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Exhibit 10.1

 
SUBSCRIPTION AGREEMENT
 
This Subscription Agreement (this “Agreement”) is entered into as of February
13, 2009, by and among ReGen Biologics, Inc., a Delaware corporation (together
with its successors and permitted assigns, the “Issuer”), and the undersigned
investors (together with their successors and permitted assigns, the “Investors”
and each an “Investor”).  Capitalized terms used but not otherwise defined
herein shall have the meanings set forth in Section 11.1.
 
RECITALS
 
Subject to the terms and conditions of this Agreement, the Issuer desires to
issue and sell to the Investors up to $_______________ of the Issuer’s common
stock, par value $0.01 per share (the “Common Stock”) at the Share Price and
warrants to purchase the Issuer’s Common Stock pursuant to the terms of the
warrant substantially in the form attached hereto as Exhibit A (the “Warrant”),
and each Investor, severally and not jointly, desires to subscribe for and
purchase at the Share Price the principal amount of Common Stock set forth on
such Investor’s signature page hereto.
 
TERMS OF AGREEMENT
 
In consideration of the mutual representations and warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
 
1.
SUBSCRIPTION AND ISSUANCE OF COMMON STOCK AND WARRANTS.

 
1.1           Subscription and Issuance of Common Stock and Warrants.  At
Closing, upon the terms and subject to the conditions set forth herein: (a) the
Issuer agrees that it will issue and sell to the Investors up to $______________
(the “Aggregate Purchase Price”) of the Issuer’s Common Stock at $3.50 per
share, the Share Price (the “Offering”), and each Investor, severally and not
jointly, agrees that it will acquire from the Issuer shares of Common Stock at
the Share Price in the amount set forth on its signature page hereto (for each
Investor, the “Shares”); (b) the Issuer agrees that it will issue and sell to
each Investor, and each Investor severally and not jointly agrees that it will
acquire from the Issuer, Common Stock at the Share Price, in each case, up to
the aggregate amount set forth on the signature page for each Investor hereof
(the “Investment Amount”); (c) the Issuer agrees that it will issue to each
Investor, and each Investor, severally and not jointly, agrees that it will
acquire from the Issuer, a Warrant or Warrants exercisable at the Warrant Price
to purchase a number of shares of Common Stock equal to 15% of the amount of
such Investor’s Investment Amount divided by $3.50; and (d) each Investor agrees
to remit payment for its Investment Amount in accordance with the provisions of
Section 1.2.
 
1.2           Payment for the Shares and Warrants.  At Closing, upon the terms
and subject to the conditions set forth herein, each Investor shall pay its
respective Investment Amount.  All payments by Investors shall be paid in cash,
by wire transfer of immediately available funds at Closing to an account
designated in a written notice delivered by the Issuer to each Investor not
later than two (2) days prior to the Closing.

 

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1.3           Legend.  Any certificate or certificates representing the Shares
or any shares of Common Stock issuable upon exercise of any Warrant shall bear
the following legend, in addition to any legend that may be required by any
Requirements of Law:
 
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED,
HYPOTHECATED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH
RESPECT THERETO OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
IN COMPLIANCE WITH ANY APPLICABLE RULES OF THE SECURITIES AND EXCHANGE
COMMISSION.
 
2.
CLOSING.

 
2.1           Closing.  The closing of the transactions contemplated herein (the
“Closing”) shall take place on a date designated by the Issuer, which date shall
be February 13, 2009.  The Closing shall take place at the offices of Pillsbury
Winthrop Shaw Pittman LLP, counsel for the Issuer, 1650 Tysons Boulevard,
McLean, VA 22102 or such other location as determined by the Issuer.  At the
Closing (i) each Investor shall remit payment in accordance with and in the
manner specified in Section 1.2, (ii) the Issuer shall issue to the Investors
the Shares, and shall deliver or cause to be delivered promptly after the
Closing to the Investor a certificate or certificates representing the Shares
duly registered in the name of the Investor, as specified on the signature pages
hereto; (iii) the Issuer shall issue to each Investor a Warrant or Warrants
exercisable at the Warrant Price to purchase a number of shares of Common Stock
equal to 15% of the amount of such Investor’s Investment Amount divided by
$3.50; and (iv) all other actions referred to in this Agreement which are
required to be taken for the Closing shall be taken and all other agreements and
other documents referred to in this Agreement which are required for the Closing
shall be executed and delivered.
 
2.2           Termination.  This Agreement may be terminated at any time prior
to the Closing:
 
(a)           by mutual written consent of the Issuer and the Investors;
 
(b)           with respect to any Investor’s obligations hereunder, by such
Investor, upon a materially inaccurate representation or breach of any material
warranty, covenant or agreement on the part of the Issuer set forth in this
Agreement, in either case such that the conditions in Section 10.1 would be
reasonably incapable of being satisfied on or prior to the date of the Closing;
or
 
(c)           by the Issuer, upon a materially inaccurate representation or
breach of any material warranty, covenant or agreement on the part of the
Investors set forth in this Agreement, in either case such that the conditions
in Section 10.2 would be reasonably incapable of being satisfied on or prior to
the date of the Closing.

 
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2.3           Effect of Termination.  In the event of termination of this
Agreement pursuant to Section 2.2, this Agreement shall forthwith become void,
there shall be no liability on the part of the Issuer or the Investors to each
other and all rights and obligations of any party hereto shall cease; provided,
however, that nothing herein shall relieve any party from liability for the
willful breach of any of its representations and warranties, covenants or
agreements set forth in this Agreement.
 
3.
NEGATIVE CLAW BACK.

 
3.1           Subsequent Financings.  If at any time after the Closing, the
Company consummates a financing transaction (a “Subsequent Financing”) in which
the Company issues Common Stock or Convertible Securities or Options
(collectively, such Common Stock, Convertible Securities, or Options are
hereinafter defined as “Additional Securities”) at a price per share of such
Additional Securities (after giving effect to the conversion of any Convertible
Securities and the exercise of any Options to be issued in the Subsequent
Financing) less than $3.20, subject to adjustment as set forth in Section 3.3
(the “Trigger Price”), the Company shall be obligated to issue to each Investor,
for no additional consideration, that number of shares of Common Stock as is
equal to the quotient of (a) the product of (i) the difference between the
Trigger Price and the Subsequent Financing Price, multiplied by (ii) the number
of the Shares issued to such Investor pursuant to this Agreement divided by (b)
the Subsequent Financing Price (“Additional Shares”), which in order to avoid
fractional shares shall be rounded up to the next whole number.  Notwithstanding
the foregoing, the provisions of this Section 3.1 shall not apply to and no
Additional Shares shall be issued in the case of the following issuances of
Additional Securities by the Company: (A) Additional Securities issued or
issuable to employees, consultants, contractors or directors of the Company
directly or pursuant to a stock option plan, restricted stock plan or other
arrangement; (B) Additional Securities issued or issuable upon the exercise of
any Convertible Securities or Options outstanding as of the date hereof; (C)
Additional Securities issued or issuable in a joint venture, strategic
partnership or licensing agreement, the primary purpose of which is not the
raising of capital; (D) Additional Securities issued or issuable pursuant to any
rights plan, poison pill or any similar plan or agreement; (E) Additional
Securities issued or issuable pursuant to the Warrants issued in connection with
this Agreement, or (F) in an adjustment pursuant to Section 3.3.
 
3.2           Notice; Additional Shares.  If the Subsequent Financing Price is
less than the Trigger Price, then at least five (5) days prior to closing of the
Subsequent Financing, the Company shall give to each Investor a notice (the
“Subsequent Financing Notice”) setting forth the Subsequent Financing Price, a
statement as to the adjustment to be made pursuant to this Section 3 and the
number of shares of Common Stock to be delivered to each Investor.  The Company
shall promptly deliver or cause to be delivered to each Investor a certificate
evidencing the appropriate number of shares of Common Stock deliverable to each
Investor as a result of this Section 3 following the closing of the Subsequent
Financing.

 
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3.3           Adjustments.  If the Company splits, subdivides or combines its
Common Stock into a different number of shares, then (a) the number of
additional shares issuable to each Investor as the result of the operation of
Section 3.1 shall be proportionately increased in the case of a split or
subdivision or proportionately decreased in the case of a combination and (b)
the Trigger Price shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination.
 
 
3.4
Termination; Maximum Amount of Additional Shares.

 
(a)           The rights of the Investors under this Section 3 shall
automatically terminate upon the earlier of (a) the Company’s net income or loss
plus depreciation, amortization, income tax and noncash stock-based compensation
being equal to or greater than zero (0) at the end of the fiscal quarter as
reported in the Company’s securities filings, (b) the closing of a Qualified
Offering and (c) January 16, 2012.
 
(b)           Notwithstanding Section 3.4(a), upon the issuance of 6,000,000
Additional Shares of Common Stock (the “Maximum Amount of Additional Shares”) as
a result of the operation of Section 3.1, not including any adjustments pursuant
to Section 3.3, the rights of the Investors under this Section 3 shall
terminate, and pursuant to the Subsequent Financing that triggers the rights of
the Investors under Section 3.1 and causes the issuance of shares up to the
Maximum Amount of Additional Shares, the Investors shall receive their pro rata
amount of Additional Shares up to the Maximum Amount of Additional Shares.
 
