exv10w4



 





Exhibit 10.4




SUBSCRIPTION AGREEMENT




     This Subscription Agreement (this “Agreement”) is entered into as of April 5, 2007 by and
between ReGen Biologics, Inc., a Delaware corporation (together with its successors and permitted
assigns, the “Issuer”), and the undersigned investor (together with its successors and permitted
assigns, the “Investor”). Capitalized terms used but not otherwise defined herein shall have the
meanings set forth in Section 9.1.



RECITALS




     Subject to the terms and conditions of this Agreement, the Investor desires to subscribe for
and purchase, and the Issuer desires to issue and sell to the Investor, certain shares of the
Issuer’s preferred stock, par value $0.01 per share (the “Preferred Stock”), at a purchase price of
$42.00 per share and an option to purchase certain shares of the Preferred Stock or, after the
Mandatory Conversion, the Company’s common stock, par value $0.01 per share (the “Common Stock”)
pursuant to the terms of the option in the form attached hereto as Exhibit A (the “Option”)
and the warrant attached hereto as Exhibit B (the “Warrant”). The Issuer is offering an
aggregate of up to Seven Hundred One Thousand Dollars ($701,000) worth of shares of Preferred Stock in a
private placement to the Investor pursuant to the other terms and conditions contained in this
Agreement (the “Offering”); provided, that the Issuer reserves the right to issue and sell
a lesser or greater number of shares at the discretion of its Board of Directors.



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 PREFERRED STOCK.




     1.1 Subscription and Issuance of Preferred Stock. Subject to the terms and conditions
of this Agreement, the Issuer shall issue and sell to the Investor and the Investor subscribes for
and shall purchase from the Issuer the number of shares of Preferred Stock set forth on the
signature page hereof (the “Shares”), for the aggregate purchase price set forth on the signature
page hereof, which shall be equal to the product of the number of Shares subscribed for by the
Investor multiplied by the per share purchase price specified in the above Recitals to this
Agreement (such product, the “Purchase Price”).



     1.2 Legend. Any certificate or certificates representing the Shares shall bear the
following legend, in addition to any legend that may be required by any Requirements of Law:


THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, 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


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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 on or before April 30,
2007. The Closing shall take place at the offices of Pillsbury Winthrop Shaw Pittman LLP, counsel
for the Issuer, 1650 Tysons Boulevard, McLean, VA 22102. At the Closing, unless the Investor and
the Issuer otherwise agree, (a) the Investor shall pay the Purchase Price to the Issuer, by wire
transfer of immediately available funds to an account designated in writing by the Issuer, (b) the
Issuer shall issue to the Investor the Shares, and shall deliver or cause to be delivered promptly
after Closing to the Investor a certificate or certificates representing the Shares duly registered
in the name of the Investor, as specified on the signature pages hereto, (c) the Issuer shall issue
to the Investor the Option and (d) 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 Investor;




          (b) by the Investor, upon a materially inaccurate representation or breach of any material
warranty, covenant or agreement on the part of the Issuer set forth in this Agreement, in either
case such that the conditions in Section 8.1 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 Investor set forth in this Agreement, in either
case such that the conditions in Section 8.2 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 Investor 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. REPRESENTATIONS AND WARRANTIES OF THE ISSUER.




     As a material inducement to the Investor entering into this Agreement, subscribing for the



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Shares, except as set forth in the Disclosure Schedules delivered to the Investor concurrently
herewith, the Issuer represents and warrants to the Investor as follows:



     3.1 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.



     3.2 Corporate Power and Authority. The Issuer has the corporate power and authority
to execute and deliver this Agreement and to perform its obligations hereunder and to consummate
the transactions contemplated hereby. At or prior to the Closing, the Issuer will have taken all
necessary corporate action to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby. No further approval or authorization
of any stockholder or the Board of Directors of the Issuer is required for the issuance and sale of
the Shares or, except as provided in Section 6.2, the filing of the Registration Statement.



     3.3 Enforceability. This Agreement has been duly executed and delivered by the Issuer
and (assuming it has been duly authorized, executed and delivered by the Investor) 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 7 of this Agreement, which 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.



