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As filed with the Securities and Exchange Commission on February 13, 2007
Registration No.  333-             
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
Form  S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
BIOHEART, INC.
(Exact name of Registrant as specified in its Charter)
 
         
Florida   8731   65-0945967
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
13794 NW 4th Street, Suite 212
Sunrise, Florida 33325
(954) 835-1500
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
Howard J. Leonhardt
Chief Executive Officer
Bioheart, Inc.
13794 NW 4th Street, Suite 212
Sunrise, Florida 33325
(954) 835-1500
(Name, address, including zip code, and telephone number,
including area code, of Agent for Service)
 
Copies to:
     
David E. Wells, Esq.
Hunton & Williams LLP
1111 Brickell Avenue, Suite 2500
Miami, Florida 33131
(305) 810-2500
  James A. Lebovitz, Esq.
Dechert LLP
2929 Arch Street
Philadelphia, Pennsylvania 19104
(215) 994-4000
 
      Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after the effective date of this Registration Statement.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.      o
      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.      o
      If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.      o
      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.      o
CALCULATION OF REGISTRATION FEE
             
             
             
      Proposed Maximum      
Title of Each Class of     Aggregate     Amount of
Securities to be Registered     Offering Price(1)     Registration Fee
             
Common stock, par value $0.001 per share
    $35,000,000     $3,745
             
             
(1)  Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act.
      The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Prospectus Subject to Completion, dated February 13, 2007
                                 Shares
Common Stock
(BIOHEART LOGO)
 
                    , 2007
This is our initial public offering of shares of our common stock.
We are offering                      shares of common stock to be sold in this offering.
Prior to this offering, there has been no public market for the shares of common stock. We currently expect that the initial public offering price per share will be between $                    and $                    . We plan to apply to list our common stock on the NASDAQ Global Market under the symbol “BHRT.”
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.
                 
    Per Share   Total
 
Initial public offering price
  $       $    
 
Underwriting discount
  $       $    
 
Proceeds, before expenses, to Bioheart, Inc. 
  $       $    
 
To the extent that the underwriters sell more than                      shares of common stock, the underwriters have the option to purchase up to an additional                      shares of common stock from Bioheart, Inc. at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the common shares against payment in New York, New York on                     , 2007.
Investing in our common stock involves risks. See “Risk Factors” beginning on page 7.
 
     
BMO Capital Markets   Janney Montgomery Scott LLC
     
Sole Book-Running Manager   Co-Lead Manager
     
Merriman Curhan Ford & Co.
 


 

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    F-1  
  EX-3.1 Articles of Incorporation
  EX-3.3 Amended and Restated Bylaws
  EX-10.1 1999 Officers/Employees Stock Option Plan
  EX-10.2 1999 Directors/Consultants Stock Option Plan
  EX-10.3 Form of Option Agreement Officer & Directors Stock Option Plan
  EX-10.5 Consulting Agreement
  EX-10.6 Employment Letter w/Scott Bromley
  EX-10.7 Lease Agreement
  EX-10.8 Asset Purchase Agreement
  EX-10.10 Manufacturing and Service Agreement
  EX-23.1 Consent of Grant Thornton, LLP
      Through and including                     , 2007 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
      You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. In this prospectus, unless otherwise stated or the context otherwise requires, references to “Bioheart,” “we,” “us,” “our company,” and similar references refer to the consolidated operations of Bioheart, Inc. and its subsidiaries.
      For investors outside of the United States: Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside of the United States.


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PROSPECTUS SUMMARY
      This summary highlights selected information described more fully elsewhere in this prospectus. This summary may not contain all the information that is important to you. Before investing in our common stock, you should read the entire prospectus, including “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and our consolidated financial statements and related notes. The consolidated financial statements and related notes included in this prospectus have been prepared in accordance with accounting principles generally accepted in the United States. Unless otherwise stated, all figures assume no exercise of the underwriters’ option to purchase additional common shares.
Our Business
      We are a biotechnology company focused on the discovery, development and commercialization of therapies using cells derived from a patient’s body, and related devices, for the treatment of heart damage. Our lead product candidate is MyoCell, an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with living muscle tissue for the purpose of improving cardiac function. The core technology used in MyoCell has been the subject of human clinical trials involving 90 enrollees and 62 treated patients to date, conducted over the last seven years, and animal studies conducted over the last 18 years. Our most recent clinical trials of MyoCell include the SEISMIC Trial, a fully enrolled 46 patient Phase II clinical trial in various countries in Europe and the MYOHEART Trial, a completed 20 patient Phase I dose escalation trial in the United States. Interim results of the SEISMIC Trial were recently announced and we have submitted to the U.S. Food and Drug Administration, or the FDA, the protocol for a 450 patient, multicenter Phase II trial of MyoCell in the United States, or the MYOHEART II Trial. We have designed the MYOHEART II Trial so that upon approval of the protocol, if any, we anticipate asking the FDA to consider it a pivotal trial. The SEISMIC Trial and the MYOHEART II Trial have been designed to test the safety and efficacy of MyoCell in treating severe non-acute damage to the heart in patients in Class II or Class III heart failure according to the New York Heart Association, or NYHA, heart failure classification system.
MyoCell
      We believe that MyoCell has the potential to become a leading non-acute treatment for severe damage to the heart due to its perceived ability to satisfy, at least in part, what we believe to be a presently unmet demand for more effective and/or more affordable non-acute therapies for heart damage. MyoCell is a non-acute clinical therapy intended to improve cardiac function and designed to be utilized months or even years after a patient has suffered severe heart damage due to a heart attack or other cause. MyoCell uses myoblasts, cells that are precursors to muscle cells, from the patient’s own body. When injected into scar tissue within the heart wall, myoblasts have shown to be capable of engrafting in the surrounding tissue and differentiating into mature skeletal muscle cells and/or cells which exhibit properties of both skeletal and cardiac muscle cells. As part of the MyoCell therapy, myoblasts are removed from a patient’s thigh muscle, isolated, grown through our proprietary cell culturing process, and injected directly in the scar tissue of a patient’s heart. We anticipate that an interventional cardiologist will perform the minimally invasive cell injection process with MyoCath, our proprietary catheter, or a similarly designed endoventricular catheter. By using myoblasts obtained from a patient’s own body, we believe MyoCell is able to avoid certain challenges currently faced by other types of cell-based clinical therapies including tissue rejection and instances of the cells differentiating into cells other than muscle. Although a number of therapies have proven to improve the cardiac function of a damaged heart, no currently available treatment has demonstrated an ability to generate new muscle tissue within the scarred regions of a heart.
      Interim data from the MYOHEART Trial and the SEISMIC Trial were presented by the lead investigator of each trial in January 2007 at the Third Annual International Conference on Cell Therapy for Cardiovascular Diseases. The purpose of each trial is to assess the safety and efficacy of MyoCell delivered via MyoCath. The lead investigator for the MYOHEART Trial presented one-month safety data for all 20 of the treated patients, and three and six-month interim data for 16 of the 20 treated patients. Although not statistically significant due, in part, to the small number of patients treated, the lead investigator indicated that

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the safety of MyoCell is strongly suggested and the preliminary efficacy data demonstrated a trend towards an improvement in scores for six-minute walk distance, or Six-Minute Walk Distance, and quality of life, or Quality of Life. The lead investigator for the SEISMIC Trial presented data for 16 treated patients and nine control group patients for which at least one-month follow-up data was available. He reported on three efficacy endpoints: Six-Minute Walk Distance scores, NYHA Class and left ventricular ejection fraction, or LVEF. The SEISMIC Trial’s lead investigator noted that the preliminary efficacy trends appear encouraging and that the interim analysis suggests that the most frequent adverse event, irregular heartbeats, appears to be manageable with close observation and prophylactic use of implantable cardioverter defibrillators, or ICDs, and anti-arrhythmic drug therapy.
      If the final six-month SEISMIC Trial data is generally consistent with the interim data, we intend to seek approval in the fourth quarter of 2007 from various European regulatory bodies to market MyoCell to treat the subclass of patients who would meet the eligibility criteria for participation in the SEISMIC Trial and who have an expected annual mortality rate of 20% (i.e., generally the sickest 30% of NYHA Class III heart failure patients), or the Class III Subgroup. Assuming FDA approval of the protocol for the MYOHEART II Trial, we intend to seek to enroll and treat all of the clinical patients in the trial by the end of the second quarter of 2008. If we meet that enrollment timeline, we would expect final trial results in the first quarter of 2009. If the final safety and efficacy results provide what we believe is significant proof that MyoCell is safe and effective, we anticipate submitting such data to the FDA to obtain regulatory approval of MyoCell.
      In addition to studies we have sponsored, we understand that myoblast-based clinical therapies have been the subject of at least eleven clinical trials involving more than 325 enrollees, including at least 200 treated patients. Although we believe many of the trials are different from the trials sponsored by us in a number of important respects, it is our view that the trials have advanced the cell therapy industry’s understanding of the potential opportunities and limitations of myoblast-based therapies.
      We believe the market for treating patients in NYHA Class II or NYHA Class III heart failure is significant. According to the American Heart Association Heart Disease Statistics — 2007 Update, in the United States alone there are approximately 5.2 million patients with heart failure. We believe that approximately 60% of these patients are in either NYHA Class II or NYHA Class III heart failure.
Our Business Strategy
      Our principal objective is to become a leading company that discovers, develops and commercializes novel, autologous (patient-derived) cell-based therapies and related devices, for the treatment of heart damage. To achieve this objective, we plan to pursue the following key strategies:
  •  seek to successfully commercialize our lead product candidate, MyoCell;
 
  •  develop our sales and marketing capabilities in advance of regulatory approval, if any;
 
  •  continue to refine our MyoCell cell culturing processes to further reduce our costs and processing times;
 
  •  expand and enhance our intellectual property rights; and
 
  •  license, acquire and/or develop complementary products and technologies.
Pipeline
      In addition to MyoCell, we are seeking to develop various other cell-based therapies and related devices for the treatment of heart damage. We have also acquired the rights to use certain devices for the treatment of heart damage. The development of the product candidates described below is not dependent on our commercial development of MyoCell.

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  •  MyoCath (Phase II clinical trials)  —Disposable endoventricular catheter used for the delivery of biologic solutions to the myocardium.
 
  •  TGI 100 Wound Dressing Kit (510(k) application submitted to FDA, European CE Mark expected to be sought in the first half of 2007)  — Convenience kit used to prepare a cellulose coated wound dressing from patient-derived fat cells to be prepared and applied at the point-of -care. We have the right to use the technology incorporated in this device for the treatment of acute myocardial infarction, or MI, commonly known as a heart attack, and heart failure.
 
  •  TGI 1200 Adipose Tissue Processing System (510(k) and CE Mark certification expected to be sought in the first half of 2007)  — Fully automated device for the rapid processing of patient derived fat tissue. We have the right to use for the treatment of acute MI and heart failure.
 
  •  Bioheart Acute Cell Therapy (expect to commence animal studies in the first quarter of 2007)  — Patient derived cell therapy for the treatment of acute MI using cells processed by the TGI 100 or TGI 1200.
 
  •  MyoCell II with SDF-1 (preparing IND application)  — Non-acute, autologous, cell therapy treatment for heart damage; myoblasts are modified to express SDF-1 protein in an effort to stimulate angiogenesis and/or recruitment of stem cells.
 
  •  MyoCath II (anticipate commencing animal studies by the second quarter of 2007)  — Second generation disposable endoventricular catheter modified to provide multidirectional cell injection and used for the delivery of biologic solutions to the myocardium.
 
  •  BioPace (preclinical)  — Non-acute treatment of abnormal heart rhythm due to electrical disturbances in the upper chambers of the heart.
Risk Factors
      We face numerous risks that could materially affect our business, results of operations or financial condition. For further discussion of these risks see “Risk Factors.”
Our Corporate Information
      We were incorporated in the state of Florida in August 1999. Our principal executive offices are located at 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325 and our telephone number is (954) 835-1500. Information about our company is available on our corporate web site at www.bioheartinc.com. Information contained on our web site does not constitute part of, and is not incorporated by reference in, this prospectus.
      MyoCell ® , MyoCath ® , MyoCell II with SDF-1 tm , MyoCath II tm and BioPace tm are trademarks of Bioheart, Inc. TGI 100 tm and TGI 1200 tm are trademarks of Tissue Genesis, Inc. This prospectus also includes trademarks, trade names and service marks of other companies. Use or display by us of other parties’ trademarks, trade names or service marks is not intended to and does not imply a relationship with, or endorsement or sponsorship of us by, these other parties.
      This prospectus contains market data and industry forecasts that were obtained from industry publications, third-party market research and publicly available information. These publications generally state that the information contained therein has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. While we believe the information from these publications is reliable, we have not independently verified, and make no representation as to the accuracy of, such information.

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THE OFFERING
Issuer Bioheart, Inc.
 
Common stock offered by us                      shares
 
Common stock to be outstanding after this offering                      shares
 
Offering price $                    
 
Over-allotment option                      shares
 
Use of proceeds We estimate that the net proceeds from this offering will be approximately $                     million, or approximately $                     million if the underwriters exercise their over- allotment option in full, assuming an initial public offering price of $                     per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and offering expenses payable by us. We expect to use the net proceeds from this offering:
 
• to fund the MYOHEART II and SEISMIC Trials;
 
• for projected payments pursuant to our license agreements and to further develop and protect our intellectual property portfolio;
 
• to fund the further development and clinical testing of our pipeline product candidates; and
 
• for other general corporate purposes.
 
See “Use of Proceeds.”
 
Dividend policy We have not declared or paid any cash dividends on our capital stock and do not anticipate paying any cash dividends in the foreseeable future. See “Dividend Policy” and “Description of Capital Stock.”
 
Proposed NASDAQ Global Market symbol BHRT
 
Risk factors You should carefully read and consider the information set forth under “Risk Factors” and all other information set forth in this prospectus before investing in our common stock.
      Except as otherwise noted, the number of shares of our common stock to be outstanding after this offering excludes                      shares reserved for future issuance under our Officers and Employees Stock Option Plan and our Directors and Consultants Stock Option Plan.
      Unless otherwise indicated, all information contained in this prospectus assumes:
  •  that the underwriters do not exercise their option to purchase up to                      additional shares of our common stock to cover over-allotments, if any;
 
  •  the amendment and restatement of our Articles of Incorporation, which will become effective at the closing of this offering; and
 
  •  that none of the estimated offering expenses payable by us at the closing of this offering have been paid.

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SUMMARY CONSOLIDATED FINANCIAL DATA
      The following summary consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes that are included elsewhere in this prospectus. We derived the summary consolidated statement of operations data for the years ended December 31, 2003, 2004 and 2005 from our audited financial statements and notes thereto that are included elsewhere in this prospectus. We derived the summary consolidated statement of operations data for the years ended December 31, 2001 and 2002 from our audited financial statements that do not appear in this prospectus. We derived the consolidated statement of operations data for the nine months ended September 30, 2005 and 2006 and the consolidated balance sheet data as of September 30, 2006 from our unaudited financial statements that are included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as our audited annual financial statements and, in our opinion, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the results of operations for the periods ended September 30, 2005 and 2006 and our financial condition as of September 30, 2006. The historical results are not necessarily indicative of the results to be expected for any future periods and the results for the nine months ended September 30, 2006 should not be considered indicative of results expected for the full fiscal year.
                                                             
        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2001   2002   2003   2004   2005   2005   2006
                             
                        (Unaudited)
    (In thousands, except per share data)
Statement of Operations Data:
                                                       
Revenues
  $ 25     $ 2     $ 46     $ 86     $ 135     $ 127     $ 106  
Cost of sales
                30       46       87       75       63  
                                           
 
Gross profit
    25       2       16       40       48       52       43  
Expenses:
                                                       
 
Research and development
    6,597       7,361       3,502       3,787       4,534       3,142       5,339  
 
Marketing, general and administrative
    1,714       1,946       2,523       1,731       2,831       2,111       5,680  
 
Depreciation and amortization
                31       34       46       33       46  
                                           
   
Total expenses
    8,311       9,307       6,056       5,552       7,411       5,286       11,065  
                                           
 
Loss from operations
    (8,286 )     (9,305 )     (6,040 )     (5,512 )     (7,363 )     (5,234 )     (11,022 )
 
Total interest income (expense), net
    113       47       2       (7 )     36       9       78  
                                           
 
Net loss before income taxes
    (8,173 )     (9,258 )     (6,038 )     (5,519 )     (7,327 )     (5,225 )     (10,944 )
Income taxes
                                         
                                           
 
Net loss
  $ (8,173 )   $ (9,258 )   $ (6,038 )   $ (5,519 )   $ (7,327 )   $ (5,225 )   $ (10,944 )
                                           
Basic and diluted net loss per share
  $ (0.94 )   $ (0.95 )   $ (0.46 )   $ (0.37 )   $ (0.42 )   $ (0.31 )   $ (0.57 )
                                           
Weighted average shares outstanding — basic and diluted
    8,707       9,724       12,985       14,875       17,244       16,681       19,057  
                                           

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      The following table presents a summary of our consolidated balance sheet as of September 30, 2006:
  •  on an actual basis;
 
  •  on a pro forma basis to give effect to our issuance of 766,216 shares of our common stock between October 1, 2006 and January 31, 2007 for aggregate net proceeds of approximately $3.6 million in a private placement to accredited investors; and
 
  •  on a pro forma as adjusted basis to give effect to the sale by us of shares of our common stock at an assumed initial public offering price of $                     per share, the mid-point of the range set forth on the cover page of this prospectus, and the receipt of net proceeds of this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $                     per share would increase (decrease) each of cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $                     million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
                         
    As of September 30, 2006
     
        Pro forma
    Actual   Pro forma   as adjusted
             
        (Unaudited)    
        (In thousands)    
Consolidated Balance Sheet Data:
                       
Cash and cash equivalents
  $ 5,183     $ 8,813     $    
Working capital
    2,769       6,399          
Total assets
    6,227       9,857          
Long-term debt, less current portion
                   
Deficit accumulated during the development stage
    (62,276 )     (62,276 )        
Total shareholders’ equity
    3,416       7,046          

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RISK FACTORS
      Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information included in this prospectus, including the financial statements and related notes appearing at the end of this prospectus before deciding to invest in our common stock. If any of the following risks actually occur they would harm our business, prospects, financial condition and results of operations, possibly materially. In this event, the market price of our common stock could decline and you could lose part or all of your investment. Please read “Special Note Regarding Forward-Looking Statements.”
Risks Related to Our Financial Position and Potential Need for Additional Financing
We are a development stage life sciences company with a limited operating history and a history of net losses and negative cash flows from operations. We may never be profitable, and if we incur operating losses and generate negative cash flows from operations for longer than expected, we may be unable to continue operations.
      We are a development stage life sciences company and have a limited operating history, limited capital, limited sources of revenue and have incurred losses since inception. Our operations to date have been limited to organizing our company, developing and engaging in clinical trials of our lead product candidate, MyoCell, and our MyoCath product candidate, expanding our pipeline of complementary product candidates through internal development and third party licenses, expanding and strengthening our intellectual property position through internal programs and third party licenses and recruiting management, research and clinical personnel. Consequently, you may have difficulty in predicting our future success or viability due to our lack of operating history. As of September 30, 2006, we have accumulated a deficit during our development stage of approximately $62.3 million. Our lead product candidate has not generated any material revenues and is not expected to generate any material revenues until late 2008 or early 2009. We have generated substantial net losses and negative cash flows from operations since inception and anticipate incurring significant and increasing net losses and negative cash flows from operations for the foreseeable future as we:
  •  continue the SEISMIC Trial and commence the MYOHEART II Trial;
 
  •  continue research and development and undertake new clinical trials with respect to our pipeline product candidates;
 
  •  apply for regulatory approvals;
 
  •  make capital expenditures to increase our research and development and cell culturing capabilities;
 
  •  add operational, financial and management information systems and personnel and develop and protect our intellectual property;
 
  •  make payments pursuant to license agreements upon achievement of certain milestones; and
 
  •  establish sales and marketing capabilities to commercialize products for which we obtain regulatory approval, if any.
      Our limited experience in conducting and managing preclinical development activities, clinical trials and the application process necessary to obtain regulatory approvals might prevent us from successfully designing or implementing a preclinical study or clinical trial. If we do not succeed in conducting and managing our preclinical development activities or clinical trials, or in obtaining regulatory approvals, we might not be able to commercialize our product candidates, or might be significantly delayed in doing so, which will materially harm our business.
      None of the products that we are currently developing has been approved by the FDA or any similar regulatory authority in any foreign country. Our ability to generate revenues from any of our product candidates will depend on a number of factors, including our ability to successfully complete clinical trials, obtain necessary regulatory approvals and implement our commercialization strategy. In addition, even if we are successful in obtaining necessary regulatory approvals and bringing one or more product candidates to

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market, we will be subject to the risk that the marketplace will not accept those products. We may, and anticipate that we will need to, transition from a company with a research and development focus to a company capable of supporting commercial activities and we may not succeed in such a transition.
      Because of the numerous risks and uncertainties associated with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or if we will become profitable. Our failure to successfully commercialize our product candidates or to become and remain profitable could depress the market price of our common stock and impair our ability to raise capital, expand our business, diversify our product offerings and continue our operations.
Management believes that, in connection with the audit of our financial statements for the year ended December 31, 2006, we may receive a report from our independent registered public accounting firm expressing substantial doubt about our ability to continue as a going concern.
      Management believes that, in connection with the audit of our financial statements for the year ended December 31, 2006, we may receive a report from our independent registered public accounting firm that describes the existence of conditions that raise substantial doubt about our ability to continue as a going concern. Our consolidated financial statements as of December 31, 2006 are being prepared under the assumption that we will continue as a going concern. If we are not able to continue as a going concern, it is likely that holders of our common stock will lose all of their investment.
We may need substantial additional funding and may be unable to raise capital when needed, which would force us to delay or curtail the development or commercialization of our product candidates. An inability to obtain additional financing could adversely affect our business, financial condition, results of operations, and could even prevent us from continuing our business at all.
      Even if we secure approximately $             million of proceeds in connection with this offering, our demand for capital may be significantly higher than anticipated. We may require substantial future capital in order to continue the research and development, preclinical and clinical programs, and regulatory activities necessary to obtain regulatory approval of our product candidates. In addition, subject to obtaining regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses for product sales and marketing, manufacturing the product and/or securing commercial quantities of product from manufacturers and product distribution.
      The extent of our need for additional capital will depend on numerous factors, including, but not limited to:
  •  the scope, rate of scientific progress, results and cost of our clinical trials and other research and development activities;
 
  •  the costs and timing of seeking FDA and other regulatory approvals;
 
  •  our ability to obtain sufficient third-party insurance coverage or reimbursement for our product candidates;
 
  •  the effectiveness of commercialization activities (including the volume and profitability of any sales achieved);
 
  •  our ability to establish additional strategic, collaborative and licensing relationships with third parties with respect to the sales, marketing and distribution of our products, research and development and other matters and the economic and other terms and timing of any such relationships;
 
  •  the ongoing availability of funds from foreign governments to build new manufacturing facilities;
 
  •  the costs involved in any potential litigation that may occur;

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  •  decisions by us to pursue the development of new product candidates or technologies or to make acquisitions or investments; and
 
  •  the effect of competing products, technologies and market developments.
      We have no commitments or arrangements from third parties for any additional financing to fund the research and development and commercialization of any of our product candidates. We may need to seek substantial additional financing through public and/or private financing, which may include equity and/or debt financings, and through other arrangements, including collaborative arrangements. However, financing may not be available when we need it, or may not be available on acceptable terms. Debt financing, if available, may involve restrictive covenants that limit our operating and financial flexibility and prohibit us from making distributions to shareholders. If we raise additional funds by issuing equity, equity-related or convertible securities, the economic, voting and other rights of our existing shareholders, including investors who purchase shares in this offering, may be diluted, and those securities may have rights superior to those of our common stock. If we obtain additional capital through collaborative arrangements, we may be required to relinquish greater rights to our technologies or product candidates than we might otherwise have or become subject to restrictive covenants that may affect our business. If we are unable to raise additional funds when we need them, we may be required to delay, scale back or eliminate expenditures for our development programs, curtail efforts to commercialize our product candidates or reduce the scale of our operations, any of which could have a material adverse effect on our operating results and business. Any inability to obtain additional financing could adversely affect our business, financial condition, results of operations, and could even prevent us from continuing our business at all.
Risks Related to Product Development
We depend heavily on the success of our lead product candidate, MyoCell. All of our product candidates are in an early stage of development and we may never succeed in developing and/or commercializing them. If we are unable to commercialize MyoCell, or experience significant delays in doing so, our business may fail.
      We have invested a significant portion of our efforts and financial resources in our lead product candidate, MyoCell, and depend heavily on its success. MyoCell is currently being tested in clinical trials. Even if MyoCell progresses through clinical trials as we anticipate, we do not expect any of our product candidates to be commercially available until, at the soonest, the second half of 2007. We need to devote significant additional research and development, financial resources and personnel to develop commercially viable products, obtain regulatory approvals and establish a sales and marketing infrastructure.
      We are likely to encounter hurdles and unexpected issues as we proceed in the development of MyoCell and our other product candidates. There are many reasons that we may not succeed in our efforts to develop our product candidates, including the possibility that:
  •  our product candidates will be deemed ineffective, unsafe or will not receive regulatory approvals;
 
  •  our product candidates will be too expensive to manufacture or market or will not achieve broad market acceptance;
 
  •  others will hold proprietary rights that will prevent us from marketing our product candidates; or
 
  •  our competitors will market products that are perceived as equivalent or superior.
Our approach of using cell-based therapy for the treatment of heart damage is risky and unproven and no products using this approach have received regulatory approval in the United States or Europe.
      No company has yet been successful in its efforts to obtain regulatory approval in the United States or Europe of a cell-based therapy product for the treatment of heart damage. Cell-based therapy products, in general, may be susceptible to various risks, including undesirable and unintended side effects, unintended immune system responses, inadequate therapeutic efficacy or other characteristics that may prevent or limit their approval by regulators or commercial use. Many companies in the industry have suffered significant setbacks in advanced clinical trials, despite promising results in earlier trials. One of our competitors exploring

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the use of skeletal myoblasts has announced its intent to cease to enroll new patients in its European Phase II clinical trial based on the determination of its monitoring committee that there was a low likelihood that the trial would result in the hypothesized improvement in heart function. Although our clinical research to date suggests that MyoCell may improve the contractile function of the heart, we have not yet been able to demonstrate a mechanism of action and additional research is needed to precisely identify such mechanism.
If our clinical trials are unsuccessful or significantly delayed, or if we do not complete our clinical trials, we will not be able to commercialize our product candidates.
      Our lead product candidate, MyoCell, is still in clinical testing, has not yet received approval from the FDA or any similar foreign regulatory authority for any indication and may never be commercialized in the United States or other countries.
      We cannot market any product candidate until regulatory agencies grant approval or licensure. In order to obtain regulatory approval for the sale of any product candidate, we must, among other requirements, provide the FDA and similar foreign regulatory authorities with preclinical and clinical data that demonstrate to the satisfaction of regulatory authorities that our product candidates are safe and effective for each indication under the applicable standards relating to such product candidate. The preclinical studies and clinical trials of any product candidates must comply with the regulations of the FDA and other governmental authorities in the United States and similar agencies in other countries.
      Even if we achieve positive interim results in clinical trials, these results do not necessarily predict final results, and positive results in early trials may not be indicative of success in later trials. For example, MyoCell has been studied in a limited number of patients to date. Even though our early data has been promising, we have not yet completed any large-scale pivotal trials to establish the safety and efficacy of MyoCell. A number of participants in our clinical trials have experienced serious adverse events adjudicated or determined by trial investigators to be potentially attributable to MyoCell. See “Risk Factors — Our product candidates may never be commercialized due to unacceptable side effects and increased mortality that may be associated with such product candidates.” There is a risk that safety concerns relating to our product candidates or cell-based therapies in general will result in the suspension or termination of our clinical trials.
      We may experience numerous unforeseen events during, or as a result of, the clinical trial process that could delay or prevent commercialization of our product candidates, including the following:
  •  the FDA or similar foreign regulatory authorities may find that our product candidates are not sufficiently safe or effective or may find our cell culturing processes or facilities unsatisfactory;
 
  •  officials at the FDA or similar foreign regulatory authorities may interpret data from preclinical studies and clinical trials differently than we do;
 
  •  our clinical trials may produce negative or inconclusive results or may not meet the level of statistical significance required by the FDA or other regulatory authorities, and we may decide, or regulators may require us, to conduct additional preclinical studies and/or clinical trials or to abandon one or more of our development programs;
 
  •  the FDA or similar foreign regulatory authorities may change their approval policies or adopt new regulations;
 
  •  there may be delays or failure in obtaining approval of our clinical trial protocols from the FDA or other regulatory authorities or obtaining institutional review board approvals or government approvals to conduct clinical trials at prospective sites;
 
  •  we, or regulators, may suspend or terminate our clinical trials because the participating patients are being exposed to unacceptable health risks or undesirable side effects;
 
  •  we may experience difficulties in managing multiple clinical sites;

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  •  enrollment in our clinical trials for our product candidates may occur more slowly than we anticipate, or we may experience high drop-out rates of subjects in our clinical trials, resulting in significant delays;
 
  •  we may be unable to manufacture or obtain from third party manufacturers sufficient quantities of our product candidates for use in clinical trials; and
 
  •  our product candidates may be deemed unsafe or ineffective, or may be perceived as being unsafe or ineffective, by healthcare providers for a particular indication.
      In the SEISMIC Trial, we have experienced delays attributable to slower than anticipated enrollment of patients. We may continue to experience difficulties in enrolling patients in our clinical trials, which could increase the costs or affect the timing or outcome of these trials and could prevent us from completing these trials.
      Failures or perceived failures in our clinical trials would delay and may prevent our product development and regulatory approval process, make it difficult for us to establish collaborations, negatively affect our reputation and competitive position and otherwise have a material adverse effect on our business.
Our product candidates may never be commercialized due to unacceptable side effects and increased mortality that may be associated with such product candidates.
      Possible side effects of our product candidates may be serious and life-threatening. A number of participants in our clinical trials of MyoCell have experienced serious adverse events potentially attributable to MyoCell, including six patient deaths and 14 patients experiencing irregular heartbeats. A serious adverse event is generally an event that results in significant medical consequences, such as hospitalization, disability or death, and must be reported to the FDA. The occurrence of any unacceptable serious adverse events during or after preclinical and clinical testing of our product candidates could temporarily delay or negate the possibility of regulatory approval of our product candidates and adversely affect our business. Both our trials and independent trials have reported the occurrence of irregular heartbeats in treated patients, a significant risk to patient safety. We and our competitors have also, at times, suspended trials studying the effects of myoblasts, at least temporarily, to assess the risk of irregular heartbeats and it has been reported that one of our competitors studying the effect of myoblast implantation prematurely discontinued a study because of the high incidence of irregular heartbeats. While we believe irregular heartbeats may be manageable with the use of certain prophylactic measures including an ICD and anti-arrhythmic drug therapy, these risk management techniques may not prove to sufficiently reduce the risk of unacceptable side effects. Although our early results suggest that patients treated with MyoCell do not face materially different health risks than heart failure patients with similar levels of damage to the heart who have not been treated with MyoCell, we are still in the process of seeking to demonstrate that our product candidates do not pose unacceptable health risks. We have not yet treated a sufficient number of patients to allow us to make a determination that serious unintended consequences will not occur.
We depend on third parties to assist us in the conduct of our preclinical studies and clinical trials, and any failure of those parties to fulfill their obligations could result in costs and delays and prevent us from obtaining regulatory approval or successfully commercializing our product candidates on a timely basis, if at all.
      We engage consultants and contract research organizations to help design, and to assist us in conducting, our preclinical studies and clinical trials and to collect and analyze data from those studies and trials. The consultants and contract research organizations we engage interact with clinical investigators to enroll patients in our clinical trials. As a result, we depend on these consultants and contract research organizations to perform the studies and trials in accordance with the investigational plan and protocol for each product candidate and in compliance with regulations and standards, commonly referred to as “good clinical practice”, for conducting, recording and reporting results of clinical trials to assure that the data and results are credible and accurate and the trial participants are adequately protected, as required by the FDA and foreign regulatory agencies. We may face delays in our regulatory approval process if these parties do not perform their obligations in a timely or competent fashion or if we are forced to change service providers. The risk of

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delays is heightened for our clinical trials conducted outside of the United States, where it may be more difficult for us to ensure that studies are conducted in compliance with foreign regulatory requirements. Any third parties that we hire to conduct clinical trials may also provide services to our competitors, which could compromise the performance of their obligations to us. If these third parties do not successfully carry out their duties or meet expected deadlines, or if the quality, completeness or accuracy of the data they obtain is compromised due to their failure to adhere to our clinical trial protocols or for other reasons, our clinical trials may be extended, delayed or terminated or may otherwise prove to be unsuccessful. If there are delays or failures in clinical trials or regulatory approvals as a result of the failure to perform by third parties, our development costs will increase, and we may not be able to obtain regulatory approval for our product candidates. In addition, we may not be able to establish or maintain relationships with these third parties on favorable terms, if at all. If we need to enter into replacement arrangements because a third party is not performing in accordance with our expectations, we may not be able to do so without undue delays or considerable expenditures or at all.
Risks Related to Government Regulation and Regulatory Approvals
Our cell-based product candidates are based on novel technologies and the FDA and regulatory agencies in other countries have limited experience reviewing product candidates using these technologies.
      We are subject to the risks of failure inherent in the development of product candidates based on new technologies. The novel nature of our product candidates creates significant challenges in regards to product development and optimization, government regulation, third party reimbursement and market acceptance. For example, the FDA and regulatory agencies in other countries have relatively limited experience with therapies based upon cellular medicine generally and, as a result, the pathway to regulatory approval for our cell-based product candidates may be more complex and lengthy. As a result, the development and commercialization pathway for our cell-based therapies may be subject to increased uncertainty, as compared to the pathway for new conventional drugs.
We must comply with extensive government regulations in order to obtain and maintain marketing approval for our products in the United States and abroad. If we do not obtain regulatory approval for our product candidates, we may be forced to cease our operations.
      Our product candidates are subject to extensive regulation in the United States and in every other country where they will be tested or used. These regulations are wide-ranging and govern, among other things:
  •  product design, development, manufacture and testing;
 
  •  product safety and efficacy;
 
  •  product labeling;
 
  •  product storage and shipping;
 
  •  record keeping;
 
  •  pre-market clearance or approval;
 
  •  advertising and promotion; and
 
  •  product sales and distribution.
      We cannot market our product candidates until we receive regulatory approval. The process of obtaining regulatory approval is lengthy, expensive and uncertain. Any difficulties that we encounter in obtaining regulatory approval may have a substantial adverse impact on our business and cause our stock price to decline significantly.
      In the United States, the FDA imposes substantial requirements on the introduction of biological products and many medical devices through lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures. Satisfaction of these requirements

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typically takes several years and the time required to do so may vary substantially based upon the type and complexity of the biological product or medical device.
      In addition, product candidates that we believe should be classified as medical devices for purposes of the FDA regulatory pathway may be determined by the FDA to be biologic products subject to the satisfaction of significantly more stringent requirements for FDA approval. A 510(k) pre-market notification, used for certain device candidates, for the TGI 100 product candidate was filed by Tissue Genesis, Inc., or Tissue Genesis, with the FDA in September 2006. We intend to use the same regulatory pathway for the TGI 1200, an automated version of the cell isolation component of the TGI 100. The FDA’s 510(k) clearance pathway usually takes from four to twelve months, but it can last longer. The FDA has requested that Tissue Genesis file a Request for Designation with the FDA Office of Combination of Products requesting a determination of whether the TGI 100 is properly classified as a medical device or a biologic or drug. The FDA granted Tissue Genesis an extension until April 2007 to file this Request for Designation. If the FDA determines that the TGI 100 is a biologic or drug rather than a medical device, we will not be able to sell the TGI 100 or TGI 1200 until we or Tissue Genesis conduct additional preclinical studies and clinical trials and obtain FDA approval, which could take years to obtain and which could have a material adverse effect on our business.
      The requirements governing the conduct of clinical trials and cell culturing and marketing of our product candidates outside the United States vary widely from country to country. Foreign approvals may take longer to obtain than FDA approvals and can require, among other things, additional testing and different clinical trial designs. Foreign regulatory approval processes generally include all of the risks associated with the FDA approval processes. Some foreign regulatory agencies also must approve prices of the products. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others. We may not be able to file for regulatory approvals and may not receive necessary approvals to market our product candidates in any foreign country. If we fail to comply with these regulatory requirements or fail to obtain and maintain required approvals in any foreign country, we will not be able to sell our product candidates in that country and our ability to generate revenue will be adversely affected.
      We cannot assure you that we will obtain FDA or foreign regulatory approval to market any of our product candidates for any indication in a timely manner or at all. If we fail to obtain regulatory approval of any of our product candidates for at least one indication, we will not be permitted to market our product candidates and may be forced to cease our operations.
Even if some of our product candidates receive regulatory approval, these approvals may be subject to conditions, and we and our third party manufacturers will in any event be subject to significant ongoing regulatory obligations and oversight.
      Even if any of our product candidates receives regulatory approval, the manufacturing, marketing and sale of our product candidates will be subject to stringent and ongoing government regulation. Conditions of approval, such as limiting the category of patients who can use the product, may significantly impact our ability to commercialize the product and may make it difficult or impossible for us to market a product profitably. Changes we may desire to make to an approved product, such as cell culturing changes or revised labeling, may require further regulatory review and approval, which could prevent us from updating or otherwise changing an approved product. If our product candidates are approved by the FDA or other regulatory authorities for the treatment of any indications, regulatory labeling may specify that our product candidates be used in conjunction with other therapies. For instance, we currently anticipate that prior implantation of an ICD and treatment with optimal drug therapy will be required at least initially as a condition to treatment with MyoCell.
      Once obtained, regulatory approvals may be withdrawn for a number of reasons, including the later discovery of previously unknown problems with the product. Regulatory approval may also require costly post-marketing follow-up studies, and failure of our product candidates to demonstrate sufficient efficacy and safety in these studies may result in either withdrawal of marketing approval or severe limitations on permitted product usage. In addition, numerous additional regulatory requirements relating to, among other processes,

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the labeling, packaging, adverse event reporting, storage, advertising, promotion and record-keeping will also apply. Furthermore, regulatory agencies subject a marketed product, its manufacturer and the manufacturer’s facilities to continual review and periodic inspections. Compliance with these regulatory requirements are time consuming and require the expenditure of substantial resources.
      If any of our product candidates is approved, we will be required to report certain adverse events involving our products to the FDA, to provide updated safety and efficacy information and to comply with requirements concerning the advertisement and promotional labeling of our products. As a result, even if we obtain necessary regulatory approvals to market our product candidates for any indication, any adverse results, circumstances or events that are subsequently discovered, could require that we cease marketing the product for that indication or expend money, time and effort to ensure full compliance, which could have a material adverse effect on our business.
      In response to recent events regarding questions about the safety of certain approved prescription products, including the lack of adequate warnings, the FDA and the U.S. Congress are currently considering new regulatory and legislative approaches to advertising, monitoring and assessing the safety of marketed drugs, including legislation authorizing the FDA to mandate labeling changes for approved products, particularly those related to safety. It is possible that congressional and FDA initiatives pertaining to ensuring the safety of marketed biologics and similar initiatives in other countries, or other developments pertaining to the pharmaceutical industry, could require us to expend additional resources to comply with such initiatives and could adversely affect our operations.
      In addition, the FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of any failure to comply with applicable laws and regulations or defects in design or manufacture. In the event any of our product candidates receives approval and is commercialized, a government-mandated or voluntary product recall by us could occur as a result of component failures, device malfunctions, or other negative events such as serious injuries or deaths, or quality-related issues such as cell culturing errors or design or labeling defects. Recalls of any of our potential products could divert managerial and financial resources, harm our reputation and adversely affect our financial condition, results of operations and stock price.
      Any failure by us, or by any third parties that may manufacture or market our products, to comply with the law, including statutes and regulations administered by the FDA or other U.S. or foreign regulatory authorities, could result in, among other things, warning letters, fines and other civil penalties, suspension of regulatory approvals and the resulting requirement that we suspend sales of our products, refusal to approve pending applications or supplements to approved applications, export or import restrictions, interruption of production, operating restrictions, closure of the facilities used by us or third parties to manufacture our product candidates, injunctions or criminal prosecution. Any of the foregoing actions could have a material adverse effect on our business.
We must comply with federal, state and foreign laws, regulations and other rules relating to the healthcare business, and, if we do not fully comply with such laws, regulations and other rules, we could face substantial penalties.
      We are, or will be directly or indirectly through our customers, subject to extensive regulation by the federal government, the states and foreign countries in which we may conduct our business. The laws that directly or indirectly affect our ability to operate our business include the following:
  •  the federal Medicare and Medicaid Anti-Kickback law, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid;
 
  •  other Medicare laws, regulations, rules, manual provisions and policies that prescribe the requirements for coverage and payment for services performed by our customers, including the amount of such payment;

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  •  the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false or fraudulent claims for payment to the government;
 
  •  the Federal False Statements Act, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with delivery of or payment for healthcare benefits, items or services; and
 
  •  state and foreign law equivalents of the foregoing.
      If our operations are found to be in violation of any of the laws, regulations, rules or policies described above or any other law or governmental regulation to which we or our customers are or will be subject, or if the interpretation of the foregoing changes, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs and the curtailment or restructuring of our operations. Similarly, if our customers are found non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations, and additional legal or regulatory change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation.
Our business involves the use of hazardous materials that could expose us to environmental and other liability.
      Our facility in Sunrise, Florida is subject to various local, state and federal laws and regulations relating to the use and disposal of hazardous or potentially hazardous substances, including chemicals and micro-organisms used in connection with our research and development activities. In the United States, these laws include the Occupational Safety and Health Act, the Toxic Test Substances Control Act and the Resource Conservation and Recovery Act. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by these regulations, we cannot assure you that accidental contamination or injury to employees and third parties from these materials will not occur. We do not have insurance to cover claims arising from our use and disposal of these hazardous substances other than limited clean-up expense coverage for environmental contamination due to an otherwise insured peril, such as fire.
Risks Related to Commercialization of our Product Candidates
The biopharmaceutical and medical communities have relatively little experience with therapies based on cellular medicine and, accordingly, if our product candidates do not become widely accepted by physicians, patients, third party payors and those healthcare communities, we may be unable to generate significant revenue, if any.
      We are developing cell-based therapy product candidates for the treatment of heart damage that represent novel and unproven treatments and, if approved, will compete with a number of more conventional products and therapies manufactured and marketed by others, including major pharmaceutical companies. We cannot predict or guarantee that physicians, patients, healthcare insurers, third party payors or health maintenance organizations, or the healthcare community in general, will accept or utilize any of our product candidates. We anticipate that, if approved, we will market MyoCell primarily to interventional cardiologists, who are generally not the primary care physicians for patients we intend to be eligible for treatment with MyoCell. Accordingly, our commercial success may be dependent on third party physicians referring their patients to interventional cardiologists for MyoCell treatment.
      If we are successful in obtaining regulatory approvals for any of our product candidates, the degree of market acceptance of those products will depend on many factors, including:
  •  our ability to provide acceptable evidence and the perception of patients and the healthcare community, including third party payors, of the positive characteristics of our product candidates

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  relative to existing treatment methods, including their safety, efficacy, cost effectiveness and/or other potential advantages;
 
  •  the incidence and severity of any adverse side effects of our product candidates;
 
  •  the availability of alternative treatments;
 
  •  the labeling requirements imposed by the FDA and foreign regulatory agencies, including the scope of approved indications and any safety warnings;
 
  •  our ability to obtain sufficient third party insurance coverage or reimbursement for our products candidates;
 
  •  the inclusion of our products on insurance company coverage policies;
 
  •  the willingness and ability of patients and the healthcare community to adopt new technologies;
 
  •  the procedure time associated with the use of our product candidates;
 
  •  our ability to manufacture or obtain from third party manufacturers sufficient quantities of our product candidates with acceptable quality and at an acceptable cost to meet demand; and
 
  •  marketing and distribution support for our products.

