EX-10.14 Loan Guarantee with Magellan Group Invest



 





EXHIBIT 10.14




Loan Agreement No:                               




Guarantor Name:MAGELLAN GROUP INVESTMENTS, LLC


Amount of Pledged Collateral: $2,200,000.00




LOAN GUARANTEE, PAYMENT AND SECURITY AGREEMENT




     This Agreement (the “Agreement”) is made as of June 1, 2007 (the “Effective
Date”), by and between BIOHEART, INC., a Florida corporation (the “Company”), and
MAGELLAN GROUP INVESTMENTS, LLC, a Florida limited liability company (the “Guarantor”).



WITNESSETH:




     WHEREAS, the Company expects to obtain a term loan (the “Loan”), in the principal
amount of $5,000,000, from Bank of America, N.A. (the “Bank”) pursuant to a certain loan
agreement between the Company and the Bank (the “Loan Agreement”) and related promissory
note (the “Note”);



     WHEREAS, as a condition precedent to the Bank’s making the Loan and as security for the
Company’s obligations relating thereto, the Guarantor will pledge and assign to the Bank (the
“Pledge”) and grant to the Bank a first-priority security interest in, a $2,200,000
certificate of deposit with Bank (the “Pledged CD”);



     WHEREAS, subject to the closing of the Loan and in accordance with the terms of this
Agreement, Guarantor has agreed to make payments to the Company equal to 40% (the “Guaranteed
Percentage”) of the interest and principal payable by the Company to the Bank in connection
with the Loan, which amounts shall be used by the Company solely to pay interest and principal on
the Loan;



     WHEREAS, as consideration for the Guarantor’s agreement to make the payments described above
and to grant, in favor of the Bank, the Pledge, the Company has agreed, upon the terms and
conditions set forth herein, to (i) issue the Guarantor a warrant or warrants to purchase shares of
the Company’s common stock, par value $.001 per share (the “Common Stock”), and (ii) pay
certain fees to the Guarantor.



     NOW, THEREFORE, in consideration of the foregoing premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto,
the Company and the Guarantor agree as follows:




	1.	 	CONSIDERATION.





     1.1 PLEDGE DOCUMENTS AND PAYMENTS FOR THE BENEFIT OF THE COMPANY.



     In consideration of the Company’s issuance of the Warrant (as defined in Section 1.2 below)
and payment of the Guarantee Fee (as defined in Section 1.2 below), the Guarantor hereby agrees
that it shall:



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          (a) At Closing (as defined in Section 2.1 below), execute and deliver, in favor of the Bank,
whatever documentation (such documentation, the “Pledge Documents”) the Bank reasonably
requires in connection with the Pledge.



          (b) During the period commencing on the Effective Date and terminating on the date that the
Company’s payment obligations under the Loan are satisfied and/or discharged in full, at least ten
(10) business days prior to the due date for any payment of interest (“Interest Payment”)
or payment of principal (“Principal Payment”) or other payment required to be made by the
Company to the Bank under the Loan, pay the Company an amount equal to the product obtained by
multiplying (x) the total amount of the payment then due and (y) the Guaranteed Percentage (each
such payment, a “Guarantor Payment”); provided, that the first $100,000 of Interest
Payments shall be made in cash and provided further, that the aggregate amount of Guarantor
Payments shall not exceed $2,300,000. The Guarantor may, at its option, elect to make Guarantor
Payments (other than the first $100,000 of Interest Payments) by drawing, or authorizing the Bank
to draw, on the Pledged CD.



          (c) The Company shall apply the Guarantor Payment towards an Interest Payment, Principal
Payment or other payment due in connection with the Loan, and shall either notify the Guarantor in
writing of the due date for any such payment, or shall promptly forward to the Guarantor any
correspondence received by the Company from the Bank regarding the amount and due date of such
Interest Payment, Principal Payment or other payment (as applicable). All payments hereunder shall
be made to the Aggregation Account (as defined in the Loan Agreement).



          (d) The Guarantor hereby authorizes the Company to notify the Bank in the event that the
Guarantor fails to make a Guarantor Payment when due.



     1.2 ISSUANCE OF WARRANTS AND PAYMENT OF MONTHLY FEES



     In consideration of the Guarantor’s issuing the Pledge in favor of the Bank the Company hereby
agrees that it shall:



          (a) At Closing (as defined in Section 2.1 below), issue to the Guarantor a warrant to purchase
an aggregate of 115,720 shares (the “Subject Shares”) of the Common Stock (i.e. a warrant
to purchase 57,860 shares for each $1,100,000 principal amount of Loan secured under the Pledge),
with an exercise price of $4.75 per share, in the form attached hereto as Exhibit A (the
“Warrant”). The Warrant will provide that the number of Subject Shares will increase to
132,000 shares of the Common Stock in the event the Company has not satisfied and/or discharged all
of its payment obligations under the Loan (the “Loan Satisfaction”) by September 30, 2007.
The Warrant will further provide that the number of Subject Shares will increase to 165,000,
220,000 and 300,000, respectively, in the event the Company has not satisfied and/or discharged all
of its material payment obligations under this Agreement by the first anniversary, second
anniversary and third anniversary of the Effective Date, respectively.



          (b) Pay the Guarantor a cash fee (the “Guarantee Fee”) in the amount determined by
multiplying $2,200,000 by 5.0% and multiplying the resulting amount by a fraction, the numerator of
which is the number of days elapsed between the date hereof and the earlier of (i) the date of the
Loan Satisfaction and (ii) the date that is eight months following the Effective Date (or such
later date to which the maturity date of the Note may be extended), and the denominator of which is
365. The Company shall pay the Guarantee Fee within five (5) business days of the Trigger Date (as
defined below). For purposes of this Agreement, the “Trigger Date” shall mean the earlier
to occur of: (i) the closing date of an initial public offering of the Company’s Common Stock
generating at least $30 million of net proceeds to the Company occurring on or before January 31,
2008 (a “Qualified Offering”); and (ii) the date the Company satisfies and/or discharges
all of its payment obligations (a “BlueCrest Loan Satisfaction”)



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under that certain Loan and Security Agreement, dated as of May 31, 2007 by and between the Company
and BlueCrest Capital Finance, L.P. (the “BlueCrest Loan”).



          (c) If on or before the first business day of the 36th first full calendar month
after the date of the BlueCrest Loan (the “Outside Payment Date”) as of such date, the
Company has not effectuated a BlueCrest Loan Satisfaction or a Qualified Offering:



               (A) the Company shall use its best efforts to effectuate a BlueCrest Loan Satisfaction as soon
as possible following the Outside Payment Date; and



               (B) the Company shall pay the Guarantee Fee no later than five (5) business days following a
BlueCrest Loan Satisfaction.




	2.	 	THE CLOSING.





     2.1. CLOSING DATE. The parties agree to effect the transactions contemplated hereby (the
“Closing”) contemporaneously with the execution of this Agreement, which Closing shall be
contemporaneous with the closing of the Loan.



     2.2 CLOSING DELIVERABLES.



          (a) At the Closing, the Company shall deliver or cause to be delivered to the Guarantor:



               (i) an executed copy of this Agreement; and



               (ii) an executed copy of the Warrant.



          (b) At the Closing, the Guarantor shall deliver or cause to be delivered to the Company an
executed copy of this Agreement.



          (c) At the Closing, the Guarantor shall deliver to the Bank duly executed copies of the Pledge
Documents.




	3.	 	RESTRICTIONS ON TRANSFER OF THE WARRANT





     No transfer of all or any portion of the Warrant shall be made except in accordance with the
applicable provisions of the Warrant.




	4.	 	REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.





     The Company hereby represents, warrants and covenants to the Guarantor and agrees as follows:



     4.1. CORPORATE POWER. The Company is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida and is duly qualified to do business as a
foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify
would have a material adverse effect on the Company’s business, properties, or financial condition
(a “Material Adverse Effect”). The Company has all requisite corporate power and authority
to execute and deliver this Agreement, the Warrant and the agreements related to the Loan and to
carry out and perform its obligations hereunder and thereunder. The Company has all requisite
corporate power and authority to issue and deliver the shares of Common Stock issuable upon valid
exercise of the Warrant.



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     4.2 AUTHORIZATION. This Agreement has been duly authorized, executed and delivered by the
Company. All corporate action on the part of the Company and its shareholders, directors and
officers necessary for the authorization, execution and delivery of this Agreement, the execution
of the agreements related to the Loan, the issuance of the Warrant and the shares of Common Stock
issuable upon conversion of the Warrant, the consummation of the other transactions contemplated
hereby and the performance of all the Company’s obligations hereunder has been taken. This
Agreement constitutes the legal, valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, subject to (i) laws of general application relating to
bankruptcy, insolvency and the relief of debtors, (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies, and (iii) the limitations imposed by applicable
federal or state securities laws on the indemnification provisions contained in this Agreement. The
shares of Common Stock issuable upon exercise of the Warrant have been duly authorized (the
“Warrant Shares”). When the Warrant Shares have been delivered against payment in
accordance with the terms of the Warrant, such Conversion Shares will have been, validly issued,
fully paid and nonassessable.



     4.3. GOVERNMENTAL CONSENTS. All consents, approvals, orders, or authorizations of, or
registrations, qualifications, designations, declarations, or filings with, any governmental
authority, required on the part of the Company in connection with the valid execution and delivery
of this Agreement, the offer, sale and issuance of the Warrant have been obtained and will be
effective at the Closing, except for notices required or permitted to be filed thereafter with
certain state and federal securities commissions, which notices shall be filed on a timely basis.



     4.4. OFFERING. Assuming the accuracy of the representations and warranties of the Guarantor
contained in Section 5 below, the offer, sale and issuance of the Warrant is exempt from the
registration and prospectus delivery requirements of the Securities Act and has been registered or
qualified (or is exempt from registration and qualification) under the registration, permit, or
qualification requirements of all applicable state securities laws.



     4.5. CAPITALIZATION. The authorized capital of the Company consists of 40,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. As of March 31, 2007, 20,948,994
shares of Common Stock and no shares of Preferred Stock were issued and outstanding.



     4.5 USE OF PROCEEDS FROM GUARANTOR PAYMENTS. The Company shall use the proceeds of any
Guarantor Payment solely to pay amounts due or payable under the Loan.



     4.6 LITIGATION. Except as referenced on Exhibit 3(d) to the Loan Agreement, there is no
proceeding involving Company pending or, to the knowledge of Company, threatened before any court
or governmental authority, agency or arbitration authority.



     4.7 NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock provision, partnership
agreement or other document pertaining to the organization, power or authority of Company and no
provision of any existing agreement (including, without limitation, the Loan Agreement or the
Senior Loan Agreement [as defined in the Loan Agreement]), mortgage, indenture or contract binding
on Company or affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement.



     4.8 OWNERSHIP OF ASSETS. Company has good title to its assets, and its assets are free and
clear of liens, except for the security interest of BlueCrest (as defined in the Loan Agreement).
For purposes of this Section 4.8, a sublicense of any of the Company’s intellectual property is not
deemed to be a “lien”.



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     4.9 TAXES. All taxes and assessments due and payable by Company have been paid or are being
contested in good faith by appropriate proceedings and the Company has filed all tax returns which
it is required to file.



     4.10 FINANCIAL STATEMENTS. The financial statements of Company heretofore delivered to
Guarantor have been prepared in accordance with GAAP applied on a consistent basis throughout the
period involved and fairly present Company’s financial condition as of the date or dates thereof,
and there has been no material adverse change in Company’s financial condition or operations since
the date of the financial statements. All factual information furnished by Company to Guarantor in
connection with this Agreement is and will be accurate on the date as of which such information is
delivered to Guarantor.



