LIFE MEDICAL SCIENCES INC, DEF 14A, 1998-04-24

LIFE MEDICAL SCIENCES INC
DEF 14A, 1998-04-24
ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES

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<PAGE>

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12

LIFE MEDICAL SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

<PAGE>

LIFE MEDICAL SCIENCES, INC.
379 Thornall Street
Edison, New Jersey 08837

NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON THURSDAY, MAY 28, 1998

Notice is hereby given that the Annual Meeting of Stockholders of LIFE
MEDICAL SCIENCES, INC., a Delaware corporation (the "Company"), will be held
at the Woodbridge Hilton, 120 Wood Avenue South, Iselin, New Jersey 08830 on
May 28, 1998 at 10:00 a.m., local time, (the "Meeting") for the following
purposes:

1. To consider and vote upon the election of seven directors;

2. To ratify the appointment of Richard A. Eisner & Company, LLP, as
the independent auditors of the Company; and

3. To transact such other business as may properly come before the
Meeting or any adjournments thereof.

The close of business on April 21, 1998 has been fixed as the record date
for the determination of stockholders entitled to notice of, and to vote at,
the Meeting. A complete list of those stockholders will be open to examination
of any stockholder, for any purpose germane to the Meeting, during ordinary
business hours at the Company's executive offices at 379 Thornall Street,
Edison, New Jersey 08837 for a period of 10 days prior to the Meeting. The
stock transfer books of the Company will not be closed.

All stockholders are cordially invited to attend the Meeting. Whether or
not you expect to attend, you are respectfully requested by the Board of
Directors to sign, date and return the enclosed proxy promptly. Stockholders
who execute proxies retain the right to revoke them at any time prior to the
voting thereof. A return envelope which requires no postage if mailed in the
United States is enclosed for your convenience.

By the order of the Board of
Directors,

Dr. Herbert Moskowitz
Chairman

Edison, New Jersey
Dated: April 28, 1998
<PAGE>

LIFE MEDICAL SCIENCES, INC.
379 Thornall Street
Edison, New Jersey 08837

PROXY STATEMENT

ANNUAL MEETING OF STOCKHOLDERS

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors (the "Board") of Life Medical Sciences,
Inc., a Delaware corporation (the "Company"), for the Annual Meeting of
Stockholders to be held at the Woodbridge Hilton, 120 Wood Avenue South,
Iselin, New Jersey 08830 on May 28, 1998 at 10:00 a.m., local time, and for
any adjournment or adjournments thereof (the "Meeting"), for the purposes set
forth in the accompanying Notice of Annual Meeting of Stockholders. Any
stockholder giving such a proxy has the power to revoke it at any time before
it is voted. Written notice of such revocation should be forwarded directly to
the Secretary of the Company, at the above stated address. Attendance at the
Meeting will not have the effect of revoking the proxy unless such written
notice is given.

If the enclosed proxy is properly executed and returned, the shares
represented thereby will be voted in accordance with the directions thereon
and otherwise in accordance with the judgment of the persons designated as
proxies. Any proxy on which no direction is specified will be voted in favor
of the actions described in this Proxy Statement, for the election of the
nominees set forth under the caption "Election of Directors" and for the
ratification of the appointment of Richard A. Eisner & Company, LLP, as the
independent auditors of the Company.

The approximate date on which this Proxy Statement and the accompanying
form of proxy will first be mailed or given to holders of the Company's Common
Stock, par value $.001 per share (the "Common Stock"), is April 28, 1998.

The cost of solicitation of proxies will be borne by the Company. In
addition to the use of mail, employees of the Company may solicit proxies by
telephone or telegraph. Upon request, the Company will reimburse brokers,
dealers, bankers and trustees, or their nominees, for reasonable expenses
incurred by them in forwarding proxy materials to the beneficial owners.

YOUR VOTE IS IMPORTANT. ACCORDINGLY, YOU ARE URGED TO SIGN AND RETURN THE
ACCOMPANYING PROXY CARD WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.

<PAGE>

VOTING

Only holders of shares of Common Stock of record as at the close of
business on April 21, 1998 (the "Record Date") are entitled to vote at the
Meeting. On the Record Date there were issued and outstanding 7,922,559 shares
of Common Stock. Each outstanding share of Common Stock is entitled to one
vote upon all matters to be acted upon at the Meeting. A majority in interest
of the outstanding shares of Common Stock represented at the Meeting in person
or by proxy shall constitute a quorum. The affirmative vote of a plurality of
the shares of Common Stock so represented is necessary to elect the nominees
as directors and the affirmative vote of the majority of the shares of Common
Stock so represented is necessary to ratify the appointment of Richard A.
Eisner & Company, LLP, as the independent auditors of the Company. The
stockholders vote at the Meeting by casting ballots (in person or by proxy)
which are tabulated by a person appointed by the Board before the Meeting to
serve as the inspector of election at the Meeting and who has executed and
verified an oath of office. Abstentions and broker non-votes are included in
the determination of the number of shares of Common Stock present at the
Meeting for quorum purposes but broker non-votes are not counted in the
tabulation of the votes cast on proposals presented to stockholders. THUS, AN
ABSTENTION FROM VOTING ON ANY MATTER HAS THE SAME LEGAL EFFECT AS A VOTE
"AGAINST" THE MATTER, EVEN THOUGH THE STOCKHOLDER MAY INTERPRET SUCH ACTION
DIFFERENTLY.