4.
REPRESENTATIONS AND WARRANTIES OF THE ISSUER.

 
As a material inducement to the Investors entering into this Agreement,
subscribing for the Shares and Warrants, except as set forth in the Disclosure
Schedules delivered to the Investors concurrently herewith, the Issuer
represents and warrants to the Investors as follows:
 
4.1           Corporate Status.  The Issuer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Each of the Issuer and its Subsidiaries has full corporate power and authority
to own and hold its properties and to conduct its business as described in the
Issuer’s SEC Reports. Each of the Issuer and its Subsidiaries is duly qualified
to do business and is in good standing in each jurisdiction in which the nature
of its business requires qualification or good standing, except for any failure
to be so qualified or be in good standing that would not have a Material Adverse
Effect.
 
4.2           Corporate Power and Authority.  The Issuer has the corporate power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated
hereby.  At or prior to the Closing, the Issuer will have taken all necessary
corporate action to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby.  No
further approval or authorization of any stockholder or the board of directors
of the Issuer is required for the issuance and sale of the Shares and Warrants
or, except as provided in Section 7.2, the filing of the Registration Statement.

 
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4.3           Enforceability.  This Agreement has been duly executed and
delivered by the Issuer and (assuming it has been duly authorized, executed and
delivered by the Investors) constitutes a legal, valid and binding obligation of
the Issuer, enforceable against the Issuer in accordance with its terms, except
(a) as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors’ rights generally, and (b) the indemnity provisions of Section 9 of
this Agreement, to the extent such provisions may not be enforceable based upon
public policy considerations, and general equitable principles, regardless of
whether such enforceability is considered in a proceeding at law or in equity.
 
4.4           No Violation.  The execution and delivery by the Issuer of this
Agreement, the consummation of the transactions contemplated hereby, and the
compliance by the Issuer with the terms and provisions hereof (including,
without limitation, the Issuer’s issuance to the Investors of the Shares and
Warrants as contemplated by and in accordance with this Agreement), will not
result in a default under (or give any other party the right, with the giving of
notice or the passage of time (or both), to declare a default or accelerate any
obligation under) or violate the Certificate of Incorporation or Bylaws of the
Issuer or any material Contract to which the Issuer is a party (except to the
extent such a default, acceleration, or violation would not, in the case of a
Contract, have a Material Adverse Effect on the Issuer), or materially violate
any Requirement of Law applicable to the Issuer, or result in the creation or
imposition of any material Lien upon any of the capital stock, properties or
assets of the Issuer or any of its Subsidiaries (except where such violations of
any Requirement of Law or creations or impositions of any Liens would not have a
Material Adverse Effect on the Issuer).  Neither the Issuer nor any of its
Subsidiaries is (a) in default under or in violation of any material Contract to
which it is a party or by which it or any of its properties is bound or (b) to
its knowledge, in violation of any order of any Governmental Authority, which,
in the case of clauses (a) and (b), could reasonably be expected to have a
Material Adverse Effect.
 
4.5           Consents/Approvals.  Except for the filing of a registration
statement in accordance with Article 7 hereof and filings with the SEC and the
securities commissions of the states in which the Shares and Warrants are to be
issued, no consents, filings, authorizations or other actions of any
Governmental Authority are required to be obtained or made by the Issuer for the
Issuer’s execution, delivery and performance of this Agreement which have not
already been obtained or made.  No consent, approval, waiver or other action by
any Person under any Contract to which the Issuer is a party or by which the
Issuer or any of its properties or assets are bound is required or necessary for
the execution, delivery or performance by the Issuer of this Agreement and the
consummation of the transactions contemplated hereby, except where the failure
to obtain such consents would not have a Material Adverse Effect on the Issuer.
 
4.6           Valid Issuance.  Upon payment of the Aggregate Purchase Price by
the Investors and delivery of the certificates for the Shares and the Warrants,
such Shares and Warrants will be validly issued, fully paid and nonassessable
and will be free and clear of all Liens imposed by the Issuer.  The shares of
Common Stock issuable upon exercise of the Warrants (the “Warrant Shares”) when
issued will be validly issued, fully paid and nonassessable and will be free and
clear of all Liens imposed by the Issuer and will not be subject to any
preemptive rights or other similar rights of stockholders of the Issuer imposed
by law.

 
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4.7           SEC Filings and Other Filings.  Except as set forth on Schedule
4.7, the Issuer has timely made all filings required to be made by it under the
Exchange Act since December 31, 2006.  The Issuer has delivered or made
accessible to the Investors true, accurate and complete copies of (a) the
Issuer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007;
(b) the Issuer’s definitive proxy statement dated April 21, 2008 relating to its
2008 Annual Meeting of Stockholders; and (c) the Issuer’s Period Reports on Form
10-Q filed May 8, 2008 for the quarter ended March 31, 2008, August 8, 2008 for
the quarter ended June 30, 2008 and November 10, 2008 for the quarter ended
September 30, 2008 (as such documents have, since the time of their filing, been
amended or supplemented, and together with all reports, documents and
information filed or after the date first written above through the date of
Closing with the SEC, collectively the “SEC Reports”).  The SEC Reports, when
filed (unless amended and superseded by a later Issuer filing prior to the date
hereof, then on the date of such later filing), complied in all material
respects with all applicable requirements of the Exchange Act and the Securities
Act, if and to the extent applicable, and the rules and regulations of the SEC
thereunder applicable to the SEC Reports.  None of the SEC Reports when filed
(unless amended and superseded by a later Issuer filing prior to the date
hereof, then on the date of such later filing) contained any misstatement of a
material fact or omitted to state a material fact necessary to prevent the
statements made therein from being misleading.
 
4.8           Commissions.  Except for those fees set forth on Schedule 4.8, the
Issuer has not incurred any other obligation for any finder’s or broker’s or
agent’s fees or commissions in connection with the transactions contemplated
hereby.
 
4.9           Capitalization.  As of the date hereof, the authorized capital
stock of the Issuer consists of 165,000,000 shares of Common Stock and
60,000,000 shares of Preferred Stock.  Except as set forth on Schedule 4.9, all
issued and outstanding shares of capital stock of the Issuer have been, and as
of Closing will be, duly authorized and validly issued and are fully paid and
non-assessable, have been issued in compliance with all applicable state and
federal securities laws in all material respects and were not issued in
violation of, or subject to, any preemptive, subscription or other similar
rights of any stockholder of the Issuer imposed by law.  As of the date hereof,
the Issuer has issued and outstanding 9,021,603 shares of Common Stock, not
accounting for any fractional shares resulting from the Reverse Split, and
8,015,820 shares of Preferred Stock, of which 1,990,360 shares have been
designated as Series A Convertible Preferred Stock and of which 6,025,460 shares
have been designated as Series C Convertible Preferred Stock, which in the
aggregate are convertible into 400,791 shares of Common Stock, not accounting
for any fractional shares resulting from the Reverse Split.  Except for
outstanding options to purchase 4,137,223 shares of Common Stock, outstanding
warrants to purchase 1,348,352 shares of Common Stock and the outstanding Bridge
Notes convertible into 61,555 shares of Common Stock, not accounting for the
Financing Options to be cancelled pursuant to this Agreement, as of the date
hereof there were no outstanding options, warrants, notes or rights (including
conversion or preemptive rights and rights of first refusal and similar rights
or agreements, orally or in writing, for the purchase or acquisition from the
Issuer of any shares of capital stock, and, except as set forth on Schedule 4.9,
the Issuer is not a party to or subject to any agreement or understanding and,
to the Issuer’s knowledge, there is no agreement or understanding between any
Persons, which affects or relates to the voting or giving of written consents
with respect to any security or by a director of the Issuer. The Issuer owns,
directly or indirectly, all of the capital stock of its Subsidiaries, free and
clear of any Liens or equitable interests other than as reflected in the SEC
Reports.  Except as set forth in the SEC Reports, the Issuer has no obligation,
contingent or otherwise, to redeem or repurchase any equity security or any
security that is a combination of debt and equity.

 
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4.10         Material Changes.  Except as set forth in the SEC Reports
(excluding any “risk factors” or “forward-looking statements” sections thereof)
or as otherwise contemplated herein, since December 31, 2007, there has been no
Material Adverse Effect in respect of the Issuer and its Subsidiaries taken as a
whole.  Except as set forth in the SEC Reports (excluding any “risk factors” or
“forward-looking statements” sections thereof), since December 31, 2007, there
has not been: (i) any direct or indirect redemption, purchase or other
acquisition by the Issuer of any shares of the Common Stock; (ii) any
declaration, setting aside or payment of any dividend or other distribution by
the Issuer with respect to the Common Stock; (iii) any borrowings incurred or
any material liabilities (absolute, accrued or contingent) assumed, other than
current liabilities incurred in the ordinary course of business, liabilities
under Contracts entered into in the ordinary course of business, or liabilities
not required to be reflected on the Issuer’s financial statements pursuant to
GAAP or required to disclosed in the SEC Reports; (iv) any Lien or adverse claim
on any of the Issuer’s material properties or assets, except for Liens for taxes
not yet due and payable or otherwise in the ordinary course of business; (v) any
sale, assignment or transfer of any of the Issuer’s material assets, tangible or
intangible, except in the ordinary course of business; (vi) any extraordinary
losses or waiver of any rights of material value; (vii) any material capital
expenditures or commitments therefor other than in the ordinary course of
business; (viii) any other material transaction other than in the ordinary
course of business; (ix) any material change in the nature or operations of the
business of the Issuer and its Subsidiaries; (x) any default in the payment of
principal or interest in any material amount, or violation of any material
covenant, with respect to any outstanding debt obligations that are material to
the Issuer and its Subsidiaries as a whole; (xi) any material changes to the
Issuer’s critical accounting policies or material deviations from historical
accounting and other practices in connection with the maintenance of the
Issuer’s books and records; or (xii) any agreement or commitment to do any of
the foregoing.
 