     4.11 ENVIRONMENTAL. The conduct of Company’s business operations and the condition of
Company’s property does not and will not violate any federal laws, rules or ordinances for
environmental protection, regulations of the Environmental Protection Agency, any applicable local
or state law, rule, regulation or rule of common law or any judicial interpretation thereof
relating primarily to the environment or Hazardous Materials (as defined in the Loan Agreement).



     4.12 AFFIRMATIVE COVENANTS. Until full payment and performance of all obligations of the
Company to Guarantor hereunder, the Company will, unless Guarantor consents otherwise in writing:



          (a) Existence and Compliance. Maintain its existence, good standing and qualification to do
business, where required, and comply with all laws, regulations and governmental requirements
including, without limitation, environmental laws applicable to it or to any of its property,
business operations and transactions.



          (b) Adverse Conditions or Events. Promptly advise Guarantor in writing of (i) any condition,
event or act which comes to its attention that would or might materially adversely affect the
Guarantor’s rights under this Agreement or the Warrant, (ii) any litigation in excess of $500,000
is filed by or against Company or (iii) any event that has occurred that would constitute an event
of default under the Loan Agreement.



          (c) Taxes and Other Obligations. Pay all of its taxes, assessments and other obligations,
including, but not limited to, taxes, costs or other expenses arising out of this transaction, as
the same become due and payable, except to the extent the same are being contested in good faith by
appropriate proceedings in a diligent manner.



     4.13 NEGATIVE COVENANTS. Until full payment and performance of all obligations of the Company
to Guarantor hereunder, the Company will not, unless Guarantor consents otherwise in writing:



          (a) Transfer of Assets. Sell, lease, assign or otherwise dispose of or transfer any assets
for less than reasonably equivalent value, except in the normal course of its business.



          (b) Character of Business. Change the general character of business as conducted at the date
hereof, or engage in any type of business not reasonably related to its business as presently
conducted.



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          (c) Incur Obligations. Incur any obligations or take any action that could reasonably be
expected to, or have the effect of, causing the Company not to satisfy its obligations under
Section 8 of this Agreement.




	5.	 	REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGOR.





     The Guarantor hereby represents and warrants to the Company and agrees as follows:



     5.1 RELIANCE. The Guarantor understands that the Company has relied on the information and
representations with respect to the Guarantor set forth in this Section 5 in determining, among
other things, whether an investment in the Warrant is suitable for the Guarantor, and the Guarantor
represents and warrants that all such information is true and correct as of the date hereof.



     5.2 POWER AND AUTHORITY. The Guarantor has all requisite power and authority to execute and
deliver this Agreement and the Pledge Documents and to carry out and perform its obligations
hereunder and thereunder.



     5.3 EXPERIENCE. The Guarantor is an “accredited investor” within the meaning of Regulation D
under the Securities Act and such Guarantor has no ability to acquire the Warrant Shares until a
date that is the sooner of (i) at least six (6) months after the Company’s proposed initial public
offering, and (ii) at least one year after the date the Warrants are issued.



     5.4. INFORMATION AND SOPHISTICATION. The Guarantor has received all the information it has
requested from the Company that it considers necessary or appropriate for deciding whether to
acquire the Warrant. The Guarantor has had an opportunity to ask questions and receive answers from
the Company regarding the terms and conditions of the Warrant and to obtain any additional
information necessary to verify the accuracy of the information given to the Guarantor. The
Guarantor further represents that it has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risk of the investment in the Warrant and
the Warrant Shares (collectively, the “Securities”).



     5.5 DUE DILIGENCE. The Guarantor has consulted with its own legal, regulatory, tax, business,
investment, financial and accounting advisers in connection with its determination to enter into
this Agreement. The Guarantor has made its own decisions based upon its own judgment, due
diligence and advice from such advisers as it has deemed necessary and, except for the
representations and warranties expressly set forth herein, is not relying upon any information,
representation or warranty by the Company or any agent of the Company in determining to enter into
this Agreement.



     5.6. ABILITY TO BEAR ECONOMIC RISK. The Guarantor acknowledges that investment in the
Securities involves a high degree of risk. The Guarantor is able, without materially impairing its
financial condition, to hold the Securities for an indefinite period of time and to suffer a
complete loss of its investment. Neither the Securities and Exchange Commission nor any state
securities commission has approved any of the Securities or passed upon or endorsed the merits of
the offering of the Securities by the Company.



     5.7 The Guarantor hereby acknowledges that:



IN THE EVENT THAT SALES OF THE SECURITIES OFFERED HEREBY ARE MADE TO FIVE (5) OR
MORE PERSONS IN FLORIDA, ALL PURCHASERS IN FLORIDA HAVE THE RIGHT TO VOID THE SALE
OF THE SECURITIES OFFERED HEREBY WITHIN THREE (3) DAYS AFTER



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THE PAYMENT OF THE PURCHASE PRICE IS MADE TO THE COMPANY, AN AGENT OF THE COMPANY,
OR AN ESCROW AGENT, OR WITHIN THREE (3) DAYS AFTER THE AVAILABILITY OF THAT
PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER. PAYMENTS FOR
TERMINATED SUBSCRIPTIONS VOIDED BY PURCHASERS AS PROVIDED FOR IN THIS PARAGRAPH
WILL BE PROMPTLY REFUNDED WITHOUT INTEREST.




	6.	 	REIMBURSEMENT OF PAYMENTS IN CONNECTION WITH PLEDGE DOCUMENTS AND THIS AGREEMENT.





     (a) The Company hereby agrees to (i) pay to the Guarantor all reasonable and documented costs
and expenses (including court costs and reasonable legal expenses) incurred or expended by the
Guarantor in connection with (x) the Guarantor’s review, negotiation, drafting and/or execution of
this Agreement and all other documents relating to this Agreement, the Loan and the BlueCrest Loan
(the “Initial Expenses”), and (y) the Bank’s taking any action against the Guarantor to
enforce the Bank’s rights under the Pledge Documents (together with the Initial Expenses, the
“Expenses”) and (ii) repay to the Guarantor the Guarantor Payments. Notwithstanding the
foregoing or anything else to the contrary in this Agreement, the Company shall not be required to
reimburse the Guarantor for Expenses that the Guarantor would not have incurred but for the
Guarantor’s failure to satisfy the terms and conditions of this Agreement or the Pledge Documents.



     (b) Each payment to be made by the Company hereunder shall be due within thirty (30) days of
the receipt by the Company of a request for reimbursement from Guarantor; provided,
however, that if the date of any reimbursement request occurs prior to the Trigger Date, such
payment shall be made within thirty (30) days after the Trigger Date or on the same date the
Company is required to pay the Guarantee Fee in accordance with Section 1.2(c) hereof, whichever
occurs first. Notwithstanding the foregoing, the Company shall reimburse the Guarantor for the
Initial Expenses within ten (10) business days of the Closing.



     (c) All payments payable by the Company hereunder shall be made in immediately available funds
to an account that the Guarantor shall designate from time to time in writing to the Company.
Payments due shall be made with interest thereon from (i) in the case of Expenses for which the
Guarantor submits a request for reimbursement (the “Expense Reimbursement Request”) within
ten (10) days of the date such Expense was incurred or expended, the date the Guarantor incurred or
expended such Expense, (ii) in the case of Expenses for which the Guarantor submits an Expense
Reimbursement Request more than ten (10) days following the date such Expense was incurred or
expended, the date the Expense Reimbursement Request is received by the Company, or (iii) in the
case of the Guarantor Payments, the date that the Guarantor made such payment, until, in each case,
payment thereof by the Company, at the Rate (as defined in the Note) in effect from time to time
during the period interest is accruing plus 5%; provided, that, no interest shall be due or
payable in connection with the Initial Expenses.



     (d) The Company shall make the payments specified above even if there is a dispute about
whether the Bank is or was entitled to take any action to enforce its rights under the Pledge
Documents. Notwithstanding the foregoing or anything else to the contrary in this Agreement, in no
event shall the Company be liable to Guarantor for any special, indirect or consequential damages
incurred by Guarantor.




	7.	 	DEFAULT; REMEDIES UPON DEFAULT.





     (a) The failure by the Guarantor to pay or perform any material obligation hereunder



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(including, without limitation, the failure to make a Guarantor Payment when due) which
failure is not cured within two (2) business days of the Guarantor’s receipt of written notice from
the Company of such failure shall constitute a default hereunder. Upon any such default by the
Guarantor, the following shall occur immediately and automatically: (i) the Warrant shall be
cancelled, (ii) the Company’s obligations to pay the Guarantee Fee shall be terminated; and (iii)
the Company’s obligations under Section 6 to reimburse the Guarantor for Expenses shall be
terminated. Notwithstanding anything to the contrary in this Agreement, (x) the Guarantor shall
indemnify, defend and hold the Company harmless from and against all expenses and losses
(including, without limitation, reasonable attorneys fees and court costs) incurred as a result of
the Guarantor’s failure to make the Guarantor Payments of this Agreement; and (y) to the extent
not otherwise satisfied by the Guarantor under clause (x) of this Section 7(a), the Guarantor shall
remain liable to the Company to perform its obligations hereunder, including the obligation to
Pledge the Pledged CD and, provided such obligation has not been terminated in accordance with
Section 7(b) below, make the Guarantor Payments; provided, however, (z) in no event shall
the Guarantor be liable to the Company for (A) any special, indirect or consequential damages; or
(B) an amount in excess of $2.3 million (the “Damages Cap”); provided, however, that if the
Bank liquidates all or any portion of the Pledged CD, the amount liquidated by the Bank shall
reduce the Damages Cap on a dollar for dollar basis.



     (b) The failure by the Company to pay or perform any material obligation hereunder (including,
without limitation, a breach of its obligations under Section 8 below) shall constitute a default
hereunder if the same has not been cured within three days after receipt of notice thereof from the
Guarantor. Upon any such default by the Company, the Guarantor’s obligations to pay the Guarantor
Payments shall be terminated. Notwithstanding anything to the contrary in this Agreement, the
Company shall indemnify, defend and hold the Guarantor harmless from and against all losses
(including, without limitation, reasonable attorneys fees and court costs) incurred by the
Guarantor as a result of the Company’s failure to comply with its obligations hereunder, subject,
however, to the cure period provided above.




	8.	 	REPAYMENT ELECTION.





     (a) Subject to this Section 8, in the event the Company does not close an initial public
offering of the Company’s Common Stock generating at least $30 million of net proceeds to the
Company by August 13, 2007, the Guarantor, by providing written notice to the Company (the
“Repayment Election Notice”) at any time between August 13, 2007 and October 15, 2007, may
compel the Company to effectuate (i) a BlueCrest Loan Satisfaction or (ii) a BlueCrest Loan
Satisfaction and a Loan Satisfaction. Within two (2) days of the Company’s receipt of the
Repayment Election Notice, the Company shall provide notice (the “Other Guarantor Notice”)
to Mr. Bruce Carson, Dr. William Murphy, Mr. and Mrs. Howard J. Leonhardt and R&A Spencer Family
Limited Partnership (collectively, the “Other Guarantors”) of the Company’s receipt of the
Repayment Election Notice.



