of taxes) to Mr. Kletzel
and $59,560 (including $10,169 for the reimbursement of taxes) to Dr.
Horwitz.
(8) Does not include stock options vested and exercisable for 300,000 shares
of common stock which were granted in 1988 and extended during 1998. These
options, which were due to expire in June 1998, have been extended for an
additional five years to June 2003. Half of these stock options are
exercisable at an exercise price of $1.47 per share and the other half
are exercisable at $1.67 per share.
9
<PAGE>
Options. The following table sets forth the details of options granted to the
- --------
Named Executive Officers listed in the Summary Compensation Table during fiscal
year 1998 under the Company's 1997 Stock Incentive Plan. No stock appreciation
rights (SARs) have been granted by the Company.
- -------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN FISCAL YEAR 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS GRANT DATE VALUE
-------------------------------------------------- ----------------------
NUMBER OF PERCENT OF POTENTIAL REALIZABLE
SECURITIES TOTAL VALUE AT ASSUMED
UNDERLYING OPTIONS ANNUAL RATE OF STOCK
OPTIONS\ GRANTED TO EXERCISE PRICE APPRECIATION FOR
SARS EMPLOYEES OR BASE OPTION TERM (3)
GRANTED IN FISCAL PRICE EXPIRATION ----------------------
NAME (#) (1)(2) YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------- ---------- ---------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur J. Benvenuto 0 (4) 0.0% 0.00 0 0 0
Dr. Gail K. Naughton 0 0.0% 0.00 0 0 0
Joseph R. Kletzel 100,000 9.3% 8.63 5/3/08 542,422 1,374,603
15,000 1.4% 6.69 8/5/08 0 29,780
David L. Horwitz, 75,000 7.0% 12.81 1/11/08 604,328 1,531,487
M.D., Ph.D. 15,000 1.4% 6.69 8/5/08 0 29,780
Michael V. Swanson 25,000 2.3% 6.69 8/5/08 0 49,634
=======================================================================================================
</TABLE>
(1) The exercise price of the options granted during fiscal year 1998 was
equal to the closing market price of the Company's Common Stock on the date
the option was granted, with the exception of the options with an
expiration date of August 5, 2008 which were granted with an exercise
price of 200% of the closing market price on the date of grant. The
options become exercisable in five successive equal annual installments
beginning on the first anniversary of the grant date except the
exercisability of the options with an expiration date of August 5, 2008
can accelerate upon approval of Dermagraft(R) for the treatment of
diabetic foot ulcers by the U.S. Food and Drug Administration.
(2) All options granted in 1998 to the Named Executive Officers were under
the 1997 Plan. The grants are for incentive stock options, except for
57,030 shares to Mr. Kletzel, 50,965 shares to Dr. Horwitz and 14,913
shares to Mr. Swanson which are non-statutory stock options.
(3) The 5% and 10% assumed rates of appreciation are mandated by the rules
of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future Common Stock prices.
(4) Does not include stock options vested and exercisable for 300,000 shares
of common stock which were granted in 1988 and extended during 1998. These
options, which were due to expire in June 1998, have been extended for an
additional five years to June 2003. Half of these stock options are
exercisable at an exercise price of $1.47 per share and the other half
are exercisable at $1.67 per share.
10
<PAGE>
Option Exercises and Holdings. The following table sets forth information
- ------------------------------
regarding the exercise of options in fiscal year 1998 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, 1998. The
closing price of the Company's Common Stock on December 31, 1998 used to
calculate such values was $2.59 per share. No SARs have ever been granted by
the Company.
- -------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR 1998
AND OPTION/SAR VALUES AS OF DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
ACQUIRED AT YEAR END (#) AT YEAR END ($)
ON VALUE ----------------------- ----------------------
EXERCISE REALIZED EXERCIS- UNEXER- EXERCIS- UNEXER
NAME (#) ($) ABLE CISABLE ABLE CISABLE
- -------------------- -------- -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Arthur J. Benvenuto 0 0 1,550,000 300,000 804,230 0
Dr. Gail K. Naughton 0 0 725,000 300,000 203,355 0
Joseph R. Kletzel 0 0 0 115,000 0 0
David L. Horwitz, 0 0 0 90,000 0 0
M.D., Ph.D.
Michael V. Swanson 0 0 105,000 70,000 0 0
==================================================================================================
</TABLE>
Employment Agreements/Change in Control Arrangements. The Company has no
- -----------------------------------------------------
employment agreements with any of the Named Executive Officers or any of its
other 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
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. No officers of the Company serve or have ever served on
compensation committees of entities at which Board members serve or have served
as officers.
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.
11
<PAGE>
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 both
individual and corporate 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 (as discussed below under "Compensation of the Chief Executive
Officer") approved by the Compensation Committee and individual goals
established in consultation 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 cash compensation levels which would exceed
the $1 million limit in 1999. In addition, the Company's 1997 Stock Incentive
Plan (the "1997 Plan") is structured so that any compensation deemed paid in
connection with the exercise of options granted under the 1997 Plan or the
disposition of shares acquired under such plan 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 Vice President, 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 approximately 60 diverse public companies in the
biomedical/biotechnology industries with greater than 150 but less than 500
employees, (ii) a select group of approximately 44 companies which are
considered leaders in the biotechnology industry by virtue of their market
capitalization, and (iii) a select group of public biotechnology 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 27% to approximately 37% of base salary depending on the
level of the executive officer.