4.11         Litigation.  Except as set forth in the SEC Reports, there is no
action, suit, proceeding or investigation pending or, to the Issuer’s knowledge,
currently threatened against the Issuer or any of its Subsidiaries that
questions the validity of this Agreement or the right of the Issuer to enter
into it, or to consummate the transactions contemplated hereby, or that could
reasonably be expected to result, either individually or in the aggregate, in a
Material Adverse Effect on the Issuer or any material change in the current
equity ownership of the Issuer. The foregoing includes, without limitation,
actions pending or, to the Issuer’s knowledge, threatened involving the prior
employment of any of the Issuer’s employees or their use in connection with the
Issuer’s business of any information or techniques allegedly proprietary to any
of their former employers.  Neither the Issuer nor any of its Subsidiaries is a
party to or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or Governmental Authority.  There is no action, suit,
proceeding or investigation by the Issuer or any of its Subsidiaries currently
pending or which the Issuer or any of its Subsidiaries currently intends to
initiate, which could reasonably be expected to have a Material Adverse Effect.

 
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4.12         Rights of Registration, Voting Rights, and Anti-Dilution.  Except
as contemplated in this Agreement and as set forth on Schedule 4.12, the Issuer
has not granted or agreed to grant any registration rights, including piggyback
rights, to any Person and, to the Issuer’s knowledge, no stockholder of the
Issuer has entered into any agreements with respect to the voting of capital
shares of the Issuer.  Except as set forth in Schedule 4.12, the issuance of the
Shares and Warrants does not constitute an anti-dilution event for any existing
security holders of the Issuer, pursuant to which such security holders would be
entitled to additional securities or a reduction in the applicable conversion
price or exercise price of any securities.
 
4.13         Offerings.  Subject in part to the truth and accuracy of the
Investors’ representations and warranties set forth in this Agreement, the
offer, sale and issuance of the Shares, Warrants and Warrant Shares (together,
the “Securities”) as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act and any applicable state
securities laws, and neither the Issuer nor any authorized agent acting on its
behalf will take any action hereafter that would cause the loss of such
exemption.
 
4.14         Licenses and Permits.  Except as disclosed in the SEC Reports or on
Schedule 4.14, each of the Issuer and its Subsidiaries has all Permits under
applicable Requirements of Law from all applicable Governmental Authorities that
are necessary to operate its businesses as presently conducted and all such
Permits are in full force and effect, except where the failure to have any such
Permits in full force and effect would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.  Neither the Issuer
nor any of its Subsidiaries is in default under, or in violation of or
noncompliance with, any of such Permits, except for any such default, violation,
or noncompliance which would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect. To the Issuer’s knowledge, other
than as disclosed in the SEC Reports, there is no proposed change in any
Requirements of Law which would require the Issuer and its Subsidiaries to
obtain any Permits in order to conduct its business as presently conducted that
the Issuer and its Subsidiaries do not currently possess and the lack of which
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
 
4.15         Patents and Trademarks.  The Issuer and each of its Subsidiaries
has, or has rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
know-how (including trade secrets or other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) (collectively,
the “Intellectual Property Rights”) that are necessary for use in connection
with its business as presently conducted, except where the failure to have such
Intellectual Property Rights would not reasonably be expected to have a Material
Adverse Effect.  To the Issuer’s knowledge, there is no existing infringement by
another person or entity of any of the Intellectual Property Rights that are
necessary for use in connection with the Issuer’s business as presently
conducted.  The Issuer is not infringing on any intellectual property rights of
any other person, nor is there any claim of infringement made or, to the
Issuer’s knowledge, threatened by a third party against or involving the Issuer.

 
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4.16         Insurance. The Issuer maintains and will continue to maintain
insurance with such insurers, and insuring against such losses, in such amounts,
and subject to such deductibles and exclusions as are customary in the Issuer’s
industry and otherwise reasonably prudent, all of which insurance is in full
force and effect.
 
4.17         Material Contracts. All material Contracts to which the Issuer or
any Subsidiary is a party and which are required to have been filed by the
Issuer on Exhibit 10 to the SEC Reports have been filed by the Issuer with the
SEC pursuant to the requirements of the Exchange Act.  Except as disclosed in
the SEC Reports, each such material Contract is in full force and effect, except
as otherwise required pursuant to its respective terms, and is binding on the
Issuer or its Subsidiaries, as the case may be, in each case, in accordance with
its respective terms, and neither the Issuer or any of its Subsidiaries nor, to
the Issuer’s knowledge, any other party thereto is in breach of, or in default
under, any such material Contract, which breach or default would reasonably be
expected to have a Material Adverse Effect.  Except as set forth in the SEC
Reports, there exists no actual or, to the knowledge of the Issuer, threatened
termination, cancellation or limitation of, or any material adverse modification
or change in, the business relationship of the Issuer or any of its
Subsidiaries, or the business of the Issuer or any of its Subsidiaries, with any
customer or supplier or any group of customers or suppliers whose purchases or
inventories provided to the business of the Issuer or any of its Subsidiaries
would, individually or in the aggregate, have a Material Adverse Effect.
 
4.18         Taxes.  The Issuer has filed all material federal, state and
foreign income and franchise tax returns which are due and has paid or accrued
all taxes shown as due thereon, and the Issuer has no knowledge of a tax
deficiency which has been or might be asserted or threatened against it which is
reasonably likely to have a Material Adverse Effect.
 
4.19         Private Placement.  Neither the Issuer nor any of its Subsidiaries
or Affiliates, nor any Person acting on its or their behalf, (i) has engaged in
any form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities, (ii) has, directly or indirectly, made any offers or sales of
any security or solicited any offers to buy any security, under any
circumstances that would require registration of the Securities under the
Securities Act or (iii) has issued any shares of Common Stock or shares of any
series of preferred stock or other securities or instruments convertible into,
exchangeable for or otherwise entitling the holder thereof to acquire shares of
Common Stock which would be integrated with the sale of the Securities hereunder
for purposes of the Securities Act or of any applicable stockholder approval
provisions, nor will the Issuer or any of its Subsidiaries or Affiliates take
any action or steps that would require registration of any of the Securities
under the Securities Act or cause the offering of the Securities to be
integrated with other offerings.  Assuming the accuracy of the representations
and warranties of the Investors, the offer and sale of the Securities by the
Issuer to the Investors pursuant to this Agreement will be exempt from the
registration requirements of the Securities Act.

 
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4.20         Application of Takeover Protections. There is no control share
acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Issuer's
charter documents or the laws of its state of incorporation that is or could
become applicable to the Investors as a result of the Investors and the Issuer
fulfilling their obligations or exercising their rights hereunder, including,
without limitation, as a result of the Issuer's issuance of the Securities or
the Investors’ ownership of the Securities.
 
5.
REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.

 
As a material inducement to the Issuer entering into this Agreement and issuing
the Shares and Warrants, and in reliance upon the representations and warranties
of the Issuer in Section 4 hereof, each of the Investors severally and not
jointly represents, warrants, and covenants to the Issuer as follows:
 
5.1           Power and Authority.  The Investor, if other than a natural
person, is an entity duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or formation.  The Investor
has the corporate, partnership or other power (or capacity) and authority under
applicable law to execute and deliver this Agreement and consummate the
transactions contemplated hereby, and has all necessary authority to execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby.  The Investor has taken all necessary action
to authorize the execution, delivery and performance of this Agreement and the
transactions contemplated hereby.
 
5.2           No Violation.  The execution and delivery by the Investor of this
Agreement, the consummation of the transactions contemplated hereby, and the
compliance by the Investor with the terms and provisions hereof, will not result
in a default under (or give any other party the right, with the giving of notice
or the passage of time (or both), to declare a default or accelerate any
obligation under) or violate any charter or similar documents of the Investor,
if other than a natural person, or any Contract to which the Investor is a party
or by which it or its properties or assets are bound, or violate any Requirement
of Law applicable to the Investor, other than such violations or defaults which,
individually and in the aggregate, do not and will not have a Material Adverse
Effect on the Investor.  The Investor will comply with any Requirement of Law
applicable to it in connection with the Offering and any resale by the Investor
of any of the Securities.
 
5.3           Consents/Approvals.  No consents, filings, authorizations or
actions of any Governmental Authority are required for the Investor’s execution,
delivery and performance of this Agreement.  No consent, approval, waiver or
other actions by any Person under any Contract to which the Investor is a party
or by which the Investor or any of its properties or assets are bound is
required or necessary for the execution, delivery and performance by the
Investor of this Agreement and the consummation of the transactions contemplated
hereby.

 
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5.4           Enforceability.  This Agreement has been duly executed and
delivered by the Investor and (assuming it has been duly authorized, executed
and delivered by the Issuer) constitutes a legal, valid and binding obligation
of the Investor, enforceable against the Investor in accordance with its terms,
except (a) as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditor’s rights generally, and (b) the indemnity provisions of Section 9 of
this Agreement, to the extent they may not be enforceable based upon public
policy considerations, and general equitable principles, regardless of whether
enforceability is considered in a proceeding at law or in equity.
 