     (b) In anticipation of its receipt of a Repayment Election Notice, the Company may seek to,
but is not required to, locate Eligible Substitute Guarantors (as defined below) desiring to
provide collateral to secure the Loan in substitution of the Pledged CD. For purposes of this
Agreement, an “Eligible Substitute Guarantor” is a natural person or entity that:



          (i) is an “Accredited Investor”;



          (ii) is acceptable to the Bank, in the Bank’s sole discretion;



          (iii) agrees to provide collateral to secure the Loan, which collateral is acceptable to the
Bank in the Bank’s sole discretion (“Substitute Collateral”);



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          (iv) agrees to enter into a subordination agreement with BlueCrest Capital Finance, L.P.,
which subordination agreement is acceptable to BlueCrest Capital Finance, L.P. in its sole
discretion;



          (v) agrees to enter into a loan guarantee, payment and security agreement with the Company on
terms and conditions acceptable to the Company (“Substitute Loan Guarantee Agreements”);
and



          (vi) agrees to be bound by that certain Indemnification Agreement, dated as of the date
hereof, by and among the Guarantor and the Other Guarantors.



     (c) In the event that, within two (2) days of the date of the Company’s receipt of the
Repayment Election Notice (the “Substitution Period”), (i) the Company enters into fully
executed Substitute Loan Guarantee Agreements with one or more Eligible Substitute Guarantors
agreeing to provide Substitute Collateral in the amount equal to the amount of the Pledged CD (the
“Requisite Substitution Agreements”) and (ii) the Bank returns the Pledged CD to the
Guarantor, then the Company shall have no obligation to effectuate a BlueCrest Loan Satisfaction or
a BlueCrest Loan Satisfaction and Loan Satisfaction, as applicable, in accordance with Section
8(a).



     (d) Unless, within the Substitution Period, the Company enters into the Requisite Substitution
Agreements and (ii) the Bank returns the Pledged CD to the Guarantor, the Company shall effectuate
a BlueCrest Loan Satisfaction or a BlueCrest Loan Satisfaction and Loan Satisfaction (as specified
in the Repayment Election Notice) by the end of the Substitution Period.



     (e) In the event that, in accordance with the Repayment Election Notice, (i) the Company
effectuates a BlueCrest Loan Satisfaction but not a Loan Satisfaction and (ii) the Company enters
into the Requisite Substitution Agreements:



          (i) the amount of the Guarantee Fee payable by the Company under this Agreement shall be
determined by multiplying $2,200,000 by 5.0% and multiplying the resulting amount by a fraction,
the numerator of which is the number of days elapsed between the date hereof and the date of the
Pledged CD is returned to the Guarantor, and the denominator of which is 365; and



          (ii) the Guarantor shall have no obligation to make any Guarantor Payments due after the end
of the Substitution Period.



     (f) Notwithstanding anything contained in this Agreement to the contrary, the
Company acknowledges and agrees that (i) the Company’s obligations under this Section 8 are a
material inducement for Guarantor to enter into this Agreement and provide the Bank with the
Pledged CD and but for the Company’s agreements under this Section 8, Guarantor would not have
entered into this Agreement or provided the Bank with the Pledged CD; and (ii) that irreparable
damage would occur to Guarantor in the event the provisions of this Section 8 are not performed in
accordance with their specific terms by the Company or are otherwise breached by the Company.
Accordingly, it is agreed that Guarantor shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Section 8 and to enforce specifically the terms and
provisions hereof in any court of competent jurisdiction in the United States or any state thereof,
in addition to any other remedy to which they may be entitled at law or equity.



     (g) In the event that, during the period commencing on the Effective Date and ending on August
13, 2007, the Company closes an initial public offering of the Company’s Common Stock
generating at least $30 million of net proceeds to the Company, the Company shall effectuate a
Loan Satisfaction within fifteen (15) business days of the closing of such offering.



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	9.	 	MISCELLANEOUS.





     9.1. BINDING AGREEMENT; NON-ASSIGNMENT. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors. This Agreement is not assignable
without the express written consent of both parties, which consent may be withheld for any reason.
Notwithstanding anything to the contrary contained in this Agreement, the Guarantor shall have the
right to assign this Agreement and its rights hereunder to Howard and Brenda Leonhardt in the event
the provisions of the third sentence of Section 5 of the Continuing Guaranty, dated the date
hereof, from Mr. and Mrs. Leonhardt to the Guarantor, become operative. Nothing in this Agreement,
express or implied, is intended to confer upon any third party any rights, remedies, obligations,
or liabilities under or by reason of this Agreement except as expressly otherwise provided in this
Agreement. If the Guarantor secures the consent of a third party to indemnify it for certain costs
and expenses it may incur hereunder or in connection with the Pledge Documents, the Guarantor
agrees that is shall provide the Company notice of such agreement, including the contact
information of the subject third party.



     9.2. TERMINOLOGY. The parties agree and acknowledge that the term “Guarantor” is used in this
Agreement for convenience only and that the Guarantor’s obligations to the Company in respect of
the Loan arise under this Agreement and under the Pledge Documents.



     9.3. GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the
State of Florida, irrespective of any contrary result otherwise required under the conflict or
choice of law rules of Florida.



     9.4. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be
deemed an original, but both of which together shall constitute one and the same instrument.



     9.5. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this Agreement.



     9.6. NOTICES. Any notice required or permitted under this Agreement must be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit with the United States
Post Office, postage prepaid, if to the Company, addressed to William H. Kline, Chief Financial
Officer, Bioheart, Inc. 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325, with a
copy to David E. Wells, Esq., Hunton & Williams, LLP, 1111 Brickell Avenue, Suite 2500, Miami,
Florida 33131, or to the Guarantor at Magellan Group Investments, LLC, 701 Park of Commerce Blvd.,
Suite 100, Boca Raton, Florida 33496, with a copy to David E. Paseltiner, Esq., Jaspan Schlesinger
Hoffman LLP, 300 Garden City Plaza, Garden City, New York 11530 or at such other address as a party
may designate by ten days’ advance written notice to the other party.



     9.7. MODIFICATION; WAIVER. No modification or waiver of any provision of this Agreement or
consent to departure therefrom shall be effective unless in writing and approved by the Company and
the Guarantor.



     9.8. FURTHER ASSURANCES. The parties shall take such further actions, and execute, deliver and
file such documents, as may be necessary or appropriate to effectuate the intent of this Agreement.



10









 





     9.9. CONSTRUCTION. The language used in this Agreement shall be deemed to be the
language chosen by the parties to express their mutual intent, and no rule of strict construction
shall be applied against any party. Any references to any federal, state, local or foreign statute
or law shall also refer to all rules and regulations promulgated thereunder, unless the context
otherwise requires. Unless the context otherwise requires: (a) a term has the meaning assigned to
it by this Agreement; (b) forms of the word “include” mean that the inclusion is not limited to the
items listed; (c) “or” is disjunctive but not exclusive; (d) words in the singular include the
plural, and in the plural include the singular; (e) provisions apply to successive events and
transactions; (f) “hereof”, “hereunder”, “herein” and “hereto” refer to the entire Agreement and
not any section or subsection; and (g) “$” means the currency of the United States.



     9.10. ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects hereof and no party
will be liable or bound to the other in any manner by any representations, warranties, covenants
and agreements other than those specifically set forth herein.



     9.11 VENUE. The parties irrevocably submit to the exclusive jurisdiction of the courts of
State of Florida located in Broward County and federal courts of the United States for the Southern
District of Florida in respect of the interpretation and of the provisions of this Agreement and in
respect of the transactions contemplated hereby.



     9.12 SPECIFIC PERFORMANCE. The parties hereto acknowledge and agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that
they shall be entitled to an injunction or injunctions to prevent breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof in any court of
competent jurisdiction in the United States or any state thereof, in addition to any other remedy
to which they may be entitled at law or equity.



     9.13 ATTORNEYS’ FEES. In the event of any litigation, including appeals, with regard to this
Agreement, the prevailing party shall be entitled to recover from the non-prevailing party all
reasonable fees, costs, and expenses of counsel (at pre-trial, trial and appellate levels).



11









 





     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written
above.



	 	 	 	 	 
	 	BIOHEART, INC.

 	 
	 	By:  	/s/
 	 
	 	 	Name:  	William H. Kline 	 
	 	 	Title:  	Chief Financial Officer 	 
	 
	 	MAGELLAN GROUP INVESTMENTS, LLC

 	 
	 	By:  	/s/
 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




12










 





Exhibit 3(d)




Litigation / Threatened Proceeding




Law Litigation




     On March 9, 2007, Peter K. Law, Ph.D. and Cell Transplants Asia, Limited, or the Plaintiffs,
filed a complaint against Bioheart, Inc. (referred to herein as “us” or “we”) and Howard J.
Leonhardt, individually, in the United States District Court, Western District of Tennessee. On
February 7, 2000, we entered a license agreement, or the Original Law License Agreement, with Dr.
Law and Cell Transplants International pursuant to which Dr. Law and Cell Transplants International
granted us a license to certain patents, including the Primary MyoCell Patent, or the Law IP. The
parties executed an addendum to the Original Law License Agreement, or the License Addendum, in
July 2000, the provisions of which amended a number of terms of the Original License Agreement.



     More specifically, the Original License Agreement provided, among other things:




	 	•	 	The parties agreed that we would issue, and we did issue, to Cell Transplants
International a five-year warrant exercisable for 1.2 million shares of our common stock at
an exercise price of $8.00 per share instead of, as originally contemplated under the
Original Law License Agreement, issuing to Cell Transplants International or Dr. Law
600,000 shares of our common stock and options to purchase 600,000 shares of our common
stock at an exercise price of $1.80.
	 
	 	•	 	The parties agreed that our obligation to pay Cell Transplants International a $3
million milestone payment would be triggered upon our commencement of a bona fide U.S.
Phase II human clinical trial that utilizes technology claimed under the Law IP instead of,
as originally contemplated under the Original Law License Agreement, upon initiation of a
FDA approved human clinical trial study of such technology in the United States.





     The Plaintiffs are not challenging the validity of our license of the Law IP, but rather are
alleging and seeking, among other things, a declaratory judgment that the License Addendum fails
for lack of consideration. Based upon this argument, the Plaintiffs allege that we are in breach
of the terms of the Original Law License Agreement for failure to, among other things, (i) issue to
Cell Transplants International or Peter Law the 600,000 shares of our common stock and options to
purchase 600,000 shares of our common stock contemplated by the Original Law License Agreement and
(ii) pay Cell Transplants International the $3 million milestone payment upon our commencement of a
FDA approved human clinical study of MyoCell in the United States.



     The Plaintiffs have alleged, among other things, certain other breaches of the Original Law
License Agreement not modified by the License Addendum including a purported breach of our
obligation to pay Plaintiffs royalties on gross sales of products that directly read upon the
claims of the Primary MyoCell Patent and a purported breach of the contractual restriction on
sublicensing the Primary MyoCell Patent to third parties. The Plaintiffs are also alleging that we
and Mr. Leonhardt engaged in a civil conspiracy against the Plaintiffs and that the court should
toll any periods of limitation running against the Plaintiffs to bring any causes of action arising
from or which could arise from the alleged breaches.



 









 





     In addition to seeking a declaratory judgment that the License Addendum is not enforceable,
the Plaintiffs are also seeking an accounting of all revenues, remunerations or benefits derived by
us or Mr. Leonhardt from sales, provision and/or distribution of products and services that read
directly on the Law IP, compensatory and punitive monetary damages and preliminary and permanent
injunctive relief to prohibit us from sublicensing our rights to third parties.



