Investment Agreement Between Registrant & Lander

INVESTMENT AGREEMENT


AGREEMENT effective the 26th day of March, 1996, by and between ADVANCED POLYMER SYSTEMS, INC. ("APS") and LHC CORPORATION ("PURCHASER").


R E C I T A L S


A. APS and PURCHASER are entering into a License and Supply Agreement (the "License Agreement") with respect to certain of the proprietary technologies of APS.


B. In connection with the License Agreement, APS desires to sell to PURCHASER, and PURCHASER desires to buy from APS, shares of APS Common Stock (the "Shares").


IT IS THEREFORE, AGREED as follows:


1. PURCHASE AND SALE OF SHARES.


1.1 Definitions.


(a) "Common Stock" means the Common Stock, $.01 par value, of APS.


(b) "Share" means one of the shares of Common Stock being purchased hereunder.


(c) "Act" means the Securities Act of 1933, as amended.


(d) "Material Adverse Event" shall mean an occurrence having a consequence that is materially adverse as to the business, properties, prospects or financial condition of APS.


(e) "Subsidiary" constitutes any corporation more than 50% (by virtue of voting rights) of whose stock in the aggregate is owned directly or indirectly by APS and any partnership in which APS, directly or indirectly, owns more than 50% in interest or participation.


1.2 Sale and Issuance of Shares. Subject to the terms and conditions hereof, APS shall sell to PURCHASER and PURCHASER shall buy from APS at the Closing (as defined below) for a total consideration of $3,000,000, that number of Shares which is equal to $3,000,000 divided by the average closing price of APS Common Stock on the Nasdaq National Market for the 20 trading days ending on the day immediately preceding the Closing (as hereinafter defined).


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1.3 Closing.

(a) Closing Date. The closing of the purchase and sale of the Shares (the "Closing") shall take place on March 25, 1996, or such other date as APS and PURCHASER may agree.

(b) Time and Place. The Closing shall take place at the offices of Heller, Ehrman, White & McAuliffe, 525 University Avenue, Suite 1100, Palo Alto, California, on the designated date at 10:00 a.m., or at such other place and time as APS and PURCHASER may agree.


1.4 Deliveries at the Closing. At the Closing, APS shall deliver to PURCHASER certificates for the Shares, in such denominations and registered in such name or names as PURCHASER may designate by notice to APS against delivery to APS of the purchase price for such Shares in immediately available funds.


2. REPRESENTATIONS AND WARRANTIES OF APS. APS hereby represents and warrants to the PURCHASER that:


2.1 Corporate Organization and Authority. APS:


(a) is a corporation duly incorporated and in good standing in the State of Delaware, and is authorized to exercise its corporate powers in that state;


(b) has full corporate power and authority to own and operate its properties and assets and to carry on its business as conducted; and


(c) has been duly qualified and is in good standing to do business as a foreign corporation in the states of California and Louisiana, which are the only jurisdictions in which the conduct of its business requires such qualification.


2.2 Capitalization. The authorized capital of APS consists of:


(a) Preferred Stock. 2,500,000 shares of Preferred Stock, $.01 par value, none of which are issued or outstanding.


(b) Common Stock. 50,000,000 shares of Common Stock, of which 17,096,708 shares are validly issued (including, without limitation, issued in compliance with applicable federal and state securities laws) and outstanding, fully-paid and non-assessable as of January 31, 1996.


(c) Other Securities. As of January 31, 1996, APS has available for issuance 3,024,850 shares of Common Stock under APS's Stock Option Plans and outstanding warrants to purchase up to 1,628,211 shares of Common Stock. There are no other rights, warrants, options, conversion privileges,


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3 subscriptions or other rights or agreements, either directly or indirectly, to purchase or otherwise acquire or issue any equity securities of APS.


2.3 Corporate Power. APS has and will have at Closing all requisite legal and corporate power to execute and deliver this Agreement and to sell and issue the Shares.


2.4 Subsidiaries. Except for Premier Inc. and APS Analytical Standards, Inc., each of which is wholly owned by APS, APS has no Subsidiaries.


2.5 Authorization. All corporate action on the part of APS necessary for the authorization, execution and delivery of this Agreement, the performance of APS's obligations hereunder, and for the authorization, sale, issuance and delivery of the Shares has been taken or will be taken prior to Closing. This Agreement, when executed and delivered, shall constitute a legally binding valid obligation of APS enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and subject to limitations of public policy as they may effect the enforceability of the indemnification and contribution provisions of Section 6.6.


2.6 Validity of Shares. The Shares, when issued, sold and delivered in accordance with the terms and for the consideration expressed in this Agreement, shall be duly and validly issued (including, without limitation, in compliance with applicable federal and state securities laws), fully-paid and non-assessable.


2.7 Financial Statements. The audited financial statements of APS and the related notes (the "Audited Financial Statements") included in APS's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (the "1994 10-K") and the unaudited financial statements and the related notes (the "Unaudited Financial Statements") included in APS's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, June 30 and September 30, 1995 (the "1995 10-Q's") are complete and correct in all material respects, present fairly the financial position and results of operations of APS at the dates and for the periods to which they relate, are in accordance with the books and records of APS, and have been prepared in accordance with generally accepted accounting principles consistently applied (to the extent required for interim reports with respect to the Unaudited Financial Statements).