5.5           Investment Intent.  The Investor is acquiring the Shares and
Warrants hereunder for its own account and with no present intention of
distributing or selling any of the Securities and further agrees not to transfer
such Securities in violation of the Securities Act or any applicable state
securities law, and no one other than the Investor has any beneficial interest
in the Shares (except to the extent that the Investor may have delegated voting
authority to its investment advisor), the Warrants or the Warrant Shares.  The
Investor agrees that it will not sell or otherwise dispose of any of the
Securities unless such sale or other disposition has been registered under the
Securities Act or, in the opinion of counsel acceptable to the Issuer, is exempt
from registration under the Securities Act and has been registered or qualified
or, in the opinion of such counsel acceptable to the Issuer, is exempt from
registration or qualification under applicable state securities laws.  The
Investor understands that the offer and sale by the Issuer of the Shares and
Warrants being acquired by the Investor hereunder has not been registered under
the Securities Act by reason of their contemplated issuance in transactions
exempt from the registration and prospectus delivery requirements of the
Securities Act pursuant to Section 4(2) thereof, and that the reliance of the
Issuer on such exemption from registration is predicated in part on these
representations and warranties of the Investor.  The Investor acknowledges that
pursuant to Section 1.3 of this Agreement a restrictive legend consistent with
the foregoing has been or will be placed on the certificates for the Securities.
 
5.6           Accredited Investor.  The Investor is an “accredited investor” as
such term is defined in Rule 501(a) of Regulation D under the Securities Act,
and has such knowledge and experience in financial and business matters that it
is capable of evaluating the merits and risks of the investment to be made by it
hereunder.
 
5.7           Adequate Information.  The Investor has received from the Issuer,
and has had the opportunity to review, such information which the Investor
considers necessary or appropriate to evaluate the risks and merits of an
investment in the Shares and Warrants.  The Investor also acknowledges that the
risk factors set forth on Exhibit C and contained in the SEC Reports have been
delivered to the Investor and the Investor has had the opportunity to review
such risk factors.
 
5.8           Opportunity to Question.  The Investor has had the opportunity to
question, and has questioned, to the extent deemed necessary or appropriate,
representatives of the Issuer so as to receive answers and verify information
obtained in the Investor’s examination of the Issuer, including the information
that the Investor has received and reviewed as referenced in Section 5.7 hereof
in relation to its investment in the Shares and Warrants.

 
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5.9           No Other Representations.  No oral or written material
representations have been made to the Investor in connection with the Investor’s
acquisition of the Shares and Warrants which were in any way inconsistent with
the information reviewed by the Investor.  The Investor acknowledges that in
deciding whether to enter into this Agreement and to purchase the Shares and
Warrants hereunder, it has not relied on any representations or warranties of
any type or description made by the Issuer or any of its representatives with
regard to the Issuer, any of its Subsidiaries, any of their respective
businesses or properties, or the prospects of the investment contemplated
herein, other than the representations and warranties set forth in Section 4
hereof.
 
5.10         Knowledge and Experience.  The Investor has such knowledge and
experience in financial, tax and business matters, including substantial
experience in evaluating and investing in common stock and other securities
(including the common stock and other securities of speculative companies), so
as to enable the Investor to utilize the information referred to in Section 5.7
hereof and any other information made available by the Issuer to the Investor in
order to evaluate the merits and risks of an investment in the Shares and
Warrants and to make an informed investment decision with respect thereto.
 
5.11         Independent Decision.  The Investor is not relying on the Issuer or
on any legal or other opinion in the materials reviewed by the Investor with
respect to the financial or tax considerations of the Investor relating to its
investment in the Shares and Warrants.  The Investor has relied solely on the
representations and warranties, covenants and agreements of the Issuer in this
Agreement (including the exhibits and schedules hereto) and on its examination
and independent investigation in making its decision to acquire the Shares and
Warrants.
 
5.12         Commissions.  The Investor has not incurred any obligation for any
finder’s or broker’s or agent’s fees or commissions in connection with the
transactions contemplated hereby.
 
6.
COVENANTS.

 
6.1           Public Announcements.  The Issuer shall file within four (4)
business days after the Closing a Current Report on Form 8-K with the SEC in
respect of the transactions contemplated by this Agreement.  Prior to the
earlier of the filing of such Current Report on Form 8-K or the fifth business
day after the Closing, each Investor agrees not to make any public announcement
or issue any press release or otherwise publicly disseminate any information
about the subject matter of this Agreement.  Except as provided herein, the
Issuer shall have the right to make such public announcements and shall control,
in its sole and absolute discretion, the timing, form and content of all press
releases or other public communications of any sort relating to the subject
matter of this Agreement, and the method of their release, or publication
thereof.  The Issuer may issue press releases relating to the transactions
contemplated by this Agreement, but shall not identify any Investor in any such
press release without the consent of such Investor, except as may be required by
any Requirement of Law or rule of any exchange on which the Issuer’s securities
are listed.  Notwithstanding the foregoing, each Investor may make such filings
with and public disclosures to any Governmental Authority as are required,
including but not limited to filings on Form 4 and Schedule 13D/G with the SEC.

 
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6.2           Further Assurances.  Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be reasonably necessary or appropriate to effectuate, carry out and
comply with all of the terms of this Agreement and the transactions contemplated
hereby.  Each of the Investors and the Issuer shall make on a prompt and timely
basis all governmental or regulatory notifications and filings required to be
made by it with or to any Governmental Authority in connection with the
consummation of the transactions contemplated hereby.  The Issuer and the
Investors each agree to cooperate with the other in the preparation and filing
of all forms, notifications, reports and information, if any, required or
reasonably deemed advisable pursuant to any Requirement of Law in connection
with the transactions contemplated by this Agreement and to use their respective
commercially reasonable efforts to agree jointly on a method to overcome any
objections by any Governmental Authority to any such transactions.  Except as
may be specifically required hereunder, neither of the parties hereto nor their
respective Affiliates shall be required to agree to take any action that in the
reasonable opinion of such party would result in or produce a Material Adverse
Effect on such party.
 
6.3           Notification of Certain Matters.  Prior to the Closing, each party
hereto shall give prompt notice to the other party of the occurrence, or
non-occurrence, of any event which would be likely to cause any representation
and warranty herein to be untrue or inaccurate, or any covenant, condition or
agreement herein not to be complied with or satisfied.
 
 
6.4
Confidential Information; Standstill.

 
(a)           Except as contemplated by Sections 6.1 and 6.2 above, each of the
Investors agrees that no portion of the Confidential Information (as defined
below) shall be disclosed to third parties, except as may be required by law,
without the prior express written consent of the Issuer; provided, that an
Investor may share such information with such of its officers and professional
advisors as may need to know such information to assist such Investor in its
evaluation thereof on the condition that such parties agree to be bound by the
terms hereof.  “Confidential Information” means the existence and terms of this
Agreement, the transactions contemplated hereby, and the disclosures and other
information contained herein, excluding any disclosures or other information
that is publicly available.  Each of the Investors further agrees that it will
not trade the Common Stock acquired through this Offering until the Issuer has
publicly announced the completion of the Offering.
 
(b)           For a period of two (2) years from Closing, no Investor will,
without the prior written consent of the Issuer (i) propose to enter into any
acquisition of all or substantially all of the assets or stock of the Issuer or
a merger or other business combination transaction involving the Issuer, (ii)
seek to control the management, Board of Directors or policies of the Issuer, or
(iii) except as set forth on Schedule 6.4(b), form, join or in any way
participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange
Act) with respect to any securities of the Issuer in connection with any of the
foregoing.
 
6.5           Financing Option Cancellation.  The parties hereto agree that upon
Closing any and all Financing Options held by the Investors shall be deemed
cancelled and non-exercisable without any further action by any of the parties
to this Agreement.

 
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7.
REGISTRATION RIGHTS.

 
The Investors shall have the following registration rights with respect to the
Registrable Securities owned by it:
 
7.1           Transfer of Registration Rights.  An Investor may assign the
registration rights with respect to the Securities to any party or parties to
which it may from time to time transfer all of the Shares and Warrants in
accordance with Section 5.5 hereof; provided, that the transferee agrees in
writing with the Issuer to be bound by the applicable provisions of this
Agreement regarding such registration rights and indemnification relating
thereto.  Upon assignment of any registration rights pursuant to this Section
7.1, the Investor shall deliver to the Issuer a notice of such assignment which
includes the identity and address of any assignee and such other information
reasonably requested by the Issuer in connection with effecting any such
registration (collectively, the Investor and each such subsequent holder is
referred to as a “Holder”).  The Issuer shall maintain at one of its offices a
register for the recordation of the names and addresses of the Holders and the
Shares and Warrants held by each Holder (for the purposes of this Section 7.1
only, the “Register”).  The Issuer and Holders may treat each person whose name
is recorded in the Register pursuant to the terms hereof as a Holder hereunder
for all purposes of this Agreement.
 
7.2           Required Registration.  The Issuer agrees to register the resale
of all of the Registrable Securities by filing a registration statement on Form
S-1 (or S-3 if conditions change to allow the Issuer to use S-3) (the
“Registration Statement”), including the Shares and Warrant Shares purchased
pursuant to this Agreement. The Issuer agrees to use commercially reasonable
efforts to file a Registration Statement as soon as possible after the Closing;
provided, however, that if the Issuer is not eligible to use Form S-3, the
Issuer shall not be required to make such filing until the date that is sixty
(60) days following the date the Issuer files its next regularly scheduled
Annual Report on Form 10-K.  The Issuer shall subsequently use commercially
reasonable efforts to cause the SEC to declare the Registration Statement
effective as soon as possible.  The Issuer shall thereafter maintain the
effectiveness of the Registration Statement until the earlier of (a) the date on
which all the Registrable Securities have been sold pursuant to the Registration
Statement or Rule 144 promulgated under the Securities Act (“Rule 144”), (b)
such time as the Issuer reasonably determines, based on an opinion of counsel,
that all of the Holders will be eligible to sell under Rule 144 all of the
Securities then owned by the Holders within the volume limitations imposed by
paragraph (e) of Rule 144 in the three month period immediately following the
termination of the effectiveness of the Registration Statement, and (c) the
first anniversary of the date the Registration Statement was declared effective
by the SEC.  The Registration Statement filed pursuant to this Section 7.2 may
include other securities of the Issuer that are held by Persons who, by virtue
of agreements with the Issuer, are entitled to similar registration rights.
 
