SENIOR CONVERTIBLE
NOTE 

NEITHER THE ISSUANCE AND
SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO
WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY
THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION
IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD
PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,
THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. ANY TRANSFEREE OF
THIS NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS NOTE, INCLUDING SECTIONS
3(c)(iii) AND 17(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS NOTE AND,
ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE
AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS NOTE.


BIOHEART,
INC. 

Senior Convertible Note

	Issuance Date: October 7 ,
2014	       	Original Principal Amount: U.S.
      $307,500



FOR VALUE
RECEIVED, BIOHEART, INC., a
Florida corporation (the “Company”), hereby
promises to pay to the order of MAGNA EQUITIES II, LLC or its registered assigns (“Holder”) the amount set out above as the Original Principal Amount (as reduced
pursuant to the terms hereof pursuant to redemption, conversion or otherwise,
the “Principal”) when due,
whether upon the Maturity Date (as defined below), acceleration, redemption or
otherwise (in each case in accordance with the terms hereof) and to pay interest
(“Interest”) on any outstanding Principal (as defined below)
(as such interest on any outstanding Principal may be reduced pursuant to the
terms hereof pursuant to redemption, conversion or otherwise) at the applicable
Interest Rate (as defined below) from the date set out above as the Issuance
Date (the “Issuance
Date”) until the same becomes due and payable, whether
upon the Maturity Date or acceleration, conversion, redemption or otherwise (in
each case in accordance with the terms hereof). This Senior Convertible Note
(this “Note”, including all Senior Convertible Notes issued
in exchange, transfer or replacement hereof, collectively, the
“Notes”) was initially issued pursuant to the Securities
Purchase Agreement (as defined below) on the Closing Date (as defined below).
Certain capitalized terms used herein are defined in Section 28. 

1. PAYMENTS OF PRINCIPAL. On
the Maturity Date, the Company shall pay to the Holder an amount in cash representing all outstanding Principal,
accrued and unpaid Interest and accrued and unpaid Late Charges (as defined in
Section 23(c)) on such Principal and Interest (as adjusted with respect to any
Note Reduction (as defined in Section 12)). Other than as specifically permitted
by this Note, the Company may not prepay any portion of the outstanding
Principal, accrued and unpaid Interest or accrued and unpaid Late Charges on
Principal and Interest, if any. 







2. INTEREST; INTEREST RATE.

(a) Interest on this Note shall commence accruing on the Issuance Date and
shall be computed on the basis of a 360-day year and twelve 30-day months and
shall be payable in cash on the Maturity Date or any applicable Redemption Date,
subject to adjustment with respect to any Note Reduction. 

(b) Prior
to the payment of Interest on the Maturity Date or any applicable Redemption
Date, Interest on this Note shall accrue at the Interest Rate and be payable by
way of inclusion of the Interest in the Conversion Amount on
each Conversion Date in accordance with Section 3(b)(i). From and after the
occurrence and during the continuance of any Event of Default, the Interest Rate
shall automatically be increased to eighteen percent (18.0%) per annum. In the
event that such Event of Default is subsequently cured, the adjustment referred
to in the preceding sentence shall cease to be effective as of the calendar day
immediately following the date of such cure; provided that the Interest as
calculated and unpaid at such increased rate during the continuance of such
Event of Default shall continue to apply to the extent relating to the days
after the occurrence of such Event of Default through and including the date of
such cure of such Event of Default. 

3. CONVERSION OF NOTES. This
Note shall be convertible into validly issued, fully paid and non-assessable
shares of Common Stock (as defined below), on the terms and conditions set forth
in this Section 3. 

(a) Conversion Right. Subject
to the provisions of Section 3(d), at any time or times on or after the Issuance
Date, the Holder shall be entitled to convert any portion of the outstanding and
unpaid Conversion Amount (as defined below) into validly issued, fully paid and
non-assessable shares of Common Stock in accordance with Section 3(c), at the
Conversion Rate (as defined below). The Company shall not issue any fraction of
a share of Common Stock upon any conversion. If the issuance would result in the
issuance of a fraction of a share of Common Stock, the Company shall round such
fraction of a share of Common Stock up to the nearest whole share. The Company
shall pay any and all transfer, stamp, issuance and similar taxes that may be
payable with respect to the issuance and delivery of Common Stock upon
conversion of any Conversion Amount. 

(b) Conversion Rate. The
number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 3(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the “Conversion Rate”). 

(i) “Conversion Amount”
means the portion of the Principal to be converted, redeemed or otherwise with
respect to which this determination is being made, plus all accrued and unpaid Interest with respect to such portion
of the Principal amount and accrued and unpaid Late Charges with respect to such
portion of such Principal and such Interest. 

2







(ii) “Conversion Price”
means, as of any Conversion Date or other date of determination, $0.01035,
subject to adjustment as provided herein; provided, however, that if the Company has not properly filed a registration statement
with the SEC on or prior to the date that is seventy (70) calendar days after
the Issuance Date covering the resale by the Holder of all of the shares of
Common Stock issued or issuable upon conversion of this Note or otherwise
pursuant to the terms of this Note in accordance with the 1933 Act and the
Registration Rights Agreement (the “Registration Failure”), then, from and after such Registration Failure, “Conversion Price” shall mean, as of any Conversion Date or other
date of determination, the product of (x) the lowest trading price of the Common
Stock during the five (5) consecutive Trading Days ending and including the
Trading Day immediately preceding the applicable Conversion Date (as
appropriately adjusted for any stock splits, stock dividends, stock combinations
or other similar transactions during any such measuring period) and (y)
forty-five percent (45%). 

(c) Mechanics of Conversion.


(i) Optional Conversion. To convert any Conversion Amount into shares of
Common Stock on any date (a “Conversion Date”), the
Holder shall deliver (whether via facsimile or otherwise), for receipt on or
prior to 11:59 p.m., New York time, on such date, a copy of an executed notice
of conversion in the form attached hereto as Exhibit I (the “Conversion
Notice”) to the Company. If
required by Section 3(c)(iii), the Holder shall surrender this Note to a
nationally recognized overnight delivery service for delivery to the Company (or
an indemnification undertaking with respect to this Note in the case of its
loss, theft or destruction as contemplated by Section 17(b)). On or before the
first (1st) Trading Day following the date of receipt of a Conversion
Notice, the Company shall transmit by facsimile an acknowledgment of
confirmation, in the form attached hereto as Exhibit II, of receipt of such Conversion Notice to the Holder and the Company’s
transfer agent (the “Transfer
Agent”). On or before the
second (2nd) Trading Day following the date of receipt of a
Conversion Notice, the Company shall (1) provided that the Transfer Agent is
participating in The Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program and such shares of Common
Stock may be issued without restrictive legend in accordance with Section 4.4 of
the Securities Purchase Agreement, credit such aggregate number of shares of
Common Stock to which the Holder shall be entitled to the Holder’s or its
designee’s balance account with DTC through its Deposit/Withdrawal at Custodian
system or (2) if the Transfer Agent is not participating in the DTC Fast
Automated Securities Transfer Program or such shares of Common Stock may not be
issued without restrictive legend in accordance with Section 4.4 of the
Securities Purchase Agreement, issue and deliver (via reputable overnight
courier) to the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of shares
of Common Stock to which the Holder shall be entitled. If this Note is
physically surrendered for conversion
as required by Section 3(c)(iii) and the outstanding Principal of this Note is
greater than the Principal portion of the Conversion Amount being converted,
then the Company shall as soon as practicable and in no event later than three
(3) Trading Days after receipt of this Note and at its own expense, issue and
deliver to the Holder (or its designee) a new Note (in accordance with Section
17(d)) representing the outstanding Principal not converted. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date. 

3







(ii) Company’s Failure to Timely
Convert. If the Company shall
fail, for any reason or for no reason, to issue to the Holder within three (3)
Trading Days after the Company’s receipt of a Conversion Notice (whether via
facsimile or otherwise) (the “Share Delivery Deadline”), a certificate for the number of shares of Common Stock to which the
Holder is entitled and register such shares of Common Stock on the Company’s
share register or to credit the Holder’s or its designee’s balance account with
DTC for such number of shares of Common Stock to which the Holder is entitled
upon the Holder’s conversion of any Conversion Amount (as the case may be) (a
“Conversion
Failure”) then, in addition
to all other remedies available to the Holder, (1) the Company shall pay in cash
to the Holder on each day after such Share Delivery Deadline that the issuance
of such shares of Common Stock is not timely effected an amount equal to 2% of
the product of (A) the sum of the number of shares of Common Stock not issued to
the Holder on a timely basis and to which the Holder is entitled multiplied by
(B) the Closing Sale Price of the Common Stock on the Trading Day immediately
preceding the last possible date which the Company could have issued such shares
of Common Stock to the Holder without violating Section 3(c)(i) and (2) the
Holder, upon written notice to the Company, may void its Conversion Notice with
respect to, and retain or have returned (as the case may be) any portion of this
Note that has not been converted pursuant to such Conversion Notice, provided
that the voiding of a Conversion Notice shall not affect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice pursuant to this Section 3(c)(ii) or otherwise. In addition to the
foregoing, if on or prior to the Share Delivery Deadline, the Company shall fail
to issue and deliver a certificate to the Holder and register such shares of
Common Stock on the Company’s share register or credit the Holder’s or its
designee’s balance account with DTC for the number of shares of Common Stock to
which the Holder is entitled upon the Holder’s conversion hereunder (as the case
may be), and if on or after such Share Delivery Deadline the Holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of all or any portion of the number of
shares of Common Stock, or a sale of a number of shares of Common Stock equal to
all or any portion of the number of shares of Common Stock, issuable upon such
conversion that the Holder so anticipated receiving from the Company, then, in
addition to all other remedies available to the Holder, the Company shall,
within three (3) Business Days after receipt of the Holder’s written request,
pay cash to the Holder in an amount equal to the Holder’s total purchase price
(including brokerage commissions and other out-of-pocket expenses, if any) for
the shares of Common Stock so purchased (including, without limitation, by any other Person in
respect, or on behalf, of the Holder) (the “Buy-In Price”), at which point the Company’s obligation to so
issue and deliver such certificate or credit the Holder’s balance account with
DTC for the number of shares of Common Stock to which the Holder is entitled
upon the Holder’s conversion hereunder (as the case may be) (and to issue such
shares of Common Stock) shall terminate. 

