DISTRIBUTORSHIP AGREEMENT

EXHIBIT 10.3

DISTRIBUTORSHIP AGREEMENT

BETWEEN

REGEN BIOLOGICS, INC.

AND

ALLO PRO AG

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DISTRIBUTORSHIP AGREEMENT

      This Distributorship Agreement effective February 16, 1996 (“Effective Date”), by and between ReGen Biologics, Inc ., a Delaware corporation having its offices at 2730 Sand Hill Road, Menlo Park, California 94025 (hereinafter “ ReGen ”), and Allo Pro AG , a Swiss corporation having its offices at Baar, Switzerland (hereinafter “ Allo Pro ”).

RECITALS

      WHEREAS, ReGen is engaged in the development of a collagen meniscus implant (“CMI”) for the treatment of knee injuries involving the meniscus; and

      WHEREAS, Allo Pro has substantial experience in the distribution, marketing and sale of orthopedic health care products;

      NOW THEREFORE, in consideration of the above premises and the covenants set forth below, the Parties hereby agree as follows:

ARTICLE 1

DEFINITIONS

      1.1 “ReGen Territory” shall mean the United States of America, its territories and possessions.

      1.2 “Allo Pro Territory” shall mean all countries and territories of the world other than the United States of America, its territories and possessions.

      1.3 “CMI Product” shall mean that collagen meniscus implant product which is under development by ReGen as of the Effective Date of this Agreement and which is manufactured according to the proprietary manufacturing technology of ReGen. The term CMI Product shall include the product and instrumentation as (i) they will exist on the date of the first commercial sale as well as (ii) they may be improved during the term of this Agreement in a manner for which regulatory approval can reasonably be sought from the U.S. Food and Drug Administration by way of a supplement to the PMA application anticipated to be filed by ReGen based on the IDE on file as of the Effective Date.

      1.4 “Net Sales Price” shall mean the price charged for commercial sales of CMI Product to the customer in the Allo Pro Territory, exclusive of any Value Added Tax or similar sales taxes as well as shipping and handling of CMI product to the customer.

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ARTICLE 2

APPOINTMENT OF EXCLUSIVE DISTRIBUTORSHIP

      2.1 Distributorship. Subject to the terms and conditions of this Agreement, ReGen hereby appoints and Allo Pro hereby accepts appointment as the exclusive distributor of ReGen’s CMI Product within the Allo Pro Territory. Allo Pro shall not sell any of ReGen’s other products without ReGen’s prior written consent.

      2.2 Sub-Distributors. Allo Pro shall have the right to appoint sub-distributors within the Allo Pro Territory. However, in the countries listed on the attached Schedule II, Allo Pro shall not change distributorship from a company affiliated with Allo Pro to a non-affiliated third party without prior written approval of ReGen.

      2.3 Right of First Negotiation for the ReGen Territory. So long as ReGen distributes, markets and sells the CMI Product in the ReGen Territory by itself or through a company or companies controlled by ReGen, ReGen shall have exclusive rights to distribute, market and sell the CMI Product in the ReGen Territory. Allo Pro shall have a right of first negotiation if ReGen elects to distribute, market and sell the CMI Product in the ReGen Territory through or in cooperation with any partner other than those described above or through or in cooperation with a company that would gain control of or be under common control with ReGen by virtue of such cooperation or in connection therewith. ReGen shall notify Allo Pro of its intent in writing, and the Parties shall negotiate in good faith to reach an agreement regarding the commercialization of the CMI Product in the ReGen Territory. If Allo Pro elects not to deliver a written notice of interest within thirty (30) days, or the Parties are unable to reach a definitive agreement within ninety (90) days, ReGen shall have the unfettered right to enter into one or more transactions with third parties without any further obligation to Allo Pro; provided that such transaction is substantially more favorable to ReGen’s stockholders than that last offered by Allo Pro in writing during the ninety (90) day negotiation period, as determined in the reasonable judgement of ReGen’s Board of Directors after full deliberation of all relevant factors.

      2.4 Non-Compete. Each party hereby covenants not to conduct, fund, license or participate in, directly or indirectly through one or more third parties, the research, development, distribution or commercialization in any country in the Allo Pro Territory of any collagen-based meniscus implant competing with the CMI Product, except pursuant to an agreement for the development of a second generation meniscus implant pursuant to Article 4 herein below.

      2.5 Non-Compete of Affiliated Companies. A party hereto shall equally be considered in breach of this covenant not to compete if any company under common control with such party shall conduct, fund, license or participate in any such activity in the Allo Pro Territory.

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ARTICLE 3

FINAL DEVELOPMENT AND COMMERCIALIZATION OF THE CMI PRODUCT

      3.1 Development Responsibilities. ReGen shall have primary responsibility for the diligent completion of the development of the CMI Product for regulatory approval and commercialization on a worldwide basis. Allo Pro shall review and comment on annual plans and budgets for such development and fund costs as provided in this Article 3.

