Form of Subscription Agreement by and among ReGen Biologics, Inc. and the Investors named therein, dated as of July 24, 2008

---

 

1.             SUBSCRIPTION AND ISSUANCE OF NOTES.

1.1            Subscription and Issuance of the Notes.  At Closing, upon the terms and subject to the conditions set forth herein: (a) the Issuer agrees that it will issue to the Investors Notes up to the aggregate principal amount not less than $2,000,000 but not more than $3,000,000 for an aggregate purchase price (the “Aggregate Purchase Price”) of not less than $2,000,000 but not more than $3,000,000 (the “Offering”), and each Investor, severally and not jointly, agrees that it will acquire from the Issuer Notes in the amount set forth on its signature page hereto; (b) the Issuer agrees that it will issue to each Investor, and each Investor severally and not jointly agrees that it will acquire from the Issuer, Notes, in each case, up to the aggregate principal amount set forth on the signature page for each Investor hereof (the “Investment Amount”); and (c) each Investor agrees to remit payment for its Investment Amount in accordance with the provisions of Section 1.3.

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

1.3           Payment for the Notes.  At Closing, upon the terms and subject to the conditions set forth herein, each Investor shall pay its respective Investment Amount.  All payments by Investors shall be paid in cash, by wire transfer of immediately available funds at Closing to an account designated in a written notice delivered by the Company to each Investor not later than two (2) days prior to the Closing.

1.4            Repayment.  All outstanding principal and accrued interest with respect to a Note shall be due and payable in cash on the twelve (12) month anniversary of the date of Closing (the “Maturity Date”), unless such Note has been converted pursuant to Section 3.1 hereof.

1.5            Legend.  Any certificate or certificates representing the Notes or any shares of Series F Stock or Common Stock issuable upon conversion of any Note shall bear the following legend, in addition to any legend that may be required by any Requirements of Law:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF BY THE HOLDER EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE WITH RESPECT THERETO OR IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND ALSO MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH ANY APPLICABLE RULES OF THE SECURITIES AND EXCHANGE COMMISSION.

2.             CLOSING.

2.1            Closing.  The closing of the transactions contemplated herein (the “Closing”) shall take place on a date designated by the Issuer, which date shall be on or around July 24, 2008.  The Closing shall take place at the offices of Pillsbury Winthrop Shaw Pittman LLP, counsel for the Issuer, 1650 Tysons Boulevard, McLean, VA 22102.  At the Closing (i) each Investor shall remit payment in accordance with and in the manner specified in Section 1.3, (ii) the Issuer shall issue to the Investors the Notes representing an amount equal to each Investor’s Investment Amount, (iii) the Issuer shall issue to each Investor a Warrant or Warrants to purchase a number of shares of Series F Stock or, if the Series F Stock has been converted into Common Stock, a number of shares of Common Stock equal to 25% of the amount of such Investor’s Investment Amount divided by $15.00 and $0.15, respectively and (iv) all other actions referred to in this Agreement which are required to be taken for the Closing shall be taken and all other agreements and other documents referred to in this Agreement which are required for the Closing shall be executed and delivered.

2.2            Termination.  This Agreement may be terminated at any time prior to the Closing:

(a)            by mutual written consent of the Issuer and the Investors;

(b)            with respect to any Investor’s obligations hereunder, by such Investor, upon a materially inaccurate representation or breach of any material warranty, covenant or agreement on the part of the Issuer set forth in this Agreement, in either case such that the conditions in Section 10.1 would be reasonably incapable of being satisfied on or prior to the date of the Closing; or

(c)            by the Issuer, upon a materially inaccurate representation or breach of any material warranty, covenant or agreement on the part of the Investors set forth in this Agreement, in either case such that the conditions in Section 10.2 would be reasonably incapable of being satisfied on or prior to the date of the Closing.

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

3.              CONVERSION TERMS.

3.1            Optional Conversion.  On or after the date of Closing, the Holder of a Note shall, at its sole election be entitled to convert the outstanding principal amount together with accrued and unpaid interest of such Note (the “Note Amount”) into fully paid and nonassessable shares of Series F Stock or, if a “Conversion Event” (as defined in the Certificate of Designations, Preferences and Rights in the form attached hereto as Exhibit C (the “Certificate of Designations”)) has occurred, into fully paid and nonassessable shares of Common Stock in accordance with this Section 3.  The Issuer shall not issue any fractional shares of Series F Stock or Common Stock upon any conversion.  Instead, the Issuer shall pay to such Investor cash in lieu of fractional shares based on the per share price of $15.00 for Series F Stock or the per share price of $0.15 for Common Stock.

3.2            Conversion Rate.  The number of shares of Series F Stock issuable upon conversion of the Note Amount shall be determined by dividing (a) such Note Amount by (b) $15.00.  If, prior to conversion, a Conversion Event has occurred, then the number of shares of Common Stock issuable upon conversion of the Note Amount shall be determined by dividing (x) such Note Amount by (y) $0.15 (the “Common Conversion Price”), subject to adjustment as described in Section 3.3 below.

3.3            Adjustment to Conversion Rate.

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

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

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

(b)            In the event the Issuer shall at any time after the Closing issue Additional Shares of Common Stock (as defined below) without consideration or for consideration per share less than $0.12 per share, as adjusted in accordance with subsection (a) above (a “Dilutive Issuance”), then the Common Conversion Price shall be reduced, concurrently with such Dilutive Issuance, to the consideration per share received or deemed received by the Issuer for such issued or deemed issue of the Additional Shares of Common Stock, with such consideration per share to be calculated by dividing the total amount of consideration received or deemed received by the Issuer for such Dilutive Issuance by the total number of Additional Shares of Common Stock issued or deemed issued as part of such Dilutive Issuance; provided that, if such Dilutive Issuance was without consideration, then the Issuer shall be deemed to have received an aggregate of $0.01 of consideration for all such Additional Shares of Common Stock issued or deemed to be issued.  For clarity, any Additional Shares of Common Stock issued or deemed to be issued pursuant to the same agreement or transaction shall be considered one Dilutive Issuance.

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

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

(i)             The aggregate maximum number of shares of Common Stock deliverable upon exercise (assuming the satisfaction of any conditions to exercisability, including without limitation, the passage of time, but without taking into account potential anti-dilution adjustments) of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration, if any, received by the Issuer upon the issuance of such options or rights plus the minimum exercise price provided in such options or rights (without taking into account potential anti-dilution adjustments) for the Common Stock covered thereby.

