Investment Agreement

Exhibit 4.3


INVESTMENT AGREEMENT


Between


ADVANCED TISSUE SCIENCES, INC.


And


GERSHON PARTNERS L.P.


Dated as of June 23, 1995


THE SECURITIES TO BE PURCHASED AND SOLD PURSUANT TO THIS INVESTMENT AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT") OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT.


INVESTMENT AGREEMENT dated as of June 23, 1995 between Gershon Partners L.P. (the "Investor") and Advanced Tissue Sciences, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company").


WHEREAS, the parties desire that the Investor become an equity investor in the Company by purchasing an aggregate of 500,000 shares of the Company's Common Stock, par value $.01 per share (the "Common Stock").


NOW, THEREFORE, the parties hereto agree as follows:


ARTICLE I


Purchase and Sale of Common Stock
---------------------------------


Section 1.1 PURCHASE AND SALE OF COMMON STOCK. Upon the terms and conditions set forth herein, the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company, 500,000 shares of the Company's Common Stock (the "Shares").


Section 1.2 PURCHASE PRICE. The aggregate purchase price for the Shares (the "Purchase Price") shall equal $3,430,000 payable in cash by wire transfer or cashier's check in immediately available funds.


Section 1.3 SHARE NUMBER; VALUATION PERIOD.


(a) The number of Shares that the Company shall be obligated to issue and sell and the Investor shall be obligated to purchase hereunder, in the aggregate, is referred to herein as the "Share Number." Subject to adjustment as provided in Sections 1.3(c), 1.3(d) and 1.3(e), the Share Number shall initially be 500,000.


(b) The "Valuation Period" shall be a 45 calendar day period commencing on and including the first business day which is 90 calendar days after the Closing Date (as defined herein) as the same may be modified pursuant to Section 4.2(c) hereof.


(c) Notwithstanding Section 1.3(a) above, and except as hereinafter provided, if the Average Share Price (hereinafter defined) during the Valuation Period is less than $7.75, then the Company shall deliver to the Investor, at no additional cost to the Investor, and in addition to the initial Share Number, the number of shares of Common Stock that is obtained by subtracting (x) 500,000 from (y) the quotient obtained by dividing the Purchase Price by 88.5% of the Average Share Price (rounded to the nearest whole number) (together with any additional shares issued pursuant to Section 1.3(e) herein, the "Additional Shares").


(d) Notwithstanding Section 1.3(a) above, and except as hereinafter provided, if the Average Share Price during the Valuation Period is greater than $7.75, the Investor shall pay to the Company the dollar amount by which (x) the product of 88.5% of the Average Share Price and the Share Number exceeds (y) the product of $6.86 and the Share Number.


(e) Notwithstanding Section 1.3(c) above, in the event that the Company, on or prior to 135 days from the Closing Date, issues or sells any shares of its Common Stock or any


-2-


of its securities which are convertible into or exchangeable for its Common Stock or any warrants or other rights to subscribe for or to purchase or any options for the purchase of, its Common Stock (other than shares or options issued pursuant to the Company's option plans or shares issued upon exercise of options, warrants or rights outstanding on the Closing Date or as provided on EXHIBIT A hereto), at a purchase price which is less than $6.86 per share (the "Subsequent Sale Price"), then the Company shall deliver to the Investor, at no additional cost to the Investor, and in addition to the Share Number, the number of shares of Common Stock that is obtained by subtracting (x) 500,000 from (y) the quotient obtained by dividing the Purchase Price by the Subsequent Sale Price (rounded to the nearest whole number).


Notwithstanding any of the foregoing, the number of Additional Shares issuable hereunder shall be the greater of the number of Additional Shares issuable pursuant to Section 1.3(c) herein and the number of Additional Shares issuable pursuant to Section 1.3(e) herein, if any.


(f) For purposes hereof, the Average Share Price shall mean the average of the closing trading prices of the Company's Common Stock on the Nasdaq National Market, as reported by the Nasdaq National Market for each trading day during the Valuation Period.


Section 1.4 THE CLOSING.


(a) The closing of the purchase and sale of the Shares (the "Closing"), shall take place (a) at the offices of the Investor, at 10:00 a.m., local time on the later of the following: (i) June 23, 1995, and (ii) the date on which the last to be fulfilled or waived of the conditions set forth in Article IV hereof and applicable to the Closing shall be fulfilled or waived in accordance herewith, or (b) at such other time and place and/or on such other date as the Investor and the Company may agree. The date on which the Closing occurs is referred to herein as the "Closing Date."