4







(iii) Book-Entry. Notwithstanding anything to the contrary set forth in this Section 3,
following conversion of any portion of this Note in accordance with the terms
hereof, the Holder shall not be required to physically surrender this Note to
the Company unless (A) the full Conversion Amount represented by this Note is
being converted (in which event this Note shall be delivered to the Company
following conversion thereof as contemplated by Section 3(c)(i)) or (B) the
Holder has provided the Company with prior written notice (which notice may be
included in a Conversion Notice) requesting reissuance of this Note upon
physical surrender of this Note. The Holder and the Company shall maintain
records showing the Principal, Interest and Late Charges converted and/or paid
and/or adjusted (as the case may be) and the dates of such conversions and/or
payments and/or adjustments (as the case may be) or shall use such other method,
reasonably satisfactory to the Holder and the Company, so as not to require
physical surrender of this Note upon conversion. 

(iv) Pro Rata Conversion; Disputes. In the event of a dispute as to the number of
shares of Common Stock issuable to the Holder in connection with a conversion of
this Note, the Company shall issue to the Holder the number of shares of Common
Stock not in dispute and resolve such dispute in accordance with Section 22.


(d) Limitations on Conversions. Notwithstanding anything to the contrary contained in this Note, this
Note shall not be convertible by the Holder hereof, and the Company shall not
effect any conversion of this Note or otherwise issue any shares of Common Stock
pursuant hereto, to the extent (but only to the extent) that after giving effect
to such conversion or other share issuance hereunder the Holder (together with
its affiliates) would beneficially own in excess of 4.99% (the
“Maximum
Percentage”) of the Common
Stock. To the extent the above limitation applies, the determination of whether
this Note shall be convertible (vis-à-vis other convertible, exercisable or
exchangeable securities owned by the Holder or any of its affiliates) and of
which such securities shall be convertible, exercisable or exchangeable (as
among all such securities owned by the Holder and its affiliates) shall, subject
to such Maximum Percentage limitation, be determined on the basis of the first
submission to the Company for conversion, exercise or exchange (as the case may
be). No prior inability to convert this Note, or to issue shares of Common
Stock, pursuant to this paragraph shall have any effect on the applicability of
the provisions of this paragraph with respect to any subsequent determination of
convertibility. For purposes of this paragraph, beneficial ownership and all
determinations and calculations (including, without limitation, with respect to
calculations of percentage ownership) shall be determined in accordance with
Section 13(d) of the 1934 Act (as defined in the Securities Purchase Agreement)
and the rules and regulations promulgated thereunder. The provisions of this
paragraph shall be implemented in a manner otherwise than in strict conformity
with the terms of this paragraph to correct this paragraph (or any portion
hereof) which may be defective or
inconsistent with the intended Maximum Percentage beneficial ownership
limitation herein contained or to make changes or supplements necessary or
desirable to properly give effect to such Maximum Percentage limitation. The
limitations contained in this paragraph shall apply to a successor Holder of
this Note. The holders of Common Stock shall be third party beneficiaries of
this paragraph and the Company may not waive this paragraph without the consent
of holders of a majority of its Common Stock. For any reason at any time, upon
the written or oral request of the Holder, the Company shall within one (1)
Business Day confirm orally and in writing to the Holder the number of shares of
Common Stock then outstanding, including by virtue of any prior conversion or
exercise of convertible or exercisable securities into Common Stock, including,
without limitation, pursuant to this Note or securities issued pursuant to the
Securities Purchase Agreement. The Company or its transfer agent shall advise
the Holder within 24 hours to the extent that any issuance of Common Stock
hereunder, after giving effect thereto, would result in the Holder (together
with its affiliates) beneficially owning in excess of 4.99% of the Common Stock.


5







4. RIGHTS UPON EVENT OF DEFAULT. 

(a) Event of Default. Each of
the following events shall constitute an “Event of Default”: 

(i) the suspension (or threatened suspension) from
trading or the failure (or threatened failure) of the Common Stock to be trading
or listed (as applicable) on an Eligible Market for a period of five (5)
consecutive days or for more than an aggregate of ten (10) days in any 365-day
period, or the imposition of any suspension of, or restriction on, accepting
additional deposits of the Common Stock, or electronic trading or book-entry
services by DTC with respect to the Common Stock; 

(ii) the Company’s or any Subsidiary’s (as defined in
the Securities Purchase Agreement) failure to pay to the Holder any amount of
Principal, Interest, Late Charges or other amounts when and as due under this
Note (including, without limitation, the Company’s or any Subsidiary’s failure
to pay any redemption payments or amounts hereunder) or any other Transaction
Document (as defined in the Securities Purchase Agreement) or any other
agreement, document, certificate or other instrument delivered in connection
with the transactions contemplated hereby and thereby, except, in the case of a
failure to pay Interest and Late Charges when and as due, in which case only if
such failure remains uncured for a period of at least five (5) days; 

(iii) the occurrence of any default under, redemption of
or acceleration prior to maturity of an aggregate of any Indebtedness (as
defined in the Securities Purchase Agreement) of the Company or any of its
Subsidiaries; 

(iv) bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for the relief of debtors shall be
instituted by or against the Company or any Subsidiary and, if instituted
against the Company or any Subsidiary by a third party, shall not be dismissed
within thirty (30) days of their initiation; 

6







(v) the commencement by the Company or any Subsidiary
of a voluntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or of any other case
or proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a Uniform Commercial Code foreclosure sale or any other similar action
under federal, state or foreign law; 

(vi) the entry by a court of (i) a decree, order,
judgment or other similar document in respect of the Company or any Subsidiary
of a voluntary or involuntary case or proceeding under any applicable federal,
state or foreign bankruptcy, insolvency, reorganization or other similar law or
(ii) a decree, order, judgment or other similar document adjudging the Company
or any Subsidiary as bankrupt or insolvent, or approving as properly filed a
petition seeking liquidation, reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Subsidiary under any
applicable federal, state or foreign law or (iii) a decree, order, judgment or
other similar document appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of the Company or any Subsidiary
or of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree, order,
judgment or other similar document or any such other decree, order, judgment or
other similar document unstayed and in effect for a period of thirty (30)
consecutive days; 

(vii) a final judgment or judgments for the payment of
money aggregating in excess of $100,000 are rendered against the Company and/or
any of its Subsidiaries and which judgments are not, within thirty (30) days
after the entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within thirty (30) days after the expiration of such stay; provided,
however, any judgment which is covered by insurance or an indemnity from a
credit worthy party shall not be included in calculating the $100,000 amount set
forth above so long as the Company provides the Holder a written statement from
such insurer or indemnity provider (which written statement shall be reasonably
satisfactory to the Holder) to the effect that such judgment is covered by
insurance or an indemnity and the Company or such Subsidiary (as the case may
be) will receive the proceeds of such insurance or indemnity within thirty (30) days of the issuance
of such judgment; 

7







(viii) the Company and/or any Subsidiary, individually or
in the aggregate, either (i) fails to pay, when due, or within any applicable
grace period, any payment with respect to any Indebtedness in excess of $100,000
due to any third party (other than, with respect to unsecured Indebtedness only,
payments contested by the Company and/or such Subsidiary (as the case may be) in
good faith by proper proceedings and with respect to which adequate reserves
have been set aside for the payment thereof in accordance with GAAP) or is
otherwise in breach or violation of any agreement for monies owed or owing in an
amount in excess of $100,000, which breach or violation permits the other party
thereto to declare a default or otherwise accelerate amounts due thereunder, or
(ii) suffer to exist any other circumstance or event that would, with or without
the passage of time or the giving of notice, result in a default or event of
default under any agreement binding the Company or any Subsidiary, which default
or event of default would or is likely to have a material adverse effect on the
business, assets, operations (including results thereof), liabilities,
properties, condition (including financial condition) or prospects of the
Company or any of its Subsidiaries, individually or in the aggregate;


(ix) other than as specifically set forth in another
clause of this Section 4(a),
the Company or any Subsidiary
breaches any representation, warranty, covenant or other term or condition of
any Transaction Document, except, in the case of a breach of a covenant or other
term or condition that is curable, only if such breach remains uncured for a
period of three (3) consecutive Trading Days; 

(x) any Material Adverse Effect (as defined in the
Securities Purchase Agreement) occurs; or 

(xi) any Change of Control occurs. 