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

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

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

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

(e)            Notwithstanding the foregoing, no adjustment will be made under this Section 3.3 in respect to any issuance of Common Stock (i) upon exercise or conversion of any options or other securities described in the Issuer’s securities filings with the SEC on file with the SEC prior to Closing or otherwise pursuant to any employee benefit plan of the Issuer or its subsidiaries or hereafter adopted by the Issuer, (ii) or convertible securities issued in a joint venture, strategic partnership or licensing arrangement, the primary purpose of which is not the raising of capital, (iii) issued in connection with this Agreement or (iv) which results in an adjustment pursuant to subsection (a).

4.              REPRESENTATIONS AND WARRANTIES OF THE ISSUER.

 As a material inducement to the Investors entering into this Agreement, subscribing for the Notes, except as set forth in the Disclosure Schedules delivered to the Investors concurrently herewith, the Issuer represents and warrants to the Investors as follows:

4.1            Corporate Status.  The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of the Issuer and its Subsidiaries has full corporate power and authority to own and hold its properties and to conduct its business as described in the Issuer’s SEC Reports. Each of the Issuer and its Subsidiaries is duly qualified to do business and is in good standing in each jurisdiction in which the nature of its business requires qualification or good standing, except for any failure to be so qualified or be in good standing that would not have a Material Adverse Effect.

4.2            Corporate Power and Authority.  The Issuer has the corporate power and authority to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby.  At or prior to the Closing, the Issuer will have taken all necessary corporate action to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby.  No further approval or authorization of any stockholder or the board of directors of the Issuer is required for the issuance and sale of the Notes or, except as provided in Section 7.2, the filing of the Registration Statement.

4.3            Enforceability.  This Agreement has been duly executed and delivered by the Issuer and (assuming it has been duly authorized, executed and delivered by the Investors) constitutes a legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, except (a) as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors’ rights generally, and (b) the indemnity provisions of Section 9 of this Agreement, to the extent such provisions may not be enforceable based upon public policy considerations, and general equitable principles, regardless of whether such enforceability is considered in a proceeding at law or in equity.

4.4            No Violation.  The execution and delivery by the Issuer of this Agreement, the consummation of the transactions contemplated hereby, and the compliance by the Issuer with the terms and provisions hereof (including, without limitation, the Issuer’s issuance to the Investors of the Notes as contemplated by and in accordance with this Agreement), will not result in a default under (or give any other party the right, with the giving of notice or the passage of time (or both), 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 is bound or (b) to its knowledge, in violation of any order of any Governmental Authority, which, in the case of clauses (a) and (b), could reasonably be expected to have a Material Adverse Effect.

4.5            Consents/Approvals.  Except for the filing of a registration statement in accordance with Article 7 hereof and filings with the SEC and the securities commissions of the states in which the Notes are to be issued, no consents, filings, authorizations or other actions of any Governmental Authority are required to be obtained or made by the Issuer for the Issuer’s execution, delivery and performance of this Agreement which have not already been obtained or made.  No consent, approval, waiver or other action by any Person under any Contract to which the Issuer is a party or by which the Issuer or any of its properties or assets are bound is required or necessary for the execution, delivery or performance by the Issuer of this Agreement and the consummation of the transactions contemplated hereby, except where the failure to obtain such consents would not have a Material Adverse Effect on the Issuer.

4.6            Valid Issuance.  Upon payment of the Aggregate Purchase Price by the Investors and delivery to the Investors of the Notes, the Notes will be validly issued, fully paid and nonassessable and will be free and clear of all Liens imposed by the Issuer.  The shares of Series F Stock or Common Stock issuable upon conversion of the Notes (the “Conversion Shares”) (in accordance with the Certificate of Designations, Preferences and Rights relating to the Conversion Shares, with respect to Series F Stock, in the form attached hereto as Exhibit C) when issued will be validly issued, fully paid and nonassessable and will be free and clear of all Liens imposed by the Issuer and will not be subject to any preemptive rights or other similar rights of stockholders of the Issuer imposed by law.

4.7            SEC Filings and Other Filings.  Except as set forth on Schedule 4.7, the Issuer has timely made all filings required to be made by it under the Exchange Act since December 31, 2006.  The Issuer has delivered or made accessible to the Investors true, accurate and complete copies of (a) the Issuer’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007; (b) the Issuer’s definitive proxy statement dated April 21, 2008 relating to its 2008 Annual Meeting of Stockholders; and (c) the Issuer’s Period Report on Form 10-Q dated May 8, 2008 for the quarter ended March 31, 2008 (as such documents have, since the time of their filing, been amended or supplemented, and together with all reports, documents and information filed or after the date first written above through the date of Closing with the SEC, collectively the “SEC Reports”).  The SEC Reports, when filed (unless amended and superseded by a later Issuer filing prior to the date hereof, then on the date of such later filing), complied in all material respects with all applicable requirements of the Exchange Act and the Securities Act, if and to the extent applicable, and the rules and regulations of the SEC thereunder applicable to the SEC Reports.  None of the SEC Reports when filed (unless amended and superseded by a later Issuer filing prior to the date hereof, then on the date of such later filing) contained any misstatement of a material fact or omitted to state a material fact necessary to prevent the statements made therein from being misleading.

4.8            Commissions.  Except for those fees set forth on Schedule 4.8, the Issuer has not incurred any other obligation for any finder’s or broker’s or agent’s fees or commissions in connection with the transactions contemplated hereby.

4.9            Capitalization.  As of the date hereof, the authorized capital stock of the Issuer consists of 165,000,000 shares of Common Stock and 60,000,000 shares of Preferred Stock.  Except as set forth on Schedule 4.9, all issued and outstanding shares of capital stock of the Issuer have been, and as of Closing will be, duly authorized and validly issued and are fully paid and non-assessable, have been issued in compliance with all applicable state and federal securities laws in all material respects and were not issued in violation of, or subject to, any preemptive, subscription or other similar rights of any stockholder of the Issuer imposed by law.  As of June 30, 2008, the Issuer has issued and outstanding 104,243,082 shares of Common Stock and 9,209,679 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, of which 135,715 shares have been designated as Series D Convertible Preferred Stock and of which 7,500 shares have been designated as Series E Convertible Preferred Stock.  Except for outstanding options to purchase 37,245,599 shares of Common Stock, outstanding options to purchase 135,715 shares of Series D Convertible Preferred Stock, outstanding options to purchase 448,771 shares of Series E Convertible Preferred Stock, outstanding warrants to purchase 9,835,248 shares of Common Stock, outstanding warrants to purchase 65,224 shares of Series D Convertible Preferred Stock, and the right to convert the outstanding shares of Preferred Stock into shares of Common Stock, as of June 30, 2008 there were no outstanding options, warrants, rights (including conversion or preemptive rights and rights of first refusal and similar rights) or agreements, orally or in writing, for the purchase or acquisition from the Issuer of any shares of capital stock, and, except as set forth on Schedule 4.9, the Issuer is not a party to or subject to any agreement or understanding and, to the Issuer’s knowledge, there is no agreement or understanding between any Persons, which affects or relates to the voting or giving of written consents with respect to any security or by a director of the Issuer. The Issuer owns, directly or indirectly, all of the capital stock of its Subsidiaries, free and clear of any Liens or equitable interests other than as reflected in the SEC Reports.  Except as set forth in the SEC Reports, the Issuer has no obligation, contingent or otherwise, to redeem or repurchase any equity security or any security that is a combination of debt and equity.