ELECTION OF DIRECTORS

INFORMATION CONCERNING NOMINEES

At the Meeting, seven directors will be elected by the stockholders to
serve until the next Annual Meeting of Stockholders or until their successors
are elected and shall qualify. Each of the nominees is currently a director of
the Company. MANAGEMENT RECOMMENDS THAT THE PERSONS NAMED BELOW BE ELECTED AS
DIRECTORS OF THE COMPANY and it is intended that the accompanying proxy will
be voted for their election as directors, unless the proxy contains contrary
instructions. The Company has no reason to believe that any of the nominees
will not be a candidate or will be unable to serve. However, in the event that
any of the nominees should become unable or unwilling to serve as a director,
the persons named in the proxy have advised that they will vote for the
election of such person or persons as shall be designated by management.

The following table sets forth the names of the nominees and certain
information with regard to each nominee:

<TABLE>
<CAPTION>
HELD POSITION WITH
NAME OF NOMINEE AGE OFFICE SINCE COMPANY
--------------- --- ------------- ---------------------
<S> <C> <C> <C>
Dr. Herbert Moskowitz................... 57 August 1990 Chairman of the Board
Edward A. Celano........................ 59 November 1996 Director
Coy Eklund ............................. 82 March 1994 Director
Joel L. Gold ........................... 56 November 1991 Director
Robert P. Hickey........................ 52 May 1996 President and Chief
Executive Officer;
July 1996 Director
Walter R. Maupay........................ 59 July 1996 Director
Irwin M. Rosenthal...................... 69 August 1990 Director
</TABLE>

NOMINEES FOR ELECTION AT THE MEETING

Dr. Moskowitz is a co-founder of the Company and is currently the
Chairman of the Board of Directors. Dr. Moskowitz has also served as President
and Chief Executive Officer of the Company during various periods since the
Company's inception in 1990. Dr. Moskowitz is also president, director and a
principal stockholder of Magar Inc., a private investment firm. Magar Inc. is
a principal stockholder of the Company. Dr. Moskowitz is a co-founder of
Advanced Tissue

2
<PAGE>

Sciences, Inc., a publicly traded medical technology company, and at various
periods from 1986 to 1989 served as director, chairman of the board, president
and chief executive officer of such company. Dr. Moskowitz, a former
practicing dentist, has been active in the healthcare field since 1958.

Edward A. Celano has served as a director of the Company since November,
1996. Since May 1996, Mr. Celano has been an executive vice president of
Atlantic Bank of New York, a commercial bank. From November 1984 to May 1996,
Mr. Celano was a senior vice president of NatWest Bank, a commercial bank. Mr.
Celano is currently a director of the following publicly traded companies:
Artra Group, Inc. and Asta Funding, Inc.

Coy Eklund has served as a director of the Company since March 1994.
Since August 1987, Mr. Eklund has served as the chairman and chief executive
officer of Trivest Financial Services, a company engaged in the television
business. From 1938 to 1983, Mr. Eklund served in various capacities at The
Equitable Life Assurance Society of the United States and from 1975 to 1983
was its chief executive officer. Mr. Eklund is currently a director of the
following publicly traded companies: Skysat Communications Network Corporation
and Chemical Waste Technologies.

Joel L. Gold has served as a director of the Company since November 1991.
Since September 1997, Mr. Gold has been senior managing director of Interbank
Capital Group, an investment banking firm. From April 1996 through September
1997, Mr. Gold was an executive vice president of L. T. Lawrence & Co., Inc.,
an investment banking firm. From April 1995 through April 1996, Mr. Gold was a
managing director of Fechtor, Detwiler & Co., Inc., an investment banking
firm. From January 1992 to March 1995, Mr. Gold was a managing director of
Furman Selz Incorporated, an investment banking firm. For approximately twenty
years before he became affiliated with Furman Selz Incorporated, he held
various positions with Bear Stearns & Co., Inc. and Drexel Burnham Lambert,
Incorporated, investment banking firms. Mr. Gold is currently a director of
the following publicly trade companies: Concord Camera Corp.; BCAM
International Corporation; and Sterling Vision, Inc.

