exv10w1





Exhibit 10.1




SUBSCRIPTION AGREEMENT




     This Subscription Agreement (this “Agreement”) is entered into as of December 4, 2008, 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, for an aggregate purchase price of less than $500,000, an aggregate principal amount
of less than $500,000 of the Issuer’s Unsecured Convertible Notes substantially in the form
attached hereto as Exhibit A (the “Notes”) and warrants to purchase the Issuer’s Common
Stock, par value $0.01 per share (“Common Stock”) pursuant to the terms of the warrant
substantially in the form attached hereto as Exhibit B (the “Warrant”) and each Investor,
severally and not jointly, desires to subscribe for and purchase the principal amount of Notes 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 NOTES.




     1.1 Subscription and Issuance of the Notes. At Closing, upon the terms and subject to
the conditions set forth herein: (a) the Issuer agrees that it will issue to the Investors an
aggregate principal amount of less than $500,000 of the Notes for an aggregate purchase price (the
“Aggregate Purchase Price”) of less than $500,000 (the “Offering”), and each Investor, severally
and not jointly, agrees that it will acquire from the Issuer Notes in the amount set forth on its
signature page hereto; (b) 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, Notes, in each case, up to
the aggregate principal amount set forth on the signature page for each Investor hereof (the
“Investment Amount”); and (c) each Investor agrees to remit payment for its Investment Amount in
accordance with the provisions of Section 1.3.



     1.2 Interest. Interest (“Interest”) at the rate of 8.00% per annum shall be payable
on the Maturity Date in arrears on the sum of the principal amount of each Note then outstanding.
Interest on the principal amount outstanding shall accrue daily and shall commence accruing from
the date of Closing and shall be computed on the basis of a 360-day year of twelve (12) 30-day
months.



     1.3 Payment for the Notes. At Closing, upon the terms and subject to the conditions
set forth herein, each Investor shall pay its respective Investment Amount. All payments by



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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.



     1.4 Repayment. All outstanding principal and accrued interest with respect to a Note
shall be due and payable (i) in the form of Common Stock if elected by the Investor or (ii) in the
form of cash on July 24, 2009 (the “Maturity Date”), unless such Note has been converted pursuant
to Section 3.1 hereof.



     1.5 Legend. Any certificate or certificates representing the Notes or any shares of
Common Stock issuable upon conversion of any Note 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 December 4, 2008. 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 1.3, (ii) the Issuer shall issue to the Investors the Notes representing an
amount equal to each Investor’s Investment Amount, (iii) the Issuer shall issue to each Investor a
Warrant or Warrants to purchase a number of shares of Common Stock equal to 25% of the amount of
such Investor’s Investment Amount divided by $3.00 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


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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.




     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. CONVERSION TERMS. 




     3.1 Optional Conversion. On or after the date of Closing, the Holder of a Note shall,
at its sole election be entitled to convert the outstanding principal amount together with accrued
and unpaid interest of such Note (the “Note Amount”) into fully paid and nonassessable shares of
Common Stock in accordance with this Section 3. The Issuer shall not issue any fractional shares
of Common Stock upon any conversion. Instead, the Issuer shall pay to such Investor cash in lieu
of fractional shares based on the per share price of $3.00.



     3.2 Conversion Rate. The number of shares of Common Stock issuable upon conversion of
the Note Amount (the “Conversion Rate”) shall be determined by dividing (a) such Note Amount
by (b) $3.00 (the “Conversion Price”), subject to adjustment as described in Section 3.3
below.



     3.3 Adjustment to Conversion Rate.



          (a) In case the Issuer shall at any time after the Closing declare a dividend or make a
distribution on Common Stock, subdivide or split the outstanding Common Stock, combine or
reclassify the outstanding Common Stock into a smaller number of shares or consolidate with, or
merge with or into, any other entity, or engage in any reorganization, reclassification or
recapitalization that is effected in such a manner that the holders of Common Stock are entitled to
receive stock, securities, cash or other assets with respect to or in exchange for Common Stock,
then the kind and amount of stock, securities, cash or other assets issuable upon conversion of the
Note in effect at the time of the record date for such dividend or distribution or of the effective
date of such subdivision, split, combination, consolidation, merger, reorganization,
reclassification or recapitalization shall be adjusted so that the conversion of the Note after
such time shall entitle the holder to receive the aggregate number of shares of Common Stock or
securities, cash and other assets that, if the Note had been converted immediately prior to such
time, such holder would have owned upon such conversion and been


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entitled to receive by virtue of
such dividend, distribution, subdivision, split, combination, consolidation, merger,
reorganization, reclassification or recapitalization. Such adjustment shall be made successively
whenever any event listed above shall occur.