4.10          Material Changes.  Except as set forth in the SEC Reports (excluding any “risk factors” or “forward-looking statements” sections thereof) or as otherwise contemplated herein, since December 31, 2007, there has been no Material Adverse Effect in respect of the Issuer and its Subsidiaries taken as a whole.  Except as set forth in the SEC Reports (excluding any “risk factors” or “forward-looking statements” sections thereof), since December 31, 2007, there has not been: (i) any direct or indirect redemption, purchase or other acquisition by the Issuer of any shares of the Common Stock; (ii) any declaration, setting aside or payment of any dividend or other distribution by the Issuer with respect to the Common Stock; (iii) any borrowings incurred or any material liabilities (absolute, accrued or contingent) assumed, other than current liabilities incurred in the ordinary course of business, liabilities under Contracts entered into in the ordinary course of business, or liabilities not required to be reflected on the Issuer’s financial statements pursuant to GAAP or required to disclosed in the SEC Reports; (iv) any Lien or adverse claim on any of the Issuer’s material properties or assets, except for Liens for taxes not yet due and payable or otherwise in the ordinary course of business; (v) any sale, assignment or transfer of any of the Issuer’s material assets, tangible or intangible, except in the ordinary course of business; (vi) any extraordinary losses or waiver of any rights of material value; (vii) any material capital expenditures or commitments therefor other than in the ordinary course of business; (viii) any other material transaction other than in the ordinary course of business; (ix) any material change in the nature or operations of the business of the Issuer and its Subsidiaries; (x) any default in the payment of principal or interest in any material amount, or violation of any material covenant, with respect to any outstanding debt obligations that are material to the Issuer and its Subsidiaries as a whole; (xi) any material changes to the Issuer’s critical accounting policies or material deviations from historical accounting and other practices in connection with the maintenance of the Issuer’s books and records; or (xii) any agreement or commitment to do any of the foregoing.

4.11          Litigation.  Except as set forth in the SEC Reports, there is no action, suit, proceeding or investigation pending or, to the Issuer’s knowledge, currently threatened against the Issuer or any of its Subsidiaries that questions the validity of this Agreement or the right of the Issuer to enter into it, or to consummate the transactions contemplated hereby, or that could reasonably be expected to result, either individually or in the aggregate, in a Material Adverse Effect on the Issuer or any material change in the current equity ownership of the Issuer. The foregoing includes, without limitation, actions pending or, to the Issuer’s knowledge, threatened involving the prior employment of any of the Issuer’s employees or their use in connection with the Issuer’s business of any information or techniques allegedly proprietary to any of their former employers.  Neither the Issuer nor any of its Subsidiaries is a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or Governmental Authority.  There is no action, suit, proceeding or investigation by the Issuer or any of its Subsidiaries currently pending or which the Issuer or any of its Subsidiaries currently intends to initiate, which could reasonably be expected to have a Material Adverse Effect.

4.12          Rights of Registration, Voting Rights, and Anti-Dilution.  Except as contemplated in this Agreement and as set forth on Schedule 4.12, the Issuer has not granted or agreed to grant any registration rights, including piggyback rights, to any Person and, to the Issuer’s knowledge, no stockholder of the Issuer has entered into any agreements with respect to the voting of capital shares of the Issuer.  Except as set forth in Schedule 4.12, the issuance of the Notes does not constitute an anti-dilution event for any existing security holders of the Issuer, pursuant to which such security holders would be entitled to additional securities or a reduction in the applicable conversion price or exercise price of any securities.

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

4.14          Licenses and Permits.  Except as disclosed in the SEC Reports or on Schedule 4.14, each of the Issuer and its Subsidiaries has all Permits under applicable Requirements of Law from all applicable Governmental Authorities that are necessary to operate its businesses as presently conducted and all such Permits are in full force and effect, except where the failure to have any such Permits in full force and effect would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  Neither the Issuer nor any of its Subsidiaries is in default under, or in violation of or noncompliance with, any of such Permits, except for any such default, violation, or noncompliance which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the Issuer’s knowledge, other than as disclosed in the SEC Reports, there is no proposed change in any Requirements of Law which would require the Issuer and its Subsidiaries to obtain any Permits in order to conduct its business as presently conducted that the Issuer and its Subsidiaries do not currently possess and the lack of which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.

4.15          Patents and Trademarks.  The Issuer and each of its Subsidiaries has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, licenses and know-how (including trade secrets or other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) (collectively, the “Intellectual Property Rights”) that are necessary for use in connection with its business as presently conducted, except where the failure to have such Intellectual Property Rights would not reasonably be expected to have a Material Adverse Effect.  To the Issuer’s knowledge, there is no existing infringement by another person or entity of any of the Intellectual Property Rights that are necessary for use in connection with the Issuer’s business as presently conducted.  The Issuer is not infringing on any intellectual property rights of any other person, nor is there any claim of infringement made or, to the Issuer’s knowledge, threatened by a third party against or involving the Issuer.

4.16          Insurance. The Issuer maintains and will continue to maintain insurance with such insurers, and insuring against such losses, in such amounts, and subject to such deductibles and exclusions as are customary in the Issuer’s industry and otherwise reasonably prudent, all of which insurance is in full force and effect.

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

4.18          Taxes.  The Issuer has filed all material federal, state and foreign income and franchise tax returns which are due and has paid or accrued all taxes shown as due thereon, and the Issuer has no knowledge of a tax deficiency which has been or might be asserted or threatened against it which is reasonably likely to have a Material Adverse Effect.

4.19          Private Placement.  Neither the Issuer nor any of its Subsidiaries or Affiliates, nor any Person acting on its or their behalf, (i) has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with the offer or sale of the Securities, (ii) has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under any circumstances that would require registration of the Securities under the Securities Act or (iii) has issued any shares of Common Stock or shares of any series of preferred stock or other securities or instruments convertible into, exchangeable for or otherwise entitling the holder thereof to acquire shares of Common Stock which would be integrated with the sale of the Securities hereunder for purposes of the Securities Act or of any applicable stockholder approval provisions, nor will the Issuer or any of its Subsidiaries or Affiliates take any action or steps that would require registration of any of the Securities under the Securities Act or cause the offering of the Securities to be integrated with other offerings.  Assuming the accuracy of the representations and warranties of the Investors, the offer and sale of the Securities by the Issuer to the Investors pursuant to this Agreement will be exempt from the registration requirements of the Securities Act.