      Failure to achieve market acceptance would limit our ability to generate revenue and would have a material adverse effect on our business. In addition, if any of our product candidates achieve market acceptance, we may not be able to maintain that market acceptance over time if competing products or technologies are introduced that are received more favorably or are more cost-effective.
There is substantial uncertainty as to the coverage that may be available and the reimbursement rates that may be established for our product candidates. Any failure to obtain third party coverage or an adequate level of reimbursement for our product candidates will likely have a material adverse effect on our business.
      If we successfully develop, and obtain necessary regulatory approvals for, our product candidates we intend to sell them initially in Europe and the United States. We have not yet submitted any of our product candidates to the Center for Medicare and Medicaid Services, or CMS, or any private or governmental third party payor in the United States to determine whether or not our product candidates will be covered under private or public health insurance plans or, if they are covered, what coverage or reimbursement rates may be available. Although we believe hospitals may be entitled to some procedure reimbursement for MyoCell, we cannot assure you that such reimbursement will be adequate or available at all.
      In Europe, the pricing of prescription pharmaceutical products and services and the level of government reimbursement generally are subject to governmental control. Reimbursement and healthcare payment systems in European markets vary significantly by country, and may include both government-sponsored healthcare and private insurance. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct one or more clinical trials that compares the cost effectiveness of our product candidates to other available therapies. Conducting one or more clinical trials for this purpose would be expensive and result in delays in commercialization of our product candidates. We may not obtain coverage or reimbursement or pricing approvals from countries in Europe in a timely manner, or at all. Any failure to receive coverage or reimbursement or pricing approvals from one or more European countries could effectively prevent us from selling our product candidates in those countries, which could materially adversely affect our business.
      In the United States, our revenues will depend upon the coverage and reimbursement rates and policies established for our product candidates by third party payors, including governmental authorities, managed-care providers, public health insurers, private health insurers and other organizations. These third party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new healthcare products approved for marketing by the FDA or regulatory agencies in other

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countries. As a result, significant uncertainty exists as to whether newly approved medical products will be eligible for coverage by third party payors or, if eligible for coverage, what the reimbursement rates will be for those products. Furthermore, cell-based therapies like MyoCell may be more expensive than pharmaceuticals, due to, among other things, the higher cost and complexity associated with the research, development and production of these therapies. This, in turn, may make it more difficult for us to obtain adequate reimbursement from third party payors, particularly if we cannot demonstrate a favorable cost-benefit relationship. Third party payors may also deny coverage or offer inadequate levels of reimbursement for our potential products if they determine that the product has not received appropriate clearances from the FDA or other government regulators or is experimental, unnecessary or inappropriate. Accordingly, we cannot assure you that adequate third party coverage or reimbursement will be available for any of our product candidates to allow us to successfully commercialize these product candidates.
      Coverage and reimbursement rates for our product candidates may be subject to increased restrictions both in the United States and in other countries in the future. Coverage policies and reimbursement rates are subject to change and we cannot guarantee that current coverage policies and reimbursement rates will be applicable to our product candidates in the future. U.S. federal, state and foreign agencies and legislatures from time to time may seek to impose restrictions on coverage, pricing, and reimbursement level of drugs, devices and healthcare services in order to contain healthcare costs.
We have only limited experience culturing our cell-based product candidates, and we may not be able to culture our product candidates in quantities sufficient for clinical studies or for commercial sale. We also face certain risks in connection with our use of third party manufacturers and cell culturing service providers.
      We may encounter difficulties in the production of our cell-based product candidates, including MyoCell, due to our limited experience internally culturing our product candidates. We have a cell culturing facility in Sunrise, Florida, which we believe has the capacity to meet substantially all of our projected demand for MyoCell in the United States for the balance of 2007. We began culturing cells at this facility for preclinical uses in the third quarter of 2006. Prior to such date, we outsourced our various cell culturing needs. We anticipate that we will begin culturing cells at this facility for clinical uses upon commencement of the MYOHEART II Trial. We have no experience in culturing our product candidates for the number of patients that will be required for later stage clinical studies or commercialization and may be unable to culture sufficient quantities of our product candidates for our clinical trials or our commercial needs on a timely and cost-effective basis. Difficulties arising from our limited cell culturing experience could reduce sales of our products, increase our costs or cause production delays, any of which could adversely affect our results of operations.
      We anticipate that we will continue to use third party cell culturing service providers, including Pharmacell and Cambrex Bioscience, to supply a portion of our cell-based product candidates, including MyoCell, for clinical trials and commercial sales outside of the United States. We may not be able to, and in our Phase I/ II clinical trial experienced delays because we were not at times able to, obtain sufficient quantities of MyoCell from third party cell culturing service providers. In addition, our third party cell culturing providers may be unable to culture commercial quantities of our product candidates on a timely and cost-effective basis. The term of our supply agreement with Pharmacell expires six months following the end of completion of the SEISMIC and MYOHEART II Trials unless terminated earlier. We cannot be certain that we will be able to maintain our relationships with our third party cell culturing service providers, including Pharmacell, or establish relationships with other cell culturing service providers on commercially acceptable terms.
      We currently use and expect to continue to use third party manufacturers to supply our device product candidates, including MyoCath. Our contract with our only MyoCath manufacturer is scheduled to terminate in September 2007. We anticipate either renegotiating our contract with this manufacturer or negotiating a new agreement with another manufacturer. The transition to a replacement contract manufacturer has additional risks, including those risks associated with the development by the replacement contract manufacturer of sufficient levels of expertise in the manufacturing process. If we are unable to renegotiate this agreement or enter into a replacement agreement with another contract manufacturer on reasonable terms and

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in a timely manner, or if any replacement contract manufacturer is unable to develop sufficient manufacturing expertise in a timely manner, we could experience shortages of clinical trial materials, which could adversely affect our business.
      Our cell culturing facility and those of our contract manufacturers and other cell culturing service providers will be subject to ongoing, periodic inspection by the FDA to confirm that the facilities comply with the FDA’s current Good Manufacturing Practices, or cGMP, if the facility manufactures biologics, and quality system regulations if the facility manufactures devices. Foreign regulatory agencies, for example, the International Standards Organization and the European authorities related to obtaining a “CE mark” on a device in Europe, may also impose similar requirements on us and conduct similar inspections of the facilities that manufacture our product candidates. Failure to follow and document adherence to such cGMP regulations or other regulatory requirements by us or our contract manufacturers or third party cell culturing service providers may lead to significant delays in the availability of our product candidates for commercial use or clinical study, may result in the delay or termination of a clinical trial, or may delay or prevent filing of applications for or our receipt of regulatory approval of our product candidates. If we or such third parties fail to comply with applicable regulations, the FDA or other regulatory authorities could impose sanctions on us, including fines, injunctions, civil penalties, denial of marketing approval of our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of our product candidates, operating restrictions and criminal prosecutions. Any of these events could adversely affect our financial condition, profitability and ability to develop and commercialize products on a timely and competitive basis.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may be unable to generate product revenues.
      We do not have a sales and marketing force and related infrastructure and have limited experience in the sales, marketing and distribution of our product candidates. To achieve commercial success for any approved product, we must either develop a sales and marketing force or outsource these functions to third parties. Currently, we intend to internally develop a direct sales and marketing force in both Europe and the United States as we approach commercial approval of our product candidates. The development of our own sales and marketing force will result in us incurring significant costs before the time that we may generate revenues. We may not be able to attract, hire, train and retain qualified sales and marketing personnel to build a significant or effective marketing and sales force for sales of our product candidates.
Product liability and other claims against us may reduce demand for our products or result in substantial damages. We anticipate that we will need to obtain and maintain additional or increased insurance coverage, and we may not be able to obtain or maintain such coverage on commercially reasonable terms, if at all.
      A product liability claim, a clinical trial liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business. Our business exposes us to potential liability risks that may arise from the clinical testing of our product candidates in human clinical trials and the manufacture and sale of any approved products. Any clinical trial liability or product liability claim or series of claims or class actions brought against us, with or without merit, could result in:
  •  liabilities that substantially exceed our existing clinical trial liability insurance, or any clinical trial liability or product liability insurance that we may obtain in the future, which we would then be required to pay from other sources, if available;
 
  •  an increase in the premiums we pay for our clinical trial liability insurance and any clinical trial liability or product liability insurance we may obtain in the future or the inability to renew or obtain clinical trial liability or product liability insurance coverage in the future on acceptable terms, or at all;
 
  •  withdrawal of clinical trial volunteers or patients;
 
  •  damage to our reputation and the reputation of our products, including loss of market share;
 
  •  regulatory investigations that could require costly recalls or product modifications;

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  •  litigation costs; and
 
  •  diversion of management’s attention from managing our business.
      Although we have clinical trial liability insurance, our current clinical trial liability insurance is subject to deductibles and coverage limitations. This insurance currently covers claims of up to $5 million each and up to $5 million in the aggregate each year. Our current clinical trial liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, the coverage may not be adequate to protect us against future clinical trial liability claims. We are currently seeking to increase our clinical trial liability insurance coverage.
      We do not currently have product liability insurance because none of our product candidates has yet been approved for commercialization. While we plan to seek product liability insurance coverage if any of our product candidates are sold commercially, we cannot assure you that we will be able to obtain product liability insurance on commercially acceptable terms, if at all, or that we will be able to maintain such insurance at a reasonable cost or in sufficient amounts to protect against potential losses.
      Claims may be made by consumers, healthcare providers, third party strategic collaborators or others selling our products if one of our products or product candidates causes, or appears to have caused, an injury. We may be subject to claims against us even if an alleged injury is due to the actions of others. For example, we rely on the expertise of physicians, nurses and other associated medical personnel to perform the medical procedures and processes related to our product candidates. If these medical personnel are not properly trained or are negligent in using our product candidates, the therapeutic effect of our product candidates may be diminished or the patient may suffer injury, which may subject us to liability. In addition, an injury resulting from the activities of our suppliers may serve as a basis for a claim against us.
      We do not intend to promote, or to in any way support or encourage the promotion of, our product candidates for off-label or otherwise unapproved uses. However, if our product candidates are approved by the FDA or similar foreign regulatory authorities, we cannot prevent a physician from using them for any off-label applications. If injury to a patient results from such an inappropriate use, we may become involved in a product liability suit, which will likely be expensive to defend.
      These liabilities could prevent or interfere with our clinical efforts, product development efforts and any subsequent product commercialization efforts, all of which could have a material adverse effect on our business.
Our success will depend in part on establishing and maintaining effective strategic partnerships, collaborations and licensing agreements.
      Our strategy for the development, testing, culturing and commercialization of our product candidates relies on establishing and maintaining numerous collaborations with various corporate partners, consultants, scientists, researchers, licensors, licensees and others, including the collaborations described in this prospectus. While we are continually in discussions with a number of companies, universities, research institutions, consultants, scientists, researchers, licensors, licensees and others to establish additional relationships and collaborations, which are typically complex and time consuming to negotiate, document and implement, we may not reach definitive agreements with any of them. Even if we enter into these arrangements, we may not be able to maintain these relationships or establish new ones in the future on acceptable terms.
      Furthermore, any collaboration that we enter into may not be successful. The success of our collaboration arrangements, if any, will depend heavily on the efforts and activities of our collaborators. Possible future collaborations have risks, including the following:
  •  our collaboration agreements are likely to be for fixed terms and subject to termination by our collaborators in the event of a material breach or lack of scientific progress by us;
 
  •  our collaborators are likely to have the first right to maintain or defend our intellectual property rights and, although we would likely seek to secure the right to assume the maintenance and defense of our

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  intellectual property rights if our collaborators do not, our ability to do so may be compromised by our collaborators’ acts or omissions;
 
  •  our collaborators may utilize our intellectual property rights in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or expose us to potential liability;
 
  •  our collaborators may underfund or not commit sufficient resources to the testing, marketing, distribution or development of our product candidates; and
 
  •  our collaborators may develop alternative products either on their own or in collaboration with others, or encounter conflicts of interest or changes in business strategy or other business issues, which could adversely affect their willingness or ability to fulfill their obligations to us.

      These arrangements also may require us to grant certain rights to third parties, including exclusive marketing rights to one or more products, or may have other terms that are burdensome to us, and may involve the issuance of our securities. If any of our partners terminates its relationship with us or fails to perform its obligations in a timely manner, the development or commercialization of our technology and product candidates may be substantially delayed. Further, disputes may arise with our collaborators about inventorship and corresponding rights in know-how and inventions resulting from the joint creation or use of intellectual property by us and our collaborators.
Risks Related to Our Intellectual Property
We have licensed and therefore do not own any of the intellectual property that is critical to our business. Any events or circumstances that result in the termination or limitation of our rights under any of the agreements between us and the licensors of our intellectual property could have a material adverse effect on our business.
      All of the intellectual property that is critical to our business has been licensed to us by various third parties. The operative terms of some of our material license agreements are vague or subject to interpretations which may increase the risks of dispute with our licensors.
      Under certain of our patent license agreements, we are subject to development, payment, commercialization and other obligations and, if we fail to comply with any of these requirements or otherwise breach those agreements, our licensors may have the right to terminate the license in whole or in part, terminate the exclusive nature of the license to the extent such license is exclusive or otherwise limit our rights thereunder, which could have a material adverse effect on our business. For instance, we are obligated to pay aggregate fees of $8 million to Cell Transplants International, LLC, or Cell Transplants International, upon commencement of a U.S. Phase II human clinical trial of MyoCell and upon FDA approval of patented technology for heart muscle regeneration. We are also obligated to make certain payments to the Cleveland Clinic in the aggregate amount of $2.25 million upon our achievement of certain development and commercialization objectives in connection with the development of MyoCell.
      Under our material license agreements, including, but not limited to, our license agreement for the primary patent for MyoCell, our licensors generally have the right to control the filing, prosecution, maintenance and defense of all licensed patents and patent applications and, if a third party infringes on any of those licensed patents, to control any legal or other proceedings instituted against that third party for infringement. As a result, our licensors may take actions or make decisions relating to these matters with which we do not agree or which could have a material adverse effect on our business. Likewise, our licensors may in the future grant licenses outside the field of heart damage treatment to third parties to use the patents and other intellectual property to which we have rights under our exclusive or conditionally exclusive license agreements. Should our licensors elect not to pursue the filing, prosecution or maintenance of a licensed patent application or patent or institute legal or other proceedings against a third party for infringements of those patents, then we may be required to undertake these proceedings alone or jointly with others, who may have interests that are different from ours. Under certain of our license agreements, we have no right to undertake these proceedings even if our licensors refuse to do so. As a result, we may have no control or only limited control over the prosecution, maintenance, defense and enforcement of patent applications and patents that are critical to our business. In that regard, certain of our license agreements require that we contribute to the

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costs of filing, prosecuting, maintaining, defending and enforcing the licensed patent applications, patents and other intellectual property, whether or not we agree with those actions. Further, such actions typically require the expenditure of considerable time and money.
      Any termination or limitation of, or loss of exclusivity under, our exclusive or conditionally exclusive license agreements would have a material adverse effect on us and could delay or completely terminate our product development efforts.
We do not have patent protection for MyoCell outside of the United States and we may not be able to effectively enforce our intellectual property rights in certain countries, which could have a material adverse effect on our business.
      We are seeking or intend to seek regulatory approval to market our product candidates in a number of foreign countries, including various countries in Europe. MyoCell, however, is not protected by patents outside of the United States, which means that competitors will be free to sell products that incorporate the same technologies that are used in MyoCell in those countries, including in European countries, which we believe may be one of the largest potential markets for these product candidates. In addition, the laws and practices in some of those countries, or others in which we may seek to market our other product candidates in the future, may not protect intellectual property rights to the same extent as in the United States. We or our licensors may not be able to effectively obtain, maintain or enforce rights with respect to the intellectual property relating to our product candidates in those countries. Our lack of patent protection in one or more countries, or the inability to obtain, maintain or enforce intellectual property rights in one or more countries, could adversely affect our ability to commercialize our products in those countries and otherwise have a material adverse effect on our business.
Our success depends on the protection of our intellectual property rights, particularly the patents that have been licensed to us, and our failure to secure and maintain these rights would materially harm our business.
      Our commercial success depends to a significant degree on our ability to:
  •  obtain and/or maintain protection for our product candidates under the patent laws of the United States and other countries;
 
  •  defend and enforce our patents once obtained;
 
  •  obtain and/or maintain appropriate licenses to patents, patent applications or other proprietary rights held by others with respect to our technology, both in the United States and other countries;
 
  •  maintain trade secrets and other intellectual property rights relating to our product candidates; and
 
  •  operate without infringing upon the patents and proprietary rights of third parties.
      The degree of intellectual property protection for our technology is uncertain, and only limited intellectual property protection may be available for our product candidates, which may prevent us from gaining or keeping any competitive advantage against our competitors. Although we believe the patents that have been licensed or sublicensed to us, and the patent applications that we own or that have been licensed to us, generally provide us a competitive advantage, the patent positions of biotechnology, biopharmaceutical and medical device companies are generally highly uncertain, involve complex legal and factual questions and have been the subject of much litigation. Neither the U.S. Patent and Trademark Office nor the courts have a consistent policy regarding the breadth of claims allowed or the degree of protection afforded under many biotechnology patents. Even if issued, patents may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products. Further, a court or other government agency could interpret our patents in a way such that the patents do not adequately cover our current or future product candidates. Changes in either patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property or narrow the scope of our patent protection.

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      In particular, we cannot assure you that:
  •  we or the owners or other inventors of the patents that we own or that have been licensed to us or that may be issued or licensed to us in the future were the first to file patent applications or to invent the subject matter claimed in patent applications relating to the technologies upon which we rely;
 
  •  others will not independently develop similar or alternative technologies or duplicate any of our technologies;
 
  •  any of our patent applications will result in issued patents;
 
  •  the patents and the patent applications that we own or that have been licensed to us or that may be issued or licensed to us in the future will provide a basis for commercially viable products or will provide us with any competitive advantages, or will not be challenged by third parties;
 
  •  the patents and the patent applications that have been licensed to us are valid and enforceable;
 
  •  we will develop additional proprietary technologies that are patentable;
 
  •  we will be successful in enforcing the patents that we own or that have been licensed to us and any patents that may be issued or licensed to us in the future against third parties; or
 
  •  the patents of third parties will not have an adverse effect on our ability to do business.
      Accordingly, we may fail to secure meaningful patent protection relating to any of our existing or future product candidates or discoveries despite the expenditure of considerable resources. Further, there may be widespread patent infringement in countries in which we may seek patent protection, including countries in Europe, which may instigate expensive and time consuming litigation which could adversely affect the scope of our patent protection. In addition, others may attempt to commercialize products similar to our product candidates in countries where we do not have adequate patent protection. Failure to obtain adequate patent protection for our product candidates, or the failure by particular countries to enforce patent laws or allow prosecution for alleged patent infringement, may impair our ability to be competitive. The availability of infringing products in markets where we have patent protection, or the availability of competing products in markets where we do not have adequate patent protection, could erode the market for our product candidates, negatively impact the prices we can charge for our product candidates, and harm our reputation if infringing or competing products are manufactured to inferior standards.
The patent we believe is the primary basis for the protection of MyoCell is scheduled to expire in the United States in July 2009 and if we are unable to secure a patent term extension, we will have to seek to protect MyoCell through a combination of patents on other aspects of our technology and trade secrets, which may not prove to be effective.
      We anticipate that we will seek to collaborate with the owners of the patent, Dr. Peter Law and Cell Transplants International, to extend the term of this patent and, provided that MyoCell is approved by the FDA prior to the patent expiration date and certain other material conditions are satisfied, we believe that this patent will be eligible for a five-year extension of its term until July 2014. It is possible that the FDA will not complete review of and grant approval for MyoCell before this patent expires. In such event, a regular patent term extension will not be available, but Dr. Law and Cell Transplants International could request a one-year interim extension of the patent term during the period beginning six months before and ending fifteen days before the patent expiration. The request for interim extension must satisfy a number of material conditions including those conditions necessary to receive a regular patent term extension. Under certain circumstances the patent owner can request up to four additional one-year interim extensions. However, we cannot assure you that Dr. Law and Cell Transplants International will seek to obtain, or will be successful in obtaining, any regular or interim patent term extension.
      Once this patent expires, competitors will not be prevented from developing or marketing their own similar or identical compositions for the treatment of muscle degeneration, assuming they receive the requisite regulatory approval.

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We have limited recourse available in the event that patents necessary for the use by our customers of the TGI 100 or TGI 1200 product candidates, certain disposable products used in conjunction with these product candidates or processes or cells derived from these product candidates directly or indirectly infringe any patent rights of a third party.
      Our customers’ use of the TGI 100 product candidate, the TGI 1200 product candidate, certain disposable products used in conjunction with these product candidates and processes or cells derived from these product candidates may be determined to directly or indirectly infringe on patent rights held by third parties, including Thomas Jefferson University, or Third Party Patent Rights.
      The recourse available to us in the event that these patents are determined to directly or indirectly infringe any of the Third Party Patent Rights is limited by the terms of our exclusive license and distribution agreement with Tissue Genesis. Pursuant to this agreement, Tissue Genesis has agreed that we and our customers will not be liable for damages for directly or indirectly infringing any Third Party Patent Rights for the treatment of acute heart attacks. Tissue Genesis has, subject to certain conditions, also agreed to indemnify and hold harmless us and our customers from all claims that the products infringe any patents, copyrights or trade secret rights of a third party. However, if our use of the products is enjoined or if Tissue Genesis wishes to minimize its liability, Tissue Genesis may, at its option and expense, either:
  •  substitute a substantially equivalent non-infringing product for the infringing product;
 
  •  modify the infringing product so that it no longer infringes but remains functionally equivalent; or
 
  •  obtain for us the right to continue using such item.
      If none of the foregoing is feasible, Tissue Genesis is required to accept a return of the infringing product and refund to us the amount paid for such product. Any termination of our right to use, lease or sell the TGI 100 product candidate, the TGI 1200, certain disposable products used in conjunction with these product candidates and/or the processes or cells derived from these product candidates or any inability by Tissue Genesis to refund to us the amounts we paid for such products could have a material adverse effect on us.
Patent applications owned by or licensed to us may not result in issued patents, and our competitors may commercialize the discoveries we attempt to patent.
      The patent applications that we own and that have been licensed to us, and any future patent applications that we may own or that may be licensed to us, may not result in the issuance of any patents. The standards that the U.S. Patent and Trademark Office and foreign patent offices use to grant patents are not always applied predictably or uniformly and can change. Consequently, we cannot be certain as to the type and scope of patent claims to which we may in the future be entitled under our license agreements or that may be issued to us in the future. These applications may not be sufficient to meet the statutory requirements for patentability and therefore may not result in enforceable patents covering the product candidates we want to commercialize. Further, patent applications in the United States that are not filed in other countries generally are not published until at least 18 months after they are first filed and patent applications in certain foreign countries generally are not published until many months after they are filed. Scientific and patent publication often occurs long after the date of the scientific developments disclosed in those publications. As a result, we cannot be certain that we or any of our licensors was or will be the first creator of inventions covered by our (or their) patents or applications or the first to file such patent applications. As a result, our issued patents and patent applications could become subject to challenge by third parties that created such inventions or filed patent applications before us or our licensors, resulting in, among other things, interference proceedings in the U.S. Patent and Trademark Office to determine priority of discovery or invention. Interference proceedings, if resolved adversely to us or our licensors, could result in the loss of or significant limitations on patent protection for our products or technologies. Even in the absence of interference proceedings, patent applications now pending or in the future filed by third parties may prevail over the patent applications that have been or may be owned by or licensed to us or that we or our licensors may file in the future or may result in patents that issue alongside patents issued to us or our licensors or that may be issued or licensed to us in

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the future, leading to uncertainty over the scope of the patents owned by or licensed to us or that may in the future be owned by us or our freedom to practice the claimed inventions.
Our patents may not be valid or enforceable, and may be challenged by third parties.
      We cannot assure you that the patents that have been issued or licensed to us would be held valid by a court or administrative body or that we would be able to successfully enforce our patents against infringers, including our competitors. The issuance of a patent is not conclusive as to its validity or enforceability, and the validity and enforceability of a patent is susceptible to challenge on numerous legal grounds. Challenges raised in patent infringement litigation brought by or against us may result in determinations that patents that have been issued or licensed to us or any patents that may be issued to us or our licensors in the future are invalid, unenforceable or otherwise subject to limitations. In the event of any such determinations, third parties may be able to use the discoveries or technologies claimed in these patents without paying licensing fees or royalties to us, which could significantly diminish the value of our intellectual property and our competitive advantage. Even if our patents are held to be enforceable, others may be able to design around our patents or develop products similar to our products that are not within the scope of any of our patents.
      In addition, enforcing the patents that have been licensed to us and any patents that may be issued to us in the future against third parties may require significant expenditures regardless of the outcome of such efforts. Our inability to enforce our patents against infringers and competitors may impair our ability to be competitive and could have a material adverse effect on our business.
Issued patents may not provide us with any competitive advantage or provide meaningful protection against competitors.
      We own, hold licenses or hold sublicenses to an intellectual property portfolio consisting of approximately 19 patents and 19 patent applications in the United States, and approximately twelve patents and 51 patent applications in foreign countries, for use in the field of heart muscle regeneration. However, the discoveries or technologies covered by these patents may not have any value or provide us with a competitive advantage and many of these discoveries or technologies may not be applicable to our product candidates at all. With the exception of the technology related to MyoCell, we have devoted limited resources to identifying competing technologies that may have a competitive advantage relative to ours, especially those competing technologies that are not perceived as infringing on our intellectual property rights. In addition, the standards that courts use to interpret and enforce patent rights are not always applied predictably or uniformly and can change, particularly as new technologies develop. Consequently, we cannot be certain as to how much protection, if any, will be afforded by these patents with respect to our products if we or our licensors attempt to enforce these patent rights and those rights are challenged in court.
      The existence of third party patent applications and patents could significantly limit our ability to obtain meaningful patent protection. If patents containing competitive or conflicting claims are issued to third parties, we may be enjoined from pursuing research, development or commercialization of product candidates or may be required to obtain licenses, if available, to these patents or to develop or obtain alternative technology. If another party controls patents or patent applications covering our product candidates, we may not be able to obtain the rights we need to those patents or patent applications in order to commercialize our product candidates or we may be required to pay royalties, which could be substantial, to obtain licenses to use those patents or patent applications. We believe we will need to, among other things, license additional intellectual property to commercialize a number of our product candidates, including MyoCell II with SDF-1, in the form we believe may prove to be the most safe and/or effective.
      In addition, issued patents may not provide commercially meaningful protection against competitors. Other parties may seek and/or be able to duplicate, design around or independently develop products having effects similar or identical to our patented product candidates that are not within the scope of our patents. For example, we believe that a number of our competitors have proposed catheter designs that are apparently intended to avoid infringing upon our catheter related technology.

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      Limitations on patent protection in some countries outside the United States, and the differences in what constitutes patentable subject matter in these countries, may limit the protection we have under patents issued outside of the United States. We do not have patent protection for our product candidates in a number of our target markets and, under our license agreements, we may not have the right to initiate proceedings to obtain patents in those countries. The failure to obtain adequate patent protection for our product candidates in any country would impair our ability to be commercially competitive in that country.
Litigation or other proceedings relating to patent and other intellectual property rights could result in substantial costs and liabilities and prevent us from commercializing our product candidates.
      Our commercial success depends significantly on our ability to operate in a way that does not infringe or violate the intellectual property rights of third parties in the United States and in foreign countries. We are not currently a party to any litigation or other adverse proceeding with regard to our patents or intellectual property rights. However, the biotechnology, biopharmaceutical and medical device industries are characterized by a large number of patents and patent filings and frequent litigation based on allegations of patent infringement. Competitors may have filed patent applications or have been issued patents and may obtain additional patents and proprietary rights related to products or processes that compete with or are similar to ours. We may not be aware of all of the patents potentially adverse to our interests that may have been issued to others. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issued patents that our product candidates or proprietary technologies may infringe. Third parties may claim that our products or related technologies infringe their patents. Further, we, or our licensors, may need to participate in interference, opposition, protest, reexamination or other potentially adverse proceedings in the U.S. Patent and Trademark Office or in similar agencies of foreign governments with regards to our patents and intellectual property rights. In addition, we or our licensors may need to initiate suits to protect our intellectual property rights.
      Certain of our competitors in the field have acquired patents which might be used to attempt to prevent commercialization of MyoCell. We are aware of at least three such patent families. We believe the patents in these three families are narrow, and that we do not infringe any valid claims of these patents in our current practice. The U.S. Patent and Trademark Office has commenced a re-examination relating to one of these patent families. There is no assurance that we will receive a favorable ruling in this proceeding. In the event that the proceeding fails to result in limitation of the claims of the subject patent, such outcome may have a material adverse effect on our business, financial condition and results of operation.
      Litigation or any other proceeding relating to intellectual property rights, even if resolved in our favor, may cause us to incur significant expenses, divert the attention of our management and key personnel from other business concerns and, in certain cases, result in substantial additional expenses to license technologies from third parties. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. An unfavorable outcome in any patent infringement suit or other adverse intellectual property proceeding could require us to pay substantial damages, including possible treble damages and attorneys’ fees, cease using our technology or developing or marketing our products, or require us to seek licenses, if available, of the disputed rights from other parties and potentially make significant payments to those parties. There is no guarantee that any prevailing party would offer us a license or that we could acquire any license made available to us on commercially acceptable terms. Even if we are able to obtain rights to a third party’s patented intellectual property, those rights may be non-exclusive and therefore our competitors may obtain access to the same intellectual property. Ultimately, we may be unable to commercialize our product candidates or may have to cease some of our business operations as a result of patent infringement claims, which could materially harm our business. We cannot guarantee that our products or technologies will not conflict with the intellectual property rights of others.
      If we need to redesign our products to avoid third party patents, we may suffer significant regulatory delays associated with conducting additional studies or submitting technical, cell culturing, manufacturing or other information related to any redesigned product and, ultimately, in obtaining regulatory approval. Further, any such redesigns may result in less effective and/or less commercially desirable products if the redesigns are possible at all.

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      Additionally, any involvement of us in litigation in which we or our licensors are accused of infringement may result in negative publicity about us or our products, injure our relations with any then-current or prospective customers and marketing partners and cause delays in the commercialization of our products.
If we are not able to protect and control unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm.
      In addition to patented intellectual property, we also rely on unpatented technology, trade secrets, confidential information and proprietary know-how to protect our technology and maintain our competitive position, especially when we do not believe that patent protection is appropriate or can be obtained. Trade secrets are difficult to protect. In order to protect proprietary technology and processes, we rely in part on confidentiality and intellectual property assignment agreements with our employees, consultants and others. These agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of the individual’s relationship with us except in limited circumstances. These agreements generally also provide that we shall own all inventions conceived by the individual in the course of rendering services to us. These agreements may not effectively prevent disclosure of confidential information or result in the effective assignment to us of intellectual property, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements. In addition, others may independently discover trade secrets and proprietary information that have been licensed to us or that we own, and in such case we could not assert any trade secret rights against such party. Enforcing a claim that a party illegally obtained and is using trade secrets that have been licensed to us or that we own is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could have a material adverse effect on our business. Moreover, some of our academic institution licensors, collaborators and scientific advisors have rights to publish data and information to which we have rights. If we cannot maintain the confidentiality of our technologies and other confidential information in connection with our collaborations, our ability to protect our proprietary information or obtain patent protection in the future may be impaired, which could have a material adverse effect on our business.
Other Risks Related to Our Business
Our operations are consolidated primarily in one facility. A disaster at this facility is possible and could result in a prolonged interruption of our business.
      All of our administrative operations and substantially all of our U.S. cell culturing operations are located at our facilities in Sunrise, Florida. Our business is and will continue to be influenced by local economic, financial and other conditions affecting the South Florida area. This may include prolonged or severe inclement weather in the South Florida area or a catastrophic event such as a hurricane or tornado, all of which are common events in Florida.
We depend on attracting and retaining key management and scientific personnel and the loss of these personnel could impair the development of our products candidates.
      Our success depends on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with academic institutions, clinicians and scientists. We are seeking to hire a new Chief Executive Officer and anticipate that once a new Chief Executive Officer is located Mr. Howard J. Leonhardt, our current Chairman and Chief Executive Officer, will continue with us as our Executive Chairman and Chief Technology Officer. We are highly dependent upon our senior scientific staff. The loss of services of one or more members of our senior scientific staff could significantly delay or prevent the successful completion of our clinical trials or commercialization of our product candidates. The employment of each of our employees with us is “at will,” and each employee can terminate his or her employment with us at any time. We do not have a succession plan in place for any of our officers and key employees. Although we are seeking to secure “key person”

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insurance on Mr. Leonhardt, we do not carry insurance on any of our other key employees and, accordingly, their death or disability may have a material adverse effect on our business.
      The competition for qualified personnel in the life sciences field is intense. We will need to hire additional personnel, including regulatory and sales personnel, as we continue to expand our development activities. We may not be able to attract and retain quality personnel on acceptable terms given our geographic location and the competition for such personnel among life sciences, biotechnology, pharmaceutical and other companies. If we are unable to attract new employees and retain existing employees, we may be unable to continue our development and commercialization activities and our business may be harmed.
If we acquire other businesses and technologies our performance may suffer.
      If we are presented with opportunities, we may seek to acquire additional businesses and/or technologies. The acquisition of businesses and technologies may require significant expenditures and management resources that could otherwise be available for development of other aspects of our business. Future acquisitions may require the issuance of additional shares of stock or other securities which would further dilute your investment or the incurrence of additional debt and liabilities which could create additional expenses, any of which may negatively impact our financial results and result in restrictions on our business that may harm our future outlook and cause our stock price to decline.
We may not be able to effectively manage our future growth.
      If we are able to commercialize one or more of our product candidates, we may not be able to manage future growth following such commercialization because:
  •  we may be unable to effectively manage our personnel and financial operations;
 
  •  we may be unable to hire or retain key management and staff; and
 
  •  commercial success may stimulate competitive challenges that we may be unable to meet, resulting in declining market share and sales of our products.
      Any inability to manage our growth effectively could adversely affect our business.
Expansion into international markets is important to our long-term success, and our inexperience in operations outside the United States increases the risk that our international operations may not be successful.
      We believe that our future growth depends on obtaining regulatory approvals to sell our product candidates in foreign countries and our ability to sell our product candidates in those countries. We have only limited experience with operations outside the United States. Our goal of selling our products into international markets will require management attention and resources and is subject to inherent risks, which may adversely affect us, including:
  •  unusual or burdensome foreign laws or regulations and unexpected changes in regulatory requirements, including potential restrictions on the transfer of funds;
 
  •  no or less effective protection of our intellectual property;
 
  •  foreign currency risks;
 
  •  political instability, including adverse changes in trade policies between countries in which we may maintain operations; and
 
  •  longer accounts receivable payment cycles and difficulties in collecting payments.
      These factors and other factors could adversely affect our ability to execute our international marketing strategy or otherwise have a material adverse effect on our business.

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Because we have operated as a private company, we have no experience complying with public company obligations. Compliance with these requirements will increase our costs and require additional management resources, and we may still fail to comply.
      We will incur significant additional legal, accounting, insurance and other expenses as a result of being a public company that we have not incurred as a private company. For example, laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, and rules related to corporate governance and other matters subsequently adopted by the Securities and Exchange Commission, or the SEC, and the NASDAQ Global Market will result in substantially increased costs to us, including legal and accounting costs, and may divert our management’s attention from other matters that are important to our business. These rules and any related regulations that may be proposed in the future will likely make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these laws, rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers. We cannot predict or estimate the amount of the additional costs we may incur, but we expect our operating results will be adversely affected by the costs of operating as a public company.
Our internal control over financial reporting may be insufficient to detect in a timely manner misstatements that could occur in our financial statements in amounts that may be material.
      In connection with the audit of our financial statements for the year ended December 31, 2005, we identified a significant deficiency in our internal control over financial reporting which constituted a material weakness. A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. The significant deficiency related to our year-end closing methodologies and was based on the number and size of year-end adjustments we recorded. While we have taken steps to attempt to remedy this material weakness and the significant deficiency through our addition of a chief financial officer and corporate controller, we may still experience material weaknesses and significant deficiencies, which, if not remediated, may render us unable to prevent or detect in a timely manner material misstatements that could occur in our monthly or interim financial statements.
Failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business.
      As a public company, within the next 24 months, we will be required to document and test our internal financial control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act, which will require annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent auditors that both addresses management’s assessments and provides for the independent auditor’s assessment of the effectiveness of our internal control over financial reporting. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet our deadline for compliance with Section 404, and we may also identify inaccuracies or deficiencies in our financial reporting that could require revisions to or restatement of prior period results. Testing and maintaining internal control over financial reporting also will involve significant costs and can divert our management’s attention from other matters that are important to our business. We may not be able to conclude on an ongoing basis that our internal control over financial reporting is effective in accordance with Section 404, and our independent registered public accounting firm may not be able or willing to issue a favorable assessment of our conclusions. Failure to achieve and maintain an effective internal control environment could harm our operating results and could cause us to fail to meet our reporting obligations and could require that we restate our financial statements for prior periods, any of which could cause investors to lose confidence in our reported financial information and cause a decline, which could be material, in the trading price of our common stock.

