defa14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
o Preliminary Proxy Statement
o Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
o Definitive Proxy Statement
o Definitive Additional Materials
þ Soliciting Material Pursuant to §240.14a-12
Artes Medical, 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):
þ No fee required.
o Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
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ARTES MEDICAL ANNOUNCES AGENDA FOR ITS ANNUAL MEETING
SAN DIEGO, Calif., September 12, 2008 The Board of Directors of Artes Medical, Inc.
(Nasdaq:ARTE), a medical aesthetics company, has made the following announcement regarding the
Companys annual meeting of stockholders to be held on October 30, 2008.
Dear Stockholders of Artes Medical:
We are writing to (i) inform you regarding the action the Company is requesting its
stockholders to consider and approve at the annual meeting of stockholders to be held on October
30, 2008 (the Annual Meeting), (ii) discuss and respond to a non-management preliminary proxy
statement filed by H. Michael Shack, a stockholder who collectively with the other
stockholders listed in his filing own approximately 1% of the Companys outstanding voting stock
and to explain why the matters set forth in his filing are not eligible to be voted upon at the
Annual Meeting and (iii) discuss the lawsuit the Company recently filed against two of its former
officers and directors for, among other things, breach of their contractual obligations to the
Company.
We remain firmly committed to promoting the Companys success and increasing the value of the
Company to its stockholders. Our immediate goals are to (i) raise funds to support the Companys
operations and product acquisition plans, (ii) accelerate the growth and acceptance of the
Companys products among physicians and patients, (iii) expand the Companys current product
portfolio to include additional new and innovative medical aesthetic products that can be
cost-effectively marketed and sold through its national sales team and (iv) further leverage the
Companys already established commercial infrastructure. We set forth our specific plans to
achieve these goals in the Business Discussion section below.
As discussed in more detail below, we do not believe the current market value of the Companys
stock reflects the true intrinsic value of the Company. We remain open and willing to consider any
legitimate proposal for strategic alternatives that will maximize value for our stockholders,
including potential alternatives involving a change of control or the sale of the Company. However,
we believe the non-management preliminary proxy statement, apart from being legally deficient and
contrary to the corporate safeguards previously approved by the Companys stockholders, has been
supported by two former officers and directors of the Company, Stefan Lemperle and Gottfried
Lemperle (collectively, the Lemperles), in an attempt to establish their control over the Company
without paying the Companys stockholders an adequate and fair acquisition price or a control
premium.
The Companys Annual Meeting
The Annual Meeting will be held on October 30, 2008 at 10:00 a.m. (Pacific Time) at the San
Diego Marriott Del Mar, located at 11966 El Camino Real, San Diego, California 92130.
Election of Directors. At the Annual Meeting, the Company will ask its stockholders to
consider and approve the election of Christopher J. Reinhard and John R. Costantino as Class II
directors to serve for three (3) year terms until the annual meeting of stockholders in 2011 and
until their successors are duly elected and qualified.
Mr. Reinhard has been the Companys Executive Chairman since June 2004. He was asked to join
the Company by several of the Companys stockholders at a time when the Company was a private six
employee company with no products approved by the FDA for marketing or sale and no manufacturing
operations. Since December 2004, Mr. Reinhard has also served as Chairman of the Board and CEO of
Cardium Therapeutics, Inc., a publicly-traded medical technology company. Prior to that (from July
2002 to December 2004), Mr. Reinhard served as Chief Executive Officer of Collateral Therapeutics,
Inc., another publicly-traded biotechnology company. Mr. Reinhard worked for Collateral
Therapeutics in a variety of roles (including Chief Financial Officer and President) from June 1995
to July 2002, when Collateral Therapeutics, Inc. was acquired by Schering AG. Mr. Reinhard holds a
B.S. in finance and an M.B.A. from Babson College.
Mr. Costantino has been a director of Artes Medical since June 2006. Beginning in January
2006, Mr. Costantino has also served as Managing General Partner of NGN Capital LLC, a venture
capital advisory firm focusing on the healthcare and biotechnology industries. In addition, Mr.
Costantino has served as Vice President of Walden Capital Partners since 1994, and has been a
Managing Director at Walden Partners Ltd., a merchant bank providing consulting and investing services, since 1992. Mr. Costantino also serves on the Board of
Directors of GE Funds, GE Investment Funds, Inc., GE Institutional Funds and GE LifeStyle Funds,
all management investment companies. Mr. Costantino holds a B.S. from Fordham University, a J.D.
from Fordham Law School, and is a Certified Public Accountant.