Robert P. Hickey has served as President and Chief Executive Officer of
the Company since May 1996 and as a director since July 1996. From May 1994
until joining the Company, Mr. Hickey was founder and president of Roberts
Healthcare Resources, Inc., a company engaged in project consulting to Fortune
500 and leading edge companies in the healthcare industry. From 1975 to 1994,
Mr. Hickey served in various positions at Johnson & Johnson. From 1992 to
1994, Mr. Hickey was vice president, marketing and director of Ethicon, Inc.,
a unit of Johnson & Johnson.

Walter R. Maupay, Jr. has served as a director of the Company since July
1996. At his retirement in 1995, Mr. Maupay was a group executive with
Bristol-Myers Squibb and president of Calgon Vestal Laboratories. From May
1988 to January 1995, Mr. Maupay had been president of Calgon Vestal
Laboratories, a division of Merck & Co., Inc. From 1984 to 1988, Mr. Maupay
served as vice president of Calgon Vestal Laboratories. Mr. Maupay is
currently a director of Kinsey Nash Corporation, a publicly traded healthcare
company.

Irwin M. Rosenthal is a co-founder of the Company and has served as
Secretary and Treasurer at various periods and a director of the Company since
its inception in 1990. Mr. Rosenthal is an attorney specializing in securities
law and has been a senior partner at Rubin Baum Levin Constant & Friedman
since December 1991. From December 1989 to December 1991, Mr. Rosenthal was a
senior partner at Baer Marks and Upham and from January 1983 to December 1989
a senior partner at Botein Hays & Sklar. Mr. Rosenthal serves as secretary and
as a director of Magar Inc., of which he is a principal stockholder. Magar
Inc. is a principal stockholder of the Company. Mr. Rosenthal is also a
director of Magna-Lab Inc., a publicly traded medical technology company,
Symbollon Corporation, a publicly traded chemical and medical technology
company and EchoCath, Inc., a publicly traded medical technology company. Mr.
Rosenthal is the co-founder and involved in the organization and development
of four national health oriented non-profit foundations.

3
<PAGE>

GENERAL INFORMATION CONCERNING THE BOARD AND ITS COMMITTEES

The Board met five times in the fiscal year ended December 31, 1997. The
Delaware General Corporation Law provides that the Board, by resolution
adopted by a majority of the entire Board, may designate one or more
committees, each of which shall consist of one or more directors. The Board
annually elects from its members the Executive Committee, Audit Committee and
the Compensation Committee. The Company does not have a Nominating Committee.
During the last fiscal year each of the directors then serving attended at
least 75% of the aggregate of (1) the total number of meetings of the Board
and (2) the total number of meetings held by all committees of the Board on
which he served.

Executive Committee. The Executive Committee exercises all the powers and
authority of the Board in the management and affairs of the Company between
meetings of the Board, to the extent permitted by law. The members of the
Executive Committee are Dr. Moskowitz and Mr. Hickey. During fiscal 1997, the
Executive Committee met 12 times.

Audit Committee. The Audit Committee reviews the engagement of the
independent accountants and reviews the independence of the accounting firm.
The Audit Committee also reviews the audit and non-audit fees of the
independent accountants and the adequacy of the Company's internal control
procedures. The Audit Committee is composed of three non-employee directors,
Messrs. Gold, Maupay and Celano. During fiscal 1997, the Audit Committee did
not meet separately from the Board but performed its duties in the context of
Board meetings.

Compensation Committee. The Compensation Committee reviews and recommends
to the Board remuneration arrangements, compensation plans and option grants
for the Company's officers, key employees, directors and others. The
Compensation Committee is composed of Messrs. Eklund and Rosenthal. During
fiscal 1997, the Compensation Committee did not meet separately from the Board
but performed its duties in the context of Board meetings.

4
<PAGE>

PRINCIPAL STOCKHOLDERS

Set forth below is information concerning the stock ownership of all
persons known by the Company to own beneficially 5% or more of the outstanding
shares of Common Stock, all directors (including nominees), the Named
Executive Officers (as defined in "Executive Compensation--Summary
Compensation Table") and all directors and executive officers of the Company
as a group, as of April 21, 1998. For the purpose of this Proxy Statement,
beneficial ownership is defined in accordance with the rules of the Securities
and Exchange Commission (the "Commission") and generally means the power to
vote and/or to dispose of the securities regardless of any economic interest
therein.