               (i) All calculations under this subsection (a) shall be made to the nearest four decimal
points.



               (ii) In the event that, at any time as a result of the provisions of this subsection (a), the
holder of the Note upon subsequent conversion shall become entitled to
receive any securities other than Common Stock, the number and kind of such other securities
so receivable upon conversion of the Note shall thereafter be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the provisions contained
herein.



          (b) In the event the Issuer shall at any time after the Closing issue Additional Shares of
Common Stock (as defined below) without consideration or for consideration per share less than
$2.40 per share, as adjusted in accordance with subsection (a) above (a “Dilutive Issuance”), then
the Conversion Price shall be reduced, concurrently with such Dilutive Issuance, to the
consideration per share received or deemed received by the Issuer for such issued or deemed issue
of the Additional Shares of Common Stock, with such consideration per share to be calculated by
dividing the total amount of consideration received or deemed received by the Issuer for such
Dilutive Issuance by the total number of Additional Shares of Common Stock issued or deemed
issued as part of such Dilutive Issuance; provided that, if such Dilutive Issuance was
without consideration, then the Issuer shall be deemed to have received consideration of $0.01 per
share for all such Additional Shares of Common Stock issued or deemed to be issued. For clarity,
any Additional Shares of Common Stock issued or deemed to be issued pursuant to the same agreement
or transaction shall be considered one Dilutive Issuance.




          (c) For purposes of this Section 3.3, “Additional Shares of Common Stock” shall mean all
shares of Common Stock issued by the Issuer or deemed to be issued pursuant to subsection (d) of
this Section 3.3, excluding those shares described in subsection (e) of this Section 3.3.




          (d) In the case of Common Stock deemed to be issued, which shall include the issuance of
options to purchase or rights to subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock or options to purchase or rights to subscribe for such
convertible or exchangeable securities, the following provisions shall apply:




               (i) The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming
the satisfaction of any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential anti-dilution adjustments) of such options to
purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time
such options or rights were issued and for a consideration



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equal to the consideration, if any,
received by the Issuer upon the issuance of such options or rights plus the minimum exercise price
provided in such options or rights (without taking into account potential anti-dilution
adjustments) for the Common Stock covered thereby.



               (ii) The aggregate maximum number of shares of Common Stock deliverable upon conversion of or
in exchange for any such convertible or exchangeable securities (assuming the satisfaction of any
conditions to convertibility or exchangeability, including, without limitation, the passage of
time, but without taking into account potential anti-dilution adjustments) or upon the exercise of
options to purchase or rights to subscribe for such convertible or exchangeable securities and
subsequent conversion or exchange thereof shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a consideration equal to the
consideration, if any, received by the Issuer for any
such securities and related options or rights (excluding any cash received on account of
accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be
received by the Issuer (without taking into account potential anti-dilution adjustments) upon the
conversion or exchange of such securities or the exercise of any related options or rights.



               (iii) In the event of any change in the number of shares of Common Stock deliverable or in the
consideration payable to the Issuer upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities, including, but not limited to, a
change resulting from the anti-dilution provisions thereof, the Conversion Price of the Notes, to
the extent in any way affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for the actual issuance
of Common Stock or any payment of such consideration upon the exercise of any such options or
rights or the conversion or exchange of such securities.



               (iv) Upon the expiration of any such options or rights, the termination of any such rights to
convert or exchange or the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Notes to the extent in any way affected by or
computed using such options, rights or securities or options or rights related to such securities,
shall be recomputed to reflect the issuance of only the number of shares of Common Stock (and
convertible or exchangeable securities which remain in effect) actually issued upon the exercise of
such options or rights, upon the conversion or exchange of such securities or upon the exercise of
the options or rights related to such securities.