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We face intense competition in the biotechnology and healthcare industries.
      We face, and will continue to face, intense competition from pharmaceutical, biopharmaceutical, medical device and biotechnology companies developing heart failure treatments both in the United States and abroad, as well as numerous academic and research institutions, governmental agencies and private organizations engaged in drug discovery activities or funding both in the United States and abroad. We also face competition from entities and healthcare providers using more traditional methods, such as surgery and pharmaceutical regimens, to treat heart failure. We believe there are a substantial number of heart failure products under development by numerous pharmaceutical, biopharmaceutical, medical device and biotechnology companies, and it is likely that other competitors will emerge. We are also aware of several competitors developing cell-based therapies for the treatment of heart damage, including MG Biotherapeutics, LLC (a joint venture between Genzyme Corporation and Medtronic, Inc.), Mytogen, Inc., Baxter International, Inc., Osiris Therapeutics, Inc., Viacell, Inc., Cytori Therapeutics, Inc. and potentially others. We also recognize that there may be competitors and competing technologies, therapies and/or products that we are not aware of.
      These third parties also compete with us in recruiting and retaining qualified personnel, establishing clinical trial sites and registering patients for clinical trials, as well as acquiring or licensing intellectual property and technology. Many competitors have more experience than we do in research and development, marketing, cell culturing, manufacturing, preclinical testing, conducting clinical trials, obtaining FDA and foreign regulatory approvals and marketing approved products. The competitors, some of which have their own sales and marketing organizations, have greater financial and technical resources than we do and may be better equipped than we are to sell competing products, obtain patents that block or otherwise inhibit our ability to further develop and commercialize our product candidates, obtain approvals from the FDA or other regulatory agencies for products more rapidly than we do, or develop treatments or cures that are safer or more effective than those we propose to develop. In addition, academic institutions, governmental agencies, and other public and private organizations conducting research in the field of heart damage may seek patent protection with respect to potentially competitive products or technologies and may establish exclusive collaborative or licensing relationships with our competitors.
      MyoCell is a non-acute clinical therapy designed to be utilized at least a few months after a patient has suffered heart damage. Our competitors may discover technologies and techniques for the acute treatment of heart failure, which, if successful in treating heart failure shortly after its occurrence, may reduce the market size for non-acute treatments, including MyoCell.
Our industry is subject to rapid technological change.
      Our industry is subject to rapid technological change and our cellular-based therapies involve new and rapidly developing technology. Our competitors may discover technologies and techniques, or enter into partnerships with collaborators in order to develop, competing products that are more effective or less costly than the products we develop. We expect this technology to undergo significant change in the future. If there is rapid technological development, our current and future product candidates or methods may become obsolete or noncompetitive before or after we commercialize them.
Risks Related to This Offering
There is no prior public market for our stock. Our stock price may be volatile and you may be unable to sell your shares at or above the offering price.
      There previously has been no public market for our common stock. The initial public offering price for our shares was determined by negotiations between us and representatives of the underwriters and does not purport to be indicative of prices that will prevail in the trading market. The market price of our common stock could be subject to wide fluctuations in response to many risk factors described in this section and other matters, including:
  •  publications of clinical trial results by clinical investigators or others about our products and competitors’ products and/or our industry;

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  •  changes by securities analysts in financial estimates of our operating results and the operating results of our competitors;
 
  •  publications of research reports by securities analysts about us, our competitors or our industry;
 
  •  fluctuations in the valuation of companies perceived by investors to be comparable to us;
 
  •  actual or anticipated fluctuations in our quarterly or annual operating results;
 
  •  retention and departures of key personnel;
 
  •  our failure or the failure of our competitors to meet analysts’ projections or guidance that we or our competitors may give to the market;
 
  •  strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures, strategic investments or changes in business strategy;
 
  •  the passage of legislation or other regulatory developments affecting us or our industry;
 
  •  speculation in the press or investment community; and
 
  •  natural disasters, terrorist acts, acts of war or periods of widespread civil unrest.
      Furthermore, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies, especially life sciences and pharmaceutical companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market and industry fluctuations, as well as general economic, political and market conditions, may negatively affect the market price of our common stock. As a result, the market price of our common stock is likely to be similarly volatile and investors in our common stock may experience a decrease, which could be substantial, in the value of their stock. In the past, many companies that have experienced volatility in the market price of their stock have been subject to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns, which could have a material adverse effect on our business.
Our existing shareholders, including Mr. Leonhardt, have significant control of our management and affairs, which they could exercise against your best interests.
      Immediately following the completion of this offering, based on shares outstanding as of                     , 2007, our executive officers and directors and persons and entities that were our shareholders prior to this offering will beneficially own an aggregate of approximately                     % of our outstanding common stock, or approximately                     % of our outstanding common stock if the underwriters’ over-allotment option is exercised in full. In particular, Mr. Leonhardt will own approximately                     % of our outstanding common stock immediately following this offering, or approximately                     % of our outstanding common stock if the underwriters’ over-allotment option is exercised in full, in each case based on shares outstanding as of                     , 2007. As a result, Mr. Leonhardt currently has, and will continue to have, a significant influence over the outcome of all corporate actions requiring shareholder approval. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if such a change of control would benefit our other shareholders. The interests of these shareholders may not coincide with our interests or the interests of other shareholders.
An active trading market for our common stock may not develop.
      This is our initial public offering of common stock, and prior to this offering there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations with the representatives of the underwriters. Although we have applied to have our common stock approved for quotation on the NASDAQ Global Market, an active trading market for our common stock may never develop or be sustained following this offering. If an active market for our common

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stock does not develop, it may be difficult for you to sell shares you purchase in this offering without depressing the market price for our common stock.
If you purchase shares of common stock sold in this offering, you will experience immediate and substantial dilution. You may also experience dilution in the future.
      The initial public offering price per share is substantially higher than the net tangible book value per share immediately after the offering. As a result, you will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. Assuming an offering price of $                    , the midpoint of the range set forth on the cover of this prospectus, you will incur immediate and substantial dilution of $                    in the net tangible book value per share of the common stock from the price you paid. We also have outstanding stock options to purchase                     shares of our common stock at a weighted average exercise price of                     per share as of                     , 2007. To the extent that options with an exercise price less than the initial public offering price are exercised, there will be further dilution.
      Under certain of our patent license agreements, including our license agreements with Cell Transplants International and the Cleveland Clinic, we are required to make certain large milestone payments upon our achievement of certain development and commercialization objectives. We may be required to or, to the extent we do not have the cash resources necessary to satisfy our obligations may seek to, issue shares or other securities in satisfaction of our financial obligations under these license agreements. To the extent we issue shares at a price per share less than the initial public offering price per share, you will incur dilution in the net tangible book value per share.
Following this offering, a substantial number of our shares of common stock will become available for sale in the public market, which may cause the market price of our stock to decline.
      Sales of our common stock in the public market following this offering, or the perception that those sales may occur, could cause the market price of our common stock to decline. Immediately upon completion of this offering, we will have                     outstanding shares of common stock based on shares outstanding as of                     , 2007. In general, the shares sold in this offering will be freely tradable without restriction, assuming they are not held by our affiliates. The remaining                     shares of common stock outstanding after this offering will be available for sale in the public markets, pursuant to Rule 144 or Rule 701 under the Securities Act of 1933, or the Securities Act, 180 days (subject to extension for up to an additional 34 days under limited circumstances as described under “Underwriting”) after the completion of this offering following the expiration of lock-up agreements entered into by our directors and officers and holders of more than 1% of our common stock for the benefit of the underwriters.
      In addition, we intend to file one or more registration statements to register shares of common stock subject to outstanding stock options and common stock reserved for issuance under our Officers and Employees Stock Option Plan and Directors and Consultants Stock Option Plan. We expect these additional registration statements to become effective immediately upon filing.
      Furthermore, immediately after completion of this offering, the holders of                     shares of our outstanding common stock will also have the right to require that we register those shares under the Securities Act on several occasions and will also have the right to include those shares in any registration statement we file with the SEC, subject to exceptions, which would enable those shares to be sold in the public markets, subject to the restrictions under lock-up agreements referred to above.
      Any or all shares subject to the lock-up agreements may be released, without notice to the public, for sale in the public markets prior to expiration of the lock-up period at the discretion of BMO Capital Markets Corp.
Our management has broad discretion in the use of the net proceeds from this offering and may not use them effectively.
      As of the date of this prospectus, we cannot specify with certainty the amount of net proceeds from this offering that we will spend on particular uses. Although our management currently intends to use the net

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proceeds in the manner described in “Use of Proceeds,” it will have broad discretion in the application of the net proceeds. The failure by our management to apply these funds effectively could adversely affect our ability to continue to maintain and expand our business.
Anti-takeover provisions of Florida law, our articles of incorporation and our bylaws may prevent or delay an acquisition of us that shareholders may consider favorable or attempts to replace or remove our management that could be beneficial to our shareholders.
      Our articles of incorporation and bylaws contain provisions, such as the right of our directors to issue preferred stock from time to time with voting, economic and other rights superior to those of our common stock without the consent of our shareholders, all of which could make it more difficult for a third party to acquire us without the consent of our board of directors. In addition, our bylaws impose restrictions on the persons who may call special shareholder meetings. Furthermore, the Florida Business Corporation Act contains an “affiliated transaction” provision that prohibits a publicly-held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an “interested shareholder” unless, among others, (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested shareholder; (ii) the interested shareholder has owned at least 80% of the corporation’s outstanding voting shares for at least five years; or (iii) the transaction is approved by the holders of two-thirds of the corporation’s voting shares other than those owned by the interested shareholder. An interested shareholder is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation’s outstanding voting shares. The Florida Business Corporation Act also prohibits the voting of shares in a publicly-held Florida corporation that are acquired in a “control share acquisition” unless the holders of a majority of the corporation’s voting shares (exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition or unless the acquisition is approved by the corporation’s Board of Directors. These provisions may have the effect of delaying or preventing a change of control of our company even if this change of control would benefit our shareholders.
We do not intend to pay cash dividends on our common stock in the foreseeable future.
      Our policy is to retain earnings to provide funds for the operation and expansion of our business and, accordingly, we have never declared or paid any cash dividends on our common stock or other securities and do not currently anticipate paying any cash dividends in the foreseeable future. Consequently, shareholders will need to sell shares of our common stock to realize a return on their investments, if any. The declaration and payment of dividends by us are subject to the discretion of our Board of Directors and the restrictions specified in our articles of incorporation and by applicable law. Any future determination to pay cash dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
      This prospectus may contain forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Any such forward-looking statements would be contained principally in “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities and the effects of regulation. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions.
      The forward-looking statements in this prospectus include, among other things, statements about:
  •  the initiation and completion of clinical trials;
 
  •  the announcement of data concerning the results of clinical trials for MyoCell;
 
  •  our estimates regarding future revenues and timing thereof, expenses, capital requirements and needs for additional financing;
 
  •  our ongoing and planned discovery programs, preclinical studies and additional clinical trials;
 
  •  the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
 
  •  the rate and degree of market acceptance and clinical utility of our products;
 
  •  our ability to quickly and efficiently identify and develop product candidates;
 
  •  our commercialization, marketing and manufacturing capabilities and strategy; and
 
  •  our intellectual property position.
      Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in greater detail in “Risk Factors.” Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which the prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
      Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future. The forward-looking statements contained in this prospectus are not eligible for the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

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USE OF PROCEEDS
      Based upon an assumed initial public offering price of $                    per share (the mid-point of the range set forth on the cover page of this prospectus), we estimate that our net proceeds from the sale of                     shares of our common stock in this offering, after deducting underwriting discounts and commissions and estimated offering costs of approximately $                    million payable by us, will be approximately $                    million (or $ million if the underwriters exercise their over-allotment option in full). A $1.00 increase (decrease) in the assumed initial public offering price of $                    per share would increase (decrease) the net proceeds to us from this offering by $                    million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated expenses payable by us.
      We intend to use the net proceeds of this offering to fund the growth of our business, including:
  •  approximately $        million for the MYOHEART II and SEISMIC Trials;
 
  •  approximately $        million for projected payments pursuant to our license agreements and to further develop and protect our intellectual property portfolio;
 
  •  approximately $        million for the further development and clinical testing of our pipeline product candidates; and
 
  •  approximately $        million for general corporate purposes, including working capital needs, development of a sales and marketing force, and potential acquisitions of technologies or businesses or the establishment of partnerships and collaborations complementary to our business.
      The amounts and timing of our actual expenditures may vary significantly from our expectations depending upon numerous factors, including our results of operation, financial condition and capital requirements. Accordingly, we will retain the discretion to allocate the net proceeds of this offering among the identified uses described above, and we reserve the right to change the allocation of the net proceeds among the uses described above.
      Pending their use, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.
DIVIDEND POLICY
      Our policy is to retain earnings to provide funds for the operation and expansion of our business and, accordingly, we have never declared or paid any cash dividends on our common stock or other securities and do not currently anticipate paying any cash dividends in the foreseeable future. Consequently, shareholders will most likely need to sell shares of our common stock to realize a return on their investments, if any. The declaration and payment of dividends by us are subject to the discretion of our Board of Directors and the restrictions specified in our articles of incorporation and by applicable law. Any future determination to pay cash dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant by our Board of Directors.

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CAPITALIZATION
      The following table presents our cash and cash equivalents and our capitalization as of September 30, 2006:
  •  on an actual basis;
 
  •  on a pro forma basis to give effect to our issuance of 766,216 shares of our common stock between October 1, 2006 and January 31, 2007 for aggregate net proceeds of approximately $3.6 million in a private placement to accredited investors; and
 
  •  on a pro forma as adjusted basis to give effect to the sale by us of shares of our common stock at an assumed initial public offering price of $                    per share, the mid-point of the range set forth on the cover page of this prospectus, and the receipt of net proceeds of this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Each $1.00 increase (decrease) in the assumed initial public offering price of $                    per share would increase (decrease) each of cash and cash equivalents, working capital, total assets and total shareholders’ equity by approximately $                    million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
      The pro forma information below is illustrative only and our capitalization table following the completion of this offering will be adjusted based on the actual initial public offering price and other terms of this offering determined at pricing. You should read this table together with the sections of this prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and the related notes included elsewhere in this prospectus.
                             
    As of September 30, 2006
    (Unaudited)
     
        Pro Forma
    Actual   Pro Forma   as Adjusted
             
Cash and cash equivalents
  $ 5,183,441     $ 8,812,583     $    
                   
Shareholders’ equity:
                       
 
Preferred stock: 5,000,000 shares authorized, none issued and outstanding actual, pro forma and pro forma as adjusted
  $     $     $    
 
Common stock: 40,000,000 shares authorized, actual and pro forma; 100,000,000 shares authorized, pro forma as adjusted; 20,098,537 shares issued and outstanding, actual; 20,864,753 shares issued and outstanding, pro forma; and           shares issued and outstanding, pro forma as adjusted
    20,099       20,865          
 
Additional paid-in capital
    65,671,979       69,300,355          
 
Deficit accumulated during the development stage
    (62,275,676 )     (62,275,676 )        
                   
   
Total shareholders’ equity
    3,416,402       7,045,544          
                   
   
Total capitalization
  $ 3,416,402     $ 7,045,544     $    
                   
      The table above excludes as of September 30, 2006:
  •  an aggregate of 3,107,275 shares of common stock issuable upon exercise of outstanding options under our stock option plans, with a weighted average exercise price of $3.01 per share;
 
  •  an aggregate of 1,892,725 additional shares of common stock reserved for future awards under our stock option plans; and

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  •  an aggregate of 357,632 shares of common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $3.68 per share.
      From October 1, 2006 through December 31, 2006, we granted options to purchase an aggregate of 39,852 shares of our common stock under our stock option plans with an exercise price of $4.75 per share and warrants to purchase an aggregate of 2,500,000 shares of our common stock with an exercise price of $4.75 per share. From January 1, 2007 through January 31, 2007, we granted options to purchase an aggregate of 56,000 shares of our common stock under our stock option plans with an exercise price of $5.23 per share.
DILUTION
      If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma net tangible book value per share of our common stock after completion of this offering.
      Our net tangible book value as of September 30, 2006 was approximately $3.4 million, or approximately $0.17 per share of our common stock. Net tangible book value per share is determined at any date by subtracting our total liabilities from our total tangible assets (total assets less intangible assets) and dividing the difference by the number of our shares of common stock deemed to be outstanding at that date. Dilution in net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of common stock in this offering and the net tangible book value per share of common stock immediately after completion of this offering. Our pro forma net tangible book value as of September 30, 2006 was approximately $7.0 million or $0.34 per share. Pro forma net tangible book value per share gives effect to our issuance of 766,216 shares of our common stock between October 1, 2006 and January 31, 2007 for aggregate net proceeds of approximately $3.6 million in a private placement to accredited investors.
      After giving effect to the sale of                     shares offered by us in this offering at an assumed initial public offering price of $                    per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting estimated underwriting discounts and commissions and our estimated offering expenses, our pro forma as adjusted net tangible book value as of September 30, 2006 would have been approximately $                    million, or approximately $                    per share of common stock. This represents an immediate increase in pro forma as adjusted net tangible book value of $                    per share to existing shareholders and an immediate dilution in pro forma as adjusted net tangible book value of $                    per share to new investors. The following table illustrates this per share dilution:
                   
Assumed initial public offering price per share
          $    
 
Net tangible book value per share as of September 30, 2006
  $ 0.17          
 
Pro forma increase in net tangible book value per share attributable to issuance of common stock between October 1, 2006 and January 31, 2007
  $ 0.17          
             
 
Pro forma net tangible book value per share as of September 30, 2006
  $ 0.34          
 
Pro forma increase in net tangible book value per share attributable to this offering
  $            
Pro forma as adjusted net tangible book value per share after this offering
  $            
             
Dilution per share to new investors
          $    
      The following table summarizes as of September 30, 2006 the number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share paid to us by our existing shareholders and to be paid by new investors purchasing shares of our common stock in this offering based on

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an assumed public offering price of $        per share, before deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us:
                                           
    Shares Purchased   Total Consideration   Average
            Price per
    Number   Percentage   Amount   Percentage   Share
                     
Existing shareholders
    20,098,537             $ 51,122,401             $ 2.54  
New investors
                                       
                               
 
Total
                                       
                               
      The number of shares of common stock outstanding in the table above is based on the number of shares outstanding as of September 30, 2006 and excludes:
  •  an aggregate of 3,107,275 shares of common stock issuable upon exercise of outstanding options under our stock option plans, with a weighted average exercise price of $3.01 per share;
 
  •  an aggregate of 1,892,725 additional shares of common stock reserved for future awards under our stock option plans; and
 
  •  an aggregate of 357,632 shares of common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $3.68 per share.
      From October 1, 2006 through December 31, 2006, we granted options to purchase an aggregate of 39,852 shares of our common stock under our stock option plans with an exercise price of $4.75 per share and warrants to purchase an aggregate of 2,500,000 shares of our common stock with an exercise price of $4.75 per share. From January 1, 2007 through January 31, 2007, we granted options to purchase an aggregate of 56,000 shares of our common stock under our stock option plans with an exercise price of $5.23 per share.
      Because the exercise price of the outstanding options and warrants is below the anticipated offering price, investors purchasing common stock in this offering will suffer additional dilution when and if these options or warrants are exercised. See “Management — Our stock option plans” for further information regarding our equity incentive plans.
      A $1.00 increase (decrease) in the assumed initial public offering price of $                    per share would increase (decrease) our pro forma as adjusted net tangible book value by $                    million and the pro forma as adjusted net tangible book value per share after completion of this offering by $                    per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
      If the underwriters exercise their over-allotment option in full, the net tangible book value per share after completion of this offering would be $                    per share, the increase in net tangible book value per share to existing shareholders would be $                    per share and the dilution in net tangible book value to new investors would be $                    per share.

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SELECTED CONSOLIDATED FINANCIAL DATA
      The following table presents selected consolidated historical financial data. We derived the selected consolidated statement of operations data for the years ended December 31, 2003, 2004 and 2005 and consolidated balance sheet data as of December 31, 2004 and 2005 from our audited financial statements and notes thereto that are included elsewhere in this prospectus. We derived the selected consolidated statement of operations data for the years ended December 31, 2001 and 2002 and the consolidated balance sheet data as of December 31, 2001, 2002 and 2003 from our audited financial statements that do not appear in this prospectus. We derived the consolidated statement of operations data for the nine months ended September 30, 2005 and 2006 and the consolidated balance sheet data as of September 30, 2006 from our unaudited financial statements that are included elsewhere in this prospectus. The unaudited interim financial statements have been prepared on the same basis as our audited annual financial statements and, in our opinion, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the results of operations for the periods ended September 30, 2005 and 2006 and our financial condition as of September 30, 2006. The historical results are not necessarily indicative of the results to be expected for any future periods and the results for the nine months ended September 30, 2006 should not be considered indicative of results expected for the full fiscal year.
                                                         
        Nine Months Ended
    Year Ended December 31,   September 30,
         
    2001   2002   2003   2004   2005   2005   2006
                             
                        (Unaudited)
    (In thousands, except per share data)
Statement of Operations Data:
                                                       
Revenues
  $ 25     $ 2     $ 46     $ 86     $ 135     $ 127     $ 106  
Cost of sales
                30       46       87       75       63  
                                           
Gross profit
    25       2       16       40       48       52       43  
Expenses:
                                                       
Research and development
    6,597       7,361       3,502       3,787       4,534       3,142       5,339  
Marketing, general and administrative
    1,714       1,946       2,523       1,731       2,831       2,111       5,680  
Depreciation and amortization
                31       34       46       33       46  
                                           
Total expenses
    8,311       9,307       6,056       5,552       7,411       5,286       11,065  
                                           
Loss from operations
    (8,286 )     (9,305 )     (6,040 )     (5,512 )     (7,363 )     (5,234 )     (11,022 )
Total interest income (expense), net
    113       47       2       (7 )     36       9       78  
                                           
Net loss before income taxes
    (8,173 )     (9,258 )     (6,038 )     (5,519 )     (7,327 )     (5,225 )     (10,944 )
Income taxes
                                         
                                           
Net loss
  $ (8,173 )   $ (9,258 )   $ (6,038 )   $ (5,519 )   $ (7,327 )   $ (5,225 )   $ (10,944 )
                                           
Basic and diluted net loss per share
  $ (0.94 )   $ (0.95 )   $ (0.46 )   $ (0.37 )   $ (0.42 )   $ (0.31 )   $ (0.57 )
                                           
Weighted average shares outstanding — basic and diluted
    8,707       9,724       12,985       14,875       17,244       16,681       19,057  
                                           
                                                 
    As of December 31,   As of
        September 30,
    2001   2002   2003   2004   2005   2006
                         
                        (Unaudited)
Balance Sheet Data:
                                               
Cash and cash equivalents
  $ 2,980     $ 2,231     $ 635     $ 182     $ 5,158     $ 5,183  
Working capital (deficit)
    2,010       554       (784 )     (2,000 )     4,210       2,769  
Total assets
    3,251       2,540       921       729       5,869       6,227  
Long-term debt, less current portion
     —        —        —        —        —        —  
Deficit accumulated during the development stage
    (23,191 )     (32,449 )     (37,877 )     (44,005 )     (51,332 )     (62,276 )
Total shareholders’ equity (deficit)
  $ 2,129     $ 788     $ (554 )   $ (1,857 )   $ 4,586     $ 3,416  

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      The following discussion and analysis by our management of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included elsewhere in this prospectus. This discussion and other parts of this prospectus contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in “Risk Factors.” Moreover, past financial and operating performances are not necessarily reliable indicators of future performance and you are cautioned in using our historical results to anticipate future results or to predict future trends.
Overview
      We are a biotechnology company focused on the discovery, development and commercialization of therapies using cells derived from a patient’s body, and related devices, for the treatment of heart damage. Our lead product candidate is MyoCell, an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with living muscle tissue for the purpose of improving cardiac function. Since our inception in August 1999, our principal activities have included:
  •  developing and engaging in clinical trials of our lead product candidate, MyoCell, and our MyoCath product candidate;
 
  •  expanding our pipeline of complementary product candidates through internal development and third party licenses;
 
  •  expanding and strengthening our intellectual property position through internal programs and third party licenses; and
 
  •  recruiting management, research and clinical personnel.
      Our principal objective is to become a leading company that discovers, develops and commercializes novel, autologous (patient derived) cell-based therapies and related devices, for the treatment of heart damage. To achieve this objective, we plan to pursue the following key strategies:
  •  obtain initial regulatory approval of MyoCell by targeting patients with severe heart damage;
 
  •  obtain regulatory approval of MyoCell to treat patients with less severe heart damage;
 
  •  continue to develop our pipeline of cell-based therapies and related devices for the acute and non-acute treatment of heart damage;
 
  •  develop our sales and marketing capabilities in advance of regulatory approval, if any;
 
  •  continue to refine our MyoCell cell culturing processes to further reduce our costs processing times;
 
  •  expand and enhance our intellectual property rights; and
 
  •  license, acquire and/or develop complementary products and technologies.
      In January 2007, we enrolled the final patient in the SEISMIC Trial. We anticipate that we will complete the MyoCell implantation procedure on the final patient by the end of the first quarter 2007.
      If the final six-month SEISMIC Trial data is generally consistent with the interim data, we intend to seek approval in the fourth quarter of 2007 from various European regulatory bodies to market MyoCell to treat the subclass of patients who would meet the eligibility criteria for participation in the SEISMIC Trial and who have an expected annual mortality rate of 20% (i.e., generally the sickest 30% of NYHA Class III heart failure patients), or the Class III Subgroup.

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      In November 2006, we submitted our amended Investigational New Drug application, or IND application, setting forth the proposed protocol for the MYOHEART II Trial to the FDA. This study is planned to include 450 patients, including 150 controls, at up to 60 sites in the United States and five sites in Europe.
      We are a development stage company and our lead product candidate has not generated any material revenues and is not expected to until late 2008 or early 2009. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant and increasing net losses and negative cash flows from operations for the foreseeable future as we continue clinical trials, undertake new clinical trials, apply for regulatory approvals, make capital expenditures, add information systems and personnel, make payments pursuant to our license agreements upon our achievement of certain milestones, continue development of additional product candidates using our technology, establish sales and marketing capabilities and incur the additional cost of operating as a public company. In particular, we expect that our research and development and general and administrative expenses will increase substantially from prior periods.
      As of September 30, 2006, our deficit accumulated during our development stage was approximately $62.3 million. From inception in August 1999 through January 31, 2007, we have financed our operations through private placements of our common stock in which we have raised an aggregate of $52.5 million.
      We conduct operations in one business segment. We may organize our business into more discrete business units when and if we generate significant revenue from the sale of our product candidates. Substantially all of our revenue since inception has been generated in the United States, and the majority of our long-lived assets are located in the United States.
Financial Operations Overview
Revenues
      We have not generated any material revenues from our lead product candidate. The revenues we have recognized to date are related to (i) sales of MyoCath to Advanced Cardiovascular Systems, Inc., or ACS, originally a subsidiary of Guidant Corporation and now d/b/a Abbott Vascular, a division of Abbott Laboratories, in connection with the testing of MyoCell, (ii) fees associated with our assignment to ACS of our rights relating to the primary patent covering MyoCath, or the Primary MyoCath Patent, and (iii) revenues generated from a paid registry trial in Mexico.
      In June 2003, we entered into agreements with ACS pursuant to which we assigned to ACS our rights relating to the Primary MyoCath Patent, committed to deliver 160 units of MyoCath and sold other related intellectual property for aggregate consideration of $900,000. We initially recorded payments received by us pursuant to these agreements as deferred revenue. We are recognizing the $900,000 as revenue on a pro rata basis as the catheters are delivered.
      We do not anticipate that our revenues will materially increase unless and until our lead product candidate, MyoCell, receives regulatory approval. Our revenue may vary substantially from quarter to quarter and from year to year. We believe that period-to-period comparisons of our results of operations are not meaningful and should not be relied upon as indicative of our future performance.
Cost of Sales
      Cost of sales consists primarily of the costs associated with the production of MyoCath and the costs associated with the culturing of cells for paid registry trials.
Research and Development
      Our research and development expenses consist of costs incurred in identifying, developing and testing our product candidates. These expenses consist primarily of costs related to our clinical trials, the acquisition

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of intellectual property licenses and preclinical studies. We expense research and development costs as incurred.
      Clinical trial expenses include costs related to the culture and preparation of cells in connection with our clinical trials, costs of contract research, costs of clinical trial facilities, costs of delivery systems, salaries and related expenses for clinical personnel and insurance costs. Preclinical study expenses include costs of contract research, salaries and related expenses for personnel, costs of development biopsies, costs of delivery systems and costs of lab supplies.
      We are focused on the development of a number of autologous cell-based therapies, and related devices, for the treatment of heart damage. Accordingly, many of our costs are not attributable to a specifically identified product candidate. We use our employee and infrastructure resources across several projects, and we do not account for internal research and development costs on a product candidate by product candidate basis. From inception through September 30, 2006, we incurred aggregate research and development costs of approximately $44 million related to our product candidates.
      Clinical trials and preclinical studies are time-consuming and expensive. Our expenditures on current and future preclinical and clinical development programs are subject to many uncertainties. We generally test our products in several preclinical studies and then conduct clinical trials for those product candidates that we determine to be the most promising. As we obtain results from clinical trials, we may elect to discontinue or delay trials for some product candidates in order to focus our resources on more promising product candidates. Completion of clinical trials may take several years or more, but the length of time generally varies substantially according to the type, size of trial and intended use of the product candidate.
      Due to the risks inherent in the clinical trial process, development completion dates and costs vary significantly for each product candidate, are difficult to estimate and are likely to change as clinical trials progress. We currently estimate that, in addition to the costs we have incurred through September 30, 2006, it will cost us approximately $1.1 million to complete the SEISMIC Trial and approximately $16.2 million to complete the MYOHEART II Trial.
      The cost of clinical trials may vary significantly over the life of a project as a result of a variety of factors, including the number of patients who participate in the clinical trials, the number of sites included in the clinical trials, the length of time required to enroll trial participants, the efficacy and safety profile of our product candidates and the costs and timing of and our ability to secure regulatory approvals.
Marketing, General and Administrative
      Our marketing, general and administrative expenses primarily consist of the costs associated with our general management and clinical marketing and trade programs, including, but not limited to, salaries and related expenses for executive, administrative and marketing personnel, rent, insurance, legal and accounting fees, consulting fees, travel and entertainment expenses, conference costs and other clinical marketing and trade program expenses.
Stock-Based Compensation
      Stock-based compensation reflects our recognition as an expense of the value of stock options issued to our employees and non-employees over the vesting period of the options. The fair value of the common stock underlying options granted during 2005 and the first three quarters of 2006 was estimated by our Board of Directors, with input from our management and an independent valuation firm. Based on these factors, we granted stock options in 2005 and during the first two quarters of 2006 at an exercise price of $3.50 per share. In the third quarter of 2006, we granted stock options at exercise prices of $3.50 and $4.75 per share
      During 2005 and the nine months ended September 30, 2006, we recognized stock-based compensation expense of $2.0 million and $4.3 million, respectively. A substantial portion of the expense recognized in the nine months ended September 30, 2006 relates to our issuance of common stock, stock options and stock warrants to an employee as part of a settlement in August 2006. Further stock-based compensation of $256,264 is expected to be recognized in the fourth quarter of 2006. We intend to grant stock options and

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other stock-based compensation in the future and we may therefore recognize additional stock-based compensation in connection with these future grants. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”
Critical Accounting Policies
      This discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our critical accounting policies are described in Note 1 to our financial statements appearing elsewhere in this prospectus, we believe the following policies are important to understanding and evaluating our reported financial results:
Stock-Based Compensation
      Prior to January 1, 2006, we accounted for stock-based compensation arrangements with employees under the intrinsic value method specified in Accounting Principles Board Opinion No. 25, or APB No. 25. Statement of Financial Accounting Standards, or SFAS, No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, established the use of the fair value based method of accounting for stock-based compensation arrangements, under which compensation cost is determined using the fair value of stock-based compensation determined as of the grant date, and is recognized over the periods in which the related services are rendered. SFAS No. 123 permitted companies to elect to continue using the intrinsic value accounting method specified in APB No. 25 to account for stock-based compensation related to option grants and stock awards to employees. In 2005, we elected to retain the intrinsic value based method for such grants and awards and disclosed the pro forma effect of using the fair value based method to account for our stock-based compensation in Note 1 to our financial statements. Option grants to non-employees are valued using the fair value based method prescribed by SFAS No. 123 and expensed over the period services are provided.
      In December 2004, the Financial Accounting Standards Board, or FASB, issued SFAS No. 123 (revised 2004) “Share-Based Payment,” or SFAS No. 123R. SFAS No. 123R eliminates, among other items, the use of the intrinsic value method of accounting and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments, based on the grant date fair value of those awards, in the financial statements. SFAS No. 123R became effective for us as of January 1, 2006, resulting in an increase in our stock-based compensation expense. We expense amounts related to employee stock options granted after January 1, 2006 utilizing the Black-Scholes option pricing model to measure the fair value of stock options. We amortize the estimated fair value of employee stock option grants over the vesting period. Additionally, we are required to apply the provisions of SFAS No. 123R on a modified prospective basis to awards granted before January 1, 2006. Stock-based compensation expense for 2006 and future periods will include the unamortized portion of employee stock options granted prior to January 1, 2006. Our future equity-based compensation expense will also depend on the number of stock options granted and the estimated value of the underlying common stock at the date of grant.
Revenue Recognition
      Since inception, we have not generated any material revenues from our lead product candidate. In accordance with Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, as amended by SEC Staff Accounting Bulletin No. 104, Revenue Recognition, our revenue policy is to recognize revenues from product sales and service transactions generally when persuasive evidence of an arrangement exists, the price is fixed or determined, collection is reasonably assured and delivery of product or service has occurred.

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      We initially recorded payments received by us pursuant to our agreements with ACS as deferred revenue. Revenues are recognized on a pro rata basis as the catheters are delivered pursuant to those agreements.
Research and Development Activities
      Research and development expenditures, including payments to collaborative research partners, are charged to expense as incurred. We expense amounts paid to obtain patents or acquire licenses as the ultimate recoverability of the amounts paid is uncertain.
Results of Operations
      We are a development stage company and our lead product candidate has not generated any material revenues and is not expected to until late 2008 or early 2009. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant and increasing net losses and negative cash flows from operations for the foreseeable future as we continue clinical trials, undertake new clinical trials, apply for regulatory approvals, make capital expenditures, add information systems and personnel, make payments pursuant to our license agreements upon our achievement of certain milestones, continue development of additional product candidates using our technology, establish sales and marketing capabilities and incur the additional cost of operating as a public company. In particular, we expect that our research and development and marketing, general and administrative expenses will increase substantially from prior periods.
Comparison of Nine Months Ended September 30, 2006 and September 30, 2005
Revenues
      Total revenues were $106,000 in the nine-month period ended September 30, 2006, a decrease of $21,000 from total revenues of $127,000 in the nine-month period ended September 30, 2005. Revenues decreased due to fewer catheters being delivered during the nine-month period ended September 30, 2006. In the nine-month period ended September 30, 2005, we generated $90,000 of revenue from sales of MyoCath to ACS.
Cost of Sales
      Cost of sales was $63,000 in the nine month period ended September 30, 2006 as compared to $75,000 in the nine month period ended September 30, 2005. The decrease in cost of sales was primarily attributable to our decreased sales of MyoCath in the first nine months of 2006.
Research and Development
      Research and development expenses were $5.4 million in the nine month period ended September 30, 2006, an increase of $2.3 million, or 74.2%, from research and development expenses of $3.1 million in the nine-month period ended September 30, 2005. Our increase in research and development expenses in the first nine months of 2006 was primarily attributable to $1.5 million of expenses recognized in connection with the licensing agreement with Cleveland Clinic (discussed below), stock-based compensation costs of $238,000 and increased clinical costs of $288,000. Approximately $1.9 million of the expenses incurred in the first nine months of 2006 were related to the MYOHEART and SEISMIC Trials, including approximately $720,500 of fees paid to our clinical trial investigators, approximately $479,000 of costs related to cell culturing and approximately $340,000 of clinical site expenses.
      On February 1, 2006, we entered into a patent licensing agreement with the Cleveland Clinic pursuant to which we acquired worldwide exclusive licenses to five pending U.S. patent applications related to our MyoCell II with SDF-1 product candidate. Pursuant to this agreement, we paid Cleveland Clinic an upfront license fee of $250,000 and additional license fees of $312,000 and $938,000 on September 28, 2006 and October 2, 2006, respectively.

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Marketing, General and Administrative
      Marketing, general and administrative expenses were $5.7 million in the nine-month period ended September 30, 2006, an increase of $3.6 million, or 171.4%, from marketing, general and administrative expenses of $2.1 million in the nine month period ended September 30, 2005. The increase in marketing, general and administrative expenses during the first nine months of 2006 was primarily attributable to the stock-based compensation costs related to the issuance of common stock, stock options and stock warrants to a related party pursuant to a settlement.
Total Net Interest Income
      Total net interest income consists of interest expense, offset by earnings on our cash and cash equivalents. Total net interest income was $78,000 in the nine months ended September 30, 2006 compared to total net interest income of $9,000 in the nine months ended September 30, 2005. The increase in total net interest income was primarily attributable to higher cash balances resulting from sales of our common stock received in the third quarter of 2006.
Loss from Operations
      In the nine month period ended September 30, 2006, we incurred a loss from operations of $11.0 million, which was approximately $5.8 million greater than the loss from operations incurred in the nine month period ended September 30, 2005.
Comparison of Years Ended December 31, 2005 and December 31, 2004
Revenues
      Total revenues were $135,000 in 2005, an increase of $49,000 from total revenues of $86,000 in 2004. The increase in revenues is primarily attributable to sales of MyoCath to ACS in 2005.
Cost of Sales
      Cost of sales was $87,000 in 2005, an increase of $41,000 from cost of sales of $46,000 in 2004. The increase in cost of sales is primarily attributable to increased sales of MyoCath to ACS in 2005.
Research and Development
      Research and development expenses were $4.5 million in 2005, an increase of $700,000, or 18.4%, from research and development expenses of $3.8 million in 2004, primarily attributable to an increase in the number of patients participating in our clinical trials in 2005. Approximately $2.5 million of the expenses incurred in 2005 were related to the MYOHEART and SEISMIC Trials, including costs related to cell culturing, cell shipping, investigator fees, and clinical site expenses. Approximately $1.2 million of the expenses incurred in 2005 were related to our preclinical studies.
Marketing, General and Administrative
      Marketing, general and administrative expenses were $2.8 million in 2005, an increase of $1.1 million, or 64.7%, from marketing, general and administrative expenses of $1.7 million in 2004. The increase in marketing, general and administrative expenses was primarily due to stock-based compensation expense of $1.2 million in 2005 compared to $149,000 in 2004.

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Total Net Interest Income
      Total net interest income was $37,000 in 2005 compared to total net interest expense of $7,000 in 2004.
Loss from Operations
      In the year ended December 31, 2005, we incurred a loss from operations of $7.3 million, which is approximately $1.8 million greater than the loss from operations incurred in the year ended December 31, 2004.
Comparison of Years Ended December 31, 2004 and December 31, 2003
Revenues
      Total revenues were $86,000 in 2004, an increase of $40,000 from total revenues of $46,000 in 2003. The increase in revenues is primarily attributable to an increase in sales of MyoCath to ACS and revenues generated from the sale of certain intellectual property rights.
Cost of Sales
      Cost of sales was $46,000 in 2004, an increase of $16,000 from cost of sales of $30,000 in 2003. The increase in cost of sales is primarily attributable to increased sales of MyoCath to ACS in 2004.
Research and Development
      Research and development expenses were $3.8 million in 2004, an increase of $300,000, or 8.6%, from research and development expenses of $3.5 million in 2003, primarily attributable to costs related to sponsored research. Approximately $2.2 million of the expenses incurred in 2004 were related to the MYOHEART Trial and our Phase I/ II clinical trial of MyoCell and MyoCath in various countries in Europe, including costs related to cell culturing, cell shipping, investigator fees, and clinical site expenses. Approximately $1.0 million of the expenses incurred in 2004 were related to our preclinical studies.
Marketing, General and Administrative
      Marketing, general and administrative expenses were $1.7 million in 2004, a decrease of $800,000, or 32.0%, from marketing, general and administrative expenses of $2.5 million in 2003. The reduction in marketing, general and administrative expenses was primarily due to reductions in costs stemming from our closure of office locations outside of South Florida as well as reductions in travel costs, professional fees and salary expenses.
Total Net Interest Income
      Total net interest expense was $7,000 in 2004 compared to total net interest income of $2,000 in 2003.
Loss from Operations
      In the year ended December 31, 2004, we incurred a loss from operations of $5.5 million, which is approximately $500,000 less than the loss from operations incurred in the year ended December 31, 2003.
Liquidity and Capital Resources
      Net cash used in operating activities was $5.2 million in the nine months ended September 30, 2006 as compared to $4.4 million of cash used in the nine months ended September 30, 2005, primarily due to net losses of $10.9 million in the nine months ended September 30, 2006 and $5.2 million in the nine months ended September 30, 2005.

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      Our uses of cash in the nine months ended September 30, 2006 were partly offset by the following sources of cash:
  •  $1.3 million of accounts payable increases; and
 
  •  $4.3 million of stock-based compensation.
      Net cash used in investing activities was $155,000 in the nine months ended September 30, 2006 as compared to $289,000 in the nine months ended September 30, 2005. All of the cash utilized in investing activities for the nine months ended September 30, 2006 and 2005 related to our acquisition of property and equipment.
      Net cash provided by financing activities was $5.4 million during the nine months ended September 30, 2006, all of which was generated from our issuance of common stock. Net cash provided by financing activities was $10.1 million in the first nine months of 2005, which was generated from our issuance of common stock.
      During the nine-month period ended September 30, 2006, we agreed to pay $153,000 in cash and issued equity instruments with a fair value of $3.4 million in connection with a settlement with one of our officers. We also issued warrants with a fair value of $97,000 during this same period in exchange for licenses of intellectual property.
      For the years ended December 31, 2005, 2004 and 2003, net cash used in operating activities was $5.8 million, $5.0 million, and $4.9 million, respectively, primarily attributable to net losses of $7.3 million in 2005, $5.5 million in 2004 and $6.0 million in 2003.
      In 2005, our other primary uses of cash in operating activities were:
  •  $399,000 of accounts payable reductions; and
 
  •  $120,000 of deferred revenue reductions.
      Our uses of cash in 2005 were partly offset by the following sources of cash:
  •  $2.0 million of stock-based compensation; and
 
  •  $182,000 of inventory reductions.
      For the years ended December 31, 2005, 2004 and 2003, net cash used in investing activities was approximately $326,000, $59,000, and $32,000, respectively. All of our investing activities from January 1, 2003 through December 31, 2005 related to our acquisition of property and equipment.
      For the years ended December 31, 2005, 2004 and 2003, net cash provided by financing activities was $11.1 million, $4.6 million, and $3.4 million, respectively. Substantially all of the cash provided by financing activities from January 1, 2003 to December 31, 2006 has been generated from our issuance of common stock in various private placements. Since our inception in August 1999 through September 30, 2006, we have received aggregate net proceeds of $48.9 million from these private placements.
Existing Capital Resources and Future Capital Requirements
      At September 30, 2006 and January 31, 2007, we had cash and cash equivalents totaling $5.2 million and $4.8 million, respectively. Assuming that we secure $                     million of net proceeds in connection with this offering, we believe that the net proceeds together with our existing cash and cash equivalents will be sufficient to fund our currently budgeted cash needs for at least the next 24 months.
      Our lead product candidate has not generated any material revenues. We do not expect to generate any material revenues or cash from sales of our lead product candidate until late 2008 or early 2009. We have generated substantial net losses and negative cash flow from operations since inception and anticipate incurring significant and increasing net losses and negative cash flows from operations for the foreseeable future. These matters raise substantial doubt about our ability to continue as a going concern. To date, we have relied on proceeds from the private placement of our common stock to provide the funds necessary to conduct our research and development activities and to meet our other cash needs.

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      We expect that our expenses and capital expenditures will increase significantly during 2007 and beyond as a result of a number of factors, including:
  •  costs related to our continuation of clinical trials with respect to MyoCell;
 
  •  costs related to our continued research and development and new clinical trials with respect to our pipeline product candidates;
 
  •  costs of applying for regulatory approvals;
 
  •  capital expenditures to increase our research and development and cell culturing capabilities;
 
  •  costs associated with our addition of operational, financial and management information systems and personnel and development and protection of our intellectual property;
 
  •  our obligations to make payments pursuant to license agreements upon achievement of certain milestones; and
 
  •  costs associated with our establishment of sales and marketing capabilities to commercialize products for which we obtain regulatory approval, if any.
      The magnitude of our future expenditures and cash requirements will depend on numerous factors, including, but not limited to:
  •  the scope, rate of scientific progress, results and cost of our clinical trials and other research and development activities;
 
  •  the costs and timing of seeking FDA and other regulatory approvals;
 
  •  our ability to obtain sufficient third-party insurance coverage or reimbursement for our product candidates;
 
  •  the effectiveness of commercialization activities (including the volume and profitability of any sales achieved);
 
  •  our ability to establish additional strategic, collaborative and licensing relationships with third parties with respect to the sales, marketing and distribution of our products, research and development and other matters and the economic and other terms and timing of any such relationships;
 
  •  the ongoing availability of funds from foreign governments to build new manufacturing facilities;
 
  •  the costs involved in any potential litigation that may occur;
 
  •  decisions by us to pursue the development of new product candidates or technologies or to make acquisitions or investments; and
 
  •  the effect of competing products, technologies and market developments.
      See “Risk Factors — We may need substantial additional funding and may be unable to raise capital when needed, which would force us to delay or curtail the development or commercialization of our product candidates. An inability to obtain additional financing could adversely affect our business, financial condition, results of operations, and could even prevent us from continuing our business at all.”
Effects of Being a Public Company
      After completion of this offering, we will become subject to the periodic reporting requirements of the Exchange Act and the other rules and regulations of the SEC. We will also be subject to various other regulatory requirements, including the Sarbanes-Oxley Act of 2002. In addition, upon completion of this offering, we will become subject to the rules of the NASDAQ Global Market.
      We are working with our legal and accounting advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, internal audit, disclosure controls and

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procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal control over financial reporting.
      In addition, compliance with reporting and other requirements applicable to public companies will create additional costs for us and will require the time and attention of management. We currently expect to incur an estimated $2.0 million of incremental operating expenses in our first year of being a public company and an estimated $1.9 million per year thereafter. The incremental costs are estimates and actual incremental expenses could be materially different from these estimates. We cannot estimate with reasonable certainty the amount of the additional costs we may incur, the timing of such costs or the degree of impact that our management’s attention to these matters will have on our business.
Commitments and Contingencies
      The table below summarizes our commitments and contingencies at September 30, 2006. The information in the table reflects future unconditional payments and is based on the terms of the relevant agreements and appropriate classification of items under generally accepted accounting principles currently in effect.
                     