5
<PAGE>

<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK PERCENT OF
NAME AND ADDRESS OF BENEFICIALLY OUTSTANDING SHARES
BENEFICIAL OWNER OR NUMBER IN GROUP OWNED(1) BENEFICIALLY OWNED
----------------------------------- ---------------- ------------------
<S> <C> <C>
Coy Eklund............................... 75,000(11) *
c/o Life Medical Sciences, Inc.
379 Thornall Street
Edison, NJ 08837
Edward A. Celano......................... 63,334(12) *
c/o Life Medical Sciences, Inc.
379 Thornall Street
Edison, NJ 08837
Donald W. Fallon......................... 61,000(13) *
c/o Life Medical Sciences, Inc.
379 Thornall Street
Edison, NJ 08837
All executive officers and directors as a
group (9 persons)....................... 1,968,475(14) 21.9%
</TABLE>
- -------------------
* Denotes less than 1%
(1) All shares outstanding are Common Stock and are beneficially owned, and
sole voting and investment power is held by the persons named, except as
otherwise noted.
(2) Dr. Moskowitz and Messrs. Rosenthal and Fife are each officers,
directors and principal stockholders of Magar Inc. and own approximately
47%, 16.5% and 30%, respectively, of the outstanding stock of such
corporation. As such, these individuals may be considered to
beneficially own, and to have shared investment and voting power with
respect to, all shares of Common Stock owned by Magar Inc. Information
relating to shares owned by each of these individuals assumes that each
beneficially owns all shares owned of record by Magar Inc.
(3) Includes 270,000 shares of Common Stock pledged to a bank as security
for a loan to Magar Inc. Magar Inc. has the sole right to vote such
shares, unless there is an event of default under the loan. In the event
of a default by Magar Inc., the bank would have the right to dispose of
the shares.
(4) Includes shares of Common Stock issuable upon exercise of 46,110 Class A
Warrants and 46,110 Class B Warrants, and 46,110 Class B Warrants
issuable upon exercise of the Class A Warrants which may be exercised at
any time up to September 22, 1998, into an additional 148,217 shares of
Common Stock. Also includes 200,000 shares of Common Stock issuable upon
exercise of an option which is currently exercisable.
(5) Includes 100,000 shares of Common Stock issuable upon exercise of an
option which is currently exercisable. Does not include shares of Common
Stock beneficially held by attorneys associated with Rubin Baum Levin
Constant & Friedman, of which Mr. Rosenthal is a partner, as to which
shares of Common Stock Mr. Rosenthal disclaims beneficial ownership.
Such shares of Common Stock do not exceed one percent of the total
outstanding shares of Common Stock of the Company.
(6) Magar Inc. is a private investment firm which from September 1992 to
December 1994 provided management consulting services to the Company.
(7) Includes 200,000 shares of Common Stock issuable upon exercise of
options which are currently exercisable, but excludes 100,000 shares of
Common Stock issuable upon exercise of an option which is not
exercisable within the next 60 days.
(8) Includes 33,334 shares of Common Stock issuable upon exercise of options
which are currently exercisable, but excludes 16,666 shares of Common
Stock issuable upon exercise of an option which is not exercisable
within the next 60 days.
(9) Includes 140,000 shares of Common Stock issuable upon exercise of
options which are currently exercisable.
(10) Represents shares of Common Stock issuable upon exercise of options
which are currently exercisable, but excludes 109,919 shares of Common
Stock held by Mr. Gold's wife, as to which shares of Common Stock Mr.
Gold disclaims beneficial ownership.
(11) Represents shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(12) Includes 33,334 shares of Common Stock issuable upon exercise of options
which are currently exercisable, but excludes 16,666 shares of Common
Stock issuable upon exercise of an option which is not exercisable
within the next 60 days, and includes 22,222 shares of Common Stock
owned by Walworth Financial Services, Inc. Defined Benefit Trust,
controlled by Mr. Celano.
(13) Includes 60,000 shares of Common Stock issuable upon exercise of options
which are currently exercisable, but excludes 10,000 shares of Common
Stock issuable upon exercise of an option which is not exercisable
within the next 60 days.
(14) Includes 1,081,553 shares of Common Stock issuable upon exercise of
warrants and options which are currently exercisable. Excludes 143,332
shares of Common Stock underlying options that are not exercisable
within the next 60 days.

