AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 18, 1999
REGISTRATION NO. 333-82683
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________
AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________
ADVANCED TISSUE SCIENCES, INC.
(Exact name of Registrant as Specified in Its Charter)
Delaware 14-1701513
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
__________
10933 North Torrey Pines Road, La Jolla, California 92037 (858) 713-7300
(Address, Including Zip Code, And Telephone Number, Including Area Code, Of
Registrant's Principal Executive Offices)
__________
Arthur J. Benvenuto
Chairman of the Board And Chief Executive Officer
ADVANCED TISSUE SCIENCES, INC.
10933 North Torrey Pines Road, La Jolla, California 92037 (858) 713-7300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
__________
Copies to:
Faye H. Russell, Esq.
Maria P. Sendra, Esq.
BROBECK, PHLEGER & HARRISON LLP
550 West C Street
San Diego, California 92101
(619) 234-1966
__________
Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this registration statement.
If only the securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [x]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of
Securities to be Registered Registered(1) Per Unit(1) Price(1) Registration Fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of 3,750,000 $4.00 $15,000,000 $4,170
one share of our common
stock, par value of $0.01
per share, and one warrant
to purchase up to 0.37333333
of a share of our common stock
- ----------------------------------------------------------------------------------------------------
Common stock included in 3,750,000 -- -- --
the Units
- ----------------------------------------------------------------------------------------------------
Warrants included in 1,400,000 -- -- --
the Units
- ----------------------------------------------------------------------------------------------------
Common stock issuable upon 1,400,000 $4.00 $ 5,600,000(2) $1,557
exercise of the Warrants
included in the Units(2)
- ----------------------------------------------------------------------------------------------------
TOTAL REGISTRATION FEE $5,727(3)
- ----------------------------------------------------------------------------------------------------
</TABLE>
__________
(1) Estimated pursuant to Rule 457(a) solely for the purpose of computing
the amount of the registration fee.
(2) Pursuant to Rule 457(g)(i).
(3) $4,630 was previously paid in connection with the July 12, 1999 filing of
this S-3 registration statement. The additional $1,097 is being paid
with this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
===============================================================================
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 18, 1999
PRELIMINARY PROSPECTUS
The information in this preliminary prospectus is not complete and may be
changed. The units covered by this preliminary prospectus may not be sold
until the registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an offer to sell
the units and it is not soliciting an offer to buy the units in any state
where the offer or sale is not permitted.
3,750,000 UNITS
ADVANCED TISSUE SCIENCES, INC.
UNITS
EACH UNIT CONSISTING OF ONE SHARE OF OUR COMMON STOCK AND
ONE WARRANT TO PURCHASE UP TO 0.37333333 OF ONE SHARE OF OUR COMMON STOCK
This prospectus relates to the public offering, which is not being
underwritten, of up to 3,750,000 units. Each unit consists of one share of
our common stock, par value $0.01 per share and one warrant to purchase up
to 0.37333333 of one share of our common stock at a purchase price of $4.00
per whole share. The warrants may be exercised at any time beginning on the
date of issuance and ending three years following such date.
All of the units are being offered and may be sold by us. However,
there is no minimum offering amount and it is possible that we may not
sell all of the units being offered.
The common stock and warrants which comprise the units will separate
immediately upon issuance. The warrants will not be traded on the
Nasdaq National Market. Our common stock is traded on the Nasdaq National
Market under the symbol "ATIS." We anticipate that the public offering price
will be $4.00 per unit.
_______________
THE UNITS OFFERED INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 6 FOR A DISCUSSION OF SOME IMPORTANT RISKS YOU SHOULD
CONSIDER BEFORE BUYING ANY OF OUR UNITS.
_______________
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES, OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
===============================================================================
Proceeds to
Price to Public Advanced Tissue Sciences
===============================================================================
Per Unit
- -------------------------------------------------------------------------------
Total
===============================================================================
The proceeds to Advanced Tissue Sciences are based on proceeds before deducting
expenses payable by us estimated at $125,000.
The units offered hereby are offered directly by us. It is expected
that delivery of certificates representing shares will be made against
payment on or about ___________________, 1999.
_______________
The date of this prospectus is October __, 1999
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Advanced Tissue Sciences, Inc. 3
Recent Developments 5
Risk Factors 6
Forward-Looking Statements 14
Where You Can Find More Information 14
Information Incorporated by Reference 15
Use of Proceeds 16
Dilution 17
Plan of Distribution 18
Description of Warrants 18
Legal Matters 19
Experts 19
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<PAGE>
ADVANCED TISSUE SCIENCES, INC.
We are a leading company in developing tissue products grown from human
cells. We develop these tissue products for medical applications. We are
currently focusing our efforts on skin, cartilage and cardiovascular products.
We apply a broad range of scientific disciplines, such as cell biology,
bioengineering, biochemistry, and polymer and transplant science to culture
living human cells "in vivo" or in the body, or "ex vivo" or outside the body.
We culture the cells in a manner that allows them to develop and assemble into a
functioning tissue. We have successfully replicated a variety of human tissues
using our technology.
Our objective is to redefine tissue repair and transplantation by
developing, manufacturing and marketing products produced through our
technology. Our product strategy is to use our patented methods to develop
multiple products which address unmet therapeutic needs or offer improved, cost-
effective alternatives to current methods of treating patients. By building on
our base of scientific knowledge through the continued application of our
technology, we believe we can achieve significant advances in the development,
clinical testing and manufacture of each of our tissue products.
Our first commercial product, TransCyte[TM], a temporary covering for
burns, was first approved for commercial sale by the FDA in March 1997 for
full-thickness, or third degree burns, and for partial-thickness, or second
degree burns, in October 1997. Dermagraft[R] for the treatment of diabetic
foot ulcers, a living replacement for the lower or dermal layer of human skin,
is in clinical trials in the United States. Dermagraft for diabetic foot
ulcers and TransCyte for burns have been introduced in other countries as
permitted by regulatory requirements. Both TransCyte and Dermagraft are being
commercialized through a joint venture with Smith & Nephew plc. Our other
products are at earlier stages of development.
TRANSCYTE. TransCyte consists of a dermal tissue with an ultra-thin
synthetic covering that acts as a protective cover. In the treatment of third
degree burns, TransCyte is designed to help retain fluids and reduce the risk of
infection until a sufficient amount of the patient's own skin becomes available
for grafting. TransCyte, as compared to silver sulfadiazine in treating second
degree burns, has been shown to heal burns faster.
Of the approximately 1.2 million people who suffer burn injuries annually
in the United States, up to 13,000 are severely burned and require skin grafts.
TransCyte was initially approved to address the approximately 1,500 severely
burned patients with burns exceeding 20% body surface area. Another 30,000 to
40,000 burn victims, often children, suffer the partial to mid-dermal burns also
being addressed by TransCyte. These burns frequently result from household
hazards such as scalds from hot liquids, faulty heating pads or misuse of
ignition fluids.
DERMAGRAFT. Dermagraft consists of living skin cells called fibroblasts
grown on a scaffold that will dissolve over time. It is designed to provide a
healthy, metabolically active tissue to be placed in chronic skin ulcers to
support wound closure. Healing skin ulcers faster can potentially reduce the
risk of infection (and, in the case of diabetic foot ulcers, the subsequent risk
of amputation), as well as the need for skin grafting and reconstructive
procedures. Chronic skin ulcers that may be addressed by Dermagraft include
diabetic foot ulcers, skin ulcers on the lower part of the leg, generally known
as venous ulcers, and pressure ulcers.
Approximately 800,000 diabetic foot ulcers are estimated to be treated in
the United States each year, approximately half of which are believed to
represent the target market for Dermagraft. It is estimated that more than
1.2 million patients are affected by acute pressure ulcers, and over 200,000
nursing home patients suffer from chronic pressure ulcers. Approximately
500,000 patients are diagnosed with venous ulcers in the United States each
year.
ORTHOPEDICS. Through a separate joint venture with Smith & Nephew, we are
developing cartilage tissues for orthopedic applications. Over the past several
years, the joint venture's activities have focused on the development of
articular cartilage, a smooth cartilage that covers the surfaces of joints. We
believe a manufactured articular cartilage could be used to repair cartilage
defects in joints. This would provide an opportunity to treat patients at an
earlier stage of joint degeneration, thereby delaying, or in some cases
eliminating, the need for total joint replacements. We are working to optimize
the product before advancing into clinical trials. The joint venture has also
developed
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<PAGE>
prototypes for a meniscus, the fibrous "shock absorbing" cartilage in the
knee, and is performing preclinical studies during 1999.
There are over 1.2 million arthroscopic procedures for repair of the knee,
including procedures involving articular cartilage, meniscus and ligament,
performed annually in the United States.
CARDIOVASCULAR. Through the use of our technology, we are developing blood
vessels that will grow and repair normally. Potentially, these blood vessels
could provide enhanced biocompatibility and improved patency with a reduced need
for the anticoagulant drugs required with currently available products. In
collaboration with the Department of Bioengineering at the University of
California, San Diego, we are currently leading an effort to design, construct
and evaluate blood vessel grafts produced from cells grown on a scaffold that
would be compatible with implantation. This project is using current advances
in various scientific areas, such as cell culture, bioreactor technology,
biomaterials and blood vessel mechanics to create a unique, living tissue
replacement for blood vessels. The successful integration of these technologies
could lead to the development of grafts to treat coronary and peripheral artery
vascular diseases.
In the United States, over 900,000 people die each year from cardiovascular
disease. More specifically, 14 million people suffer from coronary artery
disease and over 380,000 coronary artery bypass procedures are performed
annually in the United States. Likewise, each year approximately 70,000
patients undergo surgery for the replacement of peripheral blood vessels.
SMITH & NEPHEW PLC. In April 1996, we entered into an agreement with
Smith & Nephew to form a joint venture for the worldwide commercialization of
Dermagraft in the treatment of diabetic foot ulcers. The Dermagraft Joint
Venture was expanded in 1998 to include venous ulcers, pressure ulcers, burns
and other skin tissue wounds. Under the joint venture agreement with Smith &
Nephew, we are principally responsibility for manufacturing and Smith & Nephew
has primary responsibility for the worldwide sales and marketing of Dermagraft
and TransCyte. Smith & Nephew is a world leader in wound care sales with an
established sales force in over 90 countries. It develops, manufactures and
markets a wide range of tissue repair products, principally addressing the areas
of bone, joints, skin and other soft tissue. Smith & Nephew is known in the
United States for its comprehensive training and customer education programs,
and it has successfully launched several advanced wound care products.
In 1994, we entered into a separate joint venture with Smith & Nephew for
the worldwide development, manufacture and marketing of human cartilage tissue
based on our technology for orthopedic applications. Under the terms of the
agreement, we are responsible for supervising the manufacturing of the cartilage
tissue products. The joint venture will execute the research and development
program, develop a worldwide marketing plan, and will utilize Smith & Nephew's
established selling and distribution network to market the products.
INAMED CORPORATION. We recently entered into a strategic alliance with
Inamed Corporation for the development and marketing of aesthetic and certain
reconstructive applications of our technology. Specifically, we licensed Inamed
rights to develop, market and sell certain products for use in cosmetic surgery,
cartilage for plastic and reconstructive applications, and a product for breast
reconstruction. Inamed also received an option to license rights to certain of
our products which potentially may be used for soft tissue augmentation such as
in wrinkle and cosmetic correction, and for the treatment of urinary
incontinence. Inamed Corporation is a global surgical and medical device
company engaged in the development, manufacture and marketing of medical devices
for the plastic and reconstructive, bariatric and general surgery markets.
Dermagraft[R], TransCyte[TM] and NeoCyte[TM] are our trademarks. This
prospectus also includes names and trademarks of other companies.
Advanced Tissue Sciences was incorporated in Delaware in 1987. Our
principal executive offices are located at 10933 North Torrey Pines Road, La
Jolla, California 92037, and our telephone number is (858) 713-7300.
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<PAGE>
RECENT DEVELOPMENTS
In September 1999, in an expansion of our strategic alliance, we announced
Inamed Corporation had acquired license rights to develop and market human
collagen based on our technology for wrinkle and cosmetic correction and
as a bulking agent for urinary incontinence. As a part of the licensing
rights, we received an additional $4 million, including $2 million for
licensing rights and $2 million for Inamed's purchase of approximately
316,500 shares of common stock. We also granted Inamed a five-year warrant
to purchase up to an additional 200,000 shares of common stock.
At the end of September, we notified the holders of the series B preferred
stock of our election to redeem for cash at 105% of liquidation value any
preferred shares submitted for conversion from October 1, 1999 to December 31,
1999 at a conversion price equal to or below $3.58 per share. For example,
for each share of preferred stock submitted for conversion at a conversion
price equal to or below $3.58 per share, we would be required under this
election to redeem each share by paying the holder $52,500 plus accrued
dividends. If all of the shares were submitted for conversion at or below
$3.58 per share, we would be required to use approximately $5.4 million of
our existing cash and investments to redeem those shares. If the shares are
submitted for conversion at a conversion price above $3.58 per share, the
preferred stock would be converted at a minimum price of at least $4.77 per
share. These conversions would generally be at a discount to the then current
market price of our common stock. This could result in the issuance of up to
approximately 1.1 million shares of our common stock and additional dilution
to you.