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

5.              REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR.

5.1            Power and Authority.  The Investor, if other than a natural person, is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation.  The Investor has the corporate, partnership or other power (or capacity) and authority under applicable law to execute and deliver this Agreement and consummate the transactions contemplated hereby, and has all necessary authority to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby.  The Investor has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the transactions contemplated hereby.

5.2            No Violation.  The execution and delivery by the Investor of this Agreement, the consummation of the transactions contemplated hereby, and the compliance by the Investor with the terms and provisions hereof, will not result in a default under (or give any other party the right, with the giving of notice or the passage of time (or both), to declare a default or accelerate any obligation under) or violate any charter or similar documents of the Investor, if other than a natural person, or any Contract to which the Investor is a party or by which it or its properties or assets are bound, or violate any Requirement of Law applicable to the Investor, other than such violations or defaults which, individually and in the aggregate, do not and will not have a Material Adverse Effect on the Investor.  The Investor will comply with any Requirement of Law applicable to it in connection with the Offering and any resale by the Investor of any of the Securities.

5.3            Consents/Approvals.  No consents, filings, authorizations or actions of any Governmental Authority are required for the Investor’s execution, delivery and performance of this Agreement.  No consent, approval, waiver or other actions by any Person under any Contract to which the Investor is a party or by which the Investor or any of its properties or assets are bound is required or necessary for the execution, delivery and performance by the Investor of this Agreement and the consummation of the transactions contemplated hereby.

5.4            Enforceability.  This Agreement has been duly executed and delivered by the Investor and (assuming it has been duly authorized, executed and delivered by the Issuer) constitutes a legal, valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms, except (a) as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor’s rights generally, and (b) the indemnity provisions of Section 9 of this Agreement, to the extent they may not be enforceable based upon public policy considerations, and general equitable principles, regardless of whether enforceability is considered in a proceeding at law or in equity.

5.5            Investment Intent.  The Investor is acquiring the Notes hereunder for its own account and with no present intention of distributing or selling any of the Securities and further agrees not to transfer such Securities in violation of the Securities Act or any applicable state securities law, and no one other than the Investor has any beneficial interest in the Notes (except to the extent that the Investor may have delegated voting authority to its investment advisor) or the Conversion Shares.  The Investor agrees that it will not sell or otherwise dispose of any of the Securities unless such sale or other disposition has been registered under the Securities Act or, in the opinion of counsel acceptable to the Issuer, is exempt from registration under the Securities Act and has been registered or qualified or, in the opinion of such counsel acceptable to the Issuer, is exempt from registration or qualification under applicable state securities laws.  The Investor understands that the offer and sale by the Issuer of the Notes being acquired by the Investor hereunder has not been registered under the Securities Act by reason of their contemplated issuance in transactions exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof, and that the reliance of the Issuer on such exemption from registration is predicated in part on these representations and warranties of the Investor.  The Investor acknowledges that pursuant to Section 1.5 of this Agreement a restrictive legend consistent with the foregoing has been or will be placed on the certificates for the Securities.

5.6            Accredited Investor.  The Investor is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D under the Securities Act, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment to be made by it hereunder.

5.7            Adequate Information.  The Investor has received from the Issuer, and has had the opportunity to review, such information which the Investor considers necessary or appropriate to evaluate the risks and merits of an investment in the Notes.  The Investor also acknowledges that the additional risk factors set forth on Exhibit D and contained in the SEC Reports have been delivered to the Investor and the Investor has had the opportunity to review such risk factors.

5.8            Opportunity to Question.  The Investor has had the opportunity to question, and has questioned, to the extent deemed necessary or appropriate, representatives of the Issuer so as to receive answers and verify information obtained in the Investor’s examination of the Issuer, including the information that the Investor has received and reviewed as referenced in Section 5.7 hereof in relation to its investment in the Notes.

5.9            No Other Representations.  No oral or written material representations have been made to the Investor in connection with the Investor’s acquisition of the Notes which were in any way inconsistent with the information reviewed by the Investor.  The Investor acknowledges that in deciding whether to enter into this Agreement and to purchase the Notes hereunder, it has not relied on any representations or warranties of any type or description made by the Issuer or any of its representatives with regard to the Issuer, any of its Subsidiaries, any of their respective businesses or properties, or the prospects of the investment contemplated herein, other than the representations and warranties set forth in Section 4 hereof.

5.10          Knowledge and Experience.  The Investor has such knowledge and experience in financial, tax and business matters, including substantial experience in evaluating and investing in common stock and other securities (including the common stock and other securities of speculative companies), so as to enable the Investor to utilize the information referred to in Section 5.7 hereof and any other information made available by the Issuer to the Investor in order to evaluate the merits and risks of an investment in the Notes and to make an informed investment decision with respect thereto.

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

5.12          Commissions.  The Investor has not incurred any obligation for any finder’s or broker’s or agent’s fees or commissions in connection with the transactions contemplated hereby.

6.              COVENANTS.

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

6.2            Further Assurances.  Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be reasonably necessary or appropriate to effectuate, carry out and comply with all of the terms of this Agreement and the transactions contemplated hereby.  Each of the Investors and the Issuer shall make on a prompt and timely basis all governmental or regulatory notifications and filings required to be made by it with or to any Governmental Authority in connection with the consummation of the transactions contemplated hereby.  The Issuer and the Investors each agree to cooperate with the other in the preparation and filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to any Requirement of Law in connection with the transactions contemplated by this Agreement and to use their respective commercially reasonable efforts to agree jointly on a method to overcome any objections by any Governmental Authority to any such transactions.  Except as may be specifically required hereunder, neither of the parties hereto nor their respective Affiliates shall be required to agree to take any action that in the reasonable opinion of such party would result in or produce a Material Adverse Effect on such party.

6.3            Notification of Certain Matters.  Prior to the Closing, each party hereto shall give prompt notice to the other party of the occurrence, or non-occurrence, of any event which would be likely to cause any representation and warranty herein to be untrue or inaccurate, or any covenant, condition or agreement herein not to be complied with or satisfied.

6.4            Confidential Information; Standstill.

(a)            Except as contemplated by Sections 6.1 and 6.2 above, each of the Investors agrees that no portion of the Confidential Information (as defined below) shall be disclosed to third parties, except as may be required by law, without the prior express written consent of the Issuer; provided, that an Investor may share such information with such of its officers and professional advisors as may need to know such information to assist such Investor in its evaluation thereof on the condition that such parties agree to be bound by the terms hereof.  “Confidential Information” means the existence and terms of this Agreement, the transactions contemplated hereby, and the disclosures and other information contained herein, excluding any disclosures or other information that is publicly available.