    Payments Due by Period
     
        Less than    
        12   13-36   37+
    Total   Months   Months   Months
                 
Operating lease obligations
  $390,000   $ 106,000     $242,000   $42,000
      We have entered into several operating lease agreements for facilities and equipment, primarily for our office building and cell culturing facility in Sunrise, Florida. Terms of certain lease arrangements include renewal options, payment of executory costs such as real estate taxes, insurance, common area maintenance and escalation clauses.
      Under our licensing agreement and related agreements with Dr. Law and his affiliate, Cell Transplants International, we are required to pay to Cell Transplants International a $3 million payment upon commencement of a bona fide U.S. Phase II human clinical trial that utilizes technology claimed under the patent for heart muscle regeneration licensed to us by Dr. Law and a $5 million payment upon FDA approval of patented technology for heart muscle regeneration. In addition, we are required to pay royalties to Cell Transplants International equal to 5% of gross sales in the territories where the licensed patents are issued of products and services that read directly on the claims of the licensed patents.
      Our licensing agreement with the Cleveland Clinic requires us to make certain milestone payments to the Cleveland Clinic upon expected milestones including: (a) $200,000 upon FDA or foreign equivalent approval of an IND application covering product candidates derived from the licensed patents, (b) $300,000 upon full enrollment of an FDA approved Phase I clinical trial, (c) $750,000 upon full enrollment of the last clinical trial needed prior to a Biologic License Application submission to the FDA or foreign equivalent and (d) $1.0 million upon the first commercial sale of an FDA approved product derived from the licensed patent. At the option of the Cleveland Clinic, we may be required to pay one-half of any milestone payment in shares of our common stock. The number of shares payable will be based upon the market value of our common stock on the date of the milestone payment. To the extent we do not complete a milestone activity by the target completion date, we will be required to pay $100,000, or the Extension Fee, to extend the target completion date for an additional one year period, or the Extension Period. If such milestone activity is achieved during the first six months of the Extension Period, the Extension Fee will be credited against the applicable milestone payment. We will also be required to pay Cleveland Clinic royalty fees equal to 5% of net sales of any products derived from the licensed patents.
Off-Balance Sheet Arrangements
      We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

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Quantitative and Qualitative Disclosure About Market Risks
      Our exposure to market risk is limited to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because the majority of our investments are expected to be in short-term debt securities. The primary objective of our investment activities is to preserve principal while at the same time maximizing the income we receive without significantly increasing risk. To reduce risk, we maintain our portfolio of cash, cash equivalents and short-term and long-term investments in a variety of interest-bearing instruments, including U.S. government and agency securities, high-grade U.S. corporate bonds, asset-backed securities, commercial paper and money market funds. We do not have any derivative financial investments in our investment portfolio. Due to the nature of our investments and expected investments, we believe that we are not subject to any material market risk exposure.
Recent Accounting Pronouncements
      In December 2004, the FASB issued Statement 123(R), Share-Based Payment, which addresses the accounting for share-based payment transactions (for example, stock options and awards of restricted stock) in which an employer receives employee services in exchange for equity securities of the company or liabilities that are based on a fair value of the company’s equity securities. This statement eliminates use of APB No. 25, and requires such transactions to be accounted for using a fair value-based method and recording compensation expense rather than optional pro forma disclosure. The new standard substantially amends SFAS No. 123. The statement is effective on January 1, 2006 and will require the Company to recognize an expense for the fair value of its unvested outstanding stock options in future financial statements. The adoption of this standard will result in the Company recording additional compensation expense of $197,972 in 2006, for options granted as of December 31, 2005.
      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 requires that changes in accounting principle be retrospectively applied. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material effect on the Company’s financial statements.
      In June 2006, the FASB issued FASB Interpretation Number 48, or FIN 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. FIN 48 contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company has not yet analyzed the impact that FIN 48 will have on the financial condition, results of operations, cash flows or disclosures.
      In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of SFAS No. 157 to have a material effect on the Company’s financial statements.
      In September 2006, the SEC issued Staff Accounting Bulletin, or SAB, No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 requires registrants to quantify misstatements using both the balance sheet and income statement approaches and to evaluate

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whether either approach results in quantifying an error that is material based on relevant quantitative and qualitative factors. The guidance is effective for the first fiscal period ending after November 15, 2006. The Company is currently evaluating the impact of the adoption of SAB No. 108 on the Company’s financial statements.
      A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.

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BUSINESS
Overview
      We are a biotechnology company focused on the discovery, development and commercialization of therapies using cells derived from a patient’s body, and related devices, for the treatment of heart damage. Our lead product candidate is MyoCell, an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with living muscle tissue for the purpose of improving cardiac function. The core technology used in MyoCell has been the subject of human clinical trials involving 90 enrollees and 62 related patients to date, conducted over the last seven years, and animal studies conducted over the last 18 years. Our most recent clinical trials of MyoCell include the SEISMIC Trial, a fully enrolled 46 patient Phase II clinical trial in various countries in Europe and the MYOHEART Trial a completed 20 patient Phase I dose escalation trial in the United States. Interim results of the SEISMIC Trial were recently announced and we have submitted to the FDA the protocol for a 450 patient, multicenter Phase II trial of MyoCell in the United States, or the MYOHEART II Trial. We have designed the MYOHEART II Trial so that upon approval of the protocol, if any, we anticipate asking the FDA to consider it a pivotal trial. The SEISMIC Trial and the MYOHEART II Trial have been designed to test the safety and efficacy of MyoCell in treating severe non-acute damage to the heart in patients in Class II or Class III heart failure according to the New York Heart Association, or NYHA, heart failure classification system.
      MyoCell is a non-acute clinical therapy intended to improve cardiac function and designed to be utilized months or even years after a patient has suffered severe heart damage due to a heart attack or other cause. MyoCell uses myoblasts, cells that are precursors to muscle cells, from the patient’s own body. When injected into scar tissue within the heart wall, myoblasts have shown to be capable of engrafting in the surrounding tissue and differentiating into mature skeletal muscle cells and/or cells which exhibit properties of both skeletal and cardiac muscle cells. As part of the MyoCell therapy, myoblasts are removed from a patient’s thigh muscle, isolated, grown through our proprietary cell culturing process, and injected directly in the scar tissue of a patient’s heart. We anticipate that an interventional cardiologist will perform the minimally invasive cell injection process with MyoCath, our proprietary catheter, or a similarly designed endoventricular catheter. By using myoblasts obtained from a patient’s own body, we believe MyoCell is able to avoid certain challenges currently faced by other cell-based clinical therapies including tissue rejection and instances of the cells differentiating into cells other than muscle. Although a number of therapies have proven to improve the cardiac function of a damaged heart, no currently available treatment has demonstrated an ability to generate new muscle tissue within the scarred regions of a heart.
      Interim data from the MYOHEART Trial and the SEISMIC Trial were presented by the lead investigator of each trial in January 2007 at the Third Annual International Conference on Cell Therapy for Cardiovascular Diseases and are described in greater detail below. The purpose of each trial is to assess the safety and efficacy of MyoCell delivered via MyoCath. The lead investigator for the MYOHEART Trial presented one-month safety data for all 20 of the treated patients, and three and six-month interim data for 16 of the 20 treated patients. Although not statistically significant due, in part, to the limited number of patients treated, the lead investigator indicated that the safety of MyoCell is strongly suggested and the preliminary efficacy data demonstrated a trend towards an improvement in scores for six-minute walk distance, or Six-Minute Walk Distance, and an improvement in quality of life, or Quality of Life. The lead investigator for the SEISMIC Trial presented data for 16 treated patients and nine control group patients for which at least one-month follow-up data was available. He reported on three efficacy endpoints: Six-Minute Walk Distance scores, NYHA Class and left ventricular ejection fraction, or LVEF. The SEISMIC Trial’s lead investigator noted that the preliminary efficacy trends appear encouraging and that the interim analysis suggests that the most frequent adverse event, irregular heartbeats, appears to be manageable with close observation and prophylactic use of implantable cardioverter defibrillators, or ICDs, and anti-arrhythmic drug therapy.
      If the final six-month SEISMIC Trial data is generally consistent with the interim data, we intend to seek approval in the fourth quarter of 2007 from various European regulatory bodies to market MyoCell to treat the subclass of patients who would meet the eligibility criteria for participation in the SEISMIC Trial and who have an expected annual mortality rate of 20% (i.e., generally the sickest 30% of NYHA Class III

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heart failure patients), or the Class III Subgroup. Assuming FDA approval of the protocol for the MYOHEART II Trial, we intend to seek to enroll and treat all of the clinical patients in the trial by the end of the second quarter of 2008. If we meet that enrollment timeline, we would expect final trial results in the first quarter of 2009. If the final safety and efficacy results provide what we believe is significant proof that MyoCell is safe and effective, we anticipate submitting such data to the FDA to obtain regulatory approval of MyoCell.
      In addition to studies we have sponsored, we understand that myoblast-based clinical therapies have been the subject of at least eleven clinical trials involving more than 325 enrollees, including at least 200 treated patients. Although we believe many of the trials are different from the trials sponsored by us in a number of important respects, it is our view that the trials have advanced the cell therapy industry’s understanding of the potential opportunities and limitations of myoblast-based therapies.
      We believe the market for treating patients in NYHA Class II or NYHA Class III heart failure is significant. According to the American Heart Association Heart Disease Statistics — 2007 Update, in the United States there are approximately 5.2 million patients with heart failure. We believe that approximately 60% of these patients are in either NYHA Class II or NYHA Class III heart failure.
Business Strategy
      Our principal objective is to become a leading company that discovers, develops and commercializes novel, autologous (patient derived) cell-based therapies, and related devices, for the treatment of heart damage. To achieve this objective, we plan to pursue the following key strategies:
  •  Obtain initial regulatory approval of MyoCell by targeting patients with severe heart damage. In January 2007, we completed the enrollment of patients in the 46 patient SEISMIC Trial. If the final six-month SEISMIC Trial data is generally consistent with the interim data, we intend to seek approval in the fourth quarter of 2007 from various European regulatory bodies to market MyoCell to treat the Class III Subgroup. By targeting a class of patients for whom existing therapies are very expensive, unavailable or not sufficiently effective, we hope to expedite regulatory approval of MyoCell. Assuming our U.S. clinical trial experience is comparable to our experience to date in European trials, we anticipate utilizing a similar strategy in our efforts to secure U.S. regulatory approval of our lead product candidate.
 
  •  Obtain regulatory approval of MyoCell to treat patients with less severe heart damage. If we obtain initial regulatory approval of MyoCell for the Class III Subgroup, we intend to continue to sponsor clinical trials in an effort to demonstrate that MyoCell should receive regulatory approval to treat all patients in NYHA Class II or NYHA Class III heart failure and, provided we believe we have a reasonable basis to support such an indication, we intend to seek regulatory approval for these patients.
 
  •  Continue to develop our pipeline of cell-based therapies and related devices for the acute and non-acute treatment of heart damage. In parallel with our efforts to secure regulatory approval of MyoCell, we intend to continue to develop and test other product candidates for the acute and non-acute treatment of heart damage. These efforts are expected to initially focus on our MyoCath, MyoCell II with SDF-1, MyoCath II, TGI 100 and TGI 1200 product candidates. We anticipate that, concurrent with our efforts to seek regulatory approval of MyoCell in certain European countries in the fourth quarter of 2007, we will also seek certification to apply the “CE Mark” to MyoCath for its commercial sale and distribution within the European Union.
 
  •  Develop our sales and marketing capabilities. In advance of any regulatory approval of our lead product candidate, we intend to internally build a sales force which we anticipate will market MyoCell primarily to interventional cardiologists.
 
  •  Continue to refine our MyoCell cell culturing processes. We intend to seek to automate a significant portion of our cell culturing processes in an effort to further reduce our culturing costs and processing times. In addition, we intend to seek to further optimize our processing times by building our facilities, or contracting with a small number of cell culturing facilities, in strategic regional locations.

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  •  Expand and enhance our intellectual property rights. We intend to continue to seek to expand and enhance our intellectual property rights.
 
  •  License, acquire and/or develop complementary products and technologies. We intend to strengthen and expand our product development efforts through the license, acquisition and/or development of products and technologies that support our business strategy.
Industry Background
Myocardial Infarction (Heart Attack)
      Myocardial infarction, or MI, commonly known as a heart attack, occurs when a blockage in a coronary artery severely restricts or completely stops blood flow to a portion of the heart. When blood supply is greatly reduced or blocked for more than a short period of time, heart muscle cells die. If the healthy heart muscle cells do not replace the dead cells within approximately two months, the injured area of the heart becomes unable to function properly. In the healing phase after a heart attack, white blood cells migrate into the affected area and remove the dead heart muscle cells. Then, fibroblasts, the connective tissue cells of the human body, proliferate and form a collagen scar in the affected region of the heart. Following a heart attack, the heart’s ability to maintain normal function will depend on the location and amount of damaged tissue. The remaining initially undamaged heart muscle tissue must perform more work to adequately maintain cardiac output. Because the uninjured region is then compelled to work harder than normal, the heart can progressively deteriorate until it is unable to pump adequate blood to oxygenate the body properly leading to heart failure and ultimately death.
Congestive Heart Failure (CHF)
      Congestive heart failure, or CHF, is a debilitating condition that occurs as the heart becomes progressively less able to pump an adequate supply of blood throughout the body resulting in fluid accumulation in the lungs, kidneys and other body tissues. Persons suffering from NYHA Class II or worse heart failure experience high rates of mortality, frequent hospitalization and poor quality of life. CHF has many causes, generally beginning in patients with a life-long history of high blood pressure or after a patient has suffered a major heart attack or some other heart-damaging event. CHF itself may lead to other complicating factors such as pulmonary hypertension, edema, pulmonary edema, liver dysfunction and kidney failure. Although medical therapy for CHF is improving, it remains a major debilitating condition. According to the American Heart Association Heart Disease Statistics — 2007 Update, the estimated, total direct and indirect costs of heart failure in the United States in 2006 were approximately $33.2 billion.
Classifying Heart Failure
      The NYHA heart failure classification system provides a simple and widely recognized way of classifying the extent of heart failure. It places patients in one of four categories based on how limited they are during physical activity. NYHA Class I heart failure patients have no limitation of activities and suffer no symptoms from ordinary activities. NYHA Class II heart failure patients have a mild limitation of activity and are generally comfortable at rest or with mild exertion. NYHA Class III heart failure patients suffer from a marked limitation of activity and are generally comfortable only at rest. NYHA Class IV heart failure patients generally suffer discomfort and symptoms at rest and should remain confined to a bed or chair.

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      The following chart illustrates the various stages of heart failure, their NYHA classifications and the associated current standard of treatment.
             
NYHA            
Class   NYHA Functional Classification (1)   Specific Activity Scale (2)(3)   Current Standard of Treatment (4)
             
I
  Symptoms only with above normal physical activity   Can perform more than 7 metabolic equivalents   ACE Inhibitor, Beta-Blocker
II
  Symptoms with normal physical activity   Can perform more than 5 metabolic equivalents   ACE Inhibitor, Beta-Blocker, Diuretics
III
  Symptoms with minimal physical activity   Can perform more than 2 metabolic equivalents   ACE Inhibitor, Beta-Blocker, Diuretics, Digoxin, Bi-ventricular pacers
IV
  Symptoms at rest   Cannot perform more than 2 metabolic equivalents   ACE Inhibitor, Beta-Blocker, Diuretics, Digoxin, Hemodynamic Support, Mechanical Assist Devices, Bi-ventricular pacers, Transplant
 
(1)  Symptoms include fatigue, palpitations, dyspnea and angina pain; normal activity is equivalent to walking one flight of stairs or several blocks.
 
(2)  Based upon the Goldman Activity Classification of Heart Failure, which classifies severity of heart failure based on estimated metabolic cost of various activities; the four classes of the Goldman Activity Classification system correlate to the NYHA Classes.
 
(3)  7 metabolic equivalents = shovel snow, carry 24 lbs. up 8 stairs, recreational sports; 5 metabolic equivalents = garden, rake, dance, walk 4 mph on level ground, have intercourse; 2 metabolic equivalents = shower without stopping, strip and make bed, dress without stopping.
 
(4)  Source: American College of Cardiology/ American Heart Association 2005 Guideline Update for the Diagnosis and Management of Chronic Heart Failure in the Adult.
Diagnosis and Management of Heart Failure
      Heart disease has been the leading cause of death from 1950 through 2003 within the United States according to the U.S. Department of Health and Human Services. The American College of Cardiology/ American Heart Association 2005 Guideline Update for the Diagnosis and Management of Chronic Heart Failure in the Adult, or the ACC/ AHA Guidelines, provides recommendations for the treatment of non-acute heart failure in adults with normal or low LVEF. The treatment escalates and becomes more invasive as the heart failure worsens. Current non-acute treatment options for severe heart damage include, but are not limited to, heart transplantation and other surgical procedures, bi-ventricular pacers, drug therapies, ICDs, and ventricular assist devices. Therapies utilizing drugs, ICDs and bi-ventricular pacers are currently by far the most commonly prescribed treatments for patients suffering from NYHA Class II or NYHA Class III heart failure. Since the therapies generally each address a particular feature of heart disease or a specific subgroup of heart failure patients, the therapies are often complementary and used in combination.
      Drug Therapies. The ACC/ AHA Guidelines recommend that most patients with heart failure should be routinely managed with a combination of ACE inhibitors, beta-blockers and diuretics. The value of these drugs has been established by the results of numerous large-scale clinical trials and the evidence supporting a central role for their use is, according to the ACC/ AHA Guidelines, compelling and persuasive. ACE inhibitors and beta blockers have been shown to improve a patient’s clinical status and overall sense of well being and reduce the risk of death and hospitalization. Side effects of ACE inhibitors include hypotension, worsening kidney function, potassium retention, cough and angioedema. Side effects of beta-blockers include fluid retention, fatigue, bradycardia and heart block and hypotension.
      Bi-ventricular Pacers. The ACC/ AHA Guidelines recommend bi-ventricular pacers for persons who, in addition to suffering from heart failure, have left and right ventricles that do not contract in sync, known as ventricular dyssynchrony and who have a LVEF less than or equal to 35%, sinus rhythm and NYHA Class III or NYHA Class IV symptoms despite recommended optimal medical therapy. Bi-ventricular pacers are

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surgically implanted electrical generators that function primarily by stimulating the un-damaged portion of the heart to beat more strongly using controlled bursts of electrical currents in synchrony. Compared with optimal medical therapy alone, bi-ventricular pacers have been shown in a number of clinical trials to significantly decrease the risk of all-cause hospitalization and all-cause mortality as well as to improve LVEF, NYHA Class and Quality of Life. According to the ACC/ AHA Guidelines, there are certain risks associated with the bi-ventricular pacer including risks associated with implantation and device-related problems.
      Implantable Cardioverter Defibrillators. ACC/ AHA Guidelines recommend ICDs primarily for patients who have experienced a life-threatening clinical event associated with a sustained irregular heartbeat and in patients who have had a prior heart attack and a reduced LVEF. ICDs are surgically implanted devices that continually monitor patients at high risk of sudden heart attack. When an irregular rhythm is detected, the device sends an electric shock to the heart to restore normal rhythm. In 2001, ICDs were implanted in approximately 62,000 and 18,000 patients in the United States and Europe, respectively. Although ICDs have not demonstrated an ability to improve cardiac function, according to the ACC/ AHA Guidelines, ICDs are highly effective in preventing sudden death due to irregular heartbeats. However, according to the ACC/ AHA Guidelines, frequent shocks from an ICD can lead to a reduced quality of life, whether triggered appropriately or inappropriately. In addition, according to the ACC/ AHA Guidelines, ICDs have the potential to aggravate heart failure and have been associated with an increase in heart failure hospitalizations.
      Heart Transplantation and Other Surgical Procedures. According to the ACC/ AHA Guidelines, heart transplantation is currently the only established surgical approach for the treatment of severe heart failure that is not responsive to other therapies. Heart transplantation is a major surgical procedure in which the diseased heart is removed from a patient and replaced with a healthy donor heart. Heart transplantation has proven to dramatically improve cardiac function in a majority of the patients treated and most heart transplant recipients return to work, travel and normal activities within three to six months after the surgery. In addition, the risk of hospitalization and mortality for transplant recipients is dramatically lower than the risk faced by patients in NYHA Class III or NYHA Class IV heart failure. Heart transplants are not, for a variety of reasons, readily available to all patients with severe heart damage. The availability of heart transplants is limited by, among other things, cost and donor availability. In addition to the significant cost involved and the chronic shortage of donor hearts, one of the serious challenges in heart transplantation is potential rejection of the donor heart. For many heart transplant recipients, chronic rejection significantly shortens the length of time the donated heart can function effectively and such recipients are generally administered costly anti-rejection drug regimens which can have adverse and potentially severe side effects.
      There are a number of alternate surgical approaches for the treatment of severe heart failure under development, including cardiomyoplasty, a surgical procedure where the patient’s own body muscle is wrapped around the heart to provide support for the failing heart, the Batista procedure, a surgical procedure that reduces the size of an enlarged heart muscle so that the heart can pump more efficiently and vigorously, and the Dor procedure. According to the ACC/ AHA Guidelines, both cardiomyoplasty and the Batista procedure have failed to result in clinical improvement and are associated with a high risk of death. The Dor procedure involves surgically removing scarred, dead tissue from the heart following a heart attack and returning the left ventricle to a more normal shape. While the early published single-center experience with the Dor procedure demonstrated early and late improvement in NYHA Class and LVEF, according to the ACC/ AHA Guidelines, this procedure’s role in the management of heart failure remains to be defined.
      Ventricular Assist Devices. Ventricular assist devices are mechanical heart pumps that replace or assist the pumping role of the left ventricle of a damaged heart too weak to pump blood through the body. Ventricular assist devices are primarily used as a bridge for patients on the waiting list for a heart transplant and have been shown in published studies to be effective at halting further deterioration of the patient’s condition and decreasing the likelihood of death before transplantation. In addition, ventricular assist devices are a destination therapy for patients who are in NYHA Class IV heart failure despite optimal medical therapy and who are not eligible for heart transplant. According to the ACC/ AHA Guidelines, device related adverse events are reported to be numerous and include bleeding, infection, blood clots and device failure. In addition, ventricular assist devices are very expensive, with the average first-year cost estimated at $222,460.

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      We believe the heart failure treatment industry generally has a history of adopting therapies that have proven to be safe and effective complements to existing therapies and using them in combination with existing therapies. It is our understanding that there is no one or two measurement criteria, either quantitative or qualitative, that define when a therapy for treating heart failure will be deemed safe and effective by the FDA. We believe that the safety and efficacy of certain existing FDA approved therapies for heart damage were demonstrated based upon a variety of endpoints, including certain endpoints (such as LVEF) that individually did not demonstrate large numerical differences between the treated patients and untreated patients. For instance, the use of bi-ventricular pacers with optimal drug therapy has proven to significantly decrease the risk of all-cause hospitalization and all-cause-mortality as well as to improve LVEF, NYHA Class and quality of life as compared to the use of optimal drug therapy alone. In the Multicenter InSync Randomized Clinical Evaluation (MIRACLE) trial, one of the first large studies to measure the therapeutic benefits of bi-ventricular pacing, 69% of the patients in the treatment group experienced an improvement in NYHA Class by one or more classes at six-month follow-up versus a 34% improvement in the control group. However, patients in the treatment group experienced on average only a 2.1% improvement in LVEF as compared with a 1.7% improvement for patients in the control group. Although a number of the therapies described above have proven to improve the cardiac function of a damaged heart, no currently available heart failure treatment has demonstrated an ability to generate new muscle tissue within the scarred regions of a heart.
Our Proposed Solution
      Our lead product candidate is MyoCell. We believe MyoCell has the potential to become a leading non-acute treatment for severe damage to the heart due to its perceived ability to satisfy, at least in part, what we believe to be a presently unmet demand for more effective and/or more affordable non-acute therapies for heart damage.
MyoCell
      The human heart does not have cells that naturally repair or replace damaged heart muscle. Accordingly, the human body cannot, without medical assistance, repopulate regions of scar tissue within the heart with functioning muscle. MyoCell is a non-acute clinical therapy designed to improve cardiac function by populating regions of scar tissue within a patient’s heart with myoblasts derived from a biopsy of a patient’s thigh muscle. Myoblasts are precursors to muscle cells that have the capacity to fuse with other myoblasts or with damaged muscle fibers to regenerate skeletal muscle. When injected into scar tissue within the heart wall, myoblasts have been shown to be capable of engrafting in the surrounding tissue and differentiating into mature skeletal muscle cells and/or cells which exhibit properties of both skeletal and cardiac muscle cells. By using myoblasts obtained from a patient’s own body, we believe MyoCell is able to avoid certain challenges currently faced by other cell-based clinical therapies intended to be used for the non-acute treatment of heart damage including tissue rejection and instances of the cells differentiating into cells other than muscle.
      Our clinical research to date suggests that MyoCell may improve the contractile function of the heart. However, we have not yet been able to demonstrate a mechanism of action. The engrafted skeletal muscle tissues are not believed to be coupled with the surrounding heart muscle by the same chemicals that allow heart muscle cells to contract simultaneously. The theories regarding why contractile function may improve include:
  •  the engrafted muscle tissue can contract in unison with the other muscles in the heart by stretching or by the channeling of electric currents;
 
  •  the myoblasts acquire certain characteristics of heart muscle or fuse with them; and/or
 
  •  the injected myoblasts release various proteins that indirectly result in a limit on further scar tissue formation.
      As part of the MyoCell therapy, a general surgeon removes approximately five to ten grams of thigh muscle tissue from the patient utilizing local anesthesia, typically on an outpatient basis. The muscle tissue is then express-shipped to a cell culturing site. At the cell culturing site, our proprietary techniques are used to

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isolate and remove myoblasts from the muscle tissue. We typically produce enough cells to treat a patient within approximately 21 days of his or her biopsy. Such production time is expected to continue to decrease as we continue to refine our cell culturing processes. After the cells are subjected to a variety of tests, the cultured cells are packaged in injectate media and express shipped to the interventional cardiologist. Within four days of packaging, the cultured myoblasts are injected via catheter directly into the scar tissue of the patient’s heart. The injection process takes on average about one hour and can be performed with or without general anesthesia. Following treatment, patients generally remain in the hospital for approximately 48-72 hours for monitoring.
      The MyoCell injection process is a minimally invasive procedure which presents less risk and considerably less trauma to a patient than conventional (open) heart surgery. Patients are able to walk immediately following the injection process and require significantly less time in the hospital compared with surgically treated patients. In the 62 patients who have received MyoCell delivered via percutaneous catheter, only two procedure-related events (3.2%) have been reported. In both cases, however, no complications resulted from the event, with the patients in each case remaining asymptomatic at all times during and after the procedure.
      We use a number of proprietary processes to create therapeutic quantities of myoblasts from a patient’s thigh muscle biopsy. We have developed and/or licensed what we believe are proprietary or patented techniques to:
  •  transport muscle tissue and cultured cells;
 
  •  disassociate muscle tissue with manual and chemical processes;
 
  •  separate myoblasts from other muscle cells;
 
  •  culture and grow myoblasts;
 
  •  identify a cell population with the propensity to engraft, proliferate and adapt to the cardiac environment, including areas of scar tissue; and
 
  •  maintain and test the cell quality and purity.
      We have also developed and/or licensed a number of proprietary and/or patented processes related to the injection of myoblasts into damaged heart muscle, including the following:
  •  package the cultured cells in a manner that facilitates shipping and use by the physician administering MyoCell;
 
  •  methods of using MyoCath;
 
  •  the use of an injectate media that assists in the engraftment of myoblasts;
 
  •  cell injection techniques utilizing contrast medias to assist in the cell injection process; and
 
  •  cell injection protocols related to the number and location of injections.
      Assuming we secure regulatory approval of MyoCell for the treatment of all NYHA Class II and NYHA Class III patients, we believe MyoCell will provide a treatment alternative for the millions of NYHA Class II and NYHA Class III patients in the United States and Europe who either do not qualify for or have access to heart transplant therapy. Furthermore, we anticipate that the time incurred and cost of identifying patients qualified to receive MyoCell as well as the cost of MyoCell, including any ICD, drug and bi-ventricular pacer therapies that are simultaneously prescribed, if any, will be less expensive than the current cost of heart transplant therapy. Moreover, MyoCell is less invasive than a heart transplant and is not subject to the tissue rejection and immune system suppression issues associated with heart transplants.
      We believe there is still a large population of patients exhibiting symptoms consistent with NYHA Class II and NYHA Class III heart failure that is seeking an effective or more effective non-acute therapy for heart damage than ICDs, bi-ventricular pacers and drug therapies. We hope to demonstrate that MyoCell is complementary to various therapies using ICDs, bi-ventricular pacers and drugs. In the MYOHEART and SEISMIC Trials, enrolled patients are required to have an ICD and to be on optimal drug therapy to be

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included in the study. While we do not require patients to have previously received a bi-ventricular pacer to participate in our clinical trials, we plan to accept patients in our MYOHEART II Trial who have had prior placement of a bi-ventricular pacer. We are hopeful that the results of our future clinical trials will demonstrate that MyoCell is complementary to existing therapies for treating heart damage.

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Clinical Trials and Planned Clinical Trials
      Several clinical trials have been conducted for the purpose of demonstrating the safety and efficacy of MyoCell and MyoCath. We have sponsored five clinical trials and one registry study of MyoCell involving 90 enrollees, including 62 treated patients to date. In addition to studies we have sponsored, we believe myoblast-based clinical therapies have been the subject of at least eleven clinical trials involving more than 325 enrollees, including at least 200 treated patients.
      The following table summarizes our planned, ongoing and completed clinical trials of MyoCell. In addition to delivery via MyoCath, MyoCell has been tested in certain trials using Johnson & Johnson’s Myostar tm catheter, or the Myostar catheter, and Medtronic’s TransAccess tm catheter, or the TransAccess catheter.
                 
    Number of   Clinical Trial        
Clinical Trial   Patients   Sites   Objective   Status
                 
MYOHEART II (Phase II Clinical Trial)   450 anticipated, including 150 controls   Up to 60 sites in the United States and five sites in Europe anticipated   Designed to be a double-blind, randomized, placebo-controlled, multicenter trial to evaluate MyoCell and MyoCath for safety and efficacy   Assuming approval of submitted amended IND, six-month interim data anticipated in the fourth quarter 2008
SEISMIC (Phase II Clinical Trial)   46, including 16 controls   12 sites in the Netherlands, Germany, Belgium, Spain, Poland and the United Kingdom   Phase II European study to assess the safety and efficacy of MyoCell delivered via MyoCath   Trial commenced in 2005; enrollment completed for 46 patients; treatment completed for 18 of the 30 non-control group patients; treatment for the remaining patients anticipated to be completed by the end of the first quarter 2007; final results anticipated in the fourth quarter 2007
MYOHEART (Phase I Clinical Trial)   20   5 sites in the United States   Phase I dose escalation study to assess safety, feasibility and efficacy of MyoCell delivered via MyoCath   Trial commenced in 2003; treatment of all 20 patients completed in October 2006; monitoring patients through twelve month follow-up; interim three-month data received in January 2007 and final twelve-month data anticipated in November 2007
Phase I/II Clinical Trial   15   3 sites in the Netherlands, Germany and Italy   Phase I/II European study to assess the safety and efficacy of MyoCell   Trial commenced in 2002; twelve-month follow-up completed in June 2004
Netherlands Pilot Trial   5   1 site in the Netherlands   Pilot study to assess safety and feasibility of MyoCell   Trial commenced in 2001; six-month follow-up completed in October 2003
2002 Trial   3   1 site in the Netherlands   Designed to evaluate the safety and efficacy of MyoCell delivered via the TransAccess catheter   Trial commenced in 2002; discontinued upon Transvascular’s acquisition by Medtronic
Partial Reimbursement Registry Studies   Up to 140 anticipated in the next two years   6 sites in Korea, Mexico, Switzerland, The Bahamas, Singapore and South Africa anticipated   Designed to generate additional safety and efficacy data and revenues   Requisite regulatory approval to conduct trials received at all sites; contracts in place with an institution in each of Mexico, the Bahamas, Switzerland and Korea; implantation of one patient in Mexico complete

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Metrics Used to Evaluate Safety and Efficacy of Heart Failure Treatments
      The performance of therapies used to treat damage to the heart is assessed using a number of metrics, which compare data collected at the time of initial treatment to data collected when a patient is re-assessed at follow-up. The time periods for follow-up are usually three, six and twelve months. Statistical data is often accompanied by a p-value, which is the mathematical probability that the data are the result of random chance. A result is considered statistically significant if the p-value is less than or equal to 5%. The common metrics used to evaluate the efficacy of these therapies include:
     
Metric   Description
     
LVEF
  LVEF is a measure of the heart’s efficiency and can be used to estimate the function of the left ventricle, which pumps blood to the rest of the body. The LVEF is the amount of blood pumped divided by the amount of blood the ventricle contains. A normal LVEF is more than 55% of the blood volume. Damage to the heart impairs the heart’s ability to efficiently pump and therefore reduces LVEF.
NYHA Class
  The NYHA heart failure classification system is a functional and therapeutic classification system based on how much cardiac patients are limited during physical activity.
Six-Minute Walk Distance
  Six-Minute Walk Distance is an objective evaluation of functional exercise capacity which measures the distance a patient can walk in six minutes. The distance walked during this test has been shown to correlate with the severity of heart failure.
Quality of Life
  Quality of Life is evaluated by patient questionnaire, which measures subjective aspects of health status in heart failure patients.
Number of Hospital Admissions and Mean Length of Stay   The Number of Hospital Admissions and Mean Length of Stay measure the aggregate number of times that a patient is admitted to the hospital during a defined period and the number of days a patient remains in the hospital during each such admission.
Total Days Hospitalized
  The Total Days Hospitalized measures the aggregate number of days a patient is admitted to the hospital during a defined period.
End-Systolic Volume
  End-Systolic Volume is a measurement of the adequacy of cardiac emptying, related to the function of the heart during contraction.
End-Diastolic Volume
  End-Diastolic Volume is the amount of blood in the ventricle immediately before a cardiac contraction begins and is used as a measurement of the function of the heart at rest.
LV Volume
  Left Ventricular Volume, or LV Volume, is measured in terms of left ventricular End-Diastolic Volume and left ventricular End-Systolic Volume. Both measure the reduction in volume of blood in the left ventricle of the heart following expansion and contraction, respectively. Reduction in volume generally is reflective of positive ventricular remodeling and improvement in the heart’s ability to circulate oxygenated blood through the arteries.
Wall Motion
  Wall Motion is a test designed to show whether the heart is receiving adequate quantities of oxygen-rich blood. Wall motion is generally measured by a stress echocardiography test.
Cardiac Output
  Cardiac Output is a measure of the amount of blood that is pumped by the heart per unit time, measured in liters per minute.
BNP Level
  B-Type Natriuretic Peptide, or BNP, is a substance secreted from the ventricles or lower chambers of the heart in response to changes in pressure that occur when heart failure develops and worsens. The level of BNP in the blood increases when heart failure symptoms worsen and decreases when the heart failure condition is stable.

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MYOHEART II, proposed Phase II Clinical Trial in the United States and certain countries in Europe
      The MYOHEART II Trial is designed to be a double-blind, randomized, placebo-controlled multicenter trial to evaluate MyoCell and MyoCath for safety and efficacy. We submitted our amended IND application setting forth the proposed protocol for this clinical trial to the FDA in November 2006. We have designed the MYOHEART II Trial so that upon approval of the protocol, if any, we anticipate asking the FDA to consider it a pivotal trial. This study is planned to include 450 patients, including 150 controls, at up to 60 sites in the United States and five sites in Europe. We currently anticipate that we will collect data at three months and six months following treatment.
      We anticipate that all of the patients selected for enrollment in the MYOHEART II Trial will have (i) symptoms associated with NYHA Class II or NYHA Class III heart failure, (ii) suffered a previous heart attack at least 90 days prior to the date of treatment, (iii) a LVEF of greater than or equal to 10% and less than or equal to 35%, (iv) been on optimal drug therapy for at least two months prior to enrollment and (v) had prior placement of an ICD at least one month prior to enrollment. We anticipate that patients will be required to use Amiodarone, an anti-arrhythmic drug therapy, at least 24 hours prior to MyoCell implantation.
      We anticipate that the patients will be divided into three equally sized groups. Patients in the first group will receive 16 injections during one visit of a dosage of approximately 800 million myoblast cells and placebo injections at a second visit. Patients in the second group will receive injections during two visits of dosages of approximately 400 million myoblast cells per visit with approximately eight injections per visit. Patients in the third group will receive placebo injections during two visits.

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      We anticipate the MYOHEART II Trial will measure the following safety and efficacy endpoints of the MyoCell treatment at three and six months following MyoCell implantation:
             
Primary Safety   Primary Efficacy   Secondary Efficacy   Tertiary Efficacy
Endpoints   Endpoints   Endpoints   Endpoints
             
Number of serious adverse events in treatment group as compared to the control group   Change in Six-Minute Walk Distance from baseline to six months as compared to control group, or
Quality of Life scores assessed using Minnesota Living with Heart Failure questionnaire from baseline to six months as compared to control group, or
Proportion of patients with an improved NYHA Class from baseline to six months as compared to control group
  Total Days Hospitalized in treatment group as compared to control group
Cause-specific hospitalizations in treatment group as compared to control group
Total days alive out of hospital over the six- month study period
Change in LVEF from baseline to six months as compared to control group
Change in LV Volume and wall motion from baseline to six months as compared to control group
Change in BNP Level from baseline to six months as compared to control group
  Total cost and healthcare utilization within six months
Time to death or CHF hospitalization
Change in degree of mitral regurgitation from baseline to six months
Change in Six-Minute Walk Distance from baseline to three months as compared to control group
Quality of Life scores assessed using Minnesota Living with Heart Failure questionnaire from baseline to three months as compared to control group
Proportion of patients with improved NYHA Class from baseline to three months as compared to control group
      We anticipate that the clinical trial will also measure as a primary safety endpoint the number of serious adverse events specifically related to MyoCath.
      Assuming FDA approval of the protocol for the MYOHEART II Trial, we intend to seek to enroll and treat all of the clinical patients in the trial by the end of the second quarter of 2008. If we meet that enrollment timeline, we would expect final trial results in the first quarter of 2009. If the final safety and efficacy results provide what we believe is significant proof that MyoCell is safe and effective, we anticipate submitting such data to the FDA to obtain regulatory approval of MyoCell.
SEISMIC Trial, Phase II clinical trial in Europe
      The purpose of the SEISMIC Trial is to assess the safety and efficacy of MyoCell delivered via MyoCath. Of the 46 patients, 30 patients, or the Treatment Group Patients, will receive a dosage of between 150 million and 800 million myoblast cells and 16 patients will comprise the control group, or the Control Group Patients. The primary efficacy endpoint is the change in LVEF at three-month and six-month follow-up as compared to baseline LVEF and secondary efficacy endpoints include change in NYHA Class, change in Six-Minute Walk Distance, the effect of MyoCell treatment on hospitalizations or the need for medical treatment outside of hospitalizations and improvements in global contractility, wall thickness,

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coronary perfusion and change in scar size. The primary safety endpoint is the relative incidence of serious adverse events at three-month and six-month follow-up experienced by the Treatment Group Patients as compared to the Control Group Patients. Serious adverse events are defined to include any adverse events that are fatal, life-threatening, result in permanent impairment or surgery to preclude permanent impairment of a body function, or require in-patient hospitalization that is not specifically required by the clinical trial protocol or is elective. Secondary safety endpoints include the Number of Hospital Admissions and Mean Length of Stay in the six-month period following MyoCell treatment in the Treatment Group Patients as compared to the Control Group Patients.
      In January 2007, we enrolled the final patient in the SEISMIC Trial. We anticipate that we will complete the MyoCell implantation procedure on the final patient by the end of the first quarter of 2007. All of the patients selected for enrollment in the SEISMIC Trial have (i) symptoms associated with NYHA Class II or NYHA Class III heart failure, (ii) suffered a previous heart attack at least 90 days prior to the date of treatment, (iii) a LVEF of between 20% to 45%, (iv) been on optimal drug therapy for at least two months prior to enrollment and (v) had prior placement of an ICD at least six months prior to enrollment. All of the patients in the SEISMIC Trial were prescribed Amiodarone to reduce the potential incidence of irregular heartbeats. In Europe, twelve cardiology centers in six countries, including the Netherlands, Germany, Belgium, Spain, Poland and the United Kingdom are conducting the SEISMIC Trial. One of the SEISMIC Trial investigators, Pr. Nicholas Peters, MD, PhD, is a member of our Scientific Advisory Board.
      Interim data from the SEISMIC Trial was presented by Professor Patrick Serruys, MD, PhD, the lead investigator, at the Third Annual International Conference on Cell Therapy for Cardiovascular Diseases in January 2007 with respect to the 16 Treatment Group Patients and nine Control Group Patients, for which at least one month follow-up data was available. The 16 Treatment Group Patients received an average a dosage of 598 ± 110 million myoblast cells.
      Pr. Serruys indicated in his presentation that the limited amount of follow-up at this time prevents meaningful insight to efficacy analysis, however, the preliminary efficacy trends appear encouraging. Pr. Serruys presented the interim results of three efficacy endpoints: Six-Minute Walk Distance, NYHA Class and LVEF. The following information was derived from Pr. Serruys presentation or interim data provided to us by Pr. Serruys:
  •  Six-Minute Walk Distance. We currently have six-month follow-up Six-Minute Walk Distance data available for three Treatment Group Patients and four Control Group Patients. The Treatment Group Patients’ Six-Minute Walk Distance scores improved, on average, 97 ± 51.4 meters as compared to an average decline of 20 ± 147.1 meters experienced by the Control Group Patients.
 
  •  NYHA Class. We currently have three-month follow-up NYHA Class data available for eight Treatment Group Patients and six Control Group Patients. The Treatment Group Patients’ NYHA Class decreased, on average, from 2.5 at baseline to 2.125 at three months following treatment, with 37.5% of the Treatment Group Patients improving by at least one NYHA Class. This compares to an average increase in the Control Group Patients’ NYHA Class from 2.25 at baseline to 2.7 at three months following treatment, with none of the Control Group Patients improving at least one NYHA Class. We currently have six-month follow-up NYHA Class data available for two Treatment Group Patients and four Control Group Patients. The Treatment Group Patients’ NYHA Class decreased, on average, from 2.5 at baseline to 2.0 at six months following treatment, with 50% of the Treatment Group Patients improving by at least one NYHA Class. This compares to an average increase in the Control Group Patients’ NYHA Class from 2.25 at baseline to 2.5 at six months following treatment, with 25% percent of the Control Group Patients improving at least one NYHA Class. None of our Treatment Group Patients experienced a worsening in NYHA Class at either three or six months following treatment.
 