6
<PAGE>

EXECUTIVE COMPENSATION

The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company during the fiscal years ended
December 31, 1997, 1996 and 1995 to the executive officers whose annual
compensation exceeded $100,000 in fiscal 1997 (the "Named Executive
Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
-------------------------- ------------
OTHER
NAME AND PRINCIPAL ANNUAL SECURITIES ALL OTHER
CAPACITIES COMPEN- UNDERLYING COMPEN-
IN WHICH SERVED YEAR BONUS SATION(1) OPTIONS SATION(2)
------------------ ---- SALARY ------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Dr. Herbert Moskowitz... 1997 $193,387 $13,468 50,000 $2,353
Chairman of the Board; 1996 $190,275 $ 8,571 $3,060
President and Chief Ex-
ecutive Officer(3) 1995 $185,000 $14,231 150,000 $ 816
Robert P. Hickey(4)..... 1997 $228,325 $25,000 300,000(5) $1,788
President and 1996 $133,846 250,000 $1,210
Chief Executive Officer
Eli Pines, Ph. D.(6).... 1997 $162,994 $20,000 80,000(7) $1,444
Vice President and 1996 $151,415 $20,000 $1,382
Chief Scientific Offi-
cer 1995 $ 80,739 110,000 $ 302
Donald W. Fallon(8)..... 1997 $109,500 20,000 $ 326
Vice President, Chief 1996 $100,500 $10,000 20,000 $ 326
Financial Officer and
Treasurer 1995 $ 43,542 30,000
</TABLE>
- -------------------
(1) Represents accrued vacation payout for the Named Executive Officers.
(2) Represents premium payments for term life insurance for the benefit of
the Named Executive Officers.
(3) Dr. Moskowitz resigned as President and Chief Executive Officer upon the
hiring of Mr. Hickey in May 1996.
(4) Mr. Hickey's employment with the Company commenced on May 29, 1996. If
Mr. Hickey had been employed by the Company for the full fiscal year of
1996 his annual salary would have been $225,000.
(5) Of the 300,000 options granted during 1997, 250,000 were granted to
replace previously granted options which were cancelled.
(6) Dr. Pines employment with the Company commenced on June 12, 1995. If Dr.
Pines had been employed by the Company for the full fiscal year of 1995
his annual salary would have been $145,000.
(7) Of the 80,000 options granted during 1997, 50,000 were granted to replace
previously granted options which were cancelled.
(8) Mr. Fallon's employment with the Company commenced on July 17, 1995. If
Mr. Fallon had been employed by the Company for the full fiscal year of
1995 his annual salary would have been $95,000.

7
<PAGE>

The following table sets forth certain information with respect to stock
option grants during the year ended December 31, 1997 to the Named Executive
Officers.

OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK
PRICE APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERM(2)
--------------------------------------------------------------------- ----------------------
NUMBER OF SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO EMPLOYEES EXERCISE OR BASE EXPIRATION
NAME OPTIONS GRANTED(#) IN FISCAL YEAR PRICE($/SH)(1) DATE 5% 10%
---- -------------------- -------------------- ---------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Dr. Herbert Moskowitz... 50,000 9.4% $4.75 06/18/02 $ 65,617 $ 144,996
Robert P. Hickey........ 50,000 9.4 4.00 05/29/01 43,101 92,820
50,000 9.4 4.00 05/29/02 55,256 122,102
50,000 9.4 4.00 05/29/03 68,019 154,312
50,000 9.4 4.00 05/29/04 81,420 189,743
50,000 9.4 4.00 05/29/05 95,491 228,718
25,000 4.7 4.00 06/17/02 27,628 61,051
25,000 4.7 4.00 06/17/03 34,010 77,156
Eli Pines, Ph.D. ....... 25,000 4.7 4.00 12/29/00 15,763 33,100
25,000 4.7 4.00 12/31/02 27,628 61,051
15,000 2.8 4.00 06/17/02 16,577 36,631
15,000 2.8 4.00 06/17/03 20,406 46,294
Donald W. Fallon........ 10,000 1.9 4.00 06/17/02 11,051 24,420
10,000 1.9 4.00 06/17/03 13,604 30,862
</TABLE>
- -------------------
(1) All options were granted with an exercise price equal to or above the
fair market value of the Common Stock at the date of grant.
(2) In accordance with the rules of the Commission, the amounts shown on this
table reflect hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These
gains are based on assumed rates of stock appreciation of 5% and 10%,
compounded annually from the date the respective options were granted to
their expiration date. The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock option
exercises will depend on the future performance of the Common Stock and
the date on which the options are exercised.

The following table sets forth certain information with respect to stock
option exercises by the Named Executive Officers during the year ended
December 31, 1997 and the value of unexercised options at December 31, 1997.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR END(#) AT FISCAL YEAR END($)(1)
ACQUIRED ON VALUE -------------------------------- -------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- -------------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dr. Herbert Moskowitz... 200,000
Robert P. Hickey........ 125,000 175,000
Eli Pines, Ph. D. ...... 125,000 15,000
Donald W. Fallon........ 50,000 20,000
</TABLE>
- -------------------
(1) Based upon the closing price of $1 17/32 share of Common Stock on
December 31, 1997, less the option exercise price.

8
<PAGE>

EMPLOYMENT AND RELATED AGREEMENTS

The Company entered into an agreement with Dr. Moskowitz, effective as of
January 1, 1995, for a term of one year and was subject to annual renewal for
successive one year periods unless earlier terminated. Pursuant to the
agreement, Dr. Moskowitz agreed to serve as the Chairman of the Board, Chief
Executive Officer and President of the Company. The agreement required Dr.
Moskowitz to devote such time and attention to the business of the Company as
he deemed necessary to fulfill his duties and responsibilities under the
agreement. Pursuant to the agreement, Dr. Moskowitz received a salary of
$185,000 per annum subject to annual adjustment for cost-of-living increases
and other increases as approved by the Board. The agreement was renewed for
1996.