     3.4 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 Investor
of the Shares as contemplated by and in accordance with this Agreement), will not result in a
default under (or give any other party the right, with the giving of notice or the passage of time
(or both), to declare a default or accelerate any obligation under) or violate the Certificate of
Incorporation or By-Laws 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



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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.



     3.5 Consents/Approvals. Except for the filing of a registration statement in
accordance with Article 6 hereof and filings with the SEC and the securities commissions of the
states in which the Shares 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.



     3.6 Valid Issuance. Upon payment of the Purchase Price by the Investor and delivery
to the Investor of the certificates for the Shares and the shares of Common Stock issuable upon
conversion of the Shares (the “Conversion Shares”) (in accordance with the Certificate of
Designations, Preferences and Rights relating to the Conversion Shares, in the form attached hereto
as Exhibit C) will be validly issued, fully paid and non-assessable 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.



     3.7 SEC Filings and Other Filings. Except as set forth on Schedule 3.7, the Issuer
has timely made all filings required to be made by it under the Exchange Act since December 31,
2005. The Issuer has delivered or made accessible to the Investor true, accurate and complete
copies of (a) the Issuer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006;
(b) the Issuer’s definitive proxy statement dated April 18, 2006 relating to its 2006 Annual
Meeting of Stockholders; (c) the Issuer’s Form 8-K dated as of March 8, 2007 relating to its
private placement; and (d) the Issuer’s Form 8-K dated as of April 3, 2007 relating to
correspondence received from the Food and Drug Administration (as such documents have, since the
time of their filing, been amended or supplemented, and together with all reports, documents and
information filed or after the date first written above through the date of Closing with the SEC,
collectively the “SEC Reports”). The SEC Reports, when filed (unless amended and superseded by a
later Issuer filing prior to the date hereof, then on the date of such later filing), complied in
all material respects with all applicable requirements of the Exchange Act and the Securities Act,
if and to the extent applicable, and the rules and regulations of the SEC thereunder applicable to
the SEC Reports.



     3.8 Commissions. Except for those fees set forth on Schedule 3.8, 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.



     3.9 Capitalization. As of December 31, 2006, the authorized capital stock of the
Issuer consists of 165,000,000 shares of Common Stock and 60,000,000 shares of Preferred Stock.



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Except as set forth on Schedule 3.9, all issued and outstanding shares of capital stock of the
Issuer have been, and as of the Closing Date 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 April 2, 2007, the Issuer has issued and outstanding 103,887,843 shares of Common Stock and
9,185,512 shares of Preferred Stock, of which 2,483,116 shares have been designated as Series A
Convertible Preferred Stock, of which 6,583,348 shares have been designated as Series C Convertible
Preferred Stock and of 119,048 which have been designated as Series D Convertible Preferred Stock.
Except for outstanding options to purchase 50,570,816 shares of Common Stock, outstanding warrants
to purchase 15,857,848 shares of Common Stock, and the right to convert the outstanding shares of
Preferred Stock into shares of Common Stock, as of April 2, 2007 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 3.9, 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.




     3.10 Material Changes. Except as set forth in the SEC Reports or as otherwise
contemplated herein, since September 30, 2006, 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, since
September 30, 2006, there has not been: (i) any direct or indirect redemption, purchase or other
acquisition by the Issuer of any shares of the Common Stock; (ii) any declaration, setting aside or
payment of any dividend or other distribution by the Issuer with respect to the Common Stock; (iii)
any borrowings incurred or any material liabilities (absolute, accrued or contingent) assumed,
other than current liabilities incurred in the ordinary course of business, liabilities under
Contracts entered into in the ordinary course of business, or liabilities not required to be
reflected on the Issuer’s financial statements pursuant to GAAP or required to disclosed in the SEC
Reports; (iv) any Lien or adverse claim on any of the Issuer’s material properties or assets,
except for Liens for taxes not yet due and payable or otherwise in the ordinary course of business;
(v) any sale, assignment or transfer of any of the Issuer’s material assets, tangible or
intangible, except in the ordinary course of business; (vi) any extraordinary losses or waiver of
any rights of material value, other than in the ordinary course of business; (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



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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.



     3.11 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.



     3.12 Rights of Registration, Voting Rights, and Anti-Dilution. Except as contemplated
in this Agreement and as set forth on Schedule 3.12, 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 3.12, the issuance of the Shares 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.