2.8 Changes in Condition. Except as disclosed in the 1995 10-Q's, there has not been since December 31, 1994, any change in the business, properties, prospects or financial condition of APS which would constitute a Material Adverse Event.


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2.9 Patents and Other Proprietary Rights.


(a) To the best knowledge of APS: (i) APS has sufficient rights to use all patents, patent applications, inventions, trademarks, service marks, trade names and copyrights, all licenses with respect to the foregoing, and all trade secrets, information, proprietary rights and processes necessary to the proper conduct of its business; and (ii) such business does not conflict with or constitute an infringement of the rights of others;


(b) APS has not received any communications alleging that APS has violated or, by conducting its business as proposed, would violate any of the patents, patent applications, inventions, trademarks, service marks, trade names, copyrights or trade secrets, information, proprietary rights or processes of any other person or entity; and


(c) APS has obtained from all key employees and consultants to APS agreements with respect to the confidentiality and non-disclosure of proprietary information of APS.


2.10 Compliance With Other Agreements. APS is not in violation of any term or provision of its Certificate of Incorporation or By-laws, or any material term or provision of any indebtedness, mortgage, indenture, contract, agreement, judgment or, to APS's knowledge, any decree, order, statute, rule or regulation applicable to APS, in each case, or in the aggregate, the violation of which would constitute a Material Adverse Event. The execution, delivery and performance of this Agreement and the issuances of the Shares by APS will not result in any violation of, be in conflict with, or constitute a default under, with or without the passage of time or the giving of notice, any provision of APS's Certificate of Incorporation or By-laws, any material contract, obligation or commitment to which APS is a party or by which it is bound, or any provision of any judgment, decree or order to which APS is a party or by which it is bound.


2.11 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state, local or provincial governmental authority on the part of APS is required in connection with the consummation of the transactions contemplated by this Agreement, except for possible filings pursuant to Section 25102 (f) of the California Corporate Securities Law of 1968, as amended, and the rules thereunder, other applicable blue sky filings and Regulation D promulgated under the Act, which filings will be effected if necessary within 15 days of the Closing.


2.12 Private Offering. Assuming the accuracy of the representations and warranties of PURCHASER contained in Section 3 hereof, the offer, issue and sale of the Shares are and will be


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5 exempt from the registration and prospectus delivery requirements of the Act, and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit or qualification requirement of all applicable state securities laws.


2.13 Full Disclosure. The representations and warranties of APS contained in this Agreement and the information included in the 1994 10-K and the 1995 10-Q's, when read together, do not contain any untrue statements of a material fact or omit any material fact necessary to make the statements contained therein or herein in view of the circumstances under which they were made not misleading; provided, however, that no representation or warranty is made by APS that any financial or market projections, product development schedules or forecasts will, in fact, be achieved; provided, further, that with respect to such projections, schedules and forecasts, APS represents that such projections, schedules and forecasts were prepared in good faith.


3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. PURCHASER represents and warrants to APS as follows:


3.1 Investment Intent. This Agreement is made with PURCHASER in reliance upon PURCHASER's representation to APS that the Shares to be received by PURCHASER will be acquired for investment for PURCHASER's own account, not as a nominee or agent, and not with a view to the sale or distribution of any part thereof, and that PURCHASER has no present intention of selling, granting any participation in, or otherwise distributing the same. PURCHASER further represents that PURCHASER has no contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participation to such person or to any third person, with respect to any of the Shares.


3.2 Shares Not Registered. PURCHASER understands and acknowledges that the Shares will not be registered under the Act on the grounds that the offering and sale of securities contemplated by this Agreement are exempt from registration under the Act, and that APS's reliance upon such exemption is predicated upon PURCHASER's representations set forth in this Agreement.


3.3 Rule 144. PURCHASER covenants that in no event will PURCHASER dispose of any of the Shares (other than pursuant to Rule 144 promulgated by the Securities and Exchange Commission ("Commission") under the Act ("Rule 144") or pursuant to a registration statement filed with the Commission pursuant to the Act) unless and until:


(a) PURCHASER shall have notified APS of the proposed disposition and shall have furnished APS with a statement of the circumstances surrounding the proposed disposition; and


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(b) if requested by APS, PURCHASER shall have furnished APS with an opinion of PURCHASER's counsel reasonably satisfactory in form and substance to APS and APS's counsel to the effect that: (i) such disposition will not require registration under the Act; and (ii) appropriate action necessary for compliance with the Act and any applicable state, local or foreign law has been taken. The restrictions on transfer imposed by this Section 3 shall cease and terminate as to the Shares when: (1) such securities shall have been effectively registered under the Act and sold by the holder thereof in accordance with such registration; or (2) an opinion of the kind described in the preceding sentence states that all future transfers of such securities by the holder thereof would be exempt from registration under the Act. Each certificate evidencing the Shares shall bear an appropriate restrictive legend as set forth in Section 3.6 below, except that such certificate shall not bear such legend if the transfer was made in compliance with Rule 144 or pursuant to a registration statement or, if the opinion of counsel referred to above is to the further effect that such legend is not required in order to establish compliance with any provisions of the Act.


3.4 No Short Sales. PURCHASER further covenants that, until the Registration Statement referred to in Section 6.2 hereof is declared effective, PURCHASER will not:


(a) sell any equity security of APS if PURCHASER does not own the security sold (or, if PURCHASER owns such security, PURCHASER shall deliver it against s ...