Non-Management Proposals
On August 11, 2008, H. Michael Shack, who collectively with the other stockholders named in
his filing own approximately 1% of the Companys outstanding voting stock, filed a preliminary proxy
statement stating that, at the Companys Annual Meeting, he intends to submit proposals to: (i)
amend the Companys Bylaws to fill vacancies on the Companys Board of Directors, (ii) remove for cause three (3) of the Companys current directors and
(iii) elect five (5) of his nominees to the Board. As outlined in a recent lawsuit filed in San
Diego Superior Court and discussed below, the Company is informed and believes that the Shack
filing was instigated and is supported by the Lemperles in violation of, among other things, their
contractual obligations to the Company.
The
Investor Groups Proposals are Legally Deficient. The
investor groups
proposals are deficient in that they did
not provide the Company with notice of the proposals as required by Article II, Section 2.1 of the
Companys Bylaws. Further, the Company believes, and has received a written opinion from Abrams &
Laster LLP, the Companys special Delaware counsel, that the investor groups proposals do not comply with the
substantive and procedural requirements of Section 141(k) of the Delaware General Corporation Law.
The
Claims Made in Investor Groups Preliminary Proxy Statement are Inaccurate. Apart from being
legally deficient, most, if not all, of the assertions made in the
investor groups preliminary proxy statement
are inaccurate. The investor groups assertions distort the factual record of the Companys existing
management as set forth in detail below.
Further, we do not believe that the investor groups proposals are in the best interests of the Companys
stockholders, and for the reasons stated above, the Company does not intend to have the investor groups
proposals brought before the Annual Meeting. In short, the investor groups proposals seeks to circumvent the
orderly process required in the Companys stockholder-approved Bylaws and Certificate of
Incorporation. We urge you to discard any proxy card that you may receive regarding the investor groups
proposals. Nevertheless, we remain open to any proposal involving a strategic alternative that
would maximize value for our stockholders, including a potential change of control transaction, and
we encourage the investor group (and the Lemperles) to consider this course of action if they wish to obtain
control over the direction of the Company.
The Lemperle Lawsuit
On August 29, 2008, the Company filed suit in San Diego Superior Court against Stefan Lemperle
and Gottried Lemperle for, among other things, breach of contract, fraudulent inducement and
intentional and negligent interference with prospective economic advantage relating to their
attempts to interfere with the Companys management and operations. The lawsuit seeks both
compensatory and punitive damages, as well as injunctive relief.
In sum, the lawsuit alleges that the Lemperles were separated from the Company in 2006, and
were provided substantial severance packages in exchange for their complete disassociation from the
Company, and their agreement to refrain from interfering with the Companys business. Stefan
Lemperles separation agreement specifically prohibits him from encouraging stockholders to
challenge management or decisions of the Companys Board of Directors through November 2009 or from
otherwise interfering with the Companys affairs. However, the Company believes that neither Stefan
nor Gottfried Lemperle intended to comply with the terms of their separation agreements, and that
despite their contractual obligations to the Company, the Lemperles conspired to undermine the
Companys management and to take control of the Company as evidenced by investor groups proposals
seeking to replace a majority of the Companys current directors with individuals hand-picked by
the Lemperles (the Lemperle Nominees). For example, Terry Knapp and Charles A. Schliebs, both
Lemperle Nominees, were recommended to be directors on the Companys Board by Stefan Lemperle in
June 2006. Similarly, Barry Vogel and Robert Binkele (both Lemperle Nominees) have close ties with
and were introduced to the Company by Stefan Lemperle and a former officer of the Company,
respectively. Further, the lawsuit alleges that and the Company believes that the Lemperles shared confidential or proprietary information about the Company, and
that they communicated this confidential or proprietary information to other stockholders of the
Company, including Shack and/or the Lemperle Nominees in violation of the terms of their separation
and confidentiality agreements with the Company.
Business Discussion
As stated in our recent Annual Report, 2007 was a year of accomplishment and challenge for the
Company. The Company launched its flagship product, ArteFill®, into the United States aesthetics
market, making it the first and only FDA-approved non-resorbable dermal filler for the treatment of
smile lines. The Company also established a nationwide network of more than 1,200 dermatologists,
plastic surgeons and cosmetic surgeons who have received training in the proper use of ArteFill so
that it has become available to a growing number of patients throughout the United States.
On the other hand, the overall level of ArteFill product sales for 2007 did not measure up to
our expectations and the products inherent potential. We have taken a hard look at the Companys
initial launch strategy and have initiated changes in the way we market ArteFill in order to
capitalize more fully on ArteFills competitive advantages.
