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Plan Of Reorganization

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EXHIBIT 2.1


CRAIG H. MILLET, SBN 106027

ERIC J. FROMME, SBN 193517 NATHAN R. PIETILA, SBN 209662 GIBSON, DUNN & CRUTCHER LLP Jamboree Center

4 Park Plaza, Suite 1400

Irvine, California 92614-8557

Telephone: (949) 451-3800 Facsimile: (949) 451-4220

General Insolvency Counsel for Debtors and Debtors-in-Possession


UNITED STATES BANKRUPTCY COURT


FOR THE SOUTHERN DISTRICT OF CALIFORNIA


In re

ADVANCED TISSUE SCIENCES, INC.,

Debtor and Debtor-in-Possession.

Bankruptcy No.: 02-09988-M11


(Jointly Administered)

Chapter 11 Proceeding

ATS DERMAGRAFT, INC.,

Bankruptcy No.: 02-09994-H11


ATS ORTHOPEDICS, INC.,

Bankruptcy No.: 02-09991-B11


BIONUVIA, INC.,

Bankruptcy No.: 02-09996-M11

SEGENIX, INC., Bankruptcy No.: 02-09995-B11

Debtors and Debtors-in-Possession.

DEBTORS' LIQUIDATING CHAPTER 11 PLAN OF REORGANIZATION DATED FEBRUARY 7, 2003

Combined Disclosure Statement and Confirmation Hearing :

Date: March 19, 2003 Time: 10:00 a.m.

Place: 325 West "F" Street

San Diego, CA 92101 Judge: Hon. James W. Meyers


TABLE OF CONTENTS


Page

ARTICLE 1.

DEFINITIONS AND INTERPRETATION

1

Section 1.1.

Defined Terms

1

Section 1.2.

Bankruptcy Code Terms

10

Section 1.3.

Rules of Construction

10

ARTICLE 2.

CONSOLIDATION OF THE ESTATES OF ALL DEBTORS

11

ARTICLE 3.

DESIGNATION AND CLASSIFICATION OF CLAIMS AND INTERESTS

11

ARTICLE 4.

TREATMENT OF ADMINISTRATIVE EXPENSE CLAIMS, TAX CLAIMS, and BANKRUPTCY FEES

12

Section 4.1.

Administrative Expense Claims

12

(a)

Bar Date for Filing Administrative Expense Claims (Except Ordinary Course Administrative Expense Claims, Claims of Professionals and Bankruptcy Fees)

12

(b)

Allowance or Objection to Administrative Expense Claims

13

(c)

Payment of Allowed Claims

13

(d)

Professional Fees Incurred Through Confirmation

13

(e)

Professional Fees Incurred Between the Date of the Entry of the Confirmation Order and the Effective Date

14

Section 4.2.

Tax Claims

14

Section 4.3.

Payment of Bankruptcy Fees; Reports to the U.S. Trustee

14

Section 4.4

Subordinated Key Employee Administrative Claims

15

ARTICLE 5.

TREATMENT OF CLASSES UNDER THIS PLAN

15

Section 5.1.

Satisfaction of Claims.

15

Section 5.2.

Class 1: Non Tax Priority Claims

16

Section 5.3

Class 2: Secured Claims

16

(a)

Class 2A: Allowed Secured Claim of Millard Refrigerated Services, Inc. ("Millard")

16


ii


Page(s)

(b)

Class 2B: Alleged Secured Claim of Wateridge Lessor.

16

(c)

Class 2C: Alleged Secured Claim of Union Bank of California.

17

(d)

Class 2D: Alleged Secured Claim of GE Capital Corporation.

18

Section 5.4.

Class 3: Unsecured Claims.

18

(a)

Class 3A: Trade, Employee and Indemnification Claims.

18

(b)

Class 3B: Certain Limited Claims to Life Insurance Proceeds.

19

Section 5.5

Class 4: Interests in ATS.