Effective May 30, 1996, the Company entered into an agreement with Dr.
Moskowitz pursuant to which Dr. Moskowitz has agreed to serve as Chairman of
the Board. The agreement is for a term of five years and is subject to annual
renewal for successive one year periods unless earlier terminated. The
agreement requires Dr. Moskowitz to devote such time and attention to the
business of the Company as he deems necessary to fulfill his duties and
responsibilities under the agreement. Pursuant to the agreement, Dr. Moskowitz
currently receives a salary of $195,775 per annum subject to annual adjustment
for cost-of-living increases and other increases as approved by the Board.

If Dr. Moskowitz dies or is unable to perform his duties on account of
illness or other incapacity and the agreement is terminated, he or his legal
representative shall receive from the Company the base salary which would
otherwise be due to the end of the month during which the termination of
employment occurred plus six additional months. The agreement further provides
that if the Company terminates Dr. Moskowitz's employment for cause, Dr.,
Moskowitz shall receive his salary through the end of the month in which the
termination occurred plus three additional months. If Dr. Moskowitz's
employment is terminated by the Company during the term of the agreement or if
the Company does not renew Dr. Moskowitz's employment agreement, Dr. Moskowitz
shall receive from the Company the base salary which would otherwise be due to
the end of the month during which the termination of employment occurred plus
six additional months. The agreement with Dr. Moskowitz contains
confidentiality and post-termination non-competition provisions.

In March 1995, the Company granted an option to Dr. Moskowitz to acquire
up to 150,000 shares of Common Stock at an exercise price of $2.66 per share.
The options are exercisable until March 20, 2000.

As of May 29, 1996, the Company entered into an employment agreement with
Robert P. Hickey, pursuant to which Mr. Hickey serves as President and Chief
Executive Officer of the Company. The term of such agreement is for a period
of five years. Pursuant to such agreement, Mr. Hickey currently receives an
annual base salary of $230,625 subject to adjustments for cost-of-living
increases and other increases as determined by the Board and received an
option under the Plan to purchase an aggregate of 250,000 shares of Common
Stock. Up to twenty percent of such option commenced vesting immediately and
an additional twenty percent vest on each of the first, second, third and
fourth anniversaries of the effective date of Mr. Hickey's employment. Such
options are exercisable for five years from the date of vesting and have an
exercise price of $8 1/8. The options will terminate upon certain conditions
in connection with termination of employment. In June 1997, the Company
canceled these options and granted an option to purchase up to 250,000 shares
of Common Stock with such option having identical terms as the canceled option
except for the exercise price of $4.00 per share, which was fair market value
on the date of grant.

If Mr. Hickey dies, is terminated for cause, voluntarily resigns or is
unable to perform his duties on account of illness or other incapacity and the
agreement is terminated, he or his legal representative shall receive from the
Company the base salary which would otherwise be due to the date which
termination of employment occurred. If Mr. Hickey's employment is terminated
for any other reason by the Company during the term of the agreement, Mr.
Hickey will receive from the Company the base salary which would otherwise be
due to the date which termination of employment occurred plus severance pay
equal to six months of salary. The agreement with Mr. Hickey contains
confidentiality and post-termination non-competition provisions.

9
<PAGE>

In June 1997, the Company granted an option to Mr. Hickey to acquire up
to 50,000 shares of Common Stock at an exercise price of $4.00 per share. Up
to one-half of such options commenced vesting immediately and the balance vest
on the first anniversary of the date of grant. Such options are exercisable
for five years from the date of vesting.

The Company entered into an employment agreement dated June 12, 1995,
with Eli Pines, Ph.D., pursuant to which Dr. Pines serves as Vice President
and Chief Scientific Officer of the Company. The term of such agreement
commenced on June 12, 1995 and is for a period of three years from such date,
subject to automatic annual renewal unless earlier terminated. Pursuant to
such agreement Dr. Pines currently receives an annual base salary of $167,500,
subject to cost-of-living adjustments and bonuses, and received an option
under the Plan to purchase an aggregate of 60,000 shares of Common Stock. Up
to one-third of such options commenced vesting immediately and one-third vest
on each of the first and second anniversaries of the effective date of Dr.
Pines' employment. Such options are exercisable for five years from the date
of vesting and have an exercise price equal to $7.00 per share. The options
will terminate upon certain conditions in connection with termination of
employment. The agreement also allows for termination at any time with or
without cause without any significant payments by the Company and contains
confidentiality and non-competition provisions.