Our immediate goals are to (i) raise funds to support the Companys operations and product
acquisition plans, (ii) accelerate the growth and acceptance of the Companys products among
physicians and patients, (iii) expand the Companys current product portfolio to include additional
new and innovative medical aesthetic products that can be cost-effectively marketed and sold
through its national sales team and (iv) further leverage the Companys already established
commercial infrastructure.
Financing. As discussed in our public filings, we intend to raise additional funds to support
the Companys operations and business plan discussed in more detail below. The Company recently
received a notice from The Nasdaq Stock Market (Nasdaq) indicating that its stockholders equity
at June 30, 2008 was less than the $10 million in stockholders equity required for continued
listing on The Nasdaq Global Market. The Company submitted a plan to Nasdaq addressing how it plans
to achieve and sustain compliance with Nasdaqs continued listing requirements. A central part of
this plan is to complete one or more financing transactions as soon as practical to raise funds to
increase the Companys stockholders equity to the levels required to maintain its Nasdaq listing.
Commercial Experience. Our market research tells us that patients are searching for a safe,
effective and long-lasting solution to wrinkle correction. Even as the industry continues to build
around the use of temporary dermal filler products, the high patient attrition rate among temporary
dermal filler patients due to credit card fatigue and injection fatigue is real and not going
away anytime soon. Our market research further shows that todays women lead busy and active lives,
and many want a safe and truly effective long-lasting wrinkle solution. We believe that ArteFill is
uniquely positioned to address this opportunity as the only FDA-approved non-resorbable dermal
filler.
We are receiving positive feedback from physicians and patients who have experienced ArteFill
since launch in February 2007. Physicians continue to report strong results relating to smile line
correction and patient satisfaction, with no serious adverse events reported. With over 10,000
patients now treated since ArteFills launch, we have established an excellent safety and efficacy
record that is further supported by a 5-year safety and efficacy study published in the
peer-reviewed journal Dermatologic Surgery.
Physician Development Initiatives. Since market launch, the Company has trained more than
1,200 dermatologists, plastic surgeons, and cosmetic surgeons on the use of ArteFill, and it is the
Companys goal to have 1,800 physicians trained by year-end 2008. We continue to focus on those
physicians experienced in the field of aesthetic medicine. We are convinced that we need to
continue to build this important base of physician acceptance so that, as our sales effort and
consumer initiatives begin to converge, we can translate this into stockholder value.
During 2007, we built a robust practice development program designed to assist physicians in
educating patients and treating them with ArteFill. We will also be initiating follow-on patient
incentive programs operating in concert with physician-driven initiatives. We have seen strong
interest among physicians to participate in our programs, which include other sales incentives, coupons and specialized discount programs. In
addition, since FDA approval, ArteFill has been included in many leading dermatology and plastic
surgery medical conferences showcasing the benefits of the products safety, long-term efficacy and
differences among various dermal filler products.
Larger and More Experienced Direct Sales Force. Following our market launch last year, it
became clear that even as we rapidly added physicians, the Company needed a larger and more
experienced sales force to provide a persistent presence at the physician level. As a result, the
Company has more than doubled the size of its sales force while substantially increasing its
consumer awareness programs. The Companys sales team now includes 42 sales representatives, the
majority of whom have extensive prior experience selling other competitive dermal fillers, medical
device products and aesthetic products directly into our target market physician base.
Direct-to-Consumer Marketing Efforts. The Company has also accelerated its consumer outreach
efforts, including national print advertising campaigns in major womens beauty magazines, robust
Internet marketing programs and other consumer initiatives. Because of these activities, we have
seen visits to the Companys websites more than double in first quarter 2008 compared to fourth
quarter 2007. We believe that this demonstrates an accelerating consumer interest in ArteFill.
Further, while the Company clearly must continue to focus on physician-centric marketing
initiatives and education, direct-to-consumer marketing activities have become a way of life and
physicians now expect all dermal filler companies to stimulate consumer interest through outreach
programs.
Continuing Research and Safety Studies. As previously announced, the Companys 1,000-patient
long-term safety study was initiated in late 2007. Patient interest has been extremely strong in
this study, and enrollment has been rapid. The Company produces a highly purified and partially
denatured collagen in its product, and we believe that this purity substantially reduces the risk
of allergic reactions to the bovine gel component of ArteFill. The Company has initiated a skin
test removal study, and during the first quarter of 2008, almost 500 patients were skin tested to
participate in this study. In total, approximately 700 patients have now been recruited to
participate in the study. When completed, we believe that this will represent another landmark
study in the dermal filler field based on the number of patients participating and the length of
the study period. We expect to have results by early 2009 and, with supporting clinical data, the
Company intends to seek regulatory approval to eliminate the skin test requirement which we believe
will further accelerate the market acceptance of ArteFill on a going forward basis.