  •  LVEF. We currently have three-month follow-up LVEF data available for eight Treatment Group Patients and five Control Group Patients. The Treatment Group Patients’ LVEF increased, on average, from 30.0 ± 10.4 at baseline to 30.2 ± 8.9 at three months following treatment. This compares to an average decrease in the Control Group Patients’ LVEF from 32.8 ± 11.1 at baseline to 32.4 ± 8.9 at

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  three months following treatment. We currently have six-month follow-up LVEF data available for three Treatment Group Patients and three Control Group Patients. The Treatment Group Patients’ LVEF increased, on average, from 30.0 ± 10.4 at baseline to 31.7 ± 21.8 at six months following treatment. This compares to an average decrease in the Control Group Patients’ LVEF from 32.8 ± 11.1 at baseline to 31.7 ± 8.3 at six months following treatment.

      Six of the 16 Treatment Group Patients (37.5%) experienced twelve serious adverse events, including one patient death from multiple organ failure 30 days following MyoCell treatment determined by the investigator as possibly attributable to MyoCell. However, for the Treatment Group Patients who were compliant with the SEISMIC Trial protocol, including the prescribed Amiodarone drug therapy, only three of such 13 Treatment Group Patients (23.1%) versus two of the nine Control Group Patients (22.2%) experienced serious adverse events.
      Seven of the twelve total serious adverse events involved irregular heartbeats, five of which have been investigator determined to be possibly attributable to MyoCell. However, 75% of the patients experiencing irregular heartbeats following MyoCell treatment did not comply with the trial’s protocol for Amiodarone use and all of these patients have previously experienced irregular heartbeats prior to MyoCell implantation. Pr. Serruys indicated in his January presentation that the interim analysis suggests that irregular heartbeats appear to be manageable with close observation and prophylactic use of ICDs and Amiodarone. Pr. Serruys did not present secondary safety endpoint data. The Independent Data Safety and Monitoring Board for the SEISMIC Trial reviewed the serious adverse events experienced by the Treatment Group Patients and has not asked us to alter or terminate the trial and is expected to continue to monitor the occurrence of any serious adverse events.
      We expect final six-month data for the balance of the SEISMIC Trial patients to be available during the fourth quarter of 2007.
      If the final six-month SEISMIC Trial data is generally consistent with the interim data, we intend to seek approval in the fourth quarter of 2007 from various European regulatory bodies to market MyoCell and MyoCath to treat the Class III Subgroup.
MYOHEART Phase I Dose Escalation Clinical Trial in the United States
      In October 2006, we completed the MyoCell implantation procedure on the final patient in our 20 patient Phase I dose escalation MYOHEART Trial in the United States. The purpose of the MYOHEART Trial was to assess the safety, feasibility and efficacy of MyoCell delivered via MyoCath. We divided the patients into four cohorts of five and each group has received a progressively increasing dose of myogenic cells, ranging from 25 million (first cohort) to 675 million (fourth cohort). Safety endpoints were the evaluation of the nature and frequency of serious adverse events during the twelve month period following MyoCell treatment. The MYOHEART Trial was conducted at five clinical sites. Dr. Warren Sherman, the lead investigator, as well as two of the other MYOHEART Trial investigators, Dr. Nicolas Chronos and Dr. Stephen Ellis, are members of our Scientific Advisory Board.
      All of the patients selected for enrollment in the MYOHEART Trial had (i) symptoms associated with NYHA Class II or NYHA Class III heart failure, (ii) suffered a previous heart attack at least twelve weeks prior to the date of treatment, (iii) a LVEF of between 20% to 40%, (iv) been on optimal drug therapy and (v) prior placement of an ICD at least one month prior to enrollment. The patients in the MYOHEART Trial did not take Amiodarone to reduce the potential incidence of irregular heartbeats.
      At the January 2007 Third Annual International Conference on Cell Therapy for Cardiovascular Diseases, Dr. Sherman presented one month safety data for all 20 of the patients treated in the MYOHEART Trial. He also presented three and six-month interim efficacy data for 16 of the patients treated, including all of the patients treated in the first three patient cohorts and one patient treated in the fourth cohort, and twelve month data for 10 of the patients treated.

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      With regards to efficacy, the interim data from the MYOHEART Trial demonstrates a preliminary trend towards an improvement in Six-Minute Walk Distance and an improvement of Quality of Life. Although not statistically significant due, in part, to the limited number of patients treated in the MYOHEART Trial:
  •  patients treated in the first, second, third and fourth cohort demonstrated a 6%, 10%, 22% and 20% respective improvement in their mean Six-Minute Walk Distance at three months as depicted in the charts below:
(BAR GRAPH)
  •  relative to a baseline Quality of Life score, patients reported an improvement in their mean Quality of Life score at three months, six months and twelve months; and
 
  •  relative to a baseline LVEF, patients treated in the first and third cohort experienced a mean increase in LVEF at three months, six months and twelve months and patients treated in the second cohort experienced a mean increase in LVEF at six months and twelve months.
      In line with our expectations for the study, as of January 2007, 16 serious adverse events were reported in eight patients during follow-up. Two of the 20 patients died, adjudicated as possibly related to MyoCell. Six patients experienced irregular heartbeats, four of which have been adjudicated as possibly related to MyoCell. Of these six patients experiencing irregular heartbeats, three patients had previously suffered from this condition prior to MyoCell implantation. Although not statistically significant due, in part, to the limited number of patients treated, Dr. Sherman indicated in his January presentation that the safety of MyoCell is strongly suggested by the MYOHEART results to date.
      We expect to present additional interim data from the MYOHEART Trial in March 2007 and to receive and present final twelve month data from this trial in November 2007.
Phase I/II Clinical Trials in Europe
Netherlands Pilot Trial
      We were one of the financial sponsors of a five patient pilot clinical trial of MyoCell in 2002. The primary endpoint of the study was to assess the safety and feasibility of MyoCell, measured by occurrence of serious adverse events at six months following treatment. The secondary endpoint was to assess improvement of LVEF at one, three and six months following treatment. The trial was performed in the Netherlands by physicians at the Thorax Center of the Erasmus Medical Center. Each patient enrolled in this clinical trial had (i) symptoms associated with NYHA Class II, NYHA Class III or NYHA Class IV heart failure, (ii) suffered a previous heart attack at least four weeks prior to the date of treatment and (iii) a LVEF between 20% to 45%. Patients received injections of between 25 million and 293 million myoblast cells.

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      For the five patients who participated in the trial, it was reported that, on average, the patients’ LVEF increased from 36 ± 11% at the baseline to 41 ± 9% at three months (p = .009) and 45 ± 8% at six months (p = .23).
      Although not statistically significant due, in part, to the limited number of patients treated, of these patients, we noted that:
  •  100% and 60% of the patients improved one NYHA Class at three months and six months following therapy, respectively;
 
  •  40% of the patients improved two NYHA Classes at both three months and six months following therapy;
 
  •  100% of the patients’ LVEF improved by at least 4% at three months following therapy; and
 
  •  60% of the patients’ LVEF improved by at least 20% at six months following therapy.
      All of the MyoCell injection procedures in the pilot clinical trial were without complication and no serious adverse events occurred during the follow-up period. One patient who experienced irregular heart contractions received an ICD within six months of the injection procedure.
      The results of this pilot clinical trial were published by the physicians conducting the trial in the Journal of the American College of Cardiology in December 2003. In the published article, the physicians concluded that the pilot study was the first to demonstrate the potential and feasibility of percutaneous skeletal myoblast delivery as a stand-alone procedure for myocardial repair in patients with post-heart attack heart failure. The physicians further concluded that more data was needed to confirm safety.
Phase I/ II Clinical Trial
      We conducted a non-randomized, multicenter 15 patient Phase I/II clinical trial of MyoCell at institutions located in the Netherlands, Germany and Italy in 2003 to assess the safety of MyoCell and its effect on global ventricular function. As part of this clinical trial, we also assessed the safety and feasibility of MyoCell delivery via MyoCath. Each patient enrolled in the Phase I/II clinical trial had (i) symptoms associated with NYHA Class II or NYHA Class III heart failure, (ii) suffered a previous heart attack at least four weeks prior to the date of treatment, (iii) a LVEF of between 20% to 40% and (iv) been using beta-blocker therapy unless these drugs were not tolerated or clearly contraindicated. Following treatment of the first six patients participating in this clinical trial, we amended the trial protocol to require that patients have placement of an ICD at least one month prior to enrollment and use of Amiodarone to reduce the potential incidence of irregular heartbeats at least two months prior to and for at least two months following the MyoCell implantation. Patients received injections of between 40 million and 448 million myoblast cells, with an average dosage of 214 ± 117 million myoblast cells.
      The primary efficacy endpoint of the Phase I/II clinical trial was the effect of MyoCell on global ventricular function at three, six and twelve months following implantation as determined by, among other things, NYHA Class, LVEF, End-Diastolic Volume, End-Systolic Volume, Cardiac Output and Wall Motion as measured by stress echocardiography at rest and at low dose. The primary safety endpoint was the clinical status of the patient as measured by, among other things, a comparison of serious adverse events occurring before and following MyoCell implantation.

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      The clinical trial investigators observed a tendency towards statistically significant improvement in systolic function at six and twelve-month follow-up. Efficacy data from this trial is summarized in more detail in the following table:
                                                         
Endpoints   Baseline   3-month   p-value   6-month   p-value   12-month   p-value
                             
NYHA Class (1)
    2.8       2.1               1.6               1.9          
LVEF (2)
  36.3  ±  8   .0 34.3  ±      9.1 0.3     34  ±  7.8     0.3     38.7  ±  9     .4 0.4  
End-Diastolic Volume (2)
  225  ±  83   186  ±  5     9 0.03     214  ±  37     0.7     197  ±  30     0.4  
End-Systolic Volume (2)
  145  ±  64   124  ±  4     9 0.05     143  ±  37     0.9     122  ±  29     0.2  
Cardiac output (3)
  4.6  ±  0.     91 N/A       N/A     5.6  ±  1.6     0.06     5.4  ±  1.     5 0.05  
Wall motion as measured by stress echocardiography at rest (1)
  3.0  ±  0.   5 2.9  ±       0.6 0.65     2.8  ±  0.6     0.95     2.8  ±  0.     7 0.70  
Wall motion as measured by stress echocardiography at low dose (3)
  2.8  ±  0.   4 2.6  ±       0.5 0.65     2.5  ±  0.5     0.95     2.5  ±  0.     6 0.70  
 
(1)  Matched data provided for 13 of the 15 patients.
 
(2)  Matched data provided for eight of the 15 patients.
 
(3)  Matched data provided for five of the 15 patients.
     Although the data showed a decrease in End-Diastolic Volume, trends towards a reduction in End-Systolic Volume and an increase in LVEF, the data cannot be considered statistically significant. The clinical trial investigators were, however, able to conclude from this data that global left ventricular function remained stable and that no further deterioration of the left ventricles occurred during the twelve months following treatment, which, given the clinical status of the patient group, was determined by the researchers to be a significant observation.
      Although not statistically significant due, in part, to the limited number of patients treated, we noted that:
  •  85% and 62% of the 13 surviving patients improved one NYHA Class at six months and twelve months following therapy, respectively;
 
  •  31% and 23% of the 13 surviving patients improved two NYHA Classes at six months and twelve months following therapy, respectively;
 
  •  of the eleven patients for which we have six-month data regarding LVEF, 36% of such patients’ LVEF improved by at least 4% and 9% of such patients’ LVEF improved by at least 20% at six months following therapy; and
 
  •  of the twelve patients for which we have twelve-month data regarding LVEF, 50% of such patients’ LVEF improved by at least 4% and 17% of such patients’ LVEF improved by at least 20% at twelve months following therapy.
      Eleven serious adverse events were reported in nine of the 15 patients during follow-up, seven of which were investigator determined to be possibly attributable to MyoCell. Two of the seven serious adverse events potentially attributable to MyoCell were death, which occurred relatively shortly after receiving the MyoCell therapy. In the course of describing the cause of death, electrophysiologists who reviewed and analyzed the data indicated that one of the deaths was most likely attributable to irregular heart contractions brought on by the MyoCell injection procedure. The cause of death for the other patient is unknown as permission for histology and autopsy analysis were denied by the patient’s family. Following these patient deaths, we requested an assessment by an independent European Data Safety Monitoring Board who, following their investigation and our incorporation of their recommendations to, among other things, require prior placement of an ICD and require holter and ICD readings every week for the first month following the MyoCell injection procedure, supported the continuation of the trial. The other five serious adverse events possibly attributable to MyoCell also involved irregular heart contractions. These patients recovered and no other adverse events were reported for such patients.

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      The results of this trial were presented at the 2005 Annual Meeting of the American College of Cardiology.
2002 Trial
      In May 2002, we initiated a clinical trial of MyoCell in the Netherlands in collaboration with Transvascular, Inc., or the 2002 Trial, to evaluate the safety and efficacy of MyoCell using the investigational TransAccess catheter. Three patients were treated in this clinical trial, which was discontinued for reasons unrelated to the trial following the acquisition of Transvascular by Medtronic in August 2003. All of the patients selected for enrollment in the 2002 Trial had (i) symptoms associated with NYHA Class II, NYHA Class III or NYHA Class IV heart failure, (ii) suffered a previous heart attack at least four weeks prior to the date of treatment, (iii) a LVEF of between 20% to 40%, (iv) been on optimal drug therapy and (v) prior placement of an ICD at least one month prior to enrollment. The primary safety endpoint of the study was the clinical status of the patient as measured by, among other things, a comparison of serious adverse events occurring before and following MyoCell implantation. The primary efficacy endpoints were the same endpoints used in the Phase I/ II trial we conducted in Europe. Twelve month follow-up on these three patients showed one death adjudicated by the physicians conducting the trial as unrelated to MyoCell, with the other two patients event-free.
Paid Registry Studies
      We have taken steps to initiate paid registry studies of MyoCell and MyoCath in six centers and countries, including Korea, Mexico, Switzerland, The Bahamas, Singapore and South Africa and finalized contracts with an institution in each of Korea, Mexico, Switzerland and The Bahamas. A paid registry study is a research study conducted at a private hospital or research institution in accordance with a specific protocol approved by the appropriate regulators in the country and agreed to by contract between us and the institution conducting the study. The institution conducting the registry study and/or the patients enrolled in the trial reimburse us for some or all of the costs of cell culturing, biopsy processing and MyoCath. These registry studies are primarily designed to generate revenues and to gather additional clinical research data regarding the safety and efficacy of MyoCell and MyoCath.
      As of January 2007, one patient has undergone the MyoCell implantation procedure at the Mexico center. We anticipate that, starting in the first quarter of 2007, MyoCell implantation procedures will begin to be performed at the other centers.
Other Trials of Myoblast Implantation in the Heart
      In addition to studies we have sponsored, we believe myoblast-based clinical therapies have been the subject of at least eleven clinical trials involving more than 325 enrollees, including at least 200 treated patients.
MG Therapeutics Myoblast Autologous Grafting in Ischemic Cardiomyopathy (MAGIC) Trial
      The following summary of the results of the Myoblast Autologous Graft in Ischemic Cardiomyopathy (MAGIC) clinical trial sponsored by MG Biotherapeutics, LLC is based upon a presentation given by Philippe Menasché, M.D., Ph.D. at the American Heart Association’s Scientific Sessions 2006 and news reports of the presentation.
      Dr. Menasché reported that the MAGIC trial was a Phase II, randomized, double blind, placebo-controlled multicenter clinical trial in various countries in Europe to assess the safety and efficacy of skeletal myoblast implantation injected during coronary artery bypass graft (CABG) surgery into the scarred region of the heart. 97 patients were enrolled in the MAGIC trial before it was discontinued after an analysis by an independent data-monitoring board indicated the trial was unlikely to show that the treatment was superior to placebo on the primary endpoints.

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      Dr. Menasché reported that the primary safety endpoints of the study were the nature and frequency of serious adverse events and ventricular arrhythmias during the six months following myoblast implantation and the primary efficacy endpoints of the study were functional improvements in Wall Motion or LVEF, as measured by echocardiography six months following myoblast transplantation. Dr. Menasché reported that the secondary efficacy endpoints included End-Systolic Volume and End-Diastolic Volume at six months.
      Dr. Menasché reported that the 97 patients were randomized into three groups. The high-dose group (30 patients) received direct injections of myoblasts in and around the scarred area totaling about 800 million myoblasts via 30 injections, the low-dose group (33 patients) received direct injections of about 400 million myoblasts and the third group, the placebo group (34 patients), received injections of the suspension medium without active cells. Dr. Menasché reported that all of the patients selected for enrollment in the MAGIC trial had (i) suffered a heart attack at least four weeks prior to myoblast implantation, (ii) a LVEF between 15% and 35% and (iii) a planned CABG. All patients in the MAGIC trial received ICDs before hospital discharge.
      The data presented at the American Heart Association’s Scientific Sessions 2006 indicated that there were no signals of safety concerns in either the high-dose or low-dose groups over six months. Serious adverse event rates and ventricular arrhythmias were no different between the groups and none of the deaths in the myoblast groups were attributable to the procedure or to arrhythmias.
      The data presented further indicated that the MAGIC trial failed to find any significant differences in either Wall Motion or LVEF as measured by echocardiography. However, measurements of End-Diastolic Volume and End-Systolic Volume showed that, although patients’ hearts that were significantly dilated at baseline showed no change in the placebo or low-dose groups, at six months, dilation appeared to decrease in the high-dose group.
      In addition, in a subset of patients in each group, LVEF was also measured using radionuclide angiography. In these patients, Dr. Menasché reported that the absolute change in LVEF in the high-dose group was 3%, significantly greater than in the placebo group, where LVEF was unchanged from baseline at six months.

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Pipeline
      In addition to MyoCell, we are seeking to develop various other cell-based therapies and related devices for the treatment of heart damage. We have also acquired the rights to use certain devices for the treatment of heart damage. The development of the product candidates described below is not dependent on our commercial development of MyoCell.
             
Candidate   Proposed Use or Indication   Status/Phase   Comments
             
MyoCath
  Disposable endoventricular catheter used for the delivery of biologic solutions to the myocardium   Phase II clinical trials   Assuming the facility manufacturing MyoCath satisfies the requirements of the International Standards Organization, anticipate seeking certification to apply the CE Mark for commercial sale and distribution within the European Union in the fourth quarter of 2007
TGI 100 Wound Dressing Kit
  Convenience kit used to prepare a cellulose coated wound dressing from patient-derived fat cells to be prepared and applied at the point-of-care   510(k) pre-market notification filed by Tissue Genesis with the FDA in September 2006; FDA granted an extension until April 2007 to submit additional information requested; European CE Mark certification expected to be sought in the first half of 2007   Regulatory approval is being sought based on animal studies previously completed by Tissue Genesis; we have the right to use for the treatment of acute MI and heart failure
TGI 1200 Adipose Tissue Processing System
  Fully automated device for the rapid processing of patient derived fat tissue   Performing initial validation studies   510(k) and CE Mark certification as a laboratory tissue processing device expected to be sought based on results of laboratory and animal studies to be conducted by Tissue Genesis and Bioheart commencing in the first half of 2007
Bioheart Acute Cell Therapy
  Acute, autologous, cell therapy treatment for acute MI   Developmental   Cells processed using the TGI 100 or TGI 1200; anticipate commencing animal studies in the first quarter of 2007 at Indiana University
MyoCell II with SDF-1
  Non-acute, autologous, cell therapy treatment for severe damage to the heart; modified to express angiogenic factors   Preparing IND application   Preparing IND application based on preclinical studies completed by the Cleveland Clinic and the University of Florida and conducted by MPI Research; anticipate filing IND application in the second quarter of 2007
MyoCath II
  Second generation disposable endoventricular catheter modified to provide multidirectional cell injection and used for the delivery of biologic solutions to the myocardium   Developmental   Laboratory studies currently being conducted; anticipate commencing animal studies by the second quarter of 2007

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Candidate   Proposed Use or Indication   Status/Phase   Comments
             
BioPace
  Non-acute treatment of abnormal heart rhythm due to electrical disturbances in the upper chambers of the heart   Preclinical   Preclinical development by Bioheart
MyoCath
      We believe MyoCath has the potential to be approved for commercial use with MyoCell and warrants testing for other commercial applications as well. MyoCath is a disposable endoventricular catheter used for the delivery of biologic solutions to a targeted treatment site within the myocardium, the inner wall of the heart. MyoCath provides for multiple injections to a pre-determined needle insertion depth with a single core needle of 25 gauge diameter that can be advanced and retracted from the tip of the catheter. MyoCath is intended for use with commercially available Becton-Dickinson 1 milliliter and 3 milliliter syringes.
      Although we hope to prove that MyoCell can be administered with a variety of different catheters, MyoCath has been specifically designed to be used for delivery of MyoCell. It is our hope that MyoCath will prove to be more cost effective than, and as safe and effective as, other catheters at delivering MyoCell. We are still in the process of determining what catheter features are most important to the doctors performing implantation procedures and remain hopeful that MyoCath has already incorporated such features in its design. In our clinical experience to date, our procedure time using MyoCath in connection with MyoCell is approximately one hour. In addition to MyoCath, physicians in our clinical trials of MyoCell have used the Myostar catheter and the TransAccess catheter.
      Although MyoCath has been designed for use with MyoCell, we believe that there are a number of other clinical therapies to treat heart disease currently in development by other companies that could be delivered via MyoCath including gene, protein, cytokine and growth factor therapies. Three clinical trials have been initiated by biopharmaceutical companies and other institutions utilizing MyoCath to deliver growth factors in an effort to increase blood supply to a damaged heart.
TGI 100 Wound Dressing Kit, TGI 1200 Adipose-Tissue Processing System and Bioheart Acute Cell Therapy
      We have acquired from Tissue Genesis the right to use and sell the TGI 100 Wound Dressing Kit and the TGI 1200 Adipose-Tissue Processing System product candidates. Tissue Genesis has filed for regulatory approval of the TGI 100 and is in the process of finalizing the design of the TGI 1200, which is intended to be a fully automated version of the cell isolation component of the TGI 100. We intend to use the TGI 100 and the TGI 1200 in our efforts to develop the Bioheart Acute Cell Therapy, an acute, autologous cell therapy treatment for acute MI.
      The TGI 100 product candidate is a convenience kit used to prepare a cellulose coated wound dressing from patient-derived fat cells to be prepared and applied at the point-of -care. As part of the TGI 100 wound dressing process, fat tissue is removed from the patient and manually processed to separate and isolate endothelial progenitor and stem cells into a pulpy composition. The pulpy composition is then applied to a collagen-based wound dressing and the wound dressing is applied to the cover the wound. Tissue Genesis filed a 510(k) pre-market notification for the TGI 100 with the FDA in September 2006. To obtain 510(k) clearance, a manufacturer must submit a pre-market notification demonstrating that the proposed device is substantially equivalent in intended use and in safety and efficacy to a previously 510(k) cleared device, a device that has received pre-market approval or a device that was in commercial distribution before May 28, 1976. We believe the TGI 100 is substantially equivalent in intended use and in safety and efficacy to the 510(k)-cleared Johnson & Johnson Medical, Ltd.’s Promogran Matrix Wound Dressing. The FDA has requested that Tissue Genesis file a Request for Designation with the FDA Office of Combination of Products requesting a determination of whether the TGI 100 is properly classified as a medical device or a biologic or drug. The FDA granted Tissue Genesis an extension until April 2007 to file this Request for Designation.

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      The TGI 1200 system is a compact, fully automated cell isolation device for the rapid processing of patient-derived fat tissue to separate, isolate and produce large yields of stem and regenerative cells. We anticipate that the TGI 1200 system will process cells within a one-hour time period. Tissue Genesis has indicated that once the design of the TGI 1200 system is finalized, which they expect to occur in the first half of 2007, they intend to commence laboratory and animal studies of the TGI 1200. Assuming Tissue Genesis is able to demonstrate that the TGI 1200 produces a pulpy composition comparable to the TGI 100, Tissue Genesis has indicated their intent to file a 510(k) pre-market notification with the FDA and for CE Mark certification in Europe.
      We have secured the exclusive, worldwide right to sell or lease to medical practitioners and related healthcare entities the following items for the treatment of acute MI:
  •  the TGI 100;
 
  •  the TGI 1200 and certain disposable products used in conjunction with the TGI 1200, or collectively with the TGI 100, the TGI Licensed Products;
 
  •  processes that use the TGI Licensed Products, or the TGI Licensed Processes; and
 
  •  the cells derived using the TGI Licensed Products and/or TGI Licensed Process.
      We are in the process of designing preclinical studies to test the Bioheart Acute Cell Therapy. Unlike MyoCell which is designed to be utilized to treat severe heart damage months or even years after a heart attack, the Bioheart Acute Cell Therapy is being designed to be used for the treatment of heart muscle damage immediately following a heart attack. We hope to demonstrate that the injection of endothelial progenitor and stem cells derived from fat tissue by the TGI 100 and/or TGI 1200 is a safe and effective means of limiting or reversing some of the effects of acute MI and preventing or slowing a patient’s progression from MI to CHF. We anticipate that our preclinical studies testing the safety and efficacy of this therapy will commence in the first quarter of 2007 at Indiana University. Until the design of the TGI 1200 is finalized, to commence our preclinical studies we intend to manually separate and isolate the cells from fat tissue using the cell isolation techniques used as part of the TGI 100. Once the TGI 1200 is available to us and provided that testing demonstrates that the TGI 1200 produces a pulpy composition comparable to the TGI 100, we anticipate that we will use the TGI 1200, rather than the TGI 100, for our preclinical and clinical studies. If approved, we intend to market the Bioheart Acute Cell Therapy primarily to interventional cardiologists.
MyoCell II with SDF-1
      Our MyoCell II with SDF-1 product candidate, which has recently completed preclinical testing, is intended to be an improvement to MyoCell. In February 2006, we signed a patent licensing agreement with the Cleveland Clinic of Cleveland, Ohio which gave us exclusive license rights to pending patent applications in connection with MyoCell II with SDF-1. We expect this collaboration to give us access to the extensive underlying animal studies supporting the patent applications. In addition, in connection with our establishment of this relationship with the Cleveland Clinic, Dr. Marc Penn, the Medical Director of the Cardiac Intensive Care Unit at the Cleveland Clinic and a staff cardiologist in the Departments of Cardiovascular Medicine and Cell Biology, joined our Scientific Advisory Board.
      We anticipate that MyoCell II with SDF-1 will be similar to MyoCell, except that the myoblast cells to be injected will be modified prior to injection by an adenovirus vector so that they will release extra quantities of the SDF-1 protein, which expresses angiogenic factors. Following injury which results in inadequate blood flow to the heart, such as a heart attack, the human body naturally increases the level of SDF-1 protein in the heart. By modifying the myoblasts to express SDF-1 prior to injection, we are seeking to increase the SDF-1 protein levels present in the heart. We are seeking to demonstrate that the presence of additional quantities of SDF-1 protein released by the myoblasts will stimulate the recruitment of the patient’s existing stem cells to the cell transplanted area and, thereafter, the recruited stem cells will assist in the tissue repair and blood vessel formation process. Preclinical animal studies showed a definite improvement of cardiac function when

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the myoblasts were modified to express SDF-1 protein prior to injection as compared to when the myoblasts were injected without modification.
      We anticipate that we will file an IND application in the second quarter of 2007 for Phase I clinical trials of MyoCell with SDF-1.
MyoCath II
      We are testing MyoCath II, a second generation catheter in laboratory studies. It provides a modified injection needle which has a closed tip and side holes that result in multidirectional cell injection rather than injection solely from the tip of the needle. We are seeking to determine whether MyoCath II will increase the bioretention of the cells injected in the heart and disperse the cells more efficiently throughout the scar tissue. We anticipate commencing animal studies of MyoCath II by the second quarter of 2007.
BioPace
      Our BioPace product candidate is in preclinical studies. It is an autologous cell-based therapy intended to be used as a biological pacemaker for the treatment of sino-atrial nodal dysfunction disease, a disease in which the natural pacemaker cells of the heart do not properly function due to electrical disturbances in the upper chambers of the heart and which results in an abnormal heart rhythm. The sino-atrial node is the impulse generating tissue located in the right atrium of the heart. As part of the BioPace therapy, cells from the sino-atrial node are removed from the right atrium of a patient’s heart and cultured in our temperature controlled cell culturing facility. These cells are cultured in vitro in a solution containing oxygen and nutrients. While the cells are being cultured, we anticipate the patient will receive an external pacemaker to pace the remaining portions of the patient’s sino-atrial node. The cultured cells are then implanted into the myocardial tissue of the right ventricle to provide biological pacing for the heart.
Research
      We supervise and perform experimental work in the areas of improving cell culturing, cell engraftment, and other advanced research projects related to our product candidates from our Sunrise cell culturing facility. The primary focus of a substantial majority of our employees is advancing our clinical trials, preclinical studies, research and product development.
      In addition, we work with a number of third parties within and outside the United States on various research and product development projects, including:
  •  preclinical small and large animal testing for lead product candidate enhancements and pipeline product candidate development; and
 
  •  contract research for clinical and preclinical testing of our pipeline product candidates.
Cell Culturing
      We have an approximately 2,000 square foot cell culturing facility at our headquarters in Sunrise, Florida. We began culturing cells at this facility for preclinical uses in the third quarter of 2006. We anticipate that we will begin culturing cells at this facility for clinical uses upon commencement of the MYOHEART II Trial. We believe our cell culturing facility and processes comply with cGMP. We anticipate that this facility will manufacture approximately 90% of the capacity needed in the United States through 2007 for the MYOHEART II Trial.
      Over the last two years, we have significantly improved our ability to:
  •  culture in excess of 800 million myoblast cells per biopsy; and
 
  •  produce cell cultures with a high percentage of viable myoblast cells.
      Accordingly, we have been able to increase the maximum dosage of myoblast cells injected as part of the MyoCell therapy to approximately 800 million myoblast cells, which we believe will be the most effective

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therapeutic dose. We expect that we will seek to further refine our MyoCell cell culturing processes. We intend to seek to automate a significant portion of our cell culturing processes in an effort to reduce our culturing costs and processing times. We have licensed patents from Dr. Law relating to this automation process.
      We have historically met and, with respect to the cell culturing of our product candidates in Europe, expect to meet, our cell culturing needs by contracting with third party manufacturers.
      In December 2006, we entered into a non-exclusive supply agreement with Pharmacell BV, or Pharmacell. We anticipate that approximately 90% of MyoCell inventory to be cultured or purchased in Europe between the date of this prospectus and the end of 2007 will be cultured by Pharmacell at their facility in Massetricht, Netherlands, which opened in June 2006. Pursuant to the supply agreement, Pharmacell has agreed to provide us with MyoCell cell culturing at its cost plus a certain percentage per culture. We have no minimum purchase obligation under the supply agreement. The supply agreement expires six months following the completion of the SEISMIC and MYOHEART II Trials unless terminated earlier. Either party may terminate the supply agreement upon the other party’s insolvency or the other party’s material default or breach of any provision of the supply agreement.
      We also have cell culturing contracts with Cambrex Bioscience for the culturing of cells at their facilities in Maryland, United States and Verviers, Belgium. Pursuant to our agreements with Cambrex Bioscience, we do not have any minimum purchase commitment and, while Cambrex has agreed to use reasonable efforts to meet our manufacturing needs, they have not guaranteed that they will be able to do so. We compensate Cambrex for its cell culturing services on a per patient basis at a fixed cost per culture and at hourly rates for services they provide to us not directly related to the scheduling and processing of a biopsy.
      For the balance of 2007, we expect that we will meet our cell culturing needs in Europe pursuant to our agreement with Pharmacell as well as from our Florida facility and pursuant to our agreement with Cambrex Bioscience.
      We have entered into a contract with Bolton Medical for the manufacture of MyoCath. Pursuant to our contract with Bolton Medical, Bolton Medical has the right to manufacture not less than 200 catheters per year at a fixed per-unit cost provided that the per-unit cost charged by Bolton Medical is not greater than the per-unit cost charged by Guidant Corporation or its affiliates. We have further agreed that we will not use any third-party manufacturer for MyoCath other than Bolton Medical or Guidant Corporation or its affiliates. Either party may terminate the agreement upon the other party’s uncured material breach of the agreement and in the event of bankruptcy. Unless terminated earlier, this agreement will terminate in September 2007.
      We intend to seek to further optimize our processing times by building our facilities or contracting with a small number of cell culturing facilities in strategic regional locations. We have established and/or are currently evaluating establishing joint venture manufacturing relationships in Korea, China and Australia. We anticipate that a portion of the funds necessary to construct new manufacturing facilities may be made available to us by the governments of the countries where we seek to build such facilities.
Third Party Reimbursement
      Government and private insurance programs, such as Medicare, Medicaid, health maintenance organizations and private insurers, fund the cost of a significant portion of medical care in the United States. As a result, government imposed limits on reimbursement of hospitals and other healthcare providers have significantly impacted their spending budgets and buying decisions. Under certain government insurance programs, a healthcare provider is reimbursed a fixed sum for services rendered in treating a patient, regardless of the actual cost of such treatment incurred by the healthcare provider. Private third party reimbursement plans are also developing increasingly sophisticated methods of controlling healthcare costs through redesign of benefits and exploration of more cost-effective methods of delivering healthcare. In general, we believe that these government and private measures have caused healthcare providers to be more selective in the purchase of medical products.

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      As of the date of this prospectus, CMS has agreed to reimburse certain of the centers that are participating in the MYOHEART Trial for costs deemed “routine” in nature for patients suffering from heart failure. Examples of these reimbursable costs include, but are not limited to, costs associated with physical examination of the patients, x-rays, holter monitoring, MUGA scan and echocardiography. However, at present, CMS reimbursement does not cover the cost of MyoCell implantation.
      Reimbursement for healthcare costs outside the United States varies from country to country. In European countries, the pricing of prescription pharmaceutical products and services and the level of government reimbursement are subject to governmental control. In these countries, pricing negotiations with governmental authorities can take six to twelve months or longer after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct one or more clinical trials that compares the cost effectiveness of our product candidates to other available therapies. Conducting one or more clinical trials would be expensive and result in delays in commercialization of our product candidates.
Research Grants
      Historically, part of our research and development efforts have been indirectly funded by research grants to various centers and/or physicians that have participated in our MyoCell and MyoCath clinical trials. As part of our development strategy, we intend to continue to seek to develop research partnerships with centers and/or physicians.
Patents and Proprietary Rights
      We own or hold licenses or hold sublicenses to an intellectual property portfolio consisting of approximately 19 patents and 19 patent applications in the United States, and approximately twelve patents and 57 patent applications in foreign countries, for use in the field of heart muscle regeneration. We have described our most material license and sublicense agreements below in the section entitled “Business — Technology In-Licenses and Other Agreements.” References in this prospectus to “our” patents and patent applications and other similar references include the patents and patent applications that are owned by, or licensed or sublicensed to us, and references to patents and patent applications that are “licensed” to us and other similar references refer to patents, patent applications and other intellectual property that are licensed or sublicensed to us.
      Our intellectual property strategy emphasizes method, product and device patents. We rely primarily on one U.S. patent for MyoCell, or the Primary MyoCell Patent, one U.S. patent for MyoCath, or the Primary MyoCath Patent and a number of patents for MyoCath II. We rely on four pending U.S. patent applications and corresponding foreign patent applications for MyoCell II with SDF-1 and three U.S. patents for BioPace. For most of our other product candidates, we rely on one primary patent, multiple patents in combination and/or proprietary processes.
      The following provides a description of our key patents and pending applications and is not intended to represent an assessment of claims, limitations or scope.
             
            Expiration Date Assuming
Patent   Subject Matter   Related Product(s)   No Patent Extension
             
US5,130,141   Compositions for and methods of treating muscle degeneration and weakness   MyoCell; MyoCell II with SDF-1   July 14, 2009
US5,972,013   Direct Pericardial Access Device with Deflecting Mechanism and Method   MyoCath; MyoCath II   Sep. 19, 2017
US6,241,710   Hypodermic Needle with Weeping Tip and Method of Use   MyoCath II   Dec. 20, 2019

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            Expiration Date Assuming
Patent   Subject Matter   Related Product(s)   No Patent Extension
             
US6,547,769   Catheter Apparatus with Weeping Tip and Method of Use   MyoCath II   Dec. 20, 2019
US6,855,132   Apparatus with Weeping Tip and Method of Use   MyoCath II   Dec. 20, 2019 (with 101 day adjustment: Mar. 30, 2020)
US6,949,087   Apparatus with Weeping Tip and Method of Use   MyoCath II   Dec. 20, 2019
         
Patent Application   Subject Matter   Related Product(s)
         
US2004/0161412   Cell-Based VEGF Delivery   MyoCell II with SDF-1
WO 04/056186
(US03/34411)
(PCT)
  Cell-Based VEGF Delivery   MyoCell II with SDF-1
US2004/0037811   Stromal Cell-Derived Factor-1 Mediates Stem Cell Homing and Tissue Regeneration in Ischemic Cardiomyopathy   MyoCell II with SDF-1
WO 04/017978
(US03/26013)
(PCT)
  Stromal Cell-Derived Factor-1 Mediates Stem Cell Homing and Tissue Regeneration in Ischemic Cardiomyopathy   MyoCell II with SDF-1
      Patent life determination depends on the date of filing of the application or the date of patent issuance and other factors as promulgated under the patent laws. Under the U.S. Drug Price Competition and Patent Term Restoration Act of 1984, as amended, a patent which claims a product, use or method of manufacture covering drugs and certain other products, including biologic products, may be extended for up to five years to compensate the patent holder for a portion of the time required for research and FDA review of the product. Only one patent applicable to an approved drug or biologic product is eligible for a patent term extension. This law also establishes a period of time following approval of a drug or biologic product during which the FDA may not accept or approve applications for certain similar or identical drugs or biologic products from other sponsors unless those sponsors provide their own safety and efficacy data.
      We anticipate that we will seek to collaborate with the owners of the patent, Dr. Law and Cell Transplants International, to extend the term of this patent and, provided that MyoCell is approved by the FDA prior to the patent expiration date and certain other material conditions are satisfied, we believe that this patent will be eligible for a five-year extension of its term until July 2014. It is possible that the FDA will not complete review of and grant approval for MyoCell before this patent expires. In such event, a regular patent term extension will not be available, but Dr. Law and Cell Transplants International could request a one-year interim extension of the patent term during the period beginning six months before and ending fifteen days before the patent expiration. The request for interim extension must satisfy a number of material conditions including those conditions necessary to receive a regular patent term extension. Under certain circumstances the patent owner can request up to four additional one-year interim extensions. However, we cannot assure you that Dr. Law and Cell Transplants International will seek to obtain, or will be successful in obtaining, any regular or interim patent term extension.
      MyoCell is not protected by patents outside of the United States, which means that competitors will be free to sell products that incorporate the same or similar technologies that are used in MyoCell without infringing our patent rights in those countries, including in European countries, which we believe may be one of the largest potential markets for MyoCell. As a result, MyoCell, if approved for use in any of these

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countries, may be vulnerable to competition. In addition, many of the patent and patent applications that have been licensed to us that pertain to our other product candidates do not cover certain countries within Europe.
      Our commercial success will depend to a significant degree on our ability to:
  •  defend and enforce our patents and/or compel the owners of the patents licensed to us to defend and enforce such patents;
 
  •  obtain additional patent and other proprietary protection for MyoCell and our other product candidates;
 
  •  obtain and/or maintain appropriate licenses to patents, patent applications or other proprietary rights held by others with respect to our technology, both in the United States and other countries;
 
  •  preserve trade secrets and other intellectual property rights relating to our product candidates; and
 
  •  operate without infringing the patents and proprietary rights of third parties.
      In addition to patented intellectual property, we also rely on trade secrets and proprietary know-how to protect our technology and maintain our competitive position, especially when we do not believe that patent protection is appropriate or can be obtained. Our policy is to require each of our employees, consultants and advisors to execute a confidentiality and inventions assignment agreement before beginning their employment, consulting or advisory relationship with us. The agreements generally provide that the individual must keep confidential and not disclose to other parties any confidential information developed or learned by the individual during the course of the individual’s relationship with us except in limited circumstances. These agreements generally also provide that we shall own all inventions conceived by the individual in the course of rendering services to us. Moreover, some of our academic institution licensors, collaborators and scientific advisors have rights to publish data and information to which we have rights, which may impair our ability to protect our proprietary information or obtain patent protection in the future.
      We work with others in our research and development activities and one of our strategies is to enter into collaborative agreements with third parties to develop our proposed products. Disputes may arise about inventorship and corresponding rights in know-how and inventions resulting from the joint creation or use of intellectual property by us and our licensors, collaborators, consultants and others. In addition, other parties may circumvent any proprietary protection we do have. As a result, we may not be able to maintain our proprietary position.
      We are not currently a party to any litigation or other adverse proceeding with regard to our patents or intellectual property rights. However, if we become involved in litigation or any other adverse intellectual property proceeding, for example, as a result of an alleged infringement, or a third party alleging an earlier date of invention, we may have to spend significant amounts of money and time and, in the event of an adverse ruling, we could be subject to liability for damages, including treble damages, invalidation of our intellectual property and injunctive relief that could prevent us from using technologies or developing products, any of which could have a significant adverse effect on our business, financial condition and results of operation. In addition, any claims relating to the infringement of third party proprietary rights, or earlier date of invention, even if not meritorious, could result in costly litigation, lengthy governmental proceedings, divert management’s attention and resources and require us to enter royalty or license agreements which are not advantageous, if available at all.
      See “Risk Factors — Risks Related to Our Intellectual Property” for a discussion of additional risks we face with respect to our intellectual property rights.
Technology In-Licenses and Other Agreements
Primary MyoCell Patent
      The Primary MyoCell Patent includes claims we believe cover a composition for the treatment of muscle degeneration, comprised of cultured myogenic cells for use in their administration to diseased muscle. The Primary MyoCell Patent expires in the United States in July 2009. Provided that MyoCell is approved prior to

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the expiration date of the Primary MyoCell Patent and certain other material conditions are satisfied, we believe the Primary MyoCell Patent will be eligible for a five-year extension of its term until July 2014. We anticipate that we will seek to collaborate with the owners of the patent, Dr. Law and Cell Transplants International, to extend the term of the Primary MyoCell Patent.
      In February 2000, we entered into a License Agreement, or the Law License Agreement, with Dr. Law and Cell Transplants International pursuant to which Dr. Law and Cell Transplants International granted us a conditionally exclusive license (i.e., a non-exclusive license with a right of first refusal) to certain patent and patent applications, including the Primary MyoCell Patent, or, collectively, the Law Patents, for the life of such Law Patents as well as future developments related to heart muscle regeneration and angiogenesis for the purpose of developing a commercially viable product within the field of heart muscle repair and angiogenesis, or, collectively, the Law IP. We are not permitted to sublicense our rights under the Law License Agreement to third parties. If Dr. Law or Cell Transplants International desires to license or otherwise convey any rights in and to any of the Law Patents, including the Primary MyoCell Patent, or any of their technology, inventions or other patent rights in the field of heart muscle regeneration or angiogenesis to a third party, we have a right of first refusal, exercisable within thirty days, to obtain either an exclusive or non-exclusive license for such rights. Dr. Law and Cell Transplants International have agreed that they will not consider any such third party offer if the aggregate consideration offered is less than $14 million. Pursuant to the Law License Agreement, the exercise price of our right of first refusal will be equal to the lesser of the price offered by the third party or $25 million.
      Under the Law License Agreement, we are required to pay to Cell Transplants International a $3 million payment upon commencement of a bona fide U.S. Phase II human clinical trial that utilizes technology claimed under the Primary MyoCell Patent and a $5 million payment upon FDA approval of patented technology for heart muscle regeneration. In addition, we are required to pay royalties to Cell Transplants International equal to 5% of gross sales in the territories where the licensed patents are issued for products and services that are covered by the Law IP.
      Dr. Law and Cell Transplants International have agreed to use reasonably diligent and prompt efforts to enforce the patents licensed pursuant to the Law License Agreement by instituting litigation against all third parties to whom Dr. Law and/or Cell Transplants International have a reasonable basis for claiming infringement. Dr. Law and Cell Transplants International are entitled to any and all damages recovered in connection with any such litigation. We do not have the right to initiate or exercise any control over the prosecution, maintenance, defense or enforcement of the Law IP. See “Risk Factors — Risks Related to Our Intellectual Property” for a discussion of additional risks we face with respect to our intellectual property rights.
Primary MyoCath Patent
      The Primary MyoCath Patent includes device claims that we believe covers, among other things, the structure of MyoCath. The Primary MyoCath Patent expires in the United States in September 2017. A patent application for the Primary MyoCath Patent has been filed in Europe and is currently pending.
      In January 2000, we entered into a license agreement with Comedicus, Incorporated pursuant to which Comedicus granted us a royalty-free, fully paid-up, non-exclusive and irrevocable license to the Primary MyoCath Patent in exchange for a payment of $50,000. This agreement was amended in August 2000 to provide us an exclusive license to the Primary MyoCath Patent in exchange for a payment of $100,000 and our loan of $250,000 to Comedicus. Pursuant to this amendment we also received the right, but not the obligation, with Comedicus’ consent, which consent is not to been unreasonably withheld, to defend the Primary MyoCath Patent against third party infringers.
      In June 2003, we entered into agreements with ACS pursuant to which we assigned our rights under the license agreement with Comedicus, as amended, committed to deliver 160 units of MyoCath and sold certain of our other catheter related intellectual property, or, collectively, with the Primary MyoCath Patent, the Catheter IP, for aggregate consideration of $900,000. In connection with these agreement, ACS granted to us

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a co-exclusive, irrevocable, fully paid-up license to the Catheter IP for the life of the patents related to the Catheter IP.
      ACS has the exclusive right, at its own expense, to file, prosecute, issue, maintain, license, and defend the Catheter IP, and the primary right to enforce the Catheter IP against third party infringers. If ACS fails to enforce the Catheter IP against a third party infringer within a specified period of time, we have the right to do so at our expense. The party enforcing the Catheter IP is entitled to retain any recoveries resulting from such enforcement. The asset purchase agreement only pertains to the Catheter IP developed or acquired by us prior to June 24th, 2003. Our subsequent catheter related developments and/or acquisitions, such as MyoCath II, were not sold or licensed to ACS.
MyoCell II with SDF-1 Patents
      To develop our MyoCell II with SDF-1 product candidate, we intend to rely primarily on patents we have licensed from the Cleveland Clinic in addition to the Primary MyoCell Patent. These patents relate to methods of repairing damaged heart tissue by transplanting myoblasts that express SDF-1 and other therapeutic proteins capable of recruiting other stem cells within a patient’s own body to the cell transplant area. We believe we will also need to, among other things, license some additional intellectual property to commercialize MyoCell II with SDF-1 in the form we believe may prove to be the most safe and/or effective.
      In February 2006, we signed a patent licensing agreement with the Cleveland Clinic which provides us with the worldwide, exclusive rights to four pending U.S. patent applications and certain corresponding foreign filings in the following jurisdictions: Australia, Brazil, Canada, China, Europe and Japan, or, collectively, the Cleveland Clinic IP, related to methods of repairing damaged heart tissue by transplanting myoblasts that express SDF-1 and other therapeutic proteins capable of recruiting other stem cells within a patient’s own body to the cell transplant area. The term of our agreement with the Cleveland Clinic extends to the date on which the last of the Cleveland Clinic IP expires, at which time our license will become irrevocable, paid up and royalty-free.
      We have paid the Cleveland Clinic aggregate fees of $1.5 million and are required to pay an annual maintenance fee of $150,000.
      In addition, we are required to make payments upon our achievement of certain milestone activities which we have agreed to use commercially reasonable efforts to complete by target dates agreed to by the parties. The table below sets forth the milestone activity, required milestone payment and target completion date.
                 