(b) (i) On the Closing Date, the Company shall deliver to the Investor certificates representing the Share Number to be issued and sold to the Investor on such date and registered in the name of the Investor or deposit such Share Number into the accounts designated by the Investor and (ii) on the Closing Date, the Investor shall deliver to the Company the Purchase Price by cashier's check or wire transfer in immediately available funds to such account as shall be designated in writing by the Company. In addition, each of the Company and the Investor shall deliver all documents, instruments and writings required to be delivered by either of them pursuant to this Agreement at or prior to the Closing.


Section 1.5. COVENANT TO REGISTER. For purposes of this Section 1.5, the following definitions shall apply:


(a) (i) The terms "register," "registered," and "registration" refer to a registration under the Act effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement, document or amendment thereto.


(ii) The term "Registrable Securities" means the Shares and any Additional Shares issued pursuant to Section 1.3 hereof and any securities of the Company or securities of any successor corporation issued as, or issuable upon the conversion or exercise of any warrant, right or other security that is issued as a dividend or other distribution with respect to, or in


-3-


exchange for, or in replacement of, the Shares and any Additional Shares issued pursuant to Section 1.3 hereof.


(b) (i) The Company shall, as expeditiously as possible following the Closing, file a registration statement on Form S- 3 or an equivalent thereof promptly after the Closing Date, covering all the Registrable Securities, and shall use its best efforts to cause such registration statement to become effective within 105 days of the Closing Date (the "Initial Registration"). In the event such registration is not so declared effective, the holder of the Registrable Securities shall have the right to require by notice in writing that the Company register all or any part of the Registrable Securities held by such holder (a "Demand Registration") and the Company shall thereupon effect such registration in accordance herewith. The parties agree that if the holder of Registrable Securities demands registration of less than all of the Registrable Securities, the Company, at its option, may nevertheless file a registration statement covering all of the Registrable Securities. If such registration statement is declared effective with respect to all Registrable Securities the demand registration rights granted pursuant to this Section 1.5 (b) (i) shall cease. If such registration statement is not declared effective with respect to all Registrable Securities the demand registration rights described herein shall remain in effect until all Registrable Securities have been registered under the Act.


(ii) The Company shall not be obligated to effect Demand Registration (i) if all of the Registrable Securities held by the holder of Registrable Securities which are intended to be covered by the Demand Registration are, at the time of the request of a Demand Registration, included in an effective registration statement and the Company is in compliance with its obligations under Subsection (d) (ii) through (v) hereof.


(iii) The Company may suspend the effectiveness of any such registration effected pursuant to this Section 1.5(b) in the event, and for such period of time as, such a suspension is required by the rules and regulations of the Securities and Exchange Commission ("SEC").


(iv) If the registration statement covering the Registrable Securities is not effective within 105 days of the Closing, then the Company shall pay the Investor a one time penalty of 1.0% of the Purchase Price.


(c) If the Company proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Investor) any of its stock or other securities under the Act in connection with a public offering of such securities (other than a registration on Form S-4, Form S-8 or other limited purpose form) and the Registrable Securities have not heretofore been included in a registration statement under Subsection (b), which remains effective, the Company shall, at such time, promptly give the holder of Registrable Securities written notice of such registration. Upon the written request of the holder of Registrable Securities given within twenty (20) days after receipt of such notice by the holder of Registrable Securities, the Company shall use its best efforts to cause to be registered under the Act all Registrable Securities that the holder of Registrable Securities requests to be registered. However, the Company shall have no obligation under this Subsection (c) to the extent that, with respect to a public offering registration, any underwriter of such public offering reasonably requests that the Registrable Securities or a portion thereof be excluded therefrom.


(d) Whenever required under this Section 1.5 to effect the registration of any Registrable Securities, including, without limitation, the Initial Registration, the Company shall, as expeditiously as reasonably possible:


-4-


(i) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration to become effective and, upon the request of the Investor, keep such registration statement effective, pursuant to the provisions of Regulation Section 230.415 or otherwise, for so long as the holder of Registrable Securities desires to dispose of the securities covered by such registration statement (but not after the holder of Registrable Securities, in the reasonable opinion of its counsel, is free to sell such securities in any three month period under the provisions of Rule 144 under the Act).