19

ARTICLE 6. IMPAIRMENT OR UNIMPAIRMENT OF CLASSES; VOTING

22

Section 6.1.

Unclassified Claims.

22

Section 6.2.

Classes Not Impaired Under this Plan.

22

Section 6.3.

Classes Impaired Under this Plan.

22

ARTICLE 7. MEANS FOR IMPLEMENTATION OF THIS PLAN

22

Section 7.1

Distributions Prior by the Debtors Prior to Distributors to the Trust.

22

Section 7.2.

ATS Liquidating Trust.

23

(a)

Establishment of ATS Liquidating Trust.

23

(b)

Transfer of the Estates' Assets to the ATS Liquidating Trust.

24

(c)

Transfer Free and Clear of Claims; Stay of Actions Against ATS Liquidating Trust or Trust Res.

24

Section 7.3

Beneficiaries of the ATS Liquidating Trust, Claims Reserve Account, and Distributions.

25

Section 7.4

The Liquidating Trustee.

25

(a)

Appointment and Capacity of the Liquidating Trustee.

25

(b)

Powers, Rights and Duties of Liquidating Trustee.

26

(c)

Resignation of the Liquidating Trustee.

26


iii


Page(s)

(d)

Removal of the Liquidating Trustee and Modification of the ATS Liquidating Trust.

26

(e)

Appointment of Successor Liquidating Trustee.

27

(f)

Standard of Care; Exculpation.

27

(g)

Employment of Professionals by the ATS Liquidating Trust.

28

(h)

Termination of the ATS Liquidating Trust.

28

Section 7.5.

Authority to Prosecute Claims and Compromise Controversies.

28

(a)

Settlements.

28

(b)

May Prosecute Actions in Own Name or in Name of ATS.

29

Section 7.6.

Post-Effective Date / Pre-Trust Transfer Date Settlements.

29

Section 7.7.

Deadline to Interpose Objections to Claims.

29

Section 7.8.

Direction to Parties.

30

Section 7.9.

Unclaimed Property.

30

(a)

No Further Distribution.

30

(b)

Unnegotiated Checks or Void Wire Transfers.

30

Section 7.10.

Manner of Distributions Under this Plan and/or The ATS Liquidating Trust

31

Section 7.11.

Termination of the 401(k) Plan.

31

ARTICLE 8. POST-EFFECTIVE DATE OPERATION AND DISSOLUTION OF THE DEBTORS

32

Section 8.1.

No Further Business Activities by Debtors.

32

Section 8.2.

Dissolution of Debtors.

32

ARTICLE 9. EXECUTORY CONTRACTS

32

Section 9.1.

Rejection of Executory Contracts.

32

Section 9.2.

Claims for Damages.

33

ARTICLE 10. DISPOSITION OF DEBTORS' REMAINING ASSETS

34


iv

Page(s)

Section 10.1

Sale of NouriCel Business.

34

Section 10.2

Disposition of Debtors' Remaining Assets

34

(a)

Small Asset Sales

34

(b)

Other Asset Sales

34

(c)

Bidding Procedures on Future Sales

34

(d)

Assets Which May Be Retained by the Liquidating Trustee.

35

ARTICLE 11.

RETENTION OF JURISDICTION

35

Section 11.1.

Extent of Retention.

35

Section 11.2.

Exclusiveness of Retention of Jurisdiction.

37

ARTICLE 12.

CERTAIN PROVISIONS RELATING TO EFFECTIVENESS

37

Section 12.1.

Withdrawal of Plan.

37

Section 12.2.

Result of Stay Pending Appeal/Plan Voidability.

37

ARTICLE 13.

MISCELLANEOUS

38

Section 13.1.

Governing Law.

38

Section 13.2.

Headings.

38

Section 13.3.

Fractional Dollars; No De Minimus Distributors Required.

38

Section 13.4.

Revocation.

38

Section 13.5.

The Failure to Satisfy a Confirmation Condition or an Effective Date Condition.

39

Section 13.6.

Time.