(b) Notice of an Event of Default; Redemption Right. Upon the occurrence of an Event of Default with
respect to this Note, the Company shall within one (1) Business Day deliver
written notice thereof via facsimile and overnight courier (with next day
delivery specified) (an “Event
of Default Notice”) to the
Holder. At any time after the earlier of the Holder’s receipt of an Event of
Default Notice and the Holder becoming aware of an Event of Default, the Holder
may require the Company to redeem (regardless of whether such Event of Default
has been cured) all or any portion of this Note by delivering written notice
thereof (the “Event of Default
Redemption Notice”) to the
Company, which Event of Default Redemption Notice shall indicate the portion of
this Note the Holder is electing to redeem. Each portion of this Note subject to
redemption by the Company pursuant to this Section 4(b) shall be redeemed by the
Company at a price equal to the greater of (i) the product of (A) the Conversion
Amount to be redeemed multiplied by (B) the Redemption Premium and (ii) the
product of (X) the Conversion Rate with respect to the Conversion Amount in
effect at such time as the Holder delivers an Event of Default Redemption Notice
multiplied by (Y) the product of (1) the Redemption Premium multiplied by (2)
the greatest Closing Sale Price of the Common Stock on any Trading Day during
the period commencing on the date immediately preceding such Event of Default
and ending on the date the Company makes the entire payment required to be made
under this Section 4(b) (the
“Event of
Default
Redemption
Price”). Redemptions required
by this Section 4(b) shall be made in accordance with the provisions of Section
10. To the extent redemptions required by this Section 4(b) are deemed or
determined by a court of competent jurisdiction to be prepayments of this Note
by the Company, such redemptions shall be deemed to be voluntary prepayments.
Notwithstanding anything to the contrary in this Section 4, but subject to
Section 3(d), until the Event of Default Redemption Price (together with any
Late Charges thereon) is paid in full, the Conversion Amount submitted for
redemption under this Section 4(b) (together with any Late Charges thereon) may
be converted, in whole or in part, by the Holder into Common Stock pursuant to
the terms of this Note. In the event of the Company’s redemption of any portion
of this Note under this Section 4(b), the Holder’s damages would be uncertain
and difficult to estimate because of the parties’ inability to predict future
interest rates and the uncertainty of the availability of a suitable substitute
investment opportunity for the Holder. Accordingly, any redemption premium due
under this Section 4(b) is intended by the parties to be, and shall be deemed, a
reasonable estimate of the Holder’s actual loss of its investment opportunity
and not as a penalty. 

8







5. RIGHTS UPON FUNDAMENTAL TRANSACTION; OTHER CORPORATE EVENTS. 

(a) Assumption. The Company
shall not enter into or be party to a Fundamental Transaction unless (i) the
Successor Entity assumes in writing all of the obligations of the Company under
this Note and the other Transaction Documents in accordance with the provisions
of this Section 5(a) pursuant to written agreements in form and substance
satisfactory to the Holder and approved by the Holder prior to such Fundamental
Transaction, including agreements to deliver to each holder of Notes in exchange
for such Notes a security of the Successor Entity evidenced by a written
instrument substantially similar in form and substance to the Notes, including,
without limitation, having a principal amount and interest rate equal to the
principal amounts then outstanding and the interest rates of the Notes held by
such holder, having similar conversion rights as the Notes and having similar
ranking to the Notes, and satisfactory to the Holder and (ii) the Successor
Entity (including its Parent Entity) is a publicly traded corporation whose
common stock is quoted on or listed for trading on an Eligible Market. Upon the
occurrence of any Fundamental Transaction, the Successor Entity shall succeed
to, and be substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note and the other Transaction Documents
referring to the “Company” shall refer instead to the Successor Entity), and may
exercise every right and power of the Company and shall assume all of the
obligations of the Company under this Note and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Company
herein. Upon consummation of a Fundamental Transaction, the Successor Entity
shall deliver to the Holder confirmation that there shall be issued upon
conversion or redemption of this Note at any time after the consummation of such
Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or
other securities, cash, assets or other property (except such items still
issuable under Section 14, which shall continue to be receivable thereafter)
issuable upon the conversion or redemption of the Notes prior to such
Fundamental Transaction, such shares of the publicly traded common stock (or
their equivalent) of the Successor Entity (including its Parent Entity) which
the Holder would have been entitled to receive upon the happening of such
Fundamental Transaction had this Note been converted immediately prior to such
Fundamental Transaction (without regard to any limitations on the conversion of
this Note), as adjusted in accordance
with the provisions of this Note. Notwithstanding the foregoing, the Holder may
elect, at its sole option, by delivery of written notice to the Company to waive
this Section 5(a) to permit the Fundamental Transaction without the assumption
of this Note.

9







(b) Other Corporate Events. In
addition to and not in substitution for any other rights hereunder, prior to the
consummation of any Fundamental Transaction pursuant to which holders of shares
of Common Stock are entitled to receive securities or other assets with respect
to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision
to insure that the Holder will thereafter have the right to receive upon a
conversion of this Note (i) in addition to the shares of Common Stock receivable
upon such conversion, such securities or other assets to which the Holder would
have been entitled with respect to such shares of Common Stock had such shares
of Common Stock been held by the Holder upon the consummation of such Corporate
Event (without taking into account any limitations or restrictions on the
convertibility of this Note) or (ii) in lieu of the shares of Common Stock
otherwise receivable upon such conversion, such securities or other assets
received by the holders of shares of Common Stock in connection with the
consummation of such Corporate Event in such amounts as the Holder would have
been entitled to receive had this Note initially been issued with conversion
rights for the form of such consideration (as opposed to shares of Common Stock)
at a conversion rate for such consideration commensurate with the Conversion
Rate. Provision made pursuant to the preceding sentence shall be in a form and
substance satisfactory to the Holder.

(c) The
provisions of this Section 5 shall apply similarly and equally to successive
Fundamental Transactions and Corporate Events and shall be applied without
regard to any limitations on the conversion of this Note. 

6. RIGHTS UPON ISSUANCE OF OTHER SECURITIES. 

(a) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever on or
after the Closing Date and before a Registration Failure, the Company issues or
sells, or in accordance with this Section 6(a) is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of shares of Common
Stock owned or held by or for the account of the Company, but excluding any
Excluded Securities issued or sold or deemed to have been issued or sold) for a
consideration per share (the “New Issuance Price”)
less than a price equal to the Conversion Price in effect immediately prior to
such issue or sale or deemed issuance or sale (such Conversion Price then in
effect is referred to herein as the “Applicable Price”)
(the foregoing a “Dilutive
Issuance”), then, immediately
after such Dilutive Issuance, the Conversion Price then in effect shall be
reduced to an amount equal to the New Issuance Price. For all purposes of the
foregoing (including, without limitation, determining the adjusted Conversion
Price and consideration per share under this Section 6(a)), the following shall
be applicable: 

(i) Issuance of Options. If the Company in any manner grants or sells any
Options and the lowest price per share for which one share of Common Stock is
issuable upon the exercise of any such Option or upon conversion, exercise or
exchange of any Convertible Securities issuable upon exercise of any such Option
is less than the Applicable Price, then such share of Common Stock shall be
deemed to be outstanding and to have
been issued and sold by the Company at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 6(a)(i), the
“lowest price per share for which one share of Common Stock is issuable upon the
exercise of any such Option or upon conversion, exercise or exchange of any
Convertible Securities issuable upon exercise of any such Option” shall be equal
to (1) the lower of (x) the sum of the lowest amounts of consideration (if any)
received or receivable by the Company with respect to any one share of Common
Stock upon the granting or sale of such Option, upon exercise of such Option and
upon conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option and (y) the lowest exercise price set forth in such
Option for which one share of Common Stock is issuable upon the exercise of any
such Options or upon conversion, exercise or exchange of any Convertible
Securities issuable upon exercise of any such Option, minus (2) the sum of all
amounts paid or payable to the holder of such Option (or any other Person) upon
the granting or sale of such Option, upon exercise of such Option and upon
conversion, exercise or exchange of any Convertible Security issuable upon
exercise of such Option plus the value of any other consideration received or
receivable by, or benefit conferred on, the holder of such Option (or any other
Person). Except as contemplated below, no further adjustment of the Conversion
Price shall be made upon the actual issuance of such share of Common Stock or of
such Convertible Securities upon the exercise of such Options or upon the actual
issuance of such share of Common Stock upon conversion, exercise or exchange of
such Convertible Securities.

10







(ii) Issuance of Convertible Securities. If the Company in any manner issues or sells any
Convertible Securities and the lowest price per share for which one share of
Common Stock is issuable upon the conversion, exercise or exchange thereof is
less than the Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this Section 6(a)(ii), the “lowest price per share for which
one share of Common Stock is issuable upon the conversion, exercise or exchange
thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of
consideration (if any) received or receivable by the Company with respect to one
share of Common Stock upon the issuance or sale of the Convertible Security and
upon conversion, exercise or exchange of such Convertible Security and (y) the
lowest conversion price set forth in such Convertible Security for which one
share of Common Stock is issuable upon conversion, exercise or exchange thereof
minus (2) the sum of all amounts paid or payable to the holder of such
Convertible Security (or any other Person) upon the issuance or sale of such
Convertible Security plus the value of any other consideration received or
receivable by, or benefit conferred on, the holder of such Convertible Security
(or any other Person). Except as contemplated below, no further adjustment of
the Conversion Price shall be made upon the actual issuance of such share of
Common Stock upon conversion, exercise or exchange of such Convertible
Securities, and if any such issue or sale of such Convertible Securities is made
upon exercise of any Options for which adjustment of the Conversion Price has
been or is to be made pursuant to other provisions of this Section 6(a), except
as contemplated below, no further adjustment of the Conversion Price shall be
made by reason of such issue or sale.