 
7.3
Registration Procedures.

 
(a)           In case of the Registration Statement effected by the Issuer
subject to this Section 7, the Issuer shall keep the Investors, on behalf of
Holder, advised in writing as to the initiation of such registration, and as to
the completion thereof.  In addition, subject to Section 7.2 above, the Issuer
shall, to the extent applicable to the Registration Statement:

 
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(i)            prepare and file with the SEC such amendments and supplements to
the Registration Statement as may be necessary to keep such registration
continuously effective and free from any material misstatement or omission
necessary to make the statements therein, in light of the circumstances, not
misleading, and comply with provisions of the Securities Act with respect to the
disposition of all securities covered thereby during the period referred to in
Section 7.2;
 
(ii)           update, correct, amend and supplement the Registration Statement
as necessary;
 
(iii)          notify the Holders promptly when the Registration Statement is
declared effective by the SEC, and furnish such number of prospectuses,
including preliminary prospectuses, and other documents incident thereto as any
Holder may reasonably request from time to time;
 
(iv)          use its commercially reasonable efforts to register or qualify
such Registrable Securities under such other securities or blue sky laws of such
jurisdictions of the United States where an exemption is not available and as
any Holder may reasonably request to enable it to consummate the disposition in
such jurisdiction of the Registrable Securities (provided that the Issuer will
not be required to (A) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this provision, or
(B) consent to general service of process in any such jurisdiction, or (C)
subject itself to taxation in any jurisdiction where it is not already subject
to taxation);
 
(v)           notify each Holder at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in the
Registration Statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading and, subject to
Section 7.6, the Issuer will prepare a supplement or amendment to such
prospectus, so that, as thereafter delivered to purchasers of such shares, such
prospectus will not contain any untrue statements of a material fact or omit to
state any fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
 
(vi)          cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Issuer are then
listed and obtain all necessary approvals for trading thereon;
 
(vii)         provide a transfer agent and registrar for all such Registrable
Securities not later than the effective date of the Registration Statement;

 
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(viii)        upon the sale of any Registrable Securities pursuant to the
Registration Statement, direct the transfer agent to remove all restrictive
legends from all certificates or other instruments evidencing the Registrable
Securities;
 
(ix)           with a view to making available to the Holders the benefits of
certain rules and regulations of the SEC that at any time permit the sale of the
Registrable Securities to the public without registration, so long as any
Registrable Securities are outstanding, the Issuer shall use its commercially
reasonable efforts for a period of two years following the date of Closing:
 
(1)           to make and keep public information available, as those terms are
understood and defined in Rule 144(c) under the Securities Act;
 
(2)           to file with the SEC in a timely manner all reports and other
documents required of the Issuer under the Exchange Act; and
 
(3)           to furnish to the Holders upon any reasonable request a written
statement by the Issuer as to its compliance with the public information
requirements of Rule 144(c) under the Securities Act; and
 
(x)           to advise the Holder promptly after it has received notice or
obtained knowledge of the existence of any stop order by the SEC delaying or
suspending the effectiveness of the Registration Statement or of the initiation
or threat of any proceeding for that purpose, and to make every commercially
reasonable effort to obtain the withdrawal of any order suspending the
effectiveness of the Registration Statement at the earliest possible time.
 
(b)           Notwithstanding anything stated or implied to the contrary in
Section 7.3(a) above, the Issuer shall not be required to consent to any
underwritten offering of the Registrable Securities or to any specific
underwriter participating in any underwritten public offering of the Registrable
Securities.
 
(c)           Each Holder agrees that upon receipt of any notice from the Issuer
of the happening of any event of the kind described in Section 7.3(a)(v), and
subject to Section 7.5, such Holder will forthwith discontinue such Holder’s
disposition of Registrable Securities pursuant to the registration statement
relating to such Registrable Securities until such Holder’s receipt of the
copies of the supplemented or amended prospectus contemplated by Section
7.3(a)(v) and, if so directed by the Issuer, will deliver to the Issuer at the
Issuer’s expense all copies, other than permanent file copies, then in such
Holder’s possession, of the prospectus relating to such Registrable Securities
current at the time of receipt of such notice.
 
(d)           Except as required by law, all expenses incurred by the Issuer in
complying with this Section 7, including but not limited to, all registration,
qualification and filing fees, printing expenses, fees and disbursements of
counsel and accountants for the Issuer, blue sky fees and expenses (including
fees and disbursements of counsel related to all blue sky matters) incurred in
connection with any registration, qualification or compliance pursuant to this
Section 7 shall be borne by the Issuer.  All underwriting discounts and selling
commissions applicable to a sale incurred in connection with any registration of
Registrable Securities and the legal fees and other expenses of a Holder shall
be borne by such Holder.

 
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7.4           Further Information.  If Registrable Securities owned by a Holder
are to be included in any registration, such Holder shall furnish the Issuer
such information regarding itself as the Issuer may reasonably request and as
shall be required in connection with any registration (or amendment or
supplement thereto), referred to in this Agreement, and Holder shall indemnify
the Issuer with respect thereto in accordance with Section 9 hereof.  Each
Holder shall furnish the information requested in Exhibit E of this Agreement in
writing to the Issuer no later than sixty (60) days after the Closing otherwise
the Issuer shall have no obligation to register such Holder’s Registrable
Securities under the Registration Statement.  The Issuer may reasonably request
that each Holder provide additional information in connection with filing the
Registration Statement, and such Holder shall provide such additional
information requested promptly following such request.  Each Holder hereby
represents and warrants to the Issuer that it will accurately and completely
provide any requested information, including the questions listed in Exhibit E
of this Agreement, in accordance with this Section 7.4, and each Holder agrees
and acknowledges that the Issuer may rely on such information as being true and
correct for purposes of preparing and filing the Registration Statement at the
time of filing thereof and at the time it is declared effective, unless such
Holder has notified the Issuer in writing to the contrary prior to such time.
 
 
7.5
Right of Suspension.

 
(a)           Notwithstanding any other provision of this Agreement or any
related agreement to the contrary, the Issuer shall have the right, at any time,
to suspend the effectiveness of the Registration Statement and offers and sales
of the Registrable Securities pursuant thereto whenever, in the good faith
judgment of the Issuer, (i) there exists a material development or a potential
material development with respect to or involving the Issuer that the Issuer
would be obligated to disclose in the prospectus used in connection with the
Registration Statement, which disclosure, in the good faith judgment of the
Issuer, after considering the advice of counsel, would be premature or otherwise
inadvisable at such time or (ii) the Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances, not misleading, including without
limitation that period annually during which any Registration Statement would
require suspension pending the Issuer’s new fiscal year financial statements
(each, a “Suspension Event”).  In the event that the Issuer shall determine to
so suspend the effectiveness of the Registration Statement and offers and sales
of the Registrable Securities pursuant thereto, the Issuer shall, in addition to
performing those acts required to be performed under the Securities Act and/or
the Exchange Act or deemed advisable by the Issuer, deliver to each Holder
written notice thereof, signed by the Chief Financial Officer or Chief Executive
Officer of the Issuer.  Upon receipt of such notice, the Holders shall
discontinue disposition of the Registrable Securities pursuant to the
Registration Statement and prospectus until such Holders (x) are advised in
writing by the Issuer that the use of the Registration Statement and prospectus
(and offers and sales thereunder) may be resumed, (y) have received copies of a
supplemental or amended prospectus, if applicable, and (z) have received copies
of any additional or supplemental filings which are incorporated or deemed to be
incorporated by reference into such prospectus.  The Issuer will exercise
commercially reasonable efforts to ensure that the use of the Registration
Statement and prospectus may be resumed as quickly as practicable.

 
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(b)           The Issuer’s right to suspend the effectiveness of the
Registration Statement and the offers and sales of the Registrable Securities
pursuant thereto, as described above in this Section 7.5(a), shall be for a
period of time (the “Suspension Period”) beginning on the date of the occurrence
of the Suspension Event and expiring on the earlier to occur of (i) the date on
which the Suspension Event ceases, or (ii) ninety (90) days after the occurrence
of the Suspension Event; provided, however, that there shall not be more than
two Suspension Periods in any 12-month period.  Notwithstanding the foregoing,
the Issuer shall be able to suspend the effectiveness of the Registration
Statement and offers and sales of the Registrable Securities for any time period
as may reasonably be required in order to update the Registration Statement to
replace financial information which is no longer current, as required by
applicable securities law.
 
(c)           In addition, in connection with any underwritten public offering
of securities of the Issuer, if requested by the Issuer or its managing
underwriter, each Holder will enter into a lock-up agreement pursuant to which
such Holder will not, during the seven (7) days prior to, and for a period no
longer than one hundred eighty (180) days following, the date of the prospectus
(or if the offering is pursuant to a shelf registration statement, the date of
the pricing prospectus supplement) relating to the offering, offer, sell or
otherwise dispose of any securities of the Issuer without the prior consent of
the Issuer and the managing underwriter, provided that the executive officers
and directors of the Issuer enter into lock-up agreements for a period at least
as long and on the same terms.
 