      3.2 Annual Plan and Budget; Reports. Promptly following the Effective Date, and prior to each October 1 thereafter, Allo Pro and ReGen shall prepare and approve a plan and budget describing activities to be undertaken in the Allo Pro Territory for the ensuing calendar year, together with projected costs for such period.

      3.3 Funding of Costs. Allo Pro shall bear the costs pertaining to the CMI Product to the extent necessary and directed toward obtaining regulatory approval for the CMI Product in any country within the Allo Pro Territory. Such costs shall include the costs of conducting clinical studies, preparing and pursuing regulatory submissions up to the point of obtaining regulatory approval. If the parties agree to obtain a CE Mark for the CMI Product instead of a CE Mark for the production facilities of ReGen, Allo Pro shall bear the costs pertaining to obtaining such CE Mark for the CMI Product only.

      3.4 Clinical Trials Supply. ReGen shall use diligent efforts to supply or cause to be supplied to Allo Pro all of Allo Pro’s requirements of CMI Product units for use in the Allo Pro Territory for obtaining regulatory approval, including clinical studies required therefor. In the event of any shortage of worldwide supply of CMI Product, ReGen shall supply product for obtaining regulatory approval in the Allo Pro Territory to the same extent that it supplies product for use in the ReGen Territory, based on a pro rata of the number of units used within the previous three (3) months in the Allo Pro Territory and the ReGen Territory, respectively.

     If such CMI Product units are made available to study subjects for no compensation at all or for a compensation not to exceed the cost of goods shipped plus Allo Pro’s actual costs to make such CMI Product units available to study subjects, ReGen shall supply such CMI Product units at ReGen’s cost of goods shipped. If the compensation received by Allo Pro exceeds such amount, the Parties shall agree upon an appropriate price for such CMI Product units.

      3.5 Applicability of this Article. As of the date of commercialization of the CMI Product in a country of the Allo Pro Territory, the provisions of this Article 3 shall only apply to those remaining countries in which CMI Product has not yet been commercialized.

      3.6 Publications. Allo Pro and ReGen shall cooperate in the preparation and publication of papers in support of development and marketing activities in the Allo Pro Territory. Neither party shall present, publish or otherwise disclose any information regarding the CMI Product in the Allo Pro Territory except with the prior written consent of the other. Each party shall make available to the other at no cost a copy of any publications or other marketing support materials which such party produces for its purposes.

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      3.7 Government Approvals; Registrations.

           3.7.1 Government Approvals. ReGen will prepare, file and pursue diligently all regulatory applications necessary to obtain governmental approvals required to permit the CMI Product to be commercially distributed and sold in the Allo Pro Territory. Such activities shall be described and budgeted for in the annual plan and budget described in Article 3.2. The expenses of such activities shall be reimbursed by Allo Pro, subject to the provisions of Article 3.3.

           3.7.2 Registrations. All applications and registrations shall be, wherever permitted by law, in the name of ReGen, with Allo Pro named as a distributor. If ReGen’s ownership of the application or registration is not permitted by law, such application or registration shall be in Allo Pro’s name. As between the Parties, Allo Pro shall take all reasonable actions requested by ReGen to make the benefit of applications or registrations held in the name of Allo Pro available to ReGen. ReGen shall have an irrevocable right to reference such applications and registrations and Allo Pro shall copy ReGen on all correspondence received regarding such applications and registrations.

ARTICLE 4

SECOND GENERATION CMI PRODUCT

     Promptly following the effective date, ReGen and the affiliate of Allo Pro most appropriate for the task will propose one or more plans for the development of a second generation product which shall include ReGen’s proprietary collagen technology and proprietary technology of or available to the affiliate of Allo Pro. ReGen and such affiliate shall negotiate in good faith an agreement which determines all necessary issues, including, but not limited to, the contributions of each party and compensation therefor, the specific responsibilities of the parties, the installation of an appropriate development supervision board, e.g. by a Senior Management Committee, and the rights of each party to the product, the technology and intellectual property obtained by such development, all as further described in Section 3.3 of the Heads of Agreement, dated December 20, 1995, between ReGen and Allo Pro (which shall survive for this purpose).

ARTICLE 5

COMMERCIAL SUPPLY OF CMI PRODUCT; PRICES; TERMS OR PAYMENT

      5.1 Commercial Supply. Subject to the terms of this Agreement, ReGen shall use diligent efforts to supply or cause to be supplied to Allo Pro, all of Allo Pro’s requirements of the CMI Product for commercial resale in the Allo Pro Territory.