(b)            For a period of two (2) years from Closing, no Investor will, without the prior written consent of the Issuer (i) propose to enter into any acquisition of all or substantially all of the assets or stock of the Issuer or a merger or other business combination transaction involving the Issuer, (ii) seek to control the management, Board of Directors or policies of the Issuer, or (iii) except as set forth on Schedule 6.4(b), form, join or in any way participate in a “group” (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any securities of the Issuer in connection with any of the foregoing

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

7.              REGISTRATION RIGHTS.

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

7.1            Transfer of Registration Rights.  An Investor may assign the registration rights with respect to the Securities to any party or parties to which it may from time to time transfer all of its Notes in accordance with Section 5.5 hereof; provided, that the transferee agrees in writing with the Issuer to be bound by the applicable provisions of this Agreement regarding such registration rights and indemnification relating thereto.  Upon assignment of any registration rights pursuant to this Section 7.1, the Investor shall deliver to the Issuer a notice of such assignment which includes the identity and address of any assignee and such other information reasonably requested by the Issuer in connection with effecting any such registration (collectively, the Investor and each such subsequent holder is referred to as a “Holder”).  The Issuer shall maintain at one of its offices a register for the recordation of the names and addresses of the Holders and principal amount of the Notes owing to each Holder pursuant to the terms hereof from time to time (for the purposes of this Section 7.1 only, the “Register”).  The Issuer and Holders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Holder hereunder for all purposes of this Agreement.

7.2            Required Registration.  Following the date the Series F Stock are converted into Common Stock, upon request of the holders of a majority of the shares of Common Stock received upon conversion of the Series F Stock, the Issuer will file a registration statement on Form S-1 (or S-3 if conditions change to allow the Issuer to use S-3) (the “Registration Statement”) for the resale of the Common Stock underlying the Series F Stock purchased at Closing. The Issuer agrees to use commercially reasonable efforts to file a Registration Statement as soon as possible after such request; provided, however, that if the Issuer is not eligible to use Form S-3 and if such request is made within one hundred twenty (120) days before the date that the Issuer’s next regularly scheduled Annual Report on Form 10-K is due, the Issuer shall not be required to make such filing until the date that is sixty (60) days following the date the Issuer files its next regularly scheduled Annual Report on Form 10-K.  The Issuer shall subsequently use commercially reasonable efforts to cause the SEC to declare the Registration Statement effective as soon as possible.  The Issuer shall thereafter maintain the effectiveness of the Registration Statement until the earlier of (a) the date on which all the Registrable Securities have been sold pursuant to the Registration Statement or Rule 144 promulgated under the Securities Act (“Rule 144”), (b) such time as the Issuer reasonably determines, based on an opinion of counsel, that all of the Holders will be eligible to sell under Rule 144 all of the Securities then owned by the Holders within the volume limitations imposed by paragraph (e) of Rule 144 in the three month period immediately following the termination of the effectiveness of the Registration Statement, and (c) the first anniversary of the date the Registration Statement was declared effective by the SEC.  The Registration Statement filed pursuant to this Section 7.2 may include other securities of the Issuer that are held by Persons who, by virtue of agreements with the Issuer, are entitled to similar registration rights.

7.3            Registration Procedures.

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

(i)             prepare and file with the SEC such amendments and supplements to the Registration Statement as may be necessary to keep such registration continuously effective and free from any material misstatement or omission necessary to make the statements therein, in light of the circumstances, not misleading, and comply with provisions of the Securities Act with respect to the disposition of all securities covered thereby during the period referred to in Section 7.2;

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

(iii)           notify the Holders promptly when the Registration Statement is declared effective by the SEC, and furnish such number of prospectuses, including preliminary prospectuses, and other documents incident thereto as any Holder may reasonably request from time to time;

(iv)           use its commercially reasonable efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions of the United States where an exemption is not available and as any Holder may reasonably request to enable it to consummate the disposition in such jurisdiction of the Registrable Securities (provided that the Issuer will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this provision, or (B) consent to general service of process in any such jurisdiction, or (C) subject itself to taxation in any jurisdiction where it is not already subject to taxation);

(v)            notify each Holder at any time when a prospectus relating to the Registrable Securities is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in the Registration Statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading and, subject to Section 7.6, the Issuer will prepare a supplement or amendment to such prospectus, so that, as thereafter delivered to purchasers of such shares, such prospectus will not contain any untrue statements of a material fact or omit to state any fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;

(vi)           cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by the Issuer are then listed and obtain all necessary approvals for trading thereon;

(vii)          provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of the Registration Statement;

(viii)         upon the sale of any Registrable Securities pursuant to the Registration Statement, direct the transfer agent to remove all restrictive legends from all certificates or other instruments evidencing the Registrable Securities;

(ix)            with a view to making available to the Holders the benefits of certain rules and regulations of the SEC that at any time permit the sale of the Registrable Securities to the public without registration, so long as any Registrable Securities are outstanding, the Issuer shall use its commercially reasonable efforts for a period of two years following the date of Closing:

(1)            to make and keep public information available, as those terms are understood and defined in Rule 144(c) under the Securities Act;

(2)            to file with the SEC in a timely manner all reports and other documents required of the Issuer under the Exchange Act; and

(3)            to furnish to the Holders upon any reasonable request a written statement by the Issuer as to its compliance with the public information requirements of Rule 144(c) under the Securities Act; and

(x)            to advise the Holder promptly after it has received notice or obtained knowledge of the existence of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose, and to make every commercially reasonable effort to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible time.

(b)            Notwithstanding anything stated or implied to the contrary in Section 7.3(a) above, the Issuer shall not be required to consent to any underwritten offering of the Registrable Securities or to any specific underwriter participating in any underwritten public offering of the Registrable Securities.

(c)            Each Holder agrees that upon receipt of any notice from the Issuer of the happening of any event of the kind described in Section 7.3(a)(v), and subject to Section 7.5, such Holder will forthwith discontinue such Holder’s disposition of Registrable Securities pursuant to the registration statement relating to such Registrable Securities until such Holder’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 7.3(a)(v) and, if so directed by the Issuer, will deliver to the Issuer at the Issuer’s expense all copies, other than permanent file copies, then in such Holder’s possession, of the prospectus relating to such Registrable Securities current at the time of receipt of such notice.