(ii) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement.


(iii) Furnish to the holder of Registrable Securities such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as the holder of Registrable Securities may reasonably require in order to facilitate the disposition of Registrable Securities owned by the holder of Registrable Securities.


(iv) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or "Blue Sky" laws of such jurisdictions as shall be reasonably requested by the holder of Registrable Securities, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service and process in any such states or jurisdictions.


(v) Notify the holder of Registrable Securities of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing.


(vi) Furnish, at the request of the holder of Registrable Securities, an opinion of counsel of the Company, dated the effective date of the registration statement, as to the due authorization and issuance of the securities being registered and compliance with securities laws by the Company in connection with the authorization and issuance thereof.


(vii) Use its best efforts to list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Stock is then listed;


(viii) Make available for inspection by the holder of Registrable Securities, upon request, all SEC Documents filed subsequent to the Closing and require the Company's officers, directors and employees to supply all information reasonably requested by any holder of Registrable Securities in connection with such registration statement.


(e) The holder of Registrable Securities will furnish to the Company in connection with any registration under this Section 1.5 such information regarding itself, the Registrable Securities and other securities of the Company held by it, and the intended method of disposition of such securities as shall be required to effect the registration of the Registrable Securities held by holder of Registrable Securities.


-5-


(f) (i) The Company shall indemnify, defend and hold harmless each holder of Registrable Securities which are included in a registration statement pursuant to the provisions of Subsections (b) or (c) from and against, and shall reimburse such holder with respect to, any and all claims, suits, demands, causes of action, losses, damages, liabilities, costs or expenses ("Liabilities") to which such holder may become subject under the Act or otherwise, arising from or relating to (A) any untrue statement or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or (B) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; provided, however, that the Company shall not be liable in any such case to the extent that any such Liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such holders in writing specifically for use in the preparation thereof.


(ii) Promptly after receipt by the holder of Registrable Securities of notice of the commencement of any action, the holder of Registrable Securities shall, if a claim in respect thereof is to be made against the Company hereunder, notify the Company in writing thereof, but the omission so to notify the Company shall not relieve the Company from any Liability which it may have to the holder of Registrable Securities other than under this section and shall only relieve it from any Lability which it may have to the holder of Registrable Securities under this section if and to the extent the Company is prejudiced by such omission. In case any such action shall be brought against the holder of Registrable Securities and the holder of Registrable Securities shall notify the Company of the commencement thereof, the Company shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel reasonably satisfactory to the holder of Registrable Securities, and, after notice from the Company to the holder of Registrable Securities of its election so to assume and undertake the defense thereof, the Company shall not be liable to the holder of Registrable Securities under this section for any legal expenses subsequently incurred by the holder of Registrable Securities in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected, provided, however, that if the defendants in any such action include both the Company and the holder of Registrable Securities and the holder of Registrable Securities shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the Company or if the interests of the holder of Registrable Securities reasonably may be deemed to conflict with the interests of the Company, the holder of Registrable Securities shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the Company as incurred.


(g) (i) With respect to the inclusion of Registrable Securities in a registration statement pursuant to subsections (b) or (c), all fees, costs and expenses of and incidental to such registration, inclusion and public offering shall be borne by the Company; provided, however, that any securityholders participating in such registration shall bear their pro rata share of the underwriting discounts and commissions, if any, incurred in connection with such registration.


(ii) The fees, costs and expenses of registration to be borne by the Company as provided in this Subsection (g) shall include, without limitation, all registration, filing and NASD fees, printing expenses, fees and disbursements of counsel and accountants for the Company, and all legal fees and disbursements and other expenses of complying with state securities or Blue Sky laws of any jurisdiction or jurisdictions in which securities to be offered are to be


-6-


registered and qualified. Fees and disbursements of counsel and accountants for the selling securityholders shall, however, be borne by the respective selling securityholder.


(h) (i) The rights to cause the Company to register all or any portion of Registrable Securities pursuant to this Section 1.5 may be assigned by Investor to a transferee or assignee of 20% or more, in the aggregate, of the Shares and the Additional Shares. Within a reasonable time after such transfer the Investor shall notify the Company of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned. Such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. Any transferee shall agree in writing at the time of transfer to be bound by the provisions of this Section 1.5.