               (v) The number of shares of Common Stock deemed issued and the consideration deemed paid
therefor pursuant to clauses (i) and (ii) above shall be appropriately adjusted to reflect any
change, termination or expiration of the type described in either clause (iii) or clause (iv)
above.



          (e) Notwithstanding the foregoing, no adjustment will be made under this Section 3.3 in
respect to any issuance of Common Stock (i) upon exercise or conversion of any options or other
securities described in the Issuer’s securities filings with the SEC on file with


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the SEC prior to
Closing or otherwise pursuant to any employee benefit plan of the Issuer or its subsidiaries or
hereafter adopted by the Issuer, (ii) or convertible securities issued in a joint venture,
strategic partnership or licensing arrangement, the primary purpose of which is not the raising of
capital, (iii) issued in connection with this Agreement or (iv) which results in an adjustment
pursuant to subsection (a).




4. REPRESENTATIONS AND WARRANTIES OF THE ISSUER.




     As a material inducement to the Investors entering into this Agreement, subscribing for the
Notes, 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 Notes or, except as provided in Section 7.2, the filing of the Registration Statement.



     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 Notes 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),



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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 Notes 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 to the Investors of the Notes, the Notes 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 conversion of the Notes (the “Conversion 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.



     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



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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
November 30, 2008, the Issuer has issued and outstanding 5,965,729 shares of Common Stock, not
accounting for any fractional shares, and 9,066,464 shares of Preferred Stock, of which 2,483,116
shares have been designated as Series A Convertible Preferred Stock and of which 6,583,348 shares
have been designated as Series C Convertible Preferred Stock, which in the
aggregate are convertible into 453,323 shares of Common Stock, not accounting for any
fractional shares. Except for outstanding options to purchase 5,644,540 shares of Common Stock and
outstanding warrants to purchase 1,004,487 shares of Common Stock, as of November 30, 2008 there
were no outstanding options, warrants, 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.



     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



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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.



     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
Notes 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
Notes, Warrants and Conversion Shares (together, the “Securities”) as contemplated by this
Agreement are exempt from the registration requirements of the Securities Act and any applicable



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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.



     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



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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.



     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 Notes, 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:



11









 





     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.



     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 Notes 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 Notes (except
to the extent that the Investor may have delegated voting authority to its investment advisor) or
the Conversion 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



12









 







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 Notes 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 1.5 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 Notes. The Investor also acknowledges that
the additional 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 Notes.



     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 Notes 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 Notes 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



13









 







to evaluate the merits and risks of an investment in the Notes 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 Notes. 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 Notes.



     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.



     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



14









 







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.




          (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 Amendments of Notes. So long as the Notes are outstanding, the Issuer shall be
allowed to alter or change the terms of the Notes (including any applicable provisions of this
Agreement notwithstanding anything to the contrary provided in Section 11.6) upon first obtaining
consent of the Investors whose investment constitutes a majority of the Aggregate Purchase Price or
any such subsequent holder (“Majority Consent”), unless such alteration or change shall be deemed
by the Issuer in good faith to adversely affect the Notes or the rights of any Holder in which case
the Issuer must first obtain consent of each Investor; provided, however, that any
alteration or change to make earlier the Maturity Date or the date of repayment pursuant to Section
1.4 shall not under any circumstances be deemed to adversely affect the Notes or the rights of any
Holder and may be altered or changed with Majority Consent notwithstanding anything to the contrary
provided in Section 11.6.



7. REGISTRATION RIGHTS.




     The Investors shall have the following registration rights with respect to the Registrable
Securities owned by it:



15









 





     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 its Notes 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 principal amount of the Notes owing to each Holder pursuant to the
terms hereof from time to time (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. Following the date the Notes are converted into Common
Stock, upon request of the holders of a majority of the shares of Common Stock received upon
conversion of the Notes, the Issuer will file a registration statement on Form S-1 (or S-3 if
conditions change to allow the Issuer to use S-3) (the “Registration Statement”) for the resale of
the Common Stock underlying the Notes purchased at Closing. The Issuer agrees to use commercially
reasonable efforts to file a Registration Statement as soon as possible after such request;
provided, however, that if the Issuer is not eligible to use Form S-3 and if such
request is made within one hundred twenty (120) days before the date that the Issuer’s next
regularly scheduled Annual Report on Form 10-K is due, 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:




16









 








               (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;



               (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;



17









 





               (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.