     We believe this lawsuit is without merit and intend to defend the action vigorously. While
the complaint does not appear to challenge our rights to license this patent and we believe this
lawsuit is without merit, this litigation, if not resolved to the satisfaction of both parties, may
adversely impact our relationship with Dr. Law and could, if resolved unfavorably to us, adversely
affect our MyoCell commercialization efforts.



Threatened Proceeding




     We received notice of a potential claim by an existing shareholder, Steve May. Mr. May claims
that he filed a complaint with the Securities and Exchange Commission on May 15, 2007 apparently in
connection with a request that the Company transfer to his name certain shares that were previously
issued in the name of another shareholder. Our counsel is currently attempting to contact Mr. May
to discuss the details of the transfers Mr. May is seeking to make. As best as we can tell, the
issue involves no more than 12,500 shares, but we are still seeking to understand Mr. May’s
position/rights.




 










 





Exhibit A




EXECUTION COPY




Warrant Agreement No. ________



NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON EXERCISE HEREOF HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS, OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.




May ___, 2007




BIOHEART, INC.




(Incorporated under the laws of the State of Florida)




Warrant for the Purchase of Shares of Common Stock




     FOR VALUE RECEIVED, BIOHEART, INC., a Florida corporation (the “Company”), hereby
certifies that Magellan Group Investments, LLC (the “Initial Holder”), or his/her/its
assigns (the “Holder”) is entitled, subject to the provisions of this Warrant, to purchase
from the Company, up to 115,720 (subject to adjustment in accordance with the four immediately
succeeding paragraphs and Section 5 below) (the “Subject Shares”) fully paid and
non-assessable shares of Common Stock at a price of $4.75 per share, subject to adjustment in
accordance with Section 5 below (the “Exercise Price”) . This Warrant is being
issued in connection with that certain Loan Guarantee, Payment and Security Agreement by and
between the Company and the Initial Holder, dated as of June 1, 2007 (the “Guarantee
Agreement”).



     In the event that, as of September 30, 2007, the Company has not satisfied and/or discharged
all of its payment obligations, including, without limitation, all payment obligations under the
agreements, documents and instruments entered into in connection therewith (a “Loan
Satisfaction”) under that certain $5,000,000 Loan borrowed by the Company from Bank of America,
N.A. (the “Bank of America Loan”), the number of Subject Shares shall be automatically
increased to 132,000 shares without any action required on the part of the Company or the Holder.



     In the event that, as of the first year anniversary of the closing of the Bank of America Loan
(the “Closing Date”), the Company has not satisfied and/or discharged all of its material
payment obligations to the Initial Holder under the Guarantee Agreement (a “Guarantee
Satisfaction”), the number of Subject Shares shall be automatically increased to 165,000 shares
without any action required on the part of the Company or the Holder.



1









 





     In the event that, as of the second year anniversary of the Closing Date, the Company has not
effectuated a Guarantee Satisfaction, the number of Subject Shares shall be automatically increased
to 220,000 shares without any action required on the part of the Company or the Holder.



     In the event that, as of the third year anniversary of Closing Date, the Company has not
effectuated a Guarantee Satisfaction, the number of Subject Shares shall be automatically increased
to 300,000 shares without any action required on the part of the Company or the Holder.



     Notwithstanding the immediately preceding four paragraphs to the contrary, a failure to timely
effectuate a Guarantee Satisfaction shall be without prejudice to the Initial Holder’s (and/or its
assign’s or successor’s in interest in respect of the Guarantee Agreement) rights with respect to
the Guarantee Agreement, it being understood that adjustments to the Subject Shares relating to the
Company’s failure to effectuate a Guarantee Satisfaction shall be an additional right of the Holder
(and/or such successor or assign).



     The number of Subject Shares are also subject to adjustment in accordance with Section 5
below.



     The term “Common Stock” means the Common Stock, par value $.001 per share, of the
Company as constituted on June 1, 2007 (the “Base Date”). The number of Subject Shares
shall be adjusted from time to time as set forth herein. The shares of Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter referred to as “Warrant
Stock.” The term “Other Securities” means any other equity or debt securities that may
be issued by the Company in addition thereto or in substitution for the Warrant Stock. The term
“Company” means and includes the corporation named above as well as (i) any immediate or
more remote successor entity resulting from the merger or consolidation of such entity (or any
immediate or more remote successor corporation of such entity) with another entity, or (ii) any
entity to which such entity (or any immediate or more remote successor corporation of such
corporation) has transferred its all or substantially all of its property or assets.



     Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or destruction) of
indemnification reasonably satisfactory to the Company, and upon surrender and cancellation of this
Warrant, if mutilated, the Company shall execute and deliver a new Warrant of like tenor and date.
Any such new Warrant executed and delivered shall constitute an additional contractual obligation
on the part of the Company, whether or not this Warrant so lost, stolen, destroyed or mutilated
shall be at any time enforceable by anyone.



     The Holder agrees with the Company that this Warrant is issued, and all the rights hereunder
shall be held subject to, all of the conditions, limitations and provisions set forth herein.



2









 





     1. Exercise of Warrant.



          (a) Subject to Section 1(b) below and in accordance with the procedures set forth in Section
1(c) below, this Warrant may be exercised, in whole or in part, at any time, or from time to time
during the period commencing on the date that is three hundred and sixty-six (366) days following
the date of the closing (the “Closing Date”) of the Bank of America Loan (the “One Year
Exercise Date”) and expiring at 5:00 p.m. Eastern Time on the date that is ten years following
the Closing Date (the “Expiration Date”).




          (b) Notwithstanding Section 1(a) above, in no event shall the Holder be entitled to exercise
this Warrant until such time that the Company effectuates a Loan Satisfaction; provided, however,
that if, as of the eight month anniversary of the Closing Date, the Company has not effectuated a
Loan Satisfaction but the Initial Holder has complied in full with all of its material obligations
under the Guarantee Agreement, this Section 1(b) shall have no further force and effect.




          (c) During the period that this Warrant is exercisable in accordance with Sections 1(a) and
1(b) above, the Holder may exercise this Warrant by presentation and surrender of this Warrant to
the Company at its principal office, or at the office of its stock transfer agent, if any, together
with the Warrant Exercise Form, attached hereto as Exhibit A, duly executed and the
Shareholders Agreement, attached hereto as Exhibit B (the “Shareholders
Agreement”), duly executed, accompanied by payment (either in cash or by certified or official
bank check, payable to the order of the Company) of the Exercise Price for the number of shares
specified in such form and instruments of transfer, if appropriate, duly executed by the Holder or
his, her or its duly authorized attorney. If this Warrant should be exercised in part only, the
Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the rights of the Holder thereof to purchase the balance of the shares purchasable
hereunder. Upon receipt by the Company of this Warrant, together with a duly executed Warrant
Exercise Form , a duly executed Shareholders Agreement and the Exercise Price, at its office, or by
the stock transfer agent of the Company at its office, in proper form for exercise, the Holder
shall, subject to compliance with any applicable securities laws, be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder.




          (d) In the event the Initial Holder breaches any of its material obligations under the
Guarantee Agreement and such breach is not cured within fifteen (15) days of the Initial Holder’s
receipt of written notice from the Company regarding such breach, this Warrant shall be
automatically cancelled, without any action required on the part of the Company or the Holder, and
shall have no further force and effect.





3









 








          (e) During the period that this Warrant is exercisable in accordance with Sections 1(a) and
1(b) above and provided that (i) the Company’s Common Stock is publicly traded and (ii) the average
reported weekly trading volume during the four weeks preceding the
date of exercise is equal to or greater than 2,500,000, in lieu of exercising this Warrant by
tendering cash pursuant to Section 3(c) above, the Holder of this Warrant may elect to receive,
without the payment by the Holder of any additional consideration, shares equal to the value of
this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with notice of such election, in which event the Company shall issue
to the holder hereof a number of Shares computed using the following formula:




	 	 	 	 	 	 	 
	X =
	 	
	 	Y (A — B)

A	 	 







	 	 	 	 	 
	Where:	 	 
	 
	 	 	 	 
	X

	 	=
	 	The number of shares to be issued to the Holder pursuant to this net exercise;
	 
	 	 	 	 
	Y

	 	=
	 	The number of shares in respect of which the net issue election is made;
	 
	 	 	 	 
	A

	 	=
	 	The fair market value of one share at the time the net issue election is made; and
	 
	 	 	 	 
	B

	 	=
	 	The Exercise Price (as adjusted to the date of the net issuance).







     For purposes of this paragraph 3(e), the “fair market value” of one share of Common Stock as
of a particular date shall mean the closing price (or average of the closing “bid” and “asked”
prices, as the case may be) on the applicable date (i.e. the date of exercise of Warrant) of the
Common Stock as reported by Bloomberg L.P. on the applicable market upon which the Common Stock is
traded.



     2. Reservation of Shares. The Company covenants that during the term this Warrant is
exercisable, the Company will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the exercise of this Warrant and,
from time to time, if necessary, will use its reasonable best efforts to amend its Articles of
Incorporation to provide sufficient reserves of shares of Common Stock issuable upon exercise of
the Warrant.



     3. Fractional Shares. No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant, but the Company shall issue one additional share
of its Common Stock or Other Securities (as applicable) in lieu of each fraction of a share
otherwise called for upon exercise of this Warrant.



4









 





     4. Transfer of Warrant.



          (a) Subject to compliance with any applicable federal and state securities laws, the
conditions set forth in Sections 4(b) below and the provisions of Section 7 of this Warrant, this
Warrant may be transferred by the Holder with respect to any or all of the shares purchasable
hereunder. Upon surrender of this Warrant to the Company or at the office of its stock transfer
agent, if any, together with the Assignment Form, attached hereto as Exhibit C duly
executed, the Transferor Representation Letter (as defined below) duly executed, the Transferee
Representation Letter (as defined below) duly executed and funds sufficient to pay any transfer
tax, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees and in the denomination or denominations specified in the Assignment Form and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so assigned. Thereafter,
this Warrant shall promptly be cancelled. This Warrant may be divided or combined with other
Warrants that carry the same rights upon presentation hereof at the office of the Company or at the
office of its stock transfer agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder hereof.
Notwithstanding the foregoing, the Company shall not be required to issue a Warrant covering less
than 1,000 shares of Common Stock.




          (b) Notwithstanding anything to the contrary set forth herein, no transfer of all or any
portion of this Warrant shall be made except for transfers to the Company, unless:




               (x) if such transfer is made at any time prior to the One Year Exercise Date, the Holder and
the proposed transferee each truthfully certify and provide to the Company a written representation
letter (the “Transferor Representation Letter” and the “Transferee Representation
Letter”, respectively) that such transfer is to either:




                    (A) a “Qualified Institutional Buyer” as such term is defined under Rule 144A of the
Securities Act, attached hereto as Exhibit D;




                    (B) a “large institutional accredited investor” as such term is used in the Securities and
Exchange Commission staff’s No-Action Letter dated February 28, 1992 to Squadron, Ellenoff,
Pleasant & Lehrer, attached hereto as Exhibit E; or




                    (C) a person that is (1) an “accredited investor” within the meaning of Regulation D under the
Securities Act (an “Accredited Investor”), (2) as of the Effective Date (as defined in the
Guarantee Agreement) and the date of such transfer, is an executive officer of the Company or a
member of the Company’s management; and (3) participated in assisting the Company structure
the issuance of this Warrant to the (x) Guarantor (as defined in the Guarantee Agreement) and (y)
any other persons receiving warrants in connection with their provision of a guaranty or letter of
credit to secure the Bank of America Loan.