7.6           Transfer of Securities.  An Investor may transfer all or any part
of its Securities to any Person under common management with the Investor and
may distribute all or any part of the Shares to its equity holders or partners;
provided, that any such transfer shall be effected in full compliance with all
applicable federal and state securities laws, including, but not limited to, the
Securities Act and the rules of the SEC promulgated thereunder.  The Issuer will
effect such transfer of restricted certificates and will promptly amend or
supplement the Prospectus forming a part of the Registration Statement to add
the transferee to the selling stockholders in the Registration Statement;
provided that the transferor and transferee shall be required to provide the
Issuer with the information requested of the Investor in this Agreement,
information reasonably necessary for the Issuer to determine that the transfer
was effected in accordance with all applicable federal and state securities
laws, including, but not limited to, the Securities Act and the rules of the SEC
promulgated thereunder, and all other information reasonably requested by the
Issuer from time to time in connection with any transfer, registration,
qualification or compliance referred to in Section 7.4.

 
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8.
[Reserved.]

 
9.
INDEMNIFICATION.

 
9.1           Indemnification by the Issuer.  The Issuer will indemnify and hold
harmless each Holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of Section 7 hereof and any
underwriter (as defined in the Securities Act) for such Holder, and any person
who controls such Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act or such underwriter within the
meaning of the Securities Act, and any officer, director, investment adviser,
employee, agent, partner, member or affiliate of such Holder (each, a “Holder
Indemnified Party”), from and against, and will reimburse each such Holder
Indemnified Party with respect to, any and all claims, actions, demands, losses,
damages, liabilities, costs and reasonably incurred expenses to which such
Holder or any such Holder Indemnified Party may become subject under the
Securities Act or otherwise, insofar as such claims, actions, demands, losses,
damages, liabilities, costs or reasonably incurred expenses arise out of or are
based upon (i) 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 arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any materially inaccurate representation or breach of any material
warranty, agreement or covenant of the Issuer contained herein; provided,
however, that the Issuer will not be liable in any such case to the extent that
any such claim, action, demand, loss, damage, liability, cost or expense is
caused by an untrue statement or alleged untrue statement or omission or alleged
omission (1) made in conformity with information furnished by such Holder in
writing specifically for use in the preparation thereof, or (2) which was cured
in an amendment or supplement to the prospectus (or any amendment or supplement
thereto) delivered to the Holder on a timely basis to permit proper delivery
thereof prior to the date on which any Registrable Securities were transferred
or sold.
 
9.2           Indemnification by the Holder.  Each Holder of Registrable
Securities which are included in a registration statement pursuant to the
provisions of Section 7 hereof will indemnify and hold harmless the Issuer, and
any Person who controls the Issuer within the meaning of either Section 15 of
the Securities Act or Section 20 of the Exchange Act, and any officer, director,
employee, agent, partner, member or affiliate of the Issuer (each, an “Issuer
Indemnified Party”) from and against, and will reimburse the Issuer Indemnified
Parties with respect to, any and all losses, damages, liabilities, costs or
reasonably incurred expenses to which such Issuer Indemnified Parties may become
subject under the Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or reasonably incurred expenses are caused by any untrue or
alleged untrue statement of any material fact contained in such registration
statement, any prospectus contained therein or any amendment or supplement
thereto, or are caused by the omission or the 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, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made solely in reliance upon and in conformity with written information
furnished by such Holder specifically for use in the preparation thereof;
provided, however, that the liability of any Holder pursuant to this Section 9.2
shall be limited to an amount not to exceed the net proceeds received by such
Holder from the sale of Registrable Securities pursuant to the registration
statement which gives rise to such obligation to indemnify.

 
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9.3           Procedures.  Promptly after receipt by a party indemnified
pursuant to the provisions of Section 9.1 or Section 9.2 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of Section 9.1 or
Section 9.2, notify the indemnifying party of the commencement thereof; but the
omission to so notify the indemnifying party will not relieve it from any
liability which it may have to an indemnified party otherwise than under this
Section 9 and shall not relieve the indemnifying party from liability under this
Section 9, except to the extent that such indemnifying party is materially
prejudiced by such omission.  In case such action is brought against any
indemnified party and such indemnified party notifies the indemnifying party of
the commencement thereof, the indemnifying party shall have the right to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of Section 9.1 or Section 9.2 for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof.  No indemnifying party shall be liable to an indemnified
party for any settlement of any action or claim without the consent of the
indemnifying party.  No indemnifying party will consent to entry of any judgment
or enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or litigation.
 
10.
CONDITIONS TO CLOSING.

 
10.1         Conditions to the Obligations of the Investors.  The obligation of
an Investor to proceed with the Closing is subject to the following conditions,
any and all of which may be waived by such Investor, in whole or in part, to the
extent permitted by applicable law:
 
(a)           Representations and Warranties.  Each of the representations and
warranties of the Issuer contained in this Agreement shall be true and correct
in all material respects as of the Closing as though made on and as of the
Closing, except (i) for changes specifically permitted by this Agreement, (ii)
that those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, and (iii) such
failures to be true and correct which would not, individually or in the
aggregate, have a Material Adverse Effect on the Issuer.  Unless the Investor
receives written notice to the contrary at the Closing, such Investor shall be
entitled to assume that the preceding is accurate in all respects at the
Closing.
 
(b)           Agreement and Covenants.  The Issuer shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Closing.  Unless the Investor receives written notice to the contrary at the
Closing, such Investor shall be entitled to assume that the preceding is
accurate in all respects at the Closing.

 
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(c)           No Order.  No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Closing or any transaction contemplated by this Agreement.
 
(d)           Opinion of Issuer’s Counsel.  The Investor shall have received an
opinion of Issuer’s counsel, dated the date of Closing, in the form attached
hereto as Exhibit B.
 
(e)           Closing Certificate. The Investor shall have received a
certificate executed by the Chief Executive Officer or Chief Financial Officer
of the Issuer, dated as of the Closing, to the effect that the conditions set
forth in Sections 10.1(a) and (b) have been fulfilled.
 
10.2         Conditions to the Obligations of the Issuer.  The obligation of the
Issuer to proceed with the Closing is subject to the following conditions, any
and all of which may be waived by the Issuer, in whole or in part and with
respect to any or all Investors, to the extent permitted by applicable law:
 
(a)           Representations and Warranties.  Each of the representations and
warranties of the Investors contained in this Agreement shall be true and
correct as of the Closing as though made on and as of the Closing, except (i)
for changes specifically permitted by this Agreement, and (ii) that those
representations and warranties which address matters only as of a particular
date shall remain true and correct as of such date.  Unless the Issuer receives
written notification to the contrary at the Closing, the Issuer shall be
entitled to assume that the preceding is accurate in all respects at the
Closing.
 
(b)           Agreement and Covenants.  The Investors shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Closing.  Unless the Issuer receives written notification to the contrary at the
Closing, the Issuer shall be entitled to assume that the preceding is accurate
in all respects at the Closing.
 
(c)           No Order.  No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction, or other order (whether temporary, preliminary or permanent)
which is in effect and which materially restricts, prevents or prohibits
consummation of the Closing or any transaction contemplated by this Agreement.
 
11.
MISCELLANEOUS.

 
11.1         Defined Terms.  As used herein the following terms shall have the
following meanings:

 
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(a)           “Additional Securities” has the meaning specified in Section 3.1
of this Agreement.
 
(b)           “Additional Shares” has the meaning specified in Section 3.1 of
this Agreement.
 
(c)           “Affiliate” has the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
hereof.
 
(d)           “Aggregate Purchase Price” has the meaning specified in Section
1.1 of this Agreement.
 
(e)           “Agreement” has the meaning specified in the Preamble to this
Agreement.
 
(f)           “Bridge Financings” means the bridge financings transacted
pursuant to those certain Subscription Agreements, dated as of July 24, 2008 and
as of December 4, 2008, pursuant to which the Company issued Bridge Notes and
Bridge Warrants to the Investors party to each such agreement.
 
(g)           “Bridge Notes” means the Issuer’s unsecured convertible notes,
including any accrued and unpaid interest, which are convertible into the
Company’s Common Stock pursuant to the terms of such notes, purchased by the
Investors as part of the Bridge Financings.
 
(h)           “Bridge Warrants” means the warrants, which are exercisable for
the purchase of the Company’s Common Stock pursuant to the terms of such
warrants, purchased by the Investors as part of the Bridge Financings.
 
(i)            “Bylaws” means the Bylaws of the Issuer, as the same may be
supplemented, amended, or restated from time to time.
 
(j)            “Certificate of Incorporation” means the Issuer’s Certificate of
Incorporation, as the same may be supplemented, amended or restated from time to
time.
 
(k)           “Closing” has the meaning specified in Section 2.1 of this
Agreement.
 
(l)            “Common Stock” has the meaning specified in the Recitals of this
Agreement.
 
(m)          “Confidential Information” has the meaning specified in Section 6.4
of this Agreement.
 
(n)           “Contract” means any indenture, lease, sublease, loan agreement,
mortgage, note, restriction, commitment, obligation or other contract, agreement
or instrument.

 
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(o)           “Convertible Securities” means any evidences of indebtedness,
shares (other than Common Stock) or other securities convertible into or
exchangeable for Common Stock.
 
(p)           “Exchange Act” means the Securities Exchange Act of 1934, as
amended.
 
(q)           “Financing Options” mean options, as amended and restated, to
purchase shares of the Company’s Common Stock issued to any Investor pursuant to
those certain Subscription Agreements, dated as of November 30, 2006, December
1, 2006, March 2, 2007, March 30, 2007 and April 5, 2007.
 
(r)           “GAAP” means generally accepted accounting principles in effect in
the United States of America.
 
(s)           “Governmental Authority” means any nation or government, any state
or other political subdivision thereof, and any entity or official exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
 
(t)           “Holder” has the meaning specified in Section 7.1 of this
Agreement.
 
(u)           “Holder Indemnified Party” has the meaning specified in Section
9.1 of this Agreement.
 