If Dr. Pines dies or is unable to perform his duties on account of
illness or other incapacity and the agreement is terminated, he or his legal
representative shall receive from the Company the base salary which would
otherwise be due to the end of the month during which the termination of
employment occurred. In the event that termination results from an incapacity,
then Dr. Pines or his legal representation shall also receive from the Company
a one month pro-rata portion of his base salary. The agreement further
provides that if the Company terminates Dr. Pines' employment for cause or if
Dr. Pines voluntarily leaves the employment of the Company, Dr. Pines shall
receive his salary through the end of the month in which the termination
occurred. If Dr. Pines' employment is terminated by the Company without cause
during the second or third year of the agreement, Dr. Pines shall receive from
the Company the base salary which would otherwise be due to the end of the
month during which the termination of employment occurred plus two additional
months. The agreement with Dr. Pines contains confidentiality and post-
termination non-competition provisions.

In December 1995, the Company granted an option to Dr. Pines to acquire
up to 50,000 shares of Common Stock at an exercise price of $9.00 per share.
One-half of the options vested immediately and the remaining options vested
upon successful completion of a certain clinical development program in
December 1997. The options are exercisable for five years from date of
vesting. In June 1997, the Company canceled these options and granted an
option to purchase up to 50,000 shares of Common Stock with such option having
identical terms as the canceled option except for the exercise price of $4.00
per share, which was fair market value on the date of grant.

In June 1997, the Company granted an option to Dr. Pines to acquire up to
30,000 shares of Common Stock at an exercise price of $4.00 per share. Up to
one-half of such options commenced vesting immediately and the balance vest on
the first anniversary of the date of grant. Such options are exercisable for
five years from the date of vesting.

The Company entered into an employment agreement dated June 12, 1995,
with Donald W. Fallon, pursuant to which Mr. Fallon serves as Vice President
and Chief Financial Officer of the Company. The term of such agreement
commenced on July 17, 1995 and is for a period of three years from such date,
subject to automatic annual renewal unless earlier terminated. Pursuant to
such agreement Mr. Fallon currently receives an annual base salary of
$112,500, subject to cost-of-living adjustments and bonuses, and received an
option under the Plan to purchase an aggregate of 30,000 shares of Common
Stock. Up to one-third of such options commenced vesting immediately and one-
third vest on each of the first and second anniversaries of the effective date
of Mr. Fallon's employment. Such options are exercisable for five years from
the date of vesting and have an exercise price equal to $6.88. The options
will terminate upon certain conditions in connection with termination of
employment. The agreement also allows for termination at any time with or
without cause without any significant payments by the Company and contains
confidentiality and non-competition provisions.

10
<PAGE>

If Mr. Fallon dies or is unable to perform his duties on account of
illness or other incapacity and the agreement is terminated, he or his legal
representative shall receive from the Company the base salary which would
otherwise be due to the end of the month during which the termination of
employment occurred. In the event that termination results from an incapacity,
then Mr. Fallon or his legal representation shall also receive from the
Company a one month pro-rata portion of his base salary. The agreement further
provides that if the Company terminates Mr. Fallon's employment for cause or
if Mr. Fallon voluntarily leaves the employment of the Company, Mr. Fallon
shall receive his salary through the end of the month in which the termination
occurred. If Mr. Fallon's employment is terminated by the Company without
cause during the second or third year of the agreement, Mr. Fallon shall
receive from the Company the base salary which would otherwise be due to the
end of the month during which the termination of employment occurred plus two
additional months. The agreement with Mr. Fallon contains confidentiality and
post-termination non-competition provisions.

In July 1996, the Company granted an option to Mr. Fallon to acquire up
to 20,000 shares of Common Stock at an exercise price of $7.00 per share. One-
half of the options vest on the first anniversary of the date of grant and the
remaining options vest on the second anniversary of the date of grant. The
options are exercisable for five years from the date of grant.

In June 1997, the Company granted an option to Mr. Fallon to acquire up
to 20,000 shares of Common Stock at an exercise price of $4.00 per share. Up
to one-half of such options commenced vesting immediately and the balance vest
on the first anniversary of the date of grant. The options are exercisable for
five years from the date of grant.

Under the foregoing employment agreements the Company is required to
obtain life insurance coverage on the life and for the benefit of each of the
executives in an amount equal to twice the amount of their base salary then in
effect. Each of the executives will also have the right to participate in all
group insurance, hospital, dental, major medical and disability benefits,
stock option plans and other similar benefits afforded to executives.

DIRECTOR COMPENSATION

All directors of the Company are reimbursed for reasonable expenses
incurred by them in acting as a director or as a member of any committee of
the Board. All outside directors are entitled to receive $500 for each Board
or committee meeting attended.

In March 1997, the Company granted Mr. Celano an option under the
Company's Amended and Restated 1992 Stock Option Plan (the "Plan") to acquire
up to 50,000 shares of common Stock at $4 7/16 per share. Up to one-third of
such options commenced vesting immediately and one-third vest on each of the
first and second anniversaries of the grant date. Such options are exercisable
for five years from the date of vesting.