          (y) if such transfer is made at any time following the One Year Exercise Date, the
Holder and the proposed transferee each truthfully certify and provide to the Company the
Transferor Representation Letter and the Transferee Representation Letter, respectively that such
transfer is to an Accredited Investor.




5









 








     5. Anti-Dilution Provisions.



          5.1 Adjustment for Dividends in Other Securities, Property, Etc. In case at any time
or from time to time after the Base Date the shareholders of the Company shall have received, or on
or after the record date fixed for the determination of eligible shareholders, shall have become
entitled to receive without payment therefor: (a) other or additional securities or property (other
than cash) by way of dividend, (b) any cash paid or payable or (c) other or additional (or less)
securities or property (including cash) by way of stock-split, spin-off, split-up,
reclassification, combination of shares or similar corporate rearrangement, then, and in each such
case, the Holder of this Warrant, upon the exercise thereof as provided in Section 1, shall
be entitled to receive the amount of securities and property (including cash in the cases referred
to in clauses (b) and (c) above) which such Holder would hold on the date of such exercise if on
the Base Date it had been the holder of record of the number of shares of Common Stock or Other
Securities (as applicable) as constituted on the Base Date subscribed for upon such exercise as
provided in Section 1 and had thereafter, during the period from the Base Date to and
including the date of such exercise, retained such shares and/or all other additional (or less)
securities and property (including cash in the cases referred to in clauses (b) and (c) above)
receivable by it as aforesaid during such period, giving effect to all adjustments called for
during such period by this Section 5.1 and Sections 5.2 and 5.3 below.




          5.2 Adjustment for Recapitalization. If the Company shall at any time subdivide its
outstanding shares of Common Stock (or Other Securities at the time receivable upon the exercise of
the Warrant), or if the Company shall declare a stock dividend or distribute shares of Common Stock
(or Other Securities) to its shareholders, the number of shares of Common Stock (or Other
Securities, as the case may be) subject to this Warrant immediately prior to such subdivision shall
be proportionately increased and the Exercise Price shall be proportionately decreased, and if the
Company shall at any time combine the outstanding shares of Common Stock, the number of shares of
Common Stock or Other Securities subject to this Warrant immediately prior to such combination
shall be proportionately decreased and the Exercise Price shall be proportionately increased. Any
such adjustments pursuant to this Section 5.2 shall be effective at the close of business
on the effective date of such subdivision or combination or if any adjustment is the result of a
stock dividend or distribution then the effective date for such adjustment based thereon shall be
the record date therefor.




          5.3 Adjustment for Reorganization, Consolidation, Merger, Etc. In case of any
reorganization of the Company (or any other entity, the securities of which are at the time
receivable on the exercise of this Warrant) after the Base Date or in case after such date the
Company (or any such other entity) shall consolidate with or merge into another corporation or
convey all or substantially all of its assets to another corporation, then, and in each such case,
the Holder of this Warrant upon the exercise thereof as provided in Section 1 at any time
after the consummation of such reorganization, consolidation, merger or conveyance, shall be
entitled to receive, in lieu of the securities and property receivable upon the exercise of this
Warrant prior to such consummation, the securities or property to which such Holder would have been
entitled upon such consummation if such Holder had exercised this Warrant immediately prior
thereto; in each such case, the terms of this Warrant shall be applicable to the securities or
property receivable upon the exercise of this Warrant after such consummation.




6









 








          5.4 No Impairment. The Company will not, by amendment of its Articles of Incorporation
(or the Shareholders Agreement) or through reorganization, consolidation, merger, dissolution,
issue or sale of securities, sale of assets or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this Warrant against
impairment. Without limiting the generality of the foregoing, while this Warrant is outstanding,
the Company will take all such action as may be necessary or appropriate in order that the Company
may validly and legally issue or sell fully paid and non-assessable shares of capital stock upon
the exercise of this Warrant.




          5.5 Certificate as to Adjustments. In each case of an adjustment in the number of
shares of Warrant Stock or Other Securities receivable on the exercise of this Warrant, the Company
at its expense will promptly compute such adjustment in accordance with the terms of this Warrant
and prepare a certificate executed by an executive officer of the Company setting forth such
adjustment and showing in detail the facts upon which such adjustment is based. The Company will
forthwith mail a copy of each such certificate to the Holder.




          5.6 Notices of Record Date, Etc. In case:




          (a) the Company shall take a record of the holders of its Common Stock (or Other Securities at
the time receivable upon the exercise of the Warrant) for the purpose of entitling them to receive
any dividend (other than a cash dividend at the same rate as the rate of the last cash dividend
theretofore paid) or other distribution, or any right to subscribe for, purchase or otherwise
acquire any shares of stock of any class or any other securities, or to receive any other right; or




          (b) of any capital reorganization of the Company, any reclassification of the capital stock of
the Company, any consolidation or merger of the Company with or into another corporation, or any
conveyance of all or substantially all of the assets of the Company to another corporation; or




          (c) of any voluntary or involuntary dissolution, liquidation or winding up of the Company,



then, and in each such case, the Company shall mail or cause to be mailed to the Holder of the
Warrant at the time outstanding a notice specifying, as the case may be, (i) the date on which a
record is to be taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the date on which such
reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding up is to take place, and the time, if any, which is to be fixed, as to which the holders of
record of Common Stock (or such other securities at the time receivable upon the exercise of the
Warrant) shall be entitled to exchange their shares of Common Stock (or such other securities) for
securities or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding up. Such notice shall be
mailed at least twenty (20) days prior to the date therein specified and the Warrant may be
exercised prior to said date during the term of the Warrant.




7









 








     6. Legend. Unless the shares of Warrant Stock or Other Securities have been registered
under the Securities Act, upon exercise of any of the Warrants and the issuance of any of the
shares of Warrant Stock or Other Securities, all certificates representing such securities shall
bear on the face thereof substantially the following legend:




     “The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the “Act”) and may not be sold
or transferred in the absence of an effective registration statement under
the Act or an opinion of counsel satisfactory to the Company that such
registration is not required. The securities represented by this
certificate are subject to certain restrictions and agreements contained in,
that certain Warrant Agreement dated ___________________, 2007, by and between the original
Holder and the Company and, may not be sold, assigned, transferred,
encumbered, pledged or otherwise disposed of except upon compliance with the
provisions of such Warrant Agreement. By the acceptance of the shares of
capital stock evidenced by this certificate, the holder agrees to be bound
by such Warrant Agreement and all amendments thereto. A copy of such
Warrant Agreement has been filed at the office of the Company.




     The securities represented by this certificate and the holder of such
securities are subject to the terms and conditions (including, without
limitation, voting agreements and restrictions on transfer) set forth in a
Shareholders Agreement, dated as of ___________________, 200___, a copy of which may be
obtained from the Company. No transfer of such securities will be made on
the books of the Company unless accompanied by evidence of compliance with
the terms of such agreement.”



     7. Lock-Up Agreement. The Holder hereby agrees that, during the period of duration
(not to exceed one hundred eighty (180) days) specified by the Company and an underwriter of Common
Stock or other securities of the Company in an agreement in connection with any initial public
offering of the Company’s securities, following the effective date of the registration statement
for a public offering of the Company’s securities filed under the Securities Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly sell, offer to
sell, contract to sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound)
any securities of the Company held by it at any time during such period, except Common Stock, if
any, included in such registration; provided, that such “lock-up” period applicable to the Holder
shall not be greater than the shortest lock-up period restricting any other shareholder of the
Company executing lock-up agreements in connection with such registration.



8









 





     8. No Voting Rights as a Shareholder. This Warrant does not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.



     9. Registration Under the Securities Act of 1933.



          9.1 Piggyback Registration. If at any time during the period commencing on the date
that is six months following the closing date of an initial public offering of the Common Stock and
ending on the Expiration Date, the Company proposes to register any shares of its Common Stock
under the Securities Act on any form for registration thereunder (the “Registration
Statement”) for its own account or the account of shareholders (other than a registration
solely relating to (i) shares of Common Stock underlying a stock option, restricted stock, stock
purchase or compensation or incentive plan or of stock issued or issuable pursuant to any such
plan, or a dividend investment plan; (ii) a registration of securities proposed to be issued in
exchange for securities or assets of, or in connection with a merger or consolidation with, another
corporation or other entity; or (iii) a registration of securities proposed to be issued in
exchange for other securities of the Company (collectively, an “Excluded Registration”)),
it will at such time give prompt written notice to the Holder of its intention to do so (the
“Section 9.1 Notice”). Upon the written request of the Holder given to the Company within
ten (10) days after the giving of any Section 9.1 Notice setting forth the number of shares of
Warrant Stock and/or Other Securities intended to be disposed of by the Holder and the intended
method of disposition thereof, the Company will include or cause to be included in the Registration
Statement the shares of Warrant Stock and/or Other Securities which the Holder has requested to
register, to the extent provided in this Section 9 (a “Piggyback Registration”).
Notwithstanding the foregoing, in the event that prior to the Six-Month Post-IPO Exercise Date, the
Company agrees to (other than in an Excluded Registration) (i) register the resale of Common Stock
then held by any other shareholder of the Company or (ii) register the issuance of Common Stock
upon conversion of then outstanding securities, the Holder shall be similarly entitled to exercise
the rights provided by this Section 9.1. Notwithstanding the foregoing, the Company may, at any
time, withdraw or cease proceeding with any registration pursuant to this Section 9.1 if it shall
at the same time withdraw or cease proceeding with the registration of all of the Common Stock
originally proposed to be registered. The Company shall be obligated to file and cause the
effectiveness of only one (1) Piggyback Registration. The shares of Warrant Stock and/or Other
Securities subject to the piggyback registration rights set forth in the Section 9.1 Notice are
referred to for purposes of this Section 9 as the “Registrable Shares”.




          9.2 Company Covenants. Whenever required under this Section 9 to include Registrable
Shares in a Registration Statement, the Company shall, as expeditiously as reasonably possible:




9









 








          (i) Use its commercially reasonable efforts to cause such Registration Statement to become
effective and cause such Registration Statement to remain effective until the earlier of the Holder
having completed the distribution of all its Registrable Shares described in the Registration
Statement or six (6) months from the effective date of the Registration Statement (or such later
date by reason of suspensions the effectiveness as provided hereunder).
The Company will also use its commercially reasonable efforts to, during the period that such
Registration Statement is required to be maintained hereunder, file such post-effective amendments
and supplements thereto as may be required by the Securities Act and the rules and regulations
thereunder or otherwise to ensure that the Registration Statement does not contain any untrue
statement of material fact or omit to state a fact required to be stated therein or necessary to
make the statements contained therein, in light of the circumstances under which they are made, not
misleading; provided, however, that if applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permits, in lieu of filing a post-effective amendment
that (i) includes any prospectus required by Section 10(a)(3) of the Securities Act or (ii)
reflects facts or events representing a material or fundamental change in the information set forth
in the Registration Statement, the Company may incorporate by reference information required to be
included in (i) and (ii) above to the extent such information is contained in periodic reports
filed pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”) in the Registration Statement.




          (ii) Prepare and file with the Unites States Securities and Exchange Commission (the
“SEC”) such amendments and supplements to such Registration Statement, and the prospectus
used in connection with such Registration Statement, as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all securities covered by such
Registration Statement.




          (iii) Furnish to the Holder such numbers of copies of a prospectus, including a preliminary
prospectus as amended or supplemented from time to time, in conformity with the requirements of the
Securities Act, and such other documents as it may reasonably request in order to facilitate the
disposition of Registrable Shares owned by the Holder; provided that, in no event, shall the
Company be required to incur printing expenses in excess of $1,000 in complying with its
obligations under this Section 9.2(iii).