We may withdraw this redemption election on five days advance notice. We
may also continue the election on a quarter by quarter basis for so long as we
have adequate cash available for the redemption. We may not have enough cash
available to continue this election if this offering is not successful. If we
decide to discontinue or do not have sufficient cash available to redeem the
preferred stock, conversions of the preferred stock can be made at conversion
prices at or below $3.58 per share. As the conversion price is determined based
on stock prices over a 45-day period, conversion prices will vary and can be at
a substantial discount to the market price. There is no limit as to how low the
conversion price can go. As a result you could experience substantial dilution
as a result of any such conversions. As of September 30, 1999, the conversion
price is $3.10 per share. If all the outstanding preferred shares were
converted at this price, we would issue another 1.6 million shares of common
stock.
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<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD
CAREFULLY CONSIDER THE FOLLOWING RISKS AND UNCERTAINTIES BEFORE DECIDING TO
PURCHASE SHARES OF OUR COMMON STOCK. AN INVESTMENT IN OUR COMMON STOCK INVOLVES
A HIGH DEGREE OF RISK.
RISKS RELATED TO OUR BUSINESS
- -----------------------------
WE HAVE A HISTORY OF LOSSES AND MAY NOT BECOME PROFITABLE.
To date, we have experienced significant operating losses in funding the
research, development, testing and marketing of our products and expect to
continue to incur substantial operating losses. To June 30, 1999, we had
incurred cumulative net operating losses of $228.7 million. Our ability to
achieve profitability depends in part upon our ability to successfully
manufacture and market Dermagraft and TransCyte for skin ulcers and burns.
We may never achieve a profitable level of operations or even if we achieve
profitability, we may not be able to sustain it on an ongoing basis.
IF OUR PRODUCTS FAIL IN CLINICAL STUDIES, WE WILL BE UNABLE TO OBTAIN FDA
APPROVAL AND WILL NOT BE ABLE TO SELL THOSE PRODUCTS.
In order to sell our products that are under development, and our existing
products for additional applications, we must receive regulatory approval for
our products. To obtain those approvals, we must conduct clinical studies
demonstrating that our products are safe and effective. If we cannot obtain FDA
approval for a product or any additional application of a product, that product
cannot be sold and revenues will suffer.
Early in 1998, an FDA Advisory Panel recommended the FDA approve Dermagraft
for marketing in the United States for the treatment of diabetic foot ulcers.
The Advisory Panel's recommendation included certain conditions we would have
needed to satisfy after the commercial introduction of Dermagraft. However,
in June 1998, the FDA requested we complete an additional controlled clinical
trial to support our application for approval to market Dermagraft for the
treatment of diabetic foot ulcers. We are currently conducting this additional
pivotal clinical trial. Commercial introduction within the United States is
subject to successful completion of the additional clinical trial and FDA
approval.
Although Dermagraft appears promising based on clinical studies to date,
it may not be successful in this additional clinical trial or other future
clinical trials. Our ongoing clinical study of Dermagraft, and clinical
studies of our other products, may be delayed or halted for various reasons,
including:
- the product is not effective, or physicians think that it is not
effective;
- patients experience severe side effects during treatment;
- patients do not enroll in the study at the rate we expect, or
- product supplies are not sufficient to treat the patients in the study.
In addition, the FDA and foreign regulatory authorities have substantial
discretion in the approval process. The FDA and foreign regulatory authorities
may not agree that we have demonstrated that Dermagraft, or any of our other
products, are safe and effective after we complete clinical trials.
WE WILL NEED ADDITIONAL FUNDS TO SUPPORT OPERATIONS. IF WE ARE UNABLE TO OBTAIN
THEM, WE WOULD BE UNABLE TO COMPLETE OUR PRODUCT DEVELOPMENT PROGRAMS AND WOULD
HAVE TO REDUCE OR CEASE OPERATIONS, OR ATTEMPT TO SELL SOME OR ALL OF OUR
OPERATIONS OR TO MERGE WITH ANOTHER ENTITY.
The further development of our technology and products as well as any
further development of manufacturing capabilities or the establishment of
additional sales, marketing and distribution capabilities will
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<PAGE>
require the commitment of substantial funds. Our existing working capital
will not be sufficient to meet our needs. Potential sources of additional
funds include payments from our alliances with Smith & Nephew and Inamed and
our borrowing capacity under the cartilage joint venture with Smith & Nephew.
If, for any reason, Smith & Nephew were to terminate the Dermagraft Joint
Venture or, to a lesser extent, the cartilage joint venture, we would
experience a substantial increase in the need for and use of our working
capital to support the commercialization and manufacture of our Dermagraft
and TransCyte products or the development of our orthopedic cartilage products.
We could also acquire additional funding through collaborative arrangements or
the extension of existing arrangements, which could require the issuance of
additional equity interests in us and dilute your interest.
To the extent that we choose not to or are unable to establish such
arrangements, we would experience increased capital requirements to undertake
research, development and marketing of our proposed products at our own
expense. If we are not able to meet these expenses we may be unable to
continue our operations.
We may not satisfy the milestones for additional funds under the joint
ventures with Smith & Nephew or the Inamed alliance. We also may not be able to
obtain adequate funds under other existing or future arrangements when such
funds are needed or, if available, on terms acceptable to us. In addition,
potential investors have requested that we terminate our equity line. Thus,
it is likely that funds under our equity line will be completely unavailable.
Even if the equity line were not terminated, in certain circumstances, funds
under the equity line could be limited or completely unavailable based on
the following limitations:
- any draw by us under the equity line may not exceed $15 million;
- draws by us within any three-month period cannot exceed 4.9% of the
outstanding shares of our common stock;
- the investor group does not have to accept any draw which would result in
such group owning more than 4.9% of the outstanding shares of our common
stock; and
- we cannot draw against the equity line during the pricing period for an
earlier draw.
In addition, we may not effect a drawing under the equity line if:
- our common stock is trading at less than $2 per share;
- trading of our common stock on the Nasdaq National Market has been
suspended;
- our common stock has been delisted from the Nasdaq National Market; or
- we do not have in effect a registration statement under the Securities
Act of 1933 covering the issuance and resale of the common stock to be
issued pursuant to the draw.
Insufficient funds may require us to delay, scale back or eliminate certain
of our research and product development programs or that we license third
parties the right to commercialize products or technologies that we would
otherwise commercialize ourselves or that we attempt to merge with another
entity.
OUR PRODUCTS MAY NOT BE ACCEPTED BY THE MARKET AND MAY NOT BE SUCCESSFULLY
COMMERCIALIZED BECAUSE PHYSICIANS AND PATIENTS MAY NOT PURCHASE OR USE THEM.
Our products are based on new and innovative technologies and the medical
community or the general population may not broadly purchase or use our products
as alternatives to existing methods of treatment. Sales of our products could
be adversely affected by:
- their respective cost;
- concerns related to efficacy;
- the effectiveness of alternative methods of treatment; or
- the lack of sufficient third-party reimbursement.
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<PAGE>
Any future negative events or other unfavorable publicity involving the
use of our products could also adversely affect acceptance of our products.
Both we and Smith & Nephew have limited direct experience marketing or
obtaining third-party reimbursement for these types of products.
Additionally, TransCyte has only been marketed and sold in the United
States for a limited period of time and may not achieve commercial acceptance in
the United States. Similarly, Dermagraft has only been sold internationally and
may never achieve commercial acceptance in the United States even if it receives
FDA approval.
WE RELY ON THIRD PARTIES TO MARKET, DEVELOP AND SELL OUR PRODUCTS AND THOSE
THIRD PARTIES MAY NOT PERFORM SUCCESSFULLY. OUR DEPENDENCE ON THIRD PARTIES AND
OUR LACK OF SALES AND MARKETING PERSONNEL COULD LIMIT OUR ABILITY TO DEVELOP OUR
PRODUCTS OR TO GENERATE REVENUES FROM PRODUCTS SALES.
We are particularly dependent on Smith & Nephew with respect to the
Dermagraft and the cartilage joint ventures. The amount and timing of resources
to be devoted by Smith & Nephew is not within our control. In addition, the
Dermagraft and cartilage joint venture agreements provide that they may be
terminated prior to their expiration under certain circumstances that are
outside our control. If Smith & Nephew does not perform its obligations as
expected or if Smith & Nephew has a strategic shift in its business focus, it
would be difficult for us to successfully complete the development efforts of
the Dermagraft and cartilage joint ventures. We are relying on Smith & Nephew
and others to market our products both domestically and internationally. Our
success in generating market acceptance of Dermagraft and TransCyte will depend
on the marketing efforts of Smith & Nephew. We cannot control the amount and
timing of resources that Smith & Nephew or others may devote to marketing and
selling our products. Smith & Nephew may not perform its obligations under the
Dermagraft Joint Venture as expected. Our failure to achieve broad use of
Dermagraft for the treatment of diabetic foot ulcers and, to a lesser extent,
TransCyte for burn care, would hurt our ability to generate revenues and
profits.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY, WE MAY BE UNABLE TO
PREVENT OTHER COMPANIES FROM USING OUR TECHNOLOGY IN COMPETITIVE PRODUCTS. IF
WE INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WE MAY BE PREVENTED FROM
DEVELOPING OR MARKETING OUR PRODUCTS.
Our ability to compete effectively will depend, in part, on our ability to
maintain the proprietary nature of our technology and manufacturing processes.
Our competitors may develop products that are the same as our products and
market those products after our patents expire, or may design around our
existing patents. If this happens, sales of our products would suffer and our
ability to generate revenues will be severely impacted. Furthermore, patents
may be issued to others that prevent the manufacture or sale of our products.
We may have to pay significant fees or royalties to license those patents in
order to continue marketing our products. This would cause our profits on sales
of our products to decline.
Our dependence upon having exclusive rights to the technology covered
under our patent applications and licensed patent applications is subject to
the following risks:
- applications may not result in issued patents;
- current or future issued or licensed patents, trade secrets or know-how
may not afford protection against competitors with similar technologies
or processes;
- any patents issued may be infringed upon or designed around by others; or
- others may independently develop technologies or processes that are the
same as or substantially equivalent to ours.
In addition to patent protection, we also rely on trade secrets, know-how
and technology advances. We enter into confidentiality agreements with our
employees and others, but these agreements may not be effective in protecting
our proprietary information. Others may independently develop substantially
equivalent information or obtain access to our know-how.
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<PAGE>
Litigation, which is very expensive, may be necessary to enforce or defend
our patents or rights and may not end favorably for us. Any of our licenses,
patents or other intellectual property may be challenged, invalidated, canceled,
infringed or circumvented and may not provide any competitive advantage to us.
IF THE THIRD-PARTY SUPPLIERS THAT SUPPLY THE MATERIALS NECESSARY TO MANUFACTURE
OUR PRODUCTS DO NOT SUPPLY QUALITY MATERIALS IN A TIMELY MANNER, IT MAY DELAY OR
IMPAIR OUR ABILITY TO DEVELOP AND COMMERCIALIZE PRODUCTS ON A TIMELY AND
COMPETITIVE BASIS OR ADVERSELY AFFECT OUR POTENTIAL FUTURE PROFITABILITY.
Although most of the raw materials used in the manufacture of our
Dermagraft and TransCyte products are available from more than one supplier,
changes in certain critical components could cause the FDA to require us to
prove equivalency of the materials or potentially to modify or perform
additional clinical trials for our Dermagraft and TransCyte products. This
could have the effect of restricting our ability to commercialize our products.
The mesh framework used by us in the manufacture of Dermagraft is available
under a supply agreement with only one FDA-approved manufacturing source.
Similarly, the synthetic mesh framework used by us in the manufacture of
TransCyte is only available under a supply agreement with a different
FDA-approved manufacturing source. Because the FDA approval process requires
manufacturers to specify their proposed suppliers of active ingredients and
certain component parts and packaging materials in their applications, FDA
approval of a new supplier would be required if these materials become
unavailable from the current supplier.
Interruptions in supplies for the manufacture of our Dermagraft and
TransCyte products may occur in the future and we may have to obtain substitute
vendors for these materials. Any significant supply interruption would delay
our clinical trials as well as our product development and marketing programs.
In addition, an uncorrected impurity or supplier's variation in a raw material,
either unknown to us or incompatible with our manufacturing process, could
prevent or delay our ability to manufacture products.
IF OUR PRODUCTS THAT ARE IN AN EARLY STAGE OF DEVELOPMENT ARE NEVER SUCCESSFULLY
COMMERCIALIZED WE MAY NOT HAVE REVENUES TO CONTINUE OPERATIONS.