Long-term incentive compensation is provided through stock option grants
under the 1997 Plan. The amount of each grant is a function of the individual's
position and level of responsibility, and options become
12
<PAGE>
exercisable in equal annual installments over a five-year period measured from
the grant date. The Compensation Committee, in its discretion, may grant
additional options to executive officers, including the Chief Executive Officer,
for increases in level of responsibility and promotions, in recognition of
sustained exceptional performance or annually based upon company and individual
performance. The option grant will have value to the executive officer only if
he or she continues in the Company's service during the vesting period and then
only if the market price of the underlying option shares appreciates over the
option term.
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 1998, 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 has only recently introduced its
first therapeutic products, profitability of the Company has not been 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 1998 as
reported in the cash compensation table, the Compensation Committee considered
1997 accomplishments as well as the comparative competitive compensation data
and performance factors discussed above. The major accomplishments of the
Company in 1997 which the Committee considered included: (i) the approval and
launch of TransCyte(TM) (formerly Dermagraft-TC(R)) by the FDA for full-
thickness burns; (ii) filing and approval for the use of TransCyte in partial-
thickness burns; (iii) completing the expansion and validation of the
manufacturing facility to support the launch of Dermagraft(R); (iv) approval
and launch of Dermagraft for treatment of diabetic foot ulcers in Canada and
the United Kingdom, respectively; (v) establishing systems and processes to
support the ongoing commercialization of products; (vi) advancing the develop-
ment of tissue-engineered cartilage and cardiovascular products; (vii)
progress in developing and managing strategic relationships; and (viii)
obtaining financing. In addition, during 1998, the Compensation Committee
elected to extend the term of two stock option grants made to the Chief
Executive Officer in June 1988 and due to expire in June 1998. These options,
each exercisable for 150,000 shares of common stock at exercise prices of
$1.47 and $1.67 per share, or for a total of 300,000 shares, were extended by
the Compensation Committee for an additional five years to June 2003.
In determining the Chief Executive Officer's bonus eligibility for 1998,
the Compensation Committee considered the Chief Executive Officer's role in the
achievement of a number of pre-established corporate objectives. Those
objectives for 1998 included: (i) progress in obtaining regulatory approvals for
Dermagraft in the treatment of diabetic foot ulcers; (ii) success in achieving
sales targets, production goals and cost objectives; (iii) expansion of the
Company's alliance with Smith & Nephew plc to include the development of
Dermagraft and TransCyte for the treatment of pressure and venous ulcers and
other skin tissue wounds, and the sales and marketing of TransCyte for burns in
the United States; (iv) advancing the development of tissue engineered cartilage
and cardiovascular products; and (v) obtaining financing for the business.
Although the
13
<PAGE>
Company was successful in achieving many of those objectives for 1998, the Chief
Executive Officer and executive management recommended, and the Compensation
Committee accepted, management's recommendation that no bonuses be paid to any
executive officer for 1998. In part, this reflects the U.S. Food and Drug
Administration's decision not to approve the Company's submission for approval
of Dermagraft for the treatment of diabetic foot ulcers without data from an
additional clinical trial.
David S. Tappan, Jr., Chairman Jack L. Heckel Dayton Ogden
================================================================================
* 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, 1998 with
the cumulative total return for (i) the NASDAQ Stock Market (U.S. Companies),
and (ii) the NASDAQ Pharmaceutical Index. The chart assumes $100 invested on
January 1, 1993 and that dividends are reinvested.
- --------------------------------------------------------------------------------
COMMON STOCK PERFORMANCE
- --------------------------------------------------------------------------------
(Performance Graph appears here)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Advanced Tissue Sciences, Inc. $ 100 $ 100 $ 123 $ 116 $ 150 $ 31
NASDAQ Stock Market (US) $ 100 $ 98 $ 138 $ 170 $ 209 $ 293
NASDAQ Pharmaceutical Index $ 100 $ 75 $ 138 $ 138 $ 143 $ 183
</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.
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
14
<PAGE>
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 31, 1999, 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 $1,173,369 (including
$254,869 representing accrued interest) and $437,536 (including $87,536
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 5.43% per annum with principal and interest due
in May 1999. Dr. Naughton's loan bears interest at the rate of 5.48% per annum
and is due in July 1999. 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 ("Ernst & Young") as the Company's
independent auditors for the fiscal year ending December 31, 1999. Ernst &
Young 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 as the
Company's independent auditors for calendar year 1999.
A representative of Ernst & Young 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 stock-holders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.
PROPOSALS FOR THE 2000 ANNUAL MEETING
The next annual meeting of stockholders is scheduled to be held in May
2000. 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 31, 1999. 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.
In addition, the proxy solicited by the Board of Directors for the annual
meeting of the stockholders in calendar year 2000 will confer discretionary
authority to vote on any stockholder proposal presented at that meeting,
unless the Company is provided with notice of such proposal no later than
March 10, 2000.
15
<PAGE>
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 year ended December 31, 1998 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 20, 1999
16
<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
1999 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)
<PAGE>
(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 EIGHT-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;
Ronald L. Nelson; Dayton Ogden; David S. Tappan, Jr.; and Dr. Gail R.
Wilensky. (THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR)
[ ] FOR all nominees above [ ] WITHHOLD AUTHORITY
(except as marked to the to vote for the nominees
contrary) 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 1999 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, 1999. (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:_________________________, 1999
--------------------------------------
(Signature)
--------------------------------------
(Signature if held jointly)
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE PROXY CARD USING
THE ENCLOSED SELF-ADDRESSED STAMPED ENVELOPE.