     3.13 Offerings. Subject in part to the truth and accuracy of Investor’s
representations and warranties set forth in this Agreement, the offer, sale and issuance of the
Shares and Conversion Shares (together, the “Securities”) as contemplated by this Agreement are
exempt from the registration requirements of the Securities Act and any applicable state securities
laws, and neither the Issuer nor any authorized agent acting on its behalf will take any action
hereafter that would cause the loss of such exemption.



     3.14 Licenses and Permits. To the Issuer’s knowledge and except as disclosed in the
SEC Reports or on Schedule 3.14, 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. To the Issuer’s
knowledge, 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,



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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.



     3.15 Patents and Trademarks. To the Issuer’s knowledge, 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. To the Issuer’s knowledge, the Issuer is not infringing on any
intellectual property rights of any other person, nor is there any claim of infringement made or
threatened by a third party against or involving the Issuer.



     3.16 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.



     3.17 Material Contracts. All material Contracts to which the Issuer or any Subsidiary
is a party and which are required to have been filed by the Issuer on Exhibit 10 to the SEC Reports
have been filed by the Issuer with the SEC pursuant to the requirements of the Exchange Act.
Except as disclosed in the SEC Reports, each such material Contract is in full force and effect,
except as otherwise required pursuant to its respective terms, and is binding on the Issuer or its
Subsidiaries, as the case may be, in each case, in accordance with its respective terms, and
neither the Issuer or any of its Subsidiaries nor, to the Issuer’s knowledge, any other party
thereto is in breach of, or in default under, any such material Contract, which breach or default
would reasonably be expected to have a Material Adverse Effect. Except as set forth in the SEC
Reports, there exists no actual or, to the knowledge of the Issuer, threatened termination,
cancellation or limitation of, or any material adverse modification or change in, the business
relationship of the Issuer or any of its Subsidiaries, or the business of the Issuer or any of its
Subsidiaries, with any customer or supplier or any group of customers or suppliers whose purchases
or inventories provided to the business of the Issuer or any of its Subsidiaries would,
individually or in the aggregate, have a Material Adverse Effect.



     3.18 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.



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4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.




     As a material inducement to the Issuer entering into this Agreement and issuing the Shares,
the Investor represents, warrants, and covenants to the Issuer as follows:



     4.1 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.



     4.2 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.



     4.3 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.



     4.4 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 7 of this Agreement, which 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.



     4.5 Investment Intent. The Investor is acquiring the Shares hereunder for its own
account and with no present intention of distributing or selling any of the Securities and further



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agrees not to transfer such Securities in violation of the Securities Act or any applicable
state securities law, and no one other than the Investor has any beneficial interest in the Shares
(except to the extent that the Investor may have delegated voting authority to its investment
advisor) 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 the opinion of counsel acceptable to the Issuer, is exempt from registration
under the Securities Act and has been registered or qualified or, in the opinion of such counsel
acceptable to the Issuer, is exempt from registration or qualification under applicable state
securities laws. The Investor understands that the offer and sale by the Issuer of the Shares
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 1.2 of this
Agreement a restrictive legend consistent with the foregoing has been or will be placed on the
certificates for the Securities.



     4.6 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.



     4.7 Adequate Information. The Investor has received from the Issuer, and has
reviewed, such information which the Investor considers necessary or appropriate to evaluate the
risks and merits of an investment in the Shares. The Investor also acknowledges that the
additional risk factors set forth on Exhibit D and contained in the SEC Reports are
specifically incorporated herein by reference and form an integral part of this Agreement.



     4.8 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 4.7
hereof in relation to its investment in the Shares.



     4.9 No Other Representations. No oral or written material representations have been
made to the Investor in connection with the Investor’s acquisition of the Shares which were in any
way inconsistent with the information reviewed by the Investor. The Investor acknowledges that in
deciding whether to enter into this Agreement and to purchase the Shares 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 3 hereof.



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     4.10 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 4.7 hereof and any other information made available by the Issuer to the Investor in order
to evaluate the merits and risks of an investment in the Shares and to make an informed investment
decision with respect thereto.