We have products that are in an early stage of development. To date only
TransCyte has been approved for commercial sale, and only Dermagraft has
advanced to clinical trials for the treatment of diabetic foot ulcers in the
United States. However, Dermagraft will still require further marketing
approvals from the FDA, and all of our other products are at earlier stages of
research, development and testing. These products, including additional
indications for Dermagraft and TransCyte, will require significant additional
research and development, as well as extensive preclinical and clinical testing.
Since our products are based on innovative technologies, there are many
reasons why our products may not advance beyond their early stage of
development. These reasons include the possibilities that:
- any or all of these products will be found to be unsafe or ineffective
or otherwise fail to receive necessary regulatory approvals;
- our products are uneconomical to market;
- third parties may hold legal rights that preclude us from marketing such
products; or
- our products fail to achieve market acceptance in light of competing
technologies and products.
RISKS RELATED TO OUR INDUSTRY
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IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL ANY
OF OUR PRODUCTS, OR IF APPROVAL IS DELAYED, IT COULD INCREASE THE COST OF
PRODUCT DEVELOPMENT, OR ULTIMATELY PREVENT OR DELAY OUR ABILITY TO SELL OUR
PRODUCTS AND GENERATE REVENUES.
We and our collaborators are subject to extensive government regulation.
The FDA and other state and foreign regulatory authorities require rigorous
preclinical testing, clinical trials and other product approval procedures for
our products. Numerous regulations also govern the manufacturing, safety,
labeling, storage, record keeping, reporting and marketing of our products.
The process of obtaining these approvals and complying with
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applicable government regulations is time consuming and expensive. The FDA
and other state or foreign regulatory authorities have limited experience with
our technology and products. As a result, our products are susceptible to
requests for clinical modifications or additional supportive data, or changes
in regulatory policy, which could substantially extend the test period for
our products resulting in delays or rejections. Even after substantial time
and expense, we may not be able to obtain regulatory product approval by the
FDA or any equivalent state or foreign authorities. If we obtain regulatory
product approval, the approval may limit the uses for which we may market the
product.
For example, in June 1998, the FDA indicated that our marketing application
for Dermagraft for the treatment of diabetic foot ulcers was not approvable
without supportive data from an additional clinical trial. We are currently
conducting the additional clinical trial of Dermagraft in the treatment of
diabetic foot ulcers as requested by the FDA. If the trial is not successful or
if we do not receive FDA approval at the conclusion of the clinical trial it
will prevent or at least delay sales of Dermagraft.
In addition, although the FDA has classified TransCyte as a medical
device, the state of California and the state of New York have notified us
that we must register as a tissue bank in order to manufacture or distribute
TransCyte in those states. Although many states do not regulate tissue banks,
there are certain other states besides California and New York that do. Such
states could take a position similar to California and New York with regard to
the regulatory status of TransCyte. In June 1997, we submitted a request to
the FDA for an advisory opinion that the FDA's regulation of this product as a
medical device preempts New York from regulating it as human tissue under a
different licensing scheme. Both New York and California have provided
written submissions to the FDA urging the agency to deny our request. To
date, the FDA has not ruled. If states are permitted to regulate TransCyte
as a human tissue, we and our customers could be subjected to a costly new
layer of regulation. In addition, under the laws of some states that regulate
tissue, including New York and Florida, the sale of human tissues for valuable
consideration is prohibited. We are currently distributing TransCyte in the
State of New York under a provisional tissue banking license. Due to the
similarities of the products, regulations applicable to TransCyte are also
expected to apply to our Dermagraft product as well.
After regulatory approval is obtained, our product, its manufacture and
related manufacturing facilities will be subject to continual review and
periodic inspections. Any subsequent discovery of previously unknown problems
with a product, manufacturer or facility may result in restrictions on the
product or manufacturer, including withdrawal of the product from the market.
For example, after inspecting the manufacturing facility early in 1998 in
conjunction with our application for the approval of Dermagraft for the
treatment of diabetic foot ulcers, the FDA notified us of numerous objection-
able conditions under a Form FDA 483 list of observations. These observations
concerned our manufacturing processes and systems for Dermagraft and TransCyte.
In March 1998, the FDA issued a warning letter requiring us to investigate and
correct the conditions identified by the FDA. In September 1998, we
successfully completed a reinspection by the FDA of our manufacturing facility
and quality systems. However, we must continue to pass future inspections by
the FDA of our manufacturing facility.
Our research and development activities and operations involve the
controlled use of small quantities of radioactive compounds, chemical solvents
and other hazardous materials. In addition, our business involves the growth
of human tissues. In the event of an accident, we could be held liable for
any damages that result. In addition, these research activities and
operations are subject to continual review under the Occupational Safety and
Health Act, the Environmental Protection Act, the Toxic Substances Control Act,
the Resource Conservation and Recovery Act and other federal, state or local
laws and regulations which impact our ability to develop and market our
products.
HEALTHCARE REFORM MEASURES AND REIMBURSEMENT PROCEDURES MAY PREVENT US FROM
OBTAINING AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS THAT IN TURN WOULD
DECREASE OUR ABILITY TO GENERATE REVENUES.
Our ability to commercialize products successfully will depend in part on
the extent to which reimbursement for the costs of such products and related
treatments will be available from government health administration authorities,
private health insurers and other organizations. In the United States,
government and other third-party payors are increasingly attempting to contain
healthcare costs by limiting both coverage and the level of reimbursement for
new products approved for marketing by the FDA. In some cases, such payors may
refuse to provide any coverage for uses of approved products for indications
that the FDA has not granted marketing
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approval. Initiatives to reform healthcare delivery are increasing these cost
containment efforts. As managed care organizations continue to expand as a
means of containing healthcare costs, we believe there may be attempts by
such organizations to restrict the use of, delay authorization to use, or
limit coverage and the level of reimbursement for, new products, such as
those being developed and commercialized by us, pending completion of
cost/benefit analyses of such products by those managed care organizations.
Internationally, where national healthcare systems are prevalent, little if
any funding may be available for new products, and cost containment and cost
reduction efforts can be more pronounced than in the United States.
We have supported health economics studies and research and have developed
cost offset or cost-effectiveness models with respect to our TransCyte and
Dermagraft products in an effort to help obtain appropriate and adequate third
party coverage and reimbursement for these products. However, these products
are novel and as such are subject to inherent uncertainty in the area of
reimbursement. Adequate government or private payor coverage or levels of
reimbursement may not be available for any of our products and we may not be
able to maintain price levels sufficient for the realization of an appropriate
return on our investment in such products. Failure to obtain sufficient
coverage and reimbursement levels for uses of our products could decrease the
market acceptance of such products.
DISCOVERIES OR DEVELOPMENTS OF NEW TECHNOLOGIES BY OUR COMPETITORS OR OTHERS MAY
MAKE OUR PRODUCT LESS COMPETITIVE OR MAKE OUR PRODUCTS OBSOLETE.
The biomedical technology industry is subject to rapid, unpredictable and
significant technological change. Competition from universities, research
institutions and pharmaceutical, chemical and biotechnology companies is
intense. Many competitors or potential competitors have greater financial
resources, research and development capabilities and manufacturing and marketing
experience than we do. In general, the first biomedical product to be
commercialized for a particular therapeutic indication is often at a significant
competitive advantage relative to later entrants to the market. Accordingly,
the relative speed with which we can develop products, complete clinical trials,
obtain regulatory approvals and develop commercial manufacturing capability may
affect our competitive position.
In the area of burns, we compete primarily with cadaver skin or porcine
tissue. We are also aware of several companies that have developed technologies
involving processed cadaver skin used as a skin replacement, such as LifeCell
Corporation, or sheets of cells grown from the patient's own skin, such as
Genzyme Tissue Repair and Cell Culture Technology. Integra Life Sciences or
Integra has Integra Artificial Skin consisting of a bovine or animal-derived
matrix with a synthetic covering, for the treatment of burn wounds. In June
1999, Integra announced that Johnson & Johnson Medical obtained worldwide
exclusive marketing and sales rights, excluding Japan, to Integra Artificial
Skin. In addition, we are aware that Ortec International, Inc. has completed a
pilot clinical trial with its composite cultured skin product, consisting of two
types of skin cells, fibroblasts and keratinocytes, on a bovine or
animal-derived collagen sponge, for the treatment of burn wounds. Several other
companies are also developing or plan to develop growth factors as a treatment
for second degree or small first degree burns.
In the area of diabetic foot ulcers, Chiron Corporation and the Ortho-
McNeil division of Johnson & Johnson have received FDA approval and are
marketing a platelet-derived growth factor for the treatment of diabetic foot
ulcers. In addition, Organogenesis, Inc. has completed clinical trials for
the use of Apligraf, a product using cultured human cells seeded onto a bovine
or animal-derived matrix, for the treatment of diabetic foot ulcers.
Organogenesis received FDA approval to market Apligraf in the treatment of
venous ulcers or "leg ulcers" in May 1998. Organogenesis has also entered
into an alliance with Novartis Pharma AG for the marketing of Apligraf.
With respect to cartilage repair, Genzyme Tissue Repair is currently
selling a service to process a patient's own cartilage cells as a treatment
for defects in the knee. We are also aware that Integra and Osiris
Therapeutics, Inc. are engaged in research on cultured cartilage products.
Other factors such as our ability to secure regulatory approval for our
products, to implement production and marketing plans, and to secure adequate
capital resources will also impact our competitive position. We may not have
the resources to compete successfully.
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IF WE ARE NOT ABLE TO ATTRACT KEY PERSONNEL AND ADVISORS OR IF OUR CURRENT
MANAGEMENT AND TECHNICAL PERSONNEL LEAVE THE COMPANY, IT MAY ADVERSELY AFFECT
OUR ABILITY TO OBTAIN FINANCING OR DEVELOP OUR PRODUCTS.
Our success will depend in large part upon our ability to attract and
retain qualified scientific, administrative and management personnel as well as
the continued contributions of our existing senior management and scientific and
technical personnel. We face strong competition for such personnel and we
cannot give any assurance that we will be able to attract or retain such
individuals. In particular, if we lose the services of either Arthur J.
Benvenuto, our chairman and chief executive officer, or Dr. Gail K. Naughton,
our president and chief operating officer, it will limit our ability to achieve
our business objectives and could make it difficult to raise additional funds or
to attract partners.
WE MAY NOT HAVE ADEQUATE INSURANCE AND IF WE BECOME SUBJECT TO PRODUCT LIABILITY
CLAIMS, IT MAY RESULT IN REDUCED DEMAND FOR OUR PRODUCTS OR DAMAGES THAT EXCEED
OUR INSURANCE LIMITATIONS.
The use of any of our products, whether for commercial applications or
during clinical trials, exposes us to an inherent risk of product liability
claims in the event such products cause injury, disease or result in adverse
effects. Such liability might result from claims made directly by healthcare
institutions, contract laboratories or others selling or using such products.
We currently maintain product liability insurance coverage; however, such
insurance coverage might not be sufficient to fully cover any potential claims.
Such insurance can be expensive and difficult to obtain. Adequate insurance
coverage may not be available in the future at an acceptable cost, if at all, or
in sufficient amounts to protect us against any such liability. Any product
liability claim in excess of insurance coverage would have to be paid out of our
cash reserves which would have a detrimental effect on our financial condition.
DISCOVERY OF PREVIOUSLY UNKNOWN PROBLEMS WITH A PRODUCT, MANUFACTURER, OR
FACILITY, COULD RESULT IN PRODUCT RECALLS OR WITHDRAWALS AND SIGNIFICANTLY
REDUCE OUR RESOURCES.
Our tissue repair and transplantation products are complex and must be
manufactured under well-controlled and sterile conditions, in addition to
meeting strict product release criteria. Any manufacturing errors or defects,
or uncorrected impurity or variation in a raw material, either unknown or
undetected by us, could affect the quality and safety of our products. If any
of the defects were material, we could be required to undertake a market
withdrawal or recall of the affected products. The cost of a market withdrawal
or product recall could significantly reduce our resources.
IF WE OR OUR SUPPLIERS FAIL TO BE YEAR 2000 OR Y2K COMPLIANT IT COULD CAUSE
INTERRUPTIONS IN OUR SUPPLY OF PRODUCTS FOR CLINICAL TRIALS, DELAY THE
COMPLETION OF THE TRIALS, AND GENERATE SUBSTANTIAL EXPENSES FOR OUR BUSINESS.
The Y2K issue is a situation that results from computer systems and
software products being coded using two digits rather than four to define the
applicable year. Computer systems and software products utilize embedded
technology that is time-sensitive and may recognize a date as the year 1900
rather than the year 2000 which could cause computer system failures and errors
leading to a disruption of our business operations. The Y2K issue could affect
not only our operations but also the operations of our business partners,
customers, suppliers and regulatory agencies among others.