    Milestone   Target
Milestone Activity   Payment   Completion Date
         
FDA or foreign equivalent approval of an IND application covering product candidates derived from the Cleveland Clinic IP
  $ 200,000       February 3, 2007  
Full enrollment of an FDA approved Phase I clinical trial for the first product candidate derived from the Cleveland Clinic IP
  $ 300,000       February 3, 2008  
Full enrollment of the last clinical trial needed prior to a Biologic License Application submission to the FDA or foreign equivalent related to the first product candidate derived from the Cleveland Clinic IP
  $ 750,000       February 3, 2009  
First commercial sale of an FDA approved product derived from the Cleveland Clinic IP
  $ 1,000,000       February 3, 2011  
      To the extent we do not complete a milestone activity by the target completion date, we will be required to pay $100,000, or the Extension Fee, to extend the target completion date for an additional one year period, or the Extension Period. If such milestone activity is achieved during the first six months of the Extension Period, the Extension Fee will be credited against the applicable milestone payment. We will also be required to pay Cleveland Clinic royalty fees equal to 5% of net sales of any product derived from the Cleveland Clinic IP until the expiration of the patents. In addition, in the event we do not complete a milestone activity

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by the target completion date and fail to achieve such milestone activity within 90 days of receiving written notice from the Cleveland Clinic, our license to the Cleveland Clinic IP will automatically convert into a non-exclusive license. In the event such milestone activity remains uncompleted one year following the target completion date and is not completed within 90 days of receiving written notice from the Cleveland Clinic, our license to the Cleveland Clinic IP will automatically terminate. We did not receive FDA or foreign equivalent approval of an IND application covering product candidates derived from the Cleveland Clinic IP by February 3, 2007, the target completion date for such milestone activity. We are presently involved in active discussions with the Cleveland Clinic to extend this target completion date.
      Pursuant to our license agreement with the Cleveland Clinic, we are permitted to sublicense the Cleveland Clinic IP. However, prior to enrollment of the first human in an FDA approved clinical trial, we are required to pay Cleveland Clinic 20% of all revenue received from our granting of sublicenses to the Cleveland Clinic IP. Following enrollment of the first human in an FDA approved clinical trial, we will be required to pay Cleveland Clinic 10% of all revenue received from our granting of sublicenses to the Cleveland Clinic IP. These sublicense fees do not include amounts paid by a sublicensee to us relating to, among other things, net sales of products derived from the Cleveland Clinic IP.
      The Cleveland Clinic has agreed to diligently prosecute and maintain the rights to the Cleveland Clinic IP and has the right, but not the obligation, to prosecute and/or defend, at its own expense, any infringement of, and/or challenge to, the patent rights. To the extent the Cleveland Clinic determines not to initiate suit against any infringer, we have the right, but not the obligation, to commence litigation for such alleged infringement. Any damages recovered will be treated as royalties received by us from sublicensees and shared by us and the Cleveland Clinic accordingly.
      In addition to the Cleveland Clinic’s right to terminate due to our failure to complete milestone activities as described above, the Cleveland Clinic may terminate our agreement with the Cleveland Clinic if we breach the agreement and fail to cure such breach within a specified cure period. The agreement also will terminate automatically in the event of our bankruptcy.
MyoCath II Patents
      In April 2006, we entered into an agreement with Tricardia, LLC pursuant to which Tricardia granted us a sublicenseable license to certain patents and patent applications in the United States, Australia, Canada, Europe and Japan covering the modified injection needle we intend to use as part of MyoCath II, or the MyoCath II Patents, in exchange for a one time payment of $100,000. Our license covers and is exclusive with respect to products developed under the MyoCath II Patents for the delivery of therapeutic compositions to the heart. Unless earlier terminated by mutual consent of the parties, our agreement with Tricardia will terminate upon the expiration date of the last MyoCath II Patent.
      Tricardia has the obligation to take all actions necessary to file, prosecute and maintain the MyoCath II Patents. We are required to reimburse Tricardia, on a pro-rata basis with other licensees of Tricardia of the MyoCath II Patents, for all reasonable out-of -pocket costs and expenses incurred by Tricardia in prosecuting and maintaining the MyoCath II Patents. To the extent we do not wish to incur the cost of any undertaking or defense of any opposition, interference or similar proceeding involving the MyoCath II Patents with respect to any jurisdiction, the license granted to us pursuant to agreement will be automatically amended to exclude such jurisdiction.
      Tricardia also has the first right, but not the obligation, to take any actions necessary to prosecute or prevent any infringement or threatened infringement of the MyoCath II Patents. To the extent Tricardia determines not to initiate suit against any infringer, we have the right, but not the obligation, to commence litigation for such alleged infringement. Our share of any recovery will equal 50% in the event Tricardia commences litigation and 90% in the event we commence litigation.

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TGI 100 and TGI 1200 Patent
      On December 12, 2006, or the Effective Date, we entered into an agreement with Tissue Genesis, or the Tissue Genesis Agreement, that provides us an exclusive, worldwide right to individually use or to sell or lease to medical practitioners and related healthcare entities the following items, for the treatment of acute MI and heart failure, or the Field of Use:
  •  the TGI 100;
 
  •  the TGI 1200 and certain disposable products used in conjunction with the devices, or, collectively, with the TGI 100 and certain other products, the TGI Licensed Product Candidates;
 
  •  processes that use the TGI Licensed Product Candidates, or the TGI Licensed Processes; and
 
  •  the cells derived using the TGI Licensed Product Candidates and/or the TGI Licensed Processes, or the TGI Licensed Cells.
      Under the Tissue Genesis Agreement, we are restricted from transferring or sublicensing our rights to distribute and use, respectively, the TGI Licensed Product Candidates and related technology, or the TGI Product Candidate Technology.
      Under the Tissue Genesis Agreement, we have agreed to diligently pursue commercialization of the TGI Licensed Product Candidates for the treatment of acute MI and heart failure. We have also agreed to use commercially reasonable efforts to obtain FDA approval for the TGI Licensed Product Candidates within five years of the Effective Date and to make the first sale of a TGI Licensed Product Candidate within seven years of the Effective Date. Tissue Genesis has agreed to provide us with reasonable assistance to obtain regulatory approvals.
      Tissue Genesis has agreed to sell us equipment and disposables on pricing terms as favorable as the terms offered to any other direct customer. Tissue Genesis has agreed to provide us with any reasonably available information and instructions related to the operation and maintenance of any equipment we purchase.
      We have granted Tissue Genesis an exclusive, worldwide license to use, for purposes other than the treatment of acute MI and heart failure, any improvements we make to the TGI Product Candidate Technology. Tissue Genesis has granted us a right of first refusal to acquire any improvements made or acquired by Tissue Genesis to the TGI Licensed Product Candidates or TGI Product Candidate Technology.
      We may terminate the Tissue Genesis Agreement for any reason upon 90 days written notice to Tissue Genesis. In the event we terminate the Tissue Genesis Agreement, the warrant we granted Tissue Genesis (described below) will immediately become fully vested. In the event we fail to obtain FDA approval for a TGI Licensed Product Candidate within seven years of the Effective Date, our exclusive license and distribution right will automatically become non-exclusive. In the event we fail to obtain FDA approval for a TGI Licensed Product Candidate within eight years of the Effective Date, our license and distribution right will automatically terminate. In the event we pay Tissue Genesis royalties of less than $1 million over any one year royalty period at any time after two years following the receipt of FDA approval for a TGI Licensed Product Candidate, our exclusive license and distribution right will automatically terminate 30 days after receipt of notice from Tissue Genesis unless we demonstrate that we continue to pursue commercialization and FDA approval of TGI Licensed Product Candidates and have spent at least the following cumulative amounts toward our commercialization and FDA approval efforts:
  •  $500,000 within two years of the Effective Date;
 
  •  $1,250,000 within three years of the Effective Date;
 
  •  $2,000,000 within four years of the Effective Date; and
 
  •  an additional $100,000 each year after four years of the Effective Date.
      Tissue Genesis also has the right to terminate the agreement if we are in material breach thereof and we do not cure the breach within 30 days of receiving written notice of such breach. We have the right, but not

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the obligation, to request that Tissue Genesis commence litigation against a third party infringer of the patents, including certain patents licensed by Tissue Genesis from Thomas Jefferson University, or the TJU Patents, necessary for our customers’ use of the TGI Licensed Product Candidates, the TGI Licensed Processes and the TGI Licensed Cells within the Field of Use. In the event (i) Tissue Genesis fails to bring suit within 120 days of receipt of our written request, which request must be accompanied by an opinion of counsel as to the alleged infringement and (ii) sales of the infringing products reduce our net sales of the TGI Licensed Product Candidates by at least $250,000 per year, we will be relieved of our obligation to pay Tissue Genesis royalty fees until Tissue Genesis initiates litigation against the third party infringer or obtains discontinuance of the infringement. If requested by Tissue Genesis, we may be required to pay for one third of the expenses, including legal fees, of any such litigation. To the extent we are required to contribute to the costs of litigation, we will have the right to participate in the prosecution of the alleged infringement and to receive one third of any damages recovered by Tissue Genesis.
      As consideration for the license, we have issued to Tissue Genesis 21,052 shares of our common stock and granted Tissue Genesis a warrant to purchase 2,500,000 shares of our common stock at an exercise price of $4.75 per share. The warrant is scheduled to vest and become exercisable as follows:
  •  1,000,000 shares will vest upon our successful completion of any internationally recognized Phase I clinical trial of a TGI Licensed Product Candidate;
 
  •  750,000 shares will vest upon the earlier of our net sales of $10 million of TGI Licensed Product Candidates or our receipt of $2 million of net profits from the sale of TGI Licensed Product Candidates; and
 
  •  750,000 shares will vest upon the earlier of our net sales of $100 million of TGI Licensed Product Candidates or our receipt of $20 million of net profits from the sale of TGI Licensed Product Candidates.
      In the event we merge or are acquired, the warrant will immediately become fully vested as to all 2,500,000 shares. Any vested portion of the warrant will be exercisable at any time and from time to time until December 31, 2026.
      We have also agreed to pay Tissue Genesis royalty fees equal to 2% of net sales of any TGI Licensed Product Candidate, TGI Licensed Processes and TGI Licensed Cells, up until such time as the items are no longer qualified for legal protection by a valid patent claim.
      Tissue Genesis has agreed that we and our customers will not be liable for damages for directly or indirectly infringing various patents, including the TJU patents necessary for our customers’ use of the TGI Licensed Product Candidates, the TGI Licensed Processes and the TGI Licensed Cells for the treatment of acute MI. Tissue Genesis has, subject to certain conditions, also agreed to indemnify and hold harmless us and our customers from all claims that the products infringe any patents, copyrights or trade secret rights of a third party. However, if our use of the products is enjoined or if Tissue Genesis wishes to minimize its liability, Tissue Genesis may, at its option and expense, either:
  •  substitute a substantially equivalent non-infringing product for the infringing product;
 
  •  modify the infringing product so that it no longer infringes but remains functionally equivalent; or
 
  •  obtains for us the right to continue using such item.
      If none of the foregoing is feasible, Tissue Genesis is required to accept a return of the infringing product and refund to us the amount paid for such product. Our agreement with Tissue Genesis provides that Tissue Genesis’ entire liability and obligation with respect to claims of infringement are limited to the liabilities and obligations described above.
Other License Agreements
      In June 2000, we entered into an agreement with William Beaumont Hospital, or WBH, pursuant to which WBH granted to us a worldwide, exclusive, non-sublicenseable license to two U.S. method patents

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covering the inducement of human adult myocardial cell proliferation in vitro, or the WBH IP. We utilize the methods under these patents in connection with our BioPace and certain other product candidates in development. We do not have rights to patents outside the United States relating to BioPace. In addition to a payment of $55,000 we made to acquire the license, we are required to pay WBH an annual license fee of $10,000 and royalties ranging from 2% to 4% of net sales of products that are covered by the WBH IP. In order to maintain these exclusive license rights, our aggregate royalty payments in any calendar year must exceed a minimum threshold as established by the agreement. The minimum threshold was $30,000 and $50,000 for 2004 and 2005, respectively. This minimum threshold increased to $100,000 in 2006 and will increase to $200,000 for 2007 and thereafter. To the extent that our annual net sales of products covered by the WBH IP do not exceed the minimum threshold for such year, we have the option of paying any shortfall in cash to WBH by the end of the applicable year or having our license to the WBH IP become non-exclusive. In addition to the patents licensed from WBH, we purchased a U.S. patent and its corresponding Japanese filing, which are directed to biological pacemakers, by assignment from Angeion Corporation on September 1, 2000.
      As of the date of this prospectus, we have not made any payments to WBH other than the initial payment to acquire the license. Accordingly, WBH may terminate the license to the WBH IP at any time at their sole option. We are currently in negotiations with WBH to amend the terms of the license agreement. Unless earlier terminated by WBH or by either party upon the other party’s breach of the agreement, the agreement will terminate upon the expiration date of the last patent covered by the WBH Agreement.
Sales and Marketing
      In advance of any expected commercial approval of our lead product candidate, we intend to internally develop a direct sales and marketing force in both Europe and the United States. We anticipate the team will be comprised of salespeople, clinical and reimbursement specialists and product marketing managers.
      We intend to market MyoCell to interventional cardiologists. In the typical healthcare system the interventional cardiologist functions as a “gate keeper” for determining the course of appropriate medical care for our target patient population.
      We anticipate our marketing efforts will be focused on informing interventional cardiologists of the availability of a our treatment alternative through the following channels of communication: (i) articles published in medical journals by widely recognized interventional cardiologists, including cardiologists that have participated in our clinical trials; (ii) seminars and speeches featuring widely recognized interventional cardiologists; and (iii) advertisements in medical journals.
Collaborative Arrangements for Seeking Regulatory Approvals and Distribution of Products Outside of the United States and Europe
Japan
      On November 19, 2001, we entered into an agreement with Getz Brothers Co., Ltd. pursuant to which we appointed Getz Brothers as the exclusive distributor of all of our products in Japan. Pursuant to this agreement, during the three-year period following the Reimbursement Date (as defined below), Getz Brothers has agreed to purchase a minimum number of units of our products per year at prices to be negotiated upon our receipt of approval from the Japanese Ministry of Health, Labor and Welfare to sell our products in Japan, or the Japan Regulatory Approval. Under this distribution agreement, Getz Brothers has agreed to use its best efforts to obtain government approval for, promote and distribute our products in Japan using generally the same channels and methods, exercising the same diligence and adhering to the same standards which Getz Brothers employs for its own products and other medical products it distributes. To assist Getz Brothers in registering and marketing our products in Japan, we have agreed to provide them with, among other things, written materials necessary to obtain the Japan Regulatory Approval, information on our marketing and promotional plans for our products, certificates of analysis concerning any products purchased by Getz Brothers, certificates of free sale, trademark authorizations and any other documents they may reasonably request.

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      This agreement with Getz Brothers terminates five years following the date that the necessary Japanese regulatory authorities approve reimbursement for MyoCell, or the Reimbursement Date. Getz Brothers may terminate the agreement upon 30 days written notice. In the event that the Reimbursement Date does not occur by November 19, 2009, we may terminate the agreement upon 30 days written notice. If our agreement with Getz Brothers is not terminated prior to the end of the five year period following the Reimbursement Date, the agreement will be automatically renewed for additional one-year periods unless either party provides 180 days advance written notice to the other party of its desire not to renew the agreement.
      We may also terminate this agreement at any time upon 180 days notice subject to our one-time payment of a buy-out fee to Getz Brothers. If we exercise this buy-out option prior to our receipt of the Japan Regulatory Approval, the payment to Getz Brothers will be equal to the greater of (i) $5 million and (ii) two times the sum of Getz Brothers’ expenditures incurred in connection with seeking regulatory approvals and conducting clinical trials for our product candidates. If we exercise this buy-out option subsequent to our receipt of the Japan Regulatory Approval, the payment to Getz Brothers will be equal to the greater of (ii) $10 million and (ii) the product of 24 and the monthly average of Getz Brothers’ gross revenues received from sales of our products during the six months preceding our exercise of this buy-out option.
Other Countries in Asia and Australia/ Oceania
      On November 19, 2001, we entered into an agreement with Getz Brothers pursuant to which we appointed Getz Brothers as the exclusive distributor of all of our products in the countries of Australia, Bangladesh, Burma, Cambodia, China, Hong Kong, Indonesia, Laos, Malaysia, New Zealand, Pakistan, Philippines, Singapore, Sri Lanka, Taiwan, Thailand and Vietnam, or, collectively, the Territory. Pursuant to this agreement, during the three-year period following the date that the necessary regulatory authorities approve reimbursement for our MyoCell therapy within the Territory, Getz Brothers has agreed to purchase a minimum number of units of our products per year at prices to be negotiated upon our first receipt of approval from the appropriate regulatory agencies to sell our products in the Territory. Under this agreement, Getz Brothers has agreed to use its best efforts to obtain government approval for, promote and distribute our products in the Territory using generally the same channels and methods, exercising the same diligence and adhering to the same standards which Getz Brothers employs for its own products and other medical products it distributes. To assist Getz Brothers in registering and marketing our products in the Territory, we have agreed to provide them with, among other things, written materials necessary to obtain the requisite regulatory approvals, information on our marketing and promotional plans for our products, certificates of analysis concerning any products purchased by Getz Brothers, certificates of free sale, trademark authorizations and any other documents they may reasonably request.
      This agreement with Getz Brothers terminates on November 19, 2007. The agreement will be automatically renewed at the end of the initial term for additional one-year periods unless either party provides 180 days advance written notice to the other party of its desire not to renew the agreement. We may also terminate the agreement at any time upon 180 days notice subject to our one-time payment of a buy-out fee to Getz Brothers equal to the greater of (i) $200,000, (ii) 1.5 times the sum of Getz Brother’s expenditures incurred in connection with seeking regulatory approvals and conducting clinical trials for our product candidates in the Territory and (iii) the product of 28 and the monthly average of Getz Brother’s gross revenues received from sales of our products in the Territory during the six months preceding our exercise of this buy-out option.
Government Regulation
      The research and development, preclinical studies and clinical trials, and ultimately, the culturing, manufacturing, marketing and labeling of our product candidates are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries. We believe MyoCell and MyoCath are subject to regulation in the United States and Europe as a biological product and a medical device, respectively.

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      Biological products are subject to regulation under the Federal Food, Drug, and Cosmetic Act, or the FD&C Act, the Public Health Service Act, or the PHS Act and their respective regulations as well as other federal, state, and local statutes and regulations. Medical devices are subject to regulation under the FD&C Act and the regulations promulgated thereunder as well as other federal, state, and local statutes and regulations. The FD&C Act and the PHS Act and the regulations promulgated thereunder govern, among other things, the testing, cell culturing, manufacturing, safety, efficacy, labeling, storage, record keeping, approval, clearance, advertising and promotion of our product candidates. Preclinical studies, clinical trials and the regulatory approval process typically take years and require the expenditure of substantial resources. If regulatory approval or clearance of a product is granted, the approval or clearance may include significant limitations on the indicated uses for which the product may be marketed.
FDA Regulation — Approval of Biological Products
      The steps ordinarily required before a biological product may be marketed in the United States include:
  •  completion of preclinical studies according to good laboratory practice regulations;
 
  •  the submission of an IND application to the FDA, which must become effective before human clinical trials may commence;
 
  •  performance of adequate and well-controlled human clinical trials according to good clinical practices to establish the safety and efficacy of the proposed biological product for its intended use;
 
  •  satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities at which the product is manufactured, processes, packaged or held to assess compliance cGMP; and
 
  •  the submission to, and review and approval by, the FDA of a biologics license application, or BLA, that includes satisfactory results of preclinical testing and clinical trials.
      Preclinical tests include laboratory evaluation of the product candidate, its formulation and stability, as well as animal studies to assess the potential safety and efficacy of the product candidate. The FDA requires that preclinical tests be conducted in compliance with good laboratory practice regulations. The results of preclinical testing are submitted as part of an IND application to the FDA together with manufacturing information for the clinical supply, analytical data, the protocol for the initial clinical trials and any available clinical data or literature. A 30-day waiting period after the filing of each IND application is required by the FDA prior to the commencement of clinical testing in humans. In addition, the FDA may, at any time during this 30-day waiting period or any time thereafter, impose a clinical hold on proposed or ongoing clinical trials. If the FDA imposes a clinical hold, clinical trials cannot commence or recommence without FDA authorization.
      Clinical trials to support BLAs involve the administration of the investigational product to human subjects under the supervision of qualified investigators. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the efficacy criteria to be evaluated.
      Clinical trials are typically conducted in three sequential phases, but the phases may overlap.
      In Phase I clinical trials, the initial introduction of the biological product candidate into human subjects or patients, the product candidate is tested to assess safety, dosage tolerance, absorption, metabolism, distribution and excretion, including any side effects associated with increasing doses.
      Phase II clinical trials usually involve studies in a limited patient population to identify possible adverse effects and safety risks, preliminarily assess the efficacy of the product candidate in specific, targeted indications; and assess dosage tolerance and optimal dosage.
      If a product candidate is found to be potentially effective and to have an acceptable safety profile in Phase II evaluations, Phase III trials are undertaken within an expanded patient population at multiple study sites to further demonstrate clinical efficacy and safety, further evaluate dosage and establish the risk-benefit ratio of the product and an adequate basis for product labeling.

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      Phase IV, or post-marketing, trials may be mandated by regulatory authorities or may be conducted voluntarily. Phase IV trials are typically initiated to monitor the safety and efficacy of a biological product in its approved population and indication but over a longer period of time, so that rare or long-term adverse effects can be detected over a much larger patient population and time than was possible during prior clinical trials. Alternatively, Phase IV trials may be used to test a new method of product administration, or to investigate a product’s use in other indications. Adverse effects detected by Phase IV trials may result in the withdrawal or restriction of a drug.
      If the required Phase I, II and III clinical testing is completed successfully, the results of the required clinical trials, the results of product development, preclinical studies and clinical trials, descriptions of the manufacturing process and other relevant information concerning the safety and effectiveness of the biological product candidate are submitted to the FDA in the form of a BLA. In most cases, the BLA must be accompanied by a substantial user fee. The FDA may deny a BLA if all applicable regulatory criteria are not satisfied or may require additional data, including clinical, toxicology, safety or manufacturing data. It can take several years for the FDA to approve a BLA once it is submitted, and the actual time required for any product candidate may vary substantially, depending upon the nature, complexity and novelty of the product candidate.
      Before approving an application, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve a BLA unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements.
      If the FDA evaluations of the BLA and the manufacturing facilities are favorable, the FDA may issue either an approval letter or an approvable letter. The approvable letter usually contains a number of conditions that must be met to secure final FDA approval of the BLA. When, and if, those conditions have been met to the FDA’s satisfaction, the FDA will issue an approval letter. If the FDA’s evaluation of the BLA or manufacturing facility is not favorable, the FDA may refuse to approve the BLA or issue a non-approvable letter that often requires additional testing or information.
FDA Regulation — Approval of Medical Devices
      Medical devices are also subject to extensive regulation by the FDA. To be commercially distributed in the United States, medical devices must receive either 510(k) clearance or pre-market approval, or PMA, from the FDA prior to marketing. Devices deemed to pose relatively low risk are placed in either Class I or II, which requires the manufacturer to submit a pre-market notification requesting permission for commercial distribution, or 510(k) clearance. Devices deemed by the FDA to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, devices deemed not substantially equivalent to a previously 510(k) cleared device and certain other devices are placed in Class III which requires PMA. We anticipate that MyoCath will be classified as a Class III device.
      To obtain 510(k) clearance, a manufacturer must submit a pre-market notification demonstrating that the proposed device is substantially equivalent in intended use and in safety and efficacy to a previously 510(k) cleared device, a device that has received PMA or a device that was in commercial distribution before May 28, 1976. The FDA’s 510(k) clearance pathway usually takes from four to twelve months, but it can last longer.
      After a device receives 510(k) clearance, any modification that could significantly affect its safety or efficacy, or that would constitute a major change in its intended use, requires a new 510(k) clearance or could require PMA. The FDA requires each manufacturer to make this determination, but the FDA can review any such decision. If the FDA disagrees with a manufacturer’s decision not to seek a new 510(k) clearance, the agency may retroactively require the manufacturer to seek 510(k) clearance or PMA. The FDA also can require the manufacturer to cease marketing and/or recall the modified device until 510(k) clearance or PMA is obtained.
      A product not eligible for 510(k) clearance must follow the PMA pathway, which requires proof of the safety and efficacy of the device to the FDA’s satisfaction. The PMA pathway is much more costly, lengthy

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and uncertain than the 510(k) approval pathway. A PMA application must provide extensive preclinical and clinical trial data and also information about the device and its components regarding, among other things, device design, manufacturing and labeling. As part of the PMA review, the FDA will typically inspect the manufacturer’s facilities for compliance with quality system regulation requirements, which impose elaborate testing, control, documentation and other quality assurance procedures. Upon acceptance by the FDA of what it considers a completed filing, the FDA commences an in-depth review of the PMA application, which typically takes from one to two years, but may last longer. The review time is often significantly extended as a result of the FDA asking for more information or clarification of information already provided.
      If the FDA’s evaluation of the PMA application is favorable, and the applicant satisfies any specific conditions (e.g., changes in labeling) and provides any specific additional information (e.g., submission of final labeling), the FDA will issue a PMA for the approved indications, which can be more limited than those originally sought by the manufacturer. The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and efficacy of the device including, among other things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions of approval can result in an enforcement action, which could have material adverse consequences, including the loss or withdrawal of the approval.
      Even after approval of a pre-market application, a new PMA or PMA supplement is required in the event of a modification to the device, its labeling or its manufacturing process.
FDA Regulation — Post-Approval Requirements
      Even if regulatory clearances or approvals for our product candidates are obtained, our products and the facilities manufacturing our products will be subject to continued review and periodic inspections by the FDA. For example, as a condition of approval of a new drug application, the FDA may require us to engage in post-marketing testing and surveillance and to monitor the safety and efficacy of our products. Holders of an approved new BLA, PMA or 510(k) clearance product are subject to several post-market requirements, including the reporting of certain adverse events involving their products to the FDA, provision of updated safety and efficacy information, and compliance with requirements concerning the advertising and promotion of their products.
      In addition, manufacturing facilities are subject to periodic inspections by the FDA to confirm the facilities comply with cGMP requirements. In complying with cGMP, manufacturers must expend money, time and effort in the area of production and quality control to ensure full compliance. For example, manufacturers of biologic products must establish validated systems to ensure that products meet high standards of sterility, safety, purity, potency and identity. Manufacturers must report to the FDA any deviations from cGMP or any unexpected or unforeseeable event that may affect the safety, quality, or potency of a product. The regulations also require investigation and correction of any deviations from cGMP and impose documentation requirements.
      In addition to regulations enforced by the FDA, we are also subject to regulation under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other federal, state and local regulations. Our research and development activities involve the controlled use of hazardous materials, chemicals, biological materials and radioactive compounds.
International Regulation
      Our product candidates are subject to regulation in every country where they will be tested or used. Whether or not we obtain FDA approval for a product candidate, we must obtain the necessary approvals from the comparable regulatory authorities of foreign countries before we can commence testing or marketing of a product candidate in those countries. The requirements governing the conduct of clinical trials and the approval processes vary from country to country and the time required may be longer or shorter than that associated with FDA approval.

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      In the European Economic Area, composed of the 25 European Union Member States, plus Norway, Iceland and Lichtenstein, marketing authorization applications for medicinal products may be submitted under a centralized or national procedure. Detailed preclinical and clinical data must accompany all marketing authorization applications that are submitted in the European Union. The centralized procedure provides for the grant of a single marketing authorization, referred to as a community authorization, that is valid for the entire European Economic Area. Under the national or decentralized procedure, a medicinal product may only be placed on the market when a marketing authorization, referred to as a national authorization, has been issued by the competent authority of a European Economic Area country for its own territory. If marketing authorization is granted, the holder of such authorization may submit further applications to the competent authorities of the remaining member states via either the decentralized or mutual recognition procedure. The decentralized procedure enables applicants to submit an identical application to the competent authorities of all member states where approval is sought at the same time as the first application. We believe that, by virtue of the nature of MyoCell, we are eligible to seek commercial approval of MyoCell under either the centralized or national procedure. We anticipate that we will first seek to obtain commercial approval of MyoCell in the Netherlands, Belgium and Germany pursuant to the national procedure.
      Under the mutual recognition procedure, products are authorized initially in one member state, and other member states where approval is sought are subsequently requested to recognize the original authorization based upon an assessment report prepared by the original authorizing competent authority. The other member states then have 90 days to recognize the decision of the original authorizing member state. If the member states fail to reach an agreement because one of them believes that there are grounds for supposing that the authorization of the medicinal product may present a potential serious risk to public health, the disagreement may be submitted to the Committee for Medicinal Products for Human Use of the European Medicines Agency for arbitration. The decision of this committee is binding on all concerned member states and the marketing authorization holder. Other member states not directly concerned at the time of the decision are also bound as soon as they receive a marketing application for the same product. The arbitration procedure may take an additional year before a final decision is reached and may require the delivery of additional data.
      The European Economic Area requires that manufacturers of medical devices obtain the right to affix the CE Mark to their products before selling them in member countries. The CE Mark is an international symbol of adherence to quality assurance standards and compliance with applicable European medical device directives. In order to obtain the right to affix the CE Mark to a medical device, the medical device in question must meet the essential requirements defined under the Medical Device Directive (93/42/EEC) relating to safety and performance, and the manufacturer of the device must undergo verification of regulatory compliance by a third party standards certification provider, known as a notified body. We anticipate that we will file an application to obtain the right to affix the CE Mark to MyoCath in the fourth quarter of 2007.
      In addition to regulatory clearance, the conduct of clinical trials in the European Union is governed by the European Clinical Trials Directive (2001/20/EC), which was implemented in May 2004. This directive governs how regulatory bodies in member states may control clinical trials. No clinical trial may be started without authorization by the national competent authority and favorable ethics approval.
      Manufacturing facilities are subject to the requirements of the International Standards Organization. In complying with these requirements, manufacturers must expend money, time and effort in the area of production and quality control to ensure full compliance.
      Despite efforts to harmonize the registration process in the European Union, the different member states continue to have different national healthcare policies and different pricing and reimbursement systems. The diversity of these systems may prevent a simultaneous pan-European launch, even if centralized marketing authorization has been obtained.
      In some cases, we plan to submit applications with different endpoints or other elements outside the United States due to differing practices and requirements in particular jurisdictions. However, in cases where different endpoints will be used outside the United States, we expect that such submissions will be discussed with the FDA to ensure that the FDA is comfortable with the nature of human trials being conducted in any

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part of the world. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing, or distribution, would apply to any product that is approved in Europe.
Competition
      Our industry is subject to rapid and intense technological change. We face, and will continue to face, competition from pharmaceutical, biopharmaceutical, medical device and biotechnology companies developing heart failure treatments both in the United States and abroad, as well as numerous academic and research institutions, governmental agencies and private organizations engaged in drug funding or discovery activities both in the United States and abroad. We also face competition from entities and healthcare providers using more traditional methods, such as surgery and pharmaceutical regimens, to treat heart failure. We believe there are a substantial number of heart failure products under development by numerous pharmaceutical, biopharmaceutical, medical device and biotechnology companies, and it is likely that other competitors will emerge.
      Many of our existing and potential competitors have substantially greater research and product development capabilities and financial, scientific, marketing and human resources than we do. As a result, these competitors may succeed in developing competing therapies earlier than we do; obtain patents that block or otherwise inhibit our ability to further develop and commercialize our product candidates; obtain approvals from the FDA or other regulatory agencies for products more rapidly than we do; or develop treatments or cures that are safer or more effective than those we propose to develop. These competitors may also devote greater resources to marketing or selling their products and may be better able to withstand price competition. In addition, these competitors may introduce or adapt more quickly to new technologies or scientific advances, which could render our technologies obsolete, and may introduce products that make the continued development of our product candidates uneconomical. These competitors may also be more successful in negotiating third party licensing or collaborative arrangements and may be able to take advantage of acquisitions or other strategic opportunities more readily than we can.
      Our ability to compete successfully will depend on our continued ability to attract and retain skilled and experienced scientific, clinical development and executive personnel, to identify and develop viable heart failure product candidates and to exploit these products and compounds commercially before others are able to develop competitive products.
      We believe the principal competitive factors affecting our markets include, but are not limited to:
  •  the safety and efficacy of our product candidates;
 
  •  the freedom to develop and commercialize cell-based therapies, including appropriate patent and proprietary rights protection;
 
  •  the timing and scope of regulatory approvals;
 
  •  the cost and availability of our products;
 
  •  the availability and scope of third party reimbursement programs; and
 
  •  the availability of alternative treatments.
      We are still in the process of determining, among other things:
  •  if MyoCell is safe and effective;
 
  •  the timing and scope of regulatory approvals; and
 
  •  the availability and scope of third party reimbursement programs.
      Accordingly, we have a limited ability to predict how competitive MyoCell will be relative to existing treatment alternatives and/or treatment alternatives that are under development. See “Business —Diagnosis and Management of Heart Failure.”

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      If approved, MyoCell will compete with surgical, pharmaceutical and mechanical based therapies. Surgical options include heart transplantation and left ventricular reconstructive surgery. Although not readily accessible, heart transplantation has proven to be an effective treatment for patients with severe damage to the heart who locate a donor match and are in sufficiently good health to undergo major surgery. Mechanical therapies such as biventricular pacing, ventricular restraint devices and mitral valve therapies have been developed by companies such as Medtronic, Inc., Acorn Cardiovascular, Inc., St. Jude Medical, Inc., World Heart Corporation, Guidant Corporation, a part of Boston Scientific, and Edwards Lifesciences Corp. Pharmaceutical therapies include anti-thrombotics, calcium channel blockers such as Pfizer’s Norvasc ® and ACE inhibitors such as Sanofi’s Delix ® .
      The field of regenerative medicine is rapidly progressing, as many organizations are initiating or expanding their research efforts in this area. We are also aware of several competitors seeking to develop cell-based therapies for the treatment of cardiovascular disease, including MG Biotherapeutics, LLC (a joint venture between Genzyme Corporation and Medtronic, Inc), Mytogen, Inc., Baxter International, Inc., Osiris Therapeutics, Inc., Viacell, Inc., Cytori Therapeutics, Inc., and potentially others.
      It is our understanding that some of our large competitors have devoted considerable resources to developing a myoblast-based cell therapy for treating severe damage to the heart. For instance, Mytogen and MG Biotherapeutics, like Bioheart, have been seeking to develop cell-based therapies utilizing skeletal myoblasts isolated from muscle, expanded in culture, and injected into a patient’s heart to repair scar tissue. In January 2006, Mytogen began recruiting patients for a U.S. Phase I clinical trial of catheter injections of myoblasts. Mytogen has announced that this Phase I clinical trial concluded recruitment in September 2006 and that they anticipate they will commence enrollment in a Phase II, double blind, placebo-controlled clinical trial in early 2007. MG Biotherapeutics announced in February 2006 that it had ceased enrollment of new patients in its Phase II trial, the MAGIC Trial, after its data monitoring committee concluded there was a low likelihood that the trial would result in the hypothesized improvements in heart function.
      Some organizations are involved in research using alternative cell sources, including bone marrow, embryonic and fetal tissue, umbilical cord and peripheral blood, and adipose tissue. For instance, Baxter Healthcare is currently conducting a U.S. Phase II study using stem cells extracted from peripheral blood as an investigational treatment for myocardial ischemia. Osiris Therapeutics is conducting a Phase I study using mesenchymal stem cells isolated from donor bone marrow, expanded in culture to treat damage caused by acute MI. Cytori Therapeutics is developing adipose-tissue derived stem cells intended to be used in cardiac patients in an autologous manner and is in preclinical investigations using large animal models. ViaCell is currently in preclinical development using allogeneic cells derived from umbilical cord blood for cardiac disease and they are expected to enter clinical trials in 2007.
      For further information regarding our competitive risks, see “Risk Factors —We face intense competition in the biotechnology and healthcare industries.”
Legal Proceedings
      From time to time, we may become involved in litigation relating to claims arising from the ordinary course of our business. We are not presently engaged in any material litigation and are unaware of any threatened material litigation. However, the biotechnology and medical device industries have been characterized by extensive litigation regarding patents and other intellectual property rights. See “Risk Factors” for a discussion of various litigation related risks we face.
Facilities
      Our headquarters are located in Sunrise, Florida and consist of 8,600 square feet of space, which we lease at a current rent of approximately $116,000 per year. The lease expires in January 2010. In addition to our corporate offices, at this location, we maintain:
  •  our MyoCell cell culturing facility for supply within the United States; and

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  •  a fully equipped cell culturing laboratory where we perform experimental work in the areas of improving cell culturing, cell engraftment, and other advanced research projects related to our core business.
      We believe the space available at our headquarters will be sufficient to meet the needs of our operations for the foreseeable future.
Employees
      As of January 31, 2007, we had 22 employees, including five executive officers. A substantial majority of our employees work in our Sunrise, Florida headquarters. Each employee has signed a confidentiality, inventions assignment and proprietary rights agreement and a non-compete and non-solicitation agreement. None of our employees is covered by a collective bargaining agreement. We have never experienced employment-related work stoppages and consider our employee relations to be good.