18









 








     7.4 Further Information. If Registrable Securities owned by a Holder are 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 Investor hereby
represents and warrants to the Issuer that, upon request and in connection with the filing of a
Registration Statement, it will accurately and completely provide the requested information and
answer the questions listed in Exhibit F of this Agreement, and the Investor 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 the Investor 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.




          (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


19









 







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 Conversion 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.



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



20









 







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.



     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



21









 







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.




          (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


22









 







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 D.




          (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:



          (a) “Additional Shares of Common Stock” has the meaning specified in Section 3.3(c) of this
Agreement.




          (b) “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.





23











 





          (c) “Aggregate Purchase Price” has the meaning specified in Section 1.1 of this Agreement.




          (d) “Agreement” has the meaning specified in the Preamble to this Agreement.




          (e) “Bylaws” means the Bylaws of the Issuer, as the same may be supplemented, amended, or
restated from time to time.




          (f) “Certificate of Incorporation” means the Issuer’s Certificate of Incorporation, as the
same may be supplemented, amended or restated from time to time.




          (g) “Closing” has the meaning specified in Section 2.1 of this Agreement.




          (h) “Common Stock” has the meaning specified in the Recitals of this Agreement.




          (i) “Confidential Information” has the meaning specified in Section 6.4 of this Agreement.




          (j) “Contract” means any indenture, lease, sublease, loan agreement, mortgage, note,
restriction, commitment, obligation or other contract, agreement or instrument.




          (k) “Conversion Price” has the meaning specified in Section 3.2 of this Agreement.




          (l) “Conversion Rate” has the meaning specified in Section 3.2 of this Agreement.




          (m) “Conversion Shares” has the meaning specified in Section 4.6 of this Agreement.




          (n) “Dilutive Issuance” has the meaning specified in Section 3.3(b) of this Agreement.




          (o) “Exchange Act” means the Securities Exchange Act of 1934, as amended.




          (p) “Existing Shareholder” means any “beneficial owner” as defined under Rule 13d-3 of the
Exchange Act and its affiliates.




          (q) “GAAP” means generally accepted accounting principles in effect in the United States of
America.




          (r) “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.




24









 








          (s) “Holder” has the meaning specified in Section 7.1 of this Agreement.




          (t) “Holder Indemnified Party” has the meaning specified in Section 9.1 of this Agreement.




          (u) “Intellectual Property Rights” has the meaning specified in Section 4.15 of this
Agreement.




          (v) “Interest” has the meaning specified in Section 1.2 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) “Majority Consent” has the meaning specified in Section 6.5 of this Agreement.




          (cc) “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.




          (dd) “Maturity Date” has the meaning specified in Section 1.4 of this Agreement.




          (ee) “Notes” has the meaning specified in the Recitals to this Agreement.




          (ff) “Note Amount” has the meaning specified in Section 3.1 of this Agreement.




          (gg) “Offering” has the meaning specified in Section 1.1 of this Agreement.




          (hh) “Optional Conversion” means the conversion described in Section 3.1 of this Agreement.




25









 








          (ii) “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.




          (jj) “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.




          (kk) “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.




          (ll) “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.




          (mm) “Registrable Securities” means the Conversion Shares and any other shares of Common Stock
or other securities issued in respect of the Notes 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.




          (nn) “Registration Statement” has the meaning specified in Section 7.2 of this Agreement.




          (oo) “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.




          (pp) “Rule 144” has the meaning specified in Section 7.2 of this Agreement.




          (qq) “SEC” means the Securities and Exchange Commission.




26









 








          (rr) “SEC Reports” has the meaning specified in Section 4.7 of this Agreement.




          (ss) “Securities” means the Notes and the Conversion Shares.




          (tt) “Securities Act” means the Securities Act of 1933, as amended.