(d)            Except as required by law, all expenses incurred by the Issuer in complying with this Section 7, including but not limited to, all registration, qualification and filing fees, printing expenses, fees and disbursements of counsel and accountants for the Issuer, blue sky fees and expenses (including fees and disbursements of counsel related to all blue sky matters) incurred in connection with any registration, qualification or compliance pursuant to this Section 7 shall be borne by the Issuer.  All underwriting discounts and selling commissions applicable to a sale incurred in connection with any registration of Registrable Securities and the legal fees and other expenses of a Holder shall be borne by such Holder.

7.4            Further Information.  If Registrable Securities owned by a Holder are included in any registration, such Holder shall furnish the Issuer such information regarding itself as the Issuer may reasonably request and as shall be required in connection with any registration (or amendment or supplement thereto), referred to in this Agreement, and Holder shall indemnify the Issuer with respect thereto in accordance with Section 9 hereof.  Each Investor hereby represents and warrants to the Issuer that, upon request and in connection with the filing of a Registration Statement, it will accurately and completely provide the requested information and answer the questions listed in Exhibit G of this Agreement, and the Investor agrees and acknowledges that the Issuer may rely on such information as being true and correct for purposes of preparing and filing the Registration Statement at the time of filing thereof and at the time it is declared effective, unless the Investor has notified the Issuer in writing to the contrary prior to such time.

7.5            Right of Suspension.

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

(b)            The Issuer’s right to suspend the effectiveness of the Registration Statement and the offers and sales of the Registrable Securities pursuant thereto, as described above in this Section 7.5(a), shall be for a period of time (the “Suspension Period”) beginning on the date of the occurrence of the Suspension Event and expiring on the earlier to occur of (i) the date on which the Suspension Event ceases, or (ii) ninety (90) days after the occurrence of the Suspension Event; provided, however, that there shall not be more than two Suspension Periods in any 12-month period.  Notwithstanding the foregoing, the Issuer shall be able to suspend the effectiveness of the Registration Statement and offers and sales of the Registrable Securities for any time period as may reasonably be required in order to update the Registration Statement to replace financial information which is no longer current, as required by applicable securities law.

(c)            In addition, in connection with any underwritten public offering of securities of the Issuer, if requested by the Issuer or its managing underwriter, each Holder will enter into a lock-up agreement pursuant to which such Holder will not, during the seven (7) days prior to, and for a period no longer than one hundred eighty (180) days following, the date of the prospectus (or if the offering is pursuant to a shelf registration statement, the date of the pricing prospectus supplement) relating to the offering, offer, sell or otherwise dispose of any securities of the Issuer without the prior consent of the Issuer and the managing underwriter, provided that the executive officers and directors of the Issuer enter into lock-up agreements for a period at least as long and on the same terms.

7.6            Transfer of Securities.  An Investor may transfer all or any part of its Securities to any Person under common management with the Investor and may distribute all or any part of the Conversion Shares to its equity holders or partners; provided, that any such transfer shall be effected in full compliance with all applicable federal and state securities laws, including, but not limited to, the Securities Act and the rules of the SEC promulgated thereunder.  The Issuer will effect such transfer of restricted certificates and will promptly amend or supplement the Prospectus forming a part of the Registration Statement to add the transferee to the selling stockholders in the Registration Statement; provided that the transferor and transferee shall be required to provide the Issuer with the information requested of the Investor in this Agreement, information reasonably necessary for the Issuer to determine that the transfer was effected in accordance with all applicable federal and state securities laws, including, but not limited to, the Securities Act and the rules of the SEC promulgated thereunder, and all other information reasonably requested by the Issuer from time to time in connection with any transfer, registration, qualification or compliance referred to in Section 7.4.

8.              RIGHT OF FIRST OFFER

8.1            Subsequent Offerings.  Each Investor who is at the relevant time period an “accredited investor” (as defined in Rule 501(a) of Regulation D under the Securities Act) (each, a “Qualified Investor”), shall have a right of first offer to purchase its pro rata share of all Equity Securities (as defined below) that the Issuer may, from time to time, propose to sell and issue after the date of this Agreement in a Qualified Issuance (as defined below), other than the Equity Securities excluded by Section 8.5 hereof.  Each Qualified Investor’s pro rata share is equal to the product of (a) the ratio of (i) the number of shares of the Issuer’s Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Preferred Stock or upon the exercise of any outstanding warrants or options) which such Qualified Investor is deemed to be a holder immediately prior to the Qualified Issuance to (ii) the total number of shares of the Issuer’s outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Preferred Stock or upon the exercise of any outstanding warrants or options) immediately prior to the Qualified Issuance multiplied by (b) the aggregate amount of Equity Securities, other than the Equity Securities excluded by Section 8.5 hereof, to be issued to any Existing Shareholder(s) in such Qualified Issuance.  The term “Equity Securities” shall mean (i) any Common Stock, Preferred Stock or other security of the Issuer, (ii) any security convertible, with or without consideration, into any Common Stock, Preferred Stock or other security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any Common Stock, Preferred Stock or other security or (iv) any such warrant or right.

8.2            Exercise of Rights.  If the Issuer proposes to issue any Equity Securities in a Qualified Issuance, it shall give each Qualified Investor written notice of its intention in accordance with Section 11.3, describing the Equity Securities, the price and the terms and conditions upon which the Issuer proposes to issue the same.  Each Qualified Investor shall have thirty (30) calendar days from the giving of such notice to agree to purchase its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Issuer in accordance with Section 11.3 and stating therein the quantity of Equity Securities to be purchased.  Notwithstanding the foregoing, the Issuer shall not be required to offer or sell such Equity Securities to any Qualified Investor who would cause the Issuer to be in violation of applicable federal securities laws by virtue of such offer or sale.

8.3            Termination of Rights of First Offer.  With respect to each Investor, the rights of first offer established by this Section 8 shall terminate upon the earlier of the following to occur: (a) repayment of the Notes pursuant to Section 1.4; (b) conversion by the Investor of its Note into Common Stock; (c) Mandatory Conversion if the Investor has previously converted its Note into Series F Stock; or (d) a Qualified Issuance (as defined below); provided, however, that the rights of first offer established by this Section 8 shall not be triggered by the events described in Sections 8.3(a) and 8.3(b).  For purposes of this Agreement, a “Qualified Issuance” shall mean an issuance of Equity Securities by the Issuer (other than the Equity Securities excluded by Section 8.5 hereof) in which the Issuer is receiving an aggregate amount of consideration of at least $500,000 from any Existing Shareholder(s).

8.4            Transfer of Rights of First Offer.  The rights of first offer of each Qualified Investor under this Section 8 may be transferred to any party or parties to which it may from time to time transfer all of its Notes in accordance with Section 5.5 hereof; provided, that the transferee agrees in writing with the Issuer to be bound by the applicable provisions of this Agreement.  Upon transfer of any rights of first offer under this Section 8, the Investor shall deliver to the Issuer a notice of such transfer which includes the identity and address of any transferee and such other information reasonably requested by the Issuer.