In response to the risks presented by the Y2K issue, we developed and are
currently implementing a Y2K compliance plan. We have approached the Y2K issue
in two specific phases. Phase I involved the review and analysis of computer
systems, software products, equipment and vendor relationships considered
critical to our operations. Phase II involves the review and analysis of
computer systems, software products, equipment and vendor relationships not
considered critical to our operations. In both phases, we have used qualified
independent consultants to help achieve compliance goals. We currently estimate
the cost of our phase I and II activities to be less than $200,000, exclusive of
internal manpower costs. These estimated costs are primarily for consulting
services and equipment upgrades. We do not expect these costs to be material to
our financial condition or results of operations.
With respect to phase I and II, substantially all required system
modifications have been made to computer servers, operating systems and
telecommunication network equipment. We identified several pieces of
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manufacturing and laboratory equipment and facility access control systems
which are currently being upgraded. We believe all significant Y2K problems
relating to systems considered critical to our operations have been identified
and specific plans are in place to assure Y2K compliance, thereby reducing the
risk of a critical Y2K failure or error. We are also assessing approximately
260 vendor relationships. Every reasonable effort will be made to identify
and correct or develop contingency plans for those that are not Y2K compliant.
We have not yet completed our formal contingency plan relative to
undetected Y2K problems. However, at the current time, there does not appear
to be any critical piece of equipment for which backup cannot be provided.
The worst case scenario would likely involve adding additional short-term labor
to perform repetitive manufacturing tasks. There could also be some
incremental costs of replacing current testing capabilities should on-site
test equipment fail. While these extra costs have not yet been estimated,
they are currently not expected to have a material impact on our financial
condition or operating results. In a worst case scenario, if we have not been
able to identify all relevant Y2K issues or resolve any third party issues,
our supply of products and clinical trials could be delayed resulting in
substantial expenses.
RISKS RELATED TO THIS OFFERING
- ------------------------------
OUR STOCK PRICE COULD CONTINE TO BE VOLATILE AND YOUR INVESTMENT COULD SUFFER
A DECLINE IN VALUE, ADVERSELY AFFECTING OUR ABILITY TO RAISE ADDITIONAL
CAPITAL WHICH COULD IN TURN DELAY COMMERCIALIZATION OF OUR PRODUCTS.
The market price of our common stock has fluctuated significantly in
recent years and is likely to fluctuate in the future. For example, from
September 1997 to September 1999, our common stock has closed as high as
$17.00 per share and as low as $1.97 per share. Factors contributing to this
volatility have included:
- the results of research or scientific discovering by us or others;
- progress or the results of preclinical and clinical trials;
- new technological innovations;
- the approval and commercialization of products;
- developments converning technology rights;
- litigation and related developments; and
- public perception regarding the safety and efficacy of our products.
Fluctuations in our financial performance from period to period, the issuance
of analysts' reports and general industry and market conditions also tend to
have a significant impact on the market price of our common stock.
BECAUSE THIS OFFERING IS NOT BEING UNDERWRITTEN YOU RUN THE RISK OF RELYING
UPON INFORMATION IN THIS PROSPECTUS WHICH HAS NOT BEEN INDEPENDENTLY REVIEWED
BY A PROFESSIONAL UNDERWRITER FOR ACCURACY OR COMPLETENESS.
Because this offering is not being underwritten, this prospectus has not
undergone due diligence review by a professional underwriter whereby such
underwriter would make efforts to independently verify the accuracy or
completeness of information included in this prospectus. As a result, you run
the risk of relying upon information in this prospectus which has not been
independently verified.
THE LIQUIDITY OF YOUR WARRANTS IS UNCERTAIN BECAUSE THERE WILL BE NO PUBLIC
MARKET FOR THE WARRANTS WHICH WILL LIMIT YOUR ABILITY TO RESELL THE WARRANTS
AND WILL IMPACT THE PRICE YOU ARE ABLE TO OBTAIN FOR THE WARRANTS.
Because the warrants will not be traded on the Nasdaq National Market
there will be no public market for the warrants. As a result, liquidity of
the warrants is uncertain and limited. And you may not be able to resell
the warrants at or above the price you paid, if at all.
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FUTURE SALES OF OUR SECURITIES IN THE PUBLIC MARKET COULD LOWER OUR STOCK
PRICE AND IMPAIR OUR ABILITY IN NEW STOCK OFFERINGS TO RAISE FUNDS TO CONTINUE
OPERATIONS.
The market price of our securities could drop due to sales of a large
number of our securities or the perception that these sales could occur.
Such sales also might make it more difficult for us to sell equity
securities in the future at a price that we deem appropriate.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION IN THE NET TANGIBLE BOOK VALUE OF THEIR STOCK.
You will suffer immediate and substantial dilution in this offering. For
example, assuming an offering price of $4.00 per unit, the pro forma net
tangible book value of the common stock as of June 30, 1999 would be $0.53
per share resulting in dilution to you of $3.47 per share. To the extent
that the warrants offered with the units or other outstanding warrants or
options to purchase the common stock are exercised, there will be further
dilution. In addition, to the extent that at any time during the 60-day
period following the closing of this offering, we sell any additional shares
or common stock or securities convertible into our common stock for a per
share price that is less that the price per unit of the units offered in
this offering, we may be required, with some exceptions, to pay the
investors in this offering an amount equal to the difference between what
we sold shares of common stock or convertible securities in any such
transaction and what the investors paid for such equivalent shares of common
stock in this offering. This difference may be paid in either cash or
additional shares in our common stock. Such payment will result in
additional expense or dilution.
THE LACK OF A MINIMUM OFFERING REQUIREMENT IN THIS OFFERING MAY LIMIT OUR
ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.
In connection with this offering, the amount of funds we may raise is
uncertain. In the event we do not raise sufficient funds, we may not accomplish
our business objectives.
OUR CHARTER DOCUMENTS AND STOCKHOLDER RIGHTS PLAN MAY PREVENT US FROM
PARTICIPATING IN TRANSACTIONS THAT COULD BE BENEFICIAL TO YOU.
Our stockholder rights plan and provisions in our certificate of
incorporation and bylaws may discourage transactions involving an actual or
potential change in our ownership, including transactions in which you might
otherwise receive a premium for your shares over the then-current market prices.
These provisions also may limit your ability to approve transactions that you
deem to be in your best interests. In addition, our board of directors may
issue shares of preferred stock without any further action by you. Such
issuances may have the effect of delaying or preventing a change in our
ownership.
FORWARD-LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS PROSPECTUS MAY CONTAIN
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES.
OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE THOSE DISCUSSED IN THE SECTION ENTITLED "RISK FACTORS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS OR IN DOCUMENTS
INCORPORATED BY REFERENCE. WE ARE NOT OBLIGATED TO UPDATE OR REVISE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT NEW EVENTS OR CIRCUMSTANCES.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available
to the public on the SEC's website at http://www.sec.gov.
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INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. We incorporate by reference the
documents listed below and any future filings we make with the SEC under Section
13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of 1934 until our
offering is completed.
1. Our annual report on Form 10-K for the fiscal year ended December 31,
1998, as amended on September 15, 1999, including certain information
in our definitive proxy statement in connection with our 1999 annual
meeting of stockholders;
2. Our quarterly report on Form 10-Q for the quarterly period ended March
31, 1999;
3. Our quarterly report on Form 10-Q for the quarterly period ended June
30, 1999, as amended on August 20, 1999 and September 15, 1999;
4. Our proxy statement for our annual meeting of stockholders held on May
25, 1999;
5. Our current report on Form 8-K filed May 28, 1999;
6. The description of our common stock contained in our registration
statement on Form 8-A filed July 28, 1992, including any amendments or
reports filed for the purpose of updating such descriptions; and
7. The description of our preferred stock purchase rights, contained in
our registration statement on Form 8-A filed on January 6, 1995,
including any amendments or reports filed for the purpose of updating
such descriptions.
The reports and other documents that we file after the date of this
prospectus will update and supersede the information in this prospectus.
You may request a copy of these filings, at no cost, by writing or
telephoning us at:
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, California 92037
(858) 713-7300
Attn: Investor Relations
YOU SHOULD RELY ONLY ON THE INFORMATION PROVIDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU
WITH DIFFERENT INFORMATION. WE ARE NOT MAKING OR AUTHORIZING AN OFFER OF THESE
SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME
THAT THE INFORMATION IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN
THE DATE ON THE FRONT OF THE DOCUMENT.
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USE OF PROCEEDS
Assuming an offering price of $4.00 per unit, we estimate that the net
proceeds from this offering will be approximately $14.9 million, after
deducting our estimated offering expenses. If shares of our series B
preferred stock are submitted for conversion and we can redeem those shares,
we intend to use up to $5.4 million of the net proceeds to redeem such shares
of our series B preferred stock. We expect the balance of the net proceeds
of this offering will be used to fund existing operations. If we receive
less than all of the net proceeds estimated above either due to a lower
purchase price per unit, fewer units being sold or both, there will be less
proceeds available to fund our existing operations. In addition, should we
receive less than all the net proceeds, we will need to raise additional
funds from the sources described below.
We will require substantial additional funds other than those raised in
this offering to conduct our existing operations in the future. We believe that
our existing resources, including the proceeds of this offering and interest
earned thereon, together with anticipated funding of estimated reimbursable
costs, equity investments and milestone payments under collaborative agreements,
will be sufficient to support our current operations for approximately nine
months. We are pursuing funds from each of the above sources. However, we may
not be able to raise sufficient funds from these other sources. Pending
application of the proceeds as described above, we intend to invest the net
proceeds of this offering in investment-grade, interest-bearing instruments.
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DILUTION
As of June 30, 1999, the net tangible book value applicable to our common
stockholders was approximately $11.6 million, or $0.22 per share. "Net tangible
book value per share" represents the amount of our total tangible assets reduced
by total liabilities and the liquidation value of our preferred stock
outstanding, divided by the number of shares of common stock we have
outstanding.
Assuming we sell all 3,750,000 units at $4.00 per unit, and after giving
effect to purchases of our common stock by Inamed Corporation since June 30,
1999, the pro forma net tangible book value of the common stock as of June 30,
1999 would have been $30.0 million, or $0.53 per share, after deducting the
estimated expenses of this offering. This represents an immediate increase
in net tangible book value of $0.25 per share to existing stockholders and an
immediate dilution of $3.47 to the investors on purchasing shares of common
stock in this offering. "Dilution per share" represents the difference
between the price per share of common stock paid by the investors in this
offering and the net tangible book value per share at June 30, 1999 as
adjusted to give effect to the sale of 3,750,000 units in this offering and
to purchases of our common stock by Inamed Corporation since June 30, 1999.
The dilution to investors in this offering will be increased to the extent we
sell less than 3,750,000 units.
The following table illustrates the dilution per share taking into account
the estimated expenses of this offering:
Assumed public offering price per share $ 4.00
-------
Net tangible book value per share as of June 30, 1999 0.22
Increase to present stockholders due to Inamed
stock purchases 0.06
Increase to present stockholders due to this offering 0.25
-------
Pro forma net tangible book value after this offering 0.53
-------
Dilution to investors in this offering $ 3.47
=======
_________
Our calculations do not assume the exercise of stock options and warrants
exercisable for 6,010,751 shares of common stock outstanding on June 30,
1999 or the up to 1,400,000 shares of common stock that could be issued
as a result of the exercise of warrants related to the units to be sold
in this offering. To the extent these options and warrants are exercised,
there could be further dilution to investors. We estimated expenses of
the offering to be $125,000.
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PLAN OF DISTRIBUTION
The units are being offered directly by us to a limited number of
investors. We will determine the price of the units through negotiations
between us and the purchasers which will take place after effectiveness of the
registration statement. We will not accept any investor funds prior to
effectiveness of the registration statement. The price of the units we offer
could be below the current market price. This would result in dilution to
existing stockholders. It could also have an adverse effect on the market for
our securities. We cannot be certain that we will be able to sell all of the
units offered, and it is possible we will close this offering for less than
the 3,750,000 units being offered.
Our chief executive officer, with the assistance of other officers as
needed, will participate in the sale of the common stock to the investors.
These officers will not receive any compensation for these activities. They
will not be deemed to be brokers pursuant to Rule 3a4-1 under the Exchange Act.
They will seek to identify prospective investors from among institutional and
other potential investors known to have investments in the biotechnology
industry, as well as current stockholders who may be interested in increasing
their investment in Advanced Tissue Sciences. No broker-dealers will
participate as potential investors.
On the closing date, all investor funds will be transmitted directly to
us. Upon receipt of such funds, we will instruct our transfer agent to deliver
the shares of common stock and we will deliver the warrants to the purchasers.
The offering will not continue after the closing date.
In order to comply with the securities laws of certain states, if
applicable, the units will be sold in these jurisdictions only through
registered or licensed brokers or dealers.
We will pay all the expenses for the offering and the sale of the units
to the public. We estimate such expenses to be $125,000.
DESCRIPTION OF WARRANTS
Each unit includes a warrant to purchase up to 0.37333333 shares of our
common stock at a purchase price of $4.00 per whole share, subject to certain
adjustments described below. The warrants may be exercised at any time
begining on the date of the warrant and ending three years following such
date. The warrants are not tradable on the Nasdaq National Market but
separate immediately upon issuance from the common stock comprising the
Units, which common stock is traded on the Nasdaq National Market under the
symbol "ATIS."