          (iv) Use its commercially reasonable efforts to register and qualify the securities covered by
such Registration Statement under such other federal or state securities laws of such jurisdictions
as shall be reasonably requested by the Holder; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by the Securities
Act.




          (v) In the event of any underwritten public offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, with the managing underwriter of such
offering.




10









 








          (vi) Notify the Holder, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, (a) when the Registration Statement or any post-effective
amendment and supplement thereto has become effective; (b) of the issuance by the SEC of any stop
order or the initiation of proceedings for that purpose (in which event the Company shall make use
commercially reasonable efforts to obtain the withdrawal of any order suspending effectiveness of
the Registration Statement. at the earliest possible time or prevent
the entry thereof); (c) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Shares for sale in any jurisdiction or the
initiation of any proceeding for such purpose; and (d) of the happening of any event as a result of
which the prospectus included in such Registration Statement, as then in effect, includes 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 not misleading in the light of the circumstances then
existing.




          (vii) Cause all such Registrable Shares registered hereunder to be listed on each securities
exchange or quotation service on which similar securities issued by the Company are then listed or
quoted.




          (viii) Provide a transfer agent and registrar for all Registrable Shares registered pursuant
hereunder and CUSIP number for all such Registrable Shares, in each case not later than the
effective date of such registration.




          (ix) Use commercially reasonable effort to furnish, on the date that such Registrable Shares
are delivered to the underwriters for sale, if such securities are being sold through underwriters,
(a) an opinion, dated as of such date and addressed to the Holder, of the counsel representing the
Company for the purposes of such resale registration, in form and substance as is customarily given
by Company counsel to underwriters, if any, engaged by the Holder and (b) a letter, dated as of
such date and addressed to the Holder, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified public accountants
to underwriters, if any, engaged by the Holder.




          9.3 Furnish Information. In connection with a registration in which the Holder is
participating, such Holder agrees to execute and deliver such other agreements as may be reasonably
requested by the Company or the underwriter. In addition, if requested by the Company or the
representative of the underwriters of Common Stock (or other securities) of the Company, the Holder
shall provide, within ten (10) days of such request, such information related to such Holder as may
be required by the Company or such representative in connection with the completion of any public
offering of the Company’s securities pursuant to a registration statement filed under the
Securities Act.




          9.4 Expenses of Company Registration. All expenses other than underwriting discounts
and commissions incurred in connection with registrations, filings or qualifications pursuant to
Section 9.1, including, without limitation, all registration, filing and qualification fees,
printers’ and accounting fees and fees, disbursements of counsel for the Company and disbursements
of counsel for the Holder up to $10,000 (the “Registration Expenses”) shall be borne by the
Company.




11









 








          9.5 Underwriting Requirements. In connection with any offering involving an
underwriting of shares of the Company’s capital stock, the Company shall not be required under
Section 9.1 to include any of the Holder’s Registrable Shares in such underwriting unless the
Holder accepts the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the underwriters), and then
only in such quantity as the underwriters determine in their sole and reasonable discretion will
not materially jeopardize the success of the offering by the Company, and the Holder enters into
such lock-up agreements as may be reasonably required of other selling shareholders in such
Registration Statement. If the total amount of securities, including Registrable Shares, requested
by shareholders to be included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole and reasonable discretion is compatible
with the success of the offering, then the Company shall be required to include in the offering
only that number of such securities, including Registrable Shares, which the underwriters determine
in their sole and reasonable discretion will not materially jeopardize the success of the offering
(the securities so included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each selling shareholder or
in such other proportions as shall mutually be agreed to by such selling shareholders). For
purposes of the preceding parenthetical concerning apportionment, for any selling shareholder who
is a holder of Registrable Shares and is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of any such partners
and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed
to be a single “selling shareholder”, and any pro-rata reduction with respect to such “selling
shareholder” shall be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such “selling shareholder”, as defined in this
sentence.




          9.6 Indemnification. In the event that any Registrable Shares are included in a
Registration Statement under this Section 9.




          (i) To the extent permitted by law, the Company will promptly indemnify and hold harmless the
Holder, any underwriter (as defined in the Securities Act) for the Holder and each person, if any,
who controls the Holder or underwriter within the meaning of the Securities Act or the Exchange
Act, against any losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, or the Exchange Act, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a “Violation”): (i) any untrue
statement or alleged untrue statement of a material fact contained in such Registration Statement,
including any preliminary prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) 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 (iii)
any violation or alleged violation by the Company of the Securities Act, the Exchange Act, or any
rule or regulation promulgated under the Securities Act, or the Exchange


12









 







Act, and the Company will
pay to the Holder, underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement contained in this
Section 9.6(i) shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such
registration by the Holder, underwriter or controlling person.




          (ii) To the extent permitted by law, the Holder will indemnify and hold harmless the Company,
its directors, officers, and each person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter, any other holder selling securities in
such Registration Statement and any controlling person of any such underwriter or other holder,
against any losses, claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Securities Act, or the Exchange Act, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are
based upon any Violation, in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information furnished by the Holder
expressly for use in connection with such registration; and the Holder will pay, as incurred, any
legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to
this Section 9.6(ii), in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained in
this Section 9.6(ii) shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, further, that, in no event shall any
indemnity under this Section 9.6(ii) exceed 20% of the cash value of the gross proceeds from the
offering received by the Holder.




          (iii) Promptly after receipt by an indemnified party under this Section 9.6 of notice of the
commencement of any action (including any governmental action), such indemnified party shall, if a
claim in respect thereof is to be made against any indemnifying party under this Section 9.6,
deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to assume the defense thereof with
counsel selected by the indemnifying party and approved by the indemnified party (whose approval
shall not be unreasonably withheld); provided, however, that an indemnified party (together with
all other indemnified parties which may be represented without conflict by one counsel) shall have
the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of the commencement of
any such action, if


13









 







prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section 9.6, but the
omission so to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this Section 9.6.




          (iv) If the indemnification provided for in this Section 9.6 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim,
damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
by such indemnified party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements or omissions that
resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged untrue statement of a
material fact or the alleged omission to state a material fact relates to information supplied by
the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge,
access to information, and opportunity to correct or prevent such statement or omission.




          (v) Notwithstanding the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection with the
underwritten public offering are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.




          (vi) The obligations of the Company and the Holder under this Section 9.6 shall survive the
completion of any offering of Registrable Shares in a Registration Statement under this Section 9,
and otherwise.




          9.7. Reports Under Securities Exchange Act of 1934. With a view to making available
to the Holder the benefits of Rule 144 under the Securities Act (“Rule 144”) and any other
rule or regulation of the SEC that may at any time permit the Holder to sell shares of the
Company’s Common Stock to the public without registration, commencing immediately after the date on
which a registration statement filed by the Company under the Securities Act becomes effective, the
Company agrees to use its best efforts to:




          (i) make and keep public information available, as those terms are understood and defined in
Rule 144;




          (ii) file with the SEC in a timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and




          (iii) furnish to the Holder, so long as the Holder owns any Registrable Shares, forthwith upon
request (i) a copy of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (ii) such other information


14









 







as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to such form.




          9.8. Permitted Transferees. The rights to cause the Company to register Registrable
Shares granted to the Holder by the Company under this Section 9 may be assigned in full by a
Holder in connection with a transfer by the Holder of its Registrable Shares if: (a) the Holder
gives prior written notice to the Company; (b) such transferee agrees to comply with and be bound
by the terms and provisions of this Agreement; (c) such transfer is otherwise in compliance with
this Agreement and (d) such transfer is otherwise effected in accordance with applicable securities
laws. Except as specifically permitted by this Section 9.8, the rights of a Holder with respect to
Registrable Shares as set out herein shall not be transferable to any other
person, and any attempted transfer shall cause all rights of the Holder therein to be
forfeited.




          9.9 Termination of Registration Rights. The Holder shall no longer be entitled to
exercise any registration rights provided for in Section 9.1 after such time at which all
Registrable Shares held by the Holder can be sold in any three-month period without registration in
compliance with Rule 144(k) of the Securities Act.




     10. Notices. All notices required hereunder shall be in writing and shall be deemed
given when telegraphed, delivered personally or within two (2) days after mailing when mailed by
certified or registered mail, return receipt requested, to the Company at its principal office, or
to the Holder at the address set forth on the record books of the Company with a copy to Jaspan
Schlesinger Hoffman LLP, Attn: David E. Paseltiner, Esq., 300 Garden City Plaza, Garden City, New
York, 11530 (which shall not constitute notice to the Holder) or at such other address of which the
Company or the Holder has been advised by notice hereunder. A copy of any notices provided to the
Company hereunder shall be concurrently provided to the Company’s legal counsel addressed to Hunton
& Williams, LLP, Attn: David E. Wells, Esq., 1111 Brickell Avenue, Suite 2500, Miami, Florida
33131.



     11. Applicable Law. The Warrant is issued under and shall for all purposes be governed
by and construed in accordance with the laws of the State of Florida, without giving effect to the
choice of law rules thereof.



     12. Modification of the Terms. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the Holder and the
Company.



     13. Venue. The parties irrevocably submit to the exclusive jurisdiction of the courts
of State of Florida located in Broward County and federal courts of the United States for the
Southern District of Florida in respect of the interpretation and of the provisions of this
Agreement and in respect of the transactions contemplated hereby.



15









 





     14. Waiver of Jury Trial. THE COMPANY AND THE HOLDER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER
OF THIS AGREEMENT. THIS WAIVER IS KNOWINGLY, INTENTIONALLY AND VOLUNTARILY MADE BY THE HOLDER AND
THE COMPANY.



     15. Payment of Certain Taxes and Charges. The Company shall not be required to issue
or deliver any certificate for shares of Common Stock or other securities upon the exercise of this
Warrant or to register any transfer of this Warrant until any applicable transfer tax and any other
taxes or governmental charges that the Company may be required by law to collect in respect of such
exercise or transfer shall have been paid, such tax being payable by Holder at the time of
surrender for the exercise or transfer.



     16. Register. The Company or its stock transfer agent, if any, will maintain a
register containing the name and address of the Holder of this Warrant and of the holders of other warrants
of like tenor issued simultaneously hereunder. Any Holder may change its, his or her address as
shown on the warrant register by written notice to the Company requesting such change. The Company
may treat the Holder of this Warrant as the absolute owner hereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in this Warrant on the part of any
other person.



     17. Specific Performance. The parties hereto acknowledge and agree that irreparable
damage would occur in the event that any of the provisions of this Warrant were not performed in
accordance with their specific terms or were otherwise breached. Accordingly, it is agreed that
they shall be entitled to an injunction or injunctions to prevent breaches of the provisions of
this Warrant and to enforce specifically the terms and provisions hereof in any court of competent
jurisdiction in the United States or any state thereof, in addition to any other remedy to which
they may be entitled at law or equity.



16









 





     IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its behalf, in its
corporate name, by its duly authorized officer, all as of the day and year first above written.



	 	 	 	 	 
	 	BIOHEART, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




17










 





EXHIBIT A




WARRANT EXERCISE FORM




To: Bioheart, Inc.




ELECTION TO EXERCISE




     The undersigned hereby exercises its rights to purchase _________ shares of the Subject
Shares covered by the within Warrant and tenders payment herewith in the amount of $____________
in accordance with the terms thereof, and requests that certificates for such securities be issued
in the name of, and delivered to:


 



 



 



(Print Name, Address and Social Security
or Tax Identification Number)



and, if such number of shares shall not be all the Subject Shares covered by the within Warrant,
that a new Warrant for the balance of the Subject Shares covered by the within Warrant be
registered in the name of, and delivered to, the undersigned at the address stated below.