     4.11 Independent Decision. The Investor is not relying on the Issuer or on any legal
or other opinion in the materials reviewed by the Investor with respect to the financial or tax
considerations of the Investor relating to its investment in the Shares. The Investor has relied
solely on the representations and warranties, covenants and agreements of the Issuer in this
Agreement (including the exhibits and schedules hereto) and on its examination and independent
investigation in making its decision to acquire the Shares.



     4.12 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.



5. COVENANTS.




     5.1 Public Announcements. The 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 shall file
within four (4) business days after the Closing Date a Current Report on Form 8-K with the SEC in
respect of the transactions contemplated by this Agreement. The Issuer may issue an initial press
release relating to the transactions contemplated by this Agreement, but shall not identify any
Investor in 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.



     5.2 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 Investor 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 Investor 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



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hereunder, neither of the parties hereto nor their respective Affiliates shall be required to
agree to take any action that in the reasonable opinion of such party would result in or produce a
Material Adverse Effect on such party.



     5.3 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.



     5.4 Confidential Information; Standstill.



          (a) The Investor 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 the Investor may share such information with
such of its officers and professional advisors as may need to know such information to assist the
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. The Investor further
agrees that it will not disclose any information regarding or trade the Common Stock acquired
through this Offering until the Issuer has publicly announced the completion of the Offering.




          (b) For a period of two (2) years from the Closing Date, the Investor will not, 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 5.4(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.




11









 








     5.5 Amendments to Rights, Preferences or Privileges of Preferred Stock. The Issuer shall
not agree to any amendment or other action which would alter or change the rights, preferences or
privileges of the Preferred Stock purchased hereunder, unless (i) such amendment or other action
does not detrimentally affect the rights or privileges (economic or otherwise) of the Investor or
any subsequent holder of such Preferred Stock or (ii) the Issuer first obtains the consent of the
Investor or any such subsequent holder.



6. REGISTRATION RIGHTS.




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



     6.1 Transfer of Registration Rights. The Investor may assign the registration rights
with respect to the Securities to any party or parties to which it may from time to time transfer
all of the Shares in accordance with Section 4.5 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 6.1, 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”).



     6.2 Required Registration. Subject to the prior occurrence of the Mandatory
Conversion, the Issuer agrees to register the resale of all of the Registrable Securities by filing
a Registration Statement on Form S-1 or on any other form for which the Issuer then qualifies and
is available (the “Registration Statement”) with the SEC between March 31, 2007 and April 30, 2007
or registering such shares on any Registration Statement filed by the Issuer prior to that time.
If the Mandatory Conversion has not occurred by April 30, 2007, the Issuer agrees to use
commercially reasonable efforts to file a Registration Statement as soon as possible after the
occurrence of the Mandatory Conversion. 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 6.2 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.



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     6.3 Registration Procedures.



          (a) In case of the Registration Statement effected by the Issuer subject to this Section 6,
the Issuer shall keep the Investor, 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 6.2 above,
the Issuer shall, to the extent applicable to the Registration Statement:




                    (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 6.2;



                    (ii) update, correct, amend and supplement the Registration Statement as necessary;



                    (iii) notify the Holder 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 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 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 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 6.6, 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;



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                    (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;



                    (ix) With a view to making available to the Holder 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 Holder 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 6.3(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 6.3(a)(v), and subject to Section 6.5, 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 6.3(a)(v) and, if so
directed by the Issuer, will deliver to the Issuer at the Issuer’s expense all




14









 







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 6, 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 6 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.




     6.4 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 7 hereof. The Investor hereby represents
and warrants to the Issuer that it has accurately and completely provided the requested information
and answered the questions numbered (a) through (d) on the signature pages 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.



     6.5 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) continuing such effectiveness or permitting
such offers and sales could reasonably be expected to have an adverse effect upon the Issuer’s
ability to raise additional funds pursuant to one or more private placements of shares of the
Issuer or any debt securities of the Issuer, a proposed sale of all or substantially all of the
assets of the Issuer or a merger, acquisition, reorganization, recapitalization or similar current
transaction materially affecting the capital, structure, or equity ownership of the Issuer, (ii)
the Registration Statement must be suspended in order to register additional shares of Preferred
Stock or Common Stock, (iii) 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 (iv) 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




15









 







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 above in this Section
6.5(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.




     6.6 Transfer of Securities. An Investor may transfer all or any part of its
Securities to any Person under common management with the Investor; 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



16









 







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 6.4.