(v)           “Intellectual Property Rights” has the meaning specified in
Section 4.15 of this Agreement.
 
(w)          “Investment Amount” has the meaning specified in Section 1.1 of
this Agreement.
 
(x)           “Investors” has the meaning specified in the Preamble to this
Agreement.
 
(y)           “Issuer” has the meaning specified in the Preamble to this
Agreement.
 
(z)           “Issuer Indemnified Party” has the meaning specified in Section
9.2 of this Agreement.
 
(aa)         “Lien” means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and the filing of or
agreement to give any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in connection with such mortgage, pledge,
security interest, encumbrance, lien or charge).
 
(bb)         “Material Adverse Effect” means a material and adverse change in,
or effect on, the financial condition, properties, assets, liabilities, rights,
obligations, operations or business, of a Person and its Subsidiaries taken as a
whole.

 
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(cc)         “Maximum Amount of Additional Shares” has the meaning specified in
Section 3.4 of this Agreement.
 
(dd)         “Offering” has the meaning specified in Section 1.1 of this
Agreement.
 
(ee)         “Options” means any rights, options or warrants to subscribe for,
purchase or otherwise acquire Common Stock or Convertible Securities.
 
(ff)           “Permit” means any permit, certificate, consent, approval,
authorization, order, license, variance, franchise or other similar indicia of
authority issued or granted by any Governmental Authority.
 
(gg)         “Person” means an individual, partnership, corporation, business
trust, joint stock company, estate, trust, unincorporated association, joint
venture, Governmental Authority or other entity, of whatever nature.
 
(hh)         “Preferred Stock” means the Series A Convertible Preferred Stock,
the Series C Convertible Preferred Stock, the Series D Convertible Preferred
Stock, the Series E Convertible Preferred Stock and the Series F Convertible
Preferred Stock.
 
(ii)           “Qualified Offering” means a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock by the
Company to the public that results in gross cash proceeds to the Company of at
least $10,000,000 and assumes a minimum valuation of the Company of at least
$50,000,000.
 
(jj)           “Register”, “registered” and “registration” refer to a
registration of the offering and sale or resale of Common Stock effected by
preparing and filing a registration statement in compliance with the Securities
Act and the declaration or ordering of the effectiveness of such registration
statement.
 
(kk)         “Registrable Securities” means (i) the Shares acquired by each
Investor pursuant to this Agreement, (ii) the Warrant Shares, and (iii) any
other shares of Common Stock or other securities issued in respect of such
shares by way of a stock dividend or stock split or in connection with a
combination or subdivision of the Common Stock or by way of a recapitalization,
merger or consolidation or reorganization of the Issuer; provided, however, that
as to any particular securities, such securities will cease to be Registrable
Securities upon the earlier of (i) the sale of such securities pursuant to
registration or in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section 4(1) thereof, (ii) the
date that such securities are permitted to be disposed pursuant to Rule 144
under the Securities Act, or (iii) the date on which all such securities cease
to be outstanding; and, as a result of the event or circumstance described in
either of the foregoing clauses (i) or (ii), all transfer restrictions and
restrictive legends with respect thereto are removed or removable in accordance
with this Agreement or such legends, as the case may be.

 
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(ll)           “Registration Statement” has the meaning specified in Section 7.2
of this Agreement.
 
(mm)       “Requirements of Law” means as to any Person, the certificate of
incorporation, bylaws or other organizational or governing documents of such
Person, and any domestic or foreign and federal, state or local law, rule,
regulation, statute or ordinance or determination of any arbitrator or a court
or other Governmental Authority, in each case applicable to, or binding upon,
such Person or any of its properties or to which such Person or any of its
property is subject.
 
(nn)        “Reverse Split” means the one for twenty reverse stock split of the
Company’s Common Stock, effected as of 11:59 p.m. Eastern Standard Time on
November 29, 2008.
 
(oo)        “Rule 144” has the meaning specified in Section 7.2 of this
Agreement.
 
(pp)        “SEC” means the Securities and Exchange Commission.
 
(qq)        “SEC Reports” has the meaning specified in Section 4.7 of this
Agreement.
 
(rr)          “Securities” means the Shares, the Warrants and the Warrant
Shares.
 
(ss)         “Securities Act” means the Securities Act of 1933, as amended.
 
(tt)          “Share Price” means $3.50 per share of Common Stock.
 
(uu)        “Shares” has the meaning specified in Section 1.1 of this Agreement.
 
(vv)        “Subsequent Financing” has the meaning specified in Section 3.1 of
this Agreement.
 
(ww)       “Subsequent Financing Notice” has the meaning specified in Section
3.2 of this Agreement.
 
(xx)          “Subsequent Financing Price” means the per share price of the
Additional Securities to be paid by prospective purchasers of the Additional
Securities in the Subsequent Financing.
 
(yy)        “Subsidiary” means as to any Person, a corporation or limited
partnership of which more than 50% of the outstanding capital stock or
partnership interests having full voting power is at the time directly or
indirectly owned or controlled by such Person.
 
(zz)          “Suspension Event” has the meaning specified in Section 7.5(a) of
this Agreement.

 
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(aaa)       “Suspension Period” has the meaning specified in Section 7.5(b) of
this Agreement.
 
(bbb)      “Trigger Price” has the meaning specified in Section 3.1 of this
Agreement.
 
(ccc)       “Warrant” has the meaning specified in the Recitals to this
Agreement
 
(ddd)      “Warrant Price” means $1.20 per share of Common Stock.
 
(eee)        “Warrant Shares” has the meaning specified in Section 4.6 of this
Agreement.
 
 
11.2
Other Definitional Provisions.

 
(a)           All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise requires.
 
(b)           Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
 
(c)           All accounting terms shall have a meaning determined in accordance
with GAAP.
 
(d)           The words “hereof,” “herein” and “hereunder,” and words of similar
import, when used in this Agreement shall refer to this Agreement as a whole
(including any exhibits and schedules hereto) and not to any particular
provision of this Agreement.
 
11.3         Notices.  All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage pre-paid), guaranteed overnight
delivery, or facsimile transmission if such transmission is confirmed by
delivery by certified or registered mail (first class postage pre-paid) or
guaranteed overnight delivery, to the following addresses and telecopy numbers
(or to such other addresses or telecopy numbers which such party shall
subsequently designate in writing to the other party):
 
 
(a)
if to the Issuer to:

 
ReGen Biologics, Inc.
411 Hackensack Avenue
Hackensack, NJ  07601
Attention: Brion D. Umidi
Telecopy: 201.651.5141

 
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with a copy to:
 
Pillsbury Winthrop Shaw Pittman LLP
1650 Tysons Boulevard
McLean, VA 22102
Attention: David C. Main, Esq.
Telecopy: 703.770.7901
 
(b)           if to an Investor, to the address or telecopy number set forth
next to its name on the signature page hereto.
 
Each such notice or other communication shall for all purposes of this Agreement
be treated as effective or having been given when delivered if delivered by
hand, by messenger or by courier, or if sent by facsimile, upon confirmation of
receipt.
 
11.4         Entire Agreement.  This Agreement (including the exhibits and
schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contain the entire understanding of the parties in respect of its
subject matter and supersede all prior agreements and understandings between the
parties with respect to such subject matter.
 
11.5         Expenses; Taxes.  Except as otherwise provided in this Agreement,
the parties shall pay their own fees and expenses, including their own counsel
fees, incurred in connection with this Agreement or any transaction contemplated
hereby.  Any sales tax, stamp duty, deed transfer or other tax (except taxes
based on the income of an Investor) arising out of the issuance of the
Securities (but not with respect to subsequent transfers) by the Issuer to an
Investor and consummation of the transactions contemplated by this Agreement
shall be paid by the Issuer.
 
11.6         Amendment; Waiver.  Unless provided otherwise in this Agreement,
this Agreement may not be modified, amended, supplemented, canceled or
discharged, except by written instrument executed by all parties.  Unless
provided otherwise in this Agreement, no failure to exercise, and no delay in
exercising, any right, power or privilege under this Agreement shall operate as
a waiver, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the exercise of any other right, power or
privilege.  No waiver of any breach of any provision shall be deemed to be a
waiver of any preceding or succeeding breach of the same or any other provision,
nor shall any waiver be implied from any course of dealing between the
parties.  No extension of time for performance of any obligations or other acts
hereunder or under any other agreement shall be deemed to be an extension of the
time for performance of any other obligations or any other acts.  The rights and
remedies of the parties under this Agreement are in addition to all other rights
and remedies, at law or equity, that they may have against each other.
 
11.7         Binding Effect; Assignment.  The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and legal assigns.  The rights and obligations of this
Agreement may not be assigned by any party without the prior written consent of
the other party.

 
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11.8         Counterparts; Facsimile Signature.  This Agreement may be executed
by facsimile signature and in any number of counterparts, each of which shall be
an original but all of which together shall constitute one and the same
instrument.
 
11.9         Headings.  The headings contained in this Agreement are for
convenience of reference only and are not to be given any legal effect and shall
not affect the meaning or interpretation of this Agreement.
 
11.10       Governing Law; Interpretation.  This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of New
York applicable to contracts executed and to be wholly performed within such
State.
 
11.11       Severability.  The parties stipulate that the terms and provisions
of this Agreement are fair and reasonable as of the date of this
Agreement.  However, if any provision of this Agreement shall be determined by a
court of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.  If, moreover, any of those provisions shall for any reason be
determined by a court of competent jurisdiction to be unenforceable because
excessively broad or vague as to duration, activity or subject, it shall be
construed by limiting, reducing or defining it, so as to be enforceable.
 