11







(iii) Change in Option Price or Rate of
Conversion. If the purchase or
exercise price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion, exercise or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exercisable or exchangeable for shares of Common Stock increases or decreases
at any time, the Conversion Price in effect at the time of such increase or
decrease shall be adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities provided for such
increased or decreased purchase price, additional consideration or increased or
decreased conversion rate (as the case may be) at the time initially granted,
issued or sold. For purposes of this Section 6(a)(iii), if the terms of any
Option or Convertible Security that was outstanding as of the Closing Date are
increased or decreased in the manner described in the immediately preceding
sentence, then such Option or Convertible Security and the shares of Common
Stock deemed issuable upon exercise, conversion or exchange thereof shall be
deemed to have been issued as of the date of such increase or decrease. No
adjustment pursuant to this Section 6(a) shall be made if such adjustment would
result in an increase of the Conversion Price then in effect. 

(iv) Calculation of Consideration
Received. If any Option or
Convertible Security or Adjustment Right is issued or deemed issued in
connection with the issuance or sale or deemed issuance or sale of any other
securities of the Company, together comprising one integrated transaction, (x)
such Option or Convertible Security (as applicable) or Adjustment Right (as
applicable) will be deemed to have been issued for consideration equal to the
Black Scholes Consideration Value thereof and (y) the other securities issued or
sold or deemed to have been issued or sold in such integrated transaction shall
be deemed to have been issued for consideration equal to the difference of (I)
the aggregate consideration received or receivable by the Company minus (II) the
Black Scholes Consideration Value of each such Option or Convertible Security
(as applicable) or Adjustment Right (as applicable). If any shares of Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount of consideration received by the Company therefor. If any
shares of Common Stock, Options or Convertible Securities are issued or sold for
a consideration other than cash, the amount of such consideration received by
the Company will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case the amount
of consideration received by the Company for such securities will be the average
of the Closing Bid Price of such security for each Trading Day during the five
(5) Trading Day period immediately preceding the date of receipt. If any shares
of Common Stock, Options or Convertible Securities are issued to the owners of
the non-surviving entity in connection with any merger in which the Company is
the surviving entity, the amount of consideration therefor will be deemed to be
the fair value of such portion of the net assets and business of the
non-surviving entity as is attributable to such shares of Common Stock, Options
or Convertible Securities (as the case may be). The fair value of any
consideration other than cash or
publicly traded securities will be determined jointly by the Company and the
Holder. If such parties are unable to reach agreement within ten (10) days after
the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be
determined within five (5) Trading Days after the tenth (10th) day
following such Valuation Event by an independent, reputable appraiser jointly
selected by the Company and the Holder. The determination of such appraiser
shall be final and binding upon all parties absent manifest error and the fees
and expenses of such appraiser shall be borne by the Company. 

12







(v) Record Date. If the Company takes a record of the holders of shares of Common Stock
for the purpose of entitling them (A) to receive a dividend or other
distribution payable in shares of Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase (as the case may be). 

(b) Adjustment of Conversion Price upon Subdivision or Combination
of Common Stock. Without limiting any provision of Section 5 or
Section 6(a), if the Company at any time on or after the Closing Date and before
a Registration Failure subdivides (by any stock split, stock dividend, stock
combination, recapitalization or other similar transaction) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. Without limiting any provision of Section 5 or Section
6(a), if the Company at any time on or after the Closing Date and before a
Registration Failure combines (by any stock split, stock dividend, stock
combination, recapitalization or other similar transaction) one or more classes
of its outstanding shares of Common Stock into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination will be
proportionately increased. Any adjustment pursuant to this Section 6(b) shall
become effective immediately after the effective date of such subdivision or
combination. If any event requiring an adjustment under this Section 6(b) occurs
during the period that a Conversion Price is calculated hereunder, then the
calculation of such Conversion Price shall be adjusted appropriately to reflect
such event. 

(c) Other Events. In the event
that the Company (or any Subsidiary) shall take any action to which the
provisions hereof are not strictly applicable, or, if applicable, would not
operate to protect the Holder from dilution or if any event occurs of the type
contemplated by the provisions of this Section 6 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company’s board of directors shall in good faith determine and
implement an appropriate adjustment in the Conversion Price so as to protect the
rights of the Holder, provided that no such adjustment pursuant to this Section
6(c) will increase the Conversion Price as otherwise determined pursuant to this
Section 6, provided further that if the Holder does not accept such adjustments
as appropriately protecting its interests hereunder against such dilution, then
the Company’s board of directors and the Holder shall agree, in good faith, upon
an independent investment bank of nationally recognized standing to make such
appropriate adjustments, whose
determination shall be final and binding and whose fees and expenses shall be
borne by the Company. 

13







7. NONCIRCUMVENTION. The
Company hereby covenants and agrees that the Company will not, by amendment of its articles of incorporation, bylaws
or through any reorganization, transfer of assets, consolidation, merger, scheme
of arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all of the
provisions of this Note and take all action as may be required to protect the
rights of the Holder of this Note. Without limiting the generality of the
foregoing, the Company (i) shall not increase the par value of any shares of
Common Stock receivable upon conversion of this Note above the Conversion Price
then in effect, (ii) shall take all such actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the conversion of this Note, and
(iii) shall, so long as any of the Notes are outstanding, take all action
necessary to reserve and keep available out of its authorized and unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Notes, the maximum number of shares of Common Stock as shall from time to
time be necessary to effect the conversion of the Notes then outstanding
(without regard to any limitations on conversion). 

8. RESERVATION OF AUTHORIZED SHARES. 

(a) Reservation. The Company
shall initially reserve out of its authorized and unissued Common Stock a number
of shares of Common Stock for each of the Notes equal to 150% of the entire
Conversion Rate with respect to the entire Conversion Amount of each such Note
as of the Issuance
Date. So long as any of the Notes
are outstanding, the Company shall take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Notes, 150% of the number of shares
of Common Stock as shall from time to time be necessary to effect the conversion
of all of the Notes then outstanding, provided that at no time shall the number
of shares of Common Stock so reserved be less than the number of shares required
to be reserved by the previous sentence (without regard to any limitations on
conversions) (the “Required
Reserve Amount”). 

(b) Insufficient Authorized Shares. If, notwithstanding Section 8(a), and not in limitation thereof, at any
time while any of the Notes remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy
its obligation to reserve for issuance upon conversion of the Notes at least a
number of shares of Common Stock equal to the Required Reserve Amount (an
“Authorized Share
Failure”), then the Company
shall immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount for the Notes then outstanding. Without limiting the
generality of the foregoing sentence, as soon as practicable after the date of
the occurrence of an Authorized Share Failure, but in no event later than sixty
(60) days after the occurrence of such Authorized Share Failure, the Company
shall hold a meeting of its stockholders for the approval of an increase in the
number of authorized shares of Common Stock. In connection with such meeting,
the Company shall provide each stockholder with a proxy statement and shall use
its best efforts to solicit its stockholders’ approval of such increase in authorized shares of Common
Stock and to cause its board of directors to recommend to the stockholders that
they approve such proposal. In the event that the Company is prohibited from
issuing shares of Common Stock upon any conversion due to the failure by the
Company to have sufficient shares of Common Stock available out of the
authorized but unissued shares of Common Stock (such unavailable number of
shares of Common Stock, the “Authorization Failure Shares”), in lieu of delivering such Authorization Failure Shares to the
Holder, the Company shall pay cash in exchange for the redemption of such
portion of the Conversion Amount convertible into such Authorized Failure Shares
at a price equal to the sum of (i) the product of (x) such number of
Authorization Failure Shares and (y) the greatest Closing Sale Price of the
Common Stock on any Trading Day during the period commencing on the date the
Holder delivers the applicable Conversion Notice with respect to such
Authorization Failure Shares to the Company and ending on the date of such
issuance and payment under this Section 8(b) and (ii) to the extent the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of Authorization Failure Shares,
any brokerage commissions and other out-of-pocket expenses, if any, of the
Holder incurred in connection therewith. Nothing contained in Section 8(a) or
this Section 8(b) shall limit any obligations of the Company under any provision
of the Securities Purchase Agreement. 