7. INDEMNIFICATION.




     7.1 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 6 hereof and any underwriter (as defined in the Securities Act) for such
Holder, and any person who controls such Holder within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act or such underwriter within the meaning of the
Securities Act, and any officer, director, investment adviser, employee, agent, partner, member or
affiliate of such Holder (each, a “Holder Indemnified Party”), from and against, and will reimburse
each such Holder Indemnified Party with respect to, any and all claims, actions, demands, losses,
damages, liabilities, costs and reasonably incurred expenses to which such Holder or any such
Holder Indemnified Party may become subject under the Securities Act or otherwise, insofar as such
claims, actions, demands, losses, damages, liabilities, costs or reasonably incurred expenses arise
out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact
contained in such registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) any materially inaccurate representation or breach of any material
warranty, agreement or covenant of the Issuer contained herein; provided, however, that the
Issuer will not be liable in any such case to the extent that any such claim, action, demand, loss,
damage, liability, cost or expense is caused by an untrue statement or alleged untrue statement or
omission or alleged omission (1) made in conformity with information furnished by such Holder in
writing specifically for use in the preparation thereof, or (2) which was cured in an amendment or
supplement to the prospectus (or any amendment or supplement thereto) delivered to the Holder on a
timely basis to permit proper delivery thereof prior to the date on which any Registrable
Securities were transferred or sold.



     7.2 Indemnification by the Holder. Each Holder of Registrable Securities which are
included in a registration statement pursuant to the provisions of Section 6 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



17









 







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 7.2 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.



     7.3 Procedures. Promptly after receipt by a party indemnified pursuant to the
provisions of Section 7.1 or Section 7.2 of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified party will, if a claim
thereof is to be made against the indemnifying party pursuant to the provisions of Section 7.1 or
Section 7.2, 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 7 and shall not relieve the indemnifying party
from liability under this Section 7, 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 7.1 or
Section 7.2 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.



8. CONDITIONS TO CLOSING.




     8.1 Conditions to the Obligations of the Investor. The obligation of the Investor to
proceed with the Closing is subject to the following conditions, any and all of which may be waived
by the 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




18









 







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, 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, 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 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 Closing Date, in the form attached hereto as Exhibit E.




          (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 8.1(a) and (b) have been fulfilled.




     8.2 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, to the extent permitted by applicable law:



          (a) Representations and Warranties. Each of the representations and warranties of the
Investor 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 Investor 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.




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          (c) No Order. No Governmental Authority shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree, injunction, or other
order (whether temporary, preliminary or permanent) which is in effect and which materially
restricts, prevents or prohibits consummation of the Closing or any transaction contemplated by
this Agreement.




9. MISCELLANEOUS.




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



          (a) “Affiliate” shall have 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.




          (b) “Agreement” has the meaning specified in the preamble to this Agreement.




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




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




          (e) “Closing” has the meaning specified in Section 2.2 of this Agreement.




          (f) “Common Stock” has the meaning specified in the recitals of this Agreement.




          (g) “Confidential Information” has the meaning specified in Section 5.4 of this Agreement.




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




          (i) “Conversion Shares” has the meaning specified in Section 3.6 of this Agreement.




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




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




          (l) “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.




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          (m) “Holder” has the meaning specified in Section 6.1 of this Agreement.




          (n) “Indemnified Party” has the meaning specified in Section 7.1 of this Agreement.




          (o) “Intellectual Property Rights” has the meaning specified in Section 3.15 of this
Agreement.




          (p) “Investor” has the meaning specified in the preamble to this Agreement.




          (q) “Issuer” means ReGen Biologics, Inc., a Delaware corporation.




          (r) “Issuer Indemnified Party” has the meaning specified in Section 7.2 of this Agreement.




          (s) “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).




          (t) “Mandatory Conversion” means the Conversion of the Preferred Stock pursuant to Paragraph
7(a) of the Certificate of Designations, Preferences and Rights in the form attached hereto as
Exhibit C.




          (u) “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.




          (v) “Offering” has the meaning specified in the Recitals to this Agreement.




          (w) “Option” has the meaning specified in the Recitals to this Agreement.




          (x) “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.




          (y) “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.




          (z) “Preferred Stock” has the meaning specified in the Recitals to this Agreement.