The warrant provides that the exercise price and the number of shares of
our common stock issuable upon exercise of the warrant will be adjusted in
the event of any stock subdivisions, combinations, stock dividends or
other distributions with respect to our common stock. The warrant further
provides that in the case of our merger or consolidation with or into another
corporation or any reclassification of our common stock, the holder of the
warrant will have the right, upon subsequent exercise of the warrant, to
receive the kind and amount of securities that could be received upon such
merger, consolidation or reclassification had the warrant been exercised
immediately prior to the event. In addition, the purchase price will be
appropriately adjusted.
Fractional shares of our common stock will not be issued upon exercise
of the warrants. Instead a cash adjustment based on the last sale price of
our common stock as reported on the Nasdaq National Market or, if applicable,
as reported on a national securities exchange, on the date of the exercise
will be made. The warrants do not confer upon its holder any voting,
preemptive or other stockholder rights.
The warrants may be exercised at any time commencing on the date of
their issuance and ending three years following such date. In order to
exercise the warrants, the holders must surrender to us a duly executed
certificate evidencing the warrants. This certificate must be accompanied
by payment in full payable to us for the purchase price multiplied by the
number of shares of our common stock to be acquired pursuant to such exercise.
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LEGAL MATTERS
Brobeck, Phleger & Harrison LLP, San Diego, California, is giving its
opinion on the validity of the securities you are purchasing in this offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of Advanced Tissue Sciences, Inc. and the combined
financial statements of the Dermagraft Joint Venture included in our annual
report on Form 10-K for the year ended December 31, 1998, as set forth in their
reports, which are incorporated by reference in this prospectus and elsewhere in
the registration statement. Our financial statements are incorporated by
reference in reliance upon Ernst & Young LLP's reports, given on their authority
as experts in accounting and auditing.
-19-
<PAGE>
WE HAVE NOT AUTHORIZED ANY PERSON TO MAKE A STATEMENT THAT DIFFERS FROM WHAT IS
IN THIS PROSPECTUS. IF ANY PERSON DOES MAKE A STATEMENT THAT DIFFERS FROM WHAT
IS IN THIS PROSPECTUS, YOU SHOULD NOT RELY ON IT. THIS PROSPECTUS IS NOT AN
OFFER TO SELL, NOR IS IT AN OFFER TO BUY, THESE SECURITIES IN ANY STATE IN WHICH
THE OFFER OR SALE IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS
COMPLETE AND ACCURATE AS OF ITS DATE, BUT THE INFORMATION MAY CHANGE AFTER THAT
DATE.
3,750,000 UNITS
ADVANCED TISSUE
SCIENCES, INC.
UNITS CONSISTING OF ONE SHARE OF
COMMON STOCK AND ONE WARRANT TO
PURCHASE UP TO 0.37333333 OF A
SHARE OF OUR COMMON STOCK
-----------------------------
PROSPECTUS
-----------------------------
OCTOBER __, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by the registrant in connection with the sale
of the common stock being registered. All the amounts shown are estimates,
except for the SEC registration fee.
SEC registration fee $ 5,727
Nasdaq National Market fee 17,500
Legal fees and expenses 45,000
Accounting fees and expenses 45,000
Miscellaneous expenses 11,773
--------
TOTAL $125,000
========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Our restated certificate of incorporation or certificate provides that,
except to the extent prohibited by the General Corporation Law of the State of
Delaware ("DGCL"), our directors shall not be personally liable to the Company
or its stockholders for monetary damages for any breach of fiduciary duty as our
directors. Under DGCL, the directors have a fiduciary duty to us which is not
eliminated by this provision of the certificate and, in appropriate
circumstances, equitable remedies such as injunctive or other forms of
nonmonetary relief will remain available. In addition, each director will
continue to be subject to liability under DGCL for breach of the director's duty
of loyalty to us, for acts or omissions which are found by a court of competent
jurisdiction to be not in good faith or which involve intentional misconduct, or
knowing violations of law, for actions leading to improper personal benefit to
the director, and for payment of dividends or approval of stock repurchases or
redemptions that are prohibited by DGCL. This provision also does not affect
the directors' responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws.
Section 145 of the DGCL provides that a corporation has the power to
indemnify a director, officer, employee or agent of the corporation and certain
other persons serving at the request of the corporation in related capacities
against amounts paid and expenses incurred in connection with an action or
proceeding to which he or she is or is threatened to be made a party by reason
of such position, if such person has acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
corporation, and, in any criminal proceeding, if such person had no reasonable
cause to believe his or her conduct was unlawful; provided that, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such person has been adjudged to be
liable to the corporation unless and only to the extent that the adjudicating
court determines that such indemnification is proper under the circumstances.
Our by-laws provide that we must indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending, or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he or she is or was our director or officer, or that such
director or officer is or was serving at our request as a director, officer,
employee or agent of another corporation, partnership, joint venture trust or
other enterprise (collectively "Agent"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement (if such settlement is
approved in advance by us, which approval may not be unreasonably withheld)
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his or her conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, will not, of itself, create a presumption that the
person did not act in good faith and in a manner which he or she reasonably
believed to be in or not opposed to our best interests, and with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
II-1
<PAGE>
Our by-laws provide further that we must indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Company to procure a judgment
in its favor by reason of the fact that he or she is or was an Agent against
expenses (including attorneys' fees) actually and reasonably incurred by him or
her in connection with the defense or settlement of such action or suit if he or
she acted in good faith and in a manner he or she reasonably believed to be in
or not opposed to our best interests, provided that no indemnification may be
made in respect of any claim, issue or matter as to which such person has been
adjudged to be liable to us unless and only to the extent that the Delaware
Court of Chancery or the court in which such action or suit was brought
determines upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court deems proper.
Pursuant to our by-laws, we have the power to purchase and maintain, and
have obtained, a directors' and officers' liability policy to insure our
officers and directors against certain liabilities. In addition, we have
entered into indemnification agreements with our directors and officers
containing provisions that may require us, among other things, to indemnify such
directors and officers against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified, and to obtain directors' and officers' liability insurance if
maintained for other directors or officers.
The purchase agreement in connection with this offering provides for
indemnification of our controlling persons, directors and officers in
connection with any breach or violation of the representations, warranties
and convenants of the respective purchasers under the purchase agreement.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
ITEM 16. EXHIBITS.
(A) EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Securities Purchase Agreement
4.1 + Instruments defining the rights of stockholders
4.2 ++ Rights Agreement, Dated as of January 6, 1995, between
the Company and Chemical Trust Company of California,
including the Certificate of Determination for the
Series A junior participating preferred stock as Exhibit
A, the Form of Summary of Rights to Right Certificate as
Exhibit B and the Purchase Preferred Shares as Exhibit C
4.3 +++ Investment Agreement between Advanced Tissue Sciences,
Inc., and Ramius Hatteras Partners, L.P., Dated February
9, 1996
4.3(a)++++ Amendment No. 1 to Investment Agreement between Advanced
Tissue Sciences, Inc., and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.), Dated
January 26, 1998
II-2
<PAGE>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.3(b)+++++ Amendment No. 2 to Investment Agreement between Advanced
Tissue Sciences, Inc. and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.) Dated
July 10, 1998
4.4 Form of Warrant
5.1 Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Brobeck, Phleger & Harrison LLP. Included in
the Opinion of Brobeck, Phleger & Harrison LLP filed as
Exhibit 5.1
24.1* Power of Attorney. Included on page II-5 of registration
statement no. 333-82683
_________________
+ INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENTS ON FORM 8-A,
FILED ON JULY 28, 1992 AND JANUARY 6, 1995
++ INCORPORATED BY REFERENCE TO EXHIBIT 1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 5, 1995
+++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED FEBRUARY 9, 1996
++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 26, 1998
+++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JULY 10, 1998
* PREVIOUSLY FILED
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of Regulation S-K at the date of any delayed offering or
throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange
II-3
<PAGE>
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver,
or cause to be delivered to each person to whom the prospectus is sent or
given, the latest quarterly report that is specifically incorporated by
reference in the prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit, or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered hereunder, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Diego, State of California, on the 18th day of
October, 1999.
ADVANCED TISSUE SCIENCES, INC.
By: /s/ Arthur J. Benvenuto
--------------------------------
Arthur J. Benvenuto, Chairman of
the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title
--------- -----
/s/ Arthur J. Benvenuto Chairman of the Board and October 18,
- --------------------------- Chief Executive Officer 1999
Arthur J. Benvenuto (Principal Executive Officer)
/s/ Dr. Gail K. Naughton Director, President and Chief October 18,
- --------------------------- Operating Officer 1999
Dr. Gail K. Naughton
/s/ Michael V. Swanson Senior Vice President and October 18,
- --------------------------- Chief Financial Officer 1999
Michael V. Swanson (Principal Financial and
Accounting Officer)
* Director October 18,
- --------------------------- 1999
Jerome E. Groopman, M.D.
* Director October 18,
- --------------------------- 1999
Jack L. Heckel
* Director October 18,
- --------------------------- 1999
Ronald L. Nelson
* Director October 18,
- --------------------------- 1999
Dayton Ogden
* Director October 18,
- --------------------------- 1999
David S. Tappan, Jr.
* Director October 18,
- --------------------------- 1999
Dr. Gail R. Wilensky
* By: /s/ Arthur J. Benvenuto
-------------------------
Arthur J. Benvenuto
Attorney-In-Fact
II-5
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
1.1 Form of Securities Purchase Agreement
4.1+ Instruments defining the rights of stockholders
4.2++ Rights Agreement, Dated as of January 6, 1995, between
the Company and Chemical Trust Company of California,
including the Certificate of Determination for the
Series A Junior Participating Preferred Stock as Exhibit A,
the Form of Summary of Rights to Right Certificate as
Exhibit B and the Purchase Preferred Shares as Exhibit C
4.3+++ Investment Agreement between Advanced Tissue Sciences,
Inc., and Ramius Hatteras Partners, L.P., Dated February
9, 1996
4.3(a)++++ Amendment No. 1 to Investment Agreement between Advanced
Tissue Sciences, Inc., and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.), Dated January
26, 1998
4.3(b)+++++ Amendment No. 2 to Investment Agreement between Advanced
Tissue Sciences, Inc. and Hatteras Partners, L.P.
(formerly Ramius Hatteras Partners, L.P.) Dated July 10,
1998
4.4 Form of Warrant
5.1 Opinion of Brobeck, Phleger & Harrison LLP
23.1 Consent of Ernst & Young, LLP, Independent Auditors
23.2 Consent of Brobeck, Phleger & Harrison LLP. Included in
the Opinion of Brobeck, Phleger & Harrison LLP filed as
Exhibit 5.1
24.1* Power of Attorney. Included on page II-5 of registration
statement no. 333-82683
_________________
+ INCORPORATED BY REFERENCE TO THE REGISTRATION STATEMENTS ON FORM 8-A,
FILED JULY 28, 1992 AND JANUARY 6, 1995
++ INCORPORATED BY REFERENCE TO EXHIBIT 1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 5, 1995
+++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED FEBRUARY 9, 1996
++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JANUARY 26, 1998
+++++ INCORPORATED BY REFERENCE TO EXHIBIT 4.1 TO THE REGISTRANT'S CURRENT
REPORT ON FORM 8-K DATED JULY 10, 1998
* PREVIOUSLY FILED
II-6
EXHIBIT 1.1
ADVANCED TISSUE SCIENCES, INC.
FORM OF SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (this "Agreement"), dated as of October
____, 1999, is entered into by and between each of the parties who are
designated as Purchasers on the signature page to this Agreement (each, a
"Purchaser" and collectively, the "Purchasers") and Advanced Tissue Sciences,
Inc., a Delaware corporation (the "Company").
The Company has offered to sell, and each of the Purchasers has agreed to
purchase, the number of Units (as defined below) of the Company set forth
opposite their names on Schedule I attached hereto. This sale and purchase is
being made pursuant to a prospectus dated October ____, 1999 (the "Prospectus")
filed in connection with a Form S-3 Registration Statement (the "Registration
Statement"), originally filed with the Securities and Exchange Commission on
July 12, 1999, and subsequently amended. Each "Unit" consists of one share of
common stock of the Company, $.01 par value per share (the "Common Stock"), and
one Warrant (as defined below), both of which will separate immediately upon
issuance. Each "Warrant" comprising a Unit entitles the holder to purchase
up to 0.37333333 of a share of Common Stock at an exercise price of $4.00
per share, subject to adjustment pursuant to the terms of the Warrant, and is
exercisable immediately commencing on the date of the Warrant and ending three
years from such date. In connection therewith, the Company and each of the
Purchasers, severally and not jointly, hereby agree as follows:
1. Purchase and Sale of Shares. Subject to the terms set forth herein,
---------------------------
the Company agrees to sell to each of the Purchasers at a purchase price of
$4.00 per Unit (the "Per Unit Purchase Price") and to deliver pursuant to
Section 2 hereof the shares of Common Stock and Warrants purchased under the
Units, and upon the basis of the representations and warranties, and subject
to the terms set forth herein, each of the Purchasers agrees, severally and
not jointly, to purchase the number of Units set forth opposite its name on
Schedule I attached hereto from the Company for an amount equal to the Per
Unit Purchase Price multiplied by such number of Units set forth in Schedule I.