14







9. COMPANY OPTIONAL REDEMPTION. At any time after the Issuance Date, the Company shall have the right
to redeem all, but not less than all, of the Conversion Amount then remaining
under this Note (the “Company
Optional Redemption Amount”)
on the Company Optional Redemption Date (as defined below) (a
“Company Optional
Redemption”). The portion of
this Note subject to redemption pursuant to this Section 9 shall be redeemed by
the Company in cash at a price (the “Company Optional Redemption Price”) equal to 140% of the Conversion Amount of this
Note then outstanding. The Company may exercise its right to require redemption
under this Section 9 by delivering an irrevocable written notice thereof by
facsimile and overnight courier to the Holder (the “Company Optional Redemption
Notice” and the date the
Holder receives such notice is referred to as the “Company Optional Redemption Notice
Date”). The Company may
deliver only one Company Optional Redemption Notice in any ninety (90) day
period. The Company Optional Redemption Notice shall (x) state the date on which
the Company Optional Redemption shall occur (the “Company Optional Redemption
Date”) which date shall not
be less than sixty (60) calendar days nor more than ninety (90) calendar days
following the Company Optional Redemption Notice Date, and (y) state the
aggregate Conversion Amount of the Notes which is being redeemed in such Company
Optional Redemption from the Holder pursuant to this Section 9 on the Company
Optional Redemption Date. Notwithstanding anything herein to the contrary, at
any time prior to the date the Company Optional Redemption Price is paid, in
full, the Company Optional Redemption Amount may be converted, in whole or in
part, by the Holder into shares of Common Stock pursuant to Section 3. All
Conversion Amounts converted by the Holder after the Company Optional Redemption
Notice Date shall reduce the Company Optional Redemption Amount of this Note
required to be redeemed on the Company Optional Redemption Date. Redemptions
made pursuant to this Section 9 shall be made in accordance with Section 10.


15







10. REDEMPTIONS. 

(a) Mechanics. The Company
shall deliver the applicable Event of Default Redemption Price to the Holder in
cash within five (5) Business Days after the Company’s receipt of the Holder’s
Event of Default Redemption Notice. The Company shall deliver the applicable
Company Optional Redemption Price to the Holder in cash on the applicable
Company Optional Redemption Date. In the event of a redemption of less than all
of the Conversion Amount of this Note, the Company shall promptly cause to be
issued and delivered to the Holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal which has not been redeemed. The Holder’s
delivery of a notice voiding a Redemption Notice and exercise of its rights
following such notice shall not affect the Company’s obligations to make any
payments of Late Charges which have accrued prior to the date of such notice
with respect to the Conversion Amount subject to such notice. 

11. VOTING RIGHTS. The Holder
shall have no voting rights as the holder of this Note, except as required by
law (including, without limitation, the Florida Business Corporations Act) and
as expressly provided in this Note. 

12. NOTE REDUCTIONS.

(a) Filing Date Reduction. As
of the Trading Day immediately following the Filing Deadline (as such term is
defined in the Registration Rights Agreement), if (i) the Company has properly
filed a registration statement with the SEC on or prior to the Filing Deadline
covering the resale by the Holder of all of the shares of Common Stock issued or
issuable upon conversion of this Note or otherwise pursuant to the terms of this
Note in accordance with the 1933 Act and the Registration Rights Agreement and
(ii) no Event of Default or an event that with the passage of time or giving of
notice would constitute an Event of Default has occurred on or prior to such
date, then $40,000 of the outstanding Principal hereunder (together with any
accrued and unpaid Interest with respect to such portion of the Principal amount
and accrued and unpaid Late Charges with respect to such portion of such
Principal and such Interest) shall be automatically extinguished and shall no
longer remain outstanding hereunder without any payment thereof by the Company.


(b) Effective Date Reduction.
As of the Trading Day immediately following the Effectiveness Deadline (as such
term is defined in the Registration Rights Agreement), if (i) the Company has
filed a registration statement with the SEC that has been declared effective by
the SEC on or prior to the Effectiveness Deadline and the prospectus contained
therein is available for use by the Holder for the resale by the Holder of all
of the shares of Common Stock issued or issuable upon conversion of this Note or
otherwise pursuant to the terms of this Note and (ii) no Event of Default or an
event that with the passage of time or giving of notice would constitute an
Event of Default has occurred on or prior to such date, then $62,500 of the
outstanding Principal hereunder (together with any accrued and unpaid Interest
with respect to such portion of the Principal amount and accrued and unpaid Late
Charges with respect to such portion of such Principal and such Interest) shall
be automatically extinguished and shall no longer remain outstanding hereunder
without any payment thereof by the Company. 

16







(c) Disputes. In the event of
a dispute as to the arithmetic calculation of any Note Reduction, the Company
and the Holder shall resolve such dispute in accordance with Section 22.


13. COVENANTS. Until all of
the Notes have been converted, redeemed or otherwise satisfied in accordance
with their terms: 

(a) Rank. All payments due
under this Note shall be senior to all other Indebtedness of the Company and its
Subsidiaries. 

(b) Incurrence of Indebtedness. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, incur or guarantee, assume or
suffer to exist any Indebtedness (other than (i) the Indebtedness evidenced by
this Note and (ii) other Permitted Indebtedness). 

(c) Existence of Liens. The
Company shall not, and the Company shall cause each of its Subsidiaries to not,
directly or indirectly, allow or suffer to exist any mortgage, lien, pledge,
charge, security interest or other encumbrance upon or in any property or assets
(including accounts and contract rights) owned by the Company or any of its
Subsidiaries (collectively, “Liens”) other than
Permitted Liens. 

(d) Restricted Payments. The
Company shall not, and the Company shall cause each of its Subsidiaries to not,
directly or indirectly, redeem, defease, repurchase, repay or make any payments
in respect of, by the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private transactions or
otherwise), all or any portion of any Indebtedness, whether by way of payment in
respect of principal of (or premium, if any) or interest on, such Indebtedness
if at the time such payment is due or is otherwise made or, after giving effect
to such payment, (i) an event constituting an Event of Default has occurred and
is continuing or (ii) an event that with the passage of time and without being
cured would constitute an Event of Default has occurred and is continuing.


(e) Restricted Issuances. The
Company shall not, directly or indirectly, without the prior written consent of
the holders of a majority in aggregate principal amount of the Notes then
outstanding, (i) issue any Notes (other than as contemplated by the Securities
Purchase Agreement and the Notes) or (ii) issue any other securities that would
cause a breach or default under the Notes. 

(f) Restriction on Redemption and Cash Dividends. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, redeem,
repurchase or declare or pay any cash dividend or distribution on any of its
capital stock. 

(g) Restriction on Transfer of Assets. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, sell, lease, license, assign,
transfer, spin-off, split-off, close, convey or otherwise dispose of any assets
or rights of the Company or any Subsidiary owned or hereafter acquired whether
in a single transaction or a series of related transactions, other than (i)
sales, leases, licenses, assignments, transfers, conveyances and other
dispositions of such assets or rights by the Company and its Subsidiaries in the
ordinary course of business and (ii) sales of inventory in the ordinary course
of business. 

17







(h) Maturity of Indebtedness.
The Company shall not, and the Company shall cause each of its Subsidiaries to
not, directly or indirectly, permit any Indebtedness of the Company or any of
the Subsidiaries to mature or accelerate prior to the Maturity Date. 

(i) Change in Nature of Business. The Company shall not, and the Company shall cause each of its
Subsidiaries to not, directly or indirectly, engage in any material line of
business substantially different from those lines of business conducted by the
Company and each of its Subsidiaries on the Issuance Date or any business
substantially related or incidental thereto. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
modify its or their corporate structure or purpose. 

(j) Preservation of Existence, Etc. The Company shall maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, its existence, rights and privileges, and
become or remain, and cause each of its Subsidiaries to become or remain, duly
qualified and in good standing in each jurisdiction in which the character of
the properties owned or leased by it or in which the transaction of its business
makes such qualification necessary. 

(k) Maintenance of Properties, Etc. The Company shall maintain and preserve, and cause each of its
Subsidiaries to maintain and preserve, all of its properties which are necessary
or useful in the proper conduct of its business in good working order and
condition, ordinary wear and tear excepted, and comply, and cause each of its
Subsidiaries to comply, at all times with the provisions of all leases to which
it is a party as lessee or under which it occupies property, so as to prevent
any loss or forfeiture thereof or thereunder. 

(l) Maintenance of Intellectual Property. The Company will, and will cause each of its
Subsidiaries to, take all action necessary or advisable to maintain all of the
intellectual property rights of the Company and/or any of its Subsidiaries that
are necessary or material to the conduct of its business in full force and
effect. 

(m) Maintenance of Insurance.
The Company shall maintain, and cause each of its Subsidiaries to maintain,
insurance with responsible and reputable insurance companies or associations
(including, without limitation, comprehensive general liability, hazard, rent
and business interruption insurance) with respect to its properties (including
all real properties leased or owned by it) and business, in such amounts and
covering such risks as is required by any governmental authority having
jurisdiction with respect thereto or as is carried generally in accordance with
sound business practice by companies in similar businesses similarly situated.


(n) Transactions with Affiliates. The Company shall not, nor shall it permit any of its Subsidiaries to,
enter into, renew, extend or be a party to, any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease, transfer
or exchange of property or assets of any kind or the rendering of services of
any kind) with any affiliate, except in the ordinary course of business in a
manner and to an extent consistent with past practice and necessary or desirable
for the prudent operation of its business, for fair consideration and on terms
no less favorable to it or its Subsidiaries than would be obtainable in a
comparable arm’s length transaction with a Person that is not an affiliate
thereof. 

18







14. PARTICIPATION. In addition
to any adjustments pursuant to Section 6, the Holder, as the holder of this Note, shall be
entitled to receive such dividends paid and distributions made to the holders of
Common Stock to the same extent as if the Holder had converted this Note into
Common Stock (without regard to any limitations on conversion herein or
elsewhere) and had held such shares of Common Stock on the record date for such
dividends and distributions. Payments under the preceding sentence shall be made
concurrently with the dividend or distribution to the holders of Common Stock
(provided, however, to the extent that the Holder’s right to participate in any
such dividend or distribution would result in the Holder exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
dividend or distribution to such extent (or the beneficial ownership of any such
shares of Common Stock as a result of such dividend or distribution to such
extent) and such dividend or distribution to such extent shall be held in
abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Maximum Percentage).