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MANAGEMENT
Executive Officers and Directors
      Set forth below is information regarding our executive officers and directors as of January 31, 2007.
             
Name   Age   Position
         
Howard J. Leonhardt
    45     Chairman of the Board and Chief Executive Officer
William H. Kline
    61     Chief Financial Officer
Richard T. Spencer IV
    34     Vice President of Clinical Affairs and Physician Relations
Scott Bromley
    45     Vice President of Public Relations
Catherine Sulawske-Guck
    37     Vice President of Administration and Human Resources
Samuel S. Ahn, M.D., MBA
    52     Director
Bruce Carson
    43     Director
Peggy A. Farley
    59     Director
David J. Gury
    68     Director
William P. Murphy, Jr., M.D. 
    83     Director
Richard T. Spencer III
    70     Director
Mike Tomas
    41     Director
Linda Tufts
    53     Director
Executive Officers
      Howard J. Leonhardt. Mr. Leonhardt is the co-founder of Bioheart and has served as our Chairman of the Board and Chief Executive Officer since our incorporation in August 1999. In 1986, Mr. Leonhardt founded World Medical Manufacturing Corporation, or World Medical, and served as its Chief Executive Officer from 1986 until December 1998 when World Medical was acquired by Arterial Vascular Engineering, Inc., or AVE. AVE was acquired by Medtronic, Inc. in January 1999. Mr. Leonhardt was the co-inventor of World Medical’s primary product, the TALENT (Taheri-Leonhardt) stent graft system. From December 1998 until June 1999, Mr. Leonhardt served as President of World Medical Manufacturing Corporation, a subsidiary of Medtronic. Scientific articles written by Mr. Leonhardt have been published in a number of publications including Techniques in Vascular and Endovascular Surgery and the Journal of Cardiovascular Surgery. Mr. Leonhardt received a diploma in International Trade from the Anoka-Hennepin Technical College, attended the University of Minnesota and Anoka-Ramsey Community College and holds an honorary Doctorate Degree in Biomedical Engineering from the University of Northern California.
      William H. Kline. Mr. Kline has served as our Chief Financial Officer since August 2006. Previously, from October 1999 until August 2006, Mr. Kline served as Senior Vice President for WildCard Systems, Inc., a debit card processing company that provides technology for electronic stored-value accounts and related Web-based software. At WildCard Systems, Mr. Kline was responsible for, among other things, the implementation of accounting, financial reporting and budget systems. He also was involved in all capital transactions at WildCard Systems, including the sale of the company to eFunds, Inc. in July 2005. Prior to joining WildCard Systems, Mr. Kline was the Partner-in -charge of the financial services practice for KPMG LLP in South Florida. Mr. Kline has over 30 years of diversified financial, operational and managerial experience and was the managing partner of KPMG’s healthcare practice in Tulsa and Boston. Mr. Kline received an M.B.A. in Finance and Accounting from the Wharton School of the University of Pennsylvania in 1972, an M.S. in Statistics from the University of Delaware in 1971, and a B.A. in Mathematics from Harvard College in 1967.

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      Richard T. Spencer IV. Mr. Spencer has served as our Vice President of Clinical Affairs and Physician Relations since September 2004. Mr. Spencer has eight years of experience in the medical device industry, including two years, from 1997 until 1999, as Technical Support Manager of Marketing at Medtronic Vascular, Inc., a company dedicated to the treatment of vascular disease and more recently, from August 2000 until September 2004, as Product Director of Global Drug Eluting Stent Marketing for the Cordis Cardiology Division of Johnson & Johnson, a cardiology concern dedicated to the treatment of coronary artery disease. Mr. Spencer received an M.B.A. from Columbia Business School in 2000, a J.D. from the University of Florida in 1997, and a B.A. in Political Science from Columbia University in 1994.
      Scott Bromley. Mr. Bromley joined Bioheart in December 1999 and serves in a full-time capacity as our Vice President of Public Relations. From 1986 until 1998, Mr. Bromley was employed in the sales and marketing department at World Medical. In May 1986, Mr. Bromley co-founded Bromley Printing, Inc., a private printing and communications firm.
      Catherine Sulawske-Guck. Since January 2007, Ms. Sulawske-Guck has served as our Vice President of Administration and Human Resources. Ms. Sulawske-Guck joined Bioheart in the full-time capacity as Director of Administration and Human Resources in January 2004 after having served us in a consulting capacity since December 2001. Prior to joining Bioheart, from May 1989 until November 2001, Ms. Sulawske-Guck served as Director of Operations and Customer Service for World Medical.
Board of Directors
      Samuel S. Ahn, M.D., MBA. Dr. Ahn has served as a member of our Board of Directors since January 2001. Since April 2006, Dr. Ahn has served as the President of University Vascular Associates, a medical practice, and Vascular Management Associates, a healthcare management business. From July 1986 to April 2006, Dr. Ahn served as the Professor of Surgery in the Division of Vascular Surgery at UCLA, where he was also the Director of the Endovascular Surgery Program. Dr. Ahn is a member of the board of directors of several private companies. Dr. Ahn received an M.D. from Southwestern Medical School in Dallas in 1978 and a B.A. in biology from the University of Texas in 1974. He also received an M.B.A. from the UCLA Anderson School of Management in August 2004. Dr. Ahn serves on five vascular journal editorial boards, and has published over 125 peer-reviewed manuscripts, 50 book chapters, and five textbooks, including one of the first textbooks on endovascular surgery. During the past 15 years, he has provided consulting services to over 40 biomedical companies, both new and established, and has authored over 15 patents.
      Bruce C. Carson. Mr. Carson has served as a member of our Board of Directors since January 2001. Since May 2001, Mr. Carson has served as the Vice President of Sales of FinishMaster, Inc., a privately held company specializing in the distribution of paints and products to the automotive and industrial refinishing industries. From 1987 until May 2001, Mr. Carson was President of Badger Paint Plus, Inc., a privately held distributor of paints and products, until Badger Paint Plus’ merger with FinnishMaster, Inc. Mr. Carson is co-owner of the Southern Minnesota Express Hockey Club, a member of the North American Hockey League. Mr. Carson is also the founder and President of the Athletic Performance Academy in Eden Prairie, Minnesota, a privately held athletic training facility that has specialized in sports specific training for elite athletes since August 2004.
      David J. Gury. Mr. Gury has served as a member of our Board of Directors since July 2005. Since June 2004, Mr. Gury has served as the principal of Gury Consulting, LLC in Boca Raton, Florida. In May 1984, Mr. Gury joined Nabi Biopharmaceuticals, a publicly traded biopharmaceutical company that primarily develops products for hepatitis and transplant, gram-positive bacterial infections and nicotine addiction, as President and Chief Operating Officer. He was elected Chairman of the Board, Chief Executive Officer and President in April 1992 and served in such positions until his retirement in May 2004. Prior to joining Nabi Biopharmaceuticals, Mr. Gury was employed in various administrative and executive positions with Alpha Therapeutics Corporation, a spin off of Abbott Laboratories. Since December 2003, Mr. Gury has been a member of the board of directors of Oragenics, Inc., a publicly traded emerging biotechnology company, and was elected as Chairman in December 2004. In April 2005, Mr. Gury was appointed by Florida’s Governor Jeb Bush to serve as a Director on the Scripps Florida Funding Corporation Board. Mr. Gury received an

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M.B.A. from the University of Chicago in 1962 specializing in accounting and finance and an A.B. in economics from Kenyon College, Gambier, Ohio, in 1960. Mr. Gury is Chairman of the Florida Research Consortium and past Chairman and a member of BioFlorida, Florida’s independent statewide bioscience organization.
      Peggy A. Farley. Ms. Farley has served as a member of our Board of Directors since January 2007. Ms. Farley was appointed to our Board as a representative of Ascent Medical Technology Funds. Since January 1998, Ms. Farley has served as a managing director of the general partner and co-founder of the Ascent Medical Technology Funds. She is also the President and Chief Executive Officer of Ascent Capital Management, Inc. From 1984 until 1997, Ms. Farley was Chief Executive Officer of a set of firms that she developed as the locus for investment in the United States for non-US investors, engaging in venture capital investments, identifying and conducting acquisition transactions in the United States and South Asia as well as directing the management of private and corporate assets. From 1978 to 1984, she was with Morgan Stanley & Co. Incorporated, in the International Group of the Corporate Finance Division. Prior to joining Morgan Stanley, Ms. Farley served as consultant to U.S. corporations, including Avon, Ingersoll-Rand, Citibank, and Morgan Stanley. Her career in business began in the mid-1970s in Citibank’s Athens-based Middle East and North Africa Regional Office. She received an M.A. from Columbia University in 1972 and an A.B. from Barnard College in 1970.
      William P. Murphy, Jr., M.D. Dr. Murphy has served as a member of our Board of Directors since June 2003. Dr. Murphy founded Small Parts, Inc., a supplier of high quality mechanical components for design engineers, and served as its Chairman and Chief Executive Officer from August 1999 until his retirement in April 2005. Small Parts, Inc. was acquired by Amazon.com, Inc. in March 2005. From October 1999 until October 2004, Dr. Murphy served as the Chairman and Chief Executive Officer of Hyperion, Inc., a medical diagnosis company which had an involuntary bankruptcy filed against it in December 2003. Dr. Murphy is the founder of Cordis Corporation (now Cordis Johnson & Johnson) which he led as President, Chairman and Chief Executive Officer at various times during his 28 years at Cordis until his retirement in October 1985. Cordis Johnson & Johnson is a leading firm in cardiovascular instrumentation. Dr. Murphy received an M.D. in 1947 from the University of Illinois and a B.S in pre-medicine from Harvard College in 1946. He also studied physiologic instrumentation at Massachusetts Institute of Technology, or MIT. After a two year rotating internship at St. Francis Hospital in Honolulu, he become a Research Fellow in Medicine at the Peter Bent Brigham Hospital in Boston where he was the dialysis engineer on the first clinical dialysis team in the United States. He continued as an Instructor in Medicine and then a research Associate in Medicine at Harvard Medical School. Dr. Murphy is the author of numerous papers and owns 17 patents. He is the recipient of a number of honors, including the prestigious Lemelson-MIT Lifetime Achievement Award, the MIT Corporate Leadership Award, the Distinguished Service Award from North American Society of Pacing and Electrophysiology, and the Jay Malina Award from the Beacon Council of Miami, Florida.
      Richard T. Spencer, III. Mr. Spencer has served as a member of our Board of Directors since December 2001. From April 1982 until July 1987, Mr. Spencer was President of the Marketing Division of Cordis Corporation (now Cordis Johnson & Johnson) and a member of its executive committee and a Vice President of Cordis Dow Corporation, a joint venture of the Dow Chemical Company and Cordis to manufacture hollow fiber dialysers and machinery for dialysis. Mr. Spencer was Chief Operating Officer and held other executive positions with World Medical from 1993 to January 1999. Mr. Spencer received a B.A. in Economics in 1959 from the University of Michigan. He has studied business theory, case studies and financial management while attending executive programs at the Stanford University School of Business, the University of Pennsylvania’s Wharton School of Business and the Clemson University School of Business. Between his University of Michigan studies and embarking on a career in healthcare, Mr. Spencer served in Europe with the U.S. Army Counter Intelligence Corps as a military intelligence analyst with top secret security clearance. Mr. Spencer is also the founder and a member of the board of directors of Viacor, Inc., a private company that is developing percutaneous repair of heart mitral valves.
      Mike Tomas. Mr. Tomas has served as a member of our Board of Directors since April 2003. Mr. Tomas was appointed to our Board as a representative of The Astri Group. Since January 2001, Mr. Tomas has served as President of The Astri Group, an early-stage private equity investment company

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providing capital, business development and strategic marketing support to emerging private companies. Prior to this, Mr. Tomas was President of Apex Capital from June 2000 until January 2001, when the private equity investment company was acquired by The Astri Group. From 1984 until June 2000, Mr. Tomas was Chief Marketing Officer at Avantel-MCI, MCI Worldcom’s joint venture with Grupo Financiero Banamex. Mr. Tomas is also a member of the board of directors of several private companies. Mr. Tomas received an M.B.A. from the University of Miami in 2000 and a B.A. in Industrial Organizational Psychology from Florida International University in 1990.
      Linda Tufts. Ms. Tufts has served as a member of our Board of Directors since October 2004. Ms. Tufts was appointed to our Board as a representative of Tyco International, or Tyco. Since 1989, Ms. Tufts has served as a Vice President and Partner of Fletcher Spaght, Inc. and leads its Healthcare/ Life Sciences Practice Group. Ms. Tufts is also a General Partner of Fletcher Spaght Ventures, a venture capital fund investing in emerging growth high technology and healthcare companies. Fletcher Spaght has been engaged by Tyco to manage certain of Tyco’s investments, including Tyco’s investment in Bioheart. Prior to joining Fletcher Spaght in 1989, Ms. Tufts was affiliated with the Sony Corporation of America as an internal consultant. From 1982 until 1988, Ms. Tufts was a manager with Bain & Company, a leading worldwide strategy consultancy. At Bain, she managed assignments in healthcare and service industries and was also a manager of Travenol Management Services, a Bain-Baxter joint program which provided consulting services to hospitals and other health providers. Before joining Bain in 1982, Ms. Tufts was a Consultant with Strategic Planning Associates, now Mercer Management Consulting. Ms. Tufts is also a member of the board of directors for several private companies. Ms Tufts received an S.M. in Management from the Sloan School of MIT in 1978 as well as an S.B. in Electrical Engineering and Computer Science and an S.B. in Humanities and Science from MIT in 1975.
Information Regarding the Board of Directors and Corporate Governance
Director Independence
      Our Board of Directors has affirmatively determined that Ms. Farley, Mr. Gury, Dr. Murphy, Mr. Tomas and Ms. Tufts meet the definition of “independent director” under Rule 4200(a)(15) of the National Association of Securities Dealers’ listing standards.
Family Relationships
      Mr. Spencer, III, a member of our Board of Directors, is the father of Mr. Spencer, IV, our Vice President of Clinical Affairs and Physician Relations.
      Mr. Leonhardt, our Chairman and Chief Executive Officer, is the cousin of Mr. Bromley, our Vice President of Public Relations, and the brother-in -law of Ms. Sulawske-Guck, our Vice President of Administration and Human Resources.
      Other than as set forth above, there are no family relationships among our officers and directors.
Director Appointment Rights
      Pursuant to a Stockholder Agreement, dated February 5, 2001, among us, Tyco Sigma Limited and Mr. Leonhardt, Mr. Leonhardt agreed that, for as long as he owns at least one-third of the outstanding shares of our common stock, there would either be a director designated by Tyco on the Board of Directors or that he would use commercially reasonable efforts to nominate at least one director reasonably acceptable to Tyco. Ms. Tufts is Tyco’s current designee to our Board of Directors. Tyco’s director designation rights will terminate upon the closing of this offering.
      Pursuant to a Stockholder Agreement, dated March 31, 2003, among us, The Astri Group, LLC and Mr. Leonhardt, Mr. Leonhardt agreed that, for a period of three years from the date of the agreement, he would vote all shares owned by him and all other shares that he has the right to vote pursuant to proxies executed in his favor to elect a director designated by The Astri Group. Mr. Tomas was designated to our Board of Directors pursuant to this agreement.

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      Pursuant to a Stockholder Agreement, dated August 31, 2006, among us, Ascent Medical Technology Fund II and Mr. Leonhardt, Mr. Leonhardt agreed that, for a period of three years from the first annual meeting of shareholders following the date Ascent acquires an aggregate of 631,579 shares of our common stock in accordance with the terms of the Subscription Agreement between Ascent and us, he would vote all shares owned by him and all other shares that he has the right to vote pursuant to proxies executed in his favor to elect a director designated by Ascent. In January 2007, Ms. Farley was appointed to the Board of Directors as Ascent’s designee. Ascent’s director designation rights will terminate upon the closing of this offering.
Board Committees
      The Board has three committees: the Audit Committee, the Compensation Committee and the Governance & Nominating Committee.
      The Board of Directors has adopted a written charter for each of the Audit Committee, the Compensation Committee and the Governance & Nominating Committee. The full text of these Committee charters are available on our website located at www.bioheartinc.com
      The following table describes the current members of each of the Board Committees:
                         
            Governance
            and
    Audit   Compensation   Nominating
             
Howard J. Leonhardt
                       
Samuel S. Ahn, M.D., MBA
                    X  
Bruce Carson
            X          
David J. Gury*
    X (1)                
Peggy A. Farley*
            X       X (1)
William P. Murphy, Jr., M.D.*
    X                  
Richard T. Spencer III
    X                  
Mike Tomas*
            X (1)     X  
Linda Tufts*
    X                  
 
  * Independent Directors
(1)  Currently serves as Chairperson of the Committee.
Audit Committee
      The Audit Committee’s primary function is to assist the Board in fulfilling its oversight responsibilities relating to (i) the quality and integrity of our financial statements and corporate accounting practices, (ii) our compliance with legal and regulatory requirements, (iii) the independent auditor’s qualifications and independence and (iv) the performance of our internal audit function and independent auditors. The specific responsibilities in carrying out the Audit Committee’s oversight role are delineated in the Audit Committee Charter.
      The Board of Directors has determined that each member of the Audit Committee, other than Mr. Spencer, III, is independent pursuant to Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The SEC Rules and NASDAQ Marketplace Rules require us to have one independent Audit Committee member upon initial listing of our securities, a majority of independent Audit Committee members within 90 days of the initial listing of our securities and all independent Audit Committee members within one year of the initial listing of our securities. We intend to comply with these independence requirements within the time periods specified.

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Compensation Committee
      The Compensation Committee’s primary objectives include making recommendations to the Board of Directors regarding the compensation of our directors, executive officers, non-officer employees and consultants and administering our stock option plans, including our Officers and Employees Stock Option Plan and our Directors and Consultants Stock Option Plan.
      The Board of Directors has determined that each member of the Compensation Committee, other than Mr. Carson, is independent pursuant to Rule 4200(a)(15) of the NASDAQ Marketplace Rules. The NASDAQ Marketplace Rules require us to have one independent Compensation Committee member upon initial listing of our securities, a majority of independent Audit Committee members within 90 days of the initial listing of our securities and all independent Compensation Committee members within one year of the initial listing of our securities. We intend to comply with these independence requirements within the time periods specified.
Governance & Nominating Committee
      The primary objectives of the Governance & Nominating Committee include: (i) assisting the Board by identifying individuals qualified to become Board members and recommending to the Board the director nominees for the next Annual Meeting of Shareholders; (ii) overseeing the governance of the corporation including recommending Corporate Governance Guidelines to the Board of Directors; (iii) leading the Board in its annual review of the Board’s performance; and (iv) recommending to the Board director nominees for each Board Committee.
      The Board of Directors has determined that each member of the Governance & Nominating Committee, other than Dr. Ahn, is independent pursuant to Rule 4200(a)(15) of the NASDAQ Marketplace Rules.
      The Governance & Nominating Committee was established in January 2007.
      The Governance & Nominating Committee’s Charter provides that shareholder nominees to the Board of Directors will be evaluated using the same guidelines and procedures used in evaluating nominees nominated by other persons. In evaluating director nominees, the Governance & Nominating Committee will consider the following factors:
  •  the appropriate size and the diversity of our Board;
 
  •  our needs with respect to the particular talents and experience of our directors;
 
  •  the knowledge, skills and experience of nominees, including experience in technology, business, finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board;
 
  •  familiarity with national and international business matters;
 
  •  experience in political affairs;
 
  •  experience with accounting rules and practices;
 
  •  whether such person qualifies as an “audit committee financial expert” pursuant to the SEC Rules;
 
  •  appreciation of the relationship of our business to the changing needs of society; and
 
  •  the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.
      In identifying director nominees, the Governance & Nominating Committee will first evaluate the current members of the Board of Directors willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service shall be considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. Generally, the Governance & Nominating Committee strives to assemble a Board of Directors that brings to us a variety of perspectives and skills derived from business and

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professional experience. In doing so, the Governance & Nominating Committee will also consider candidates with appropriate non-business backgrounds. If any member of the Board does not wish to continue in service or if the Governance & Nominating Committee or the Board decides not to re-nominate a member for re-election, the Governance & Nominating Committee will identify the desired skills and experience of a new nominee in light of the criteria above. Other than the foregoing, there are no specific, minimum qualifications that the Governance & Nominating Committee believes that a Committee-recommended nominee to the Board of Directors must possess, although the Governance & Nominating Committee may also consider such other factors as it may deem are in our and our shareholders’ best interests.
      In its deliberations, the Governance & Nominating Committee is aware that our Board must, within one year of the date of our initial listing on the NASDAQ Global Market, be comprised of a majority of “independent” directors, as such term is defined by the NASDAQ Marketplace Rules. The Governance & Nominating Committee also believes it appropriate for certain key members of our management to participate as members of the Board.
      The Governance & Nominating Committee and Board of Directors are polled for suggestions as to individuals meeting the criteria of the Governance & Nominating Committee. Research may also be performed to identify qualified individuals.
Communications with the Board of Directors
      In January 2007, the Board of Directors adopted a Shareholder Communication Policy for shareholders wishing to communicate with various Board committees and individual members of the Board of Directors. Shareholders wishing to communicate with the Board of Directors, the Governance & Nominating Committee and specified individual members of the Board of Directors can send communications to the Board of Directors and, if applicable, to the Governance & Nominating Committee or to specified individual directors in writing c/o Catherine Sulawske-Guck, Bioheart, Inc., 13794 NW 4th Street, Suite 212, Sunrise, FL 33325. We do not screen such mail and all such letters will be forwarded to the intended recipient.
Legal Proceedings
      There are no pending, material legal proceedings to which any director, officer or affiliate of Bioheart, any owner of record or beneficially of more than five percent of any class of voting securities of Bioheart, or any associate of any such director, officer, affiliate of Bioheart, or security holder is a party adverse to Bioheart or any of its subsidiaries or has a material interest adverse to Bioheart.
Code of Business Conduct and Ethics
      We have adopted a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. We have also adopted a Code of Business Conduct and Ethics applicable to all employees, officers, directors and consultants of the Company. Copies of the Code of Ethics and the Code of Business Conduct and Ethics are available on our website at www.bioheartinc.com.
Whistleblower Policy
      In January 2007, the Board of Directors adopted Procedures for the Submission, Receipt and Handling of Concerns and Complaints Regarding Internal Controls and Auditing Matters, or a whistleblower policy. This policy outlines the process for the submission, receipt, retention and treatment of concerns and complaints received by us regarding our and our affiliates’ respective accounting, auditing and internal controls practices and procedures, including the process for the confidential, anonymous submission by our directors, officers and employees of concerns regarding questionable accounting or auditing matters.

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Compensation Committee Interlocks and Insider Participation
      No member of the Compensation Committee has been an officer or employee of ours at any time. Also, none of our executive officers serves, nor served in 2006, on the Board of Directors or compensation committee of a company with an executive officer serving on our Board of Directors or Compensation Committee.

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COMPENSATION DISCUSSION & ANALYSIS
      The primary goals of our Compensation Committee with respect to executive compensation are to attract and retain the most talented and dedicated executives possible, to assure that our executives are compensated effectively in a manner consistent with our strategy and competitive practice and to align executives’ incentives with shareholder value creation. To achieve these goals, our Compensation Committee, with management’s input, recommends executive compensation packages to our Board of Directors that are generally based on a mix of salary, discretionary bonus and equity awards. Although our Compensation Committee has not adopted any formal guidelines for allocating total compensation between equity compensation and cash compensation, we believe it is important for these executives to have equity ownership in our company to provide them with long-term incentives to build value for our shareholders. Accordingly, we generally award our principal executive officers, other than our Chairman and Chief Executive Officer, initial option grants upon the commencement of their employment with us and ongoing option grants as circumstances warrant. Our Chairman and Chief Executive Officer owns a significant percentage of our outstanding common stock and, accordingly, we believe his interests are strongly aligned with the interests of our shareholders. We intend to implement and maintain compensation plans that tie a substantial portion of our executives’ overall compensation to achievement of corporate goals and value-creating milestones. We believe that performance and equity-based compensation are important components of the total executive compensation package for maximizing shareholder value while, at the same time, attracting, motivating and retaining high-quality executives.
      We have not retained a compensation consultant to review our policies and procedures with respect to executive compensation. We conduct an annual review of the aggregate level of our executive compensation, as well as the mix of elements used to compensate our executive officers. The Compensation Committee develops our compensation plans by utilizing publicly available compensation data for national and regional companies in the biopharmaceutical industry and/or the South Florida market. We believe that the practices of this group of companies provide us with appropriate compensation benchmarks, because these companies have similar organizational structures and tend to compete with us for executives and other employees. For benchmarking executive compensation, we typically review the compensation data we have collected from the complete group of companies, as well as a subset of the data from those companies that have a similar number of employees as our company.
      Our Compensation Committee may retain the services of third-party executive compensation specialists from time to time, as it sees fit, in connection with the establishment of cash and equity compensation and related policies.
Elements of Compensation
      Our Compensation Committee evaluates individual executive performance with a goal of setting compensation at levels the Compensation Committee believes are comparable with executives in other companies of similar size and stage of development operating in the biopharmaceutical industry and/or the South Florida market. The compensation received by our executive officers consists of the following elements:
      Base Salary. Base salaries for our executives are established based on the scope of their responsibilities and individual experience, taking into account competitive market compensation paid by other companies for similar positions within our industry and geographic market. Base salaries are reviewed at least annually, and adjusted from time to time to realign salaries with market levels after taking into account individual responsibilities, performance and experience.
      Discretionary Annual Bonus. In addition to base salaries, our Compensation Committee has the authority to award discretionary annual bonuses to our executive officers. In 2006, the Compensation Committee awarded discretionary cash bonuses of $1,000 to each of our executive officers. The annual incentive bonuses are intended to compensate officers for achieving corporate goals and for achieving what the Compensation Committee believes to be value-creating milestones. Our annual bonus is paid in cash in an amount reviewed and approved by our Compensation Committee. Each executive officer is eligible for a discretionary annual bonus up to an amount equal to 50% of such executive officer’s salary.

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      The Compensation Committee expects to adopt a more formal process for discretionary annual bonuses in 2007. The Compensation Committee intends to utilize annual incentive bonuses to compensate officers for achieving financial and operational goals and for achieving individual annual performance objectives. These objectives will vary depending on the individual executive, but will relate generally to strategic factors such as establishment and maintenance of key strategic relationships, development of our product candidates, identification and advancement of additional product candidates, and to financial factors such as improving our results of operations and increasing the price per share of our common stock.
      Long-Term Incentive Program. At present, our long-term compensation consists primarily of stock options. Our option grants are designed to align management’s performance objectives with the interests of our shareholders. Our Compensation Committee grants options to key executives in order to enable them to participate in the long-term appreciation of our shareholder value, while personally feeling the impact of any business setbacks, whether Company-specific or industry based. We have not adopted stock ownership guidelines, and, other than for Mr. Leonhardt, our equity benefit plans have provided the principal method for our executive officers to acquire equity or equity-linked interests in our company.
      Since inception, we have granted equity awards to our executive officers through our Officers and Employees Stock Option Plan, which was adopted by our Board of Directors and shareholders to permit the grant of stock options to our officers and employees. The initial option grant made to each executive upon joining us is primarily based on competitive conditions applicable to the executive’s specific position. In addition, the Compensation Committee considers the number of options owned by other executives in comparable positions within our company and has established stock option targets for specified categories of executives. We believe this strategy is consistent with the approach of other development stage companies in our industry and, in our Compensation Committee’s view, is appropriate for aligning the interests of our executives with those of our shareholders over the long term.
      We do not have any program, plan or obligation that requires us to grant equity compensation on specified dates and, because we have not been a public company, we have not made equity grants in connection with the release or withholding of material non-public information. Authority to make equity grants to executive officers rests with our Compensation Committee, although our Compensation Committee does consider the recommendations of our Chairman and Chief Executive Officer for officers other than himself.
      In 2006, certain named executive officers were awarded stock options under our Officers and Employees Stock Option Plan in the amounts indicated in the section below entitled “Grants of Plan Based Awards.” These equity awards included the grant of a stock option and warrant for an aggregate of 762,500 shares of common stock to Mr. Bromley, our Vice President of Public Relations, pursuant to the terms of a letter agreement we entered into with Mr. Bromley in August 2006, or the Bromley Letter Agreement. Mr. Bromley was also issued 77,143 shares of our common stock pursuant to the Bromley Letter Agreement. Prior to entering the Bromley Letter Agreement, certain disputes had arisen between Mr. Bromley and us as to the number of stock options he had been awarded since he commenced his employment with us in December 1999. The shares, options and warrants granted to Mr. Bromley pursuant to the Bromley Letter Agreement were issued in settlement of any unpaid salary or other compensation for services provided to us by Mr. Bromley from December 1999 through August 2006 and in consideration for Mr. Bromley’s release of any claims he may have against us related to or arising from his employment or any compensation owed to him.
      Other Compensation. We maintain broad-based benefits that are provided to full-time employees, including health insurance, life and disability insurance, dental insurance and vision insurance. In 2006, we agreed to reimburse Mr. Bromley for federal and state income taxes he pays in connection with our issuance to him of 77,143 shares of our common stock pursuant to the terms of the Bromley Letter Agreement. The perquisite was negotiated as part of our settlement with Mr. Bromley and we do not anticipate providing similar perquisites to him or any of our executive officers on a going-forward basis.

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Compensation Committee Report
      The Compensation Committee has reviewed and discussed the Compensation Discussion & Analysis set forth above with management and, based upon such review and discussions, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion & Analysis be included in this prospectus.
  THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
  Mike Tomas
  Bruce Carson
  Peggy A. Farley
Summary Compensation Table
      The following table sets forth, for the fiscal year ended December 31, 2006, the aggregate compensation awarded to, earned by or paid to our Chief Executive Officer, both persons who served as our Chief Financial Officer during 2006, and our two other most highly compensated executive officers who were serving at December 31, 2006, or collectively, the Named Executive Officers.
                                                           
                Long-Term        
            Compensation Awards        
        Annual Compensation            
            Stock   Option   All Other    
Name and Principal Position   Year   Salary   Bonus   Awards   Awards(1)   Compensation   Total
                             
Howard J. Leonhardt
    2006     $ 151,000     $ 1,000                       $ 152,000  
  Chief Executive Officer                                                        
William H. Kline (2)
    2006     $ 51,000     $ 1,000           $ 97,500 (3)         $ 149,500  
  Chief Financial Officer                                                        
Brian Neill (4)
    2006     $ 45,000                               $ 45,000  
  Former Chief Financial Officer                                                        
Richard T. Spencer, IV
    2006     $ 126,000     $ 1,000           $ 19,500 (5)         $ 146,500  
  Vice President of Clinical Affairs and Physician Relations                                                        
Scott Bromley
    2006     $ 131,000     $ 1,000     $ 366,429 (6)   $ 2,928,000 (7)   $ 153,000 (8)   $ 3,579,429  
  Vice President of Public Relations                                                        
 
(1)  Amount reflects the expensed fair value of stock options granted in 2006, calculated in accordance with SFAS No. 123(R). See Note 5 of the “Notes to Consolidated Financial Statements (unaudited) — Stock Options” for the nine month period ending September 30, 2006 for a discussion of assumptions made in determining the grant date fair value and compensation expense of our stock options.
 
(2)  Mr. Kline commenced his employment with us in August 2006.
 
(3)  Represents the expensed fair market value of options to purchase 250,000 shares of our common stock granted August 7, 2006, with an exercise price of $3.50 per share. The options vest in four equal installments on each of August 7, 2007, August 7, 2008, August 7, 2009 and August 7, 2010.
 
(4)  Mr. Neill resigned effective April 30, 2006.
 
(5)  Represents the expensed fair market value of options to purchase 25,000 shares of our common stock granted April 19, 2006, with an exercise price of $3.50 per share. The options vest in four equal installments on each of April 19, 2007, April 19, 2008, April 19, 2009 and April 19, 2010.
 
(6)  Relates to a grant of 77,143 shares to Mr. Bromley in accordance with the terms of the Bromley Letter Agreement.
 
(7)  Represents the expensed fair market value of (i) options to purchase 457,500 shares of our common stock granted August 24, 2006, with an exercise price of $3.50 per share and (ii) warrants to purchase 305,000 shares of our common stock granted August 24, 2006, with an exercise price of $3.50 per share.

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(8)  Relates to amounts to be paid to Mr. Bromley to reimburse him for federal and state income taxes due in connection with his receipt of 77,143 shares of our common stock in accordance with the Bromley Letter Agreement.
Bromley Letter Agreement
      On August 24, 2006, we entered into the Bromley Letter Agreement with Mr. Bromley regarding his employment with us. Pursuant to this agreement:
  •  we issued to Mr. Bromley 77,143 shares of our common stock as a full and complete settlement for any unpaid salary or other compensation owed to Mr. Bromley for services he rendered to us prior to the date of the Bromley Letter Agreement and agreed to reimburse Mr. Bromley for federal and state income taxes he will be required to pay in connection with his receipt of such shares.
 
  •  we agreed to pay Mr. Bromley an annual base salary of $130,000 for his continued provision of services as our Vice President of Public Relations.
 
  •  we granted to Mr. Bromley a fully-vested incentive stock option to purchase 457,500 shares of our common stock at an exercise price of $3.50 per share.
 
  •  we granted to Mr. Bromley a fully-vested warrant to purchase 305,000 shares of our common stock at an exercise price of $3.50 per share.
      Mr. Bromley’s employment with us may be terminated by him or us at any time and for any reason. Other than this agreement, we do not have any employment agreements with any of our Named Executive Officers.
Grants of Plan Based Awards
      In 2006, the Compensation Committee approved option awards under our Officers and Employees Stock Option Plan to certain of our Named Executive Officers and awarded stock and warrants to Mr. Bromley. Our Compensation Committee has not established guidelines for the grant of plan-based awards for 2007. Set forth below is information regarding awards granted during 2006.
                                         
            All Other        
            Option        
        All Other   Awards:       Grant Date
        Stock Awards:   Number of   Exercise or Base   Fair Value of
        Number of   Securities   Price of Option   Stock and
        Shares of   Underlying   Awards   Option
Name   Grant Date   Stock (#)   Options (#)   ($/share)   Awards
                     
William H. Kline
    8/7/06             250,000 (1)   $ 3.50     $ 960,000  
Richard T. Spencer, IV
    4/19/06             25,000 (1)   $ 3.50     $ 96,000  
Scott Bromley
    8/24/06       77,143                     $ 366,429  
      8/24/06               762,500 (2)   $ 3.50     $ 2,928,000  
 
(1)  The options vest in four equal installments on each of August 7, 2007, August 7, 2008, August 7, 2009 and August 7, 2010.
 
(2)  Includes (i) options to purchase 457,500 shares of our common stock granted August 24, 2006, with an exercise price of $3.50 per share and (ii) warrants to purchase 305,000 shares of our common stock granted August 24, 2006, with an exercise price of $3.50 per share.
Our Stock Option Plans
      In December 1999, our Board of Directors and shareholders adopted our Officers and Employees Stock Option Plan, or the Employee Plan, and the Directors and Consultants Stock Option Plan, or the Directors Plan. The Employees Plan and the Directors Plan are collectively referred to herein as the Plans. The Plans are administered by the Compensation Committee. The objectives of the Plans include attracting and retaining key personnel by encouraging stock ownership in the Company by such persons.

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Options Available for Issuance
      There are an aggregate of 5,000,000 shares of common stock authorized for options grants under the Employee Plan and Director Plan. As of January 31, 2007, an aggregate of 1,796,873 shares of common stock were available for grant under the Plans. The options to be delivered under the Plans will be made available, at the discretion of the Compensation Committee, from authorized but unissued shares or outstanding options that expire or are cancelled. If shares covered by an option cease to be issuable for any reason such number of shares will no longer count against the shares authorized under the Plans and may again be granted under the Plans.
Material Terms of the Plans
      The Employee Plan provides for the grant of options to employees and officers, and the Director Plan provides for the grant of options to directors, consultants and certain other non-employees. Only the Employee Plan permits the granting of “incentive stock options” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time, or the Code, and both Plans permit grants of “non-qualified” options (options that are not incentive stock options). As of the date of this prospectus, all options granted to employees under the Plans are incentive stock options and all options granted to persons other than employees are “non-qualified” options.
      The Compensation Committee determines those individuals who shall receive options, the time period during which the options may be partially or fully exercised, the number of shares that may be purchased under each option and the option price, as well as other terms in their discretion. However, in no event shall an option be exercisable after the expiration of 10 years from the date of the grant of the option. In addition, no person is entitled to be granted options to purchase more than an aggregate of 600,000 shares of our common stock pursuant to the Plans. Unless otherwise provided in any option agreement, each outstanding option shall become fully exercisable in the event of a “change in control” (as such term is defined in the Plans). In connection with a liquidation of the company or any merger, reorganization or similar corporate transaction in which we are not the surviving corporation and the successor corporation does not assume our outstanding options, the Compensation Committee or Board of Directors may cancel any options that remain unexercised effective as of the closing of such transaction.
      Each option is evidenced by an option agreement. In granting options, the Compensation Committee takes into consideration the contribution the person has made to our success and such other factors as the Compensation Committee shall determine. The Plans provide for circumstances under which the options shall terminate.
      The option price per share of any option shall be any price determined by the Compensation Committee but shall not be less than the par value per share; provided, that in no event shall the option price per share of any incentive stock option be less than the “Fair Market Value” (as determined under the Plans) of the shares underlying such option on the date the option is granted.

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Outstanding Equity Awards at Fiscal Year End
                             
    Number of Securities        
    Underlying Unexercised        
    Options and Warrants        
        Option   Option
Name   Exercisable   Unexercisable   Exercise Price   Expiration Date
                 
Howard J. Leonhardt
    37,500           $ 3.50     12/31/11
      5,198           $ 3.50     12/31/15
William H. Kline
          250,000 (1)   $ 3.50     8/7/16
Brian Neill
                   
Richard T. Spencer, IV
    50,000       50,000     $ 3.50     10/1/14
      500       (2)   $ 3.50     12/31/15
            25,000 (3)   $ 3.50     4/19/16
Scott Bromley
    100,000           $ 0.79     12/25/09
      42,000           $ 3.50     12/18/10
      500           $ 3.50     12/31/15
      457,500           $ 3.50     8/24/16
      305,000           $ 3.50     8/24/16
 
(1)  The options vest in four equal installments on each of August 7, 2007, August 7, 2008, August 7, 2009 and August 7, 2010.
 
(2)  The options vest in two equal installments on each of October 1, 2007 and October 1, 2008.
 
(3)  The options vest in four equal installments on each of April 19, 2007, April 19, 2008, April 19, 2009 and April 19, 2010.
Option Exercises
      During the 2006 fiscal year, none of our Named Executive Officers exercised any options to purchase shares of our common stock.
Pension Benefits
      We do not have any plan that provides for payments or other benefits at, following, or in connection with the retirement of any of our employees.
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
      We do not have any defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
Potential Payments Upon Termination or Change-In Control
      We do not have any contract, agreement, plan or arrangement that provides for any payment to any of our Named Executive Officers at, following, or in connection with a termination of the employment of such Named Executive Officer, a change in control of the Company or a change in such Named Executive Officer’s responsibilities.

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Director Compensation
      We currently have eight non-employee directors that qualify for compensation. Our non-employee directors do not receive cash compensation for their services as directors. However, in August of each year, each non-employee director receives a grant of options to purchase 10,000 shares of our common stock provided that he or she has served as a member of our Board of Directors for at least six months and one day of the twelve month period immediately preceding the date of grant. In addition, we reimburse non-employee directors for actual out-of -pocket expenses incurred. The following table sets forth, for the fiscal year ended December 31, 2006, the aggregate compensation awarded to, earned by or paid to our non-employee directors. Ms. Farley joined the Board of Directors in January 2007 and, accordingly, did not receive any compensation for serving as a director in 2006.
                 
    Option    
Name   Awards (1)(2)(3)   Total
         
Samuel S. Ahn, M.D., MBA
  $ 36,700     $ 36,700  
Bruce Carson
  $ 36,700     $ 36,700  
David J. Gury
  $ 36,700     $ 36,700  
William P. Murphy, Jr., M.D. 
  $ 36,700     $ 36,700  
Richard T. Spencer III
  $ 36,700     $ 36,700  
Mike Tomas
  $ 36,700 (4)   $ 36,700  
Linda Tufts
  $ 36,700 (5)   $ 36,700  
 
(1)  Amount reflects the expensed fair value of stock options granted in 2006, calculated in accordance with SFAS No. 123(R). See Note 5 of the “Notes to Consolidated Financial Statements (unaudited) — Stock Options” for the nine month period ending September 30, 2006 for a discussion of assumptions made in determining the grant date fair value and compensation expense of our stock options.
 
(2)  Each person listed received options to purchase 10,000 shares of our common stock granted August 1, 2006, with an exercise price of $4.75 per share. The options vested immediately upon grant.
 
(3)  The grant date fair value of the stock options issued to directors in 2006 is equal to the expensed fair value of such stock options.
 
(4)  Options were issued in the name of the Astri Group, LLC, over which Mr. Tomas has shared voting and investment power.
 