Competitive Positioning. Over the past year, product offerings in the dermal filler market
have increased and we expect a steady flow of non-differentiated hyaluronic acid-based and
porcine-based temporary dermal filler products to enter the market this year and next. As a result,
we anticipate continued price pressure in the temporary filler space. Based on information in FDA
approved product labeling, virtually all of the current and planned temporary dermal filler
products offer efficacy ranging from as little as three months to perhaps up to twelve months. As a
result, we believe that ArteFill will remain highly differentiated from these competitor products
as the first and only FDA-approved non-resorbable injectable wrinkle filler, and we expect to
retain the Companys premium pricing and market positioning. We believe that there is no other
dermal filler product like ArteFill that (i) offers physicians with a more significant revenue
opportunity during a 30-minute procedure, and (ii) provides patients with such long-lasting
results. These simple facts, coupled with our continuing effort and focus, are what keep all of us
at the Company excited.
Recent Developments
Since the end of 2007, we have initiated a number of actions to improve the Companys
operations and increase the Companys value to its stockholders.
Record Second Quarter Results. The Company reported record ArteFill revenues of $3.2 million
for the quarter ended June 30, 2008, an increase of $1.1 million or 52% over ArteFill revenues of
$2.1 million from the quarter ended June 30, 2007 and a 91% increase in ArteFill revenues from the
first quarter ended March 31, 2008. The growth in ArteFill sales in the second quarter of 2008
reflects the positive impact of the Companys expanded team of sales representatives and its new
consumer outreach programs.
Elevess Distribution Agreement and Rapid Product Launch. Consistent with its business
strategy, in July 2008, the Company announced a distribution agreement with Anika Therapeutics Inc.
covering its marketing and sale of Elevess, a new FDA-approved hyaluronic acid based dermal filler. The Company
initiated its Elevess product launch in September 2008. Elevess is ideal for patients seeking
immediate, comfortable, temporary wrinkle correction lasting six months or more. ArteFill is the
only FDA-approved, non-resorbable treatment of choice for patients desiring long-lasting results.
In addition to the use of Elevess as a stand alone product, we believe both products are
complementary, in that they may be bundled for sequential use that allows Elevess to be used as a
temporary solution during the ArteFill skin test waiting period, followed by an ArteFill
long-lasting treatment. Based on this, the Company has introduced marketing programs that provide
favorable economic incentives for both physicians and patients who choose to purchase both ArteFill
and Elevess for use in their medical practices. With these products in its portfolio, the Company
is now uniquely positioned to deliver a full spectrum of wrinkle treatments for the growing facial
aesthetics market.
Cost Reduction Plan. Earlier this year, the Company instituted a plan to significantly reduce
certain administrative and operating costs in order to realign its overall cost structure to its
current revenue projections. We believe that the cuts made will help streamline the business and
reduce overall costs, resulting in a stronger business model (focusing more sharply on growing and
developing the market for ArteFill) and increasing overall stockholder value.
Strengthened Board and Management Team. In an effort to establish a stronger Board and
management team and to allow the Company to adjust to the ever-changing economic and competitive
landscapes, we recently announced important changes to the Companys management team and the
reorganization of management responsibilities. We are very pleased Michael Green has joined us as
our Chief Financial Officer (CFO). Michael has extensive experience as a public company CFO,
experience in capital raising and product and company acquisitions, was an auditor for Price
Waterhouse for 13 years, and is a CPA. Michael is a great addition to our team and we are looking
forward to his contributions as move forward. We have also added two new directors, Todd Davis and
Douglas Abel. Todd has extensive healthcare operating experience, having worked in business
development and general management at Elan Pharmaceuticals and in sales and marketing at Abbott
Laboratories. Douglas brings extensive experience to the Company in the aesthetics and medical
device fields. In addition, we are actively engaged in a search for a qualified Chief Executive
Officer to lead the Company into the next phase of the commercialization of ArteFill. We believe
these changes will enhance value to the Companys stockholders and support the Companys efforts to
produce medical device products that benefit both patients and physicians.
Stockholders Rights Plan. We believe the current market value of the Companys stock does not
reflect the Companys intrinsic economic value. As such, in May 2008, we adopted a stockholders
rights plan to help protect the Company and its stockholders from coercive takeover tactics. The
adoption of the plan is intended to facilitate negotiations with potential third party acquirers,
more fully ensure a fair and orderly process and guard against a takeover by a third party on terms
that would not be fair to or in the best interests of the Companys stockholders by taking
advantage of the Companys current, inadequate stock price. A committee of independent directors of
the Board will assess whether the plan remains in the best interests of the Company and its
stockholders at least every three years and may, at its discretion, make this assessment more
frequently.