15. AMENDING THE TERMS OF THIS NOTE. The prior written consent of the Holder shall be required for any
change or amendment to this Note. 

16. TRANSFER. This Note and
any shares of Common Stock issued upon conversion of this Note may be offered,
sold, assigned or transferred by the Holder without the consent of the Company,
subject only to the provisions of Section 4.4 of the Securities Purchase
Agreement. 

17. REISSUANCE OF THIS NOTE.


(a) Transfer. If this Note is
to be transferred, the Holder shall surrender this Note to the Company,
whereupon the Company will forthwith issue and deliver upon the order of the
Holder a new Note (in accordance with Section 17(d)), registered as the Holder
may request, representing the outstanding Principal being transferred by the
Holder and, if less than the entire outstanding Principal is being transferred,
a new Note (in accordance with Section 17(d)) to the Holder representing the
outstanding Principal not being transferred. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of Section 3(c)(iii) following conversion or redemption of any portion of this
Note, the outstanding Principal represented by this Note may be less than the
Principal stated on the face of this Note. 

(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note (as to which
a written certification and the indemnification contemplated below shall suffice
as such evidence), and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company in customary and
reasonable form and, in the case of mutilation, upon surrender and cancellation
of this Note, the Company shall execute and deliver to the Holder a new Note (in
accordance with Section 17(d)) representing the outstanding Principal.


(c) Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender
hereof by the Holder at the principal office of the Company, for a new Note or
Notes (in accordance with Section 17(d) and in principal amounts of at least
$1,000) representing in the aggregate the outstanding Principal of this Note,
and each such new Note will represent
such portion of such outstanding Principal as is designated by the Holder at the
time of such surrender. 

19







(d) Issuance of New Notes.
Whenever the Company is required to issue a new Note pursuant to the terms of
this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall
represent, as indicated on the face of such new Note, the Principal remaining
outstanding (or in the case of a new Note being issued pursuant to Section 17(a)
or Section 17(c), the Principal designated by the Holder which, when added to
the principal represented by the other new Notes issued in connection with such
issuance, does not exceed the Principal remaining outstanding under this Note
immediately prior to such issuance of new Notes), (iii) shall have an issuance
date, as indicated on the face of such new Note, which is the same as the
Issuance Date of this Note, (iv) shall have the same rights and conditions as
this Note, and (v) shall represent accrued and unpaid Interest and Late Charges
on the Principal and Interest of this Note, from the Issuance Date. 

18. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND
INJUNCTIVE RELIEF. The remedies
provided in this Note shall be cumulative and in addition to all other remedies
available under this Note and any of the other Transaction Documents at law or
in equity (including a decree of specific performance and/or other injunctive
relief), and nothing herein shall limit the Holder’s right to pursue actual and
consequential damages for any failure by the Company to comply with the terms of
this Note. The Company covenants to the Holder that there shall be no
characterization concerning this instrument other than as expressly provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by the Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Company (or the performance thereof). The
Company acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to the Holder and that the remedy at law for any such breach
may be inadequate. The Company therefore agrees that, in the event of any such
breach or threatened breach, the Holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any such breach or any
such threatened breach, without the necessity of showing economic loss and
without any bond or other security being required. The Company shall provide all
information and documentation to the Holder that is requested by the Holder to
enable the Holder to confirm the Company’s compliance with the terms and
conditions of this Note (including, without limitation, compliance with Section
6). 

19. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is placed in the hands of an
attorney for collection or enforcement or is collected or enforced through any
legal proceeding or the Holder otherwise takes action to collect amounts due
under this Note or to enforce the provisions of this Note or (b) there occurs
any bankruptcy, reorganization, receivership of the Company or other proceedings
affecting Company creditors’ rights and involving a claim under this Note, then
the Company shall pay the costs incurred by the Holder for such collection,
enforcement or action or in connection with such bankruptcy, reorganization,
receivership or other proceeding, including, without limitation, attorneys’ fees
and disbursements. The Company expressly acknowledges and agrees that no amounts
due under this Note shall be affected, or limited, by the fact that the purchase
price paid for this Note was less than the original Principal amount hereof.


20







20. CONSTRUCTION; HEADINGS.
This Note shall be deemed to be jointly drafted by the Company and the Holder
and shall not be construed against any Person as the drafter hereof. The
headings of this Note are for convenience of reference and shall not form part
of, or affect the interpretation of, this Note. Terms used in this Note but
defined in the other Transaction Documents shall have the meanings ascribed to
such terms on the Closing Date in such other Transaction Documents unless
otherwise consented to in writing by the Holder. 

21. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. No
waiver shall be effective unless it is in writing and signed by an authorized
representative of the waiving party. 

22. DISPUTE RESOLUTION. In the
case of a dispute as to the determination of the Conversion Price (including,
without limitation, any disputed adjustment thereto or any dispute as to whether
any issuance or sale or deemed issuance or sale was an issuance or sale or
deemed issuance or sale of Excluded Securities), any Redemption Price, the
Closing Bid Price, the Closing Sale Price or fair market value (as the case may
be) or the arithmetic calculation of the Conversion Rate, any Note Reduction or
the applicable Redemption Price (as the case may be), the Company or the Holder
(as the case may be) shall submit the disputed determinations or arithmetic
calculations (as the case may be) via facsimile (i) within two (2) Business Days
after receipt of the applicable notice giving rise to such dispute to the
Company or the Holder (as the case may be) or (ii) if no notice gave rise to
such dispute, at any time after the Holder learned of the circumstances giving
rise to such dispute. If the Holder and the Company are unable to agree upon
such determination or calculation within two (2) Business Days of such disputed
determination or arithmetic calculation (as the case may be) being submitted to
the Company or the Holder (as the case may be), then the Company shall, within
two (2) Business Days, submit via facsimile (a) the disputed determination of
the Conversion Price, any Redemption Price, the Closing Bid Price, the Closing
Sale Price or fair market value (as the case may be) to an independent,
reputable investment bank selected by the Company and approved by the Holder or
(b) the disputed arithmetic calculation of the Conversion Rate, any Note
Reduction or any Redemption Price (as the case may be) to an independent,
outside accountant selected by the Holder that is reasonably acceptable to the
Company. The Company shall cause at its expense the investment bank or the
accountant (as the case may be) to perform the determinations or calculations
(as the case may be) and notify the Company and the Holder of the results no
later than ten (10) Business Days from the time it receives such disputed
determinations or calculations (as the case may be). Such investment bank’s or
accountant’s determination or calculation (as the case may be) shall be binding
upon all parties absent demonstrable error. 

23. NOTICES; CURRENCY; PAYMENTS. 

(a) Notices. Whenever notice
is required to be given under this Note, unless otherwise provided herein, such
notice shall be given in accordance with Section 9(f) of the Securities Purchase
Agreement. The Company shall provide the Holder with prompt written notice of
all actions taken pursuant to this Note, including in reasonable detail a
description of such action and the reason therefore. Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the
calculation of such adjustment and (ii) at least fifteen (15) days prior to the
date on which the Company closes its books or takes a record (A) with respect to
any dividend or distribution upon the Common Stock, (B) with respect to any
grant, issuances, or sales of any Options, Convertible Securities or rights to
purchase stock, warrants, securities or other property to holders of shares of
Common Stock or (C) for determining rights to vote with respect to any
Fundamental Transaction, dissolution or liquidation, provided in each case that
such information shall be made known to the public prior to or in conjunction
with such notice being provided to the Holder. 

21







(b) Currency. All dollar
amounts referred to in this Note are in United States Dollars
(“U.S.
Dollars”), and all amounts
owing under this Note shall be paid in U.S. Dollars. All amounts denominated in
other currencies (if any) shall be converted into the U.S. Dollar equivalent
amount in accordance with the Exchange Rate on the date of calculation.
“Exchange
Rate” means, in relation to any amount of currency to be converted into U.S.
Dollars pursuant to this Note, the U.S. Dollar exchange rate as published in the
Wall Street Journal on the relevant date of calculation (it being understood and
agreed that where an amount is calculated with reference to, or over, a period
of time, the date of calculation shall be the final date of such period of
time). 

(c) Payments. Whenever any
payment of cash is to be made by the Company to any Person pursuant to this
Note, unless otherwise expressly set forth herein, such payment shall be made in
lawful money of the United States of America by a certified check drawn on the
account of the Company and sent via overnight courier service to such Person at
such address as previously provided to the Company in writing, provided that the
Holder may elect to receive a payment of cash via wire transfer of immediately
available funds by providing the Company with prior written notice setting out
such request and the Holder’s wire transfer instructions. Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding day which is
a Business Day. Any amount of Principal or other amounts due under the
Transaction Documents which is not paid when due shall result in a late charge
being incurred and payable by the Company in an amount equal to interest on such
amount at the rate of eighteen percent (18%) per annum from the date such amount
was due until the same is paid in full (“Late Charge”). 

24. CANCELLATION. After all
Principal, accrued Interest, Late Charges and other amounts at any time owed on
this Note have been paid in full, this Note shall automatically be deemed
canceled, shall be surrendered to the Company for cancellation and shall not be
reissued. 