21









 








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




          (bb) “Register”, “registered” and “registration” refer to a registration of the offering and
sale or resale of Preferred Stock or 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.




          (cc) “Registrable Securities” means the Conversion Shares and any other shares of Common Stock
or other securities issued in respect of the Shares by way of a stock dividend or stock split or in
connection with a combination or subdivision of the’ Common Stock or by way of a recapitalization,
merger or consolidation or reorganization of the Issuer; provided, however, that as
to any particular securities, such securities will cease to be Registrable Securities upon the
earlier of (i) the sale of such securities pursuant to registration or in a transaction exempt from
the registration and prospectus delivery requirements of the Securities Act under Section 4(1)
thereof, (ii) the date that such securities are permitted to be disposed pursuant to Rule 144 under
the Securities Act, or (iii) the date on which all such securities cease to be outstanding; and, as
a result of the event or circumstance described in either of the foregoing clauses (i) or (ii), all
transfer restrictions and restrictive legends with respect thereto are removed or removable in
accordance with this Agreement or such legends, as the case may be.




          (dd) “Requirements of Law” means as to any Person, the certificate of incorporation, by-laws
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.




          (ee) “Rule 144” has the meaning specified in Section 6.2 of this Agreement.




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




          (gg) “SEC Reports” has the meaning specified in Section 3.7 of this Agreement.




          (hh) “Securities” means the Shares and the Conversion Shares.




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




          (jj) “Shares” has the meaning specified in Section 1.1 of this Agreement.




          (kk) “Registration Statement” has the meaning specified in Section 6.2 of this Agreement.




22









 








          (ll) “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.




          (mm) “Suspension Event” has the meaning specified in Section 6.6(a) of this Agreement.




          (nn) “Suspension Period” has the meaning specified in Section 6.6(b) of this Agreement.




     9.2 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.




     9.3 Notices. All notices, requests, demands, claims, and other communications
hereunder shall be in writing and shall be delivered by certified or registered mail (first class
postage pre-paid), guaranteed overnight delivery, or facsimile transmission if such transmission is
confirmed by delivery by certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and telecopy numbers (or to such other addresses or
telecopy numbers which such party shall subsequently designate in writing to the other party):



          (a)       if to the Issuer to:



ReGen Biologics, Inc.

509 Commerce Street

Franklin Lakes, NJ 07417

Attention: Brion D. Umidi

Telecopy: 201.651.5141



with a copy to:




23









 





Pillsbury Winthrop Shaw Pittman LLP

1650 Tysons Boulevard

McLean, VA 22102

Attention: David C. Main, Esq.

Telecopy: 703.770.7901




          (b) if to the 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.



     9.4 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.



     9.5 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 the Investor) arising out of the
issuance of the Securities (but not with respect to subsequent transfers) by the Issuer to the
Investor and consummation of the transactions contemplated by this Agreement shall be paid by the
Issuer.



     9.6 Amendment; Waiver. This Agreement may not be modified, amended, supplemented,
canceled or discharged, except by written instrument executed by both parties. No failure to
exercise, and no delay in exercising, any right, power or privilege under this Agreement shall
operate as a waiver, nor shall any single or partial exercise of any right, power or privilege
hereunder preclude the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding breach of the same or
any other provision, nor shall any waiver be implied from any course of dealing between the
parties. No extension of time for performance of any obligations or other acts hereunder or under
any other agreement shall be deemed to be an extension of the time for performance of any other
obligations or any other acts. The rights and remedies of the parties under this Agreement are in
addition to all other rights and remedies, at law or equity, that they may have against each other.



     9.7 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.



     9.8 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.



24









 





     9.9 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.



     9.10 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.



     9.11 Severability. The parties stipulate that the terms and provisions of this
Agreement are fair and reasonable as of the date of this Agreement. However, 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.