      5.2 Forecasts; Supply Commitment. At least fifteen (15) days before the start of each calendar quarter, Allo Pro shall provide ReGen with a rolling twelve (12) month forecast commencing with the next full calendar month of its aggregate requirements for CMI Product units throughout the Allo Pro Territory.

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     For two (2) years after the date of Allo Pro’s first purchase order for products intended for commercial resale, Allo Pro shall use its best efforts to provide ReGen with accurate forecasts, and ReGen shall use its best efforts to supply all of Allo Pro’s requirements for CMI Product, but so long as such efforts have been used neither party shall be in default or breach of this Agreement by reason of any surplus or shortage of CMI Products.

     After the two (2) year period described above, ReGen’s obligation to supply CMI Product to Allo Pro in any calendar quarter pursuant to purchase orders following a forecast shall be limited to one hundred and twenty five percent (125%) of the amount purchased by Allo Pro in the previous calendar quarter. ReGen shall use its best efforts to supply Allo Pro with additional product if requested by Allo Pro.

      5.3 Downpayment. In consideration of the exclusive distributorship granted hereunder, Allo Pro shall pay to ReGen a downpayment of seven hundred fifty thousand U.S. Dollars (USD 750,000) upon execution of this Agreement. The downpayment shall not be refundable or otherwise creditable against any future payments.

      5.4 Sales Milestones Payments. In addition to the prices for CMI Product set forth herein, Allo Pro shall pay to ReGen three milestone payments of one million U.S. Dollars (USD 1,000,000) each, upon the attainment of the following sales occurrences:

      5.5 Initial Suggested Price of CMI Product. In order to allow ReGen to determine a well informed and reasonable initial suggested price for the first twelve (12) months of delivery of the CMI Product, Allo Pro shall establish and provide ReGen with the projected Net Sales Price in the following countries:

which are considered representative for the initial period and market. Allo Pro shall determine the price at which it sells CMI Product to sub-distributors or customers in the Allo Pro territory.

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of twelve (12) months, during which the suggested price and discounts schedule of the CMI Product will remain fixed, such suggested price and discounts schedule shall be subject to change, after consultation of the parties, upon ninety (90) days’ notice from ReGen to Allo Pro; provided that, orders for CMI Product placed by Allo Pro in accordance with Article 5.2 prior to the date a price change becomes effective shall not be subject to such change.

      5.7 Reports on CMI Product Sales . Within thirty (30) days of the end of each calendar quarter, Allo Pro shall report to ReGen the Net Sales Price and the number CMI Product units sold for each country in the Allo Pro Territory. Sales shall be reported ex Allo Pro (or its affiliated company) to customer, or, if the CMI Product is sold to the customer by a non-affiliated third party distributor in that country, sales ex Allo Pro (or its affiliated company) to that non-affiliated third party distributor.

      5.8 Purchase Orders; Payments . All purchase orders submitted by Allo Pro shall be binding once accepted by ReGen and product ordered shall be deliverable within ninety (90) days of the date of the purchase order, unless an earlier delivery date is agreed by the parties. ReGen shall be obliged to accept purchase orders for volumes within the limits described in Section 5.2. ReGen shall invoice Allo Pro at the time of shipment of the CMI Product units supplied for commercial resale. Allo Pro shall make payments against such invoices not later than thirty (30) days after receipt of the invoice.

      5.9 Point of Delivery . Unless otherwise expressly agreed by the parties in the purchase order, the point of delivery for the CMI Product shall be FOB ReGen’s facility.

      5.10 Passing of Title and Risk of Loss . Title and risk of loss of or damage to the CMI Product units shall pass from ReGen to Allo Pro upon delivery of the CMI Product units at the point of delivery designated in the preceding paragraph or as expressly agreed by the parties in the individual purchase order accepted by ReGen.

      5.11 Warranty . ReGen warrants that the CMI Product will be the kind and quality described in the purchase order accepted by ReGen and will be free of defects in workmanship or material. ReGen further warrants that the CMI Product units shall conform to requirements imposed by law, regulation or regulatory approval of the respective country of sale to the end-user.

     Should any failure to conform with this warranty appear within the shelf life indicated for the CMI Product, ReGen shall replace, in complete fulfillment of its liabilities under this warranty, FOB Allo Pro’s factory any nonconforming or defective CMI Product unit or units; provided that such nonconformity or defect shall appear under proper shipping, storage, handling and use of the CMI Product and that ReGen is promptly notified upon detection of any nonconformity or defect.

     This warranty is exclusive and is in lieu of all warranties of merchantability, fitness for a purpose, or other warranties of quality, whether express or implied.