 
[Signature Pages Follow]

 
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IN WITNESS WHEREOF, the parties hereto have caused this Subscription Agreement
to be duly executed and delivered as of the date set forth below.
 

NAME OF INVESTOR:
 
ADDRESS FOR NOTICES (Please Print):

                   
SIGNATURE:
           
Attention:
 
By:
   
Telecopy:
   
Name:
 
Phone:
   
Title:
 
Email Address:
       
Tax Identification #:
 

Exact Name to appear on Stock Certificate and Warrant:
 

Investment Amount (in dollars):
   

Number of Shares to be issued to Investor:
 
   (Company to confirm)

Signature Page – Subscription Agreement

 

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ACKNOWLEDGED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN BY:
 

 
REGEN BIOLOGICS, INC.
 

 
By:
       
Name:
Brion D. Umidi
   
Title:
Senior Vice President and Chief Financial Officer

 
Signature Page – Subscription Agreement
 
 

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EXHIBIT A
 
FORM OF WARRANT

 

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EXHIBIT B
 
FORM OF OPINION

[Not filed with this current report.]

 

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EXHIBIT C
 
RISK FACTORS RELATED TO THIS OFFERING
 
WE ARE UNABLE TO DETERMINE WITH CERTAINTY WHEN THE REGISTRATION STATEMENT TO BE
FILED WITH THE SEC WILL BE DECLARED EFFECTIVE.  CONSEQUENTLY, YOU MAY NOT BE
ABLE TO SELL YOUR SHARES OF COMMON STOCK FOR A SUBSTANTIAL PERIOD OF TIME.
 
Although we have undertaken to register the Shares and Warrant Shares for resale
by you, you should be aware that we are unable to determine with certainty when
the registration statement to be filed with the SEC will become effective.  The
SEC may seek to review our registration statement, in which case, the period
necessary to achieve effectiveness of the registration statement with the SEC
will be affected by our ability to provide the SEC with sufficient disclosures
satisfactory to the SEC.  The length of the SEC review process is uncertain and
may extend to a number of months.  As you are aware, the Shares and Warrant
Shares being sold in this Offering are restricted in nature and may not be
publicly resold absent the effectiveness of the registration statement or
pursuant to an applicable exemption from registration. Consequently, you may not
be able to sell your Shares for a substantial period of time.
 
WE MAY ALLOCATE THE NET PROCEEDS OF THIS OFFERING IN WAYS WITH WHICH YOU MAY NOT
AGREE.
 
We will have broad discretion in how we apply the net proceeds from this
Offering.  Because the net proceeds of this Offering are not required to be
allocated to any specific investment or transaction, you cannot determine at
this time the value or appropriateness of our application of the net proceeds,
and you and other shareholders may not agree with our decisions.  For example,
we may attempt to acquire other businesses or assets using a portion of the net
proceeds of this Offering which otherwise could have been used for working
capital.  There can be no assurance that we will be able to acquire any
desirable businesses or assets or that, if acquired, that we will be able to
successfully develop or integrate such businesses or assets.

 

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EXHIBIT D
 
EXPLANATION OF “BENEFICIAL OWNERSHIP”
 
 
Securities that are subject to a power to vote or dispose are deemed
beneficially owned by the person who holds such power, directly or
indirectly.  This means that the same securities may be deemed beneficially
owned by more than one person, if such power is shared.  In addition, the
beneficial ownership rules provide that shares which may be acquired upon
exercise of an option or warrant, or which may be acquired upon the termination
of a trust, discretionary account or similar arrangement, which can be effected
within a period of sixty (60) days from the date of determination, are deemed to
be “beneficially” owned.  Furthermore, shares that are subject to rights or
powers even though such rights or powers to acquire are not exercisable within
the 60-day period may also be deemed to be beneficially owned if the rights or
powers were acquired “with the purpose or effect of changing or influencing the
control of the issuer or in connection with or as a participant in any
transaction having such purpose or effect.”
 
In determining whether securities are “beneficially owned,” benefits which are
substantially equivalent to those of ownership by virtue of any contract,
understanding, relationship, agreement or other arrangement should cause the
securities to be listed as “beneficially owned.”
 
Thus, for example, securities held for a person’s benefit in the name of others
or in the name of any estate or trust in which such person may be interested
should also be listed.  Securities held by a person’s spouse, children or other
members of such person’s family who are such person’s dependents or who live in
such person’s household should be listed as “beneficially owned” unless such
person does not enjoy benefits equivalent to those of ownership with respect to
such securities.
 
If a person has a proprietary or beneficial interest in a controlled
corporation, partnership, personal holding company, trust or estate which owns
of record or beneficially any securities, such person should state the amount of
such securities owned by such controlled corporation, partnership, personal
holding company, trust or estate in lieu of allocating such person’s proprietary
interest, and by note or otherwise, please indicate that.  In any case, the name
of the controlled corporation, partnership, personal holding company, or estate
must be stated.
 
In all cases the nature of the beneficial ownership should be stated.

 

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EXHIBIT E
 
ADDITIONAL INFORMATION
 
The Investor hereby provides the following additional information:

(a)           Set forth below is the number of shares of preferred stock of the
Issuer (“Preferred Stock”) or Common Stock and options, rights or warrants of
the Issuer (“Options” and together with the Preferred Stock and Common Stock,
“Owned Securities”) which the Investor beneficially owns or of which the
Investor is the record owner on the date hereof.  Please refer to the definition
of beneficial ownership on Exhibit D attached hereto.  If none, please so state.

Number of shares of Preferred Stock and Common Stock:
____________________________________

Number of Options: ________________________________

Please indicate by an asterisk (*) above if the Investor disclaims “beneficial
ownership” of any of the above listed Owned Securities, and indicate in response
to question (b) below who has beneficial ownership.

(b)           If the Investor disclaims “beneficial ownership” in question
(a),  please furnish the following information with respect to the person(s)
other than the Investor who is the beneficial owner(s) of the Owned Securities
in question.  If not applicable, please check box:  ¨

Name of Beneficial Owner:____________________________________
Relationship to the Investor:____________________________________
Number of Owned Securities Beneficially Owned:
________________________

I           As to the Owned Securities indicated as being “beneficially owned”
in answers to question (a) and (b) does any person other than the person
identified as the “beneficial owner” have:

(i)           the sole or shared power to vote or to direct the vote of any such
Owned Securities?

Yes  o      No o

or                            (ii)           the sole or shared power to dispose
or to direct the disposition of any such Owned Securities (referred to as
“dispositive power”)?

Yes  o      No o

 

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If the answer is “Yes” to either of the forgoing questions, the Investor should
set forth below the name and address of each person who has either such power or
with whom the indicated “beneficial owner” shares such power, together with such
number of shares to which such rights relates.

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IF THE INVESTOR IS AN ENTITY OR A TRUST:

The Investor must list the name of each natural person associated with the
Investor entity or trust who has or shares voting or dispositive power with
respect to the shares indicated as being “beneficially owned” in answers to
questions (a) or (c).  For an investment or holding company, the investment
manager(s) would normally be the person(s) who hold(s) or share(s) voting and
dispositive power.  For a trust, the natural person(s) holding or sharing voting
or dispositive power would normally be the trustee(s).  For other types of
entities, the natural person(s) holding or sharing voting or dispositive power
would normally be the officer(s) empowered by the board of directors to make
such decisions, or if there is no such officer, each of the
directors.  Disclosure is required for each natural person who in practice has
voting or dispositive power, regardless of that person’s formal title or
position within the organization.

 

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NAME OF INVESTOR:______________________

Name of Natural Person
Type of Power: Voting/Dispositive/
Both
Address
Position or Title
                       

(d)           In any pending legal proceeding, is the Investor or any of its
affiliates a party, or does the Investor or any such affiliate have an interest,
adverse to the Issuer or any affiliate of the Issuer?

Yes  o      No o   

If the answer is “Yes,” please describe, and state the nature and amount of,
such interest.
 

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(e)           Is there any family relationship (including relationships by
blood, marriage, and adoption, except those more remote than first cousin)
between the Investor or any of its affiliates and any director or officer of the
Issuer, any affiliate of the Issuer or any person who has been chosen to become
a director or officer of the Issuer?

Yes  o      No o   

If the answer is “Yes,” please describe the relationship.
 

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(f)           Are any of the Owned Securities listed in response to question (a)
the subject of a voting agreement, contract or other arrangement whereby others
have voting control over, or any other interest in, any of the Investor’s Owned
Securities?

 
¨  Yes
¨  No

If the answer is “Yes”, please give
details:____________________________________________.

(g)           Please describe each position, office or other material
relationship which the Investor has had with the Issuer or any of its
affiliates, including any Subsidiary of the Issuer, within the past three
years.  Please include a description of any loans or other indebtedness, and any
contracts or other arrangements or transactions involving a material amount,
payable by the Investor to the Issuer or any of its affiliates, including its
Subsidiaries, or by the Issuer or any of its affiliates, including its
Subsidiaries, to the Investor.  “Affiliates” of the Issuer include its directors
and executive officers, and any other person controlling or controlled by the
Issuer.  If none, please so state.

Answer:
 
(h)           Please provide the name and address of other person(s), if any, to
whom any proxy statements, registration statements (including notice of
effectiveness thereof), prospectuses or similar documents and information should
be delivered by the Issuer on behalf of the Investor in the future, with respect
to the Investor’s shares:
 
 
 
 
 
 
 
 
 
 
 
 
 

 
(i)           Please advise if a Financial Industry Regulatory Authority (FINRA)
member has placed with you the Shares and Warrants being purchased
hereunder:  (Name of Member): ________________________________
 
 

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