	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Name	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(Print)
	 
	 	 	 	 	 	 	 	 
	Address:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	(Signature)






 









 





To: Bioheart, Inc.



NOTICE OF CASHLESS EXERCISE




(To be executed upon exercise of Warrant

pursuant to Section 1(e)




     The undersigned hereby irrevocably elects to exchange its Warrant for _____________ shares of
the Subject Shares pursuant to the cashless exercise provisions of the within Warrant, as provided
for in Section 1(e) of such Warrant, and requests that a certificate or certificates for the shares
be issued in the name of and delivered to:


 



 



 



(Print Name, Address and Social Security
or Tax Identification Number)



and, if such number of shares shall not be all the Subject Shares which the undersigned is entitled
to purchase in accordance with the within Warrant, that a new Warrant for the balance of the
Subject Shares covered by the within Warrant be registered in the name of, and delivered to, the
undersigned at the address stated below.






	 	 	 	 	 	 	 	 	 
	Dated:

	 	 	 	 	 	Name	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	(Print)
	 
	 	 	 	 	 	 	 	 
	Address:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	(Signature)








	 	 	 
	 

	 	(Signature must conform in all respects
to the name of the Holder as specified on
the face of the Warrant)







 









 





EXHIBIT C




ASSIGNMENT FORM





			
	FOR VALUE RECEIVED,	 	
  





hereby sells, assigns and transfers unto





			
	Name	 	
  





(Please typewrite or print in block letters)



the right to purchase up to _____________ shares of Common Stock of BIOHEART, INC., a Florida
corporation, pursuant to Section 4 of this Warrant, to the extent of shares as to which such right
is exercisable and does hereby irrevocably constitute and appoint Attorney, to transfer the same on
the books of the Company with full power of substitution in the premises.




DATED: ________,200_
















 




Exhibit D



 



Page 1




17 C.F.R. § 230.144A




Effective: [See Text Amendments]




Code of Federal Regulations Currentness
 Title
17. Commodity and Securities Exchanges
  Chapter II.
Securities and Exchange Commission
   
Part 230. General Rules and Regulations, Securities Act of 1933 (Refs & Annos)
    General
(Refs & Annos)



§ 230.144A Private resales of securities to institutions.




Preliminary Notes:



1. This section relates solely to the application of section 5 of the Act and not to antifraud or
other provisions of the federal securities laws.



2. Attempted compliance with this section does not act as an exclusive election; any seller
hereunder may also claim the availability of any other applicable exemption from the registration
requirements of the Act.



3. In view of the objective of this section and the policies underlying the Act, this section is
not available with respect to any transaction or series of transactions that, although in technical
compliance with this section, is part of a plan or scheme to evade the registration provisions of
the Act. In such cases, registration under the Act is required.



4. Nothing in this section obviates the need for any issuer or any other person to comply with the
securities registration or broker-dealer registration requirements of the Securities Exchange Act
of 1934 (the Exchange Act), whenever such requirements are applicable.



5. Nothing in this section obviates the need for any person to comply with any applicable state law
relating to the offer or sale of securities.



6. Securities acquired in a transaction made pursuant to the provisions of this section are deemed
to be restricted securities within the meaning of § 230.144(a)(3) of this chapter.



7. The fact that purchasers of securities from the issuer thereof may purchase such securities with
a view to reselling such securities pursuant to this section will not affect the availability to
such issuer of an exemption under section 4(2) of the Act, or Regulation D under the Act, from the
registration requirements of the Act.




(a) Definitions.





(1) For purposes of this section, qualified institutional buyer shall mean:




(i) Any of the following entities, acting for its own account or the accounts of other qualified
institutional buyers, that in the aggregate owns and invests on a discretionary basis at least
$100 million in securities of issuers that are not affiliated with the entity:




(A) Any insurance company as defined in section 2(13) of the Act;



     Note: A purchase by an insurance company for one or more of its separate accounts, as defined
by section 2(a)(37) of the Investment Company Act of 1940 (the “Investment Company Act”), which are
neither registered under section 8 of the Investment Company Act nor required to be so registered,
shall be deemed to be a purchase for the account of such insurance company.




(B) Any investment company registered under the Investment Company Act or any business
development company as defined in section 2(a)(48) of that Act;




(C) Any Small Business Investment Company licensed by the U.S. Small Business Administration
under section 301(c) or (d) of the Small Business Investment Act of 1958;




(D) Any plan established and maintained by a state, its political subdivisions, or any
agency or instrumentality of a state or its political subdivisions, for the benefit of its
employees;




(E) Any employee benefit plan within the meaning of title I of the Employee Retirement
Income Security Act of 1974;



© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.





 









 





Page 2




17 C.F.R. § 230.144A








(F) Any trust fund whose trustee is a bank or
trust company and whose participants are exclusively plans of the types identified in
paragraph (a)(1)(i) (D) or (E) of this section, except trust funds that include as
participants individual retirement accounts or H.R. 10 plans.




(G) Any business development company as defined in section 202(a)(22) of the Investment
Advisers Act of 1940;




(H) Any organization described in section 501(c)(3) of the Internal Revenue Code,
corporation (other than a bank as defined in section 3(a)(2) of the Act or a savings and
loan association or other institution referenced in section 3(a)(5)(A) of the Act or a
foreign bank or savings and loan association or equivalent institution), partnership, or
Massachusetts or similar business trust; and




(I) Any investment adviser registered under the Investment Advisers Act.




(ii) Any dealer registered pursuant to section 15 of the Exchange Act, acting for its own
account or the accounts of other qualified institutional buyers, that in the aggregate owns and
invests on a discretionary basis at least $10 million of securities of issuers that are not
affiliated with the dealer, Provided, That securities constituting the whole or a part of an
unsold allotment to or subscription by a dealer as a participant in a public offering shall not
be deemed to be owned by such dealer;




(iii) Any dealer registered pursuant to section 15 of the Exchange Act acting in a riskless
principal transaction on behalf of a qualified institutional buyer;



     Note: A registered dealer may act as agent, on a non-discretionary basis, in a transaction
with a qualified institutional buyer without itself having to be a qualified institutional buyer.




(iv) Any investment company registered under the Investment Company Act, acting for its own
account or for the accounts of other qualified institutional buyers, that is part of a family of
investment companies which own in the aggregate at least $100 million in securities of issuers,
other than issuers that are affiliated with the investment company or are part of such family of
investment companies. Family of investment companies means any two or more investment companies
registered under the Investment Company Act, except for a unit investment trust whose assets
consist solely of shares of one or more registered investment companies, that have the same
investment adviser (or, in the case of unit investment trusts, the same depositor), Provided
That, for purposes of this section:




(A) Each series of a series company (as defined in Rule 18f-2 under the Investment Company
Act [17 CFR 270.18f-2] ) shall be deemed to be a separate investment company; and




(B) Investment companies shall be deemed to have the same adviser (or depositor) if their
advisers (or depositors) are majority-owned subsidiaries of the same parent, or if one
investment company’s adviser (or depositor) is a majority-owned subsidiary of the other
investment company’s adviser (or depositor);




(v) Any entity, all of the equity owners of which are qualified institutional buyers, acting for
its own account or the accounts of other qualified institutional buyers; and




(vi) Any bank as defined in section 3(a)(2) of the Act, any savings and loan association or
other institution as referenced in section 3(a)(5)(A) of the Act, or any foreign bank or savings
and loan association or equivalent institution, acting for its own account or the accounts of
other qualified institutional buyers, that in the aggregate owns and invests on a discretionary
basis at least $100 million in securities of issuers that are not affiliated with it and that
has an audited net worth of at least $25 million as demonstrated in its latest annual financial
statements, as of a date not more than 16 months preceding the date of sale under the Rule in
the case of a U.S. bank or savings and loan association, and not more than 18 months preceding
such date of sale for a foreign bank or savings and loan association or equivalent institution.




(2) In determining the aggregate amount of securities owned and invested on a discretionary
basis by an entity, the following instruments and interests shall be excluded: bank deposit
notes and certificates of deposit; loan participations;
repurchase agreements; securities owned but subject to a repurchase agreement; and currency,
interest rate and commodity swaps.



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Page 3




17 C.F.R. § 230.144A





(3) The aggregate value of securities owned and invested on a discretionary basis by an entity
shall be the cost of such securities, except where the entity reports its securities holdings in
its financial statements on the basis of their market value, and no current information with
respect to the cost of those securities has been published. In the latter event, the securities
may be valued at market for purposes of this section.




(4) In determining the aggregate amount of securities owned by an entity and invested on a
discretionary basis, securities owned by subsidiaries of the entity that are consolidated with
the entity in its financial statements prepared in accordance with generally accepted accounting
principles may be included if the investments of such subsidiaries are managed under the
direction of the entity, except that, unless the entity is a reporting company under section 13
or 15(d) of the Exchange Act, securities owned by such subsidiaries may not be included if the
entity itself is a majority-owned subsidiary that would be included in the consolidated
financial statements of another enterprise.




(5) For purposes of this section, riskless principal transaction means a transaction in which a
dealer buys a security from any person and makes a simultaneous offsetting sale of such security
to a qualified institutional buyer, including another dealer acting as riskless principal for a
qualified institutional buyer.




(6) For purposes of this section, effective conversion premium means the amount, expressed as a
percentage of the security’s conversion value, by which the price at issuance of a convertible
security exceeds its conversion value.




(7) For purposes of this section, effective exercise premium means the amount, expressed as a
percentage of the warrant’s exercise value, by which the sum of the price at issuance and the
exercise price of a warrant exceeds its exercise value.


(b) Sales by persons other than issuers or dealers. Any person, other than the issuer or a dealer,
who offers or sells securities in compliance with the conditions set forth in paragraph (d) of this
section shall be deemed not to be engaged in a distribution of such securities and therefore not to
be an underwriter of such securities within the meaning of sections 2(11) and 4(1) of the Act.



(c) Sales by Dealers. Any dealer who offers or sells securities in compliance with the conditions
set forth in paragraph (d) of this section shall be deemed not to be a participant in a
distribution of such securities within the meaning of section 4(3)(C) of the Act and not to be an
underwriter of such securities within the meaning of section 2(11) of the Act, and such securities
shall be deemed not to have been offered to the public within the meaning of section 4(3)(A) of the
Act.