          (uu) “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.




          (vv) “Suspension Event” has the meaning specified in Section 7.5(a) of this Agreement.




          (ww) “Suspension Period” has the meaning specified in Section 7.5(b) of this Agreement.




          (xx) “Warrant” has the meaning specified in the Recitals to 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):



27









 





          (a) if to the Issuer to:



ReGen Biologics, Inc.

411 Hackensack Avenue

Hackensack, NJ 07601

Attention: Brion D. Umidi

Telecopy: 201.651.5141



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



28









 







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.



     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]




29









 








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 Note:

	 	 	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	Investment Amount (in dollars):
	 	 	 	 
	 

	 	 
	 	 





 


Signature Page — Subscription Agreement




 









 







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




 









 








EXHIBIT A




FORM OF NOTE




 









 








EXHIBIT B



FORM OF WARRANT





 











 





EXHIBIT C




RISK FACTORS RELATED TO THE SALE



SALES OR THE PERCEPTION OF FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE. BECAUSE
THE MARKET PRICES FOR BIOTECHNOLOGY AND MEDICAL DEVICE STOCKS ARE LIKELY TO REMAIN VOLATILE, OUR
STOCK PRICE MAY BE MORE ADVERSELY AFFECTED THAN OTHER COMPANIES BY SUCH FUTURE SALES.



Sales of substantial numbers of shares of our Common Stock in the public market, or the perception
that significant sales are likely, could adversely affect the market price of our Common Stock.
Compliance with the registration rights provisions of the Subscription Agreement could create the
perception that all the shares of Common Stock that may be issuable upon conversion of the Notes
will soon be available for sale, and this number of shares is greater than the average trading
volume for our shares. No prediction can be made as to the effect, if any, that market sales of
such shares will have on the market price of our Common Stock. Sales of substantial amounts of
such shares in the public market could adversely affect the market price of our Common Stock.



THE CONVERSION RATE OF THE SHARES OF COMMON STOCK MAY NOT BEAR ANY RELATIONSHIP TO OUR ASSETS, BOOK
VALUE, EARNINGS HISTORY, OR OTHER ESTABLISHED CRITERIA. AS A RESULT, YOU MAY EXPERIENCE IMMEDIATE
AND SUBSTANTIAL DILUTION.



The Conversion Rate of the shares of the Common Stock was established based on such factors as our
capital requirements, financial conditions and prospects, percentage of ownership to be held by
investors following this sale, and the general condition of securities markets at the time of the
sale. The Conversion Rate does not necessarily bear any relationship to our assets, book value,
earnings history or other established criteria of value. As a result, you may experience immediate
and substantial dilution.



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 of Common Stock upon conversion of the Notes 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 of




 









 







Common Stock that may issued upon conversion of the Notes that are being sold in this sale 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 of Common Stock for a substantial period of time.



WE MAY ALLOCATE THE NET PROCEEDS OF THIS SALE IN WAYS WITH WHICH YOU MAY NOT AGREE.



We will have broad discretion in how we apply the net proceeds from this sale. Because the net
proceeds of this sale 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 sale
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.





 









 








EXHIBIT D




FORM OF OPINION




 









 





EXHIBIT E




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.




 









 








EXHIBIT F




ADDITIONAL INFORMATION



The Investor hereby provides the following additional information:




     (a) Excluding the Notes (and any Conversion Shares into which such Notes may be converted)
subscribed for above, 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 E attached hereto. If
none, please so state.


Number of shares of Preferred Stock and Common Stock:
_____________________
(excluding the Notes, and any Conversion Shares into which such Notes may be converted, subscribed for above)



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:
o




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              No           



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              No           



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.



 




 




 





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.




 









 








NAME OF INVESTOR:
_______________________
          





	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Type of Power:	 	 	 	 	 	 	 
	 	Name of Natural	 	 	Voting/Dispositive/	 	 	 	 	 	 	 
	 	Person	 	 	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              No           



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



 




 




 




 





     (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              No           



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



 




 




 




 






 









 








     (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?



          o Yes     o 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 Notes or Conversion Shares being purchased hereunder: (Name of Member):
___________________________