25. WAIVER OF NOTICE. To the
extent permitted by law, the Company hereby irrevocably waives demand, notice,
presentment, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note and the
Securities Purchase Agreement. 

22







26. GOVERNING LAW. This Note
shall be construed and enforced in accordance with, and all questions concerning
the construction, validity, interpretation and performance of this Note shall be
governed by, the internal laws of the State of New York, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of New York or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of New York. The Company hereby irrevocably submits to the
exclusive jurisdiction of the state and federal courts sitting in The City of
New York, Borough of Manhattan, for the adjudication of any dispute hereunder or
in connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law. In the event that any provision
of this Note is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
of this Note. Nothing contained herein shall be deemed or operate to preclude
the Holder from bringing suit or taking other legal action against the Company
in any other jurisdiction to collect on the Company’s obligations to the Holder,
to realize on any collateral or any other security for such obligations, or to
enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT
MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY
TRANSACTION CONTEMPLATED HEREBY.


27. MAXIMUM PAYMENTS. Nothing
contained herein shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in excess of
such maximum shall be credited against amounts owed by the Company to the Holder
and thus refunded to the Company. 

28. CERTAIN DEFINITIONS. For
purposes of this Note, the following terms shall have the following meanings:


(a) “Adjustment
Right” means any right
granted with respect to any securities issued in connection with, or with
respect to, any issuance or sale (or deemed issuance or sale in accordance with
Section 6) of shares of Common Stock that could result in a decrease in the net
consideration received by the Company in connection with, or with respect to,
such securities (including, without limitation, any cash settlement rights, cash
adjustment or other similar rights). 

(b) “Approved Stock
Plan” means any employee
benefit plan which has been approved by the board of directors of the Company
prior to or subsequent to the date hereof pursuant to which shares of Common
Stock and standard options to purchase Common Stock may be issued to any
employee, officer or director for services provided to the Company in their
capacity as such.

23







(c) “Black Scholes
Consideration Value” means
the value of the applicable Option, Convertible Security or Adjustment Right (as
the case may be) as of the date of issuance thereof calculated using the Black Scholes Option
Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an
underlying price per share equal to the Closing Sale Price of the Common Stock
on the Trading Day immediately preceding the public announcement of the
execution of definitive documents with respect to the issuance of such Option,
Convertible Security or Adjustment Right (as the case may be), (ii) a risk-free
interest rate corresponding to the U.S. Treasury rate for a period equal to the
remaining term of such Option, Convertible Security or Adjustment Right (as the
case may be) as of the date of issuance of such Option, Convertible Security or
Adjustment Right (as the case may be), (iii) a zero cost of borrow and (iv) an
expected volatility equal to the greater of 100% and the 100 day volatility
obtained from the HVT function on Bloomberg (determined utilizing a 365 day
annualization factor) as of the Trading Day immediately following the date of
issuance of such Option, Convertible Security or Adjustment Right (as the case
may be). 

(d) “Bloomberg” means
Bloomberg, L.P. 

(e) “Business
Day” means any day other than
Saturday, Sunday or other day on which commercial banks in The City of New York
are authorized or required by law to remain closed. 

(f) “Change of
Control” means any
Fundamental Transaction other than (i) any merger of the Company or any of its,
direct or indirect, wholly-owned Subsidiaries with or into any of the foregoing
Persons, (ii) any reorganization, recapitalization or reclassification of the
shares of Common Stock in which holders of the Company’s voting power
immediately prior to such reorganization, recapitalization or reclassification
continue after such reorganization, recapitalization or reclassification to hold
publicly traded securities and, directly or indirectly, are, in all material
respects, the holders of the voting power of the surviving entity (or entities
with the authority or voting power to elect the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities) after such reorganization, recapitalization or reclassification, or
(iii) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company or any of its Subsidiaries.


(g) “Closing Bid
Price” and
“Closing Sale
Price” means, for any
security as of any date, the last closing bid price and last closing trade
price, respectively, for such security on the Principal Market, as reported by
Bloomberg, or, if the Principal Market begins to operate on an extended hours
basis and does not designate the closing bid price or the closing trade price
(as the case may be) then the last bid price or last trade price, respectively,
of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg,
or, if the Principal Market is not the principal securities exchange or trading
market for such security, the last closing bid price or last trade price,
respectively, of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by Bloomberg, or if
the foregoing do not apply, the last closing bid price or last trade price,
respectively, of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price or last trade price, respectively, is reported for such security by
Bloomberg, the average of the bid prices, or the ask prices, respectively, of
any market makers for such security as reported in the “pink sheets” by OTC
Markets Group Inc. (formerly Pink Sheets LLC). 

24







(h) “Closing
Date” shall have the meaning
set forth in the Securities Purchase Agreement, which date is the date the
Company initially issued the Note pursuant to the terms of the Securities
Purchase Agreement. 

(i) “Common
Stock” means (i) the
Company’s common stock, $0.001 par value per share, and (ii) any capital stock
into which such common stock shall have been changed or any share capital
resulting from a reclassification of such common stock. 

(j) “Convertible
Securities” means any stock
or other security (other than Options) that is at any time and under any
circumstances, directly or indirectly, convertible into, exercisable or
exchangeable for, or which otherwise entitles the holder thereof to acquire, any
shares of Common Stock. 

(k) “Eligible
Market” means the OTC
Bulletin Board, the NASDAQ Global Market, the NASDAQ Global Select Market, the
NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, the
OTCQX Marketplace or the OTCQB Marketplace operated by OTC Markets Group Inc.
(or any successor to any of the foregoing). 

(l) “Excluded
Securities” means any (i)
shares of Common Stock or standard options to purchase Common Stock to
directors, officers or employees of the Company in their capacity as such
pursuant to an Approved Stock Plan (as defined below), provided that (A) all
such issuances (taking into account the shares of Common Stock issuable upon
exercise of such options granted after the date of this Note, but not such
shares issuable upon exercise of such options granted before the date of this
Note) after the date hereof pursuant to this clause (i) do not, in the
aggregate, exceed more than 5.0% of the Common Stock issued and outstanding
immediately prior to the date hereof and (B) the exercise price of any such
options is not lowered, none of such options are amended to increase the number
of shares issuable thereunder and none of the terms or conditions of any such
options are otherwise materially changed in any manner that adversely affects
any of the Holders; (ii) shares of Common Stock issued upon the conversion or
exercise of Convertible Securities (other than standard options to purchase
Common Stock issued pursuant to an Approved Stock Plan that are covered by
clause (i) above) issued prior to the date hereof, provided that the conversion
price of any such Convertible Securities (other than standard options to
purchase Common Stock issued pursuant to an Approved Stock Plan that are covered
by clause (i) above) is not lowered, none of such Convertible Securities (other
than standard options to purchase Common Stock issued pursuant to an Approved
Stock Plan that are covered by clause (i) above) are amended to increase the
number of shares issuable thereunder or extend the maturity date or expiration
date of such Convertible Securities (other than standard options to purchase
Common Stock issued pursuant to an Approved Stock Plan that are covered by
clause (i) above) and none of the terms or conditions of any such Convertible
Securities (other than standard options to purchase Common Stock issued pursuant
to an Approved Stock Plan that are covered by clause (i) above) are otherwise
materially changed in any manner that adversely affects any of the Holders;
(iii) the shares of Common Stock issuable upon conversion of the Notes or
otherwise pursuant to the terms of the Notes and (iv) any shares of Common Stock
issued to the Holder or any of its affiliates. 

25







(m) “Fundamental
Transaction” means that (i)
the Company or any of its Subsidiaries shall, directly or indirectly, in one or
more related transactions, (1) consolidate or merge with or into (whether or not
the Company or any of its Subsidiaries is the surviving corporation) any other
Person, or (2) sell, lease, license, assign, transfer, convey or otherwise
dispose of all or substantially all of its respective properties or assets to
any other Person, or (3) allow any other Person to make a purchase, tender or
exchange offer that is accepted by the holders of more than 50% of the
outstanding shares of Voting Stock of the Company (not including any shares of
Voting Stock of the Company held by the Person or Persons making or party to, or
associated or affiliated with the Persons making or party to, such purchase,
tender or exchange offer), or (4) consummate a stock or share purchase agreement
or other business combination (including, without limitation, a reorganization,
recapitalization, spin-off or scheme of arrangement) with any other Person
whereby such other Person acquires more than 50% of the outstanding shares of
Voting Stock of the Company (not including any shares of Voting Stock of the
Company held by the other Person or other Persons making or party to, or
associated or affiliated with the other Persons making or party to, such stock
or share purchase agreement or other business combination), or (ii) any “person”
or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of
the 1934 Act and the rules and regulations promulgated thereunder) is or shall
become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% of the aggregate ordinary voting power
represented by issued and outstanding Voting Stock of the Company. 

(n) “GAAP” means United
States generally accepted accounting principles, consistently applied.


(o) “Interest
Rate” means twelve percent (12%) per annum, as may be
adjusted from time to time in accordance with Section 2. 