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ARTICLE 6

DISTRIBUTION AND MARKETING OF CMI PRODUCT

      6.1 Marketing Diligence.

           6.1.1 Marketing Efforts. Allo Pro agrees to use diligent efforts to promote the marketing, distribution and sale of the CMI Product throughout the Allo Pro Territory, consistent with accepted business practices.

           6.1.2 Product Launch. Allo Pro shall commence commercial sales of the CMI Product in each of the countries listed on Schedule II within the later of (i) five (5) years after the first commercial sale of a CMI Product unit in any of England, Germany, France or Japan, or (ii) two (2) years after receipt of all required government approvals necessary to commercially sell the CMI Product in such country. Allo Pro’s obligation under this Article 6.1.2 is subject in each country to the availability of adequate and timely supply of CMI Product pursuant to Articles 3 and 5.

           6.1.3 Default of Allo Pro. If for a consecutive period of more than twenty four (24) months, no sales of CMI Product shall be registered in any one country, or if Allo Pro will not have commenced commercial sales in any one of the countries listed in Schedule II within the time specified above, there shall be a presumption that Allo Pro has failed to use diligent efforts with regard to that country and ReGen shall, upon prior consultation with Allo Pro, proceed in accordance with Article 11.4 herein below.

     6.2 Other Promotion and Marketing Obligations.

           6.2.1 General Conduct. Allo Pro hereby covenants that it will not, without the prior written authorization of ReGen, solicit sale of CMI Products, or advertise, or keep a stock of CMI Products, outside of the Allo Pro Territory. Allo Pro shall not, directly or indirectly, without the prior written authorization of ReGen, (i) contact any of ReGen’s suppliers or vendors of CMI Product components relating to the CMI Product, or (ii) contact any federal, state or local regulatory agency or entity in the ReGen Territory about the CMI Product, except as required to do so by law or regulation or in connection with a lawsuit arising out of distribution, marketing or sale of the CMI Product.

           6.2.2 Packaging. Where permitted by law, packaging for the CMI Product shall contain the following language: (1) “TRADEMARK” (elected by ReGen) is a registered trademark of ReGen Biologics, Inc.” and (2) “This product is distributed, marketed and sold by Allo Pro AG (or the appropriate name of distributor).” In electing a trademark for the CMI Product, ReGen shall give due consideration to the strength of the mark in all countries of sale, including countries in the Allo Pro Territory.

           6.2.3 Marketing Plans and Research. No later than ninety (90) days prior to the expected date of first commercial sale in each party’s respective territory and at the beginning of each calendar year thereafter, each party (the “Marketing Party”) shall submit to the other party in writing, for the other party’s review and comment, whatever annual

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marketing, sales and distribution plan detailing the Marketing Party’s proposed marketing, sales and distribution strategy and tactics for the CMI Product during such calendar year has been developed by the Marketing Party for its internal use. In addition, the Marketing Party shall submit to the other party copies of any market research reports relating to CMI Product sales and CMI Product competition which the Marketing Party commissions or otherwise obtains, except as prohibited by copyright or similar laws (in which case the Marketing Party will simply inform the other party of the existence of such information and where it may be obtained). To the extent the foregoing information is contained in plans or reports which contain information about other products or markets, the Marketing Party may submit to the other party only those excerpts from such plans or reports which relate to the CMI Product and CMI Product competition.

      6.3 Reimbursement for Expenses . To the extent that expenses for the distribution, marketing and sale of CMI Product shall be incurred by ReGen in accordance with mutually agreed plans or upon approval of such expense by Allo Pro, Allo Pro shall reimburse ReGen. ReGen shall invoice Allo Pro for such expenses in a single quarterly report to be submitted not later than thirty (30) days after the end of each calendar quarter. Reimbursement payments shall be made by Allo Pro within sixty (60) days after receipt of such invoice by Allo Pro.

ARTICLE 7

PROCEDURE FOR PAYMENTS; RECORDS; AUDIT

      7.1 Manner and Place of Payment. Any payments to ReGen shall be made in U.S. Dollars by wire transfer at such bank in the United States as ReGen shall specify from time to time. Payments shall be made for the amount of U.S. Dollars reported by ReGen (in the case of expense reimbursement) or agreed by the parties without regard to currency fluctuations. Not less than one (1) business day prior to such wire transfer, Allo Pro shall telefax ReGen to advise it of the amount of the payment to be made.

      7.2 Records and Audit of Sales and Expenses. ReGen and Allo Pro will maintain complete and accurate records which are relevant to sales and payments under this Agreement and such records shall be open during reasonable business hours for a period of five (5) years from creation of individual records for examination at the other party’s expense and not more often than once each year by a certified public accountant selected by the other party for the sole purpose of verifying for the inspecting party the correctness of calculations of such sales or payments made under this Agreement. The accounting expense shall be paid by the party requesting the audit. If material discrepancies (in excess of 5%) are identified