[SIGNATURES AND OTHER INFORMATION ON NEXT THREE PAGES]




25









 








     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:	 	 
	 
	 	 	 	 
	 
	 
	 	 	 	 
	SIGNATURE:	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 	 	 
	 

	 	Name:	 	 
	 

	 	Title:	 	 












	 	 	 
	ADDRESS FOR NOTICES (Please Print):


	 
	 	 
	 
	 
	 	 
	 
	 
	 	 
	 





	 	 	 
	Attention:
	 	 
	 

	 	 





	 	 	 
	Telecopy:
	 	 
	 

	 	 





	 	 	 
	Phone: 
	 	 
	 

	 	 





	 	 	 
	Email Address:
	 	 
	 

	 	 





	 	 	 
	Tax Identification #:
	 	 
	 

	 	 










	 	 	 
	Exact Name to appear on Stock Certificate:

	 	 
	 

	 	 






	 	 	 
	Special Stock Certificate Delivery

Requirements for Closing, if any:
	 	 
	 

	 	 







	 	 	 
	Number of Shares Subscribed For:
	 	 
	 

	 	 






	 	 	 
	Number of Preferred Option Shares Subscribed
for (100% of the Number of Shares):
	 	 
	 

	 	 
	 
	 	 
	Number of Preferred Warrant Shares Subscribed
for (30% of the Number of Shares):
	 	 
	 

	 	 
	 
	 	 
	Aggregate Purchase Price (Number of Shares Multiplied
by $42.00 (see Section 1.1)):

	 	$                    





The Investor hereby provides the following additional information:




     (a) Excluding the Shares subscribed for above, set forth below is the number of shares of
Common Stock and options, rights or warrants of ReGen Biologics, Inc. (“Options” and together with
the 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 F attached hereto. If none, please so state.



	 	 	 	 	 
	Number of Shares:

	 	 	 	(excluding the Shares subscribed for above)
	 

	 	 	 	 
	 
	 	 	 	 
	Number of Options:

	 	 	 	(excluding the Preferred Option Shares subscribed for above)
	 

	 	 	 	 





26









 





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:                                                             




27









 





NAME OF INVESTOR:                                        




     (c) 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.




28









 








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 associate 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.




 





 





 





 






29









 








     (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 NASD member has placed with you the Shares being purchased hereunder:


(Name of Member:)
                                                                                



30









 





ACCEPTED THIS 5TH DAY OF APRIL, 2007 BY:




REGEN BIOLOGICS, INC.




	 	 	 	 	 
	By:

	 	 	 	 
	 

	 	 	 	 
	 	 	Name: Brion D. Umidi

Title: Senior Vice President and Chief Financial Officer







31









 








EXHIBIT A




FORM OF OPTION AGREEMENT




 









 





EXHIBIT B




FORM OF WARRANT




 









 





EXHIBIT C




FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS




 









 





EXHIBIT D




RISK FACTORS RELATED TO THE OFFERING



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 Shares that are a part of this Offering (up to $5 million worth of shares) 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 OFFERING PRICE OF THE SHARES 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 offering price of the Shares was established based on such factors as our capital requirements,
financial conditions and prospects, percentage of ownership to be held by investors following this
Offering, and the general condition of securities markets at the time of the Offering. The
offering price 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 FOR A
SUBSTANTIAL PERIOD OF TIME.



Although we have undertaken to register the Shares for resale by you, you should be aware that we
are unable to determine with certainty when the registration statement to be filed with the SEC
will become effective. The SEC may seek to review our registration statement, in which case, the
period necessary to achieve effectiveness of the registration statement with the SEC will be
affected by our ability to provide the SEC with sufficient disclosures satisfactory to the SEC.
The length of the SEC review process is uncertain and may extend to a number of months.




 









 







As you are aware, the Shares being sold in this Offering are restricted in nature and may not be
publicly resold absent the effectiveness of the registration statement or pursuant to an applicable
exemption from registration. Consequently, you may not be able to sell your Shares for a
substantial period of time.



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



We will have broad discretion in how we apply the net proceeds from this Offering. Because the net
proceeds of this Offering are not required to be allocated to any specific investment or
transaction, you cannot determine at this time the value or appropriateness of our application of
the net proceeds, and you and other shareholders may not agree with our decisions. For example, we
may attempt to acquire other businesses or assets using a portion of the net proceeds of this
Offering which otherwise could have been used for working capital. There can be no assurance that
we will be able to acquire any desirable businesses or assets or that, if acquired, that we will be
able to successfully develop or integrate such businesses or assets.





 









 








EXHIBIT E




FORM OF OPINION





 









 








EXHIBIT F




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 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.