(d) Conditions to be met. To qualify for exemption under this section, an offer or sale must meet
the following conditions:





(1) The securities are offered or sold only to a qualified institutional buyer or to an offeree
or purchaser that the seller and any person acting on behalf of the seller reasonably believe is
a qualified institutional buyer. In determining whether a prospective purchaser is a qualified
institutional buyer, the seller and any person acting on its behalf shall be entitled to rely
upon the following non-exclusive methods of establishing the prospective purchaser’s ownership
and discretionary investments of securities:




(i) The prospective purchaser’s most recent publicly available financial statements, Provided
That such statements present the information as of a date within 16 months preceding the date of
sale of securities under this section in the case of a U.S. purchaser and within 18 months
preceding such date of sale for a foreign purchaser;




(ii) The most recent publicly available information appearing in documents filed by the
prospective purchaser with the Commission or another United States federal, state, or local
governmental agency or self-regulatory organization, or with a foreign governmental agency or
self-regulatory organization, Provided That any such information is as of a date within 16
months preceding the date of sale of securities under this section in the case of a U.S.
purchaser and within 18 months preceding such date of sale for a foreign purchaser;



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Page 4




17 C.F.R. § 230.144A





(iii) The most recent publicly available information appearing in a recognized securities
manual, Provided That such information is as of a date within 16 months preceding the date of
sale of securities under this section in the case of a U.S. purchaser and within 18 months
preceding such date of sale for a foreign purchaser; or




(iv) A certification by the chief financial officer, a person fulfilling an equivalent function,
or other executive officer of the purchaser, specifying the amount of securities owned and
invested on a discretionary basis by the purchaser as of a specific date on or since the close
of the purchaser’s most recent fiscal year, or, in the case of a purchaser that is a member of a
family of investment companies, a certification by an executive officer of the investment
adviser specifying the amount of securities owned by the family of investment companies as of a
specific date on or since the close of the purchaser’s most recent fiscal year;




(2) The seller and any person acting on its behalf takes reasonable steps to ensure that the
purchaser is aware that the seller may rely on the exemption from the provisions of section 5 of
the Act provided by this section;




(3) The securities offered or sold:




(i) Were not, when issued, of the same class as securities listed on a national securities
exchange registered under section 6 of the Exchange Act or quoted in a U.S. automated
inter-dealer quotation system; Provided, That securities that are convertible or exchangeable
into securities so listed or quoted at the time of issuance and that had an effective conversion
premium of less than 10 percent, shall be treated as securities of the class into which they are
convertible or exchangeable; and that warrants that may be exercised for securities so listed
or quoted at the time of issuance, for a period of less than 3 years from the date of issuance,
or that had an effective exercise premium of less than 10 percent, shall be treated as
securities of the class to be issued upon exercise; and Provided further, That the Commission
may from time to time, taking into account then-existing market practices, designate additional
securities and classes of securities that will not be deemed of the same class as securities
listed on a national securities exchange or quoted in a U.S. automated inter-dealer quotation
system; and




(ii) Are not securities of an open-end investment company, unit investment trust or face-amount
certificate company that is or is required to be registered under section 8 of the Investment
Company Act; and




(4)(i) In the case of securities of an issuer that is neither subject to section 13 or 15(d) of
the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) (§ 240.12g3-2(b)
of this chapter) under the Exchange Act, nor a foreign government as defined in Rule 405 (§
230.405 of this chapter) eligible to register securities under Schedule B of the Act, the
holder and a prospective purchaser designated by the holder have the right to obtain from the
issuer, upon request of the holder, and the prospective purchaser has received from the issuer,
the seller, or a person acting on either of their behalf, at or prior to the time of sale, upon
such prospective purchaser’s request to the holder or the issuer, the following information
(which shall be reasonably current in relation to the date of resale under this section): a
very brief statement of the nature of the business of the issuer and the products and services
it offers; and the issuer’s most recent balance sheet and profit and loss and retained earnings
statements, and similar financial statements for such part of the two preceding fiscal years as
the issuer has been in operation (the financial statements should be audited to the extent
reasonably available).




(ii) The requirement that the information be reasonably current will be presumed to be satisfied
if:




(A) The balance sheet is as of a date less than 16 months before the date of resale, the
statements of profit and loss and retained earnings are for the 12 months preceding the date
of such balance sheet, and if such balance sheet is not as of a date less than 6 months
before the date of resale, it shall be accompanied by additional statements of profit and
loss and retained earnings for the period from the date of such balance sheet to a date less
than 6 months before the date of resale; and



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Page 5




17 C.F.R. § 230.144A






(B) The statement of the nature of the issuer’s business and its products and
services offered is as of a date within 12 months prior to the date of resale; or




(C) With regard to foreign private issuers, the required information meets the timing
requirements of the issuer’s home country or principal trading markets.


(e) Offers and sales of securities pursuant to this section shall be deemed not to affect the
availability of any exemption or safe harbor relating to any previous or subsequent offer or sale
of such securities by the issuer or any prior or subsequent holder thereof.



[55 FR 17945, April 30, 1990; 57 FR 48722, Oct. 28, 1992]



SOURCE: 62 FR 24573, May 6, 1997; 63 FR 6384, Feb. 6, 1998; 63 FR 13943,
13984, March 23, 1998; 64 FR 61449, Nov. 10, 1999; 65 FR 47284, Aug. 2, 2000;
66 FR 8896, 9017, Feb. 5, 2001; 67 FR 230, Jan. 2, 2002; 67 FR 13536,
March 22, 2002; 67 FR 19673, April 23, 2002; 68 FR 57777, Oct. 6, 2003; 72
FR 20414, April 24, 2007, unless otherwise noted.



AUTHORITY: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h,
77j, 77r, 77s, 77z-3, 77sss, 78c, 78d,
78j, 78l, 78m, 78n, 78o, 78t, 78w,
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29,
80a-30, and 80a-37, unless otherwise noted.; Section 230.151 is also issued under
15 U.S.C. 77s(a).; Section 230.160 is also issued under Section 104(d) of the Electronic
Signatures Act.; Sections 230.400 to 230.499 issued under 15 U.S.C. 77f, 77h,
77j, 77s, unless otherwise noted.; Section 230.473 is also issued under 15
U.S.C. 79(t).; Section 230.502 is also issued under 15 U.S.C. 80a-8, 80a-29,
80a-30.



17 C. F. R. § 230.144A, 17 CFR § 230.144A




     Current through July 19, 2007; 72 FR 39581



Copr. © 2007 Thomson/West




END OF DOCUMENT




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EXHIBIT E



Page 1




1992 WL 55818 (S.E.C. No - Action Letter)




(SEC No-Action Letter)




*1 Black




Box

Incorporated




Publicly Available February 28, 1992




SEC LETTER




1933 Act / s 5




February 28, 1992

Publicly Available February 28, 1992




Kenneth R. Koch, Esq.

Squadron, Ellenoff, Pleasant & Lehrer

551 Fifth Avenue

New York, New York 10176Dear Mr. Koch:



Our responses to the interpretive questions raised in your letter of December 27, 1991 regarding
the positions expressed in the staff’s letter dated June 26, 1990 to Black Box Incorporated (the
“Black Box letter”) are as follows:





1. The staff’s positions in the Black Box letter were not based on the financial condition of
the company. Specifically, in response to your concerns expressed during our telephone
conversations, the staff’s position with respect to integration of the Black Box registered
initial public offering and a simultaneous unregistered offering by Black Box of convertible
debentures (the “Black Box offerings”) was a policy position taken primarily in consideration of
the nature and number of the offerees, and not based on the financial condition of the company.





2. The number of offerees and purchasers is a factor considered by the staff in evaluating the
applicability of the policy position. As we discussed, the Black Box policy position on
integration was simply a formal articulation of an informal position the staff has taken
previously with respect to simultaneous registered offerings and unregistered offerings to a
limited number of first-tier institutional investors in connection with structured financings.
Because the position expressed with respect to the Black Box offerings is a policy position, it
is narrowly construed by the staff. The staff interprets the position to be limited in
applicability to situations where a registered offering would otherwise be integrated with an
unregistered offering to i) persons who would be qualified institutional buyers for purposes of
Rule 144A and 2) no more than two or three large institutional accredited investors. The
position does not constitute a determination by the staff that the unregistered offering is in
fact a bona fide private placement.[FN1]


FN1 With regard to the availability of the Section 4(2) private offering exemption, it should be
noted that the staff takes the position that the filing of a registration statement is deemed to be
the commencement of the public offering. See letter from former director of the Division of
Corporation Finance, John J. Huber, to Michael Bradfield, general counsel of the Board of Governors
of the Federal Reserve System (March 23, 1984). Further, your attention is directed to SEC
Litigation Release No. 10241 (December 19, 1983), regarding SEC v. Michael A. Traiger, Traiger
Energy Investments (U.S.D.C.C.D.Cal.Civil Action No. 83-2738-LTL JPx).





3. The position of the staff with respect to integration of the Black Box offerings would not
have been different if common stock had been sold in both the public and the private offerings.
In this regard, it should be noted that the staff historically has treated an offering of a
class of securities and an offering of another security convertible into that class of
securities as offerings of the same class of securities for purposes of the integration
doctrine.


*2 I trust that the foregoing information is of assistance to you. Should you have any further
questions regarding this matter, please feel free to contact me again.




Sincerely,




Cecilia D. Blye

Special Counsel

December 27, 1991




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	1992 WL 55818 (S.E.C. No —
Action Letter)

	 	Page 2






Special Counsel

December 27, 1991


Office of Chief Counsel

Division of Corporation Finance

Securities and Exchange Commission

Judiciary Plaza

450 Fifth Street, N.W.

Washington,. D.C. 20549




Re: Black Box Incorporated



Gentlemen:



At the suggestion of Cecilia Blye of the staff of the Securities and Exchange Commission (the
“Commission”), I am writing to pose three interpretive questions concerning the Black Box
Incorporated no-action letter (“Black Box”) recently promulgated by the Commission. In Black Box,
the issuer on whose behalf the no-action request was made (the “Company”), proposed to engage in a
contemporaneous private placement of convertible debentures and a public offering of common stock.
Under the circumstances set forth in Black Box, the private placement and the public offering were
not integrated.



1. In Black Box, the Company was apparently financially troubled. Would the Staff’s answer have
changed if Black Box was not financially troubled or is Black Box a “hardship” exception to the
general rules on integration?



2. In Black Box, the private placement was made to up to 35 “qualified institutional buyers” (as
defined in Rule 144A promulgated under the Act, and up to four “accredited investors” (as defined
in Regulation D promulgated under the Act). Is there any limit on the number of “qualified
institutional buyers” or “accredited investors” to whom offers may be made or to whom sales may be
made in order to fall within the rationale of Black Box? In this connection, I note Ms. Blye’s
concern that sales made to large numbers of investors may indicate that a purportedly private
placement has been conducted as a public offering. However, when the Commission adopted
Regulation D, the Commission shifted away from the strict numerical limitations on investors under
former Rule 146. When Regulation D was adopted in 1982, the limitations on numbers of investors
(except for the limit of 35 on non-accredited investors) were eliminated. Rule 502(c) under
Regulation D focuses instead on the manner of offering and not the number of offerees. Thus,
although a large number of investors in an offering may be some indication that the offering was
conducted in a manner violative of the prohibition against a “general solicitation” under Rule
502(c), it is not by itself determinative of whether such a general solicitation has occurred.
Accordingly, I would think that the Commission would continue to rely on the body of interpretative
law that has grown up around Rule 502(c), rather than a numerical limitation on investors, to
determine whether a public offering has been made.



If the Staff does believe that a numerical limitation on investors is appropriate for Black Box to
apply, the limit should probably only apply to the number of “accredited investors” involved in the
private placement and should not restrict the number of “qualified institutional buyers”.
Inherent in the Commission’s recent adoption of Rule 144A is the assumption that “qualified
institutional buyers” do not need the protection which the registration process provides.



*3 3. In Black Box, the Company was privately placing convertible debentures and publicly selling
common stock. Would the Staff’s answer have changed if the securities being sold in the private
placement and the public offering were identical? For example, would the answer remain the same
if Common Stock were being sold in both the private placement and the public offering.



We appreciate the Commission’s consideration of these questions. If you have any questions
concerning the above, please contact me at (212)476-8362.



An original and seven copies of this letter are submitted herewith.



Very truly yours,



Kenneth R. Koch

SQUADRON, ELLENOFF, PLESENT & LEHRER

551 Fifth Avenue

New York, NY 10176

(212)661-6500





© 2007 Thomson/West. No Claim to Orig. U.S. Govt. Works.