39

Section 13.7.

Amendments.

39

Section 13.8.

Withholding and Reporting Requirements.

39

Section 13.10.

No Attorneys' Fees, Interest, Default Interest or Penalties.

40

Section 13.11.

Amounts of Claims.

40

Section 13.12.

Release of Officers and Directors for Acts During Bankruptcy Case.

40


v


Page(s)

Section 13.13.

Exculpation.

40

Section 13.14.

Satisfaction of Claims.

41

Section 13.15.

The Debtors Shall Not Receive a Discharge.

41

Section 13.16.

Severability.

41

Section 13.17.

No Transfer Taxes.

41

Section 13.18.

Effect of Confirmation.

42

Section 13.19.

Notice of Assignment of Claims.

42


vi


TABLE OF EXHIBITS


Exhibit

Description

A

Order on Management Retention and Compensation Plan entered on January 2, 2003.

B

ATS Liquidating Trust Agreement

C

Executory Contracts to be Assumed and Assigned or Rejected within 180 days of the Effective Date

D

Executory Contracts Related to the Debtors Collagen Business and Their Contractual Relationship with Inamed to be Assumed Under the Plan

E

Post-Petition Agreements Related to the Sale of the Dermagraft JV to Smith & Nephew

F

Sales Procedures Governing Future Sales


vii


Advanced Tissue Sciences, Inc., ATS Dermagraft, Inc., ATS Orthopedics, Inc., BioNuvia, Inc., and Segenix, Inc. (collectively, the "Debtors"), the Debtors in the above-captioned jointly administered Chapter 11 Cases, hereby propose this Liquidating Plan of Reorganization pursuant to the provisions of chapter 11 of title 11 of the United States Code.

THIS IS NOT A SOLICITATION OF ACCEPTANCES OR REJECTIONS OF THE DEBTORS' CHAPTER 11 PLAN. As set forth in the accompanying Disclosure Statement, because Creditors in Classes 1, 2, and 3 are unimpaired and will receive the full amount of their allowed Claims plus interest, because Class 4 Beneficiaries will receive the value of their interests (the value of all property remaining after the payment of senior Classes, Administrative Expense Claims and Priority Claims), and because no junior class exists to receive any property below Class 4, the Debtors have requested that the Bankruptcy Court approve the Disclosure Statement and confirm this Plan at a single hearing in an effort to save considerable time and costs that would otherwise be incurred by a solicitation of votes.


All holders of Claims and Interests, and other parties in interest are encouraged to read this Plan and the accompanying Disclosure Statement in their entirety.


ARTICLE 1.


DEFINITIONS AND INTERPRETATION


Section 1.1. Defined Terms.


As used herein, the following terms have the respective meanings specified below, unless the context indicates otherwise:


"Administrative Expense Claims" means Claims against any of the Debtors that are given administrative priority status pursuant to sections 507(a)(1) and 503(b) of the Bankruptcy Code, including without limitation the actual and necessary costs and expenses of preserving the Estates and operating the business of the Debtors from or after the Petition Date, professional fees and expenses incurred by the Debtors, any indebtedness or obligations properly incurred or assumed by the Debtors from or after the Petition Date, and any fees or charges assessed against the Estates pursuant 28 U.S.C. a7 1930, and which have not otherwise been paid on or before the Effective Date as Ordinary Course Administrative Expense Claims.


"Administrative Claims Bar Date" means the tenth (10th) calendar day after the Effective Date.

"Allowed" means:

(A) With respect to a Claim, any Claim that satisfies each of the following conditions:

(1) (a) a proof of Claim is properly and timely filed with the clerk of the Bankruptcy Court pursuant to the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, and Final Orders of the Bankruptcy Court; or


(b) if no proof of Claim was properly and timely filed, the Claim is deemed filed pursuant to section 1111(c) of the Bankruptcy Code; and


(2) the Claim is not a Disputed Claim.