Notwithstanding the foregoing, in the event that the Company sells any
shares (or securities that may be converted into or exchanged for shares) of
Common Stock of the Company in an original issuance (not shares traded on the
Nasdaq National Market in the aftermarket) for less per share than the Per Unit
Purchase Price at any time during the sixty (60) day period commencing on the
Closing Date (except for shares issued pursuant to (a) stock options, (b)
purchases by the Company of outstanding existing stock options, and (c)
warrants, preferred stock and any other convertible securities, including
without limitation, the Units, outstanding as of the date hereof) the Company
shall have the obligation to promptly notify and pay each of the Purchasers (x)
the aggregate difference between (i) the Per Unit Purchase Price and (ii) the
per share price of such additional shares of the Company's Common Stock (or
securities that may be converted into or exchanged for shares of Common Stock)
so sold, (y) multiplied by the number of Units purchased hereunder, at the
Company's option, in either cash
<PAGE>
or additional shares of the Company's Common Stock. If the Company elects to
pay in Common Stock, the Common Stock shall be valued at the price at which
the Company sold any such shares (or securities that may be converted into or
exchanged for shares) of Common Stock in the specific transaction that
triggered this paragraph of Section 1 hereof and will be payable within five
(5) days of the closing of such other transaction.
If within sixty (60) days of the Closing Date hereof the Company enters
into or is a party to any agreement to issue additional shares of Common Stock
of the Company (or securities convertible or exchangeable therefor), the
Company shall provide notice of such issuance to the Purchaser as soon as
reasonably practicable.
2. Closing. The closing of the purchase and sale of the Units to all of
-------
the Purchasers shall take place at the same time, on the first business day
following the satisfaction of the conditions set forth in Paragraph 5 below, as
coordinated by the parties, or on such other date or at such other time and
place as the Company and the Purchasers may agree upon (such time and date of
the closing being referred to herein as the "Closing Date"). Upon payment of
the Purchase Price in full in immediately available funds by or on behalf of the
Purchasers to the Company by wire transfer to an account specified by the
Company to the Purchasers prior to the Closing Date, the Company will promptly
cause its transfer agent to deliver to the Purchasers certificates representing
the shares of Common Stock and the Company will deliver the Purchasers the
Warrants purchased under the Units in such denominations and registered in
such names as the Purchasers shall have requested not less than two business
days prior to the Closing Date.
3. Representations and Warranties of the Company.
---------------------------------------------
3.1 Organization; Good Standing; Qualification. The Company is a
------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, has all requisite corporate power and authority
to own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this
Agreement, to issue and sell the Units, and to carry out the provisions of this
Agreement.
3.2 Authorization. All corporate action on the part of the
-------------
Company, its officers, directors, and stockholders necessary for the
authorization, execution and delivery of this Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance (or
reservation for issuance), sale, and delivery of the Units has been taken or
will be taken prior to the Closing, and this Agreement constitutes the valid and
legally binding obligation of the Company, enforceable in accordance with its
terms, (i) except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally, (ii) except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law), and (iii)
except as the indemnification agreements in Section 6 hereof may be legally
unenforceable.
3.3 Valid Issuance of Units. The Units that are being purchased
------------------------
by the Purchaser hereunder, when issued, sold, paid for, and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid,
2
<PAGE>
and nonassessable. The Units, including the underlying Common Stock,
Warrants and the Common Stock issuable upon the exercise of the Warrants, will
be registered and qualified for sale in compliance with all applicable federal
and state securities laws and will be free of restrictions on transfer other
than restrictions under applicable state and federal securities laws, including
without limitation Rule 144 under the Securities Act of 1933. Notwithstanding
the foregoing, although the Common Stock is currently traded on the Nasdaq
National Market, the Warrants will not be traded on the Nasdaq National Market.
Should Purchaser at any time request in writing that the Warrants be traded
on the Nasdaq National Market, the Company will make commercially reasonable
efforts to have the Warrants listed on the Nasdaq National Market within a
reasonably practicable time period following such request by Purchaser
provided that the Warrants meet the Nasdaq National Market listing
requirements in effect at the time of such request.
3.4 Performance of the Agreement. The making and performance of
----------------------------
the Agreement by the Company and the consummation of the transactions herein
contemplated will not violate any provision of the organizational documents of
the Company. The making and performance of the Agreement by the Company and the
consummation of the transactions herein contemplated will not (i) result in the
creation of any lien, charge, security interest or encumbrance upon any assets
of the Company pursuant to the terms or provisions of, or (ii) conflict with,
result in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under, any material agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which the Company is a party or by which the Company or any of its
respective properties may be bound or affected, or, to the Company's knowledge,
any statute or any authorization, judgment, decree, order, rule or regulation of
any court or any regulatory body, administrative agency or other governmental
body applicable to the Company or any of its respective properties and, in each
case (i) or (ii), which individually or in the aggregate would have a material
adverse effect on the condition (financial or otherwise), properties, business,
prospects as of the date hereof or results of operations of the Company, taken
as a whole.
3.5 Additional Information. The Company represents and warrants
----------------------
that the information contained in the Registration Statement and Prospectus, as
amended in their final forms, will comply in all material respects with the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder and will be, true and complete in all material respects as of the
date of filing and as of the Closing Date.
3.6 Use of Proceeds. The Company agrees that the proceeds to the
---------------
Company from the sale of the Units may be used to fund existing operations,
provided that a portion of such proceeds equal to the 105% of the liquidation
value of the Company's currently outstanding Series B Convertible Preferred
Stock, par value $.01 per share (the "Series B Preferred Stock"), but not to
exceed $5,000,000, shall be reserved to the extent necessary to redeem the
Company's Series B Preferred Stock in lieu of conversion as provided in Section
3.7 below.
3.7 Redemption in Lieu of Conversion. In respect to its
--------------------------------
outstanding Series B Preferred Stock, the Company agrees to deliver to the
holders of its Series B Preferred Stock a "Notice of Company Redemption in Lieu
of Conversion" as provided and to the extent permitted in Section 6 of the
Company's Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock.
3.8 Intellectual Property. The Company has the patent and
---------------------
intellectual property rights necessary to conduct its business as it is now
being conducted. No claim has been made against the Company regarding
its alleged infringement of the intellectual property or patent rights of
others that would be exptected to have a materially adverse effect against the
Company.
3
<PAGE>
4. Representations and Warranties of the Purchaser. The Purchaser
-----------------------------------------------
represents and warrants, as of the date hereof, as follows:
4.1 the Purchaser has full right, power, authority and capacity
to enter into this Agreement and to consummate the transactions contemplated
hereby and has taken all necessary action to authorize the execution,
delivery and performance of this Agreement;
4.2 if applicable, the Purchaser is duly organized, validly
existing and in good standing under the laws of its jurisdiction;
4.3 the making and performance of the Agreement by Purchaser and
the consummation of the transactions herein contemplated will not violate
any provision of the organizational documents of Purchaser or conflict with,
result in the breach or violation of, or constitute, either by itself or upon
notice or the passage of time or both, a default under any material agreement,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which the Purchaser is a party or, any statute or any
authorization, judgment, decree, order, rule or regulation of any court or any
regulatory body, administrative agency or other governmental body applicable to
Purchaser;
4.4 the Purchaser is an institutional investor or otherwise
exempt from the reporting requirements of the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended (and the regulations thereunder) with
respect to this transaction;
4.5 no consent, approval, authorization or other order of any
court, regulatory body, administrative agency or other governmental body is
required on the part of the Purchaser for the execution and delivery of this
Agreement or the consummation of the transactions contemplated by this
Agreement;
4.6 upon the execution and delivery of this Agreement, this
Agreement shall constitute a valid and binding obligation of the Purchaser
enforceable in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting creditors' and contracting parties' rights generally and
except as enforceability may be subject to general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), and except as the indemnification agreements in Section 6
hereof may be legally unenforceable; and
4.7 there is not in effect any order enjoining or restraining
the Purchaser from entering into or engaging in any of the transactions
contemplated by this Agreement.
5. Conditions of Closing. The obligations of each party hereunder
---------------------
shall be subject to:
5.1 The accuracy in all material respects of the representations
and warranties of the other party hereto as of the date hereof.
5.2 The Company shall have amended its Rights Agreement between
the Company and ChaseMellon Shareholder Services, L.L.C. to provide that as long
as __________________ is acquiring securities of the Company in the ordinary
course of its business and not with the purpose or effect of changing or
influencing the control of the
4
<PAGE>
Company (or in connection with or as a participant in any transaction having
such purpose or effect) the Purchaser will not be deemed to be an Acquiring
Person, as defined therein, solely by reason of its acquiring or having
obtained the right to acquire beneficial ownership of shares of the Common
Stock under this Agreement or as a result of any such subsequent acquisitions
which would result in the Purchaser being the beneficial owner of 15% or more
of the Common Stock of the Company but less than 19.99% of the Common Stock
of the Company;
5.3 The Registration Statement has been declared effective and no
stop order suspending the effectiveness of the Registration Statement shall have
been issued;
5.4 The Purchaser shall have received the legal opinion of counsel
to the Company, in substantially the form set forth in Exhibit A hereto, with
such changes thereto as may be agreed upon by the Purchaser and such counsel;
and
5.5 The Company shall have terminated its Investment Agreement
with Hatteras Partners, L.P. dated February 9, 1996, as amended January 26, 1998
and July 10, 1998.
6. Indemnification.
---------------
6.1 The Company agrees to indemnify and hold harmless the
Purchaser, each person, if any, who controls the Purchaser within the meaning of
Section 15 of the Act and each officer and director, employee and agent of the
Purchaser and of any such controlling person against any and all liabilities,
claims, damages or reasonable expenses whatsoever, as incurred, arising out of,
or resulting from, any breach or other violation of any representation,
warranty, covenant or undertaking by the Company contained in this Agreement,
and the Company will reimburse the Purchaser for its reasonable legal and other
expenses (including the reasonable cost of any investigation and preparation,
and including the reasonable fees and expenses of counsel) incurred in
connection therewith.
6.2 The Purchaser agrees to indemnify and hold harmless the
Company, each person, if any, who controls the Company within the meaning of
Section 15 of the Act and each officer, director, employee and agent of the
Company and of any such controlling person against any and all losses,
liabilities, claims, damages or reasonable expenses whatsoever, as incurred,
arising out of, or resulting from, any breach or other violation of any
representation, warranty, covenant or undertaking by the Purchaser contained in
this Agreement, and the Purchaser will reimburse the Company for its reasonable
legal and other expenses (including the reasonable cost of any investigation and
preparation, and including the reasonable fees and expenses of counsel) incurred
in connection therewith.
7. Survival of Representations and Warranties. The respective
------------------------------------------
agreements, representations, warranties, indemnities and other statements made
by or on behalf of each party hereto pursuant to this Agreement, as of the date
they were made, shall, unless otherwise specified, survive until the third
anniversary of the Closing Date and shall expire thereafter.
8. Miscellaneous.
-------------
8.1 This Agreement may be executed in two or more counterparts,
and such counterparts shall constitute one and the same agreement. Authorized
signatures may be
5
<PAGE>
evidenced to the other party by facsimile copies thereof, with the originally
signed signature page of any party to be provided to the other parties after
the original execution.
8.2 This Agreement shall inure to the benefit of and be binding
upon the signatories hereto and no other person shall have any right or
obligation hereunder. This Agreement may not be assigned by any party hereto.
8.3 This Agreement, together with the schedule and exhibit hereto,
constitutes the complete and entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes any prior agreements or
understanding, whether written or oral, between the parties respective to such
subject matter. This Agreement may be amended only in a writing which is
executed by the Company and the Purchasers.
8.4 The Company and the Purchasers agree to cooperate with each
other to deliver such additional documents and instruments and take such further
actions as shall be necessary or appropriate under the terms of this Agreement
to effectuate the transactions contemplated hereby.
8.5 This Agreement shall be governed by the internal laws of the
State of California, without giving effect to the conflict of laws principles
thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date and year first above written.
ADVANCED TISSUE SCIENCES, INC.