In June 1997, the Company granted to Dr. Moskowitz and Messrs. Eklund,
Gold and Rosenthal, an option under the Plan for each to acquire up to 50,000
shares of Common Stock at $4.75 per share. Such options vested immediately and
are exercisable for five years from the date of grant.

CERTAIN TRANSACTIONS

Mr. Rosenthal is a partner at Rubin Baum Levin Constant & Friedman, which
firm serves as counsel to the Company. The Company paid or accrued
approximately $402,000 and $189,000 in the years ended December 31, 1996 and
1997, respectively, for legal services rendered by Rubin Baum Levin Constant &
Friedman.

In February 1997, the Company entered into a one-year consulting
agreement with an investment banking firm to provide certain advisory services
to the Company. Prior to terminating this agreement, the Company paid a
consulting fee of $27,000. Joel Gold, a director of the Company, was an
executive vice president of that investment banking firm.

11
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Mr. Robert P. Hickey, Chief Executive Officer, President and a director
of the Company, failed to timely report a transaction on Form 4 for the month
of January 1998. Mr. Walter R. Maupay, a director of the Company, failed to
timely report transactions on Form 4 for the months of April, May, September
and November 1997. The Company is not aware of any other late filings pursuant
to Section 16(a) of the Securities and Exchange Act.

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

MANAGEMENT OF THE COMPANY RECOMMENDS A VOTE FOR THE RATIFICATION OF
RICHARD A. EISNER & COMPANY, LLP, AS THE INDEPENDENT AUDITORS FOR THE COMPANY.

Richard A. Eisner & Company, LLP, has served as the Company's independent
accountants. The Company has requested that a representative of Richard A.
Eisner & Company, LLP, attend the Meeting. Such representative will have an
opportunity to make a statement, if he or she desires, and will be available
to respond to appropriate questions of stockholders.

OTHER MATTERS

The Board is not aware of any matters not set forth herein that may come
before the Meeting. If, however, further business properly comes before the
Meeting, the persons named in the proxies will vote the shares represented
thereby in accordance with their judgment.

STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING

Stockholders may submit proposals on matters appropriate for stockholder
action at annual meetings in accordance with regulations adopted by the
Commission. To be considered for inclusion in the proxy statement and form of
proxy relating to the 1999 Annual Meeting of Stockholders, such proposals must
be received by the Company not later than December 31, 1998. Proposals should
be directed to the attention of the Secretary of the Company.

ANNUAL REPORT ON FORM 10-K

The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, accompanies this Proxy Statement. The Annual Report on Form
10-K does not constitute a part of the proxy soliciting material.

By order of the Board of
Directors,

Dr. Herbert Moskowitz
Chairman

Dated: April 28, 1998

12
<PAGE>

LIFE MEDICAL SCIENCES, INC.
379 Thornall Street
Edison, New Jersey 08837
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
to be held on May 28, 1998
This Proxy is solicited on Behalf of the Board of Directors

The undersigned hereby appoints Donald W. Fallon and Irwin M. Rosenthal,
and each of them (with full power to act without the other), as proxies with
full power of substitution, to represent the undersigned at the Annual Meeting
of Stockholders to be held at the Woodbridge Hilton, 120 Wood Avenue South,
Iselin, New Jersey 08830 on May 28, 1998 at 10:00 a.m. and at any adjournment
thereof, and to vote the shares of Common Stock the undersigned would be
entitled to vote if personally present, as indicated below.

1. Election of Directors
[_] FOR all nominees listed below (except as marked to the contrary
below)

Dr. Herbert Moskowitz, Edward A. Celano, Coy Eklund, Joel L. Gold
Robert P. Hickey, Walter R. Maupay and Irwin M. Rosenthal

[_] WITHHOLD AUTHORITY

to vote for all nominees listed below

(INSTRUCTION: To withhold authority to vote for any individual nominee, print
that nominee's name on the line provided below.)

- --------------------------------------------------------------------------------

2. To ratify the appointment of Richard A. Eisner & Company as the
independent auditors of the Company.

[_] FOR [_] AGAINST [_] ABSTAIN

3. In their discretion, the proxies are authorized to vote upon such
business as may properly come before the Meeting.

(Continued, and to be signed on reverse side)
<PAGE>

The shares represented by this proxy will be voted as directed. If no
contrary instruction is given, the shares will be voted FOR the election of the
nominees and FOR Proposals 2 and 3. On any other matters that may come before
the Meeting the proxy will be voted in the discretion of the above-named
persons.

DATED: , 1998
----------------

Signature:
---------------------

--------------------------------
Signature if held jointly.
(Please date, sign as name
appears at the left, and return
promptly. If the Shares are
registered in the names of two
or more persons, each should
sign. When signing as Corporate
Officer, Partner, Executor,
Administrator, Trustee or
Guardian, please give full
title. Please note any changes
in your address alongside the
address as it appears in the
proxy.)