(B) With respect to an Interest, any Interest that satisfies each of the following conditions:

(1) the asserted holder of the Interest is a Record Holder; and

(2) the Interest is not Disputed.


"ATS" means Advanced Tissue Sciences, Inc., a Delaware corporation, one of the Debtors under this Plan, the sole shareholder of the remaining Debtors, and the only publicly owned Debtor.

"ATS Liquidating Trust" means the trust created pursuant to section 7.2 of this Plan and the ATS Liquidating Trust Agreement on the Trust Transfer Date.


"ATS Liquidating Trust Agreement" means the agreement entered into between the Debtors and the Liquidating Trustee on the Effective Date, the substantial form of which is attached hereto as Exhibit B .


"Bankruptcy Code" means title 11 of the United States Code, as amended from time to time, as applicable to these Chapter 11 Cases.

"Bankruptcy Court" means the United States District Court for the Southern District of California with jurisdiction over these Chapter 11 Cases and, to the extent that any reference has been made pursuant to 28 U.S.C. a7 157, the United States Bankruptcy Court for the Southern District


2


of California; or any court, or adjunct thereof, having competent jurisdiction over these Chapter 11 Cases.


"Bankruptcy Fees" means fees or charges assessed against the Estates and payable to the U. S. Trustee under section 1930 of title 28 of the United States Code.

"Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as amended from time to time, as applicable to these Chapter 11 Cases.


"Bar Date" means the deadline established by the Bankruptcy Court for the filing of proofs of Claim, which deadline is either (a) December 31, 2002 for all Claims, other than Claims held by Governmental Units, Administrative Expense Claims, or as otherwise specified by the Bankruptcy Court in the order on Fixing Bar Date and Approving Bar Date Notice entered on October 31, 2002, or (b) April 8, 2003, for Claims held by Governmental Units, or (c) as established in this Plan.


"Beneficiary" means a Person that is granted a beneficial interest in the Liquidating Trust pursuant to section 7.3 of this Plan.


"Bonus Pool" means the amount equal to 2.5% of the funds generated from liquidation of the Debtors' assets that are available for distribution to Class 4 Beneficiaries on the Effective Date or available for distribution to Class 4 Beneficiaries within 90 days after the Effective Date, payable to the Key Employees pursuant to the Key Employee Retention Plan. For purposes of calculating the Bonus Pool, the amount available for distribution to Class 4 Beneficiaries includes the SkinMedica Note. Subject to the terms of the Key Employee Retention Plan, each Key Employee shall be entitled to his or her pro rata share of the Bonus Pool. For purposes of the Bonus Pool, "pro rata" means with respect to a given Key Employee, the salary of the Key Employee divided by the total salary of all Key Employees.

"Business Day" means any day other than a Saturday, Sunday or any other day on which commercial banks in California are required or authorized to close.

"Cash" means lawful currency of the United States of America or immediately available U.S. funds.


3


"Chapter 11 Cases" shall mean the jointly administered chapter 11 cases of the Debtors in the Bankruptcy Court under case number 02-09988-M11.


"Claim" means (a) any right to payment from any of the Debtors, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed or contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (b) a right to an equitable remedy for breach of performance if such breach gives rise to a right to payment from any of the Debtors, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. The term includes all Claims that arose prior to the Petition Date as well as Claims that arose and may arise after the Petition Date and prior to the Effective Date.

"Claims Reserve Account" means the segregated interest bearing account to be set aside from all the assets remaining in the Estates on the Trust Transfer Date, pursuant to section 7.3 of this Plan, and to be administered by the Liquidating Trustee after the Trust Transfer Date, which account shall contain funds sufficient to pay all unliquidated, contingent, or Disputed Claims, including the Prudential Stock or the proceeds thereof, as of the Trust Transfer Date.

"Class" shall mean any group of holders of Claims or Interests as specified in article 3 of this Plan.

"Class 4 Beneficiaries" means beneficial owners of Interests as of the Record Date, and their permitted successors and assigns, entitled to receive distributions under the ATS Liquidating Trust Agreement as set forth in Section 5.5.