8.5            Excluded Securities.  The rights of first offer established by this Section 8 shall have no application to any of the following Equity Securities:

(a)            shares of Common Stock issued in connection with any stock split, stock dividend, recapitalization or reorganization by the Issuer;

(b)            shares of Common Stock issued upon conversion of the Preferred Stock;

(c)            any Equity Securities issued by the Issuer pursuant to this Agreement;

(d)            any Equity Securities issued pursuant to an employee stock option plan, stock purchase plan or similar benefit program or agreement, where the primary purpose is not to raise additional equity capital for the Issuer;

(e)            shares of Common Stock or Preferred Stock issued upon exercise of warrants or options, or upon the conversion of convertible securities, outstanding as of the date of Closing; and

(f)             any Equity Securities issued in connection with any equipment leasing arrangement, licensing, marketing, distribution or other strategic transactions.

9.              INDEMNIFICATION.

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

9.2            Indemnification by the Holder.  Each Holder of Registrable Securities which are included in a registration statement pursuant to the provisions of Section 7 hereof will indemnify and hold harmless the Issuer, and any Person who controls the Issuer within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, and any officer, director, employee, agent, partner, member or affiliate of the Issuer (each, an “Issuer Indemnified Party”) from and against, and will reimburse the Issuer Indemnified Parties with respect to, any and all losses, damages, liabilities, costs or reasonably incurred expenses to which such Issuer Indemnified Parties may become subject under the Securities Act or otherwise, insofar as such losses, damages, liabilities, costs or reasonably incurred expenses are caused by any untrue or alleged untrue statement of any material fact contained in such registration statement, any prospectus contained therein or any amendment or supplement thereto, or are caused by the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was so made solely in reliance upon and in conformity with written information furnished by such Holder specifically for use in the preparation thereof; provided, however, that the liability of any Holder pursuant to this Section 9.2 shall be limited to an amount not to exceed the net proceeds received by such Holder from the sale of Registrable Securities pursuant to the registration statement which gives rise to such obligation to indemnify.

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

10.            CONDITIONS TO CLOSING.

10.1          Conditions to the Obligations of the Investors.  The obligation of an Investor to proceed with the Closing is subject to the following conditions, any and all of which may be waived by such Investor, in whole or in part, to the extent permitted by applicable law:

(a)            Representations and Warranties.  Each of the representations and warranties of the Issuer contained in this Agreement shall be true and correct in all material respects as of the Closing as though made on and as of the Closing, except (i) for changes specifically permitted by this Agreement, (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date, and (iii) such failures to be true and correct which would not, individually or in the aggregate, have a Material Adverse Effect on the Issuer.  Unless the Investor receives written notice to the contrary at the Closing, such Investor shall be entitled to assume that the preceding is accurate in all respects at the Closing.

(b)            Agreement and Covenants.  The Issuer shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing.  Unless the Investor receives written notice to the contrary at the Closing, such Investor shall be entitled to assume that the preceding is accurate in all respects at the Closing.

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

(d)            Opinion of Issuer’s Counsel.  The Investor shall have received an opinion of Issuer’s counsel, dated the date of Closing, in the form attached hereto as Exhibit 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 9.1(a) and (b) have been fulfilled.

10.2          Conditions to the Obligations of the Issuer.  The obligation of the Issuer to proceed with the Closing is subject to the following conditions, any and all of which may be waived by the Issuer, in whole or in part and with respect to any or all Investors, to the extent permitted by applicable law:

(a)            Representations and Warranties.  Each of the representations and warranties of the Investors contained in this Agreement shall be true and correct as of the Closing as though made on and as of the Closing, except (i) for changes specifically permitted by this Agreement, and (ii) that those representations and warranties which address matters only as of a particular date shall remain true and correct as of such date.  Unless the Issuer receives written notification to the contrary at the Closing, the Issuer shall be entitled to assume that the preceding is accurate in all respects at the Closing.

(b)            Agreement and Covenants.  The Investors shall have performed or complied in all material respects with all agreements and covenants required by this Agreement to be performed or complied with by it on or prior to the Closing.  Unless the Issuer receives written notification to the contrary at the Closing, the Issuer shall be entitled to assume that the preceding is accurate in all respects at the Closing.

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

11.            MISCELLANEOUS.

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

(a)            “Affiliate” has the meaning ascribed to it in Rule 12b-2 of the General Rules and Regulations under the Exchange Act, as in effect on the date hereof.

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

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

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

(e)            “Certificate of Designations” has the meaning specified in Section 3.1 of this Agreement.

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

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

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

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

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

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

(l)             “Conversion Event” has the meaning specified in Section 3.1 of this Agreement.

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

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

(o)            “Equity Securities” has the meaning specified in Section 8.1 of this Agreement.

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

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

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

(s)            “Governmental Authority” means any nation or government, any state or other political subdivision thereof, and any entity or official exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

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

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

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

(w)           “Interest” has the meaning specified in Section 1.2 of this Agreement.

(x)             “Investment Amount” has the meaning specified in Section 1.1 of this Agreement.

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

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

(aa)          “Issuer Indemnified Party” has the meaning specified in Section 9.2 of this Agreement.

(bb)         “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).

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

(dd)         “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.

(ee)          “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.

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

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

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

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

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

(kk)          “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.

(ll)            “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.

(mm)        “Preferred Stock” means the Series A Convertible Preferred Stock, the Series C Convertible Preferred Stock, the Series D Convertible Preferred Stock, the Series E Convertible Preferred Stock and the Series F Stock.

(nn)         “Qualified Investor” has the meaning specified in Section 8.1 of this Agreement.

(oo)         “Qualified Issuance” has the meaning specified in Section 8.3 of this Agreement.

(pp)         “Register”, “registered” and “registration” refer to a registration of the offering and sale or resale of Series F 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.

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

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

(ss)          “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.

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

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

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

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

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

(yy)          “Series F Stock” has the meaning specified in the Recitals of this Agreement.

(zz)           “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.

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

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

(ccc)        “Warrant” has the meaning specified in the Recitals to this Agreement.

11.2          Other Definitional Provisions.

(a)            All terms defined in this Agreement shall have the defined meanings when used in any certificates, reports or other documents made or delivered pursuant hereto or thereto, unless the context otherwise requires.

(b)            Terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa.

(c)            All accounting terms shall have a meaning determined in accordance with GAAP.

(d)            The words “hereof,” “herein” and “hereunder,” and words of similar import, when used in this Agreement shall refer to this Agreement as a whole (including any exhibits and schedules hereto) and not to any particular provision of this Agreement.