By:
----------------------------
Name:
--------------------------
Its:
---------------------------
THE PURCHASERS:
By:
----------------------------
Name:
--------------------------
Its:
---------------------------
6
<PAGE>
SCHEDULE I
SCHEDULE OF PURCHASERS
Name and Address of Number of Units
Purchasers To be Purchased
------------------------------- ---------------------------
7
<PAGE>
EXHIBIT A
OCTOBER [__], 1999
____________________
____________________
____________________
____________________
Re: Advanced Tissue Sciences, Inc.'s Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to Advanced Tissue Sciences, Inc., a Delaware
corporation (the "Company"), in connection with the issuance and sale by the
Company of Units, in the aggregate consisting of up to 3,750,000 shares (the
"Shares") of the Company's Common Stock, par value $.01 per share ("Common
Stock"), and warrants to purchase up to 1,400,000 shares of Common Stock
("Warrants") (together with the Shares, the "Securities") pursuant to that
certain Securities Purchase Agreement, dated October [ ], 1999 (the "Purchase
Agreement"), between the Company and you, ____________________ (the
"Purchaser"). This opinion is being rendered to you pursuant to Section 5.4 of
the Purchase Agreement. Capitalized terms used but not defined herein shall
have the meanings ascribed to such terms in the Purchase Agreement.
In our capacity as counsel to the Company, we have examined, among other
things, originals, or copies identified to our satisfaction as being true
copies, of the following:
(i) The Registration Statement on Form S-3 (File No. 333-82683)
initially filed by the Company with the Securities and Exchange Commission
(the "Commission") on July 12, 1999, for the purpose of registering the sale
of the Securities under the Securities Act of 1933, as amended (the "Securities
Act"); Amendment No. 1 to such Registration Statement filed with the Commission
on August 20, 1999; Amendment No. 2 to such Registration Statement filed with
the Commission on September 15, 1999; Amendment No. 3 to such Registration
Statement filed with the Commission on October 18, 1999; oral advice on
_________, from a Commission staff examiner, that the Commission had declared
such Registration Statement, as so amended, effective as of ______ p.m.,
Washington, D.C. time, on __________________; and the final Prospectus in the
form filed with the Commission on __________________, pursuant to Rule 424(b)
under the Securities Act. Such Registration Statement, as amended, when it
became effective (including the information deemed to be part of the
Registration Statement at the time it became effective pursuant to Rule 430A of
the Rules and Regulations under the Securities Act), is referred to herein as
the "Registration Statement," and such Prospectus in the form delivered for
filing with the Commission pursuant to Rule 424(b) is referred to herein as the
"Prospectus;"
(ii) The Amended and Restated Certificate of Incorporation of the
Company, including all amendments thereto, as in effect on the date hereof
(the "Restated Certificate");
<PAGE>
(iii) The Amended and Restated By-laws of the Company, including all
amendments thereto, as in effect on the date hereof (the "By-laws");
(iv) The Certificate of Good Standing of the Company certified by the
Secretary of State of the State of Delaware on __________________ (the "Delaware
Certificate");
(v) The Certificate of Status of the Company certified by the
Secretary of State of the State of California on ____________ (the "California
Certificate").
(vi) The resolutions of the Board of Directors of the Company adopted
on ____________ and ____________, authorizing the execution and delivery of
the Purchase Agreement, the issuance and sale of the Securities sold by the
Company, the preparation and filing of the Registration Statement, and other
actions with regard thereto;
(vii) The resolutions of the Pricing Committee of the Board of
Directors adopted on ____________, authorizing the pricing of the Securities;
(viii) The Purchase Agreement;
(ix) A specimen certificate for the shares of Common Stock of the
Company;
(x) Such other records, certificates, documents and instruments,
certified or otherwise identified to our satisfaction, as we have considered
necessary or appropriate for the purposes of this opinion.
In addition, we have obtained from public officials and from officers and
other representatives of the Company such other certificates and assurances as
we consider necessary for purposes of this opinion. We have assumed the
accuracy of all copies provided to us, the legal capacity of the individual
signatories to all documents and the due authorization, execution and delivery
of the Purchase Agreement by the Purchaser. We have also assumed the genuiness
of all signatures.
As used in this opinion, the expressions "to our knowledge" and "known to
us" with reference to matters of fact means that, after considering the actual
knowledge of those attorneys in our firm who have been principally responsible
for giving substantive attention to the Company's affairs, but not including any
constructive or imputed notice of any other information, we find no reason to
believe that the opinions expressed herein are factually incorrect. Beyond that
we have made no independent factual investigation for the purpose of rendering
an opinion with respect to such matters except as otherwise specified in this
opinion.
We have assumed that the certificates representing the Shares purchased
by the Purchaser from the Company have been executed for delivery by authorized
officers of the transfer agent and that the signatures on all documents examined
by us are genuine, which assumptions we have not independently verified.
This opinion relates solely to the laws of the State of California, the
General Corporation Law of the State of Delaware and the federal securities
laws of the United States, and we express no opinion with respect to the effect
or applicability of the laws in other areas or of other
2
<PAGE>
jurisdictions. Without limiting the generality of the foregoing, we are not
acting here as experts on, and we do not express any opinion on any
applicable laws, rules or regulations relating to (i) patents, copyrights,
trademarks and other proprietary rights and licenses or (ii) the United
States Food and Drug Administration or health care reimbursement.
For purposes of the matters addressed in paragraph (1) below relating to
the valid existence and good standing of the Company under the laws of
Delaware, we have relied solely upon the Delaware Certificate. For purposes
of the matters addressed in paragraph (1) below relating to the good standing,
due qualification or similar status of the Company in California, we have
relied solely upon our review of the California Certificate.
For purposes of our opinion in paragraph (2) below, we have assumed that
the certificates representing the Shares will be manually signed by one of
the authorized officers of the Transfer Agent and Registrar of the Common Stock
and registered by such Transfer Agent and Registrar and will conform to the
specimen thereof examined by us.
For purposes of our opinion in paragraph (3) below, relating to the
Registration Statement being effective and there being no stop order suspending
the effectiveness of the Registration Statement, we have relied solely upon
(a) oral advice received on ____________, from a Commission staff examiner,
that the Commission had declared such Registration Statement, as amended,
effective at ______ p.m. Washington, D.C. time, on ____________ and (b) oral
advice received on ____________ from a Commission staff examiner that there is
no stop order suspending the effectiveness of the Registration Statement.
For purposes of our opinion in paragraph (3) below, relating to the filing
of the Prospectus pursuant to Rule 424(b), we have relied solely upon a
confirmation of filing received from the Commission's EDGAR filing system dated
____________.
We express no opinion as to the fair market value of the Securities, nor
with respect to the effect of, or compliance with, any state or federal anti-
trust law, any local law, or compliance with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
On the basis of our examination of the foregoing, and subject to the
qualifications and limitations set forth herein, we are of the opinion that:
1. The Company is duly incorporated and is validly existing and in
good standing under the laws of the State of Delaware; the Company has the
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto); the Company has the
corporate status and authority to do Business in California;
2. The Securities have been duly authorized and, when issued and
delivered to the Purchaser against payment therefor in accordance with the
terms of the Purchase Agreement and of the Warrants, will be validly issued,
fully paid and nonassessable and free of (A) any preemptive rights arising
under the Restated Certificate or the Delaware General Corporation Law or (B)
to our knowledge, similar rights that entitle or will entitle any person to
acquire any shares of capital stock of the Company upon the issuance and sale
of the Securities by the Company;
3
<PAGE>
3. The Registration Statement has become effective under the
Securities Act and, to our knowledge, no stop order suspending the effective-
ness of the Registration Statement has been issued and no proceedings for that
purpose are pending before or contemplated by the Commission; and any required
filing of the Prospectus pursuant to Rule 424(b) has been made in accordance
with Rule 424(b);
4. The Company has the corporate power and authority to enter into
the Purchase Agreement and to issue, sell and deliver the Securities to the
Purchaser as provided in the Purchase Agreement. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution and delivery of the Purchase Agreement by the Company,
the authorization, sale, issuance and delivery of the Securities, and the
performance of the Company's obligations under the Purchase Agreement has been
taken;
5. Neither the offer, sale or delivery of the Securities, the
execution, delivery or performance by the Company of the Purchase Agreement,
compliance by the Company with the provisions of the Purchase Agreement nor
consummation by the Company of the transactions contemplated by the Purchase
Agreement violates the Restated Certificate or the By-laws of the Company;
6. No consent, approval, authorization or other order of, or
registration or filing with, any court, regulatory body, administrative agency
or other governmental body, agency, or official is required on the part of the
Company (except (A) as have been obtained under the Securities Act and the
Exchange Act or (B) such as may be required under state securities or Blue Sky
laws governing the purchase and distribution of the Securities, as to which we
express no opinion) for the valid issuance and sale of the Securities to the
Purchaser as contemplated by the Purchase Agreement; and
7. The Securities when duly registered under the Registration
Statement pursuant to the Securities Act will not be deemed "restricted
securities" as defined pursuant to Rule 144(a)(3) under the Securities Act.
This opinion is furnished by us as counsel to the Company, to you, the
Purchaser, in connection with the transactions contemplated by the Purchase
Agreement, is solely for the benefit of the Purchaser and may not be delivered
to, quoted or relied upon by any other party, or for any other purpose, without
our express written consent. Our opinion is expressly limited to the matters
set forth above and we render no opinion, whether by implication or otherwise,
as to any other matters relating to the Company. We assume no obligation to
advise you of facts, circumstances, events or developments which hereafter may
be brought to our attention and which may alter, affect or modify the opinions
expressed herein.
Very truly yours,
4
EXHIBIT 4.4
FORM OF STOCK WARRANT
THIS WARRANT MAY NOT BE SOLD, PLEDGED, TRANSFERRED, ASSIGNED OR OTHERWISE
DISPOSED OF UNLESS SUCH SALE OR TRANSFER IS MADE IN COMPLIANCE WITH THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND ALL APPLICABLE STATE
SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REQUIREMENT OF SUCH
ACT OR STATE SECURITIES LAWS.
October __, 1999 Right to Purchase Shares of Common Stock
of Advanced Tissue Sciences, Inc.
ADVANCED TISSUE SCIENCES, INC.
Common Stock Purchase Warrant
Advanced Tissue Sciences, Inc., a Delaware corporation (the "Company"),
hereby certifies that for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, _______________ ("Warrant
Holder"), is entitled on the terms and conditions set forth below, to purchase
from the Company at any time beginning on the date hereof and ending on October
___, 2002, (the "Exercise Period") ____________ fully paid and nonassessable
shares of Common Stock, $.01 par value, of the Company (the "Common Stock"), at
a purchase price per share of $4.00 (the "Purchase Price"), as the same may be
adjusted pursuant to Section 5 herein.
1. Definitions. This Warrant and any Warrant or Warrants subsequently
-----------
issued upon exchange or transfer hereof are hereinafter collectively called the
"Warrant." The term "Warrant Shares" shall mean the shares of Common Stock or
other securities issuable upon exercise of this Warrant.
2. Exercise of Warrant. This Warrant may be exercised by the Warrant
-------------------
Holder, in whole or in part (but not as to fractional shares), at any time and
from time to time during the Exercise Period by surrender of this Warrant,
together with the form of subscription at the end hereof duly executed by
Warrant Holder, to the Company at its principal office. In the event that the
Warrant is not exercised in full, the number of Warrant Shares shall be reduced
by the number of such Warrant Shares for which this Warrant is exercised, and
the Company, at its expense, shall forthwith issue and deliver to or upon the
order of Warrant Holder a new Warrant of like tenor in the name of Warrant
Holder reflecting such adjusted Warrant Shares.
<PAGE>
3. Delivery of Stock Certificates.
------------------------------
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within five (5) days thereafter, the Company at its expense (including,
without limitation, the payment by it of any applicable issue taxes) will cause
to be issued in the name of and delivered to Warrant Holder, or as Warrant
Holder (upon payment by Warrant Holder of any applicable transfer taxes) may
lawfully direct, a certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which Warrant Holder shall be entitled
on such exercise, together with any other stock or other securities or property
(including cash, where applicable) to which Warrant Holder is entitled upon such
exercise.
(b) This Warrant may not be exercised as to fractional shares of Common
Stock. In the event that the exercise of this Warrant, in full or in part,
would result in the issuance of any fractional share of Common Stock, then in
such event Warrant Holder shall be entitled to cash equal to the fair market
value of such fractional share. For purposes of this Warrant, fair market value
shall equal the closing trading price of the Common Stock on the Nasdaq
National Market, the American Stock Exchange or the New York Stock Exchange,
whichever is the principal trading exchange or market for the Common Stock (the
"Principal Market") on the date of determination or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or quoted in
the Nasdaq national market system, the average of the closing bid and ask
prices on the over-the-counter market as furnished by any New York Stock
Exchange member firm reasonably selected from time to time by the Company for
that purpose, or, if the Common Stock is not listed or admitted to trading on
any national securities exchange or quoted on such national market system and
the average price cannot be determined as contemplated above, the fair market
value of the Common Stock shall be reasonably determined in good faith by the
Company's Board of Directors.
4. Covenants of the Company.
------------------------
(a) The Company shall use its reasonable best efforts to insure that a
registration statement under the Act covering the sale of the Warrant Shares is
and remains effective for the term of this Warrant and for three (3) years
thereafter, unless and until the Warrant Shares may be resold under Rule 144 of
the Act.