CHRP Financing. In February 2008, the Company completed a financing arrangement with Cowen
Healthcare Royalty Partners, L.P. (CHRP) in which it raised $21.5 million. The Company used the
proceeds from this financing to expand its dedicated U.S. sales force and consumer outreach
programs, as well as to repay its existing debt. As part of the financing, the Company granted CHRP
a royalty interest in sales of its products, as well as a secured promissory note. The Company also
issued CHRP two warrants, one to purchase 1,300,000 shares at $5.00 per share and another to
purchase 375,000 shares at $3.13 per share. These warrant shares, if fully exercised, represent
significantly less than 10% of the Companys outstanding capitalization. As a result, the Company
used its tangible and intangible assets to secure $21.5 million through this financing arrangement,
and minimized the potential dilutive effect to its stockholders.
Conclusion
In closing, we remain firmly committed to promoting the Companys growth and overall progress.
We, the Board of Directors, have taken direct action to systematically understand the issues that
face the Company and have initiated positive and affirmative actions intended to successfully
advance ArteFill and Elevess in the market and to enhance long-term stockholder value.
With our increased sales force, our balanced marketing and promotional consumer initiatives,
our increased practice development activities and our clinical studies, we believe ArteFill has the
potential to establish a very important market niche in which patient satisfaction supports our
premium pricing and allows us to generate an attractive revenue stream with a relatively modest
niche market share. Although we feel that our successes are not yet represented in the Companys
stock price, we firmly believe that the decisions we have made will move the Company forward and
are in the best interests of the Company and its stockholders.
For the reasons set forth above, we do not believe that the assertions or the requested
actions contained in the investor groups preliminary proxy statement are serious, justified or necessary.
Further, we believe that the investor groups proposals seek to circumvent the orderly process required in the
Companys stockholder-approved Bylaws and Certificate of Incorporation. We remain open to any
proposal involving a strategic alternative that would maximize value for our stockholders,
including a potential change of control transaction, and we encourage Shack, the Lemperles and
others to consider this course of action if they wish to obtain control over the direction of the
Company.
We encourage you to participate in the Companys Annual Meeting and vote your proxy in
accordance with the recommendations of the Companys Board of Directors and management. Thank you
again for your continued support of the Company.
Most sincerely,
Christopher J. Reinhard
Executive Chairman of the Board of Directors
Forward-Looking Statements
This letter to stockholders contains forward-looking statements that are based on the
Companys current beliefs and assumptions and on information currently available to its management
and Board of Directors. Forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause the Companys actual results, performance or achievements to be
materially different from any future results, performance or achievements expressed or implied by
the forward-looking statements. As a result of these risks, uncertainties and other factors, which
include the Companys history of net losses, its ability to timely raise additional funds to
support its operations and future product acquisition plans, its ability to manage its operating
expenses, its reliance on sales of ArteFill and Elevess, its future receipt of FDA approval to
extend the efficacy period of ArteFill beyond six months and eliminate the skin test requirement,
and the risk that the Companys revenue projections may prove incorrect because of unexpected
difficulty in generating sales and market acceptance of ArteFill and Elevess, readers are cautioned
not to place undue reliance on any forward-looking statements included in this letter to
stockholders. A more extensive set of risks and uncertainties is set forth in the Companys SEC
filings available at www.sec.gov. These forward-looking statements represent beliefs and
assumptions only as of the date of this letter, and the Company assumes no obligation to update
these forward-looking statements publicly, even if new information becomes available in the future.
Important Additional Information
On September 12, 2008, the Company filed an amended preliminary proxy statement with the
Securities and Exchange Commission (the SEC) in connection with the solicitation of proxies for
its 2008 annual meeting of stockholders and will mail the definitive proxy statement (the Proxy
Statement) to stockholders prior to the annual stockholders meeting. The Proxy Statement contains
important information about the Company and the annual meeting. The Companys stockholders are
urged to read the Proxy Statement carefully. Stockholders will be able to obtain copies of the
Companys 2008 Proxy Statement and other documents filed by the Company with the SEC in connection
with its 2008 annual meeting of stockholders at the SECs website at www.sec.gov or at the
Investor Relations section of the Companys website at www.artesmedical.com. The Company, its
directors and its executive officers are deemed participants in the solicitation of proxies from
stockholders in connection with the Companys 2008 annual meeting of stockholders. The contents of
the websites referenced above are not deemed to be incorporated by reference into the Proxy
Statement.
Artes Medical® and ArteFill® are registered trademarks of Artes Medical, Inc.