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

(a)            if to the Issuer to:

ReGen Biologics, Inc.

411 Hackensack Avenue

Hackensack, NJ  07601

Attention: Brion D. Umidi

Telecopy: 201 ###-###-####

with a copy to:

Pillsbury Winthrop Shaw Pittman LLP

1650 Tysons Boulevard

McLean, VA 22102

Attention: David C. Main, Esq.

Telecopy: 703 ###-###-####

(b)            if to an Investor, to the address or telecopy number set forth next to its name on the signature page hereto.

Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered by hand, by messenger or by courier, or if sent by facsimile, upon confirmation of receipt.

11.4          Entire Agreement.  This Agreement (including the exhibits and schedules attached hereto) and other documents delivered at the Closing pursuant hereto, contain the entire understanding of the parties in respect of its subject matter and supersede all prior agreements and understandings between the parties with respect to such subject matter.

11.5          Expenses; Taxes.  Except as otherwise provided in this Agreement, the parties shall pay their own fees and expenses, including their own counsel fees, incurred in connection with this Agreement or any transaction contemplated hereby.  Any sales tax, stamp duty, deed transfer or other tax (except taxes based on the income of an Investor) arising out of the issuance of the Securities (but not with respect to subsequent transfers) by the Issuer to an Investor and consummation of the transactions contemplated by this Agreement shall be paid by the Issuer.

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

11.7          Binding Effect; Assignment.  The rights and obligations of this Agreement shall bind and inure to the benefit of the parties and their respective successors and legal assigns.  The rights and obligations of this Agreement may not be assigned by any party without the prior written consent of the other party.

11.8          Counterparts; Facsimile Signature.  This Agreement may be executed by facsimile signature and in any number of counterparts, each of which shall be an original but all of which together shall constitute one and the same instrument.

11.9          Headings.  The headings contained in this Agreement are for convenience of reference only and are not to be given any legal effect and shall not affect the meaning or interpretation of this Agreement.

11.10        Governing Law; Interpretation.  This Agreement shall be construed in accordance with and governed for all purposes by the laws of the State of New York applicable to contracts executed and to be wholly performed within such State.

 

 

11.11        Severability.  The parties stipulate that the terms and provisions of this Agreement are fair and reasonable as of the date of this Agreement.  However, if any provision of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.  If, moreover, any of those provisions shall for any reason be determined by a court of competent jurisdiction to be unenforceable because excessively broad or vague as to duration, activity or subject, it shall be construed by limiting, reducing or defining it, so as to be enforceable.

[Signature Pages Follow]

 

 

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

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

Attention:

By:

Telecopy:

Name:

Phone:

Title:

Email Address:

Tax Identification #:

Exact Name to appear on Note:

Investment Amount (in dollars):

 

ACCEPTED THIS 24TH DAY OF JULY, 2008 BY:

REGEN BIOLOGICS, INC.

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

 

 

 

 

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

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

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

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

WE ARE UNABLE TO DETERMINE WITH CERTAINTY WHEN THE REGISTRATION STATEMENT TO BE FILED WITH THE SEC WILL BE DECLARED EFFECTIVE.  CONSEQUENTLY, YOU MAY NOT BE ABLE TO SELL YOUR SHARES OF COMMON STOCK FOR A SUBSTANTIAL PERIOD OF TIME.

Although we have undertaken to register the shares of Common Stock upon conversion of the Notes subsequent a to a Mandatory Conversion for resale by you, you should be aware that we are unable to determine with certainty when the registration statement to be filed with the SEC will become effective.  The SEC may seek to review our registration statement, in which case, the period necessary to achieve effectiveness of the registration statement with the SEC will be affected by our ability to provide the SEC with sufficient disclosures satisfactory to the SEC.  The length of the SEC review process is uncertain and may extend to a number of months.  As you are aware, the shares of Common Stock that may issued upon conversion of the Notes that are being sold in this sale are restricted in nature and may not be publicly resold absent the effectiveness of the registration statement or pursuant to an applicable exemption from registration. Consequently, you may not be able to sell your shares of Common Stock for a substantial period of time.

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

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

 

Securities that are subject to a power to vote or dispose are deemed beneficially owned by the person who holds such power, directly or indirectly.  This means that the same securities may be deemed beneficially owned by more than one person, if such power is shared.  In addition, the beneficial ownership rules provide that shares which may be acquired upon exercise of an option or warrant, or which may be acquired upon the termination of a trust, discretionary account or similar arrangement, which can be effected within a period of sixty (60) days from the date of determination, are deemed to be “beneficially” owned.  Furthermore, shares that are subject to rights or powers even though such rights or powers to acquire are not exercisable within the 60-day period may also be deemed to be beneficially owned if the rights or powers were acquired “with the purpose or effect of changing or influencing the control of the issuer or in connection with or as a participant in any transaction having such purpose or effect.”

In determining whether securities are “beneficially owned,” benefits which are substantially equivalent to those of ownership by virtue of any contract, understanding, relationship, agreement or other arrangement should cause the securities to be listed as “beneficially owned.”

Thus, for example, securities held for a person’s benefit in the name of others or in the name of any estate or trust in which such person may be interested should also be listed.  Securities held by a person’s spouse, children or other members of such person’s family who are such person’s dependents or who live in such person’s household should be listed as “beneficially owned” unless such person does not enjoy benefits equivalent to those of ownership with respect to such securities.

If a person has a proprietary or beneficial interest in a controlled corporation, partnership, personal holding company, trust or estate which owns of record or beneficially any securities, such person should state the amount of such securities owned by such controlled corporation, partnership, personal holding company, trust or estate in lieu of allocating such person’s proprietary interest, and by note or otherwise, please indicate that.  In any case, the name of the controlled corporation, partnership, personal holding company, or estate must be stated.

In all cases the nature of the beneficial ownership should be stated.

 

The Investor hereby provides the following additional information:

(a)           Excluding the Notes (and any Conversion Shares into which such Notes may be converted) subscribed for above, set forth below is the number of shares of preferred stock of the Issuer (“Preferred Stock”) or Common Stock and options, rights or warrants of the Issuer (“Options” and together with the Preferred Stock and Common Stock, “Owned Securities”) which the Investor beneficially owns or of which the Investor is the record owner on the date hereof.  Please refer to the definition of beneficial ownership on Exhibit F attached hereto.  If none, please so state.

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

Number of Options: __________________ (excluding the Warrants issued in connection with this Agreement)

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

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

Name of Beneficial Owner:

Relationship to the Investor:

Number of Owned Securities Beneficially Owned:

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

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

Yes £  No £

Yes £  No £

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

Yes £  No £

Yes £  No £

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

Yes £  No £

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

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

Answer:

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

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