(b) The Company shall take all necessary action and proceedings as may be
required and permitted by applicable law, rule and regulation, including,
without limitation the notification of Nasdaq, for the legal and valid issuance
of this Warrant and the Warrant Shares to the Warrant Holder under this Warrant.
(c) From the date hereof through the last date on which this Warrant is
exercisable, the Company shall take all steps reasonably necessary to insure
that the Common Stock remains listed on the Principal Market and shall not amend
its Certificate of Incorporation or Bylaws so as to adversely affect any
rights of the Warrant Holder under this Warrant.
2
<PAGE>
(d) The Company shall at all times reserve and keep available, solely for
issuance and delivery as Warrant Shares hereunder, such shares of Common Stock
as shall from time to time be issuable.
(e) The Warrant Shares, when issued in accordance with the terms hereof,
will be duly authorized and, when paid for or issued in accordance with the
terms hereof, shall be validly issued, fully paid and non-assessable. The
Company has authorized and reserved for issuance to Warrant Holder the requisite
number of shares of Common Stock to be issued pursuant to this Warrant.
(f) With a view to making available to Warrant Holder the benefits of Rule
144 promulgated under the Act and any other rule or regulation of the Securities
and Exchange Commission (the "SEC") that may at any time permit Warrant
Holder to sell securities of the Company to the public without registration, the
Company agrees that, for so long as a class of its securities is registered
under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act"), as
amended, to use its best efforts to:
(i) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act; and
(iii) furnish to any Warrant Holder forthwith upon request a written
statement by the Company that it has complied with the reporting
requirements of Rule 144 and the Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as may be reasonably
requested in availing any such Warrant Holder to take advantage of any
rule or regulation of the SEC permitting the selling of any such
securities without registration.
5. Adjustment of Exercise Price and Number of Shares. The number of and
-------------------------------------------------
kind of securities purchasable upon exercise of this Warrant and the Purchase
Price shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and other Issuances. If the Company shall
----------------------------------------------
at any time after the date hereof but prior to the expiration of this Warrant
subdivide its outstanding securities as to which purchase rights under this
Warrant exist, by split-up, spin-off, or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number of
Warrant Shares as to which this Warrant is exercisable as of the date of such
subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the purchase price payable per share, but the aggregate purchase price
payable for the total number of Warrant Shares purchasable under this Warrant as
of such date shall remain the same.
(b) Stock Dividend. If at any time after the date hereof the Company
--------------
declares a dividend or other distribution on Common Stock payable in Common
Stock or other securities or rights convertible into Common Stock ("Common Stock
Equivalents") without payment of any
3
<PAGE>
consideration by holders of Common Stock for the additional shares of Common
Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon exercise or conversion thereof), then the number
of shares of Common Stock for which this Warrant may be exercised shall be
increased as of the record date (or the date of such dividend distribution if
no record date is set) for determining which holders of Common Stock shall be
entitled to receive such dividends, in proportion to the increase in the
number of outstanding shares (and shares of Common Stock issuable upon
conversion of all securities convertible into Common Stock) of Common Stock
as a result of such dividend, and the Purchase Price shall be adjusted so
that the aggregate amount payable for the purchase of all the Warrant Shares
issuable hereunder immediately after the record date (or on the date of such
distribution, if applicable), for such dividend shall equal the aggregate
amount so payable immediately before such record date (or on the date
of such distribution, if applicable).
(c) Other Distributions. If at any time after the date hereof the Company
-------------------
distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Purchase Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) Merger. If at any time after the date hereof there shall be a merger
------
or consolidation of the Company with or into another corporation then the
Warrant Holder shall thereafter be entitled to receive upon exercise of this
Warrant, during the period specified herein and upon payment of the aggregate
Purchase Price then in effect, the number of shares or other securities or
property of the successor corporation resulting from such merger or
consolidation, which would have been received by Warrant Holder for the shares
of stock subject to this Warrant had this Warrant at such time been exercised.
(e) Reclassification, Etc. If at any time after the date hereof there
---------------------
shall be a reorganization or reclassification of the securities as to which
purchase rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Warrant Holder shall
thereafter be entitled to receive upon exercise of this Warrant, during the
period specified herein and upon payment of the Purchase Price then in effect,
the number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Warrant Holder for the shares of stock subject to this Warrant had this Warrant
at such time been exercised.
(f) Continuation of Terms. Upon any reorganization, consolidation, merger
---------------------
or transfer (and any dissolution following any transfer) referred to in this
Section 5, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in Section 6.
4
<PAGE>
6. No Impairment. The Company will not, by amendment of its Certificate
-------------
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the Warrant
Holder against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any Warrant Shares above
the amount payable therefor on such exercise, (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable Warrant Shares on the exercise of
this Warrant and (c) will not transfer all or substantially all of its
properties and assets to any other person (corporate or otherwise), or
consolidate with or merge into any other person or permit any such person to
consolidate with or merge into the Company (if the Company is not the surviving
person), unless such other person shall expressly assume in writing and will
be bound by all the terms of this Warrant.
7. Notice of Adjustments; Notices. Whenever the Purchase Price or number
------------------------------
of Warrant Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company shall execute and deliver to the Warrant Holder a
certificate setting forth, in reasonable detail, the event requiring the
adjustment, the amount of the adjustment, the method by which such adjustment
was calculated and the Purchase Price and number of shares purchasable hereunder
after giving effect to such adjustment, and shall cause a copy of such
certificate to be mailed (by first class mail, postage prepaid) to the Warrant
Holder.
8. Rights As Stockholder. Prior to exercise of this Warrant, the Warrant
---------------------
Holder shall not be entitled to any rights as a stockholder of the Company with
respect to the Warrant Shares, including (without limitation) the right to vote
such shares, receive dividends or other distributions thereon or be notified of
stockholder meetings. However, in the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall mail to each Warrant
Holder, at least 10 days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
9. Replacement of Warrant. On receipt of evidence reasonably satisfactory
----------------------
to the Company of the loss, theft, destruction or mutilation of the Warrant and,
in the case of any such loss, theft or destruction of the Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of such Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
5
<PAGE>
10. Specific Enforcement; Consent to Jurisdiction.
---------------------------------------------
(a) The Company and the Warrant Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of this
Warrant were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant and to enforce specifically the terms and provisions
hereof, this being in addition to any other remedy to which either of them may
be entitled by law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby irrevocably
submits to the exclusive jurisdiction of the United States District Court and
other courts of the United States sitting in California for the purposes of any
suit, action or proceeding arising out of or relating to this Warrant and (ii)
hereby waives, and agrees not to assert in any such suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of such court,
that the suit, action or proceeding is brought in an inconvenient forum or that
the venue of the suit, action or proceeding is improper. Each of the Company
and the Warrant Holder consents to process being served in any such suit, action
or proceeding by mailing a copy thereof to such party at the address in
effect for notices to it under this Warrant and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
in this paragraph shall affect or limit any right to serve process in any other
manner permitted by law.
11. Entire Agreement; Amendments. This Warrant, the Exhibits hereto and
----------------------------
the Warrant Shares contain the entire understanding of the parties with respect
to the matters covered hereby and thereby and, except as specifically set forth
herein and therein, neither the Company nor the Warrant Holder makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by a written
instrument signed by the party against whom enforcement of any such amendment or
waiver is sought.
12. Restricted Securities. The Warrant Holder understands that unless a
---------------------
registration statement covering the Warrant Shares is effective, this Warrant
and the Warrant Shares purchasable hereunder constitute "restricted securities"
under the federal securities laws and accordingly may not, under such laws and
applicable regulations, be resold or transferred without an applicable exemption
from registration. In this connection, the Warrant Holder acknowledges
that Rule 144 of the Securities and Exchange Commission is not now, and may not
in the future be, available for resale of the Warrant and the Warrant Shares
purchasable hereunder. Unless such a registration statement is effective, the
Warrant Holder further acknowledges that the securities legend on Exhibit A
hereto shall be placed on any Warrant Shares issued to the Warrant Holder upon
the exercise of this Warrant.
13. Notices. Any notice or other communication required or permitted to be
-------
given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answer back received), telecopy or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to
6
<PAGE>
such address, or upon actual receipt of such mailing, whichever shall first
occur. The addresses for suchcommunications shall be:
to the Company:
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, California 92037
Attention: Chief Executive Officer
(858) 713-7300
(858) 713-7910 (facsimile)
with a copy to:
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, California 92037
Attention: Chief Financial Officer
(858) 713-7300
(858) 713-7900 (facsimile)
to the Warrant Holder:
___________________________
___________________________
___________________________
Attn: [___________]
[Telephone]
[_________] (facsimile)
with a copy to:
___________________________
___________________________
___________________________
Attn: [___________]
[Telephone]
[_________] (facsimile)
Either party hereto may from time to time change its address for notices
under this Section 13 by giving at least 10 days' written notice of such changed
address to the other party hereto.
7
<PAGE>
14. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the State of California. The headings in this Warrant
are for purposes of reference only, and shall not limit or otherwise affect any
of the terms hereof. The invalidity or unenforceability of any provision hereof
shall in no way affect the validity or enforceability of any other provision.
15. Expiration. The right to exercise this Warrant shall expire on October
----------
___, 2002.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
8
<PAGE>
Dated: October ___, 1999 ADVANCED TISSUE SCIENCES, INC.
By:
-----------------------------
Arthur J. Benvenuto
Chairman of the Board and
Chief Executive Officer
[CORPORATE SEAL]
Attest:
By:
-----------------------------
Michael V. Swanson
Senior Vice President and
Chief Financial Officer
WARRANT HOLDER
By:
---------------------------
Name:
-------------------------
Title:
------------------------
<PAGE>
FORM OF SUBSCRIPTION
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO ADVANCED TISSUE SCIENCES, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ___________
shares of Common Stock of ADVANCED TISSUE SCIENCES, INC., a Delaware corporation
(the "Company"), and herewith makes payment of $____________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to ________________, whose address is _________________.
Dated: ____________________________________
(Signature must conform to name of
holder as specified on the face of the
Warrant)
_____________________________________
(Address)
_____________________________________
(Tax Identification Number)
Signed in the presence of:
__________________________
<PAGE>
EXHIBIT A
---------
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS SUCH TRANSFER IS
MADE IN COMPLIANCE WITH THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
ALL APPLICABLE STATE SECURITIES LAWS OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT FROM
THE REQUIREMENTS OF SUCH ACT OR STATE SECURITIES LAWS.
Exhibit 5.1
October 18, 1999
Advanced Tissue Sciences, Inc.
10933 North Torrey Pines Road
La Jolla, CA 92037
Re: Advanced Tissue Sciences, Inc. Registration Statement No. 333-82683
on Form S-3 for 3,750,000 Units
Ladies and Gentlemen:
We have acted as counsel to Advanced Tissue Sciences, Inc., a Delaware
corporation (the "Company"), in connection with the proposed issuance and sale
by the Company of up to 3,750,000 Units, consisting in the aggregate of up to
3,750,000 shares of the Company's Common Stock (the "Shares") and warrants (the
"Warrants") to purchase up to 1,400,000 shares (the "Warrant Shares") of the
Company's Common Stock (the Units, Shares, Warrants and Warrant Shares are
collectively referred to herein as the "Securities") pursuant to the Company's
Registration Statement No. 333-82683 on Form S-3 (the "Registration Statement")
filed with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act").
This opinion is being furnished in accordance with the requirements of
Item 16 of Form S-3 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the corporate
proceedings taken by the Company in connection with the issuance and sale of
the Securities.
Based on such review, we are of the opinion that the Securities have been
duly authorized, and if, as and when issued in accordance with the Registration
Statement and the related prospectus (as amended and supplemented through the
date of issuance) will be legally issued, fully paid and nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
This opinion letter is rendered as of the date first written above and we
disclaim any obligation to advise you of facts, circumstances, events or
developments which hereafter may be brought to our attention and which may
alter, affect or modify the opinion expressed herein. Our opinion is expressly
limited to the matters set forth above and we render no opinion, whether by
implication or otherwise, as to any other matters relating to the Company or the
Securities.
Very truly yours,
/s/ Brobeck, Phleger & Harrison LLP
BROBECK, PHLEGER & HARRISON LLP
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
--------------------------------------------------
We consent to the reference to our firm under the caption "Experts" in the
Amendment No. 3 to the Registration Statement (Form S-3) and related Prospectus
of Advanced Tissue Sciences, Inc. for the registration of 3,750,000 Units and
to the incorporation by reference therein of our report dated January 29, 1999,
with respect to consolidated financial statements of Advanced Tissue Sciences,
Inc., and our report dated January 18, 1999, with respect to the combined
financial statements of the Dermagraft Joint Venture included in the Annual
Report (Form 10-K/A) of Advanced Tissue Sciences, Inc. for the year ended
December 31, 1998, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
San Diego, California
October 13, 1999