(ii) From and after the date of this Agreement, the Company shall not agree to allow the holders of any securities of the Company to include any of their securities in any registration statement filed by the Company pursuant to Subsection (b) unless the inclusion of such securities will not reduce the amount of the Registrable Securities included therein.


Section 1.6. ADJUSTMENTS. If the Investor shall be entitled to the issuance of Additional Shares, the Company shall deliver to the Investor at the offices of the Investor on the third (3rd) business day after the end of the Valuation Period one or more certificates representing the Additional Shares so to be delivered in accordance with this Agreement, registered in the name of the Investor, or deposit such Additional Shares into accounts designated by the Investor; provided, however, that if the sum of the shares then beneficially owned by the Investor, and any Additional Shares then issuable to the Investor, as determined by the Investor, in its sole determination, shall equal 1.66% or more of the shares of Company's Common Stock issued and outstanding (as determined in accordance with Section 13(d) of the Securities Exchange Act of 1934) just prior to the Closing, then, and in such event, (x) the number of Additional Shares to be issued to the Investor pursuant to this paragraph shall be reduced to the number which, together with the Share Number, shall equal 1.64% of the shares of the Company's Common Stock issued and outstanding (as so determined) just prior to the Closing, and (y) in consideration for such reduction in Additional Shares, the Company shall pay to the Investor a sum equal to the greater of (a) the product of 88.5% of the Average Share Price and the reduction in the Additional Shares to be issued as a result of the preceding clause (x), and (b) the product of the Subsequent Sale Price and the reduction in the Additional Shares to be issued as a result of the preceding clause (x).


Section 1.7 RESCHEDULING. If after the date hereof and prior to the expiration of the Valuation Period any person shall (a) publicly announce a tender offer or exchange offer for the Company's Common Stock, or (b) publicly announce plans for a merger, consolidation or potential change in control of the Company, the Investor may in its sole discretion elect by written notice to the Company to shorten the Valuation Period so as to end on a date which is either before or after the consummation of the record date for the consummation of any such transaction, which election must be made prior to consummation of any such transaction. For purposes of the foregoing, it is understood and agreed that the Investor may, but shall not be required to, reduce or entirely eliminate the Valuation Period or to reschedule the Valuation Period.


-7-


ARTICLE II


Representations and Warranties
------------------------------


Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby makes the following representations and warranties to the Investor:


(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation duly incorporated and existing in good standing under the laws of the State of Delaware, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company does not have any active subsidiaries, except for those identified in the SEC Documents (as hereinafter defined). Each of the Company and its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary and where the failure so to qualify would have a Material Adverse Effect. "Material Adverse Effect" means any adverse effect on the operations, properties, prospects, or financial condition of the entity with respect to which such term is used and which is material to such entity and other entities controlling or controlled by such entity taken as a whole.


(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite corporate power and authority to enter into and perform this Agreement and to issue the Shares and the Additional Shares in accordance with the terms hereof, (ii) the execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action, and no further consent or authorization of the Company or its Board of Directors or stockholders is required, (iii) this Agreement has been duly executed and delivered by the Company, and (iv) this Agreement constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.


(c) CAPITALIZATION. The authorized capital stock of the Company and the shares thereof currently issued and outstanding are as most recently described in the SEC Documents and there have been no changes (except for changes described on EXHIBIT A) therein since such description. All of the outstanding shares of the Company's Common Stock have been validly issued and are fully paid and nonassessable. Except as set forth in EXHIBIT A hereto and as described in the SEC Documents, no shares of Common Stock are entitled to preemptive rights and there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, any shares of capital stock of the Company, or contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, or commitments to purchase or acquire, any shares, or securities or rights convertible into shares, of capital stock of the Company. The Company has furnished to the Investor true and correct copies of the Company's Certificate of Incorporation as in effect on the date hereof (the "Certificate"), and the Company's By-Laws, as in effect on the date hereof (the "By-Laws").


(d) ISSUANCE OF SHARES. The issuance of the Shares and Additional Shares has been duly authorized and, when paid for or issued in accordance with the terms hereof, shall be validly issued, fully paid and non-assessable.


-8-


(e) NO CONFLICTS. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not and will not (i) result in a violation of the Company's Certificate or By-Laws or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company is a party and which has previously been filed as an exhibit to the Company's Form 10-K for the year ended December 31, 1994 and is still in effect, or result in a violation of any federal, state, local or foreign law, rule, regulation, order, judgment or decree (including Federal and ...