(p) “Maturity
Date” shall mean August 2, 2015; provided, however,
the Maturity Date may be extended at the option of the Holder (i) in the event
that, and for so long as, an Event of Default shall have occurred and be
continuing or any event shall have occurred and be continuing that with the
passage of time and the failure to cure would result in an Event of Default or
(ii) through the date that is twenty (20) Business Days after the consummation
of a Fundamental Transaction in the event that a Fundamental Transaction is
publicly announced or a Fundamental Transaction Notice is delivered prior to the
Maturity Date, provided further that if a Holder elects to convert some or all
of this Note pursuant to Section 3 hereof, and the Conversion Amount would be
limited pursuant to Section 3(d) hereunder, the Maturity Date shall
automatically be extended until such time as such provision shall not limit the
conversion of this Note. 

(q) “Options” means any
rights, warrants or options to subscribe for or purchase shares of Common Stock
or Convertible Securities. 

(r) “Parent
Entity” of a Person means an
entity that, directly or indirectly, controls the applicable Person and whose
common stock or equivalent equity security is quoted or listed on an Eligible
Market, or, if there is more than one such Person or Parent Entity, the Person
or Parent Entity with the largest public market capitalization as of the date of
consummation of the Fundamental Transaction. 

26







(s) “Person” means an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, any other entity or a
government or any department or agency thereof. 

(t) “Permitted
Indebtedness” means (i)
Indebtedness evidenced by this Note and the Other Notes, (ii) Indebtedness
described on Schedule
13(b) attached hereto and (iii)
Indebtedness secured by Permitted Liens described in clauses (iv) and (v) of the
definition of Permitted Liens, in an aggregate amount not to exceed $25,000.


(u) “Permitted
Liens” means (i) any Lien for
taxes not yet due or delinquent or being contested in good faith by appropriate
proceedings for which adequate reserves have been established in accordance with
GAAP, (ii) any statutory Lien arising in the ordinary course of business by
operation of law with respect to a liability that is not yet due or delinquent,
(iii) any Lien created by operation of law, such as materialmen’s liens,
mechanics’ liens and other similar liens, arising in the ordinary course of
business with respect to a liability that is not yet due or delinquent or that
are being contested in good faith by appropriate proceedings, (iv) Liens (A)
upon or in any equipment acquired or held by the Company or any of its
Subsidiaries to secure the purchase price of such equipment or indebtedness
incurred solely for the purpose of financing the acquisition or lease of such
equipment, or (B) existing on such equipment at the time of its acquisition,
provided that the Lien is confined solely to the property so acquired and
improvements thereon, and the proceeds of such equipment, (v) Liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by Liens of the type described in clause (iv) above, provided that any
extension, renewal or replacement Lien shall be limited to the property
encumbered by the existing Lien and the principal amount of the Indebtedness
being extended, renewed or refinanced does not increase, and (vi) Liens securing
the Company’s obligations under the Notes. 

(v) “Principal
Market” means, as of any date
of determination, the principal securities exchange or securities market on
which the Common Stock is then traded. 

(w) “Redemption
Notices” means, collectively,
the Event of Default Redemption Notices and the Company Optional Redemption
Notices, and each of the foregoing, individually, a “Redemption Notice.” 

(x) “Redemption
Premium” means (i) in the
case of the Events of Default described in Section 4(a) (other than Sections
4(a)(iv) through 4(a)(vi)), 140% or (ii) in the case of the Events of Default
described in Sections 4(a)(iv) through 4(a)(vi), 100%. 

(y) “Redemption
Prices” means, collectively,
Event of Default Redemption Prices, and the Company Optional Redemption Prices
and each of the foregoing, individually, a “Redemption Price.” 

(z) “Registration Rights
Agreement” means that certain
registration rights agreement, dated as of the Closing Date, by and between the
Company and the Holder relating to, among other things, the registration of the
resale of the Common Stock issuable upon conversion of the Notes or otherwise
pursuant to the terms of the Notes, as may be amended from time to time.


27







(aa) “SEC” means the United States Securities and Exchange
Commission or the successor thereto. 

(bb) “Securities Purchase
Agreement” means that certain
Securities Purchase Agreement, dated as of the Closing Date, by and between the
Company and the Holder pursuant to which the Company issued this Note, as may be
amended from time to time. 

(cc) “Subsidiary” or
“Subsidiaries” shall
have the meaning as set forth in the Securities Purchase Agreement. 

(dd) “Successor
Entity” means the Person (or,
if so elected by the Holder, the Parent Entity) formed by, resulting from or
surviving any Fundamental Transaction or the Person (or, if so elected by the
Holder, the Parent Entity) with which such Fundamental Transaction shall have
been entered into. 

(ee) “Trading
Day” means any day on which
the Common Stock is traded on the Principal Market, or, if the Principal Market
is not the principal trading market for the Common Stock, then on the principal
securities exchange or securities market on which the Common Stock is then
traded, provided that “Trading
Day” shall not include any
day on which the Common Stock is scheduled to trade on such exchange or market
for less than 4.5 hours or any day that the Common Stock is suspended from
trading during the final hour of trading on such exchange or market (or if such
exchange or market does not designate in advance the closing time of trading on
such exchange or market, then during the hour ending at 4:00:00 p.m., New York
time) unless such day is otherwise designated as a Trading Day in writing by the
Holder. 

(ff) “Voting
Stock” of a Person means
capital stock of such Person of the class or classes pursuant to which the
holders thereof have the general voting power to elect, or the general power to
appoint, at least a majority of the board of directors, managers, trustees or
other similar governing body of such Person (irrespective of whether or not at
the time capital stock of any other class or classes shall have or might have
voting power by reason of the happening of any contingency). 

28







(gg) “VWAP” means, for any
security as of any date, the dollar volume-weighted average price for such
security on the Principal Market (or, if the Principal Market is not the
principal trading market for such security, then on the principal securities
exchange or securities market on which such security is then traded) during the
period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New
York time, as reported by Bloomberg through its “Volume at Price” function or,
if the foregoing does not apply, the dollar volume-weighted average price of
such security in the over-the-counter market on the electronic bulletin board
for such security during the period beginning at 9:30:01 a.m., New York time,
and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no
dollar volume-weighted average price is reported for such security by Bloomberg
for such hours, the average of the highest closing bid price and the lowest
closing ask price of any of the market makers for such security as reported in
the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets LLC). If VWAP
cannot be calculated for such security on such date on any of the foregoing
bases, the VWAP of such security on such date shall be the fair market value as
mutually determined by the
Company and the Holder. If the Company and the Holder are unable to agree upon
the fair market value of such security, then such dispute shall be resolved in
accordance with the procedures in Section 22. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, stock combination or
other similar transaction during such period. 

29. DISCLOSURE. Upon receipt
or delivery by the Company of any notice in accordance with the terms of this
Note, unless the Company has in good faith determined that the matters relating
to such notice do not constitute material, non-public information relating to
the Company or any of its Subsidiaries, the Company shall within one (1)
Business Day after any such receipt or delivery publicly disclose such material,
non-public information on a Current Report on Form 8-K or otherwise. In the
event that the Company believes that a notice contains material, non-public
information relating to the Company or any of its Subsidiaries, the Company so
shall indicate to such Holder contemporaneously with delivery of such notice,
and in the absence of any such indication, the Holder shall be allowed to
presume that all matters relating to such notice do not constitute material,
non-public information relating to the Company or its Subsidiaries. Nothing
contained in this Section 29 shall limit any obligations of the Company, or any
rights of the Holder, under Section 4.3 of the Securities Purchase Agreement.


[signature page follows] 

29







IN WITNESS WHEREOF, the
Company has caused this Note to be duly executed as of the Issuance Date set out
above. 


	BIOHEART, INC.	
	     		
	By:       	/s/ Mike Tomas	
	 	Name:       	Mike
    Tomas	
		Title:	President &
      CEO	




Senior Secured
Convertible Note - Signature Page 







EXHIBIT I 

BIOHEART, INC.

CONVERSION NOTICE 

Reference is made to the
Convertible Note (the “Note”) issued to the
undersigned by Bioheart, Inc. (the “Company”). In accordance
with and pursuant to the Note, the undersigned hereby elects to convert the
Conversion Amount (as defined in the Note) of the Note indicated below into
shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the Company, as of the date specified below
Capitalized terms not defined herein shall have the meaning as set forth in the
Note. 

	       Date
      of Conversion:     	 



	
      Aggregate Principal to be
    converted:
	      	  
	   		
	
      Aggregate accrued and unpaid Interest
      and accrued and unpaid Late Charges with respect to such portion of the
      Aggregate Principal and such Aggregate Interest to be
    converted:
	 	   
	   		
	
      AGGREGATE
      CONVERSION AMOUNT TO BE
      CONVERTED:       
		  



Please confirm the
following information: 

	       Conversion
      Price:     	 



	       Number
      of shares of Common Stock to be issued:	      	 



Please issue the Common
Stock into which the Note is being converted in the following name and to the
following address: 

	       Issue
      to:     	 
		 
		 



	       Facsimile
      Number:     	   



	       Holder:       
      	 



	              By:    
      	 



	                     Title:    
      	  



	Dated:     	 



	       Account
      Number:     	 
	              (if
      electronic book entry transfer)



	       Transaction
      Code Number:     	 
	              (if
      electronic book entry transfer)









ACKNOWLEDGMENT 

The Company hereby
acknowledges this Conversion Notice and hereby directs _________________ to
issue the above indicated number of shares of Common Stock in accordance with
the Transfer Agent Instructions dated _____________, 20__ from the Company and
acknowledged and agreed to by ________________________. 


	BIOHEART, INC.
		  
	By:	  
	 	     Name:
		    
  Title: