Naughton Claims

Dr. Brian Naughton (“Naughton”) filed an objection to the sale of certain assets to Smith & Nephew claiming that Naughton now owns all right and title to the patent rights formerly held by ATS as a result of an alleged reversionary interest granted him in 1988. Naughton, along with his wife, Dr. Gail Naughton, were the inventors of the technology that formed the patent rights owned ATS. The Naughtons transferred the patent rights to ATS (then known as Marrow-Tech) in 1988 prior to its initial public offering. Naughton claims that, at some point, he was granted a reversionary interest in the patent rights which provided that, in the event ATS failed to produce marketable products using the technology, title to the patent rights would revert to him and Dr. Gail Naughton. ATS strongly disputes Naughton's claim. ATS has investigated Naughton's claim and believes that it was without merit and that the agreement does not exist. In any event, ATS believes that the bankruptcy proceedings have eliminated any interest that Brian Naughton or Gail Naughton could have held in ATS patents.

On May 28, 2003, the court found that Naughton had failed to present any evidence in support of his claim of title to the ATS patents, that he had failed to sustain his burden of proof and overruled Naughton's objection to the sale of certain assets to Smith & Nephew in its entirety. Therefore, the assets to be sold to Smith & Nephew will be free and clear of any and all liens and claims, including the claim of Naughton. Nevertheless, further proceedings will be required to ensure that Naughton's assertions do not interfere with sales of other remaining assets such as Segenix or Anginera.