"Confirmation Hearing" means the hearing on confirmation of this Plan at which the Bankruptcy Court determines whether this Plan shall be confirmed.

"Confirmation Date" means the date on which the clerk of the Bankruptcy Court enters the Confirmation Order.


"Confirmation Order" means the order of the Bankruptcy Court confirming this Plan pursuant to section 1129 of the Bankruptcy Code.

"Creditor" means any Person that holds a Claim against any of the Debtors.

"Debtors" shall have the meaning specified in the preamble to this Plan.


4


"Dermagraft Sale Agreement" means that certain Asset and Equity Purchase Agreement dated as of October 10, 2002, under which Smith & Nephew purchased certain of the Debtors' joint venture interests, certain related assets and assumed certain Executory Contracts.


"Disclosure Statement" means the disclosure statement relating to this Plan, as approved by the Bankruptcy Court under section 1125 of the Bankruptcy Code.

"Disputed" means, with respect to a Claim, except with respect to Administrative Expense Claims, a Claim against any of the Debtors to the extent that a proof of Claim has been properly and timely filed or deemed timely filed pursuant to the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules or Final Orders of the Bankruptcy Court, and as to which an objection has been or may be timely filed by any of the Debtors, the Liquidating Trustee, or any other party in interest, and which objection has not been withdrawn on or before any date fixed by this Plan or order of the Bankruptcy Court for filing such objections, and which objection has not been denied or resolved by a Final Order. Prior to the time that an objection has been or may be timely filed, for the purposes of this Plan, a Claim shall be considered a Disputed Claim (a) to the extent that the amount of the Claim specified in the proof of Claim exceeds the amount of the Claim scheduled by the Debtors as other than disputed, contingent or unliquidated, (b) to the extent that the Claim specifies a different priority, or classification, than as set forth on the Debtors' schedules, and (c) to the extent that the Claim is scheduled by the Debtors as disputed, contingent or unliquidated. With respect to Administrative Expense Claims, "Disputed Claim" means any Administrative Expense Claims as to which any of the Debtors or any other party in interest has interposed a timely objection in accordance with the Bankruptcy Code, the Bankruptcy Rules, the Local Bankruptcy Rules, and this Plan, which objection has not been withdrawn or determined by a Final Order. Prior to (i) the filing of an objection to an Administrative Expense Claim or (ii) the expiration of the time within which to object to such Administrative Expense Claim set forth in this Plan or otherwise established by order of the Bankruptcy Court, for purposes of this Plan, each Administrative Expense Claim shall be considered a Disputed Claim, unless the Debtors in their sole discretion determine otherwise. With respect to an Interest, a "Disputed Interest" means any Interest that is asserted in kind or amount or

5

by a Person that is not a Record Holder, and as to which the existence and validity of which has not been determined by a Final Order, or by agreement by the Debtors and the holder of the Interest.


"Dissolution Date" means the date that the Debtors are dissolved.

"Distribution Date" means the date of the initial distribution to Class 4 Beneficiaries which shall occur not later than sixty (60) days after the Effective Date.


"Effective Date" means (a) if no stay of the Confirmation Order is in effect, the tenth (10th) day after the Confirmation Date; or (b) if a stay of the Confirmation Order is in effect, the tenth (10th) day after the date on which such stay is vacated or any appeal, rehearing, remand or petition for certiorari is resolved in a manner that does not reverse or materially modify the Confirmation Order.

"ERISA" means the Employee Retirement Income Security Act of 1974, 20 U.S.C. a7 1001 et seq. as amended.


"Estates" shall mean the estates for the Debtors created pursuant to section 541 of the Bankruptcy Code upon the commencement of these Chapter 11 Cases.

"Executory Contract" shall mean any executory contract or unexpired lease as those terms are defined by section 365 of the Bankruptcy Code, between any of the Debtors and any other Person or Persons in effect as of the Petition Date, specifically excluding all of the contracts and agreements entered into pursuant to this Plan.


"Federal Judgment Rate" means the interest rate specified by section 1961 of title 28 of the United States Code as being applicable to civil judgments entered on the Petition Date.

"Final Order" means an order or judgment of the Bankruptcy Court as entered on the docket that has not been reversed, stayed, modified or amended and as to which the time to appeal, petition for certiorari , or to seek reargument or rehearing has expired and as to which no appeal, reargument, petition for certiorari , or rehearing is pending or, if an appeal, reargument, petition for certiorari , or rehearing thereof has been denied, the time to take any further appeal or to seek certiorari or further reargument or rehearing has expired. Notwithstanding, and in lieu of, the foregoing, insofar as the Confirmation Order and the order approving the Disclosure Statement are concerned, Final Order means such order or judgment with respect to which ten (10) days (calculated


6


according to Bankruptcy Rule 9006(a)) has elapsed since its entry and no stay is in effect, or if a stay is at any time in effect, the first day after the stay is lifted.

"Final Resolution" means entry of a Final Order either (i) resolving the dispute at issue or (ii) approving a settlement of such dispute under Bankruptcy Rule 9019(a).


"GECC" means GE Capital Corporation as successor in interest to Toshiba Financial Services.

"Interest" means any equity interest in the Debtors, and any option or warrant issued by the Debtors or other agreement to which the Debtors are party requiring the issuance of any such equity interest, that was authorized, issued and outstanding prior to the Effective Date.

"Key Employees" means individuals Mark Gergen, Andrew Buckland, Kari McCulloch and John Freeman.

"Key Employee Retention Plan" means this Plan for compensating the Key Employees and other individuals approved by the Bankruptcy Court in the Order on Management Retention and Compensation Plan entered January 2, 2003, and attached hereto as Exhibit A .

"Liquidating Trustee" means the trustee of the ATS Liquidating Trust.


"Local Bankruptcy Rules" means the Local Bankruptcy Rules of the United States Bankruptcy Court for the Southern District of California and general orders of the Bankruptcy Court, as amended from time to time, as applicable to these Chapter 11 Cases.


"Ordinary Course Administrative Expense Claim" means a Claim for the actual and necessary costs and expenses of preserving the Estates and operating the business of the Debtors incurred and payable in the ordinary course of business by any of the Debtors after the Petition Date and for which the invoice is received prior to the Effective Date, but excluding any Claim of a Governmental Unit for taxes which is paid on the Effective Date.


"Person" shall have meaning ascribed to it by Section 101(41) of the Bankruptcy Code, including limited liability companies, limited liability partnerships and other similar business forms.

"Petition Date" means October 10, 2002, the date on which the Debtors commenced these Chapter 11 Cases.

7


"Plan" means this Liquidating Plan of Reorganization, as altered, modified or amended by the Debtors in accordance with the Bankruptcy Code, the Bankruptcy Rules, and this Plan.

"Plan Administration Account" means the segregated interest-bearing account to be established by the Liquidating Trustee under the ATS Liquidating Trust with sufficient funds necessary to carryout the terms of this Plan and the ATS Liquidating Trust Agreement as determined in the sole discretion of the Liquidating Trustee.


"Priority Claims" means all Claims that are entitled to priority pursuant to section 507(a) of the Bankruptcy Code and that are not Administrative Expense Claims.

"Professional" means a Person retained or to be compensated pursuant to sections 321, 326, 327, 328, 330, 503(b) and/or 1103 of the Bankruptcy Code.

"Pro Rata" means, as to any distribution provided for by this Plan in respect of any Class of Claims, the allocation of the aggregate amount of such distribution in accordance with that percentage of the total of Allowed Claims in such Class that is represented by the Allowed Claim receiving the distribution and, in respect of any distribution provided for by this Plan in respect of any Class of Interests, the allocation of the aggregate amount of such distribution in accordance with that percentage of the total number of Interests in such Class that
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