(5)  Options were issued in the name of Tyco International. Ms. Tufts does not have voting and investment power over these securities and disclaims beneficial ownership thereof.
Limitations on Liability and Indemnification
      Our articles of incorporation require us to indemnify and limit the liability of directors to the fullest extent permitted by the Florida Business Corporation Act, or the FBCA, as it currently exists or as it may be amended in the future.
      Pursuant to the FBCA, a Florida corporation may indemnify any person who may be a party to any third party proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another entity, against liability incurred in connection with such proceeding (including any appeal thereof) if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
      In addition, in accordance with the FBCA, a Florida corporation is permitted to indemnify any person who may be a party to a derivative action if such person acted in any of the capacities set forth in the preceding paragraph, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expenses of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding (including appeals), provided that the person acted under the standards set forth in the preceding paragraph. However, no indemnification shall be made for any claim, issue, or matter for which such person is found to be liable unless, and only to the extent that, the court determines that, despite the adjudication of liability, but in view of all the circumstances

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of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper.
      Any indemnification made under the above provisions, unless pursuant to a court’s determination, may be made only after a determination that the person to be indemnified has met the standard of conduct described above. This determination is to be made by a majority vote of a quorum consisting of the disinterested directors of the board of directors, by duly selected independent legal counsel or by a majority vote of the disinterested shareholders. The board of directors also may designate a special committee of disinterested directors to make this determination. Notwithstanding the foregoing, a Florida corporation must indemnify any director, officer, employee or agent of a corporation who has been successful in the defense of any proceeding referred to above.
      Generally, pursuant to the FBCA, a director of a Florida corporation is not personally liable for monetary damages to our company or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, unless: (a) the director breached or failed to perform his duties as a director; and (b) the director’s breach of, or failure to perform, those duties constitutes (i) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his or her conduct was unlawful, (ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) an approval of an unlawful distribution, (iv) with respect to a proceeding by or in the right of the company to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the company, or willful misconduct, or (v) with respect to a proceeding by or in the right of someone other than the company or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. The term “recklessness,” as used above, means the action, or omission to act, in conscious disregard of a risk: (a) known, or so obvious that it should have been known, to the directors; and (b) known to the director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission.
      Furthermore, under the FBCA, a Florida corporation is authorized to make any other further indemnification or advancement of expenses of any of its directors, officers, employees or agents under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both for actions taken in an official capacity and for actions taken in other capacities while holding such office. However, a corporation cannot indemnify or advance expenses if a judgment or other final adjudication establishes that the actions of the director, officer, employee, or agent were material to the adjudicated cause of action and the director, officer, employee, or agent (a) violated criminal law, unless the director, officer, employee, or agent had reasonable cause to believe his or her conduct was unlawful, (b) derived an improper personal benefit from a transaction, (c) was or is a director in a circumstance where the liability for unlawful distributions applies, or (d) engaged in willful misconduct or conscious disregard for the best interests of the corporation in a proceeding by or in right of the corporation to procure a judgment in its favor.
      We maintain a liability insurance policy, pursuant to which our directors and officers may be insured against liability they incur for serving in their capacities as directors and officers of our company.
      We believe that the limitation of liability provision in our articles of incorporation and the liability insurance policy that we maintain will facilitate our ability to continue to attract and retain qualified individuals to serve as our directors and officers.
      These limitation of liability and indemnification provisions may discourage a shareholder from bringing a lawsuit against directors for breach of their fiduciary duties. The provisions may also reduce the likelihood of derivative litigation against directors and officers, even though an action, if successful, might benefit us and our shareholders. A shareholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these limitation of liability and indemnification provisions.

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SCIENTIFIC ADVISORY BOARD
      The members of our scientific advisory board, none of whom are our officers or employees, assist us with various projects and matters including, but not limited to, (i) product design evaluation and development strategies, (ii) evaluation of instructional and training materials for physicians, (iii) clinical and consultation support to centers using our products candidates and (iv) clinical trials and design of clinical protocols. We consider our advisory board members to be the opinion leaders in their respective fields.
      As of January 31, 2007, our Scientific Advisory Board consisted of the following members:
         
Name   Specialty   Position
         
Samuel S. Ahn, M.D., MBA   Endovascular specialist   President
University Vascular Associates
Vascular Management Associates
Los Angeles, California
Barry J. Byrne, M.D., Ph.D.
  Preclinical research   Professor and Associate Chair of Pediatrics,
Molecular Genetics & Microbiology
University of Florida
Gainesville, Florida
Juan C. Chachques, M.D., Ph.D.
  Preclinical research   Director of Surgical and Clinical Research
Broussais and Pompidou Hospitals
Paris, France
Ray Chiu, M.D., Ph.D.
  Preclinical research   Professor of Surgery
McGill University
Quebec, Canada
Nicolas Chronos, M.D., MRCP, FACC, FESC, FAHA
  Interventional cardiology   Chief Medical and Scientific Officer
American Cardiovascular Research Institute
Atlanta, Georgia
Eric Crumpler, Ph.D.
  Preclinical research   Assistant Professor of Bioreactors, Bioengineering, and Biomaterials
Florida International University
Miami, Florida
Edward Diethrich, M.D.
  Cardiac surgery and endovascular specialist   Director
Arizona Heart Hospital
Phoenix, Arizona
Stephen G. Ellis, M.D.
  Interventional cardiology   Director
Sones Cardiac Catheterization Laboratory
Cleveland Clinic Foundation
Cleveland, Ohio
Jorge Genovese, M.D.
  Preclinical research   Research Professor
University of Pittsburgh Medical Center
Pittsburgh, Pennsylvania
Miranda Grounds, Ph.D.
  Preclinical research   Professor, School of Anatomy
and Human Biology
The University of Western Australia
Crawley, Western Australia
Richard Ham, Ph.D.
  Preclinical research and cell- culturing   Professor Emeritus of Molecular, Cellular
and Developmental Biology
University of Colorado
Boulder, Colorado
Richard Heuser, M.D.
  Interventional cardiology   Director of Cardiology
Phoenix Heart Institute
Phoenix, Arizona

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Name   Specialty   Position
         
Race L. Kao, Ph.D.
  Preclinical research and cell- culturing   Professor and Carroll H. Long Chair of Excellence
for Surgical Research
James H. Ouillen College of Medicine,
East Tennessee State University
Johnson City, Tennessee
Barry T. Katzen, M.D.
  Interventionist and endovascular specialist   Medical Director of the Miami Cardiac
and Vascular Institute
and Clinical Professor of Radiology University of Miami School of Medicine
Miami, Florida
Wendell King
  Preclinical research   Chairman
Gateway Alliance II (consulting firm)
St. Paul, Minnesota
Inventor of biological pacemaker
George J. Magovern, M.D.
  Cardiac surgery   Retired Chairman,
Department of Cardiothoracic Surgery
Allegheny Hospital
Pittsburgh, Pennsylvania
Keith March, M.D., Ph.D.
  Preclinical research   Director
Indiana University Center for Vascular Biology
Indianapolis, Indiana
James Margolis, M.D.
  Interventional cardiology   Director of Cardiovascular Research and Education
Miami International Cardiology Consultants
Miami, Florida
Dr. P.A. Merrifield
  Preclinical research   Associate Professor, Department of
Anatomy & Cell Biology
University of Western Ontario
Ontario, Canada
Dr. Christopher M. O’Connor
  Congestive heart failure and ischemic heart disease   Director, Duke Heart Failure Program
Associate Director, Duke Clinical Research Institute
Duke University
Durham, North Carolina
Harold Ott, M.D., Ph.D.
  Preclinical research   Research Associate, Center for Cardiovascular Repair
University of Minnesota
Minneapolis, Minnesota
Marc Penn, M.D., Ph.D.
  Preclinical Research   Medical Director, Coronary Intensive Care Unit
Director, Experimental Animal Laboratory
and Associated Director
The Cleveland Clinic Foundation
Cleveland, Ohio
Nicholas S. Peters, M.D., Ph.D.
  Electrophysiology   Professor of Cardiology,
Head of Cardiac Electrophysiology
St. Mary’s Hospital and Imperial College
University of London, UK
Director of Electrophysiology Research
American Cardiovascular Research Institute
Atlanta, Georgia
Philip Poole-Wilson, M.D., Ph.D.
  Heart failure specialist   Professor of Cardiology,
National Heart and Lung Institute
Faculty of Medicine,
Imperial College London,
Royal Brompton and Harefield Hospitals
London, England
Felipe Prósper, Ph.D.
  Preclinical Research   Associate Professor of Medicine
Universidad de Navarra
Attending Physician, Hematology
and Cell Therapy Area
Navarra, Spain

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Name   Specialty   Position
         
Dr. Sergio Pinski
  Cardiology and electrophysiology   Head, Section of Cardiac Pacing
and Electrophysiology
Department of Cardiology
Cleveland Clinic Florida
Weston, Florida
Stephen Ramee, M.D.
  Interventional Cardiology   Director,
Cardiac Catheterization Laboratory
Ochsner Clinic Foundation
New Orleans, Louisiana
Camillo Ricordi, M.D.
  Preclinical research and cell- culturing   Stacy Joy Goodman Professor of
Surgery and Medicine
Chief of the Division of Cellular Transplantation
Scientific Director and Chief Academic Officer
of the Diabetes Research Institute
University of Miami
Miami, Florida
Robert S. Schwartz, M.D.
  Preclinical research   Research Cardiologist
Minneapolis Heart Institute
Minneapolis, Minnesota
Warren Sherman, M.D., FACC
  Interventional cardiology   Director of Medical Education and Associate
Director, Cardiac Catheterization Laboratories
The Zena and Michael A. Wiener
Cardiovascular Institute
Mount Sinai Hospital
New York, New York
Doris A. Taylor, Ph.D.
  Preclinical research and cell- culturing   Medtronic Bakken Chair and
Director of the Center for Cardiovascular Repair
University of Minnesota
Minneapolis, Minnesota
Syde A. Taheri, M.D.
  Preclinical Research   Cardiovascular and Thoracic Surgeon
Millard Fillmore Hospital
Buffalo, New York
Robert Van Tassel, M.D.
  Interventional cardiology   Senior Consultant in Cardiology
Minneapolis Heart Institute
Minneapolis, Minnesota
Stuart Williams, Ph.D.
  Preclinical Research   Professor of Biomedical Engineering, Surgery,
Physiology, and Material Science Engineering
University of Arizona Health Sciences Center
Tucson, Arizona
Zachariah P. Zachariah, M.D.
  Interventional cardiology   Cardiologist
Holy Cross Hospital
Ft. Lauderdale, Florida
      The Scientific Advisory Board meets in person at least once each year and individual members of the Scientific Advisory Board regularly consult with our management and the Board of Directors upon request.
      Members of the Scientific Advisory Board generally serve three-year terms, subject to earlier termination for cause by us. As compensation for his or her services as members of the Scientific Advisory Board, each member receives a one-time grant of between 1,500 to 64,000 options to purchase shares of our common stock, which options vest in three equal annual installments. However, Dr. Sherman, the lead investigator in the MYOHEART Trial, elected not to receive any options or other securities from us. We reimburse members of the Scientific Advisory Board for reasonable expenses incurred in performing services to the Company.
      On September 18, 2002, we entered into a consulting agreement with Wendell King, a member of the Scientific Advisory Board, for a one-year term. In addition to the one-time grant of options to purchase shares of our common stock, Mr. King may receive $2,000 per month as compensation for his consulting services and, if his consulting services exceed 16 hours in a given month, an additional $125 per hour.

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      Effective August 31, 2006, we entered into a consulting agreement with March Consulting, LLC, pursuant to which Keith March, M.D. serves as a member of the Scientific Advisory Board for a one-year term. In addition to the one-time grant of options to purchase shares of our common stock, Dr. March may receive a maximum monthly compensation of $3,750 and a maximum annual compensation of $40,000.

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CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Stock Sales
      Since January 1, 2004, the following executive officers, directors and holders of more than 5% of our common stock have acquired shares of our common stock from us in the amounts, as of the dates and for the consideration set forth below:
                 
        Aggregate
        Consideration
Directors and Executive Officers   Shares   Paid(1)
         
Howard J. Leonhardt
    179,605 (2)   $ 628,617 (2)
Samuel S. Ahn, M.D., MBA
    230,000     $ 805,000 (3)
David J. Gury
    15,000     $ 52,500 (3)
William P. Murphy, Jr., M.D.
    75,000     $ 281,250 (3)
Richard T. Spencer, III
    30,001     $ 100,002 (3)
 
(1)  Per share purchase prices ranged from $3.50 per share to $4.75 per share.
 
(2)  Includes (i) 24,523 shares issued to Mr. Leonhardt in satisfaction of accrued salary and (ii) 155,082 shares issued to Mr. Leonhardt in satisfaction of advances he made on our behalf. See “Conversion of Cash Advances and Accrued Salary into Common Stock” below for more information.
 
(3)  Aggregate consideration paid in cash.
Transactions with Management
      The following is a description of transactions since January 1, 2004 to which we were or are a party, in which the amount involved exceeded or exceeds $120,000, and in which any of our directors, executive officers or holders of more than five percent of our capital stock had or will have a direct or indirect material interest.
Conversion of Cash Advances and Accrued Salary into Common Stock
      On various occasions, Mr. Leonhardt has agreed to accept shares of our common stock in satisfaction of accrued salary or advances he has made on our behalf. More specifically:
  •  in December 2004, we issued 24,523 shares of our common stock to Mr. Leonhardt in satisfaction of $85,830 of accrued salary earned by Mr. Leonhardt during the fiscal year ended December 31, 2004.
 
  •  in October 2005, we issued 155,082 shares of our common stock to Mr. Leonhardt in satisfaction of $542,787 of expense reimbursements owed to him for expenses he advanced during the fiscal years ended December 31, 2001, 2002 and 2003.
Guarantees provided by Mr. Leonhardt
      From time to time, Mr. Leonhardt has, without compensation, personally guaranteed certain of our financial obligations. As of the date of this prospectus, he is the guarantor of our obligations under the lease for our facilities in Sunrise, Florida. He is also the guarantor of our obligations under corporate credit cards issued by Bank of America. Mr. Leonhardt does not receive any compensation for providing these guarantee services.
      Mr. Leonhardt has guaranteed Dr. Murphy, a director, the repayment of his initial $200,000 investment in the Company.

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Bromley Letter Agreement
      On August 24, 2006, we entered the Bromley Letter Agreement with Mr. Bromley, Mr. Leonhardt’s cousin and Vice President of Public Relations, regarding his employment with us. Pursuant to this agreement:
  •  we issued to Mr. Bromley 77,143 shares of our common stock as a full and complete settlement and agreed to reimburse Mr. Bromley for federal and state income taxes he will be required to pay in connection with his receipt of such shares.
 
  •  we agreed to pay Mr. Bromley an annual base salary of $130,000 for his continued provision of services as our Vice President of Public Relations.
 
  •  we granted to Mr. Bromley a fully-vested incentive stock option to purchase 457,500 shares of our common stock at an exercise price of $3.50 per share.
 
  •  we granted to Mr. Bromley a fully-vested warrant to purchase 305,000 shares of our common stock at an exercise price of $3.50 per share.
Consulting Agreements with Directors
      We have, from time to time, entered into consulting agreements and arrangements with certain members of our Board of Directors. These agreements and arrangements are summarized in the table set forth below:
             
        Consideration Paid for    
Director   Nature of Consulting Services   Consulting Services   Term of Arrangement
             
Bruce C. Carson
  Consulting services included (i) assisting us to meet our financial goals, (ii) providing leadership training to our directors, officers, employees and consultants, (iii) providing guidance regarding strategic partnerships and (iv) appearing at selected events   Grant of option to purchase 100,000 shares of common stock at an exercise price of $3.50(1)   February 2004 to December 2004
Bruce C. Carson
  Consulting services included (i) assisting us to meet our financial goals, (ii) providing leadership training to our directors, officers, employees and consultants, (iii) providing guidance regarding strategic partnerships and (iv) appearing at selected events   Grant of option to purchase 100,000 shares of common stock at an exercise price of $3.50(2)   January 2005 to October 2005
Richard T. Spencer, III
  Consulting services include (i) assisting us to meet our financial goals, (ii) providing leadership training to our directors, officers, employees and consultants and (iii) appearing at selected events   Grant of option to purchase 80,000 shares of common stock at an exercise price of $3.50(3)   March 2004 to March 2007

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        Consideration Paid for    
Director   Nature of Consulting Services   Consulting Services   Term of Arrangement
             
Samuel S. Ahn
  Consulting services included (i) serving as our consultant for cardiomyoplasty, (ii) providing advice to us with respect to cardiomyoplasty and related technologies and matters, and (iii) performing other services from time to time as we request   Grant of options to purchase 57,000 shares of common stock at an exercise price of $1.75 and 7,000 shares of common stock at an exercise price of $3.50(4)   March 2000 to March 2003
Samuel S. Ahn
  Consulting services included (i) assisting us to meet our financial goals, (ii) providing leadership training to our directors, officers, employees and consultants, (iii) providing guidance regarding strategic partnerships and (iv) appearing at selected events   Grant of option to purchase 100,000 shares of common stock at an exercise price of $3.50(2)   February 2004 to October 2005
 
(1)  1 / 4 of the options vested on each December 31, 2005 and December 31, 2006. The remaining 1 / 2 of the options are scheduled to vest equally on December 31, 2007 and December 31, 2008.
 
(2)  The options vested on October 1, 2005 upon our attainment of various financial goals.
 
(3)  1 / 3 of the options vested on each of March 18, 2005 and March 18, 2006. The remaining 1 / 3 of the options are scheduled to vest on March 18, 2007.
 
(4)  57,000 options vested on February 14, 2003 and 7,000 options vested on July 14, 2003.
     Dr. Samuel S. Ahn, a member of our Board of Directors, is also a member of our Scientific Advisory Board and has entered into our standard Scientific Advisory Board agreement. Pursuant to his agreement, which expires in January 2007, we granted Dr. Ahn a stock option to purchase 10,500 shares of our common stock with an exercise price of $1.75 per share as consideration for his service on our Scientific Advisory Board.

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PRINCIPAL SHAREHOLDERS
      The following table sets forth certain information regarding beneficial ownership of our common stock as of January 31, 2007, and as adjusted to reflect the sale of common stock in this offering, by
  •  each person or group known by us to own beneficially more than 5% of our common stock;
 
  •  each of our directors;
 
  •  each of our Named Executive Officers; and
 
  •  all of our current directors and executive officers as a group.
      As of January 31, 2007, we had 21,496,977 shares of common stock outstanding. Immediately following the completion of this offering, there will be                      shares of common stock outstanding assuming that the underwriters’ over-allotment option is not exercised. Beneficial ownership is determined in accordance with Rule  13d-3 of the Securities and Exchange Act of 1934. In computing the number of shares beneficially owned by a person or a group and the percentage ownership by that person or group, shares of our common stock subject to options or warrants beneficially owned by that person or group and currently exercisable or exercisable within 60 days after January 31, 2007 are deemed outstanding but are not deemed outstanding for the purposes of computing the ownership of any other person. Except as otherwise indicated in the footnotes to this table and subject to applicable community property laws, each shareholder named in the table is assumed to have sole voting and investment power with respect to the number of shares listed opposite the shareholder’s name. Unless otherwise indicated, the address of each of the individuals and entities named below is: c/o Bioheart, Inc., 13794 NW 4th Street, Suite 212, Sunrise, Florida 33325.
                         
        Percentage of Shares
        Beneficially Owned
         
    Number of Shares   Before the   After the
Name of Beneficial Owner   Beneficially Owned   Offering (%)   Offering (%)
             
5% Shareholders:
                       
Howard J. Leonhardt
    7,462,124 (1)     34.7          
William H. Kline
    (2)     *          
Scott Bromley
    982,143 (3)     4.6          
Richard T. Spencer, IV
    58,708 (4)     *          
Samuel S. Ahn, M.D. 
    474,500 (5)     2.2          
Bruce Carson
    532,500 (6)     2.5          
David J. Gury
    35,000 (7)     *          
Peggy A. Farley
    800,299 (8)     3.7          
William P. Murphy, M.D. 
    120,000 (9)     *          
Richard T. Spencer, III
    123,334 (10)     *          
Mike Tomas
    593,570 (11)     2.8          
Linda Tufts
          *          
                   
All directors and executive officers as a group (13 persons)
    11,247,948       52.0          
 
  * Indicates less than one percent
  (1)  Consists of (i) 7,419,426 shares directly owned by Mr. Leonhardt and (ii) 42,698 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $3.50 per share.
 
  (2)  Does not include 250,000 shares issuable upon the exercise of stock options at an exercise price of $3.50 per share that are not subject to exercise within 60 days.
 
  (3)  Consists of (i) 77,143 shares directly owned by Mr. Bromley, (ii) 100,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $0.79 per share, (iii) 500,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $3.50 per share and (iv) 305,000 shares issuable upon the exercise of vested warrants at an exercise price of $3.50 per share.

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  (4)  Consists of (i) 8,208 shares directly owned by Mr. Spencer, IV and (ii) 50,500 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $3.50 per share. Does not include 125,000 shares issuable upon the exercise of stock options at an exercise price of $3.50 per share that are not subject to exercise within 60 days.
 
  (5)  Consists of (i) 180,000 shares directly owned by Dr. Ahn, (ii) 67,500 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $1.75 per share, (iii) 117,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $3.50 per share and (iv) 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $4.75 per share.
 
  (6)  Consists of (i) 337,500 shares directly owned by Mr. Carson, (ii) 210,000 shares issuable upon the exercise of presently exercisable stock options or stock options exercisable within 60 days of January 31, 2007 at an exercise price of $3.50 per share and (iii) 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $4.75 per share.
 
  (7)  Includes (i) 15,000 shares directly owned by Mr. Gury, (ii) 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $3.50 per share and (iii) 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $4.75 per share.
 
  (8)  Includes (i) 43,720 shares directly owned by Ms. Farley and (ii) 125,000 shares owned by Ascent Medical Technology Fund, LP, over which Ms. Farley has shared voting and investment power and (iii) 631,579 shares owned by Ascent Medical Technology Fund II, LP, over which Ms. Farley has shared voting and investment power.
 
  (9)  Includes (i) 90,000 shares directly owned by trusts controlled by Dr. Murphy and his spouse, (ii) 20,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $3.50 per share and (iii) 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $4.75 per share.
(10)  Includes (i) 30,000 shares directly owned by Mr. Spencer, III, (ii) 83,333 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $3.50 per share and (iii) 10,000 shares issuable upon the exercise of presently exercisable stock options at an exercise price of $4.75 per share. Does not include 26,667 shares issuable upon the exercise of stock options at an exercise price of $3.50 per share that are not subject to exercise within 60 days.
 
(11)  Includes (i) 573,570 shares held by the Astri Group, LLC, over which Mr. Tomas has shared voting and investment power, (ii) 10,000 shares issuable upon the exercise of presently exercisable stock options issued in the name of the Astri Group, LLC at an exercise price of $3.50 per share, over which Mr. Tomas has shared voting and investment power and (iii) 10,000 shares issuable upon the exercise of presently exercisable stock options issued in the name of the Astri Group, LLC at an exercise price of $4.75 per share, over which Mr. Tomas has shared voting and investment power.
DESCRIPTION OF CAPITAL STOCK
      Our authorized capital stock of the Company consists of 40,000,000 shares of common stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par value $.001 per share. As of January 31, 2007, there were 21,496,977 shares of common stock outstanding, held of record by approximately 450 shareholders and zero shares of preferred stock outstanding.
      Upon the closing of this offering:
  •  Our Articles of Incorporation will be amended and restated to provide for total authorized capital consisting of 100,000,000 shares of common stock and 5,000,000 shares of undesignated preferred stock;
 
  •  Based on the number of shares outstanding as of January 31, 2007, a total of                      shares of common stock will be outstanding after giving effect to the sale of common stock we are offering hereunder, which does not include any exercise of the underwriters’ over-allotment option or of any options or warrants.
Common Stock
      The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the shareholders. Subject to preferential rights with respect to any outstanding Preferred Stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities and satisfaction of preferential rights with respect to any outstanding shares of Preferred Stock and have no rights to convert their common stock into any other securities. The issued and outstanding shares of

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common stock are, and the common stock to be issued and outstanding upon completion of this offering will be, fully paid and non-assessable.
Preferred Stock
      The Board of Directors is authorized to issue the preferred stock in one or more classes or series and to fix the rights, preferences, privileges and restrictions, including the dividend rights, conversion rights, voting rights, redemption rights and prices, liquidation preferences and the number of shares constituting any such class or series of preferred stock (including without limitation, rights and preferences of preferred stock that are superior to rights of holders of the common stock with respect to voting, dividend and liquidation or other rights), without any further vote or action by the shareholders. The issuance of preferred stock may adversely affect the voting power and other rights of the holders of common stock. We have no present plans to issue any shares of preferred stock.
Anti-Takeover Effects of Certain Provisions of our Articles of Incorporation, Bylaws and Florida Law
Issuance of preferred stock
      As noted above, our Board of Directors, without shareholder approval, has the authority under our articles of incorporation to issue preferred stock with rights superior to the rights of the holders of common stock. As a result, preferred stock could be issued quickly and easily, could adversely affect the rights of holders of common stock and could be issued with terms calculated to delay or prevent a change of control or make removal of management more difficult.
Requirements for advance notification of shareholder nominations and proposals
      Our bylaws contain advance notice procedures with respect to shareholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the Board of Directors or a committee thereof. Our bylaws also specify certain requirements as to the form and content of a shareholder’s notice. These provisions may preclude our shareholders from bringing matters before our annual meeting of shareholders or from making nominations for directors at our annual meeting or a special meeting of shareholders.
Shareholder meetings
      Our articles of incorporation and bylaws provide that our shareholders may call a special meeting only upon the request of holders of at least a majority of the outstanding shares entitled to vote at such meeting. Additionally, the Board of Directors, the Chairman of the Board or the Chief Executive Officer may call special meetings of shareholders.
Amendment of bylaws
      Our bylaws provide that shareholders can amend the bylaws only upon the affirmative vote of the holders of at least 75 percent of the outstanding shares of the capital stock then entitled to vote, voting together as a single class.
Florida law
      The FBCA prohibits the voting of shares in a publicly held Florida corporation that are acquired in a “control share acquisition” unless the holders of a majority of the corporation’s voting shares (exclusive of shares held by officers of the corporation, inside directors or the acquiring party) approve the granting of voting rights as to the shares acquired in the control share acquisition or unless the acquisition is approved by the corporation’s Board of Directors. A “control share acquisition” is defined as an acquisition that immediately thereafter entitles the acquiring party to vote in the election of directors within each of the following ranges of voting power: (i) one-fifth or more but less than one-third of all voting power; (ii) one-third or more but less than a majority of all voting power; and (iii) more than a majority of all voting power.

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      The FBCA also contains an “affiliated transaction” provision that prohibits a publicly held Florida corporation from engaging in a broad range of business combinations or other extraordinary corporate transactions with an “interested shareholder” unless, among others, (i) the transaction is approved by a majority of disinterested directors before the person becomes an interested shareholder; (ii) the interested shareholder has owned at least 80% of the corporation’s outstanding voting shares for at least five years; or (iii) the transaction is approved by the holders of two-thirds of the corporation’s voting shares other than those owned by the interested shareholder. An interested shareholder is defined as a person who together with affiliates and associates beneficially owns more than 10% of the corporation’s outstanding voting shares.
      We are subject to the Florida anti-takeover provisions under the FBCA because we have not elected to opt out of those provisions in our articles of incorporation or bylaws as permitted by the Florida law.
Transfer Agent And Registrar
      The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company.
NASDAQ Global Market Listing
      We are applying for our common stock to be quoted on the NASDAQ Global Market under the symbol BHRT.
SHARES ELIGIBLE FOR FUTURE SALE
      Prior to this offering, there has been no market for our common stock, and a liquid trading market for our common stock may not develop or be sustained after this offering. Future sales of substantial amounts of common stock, including shares issued upon exercise of outstanding options and warrants, in the public market after this offering or the anticipation of those sales could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through sales of our equity securities.
Sale of Restricted Shares and Lock-Up Agreements
      After the closing of this offering, we will have                      shares of common stock outstanding, assuming no exercise of the underwriters’ over-allotment option and no exercise of outstanding options or warrants. Of these shares, the shares sold in this offering will be freely tradable without restriction under the Securities Act unless purchased by any of our “affiliates” as that term is defined in Rule 144 under the Securities Act. The remaining shares of common stock outstanding held by existing shareholders are “restricted” shares as that term is defined in Rule 144 and                     of these restricted shares are also subject to the lock-up agreements described in “Underwriting.” Though these restricted shares subject to lock-up agreements may be eligible for earlier sale under the provisions of the Securities Act, absent a waiver of the lock-up agreements with BMO Capital Markets Corp., Janney Montgomery Scott LLC and Merriman Curhan Ford & Co., none of these locked-up shares may be sold until 181 days after the date of this prospectus. The 180-day restricted period will be automatically extended if: (1) during the period that begins on the date that is 15 calendar days plus three business days before the last day of the 180-day restricted period, we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the date that is 15 calendar days plus three business days after the date on which the earnings release is issued or the material news or material event occurs.
      Immediately after the date of the prospectus, approximately                     restricted shares will be eligible for resale. Beginning 91 days after the date of this prospectus, approximately                     additional restricted shares will be eligible for resale. Beginning 181 days after the date of this prospectus, all of the approximately                      million restricted shares that are subject to the lock-up agreements will be eligible for sale in the US public market, subject to the limitations imposed by Rule 144. In addition, as of January 31, 2007, there were outstanding options to purchase                      shares of common stock and warrants to purchase                      shares

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of common stock. Approximately                     % of the shares issued upon exercise of these options and warrants will be subject to lock-up agreements.
Rule 144 and Rule 144(k)
      In general, under Rule 144 as currently in effect, a person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year is entitled to sell within any three-month period up to that number of shares that does not exceed the greater of: (i) 1% of the number of shares of common stock then outstanding, which immediately following this offering is expected to equal approximately                      shares, or (ii) the average weekly trading volume of the common stock during the four calendar weeks preceding the filing of a Form 144 with respect to the sale. Sales under Rule 144 are also subject to certain “manner of sale” provisions and notice requirements and to the requirement that current public information about the issuer be available. Under Rule 144(k), a person who is not deemed to have been an affiliate of the issuer at any time during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner except an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
Rule 701
      Rule 701 under the Securities Act permits resales of qualified shares held by some affiliates in reliance upon Rule 144 but without compliance with some restrictions, including the holding period requirement, of Rule 144. Rule 701 further provides that non-affiliates may sell shares in reliance on Rule 144 without having to comply with the holding period, public information, volume limitation or notice provisions of Rule 144. Any of our employees, officers, directors or consultants who purchased his or her shares pursuant to a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701. All holders of shares of common stock to which Rule 701 is applicable are required to wait until 90 days after the date of this prospectus before selling shares. The holders of approximately           outstanding shares of our common stock will be eligible to sell these shares 90 days after the date of this prospectus in reliance on Rule 701. Approximately                      shares issued pursuant to Rule 701 are subject to the lock-up agreements referred to above and absent a waiver of the lock-up agreements with BMO Capital Markets Corp., Janney Montgomery Scott LLC and Merriman Curhan Ford & Co., will only become eligible for sale upon the expiration of the 180-day lock-up.
      We intend to file, shortly after the effectiveness of this offering, a registration statement on Form  S-8 under the Securities Act covering all shares of common stock reserved for issuance under our equity incentive plan. Shares of common stock issued upon exercise of options under the Form  S-8 will be available for sale in the public market, subject to limitations under Rule 144 applicable to our affiliates and subject to the lock-up agreements described above.
Registration Rights
      Pursuant to various shareholders agreements among certain purchasers of our common stock, Mr. Leonhardt and us, the holders of an aggregate of            shares of our common stock outstanding immediately after this offering and the holder of a warrant to purchase 2,500,000 shares or our common stock subject to certain vesting conditions are entitled to include their shares in any registration statement we file under the Securities Act to register any of our securities, subject to exceptions, and also to include those shares in any underwritten offering contemplated by that registration statement.
      These registration rights are subject to conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in the offering. In addition, no shareholder will have any rights under the agreement to include shares in a registration statement if all shares held by such holder may be sold pursuant to Rule 144 under the Securities Act in any three month period.

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UNDERWRITING
      BMO Capital Markets Corp., Janney Montgomery Scott LLC and Merriman Curhan Ford & Co. are acting as the representatives of the underwriters. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has agreed to purchase from us, and we have agreed to sell to such underwriter, the respective number of shares of common stock shown opposite its name below.
         
Underwriter   Number of Shares
     
BMO Capital Markets Corp. 
       
Janney Montgomery Scott LLC
       
Merriman Curhan Ford & Co. 
       
Total
       
      The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all of the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.
      The representatives have advised us that the underwriters propose to offer the shares directly to the public at the public offering price presented on the cover page of this prospectus and to selected dealers, who may include the underwriters, at the public offering price less a selling concession not in excess of $           per share. The underwriters may allow, and the selected dealers may reallow, a concession not in excess of $           per share to brokers and dealers. If all of the ordinary shares are not sold at the initial offering price, the underwriter may change the public offering price and the other selling terms. The representatives have advised us that the underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority.
      We have granted to the underwriters an option to purchase up to an aggregate of                      shares of common stock, exercisable solely to cover over-allotments, if any, at the public offering price less the underwriting discounts and commissions shown on the cover page of this prospectus. The underwriters may exercise this option in whole or in part at any time on or before the 30th day after the date of the underwriting agreement. To the extent the underwriters exercise this option, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares proportionate to that underwriter’s initial commitment as indicated in the preceding table.
      We, our directors and executive officers have agreed with the underwriters, subject to certain exceptions, not to dispose of or hedge any shares of common stock or securities convertible into or exchangeable for shares of common stock, subject to specified exceptions, during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of BMO Capital Markets Corp. See “Shares Eligible for Future Sale” for a discussion of certain transfer restrictions on existing holders of shares of our common stock. BMO Capital Markets Corp. in its sole discretion may release any of the securities subject to these lock-up agreements at any time without notice.
      The 180-day restricted period described in the preceding paragraph will be automatically extended if: (1) during the period that begins on the date that is 15 calendar days plus three business days before the last day of the 180-day restricted period, we issue an earnings release or announce material news or a material event; or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period following the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of the date that is 15 calendar days plus three business days after the date on which the earnings release is issued or the material news or material event occurs.

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      The following table summarizes the underwriting discounts and commissions that we will pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of common stock.
                                 
    Per Share   Total
         
    Without   With   Without   With
    Over-   Over-   Over-   Over-
    Allotment   Allotment   Allotment   Allotment
                 
Underwriting discounts and commissions paid by us
  $       $       $       $    
Expenses payable by us
  $       $       $       $    
      Prior to this offering, there has been no public market for our common stock. The initial public offering price will be negotiated among the representatives and us. In determining the initial public offering price of our common stock, the representatives will consider:
  •  prevailing market conditions;
 
  •  our historical performance and capital structure;
 
  •  estimates of our business potential and earnings prospects;
 
  •  an overall assessment of our management; and
 
  •  the consideration of these factors in relation to market valuation of companies in related businesses.
      We intend to apply to have our common stock approved for quotation on the NASDAQ Global Market under the symbol “BHRT.”
      The representatives may engage in over-allotment transactions, stabilizing transactions, syndicate covering transactions, penalty bids or purchases and passive market making for the purposes of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Securities Exchange Act of 1934.
      Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The representatives may close out any short position by either exercising their over-allotment option and/or purchasing shares in the open market.
      Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specific maximum.
      Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over-allotment option, thus creating a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
      Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.

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      In passive market making, market makers in the common stock who are underwriters or prospective underwriters may, subject to limitations, make bids for or purchase shares of our common stock until the time, if any, at which a stabilizing bid is made.
      These stabilizing transactions, syndicate covering transactions, penalty bids and passive market making may have the effect of raising or maintaining the market price of our common stock or preventing or retarding a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the NASDAQ Global Market or otherwise and, if commenced, may be discontinued at any time.
      Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
      The underwriters expect to facilitate Internet distribution for this offering to certain of their Internet subscription customers through affiliated broker-dealers and other intermediaries. Certain underwriters intend to allocate a limited number of shares for sale to their online brokerage customers. An electronic prospectus is available on Internet websites maintained           . Any allocation for Internet distributions will be made by the underwriters on the same basis as other allocations. In addition, shares of common stock may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.
      Certain of the underwriters have performed investment and commercial banking and advisory services for us from time to time for which they have received customary fees and expenses. The underwriters may, from time to time, engage in transactions with and perform services for us in the ordinary course of its business.
      We have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

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U.S. FEDERAL TAX CONSIDERATIONS FOR NON-U.S.  HOLDERS
      The following discussion of certain material U.S. federal income tax considerations relevant to Non-U.S.  Holders (as defined below) of our common stock is for general information only. Accordingly, all prospective Non-U.S.  Holders of our common stock are urged to consult their own tax advisors with respect to the U.S. federal, state and local and foreign tax consequences of the acquisition, ownership and disposition of our common stock.
      As used in this prospectus, the term “Non-U.S.  Holder” is a person who is an owner of our common stock other than:
  •  a citizen or resident of the United States;
 
  •  a corporation, partnership or other entity taxable as a corporation for U.S. federal income tax purposes created or organized in or under the laws of the United States, any of its states or the District of Columbia;
 
  •  an estate the income of which is includable in gross income for U.S. federal income tax purposes regardless of its source; or
 
  •  a trust subject to the primary supervision of a U.S. court and the control of one or more U.S. persons, (or if a valid election is in effect to treat the trust as a U.S. person under applicable U.S. treasury regulations).
      This discussion does not address:
  •  U.S. federal income, estate or gift tax consequences other than as expressly set forth below;
 
  •  state, local or foreign tax consequences;
 
  •  the tax consequences for the shareholders, beneficiaries or holders of other beneficial interests in a Non-U.S.  Holder;
 
  •  special tax rules that may apply to selected Non-U.S.  Holders, including without limitation, Non-U.S.  holders of interests in domestic or foreign partnerships, partnerships, banks or other financial institutions, insurance companies, dealers in securities, traders in securities, tax-exempt entities, controlled foreign corporations, passive foreign investment companies that accumulate earnings to avoid U.S. federal income tax, and U.S. expatriates; or
 
  •  special tax rules that may apply to a Non-U.S.  Holder that holds our common stock as part of a straddle, hedge, conversion, synthetic security, or constructive sale transaction for U.S. federal income tax purposes, or a Non-U.S.  Holder that does not hold our common stock as a capital asset within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended, or the Code.
      If a partnership, including any entity treated as a partnership for U.S. federal income tax purposes, is a holder, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A holder that is a partnership, and partners in such partnership, should consult their own tax advisors regarding the tax consequences of the purchase, ownership and disposition of our common stock.
      The following discussion is based on provisions of the Code, applicable Treasury regulations and administrative and judicial interpretations, all as of the date of this prospectus, and all of which are subject to change, possibly with retroactive effect. We have not requested a ruling from the U.S. Internal Revenue Service or an opinion of counsel with respect to the U.S. federal income tax consequences of the purchase, ownership or disposition of our common stock to a Non-U.S.  Holder. There can be no assurance that the U.S. Internal Revenue Service will not successfully take a position contrary to such statements or that any such contrary position taken by the U.S. Internal Revenue Service would not be sustained.
      YOU ARE URGED TO CONSULT YOUR TAX ADVISOR WITH RESPECT TO THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION

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AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE U.S. FEDERAL ESTATE OR GIFT TAX RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
Dividends
      We do not anticipate paying cash dividends on our common stock in the foreseeable future. See “Dividend Policy.” In the event, however, that distributions are made on shares of our common stock, such distributions paid to a Non-U.S.  Holder generally will be subject to withholding of U.S. federal income tax at a 30% rate on the gross amount of the distribution or such lower rate as may be provided by an applicable income tax treaty.
      Dividends that are effectively connected with a Non-U.S.  Holder’s conduct of a trade or business in the United States or attributable to a permanent establishment in the United States under an applicable income tax treaty, known as “U.S. trade or business income,” are generally not subject to the 30% withholding tax if the Non-U.S.  Holder files the appropriate U.S. Internal Revenue Service form with the payor. However, such U.S. trade or business income, net of specified deductions and credits, is taxed at the same graduated rates applicable to U.S. persons. Any U.S. trade or business income received by a Non-U.S.  Holder that is a corporation may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as specified by an applicable income tax treaty.
      A Non-U.S.  Holder of our common stock who claims the benefit of an applicable income tax treaty generally will be required to satisfy applicable certification and other requirements prior to the distribution date. Non-U.S.  Holders are urged to consult their own tax advisors regarding their entitlement to benefits under a relevant income tax treaty.
      A Non-U.S.  Holder that is eligible for a reduced rate of U.S. withholding tax or other exclusion from withholding under an income tax treaty but that did not timely provide required certifications or other requirements, or that has received a distribution subject to withholding in excess of the amount properly treated as a dividend, may generally obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the U.S. Internal Revenue Service.
Sale or Other Taxable Disposition of Common Stock
      A Non-U.S.  Holder generally will not be subject to U.S. federal income tax in respect of gain recognized on a disposition of our common stock unless:
  •  the gain is U.S. trade or business income, in which case the regular corporate income tax and the branch profits tax described above may apply to a corporate Non-U.S.  Holder;
 
  •  the Non-U.S.  Holder is an individual who is present in the United States for more than 182 days in the taxable year of the disposition and meets other requirements;
 
  •  we are or have been a “U.S. real property holding corporation” for U.S. federal income tax purposes at any time during the shorter of the five-year period ending on the date of disposition or the period that the Non-U.S.  Holder held our common stock.
      Generally, a corporation is a “U.S. real property holding corporation” if the fair market value of its “U.S. real property interests” equals or exceeds 50% of the sum of the fair market value of its worldwide real property interests plus its other assets used or held for use in a trade or business. The tax imposed on stock in a “U.S. real property holding corporation” generally will not apply to a Non-U.S.  Holder whose holdings, direct or indirect, have not exceeded 5% of our common stock. We believe we have never been, are not currently, and are not likely to become a U.S. real property holding corporation for U.S. federal income tax purposes.

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Federal Estate Tax
      Common stock owned or treated as owned by an individual who is a Non-U.S.  Holder at the time of death will be included in the individual’s gross estate for U.S. federal estate tax purposes and might be subject to U.S. federal estate tax, unless an applicable estate tax or other treaty provides otherwise.
Information Reporting and Backup Withholding Tax
      We must report annually to the U.S. Internal Revenue Service and to each Non-U.S.  Holder the amount of dividends paid to such holder and the tax withheld with respect to such dividends. Copies of the information returns reporting dividends and withholding may also be made available to the tax authorities in the country in which the Non-U.S.  Holder is a resident under the provisions of an applicable income tax treaty or other agreement.
      U.S. federal backup withholding generally will not apply to payments of dividends made by us or our paying agents, in their capacities as such, to a Non-U.S.  Holder of our common stock, if the holder has provided the required certification, under penalties of perjury, as to its Non-U.S.  Holder status in accordance with applicable U.S. Treasury Regulations.
      Payments of the proceeds of a sale of common stock within the United States or conducted through certain U.S.-related financial intermediaries is subject to information reporting and, depending on the circumstances, backup withholding unless the holder certifies under penalties of perjury that it is a Non-U.S. Holder and the payer does not know or have reason to know that the holder is a U.S. person, or the holder otherwise establishes an exemption
      Any amounts withheld under the backup withholding rules from a payment to a Non-U.S.  Holder that result in an overpayment of taxes will generally be refunded, or credited against the holder’s U.S. federal income tax liability, if any, provided that the required information is furnished to the U.S. Internal Revenue Service.
LEGAL MATTERS
      We are represented by Hunton & Williams LLP, Miami, Florida. Dechert LLP, Philadelphia, Pennsylvania, is acting as counsel to the underwriters.
EXPERTS
      The financial statements as of December 31, 2004 and 2005 and for each of the three years in the period ended December 31, 2005 included in this prospectus have been so included in reliance on the report of Grant Thornton LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting in giving said report.
WHERE YOU CAN FIND MORE INFORMATION
      We have filed with the SEC a registration statement on Form  S-1 under the Securities Act with respect to the shares of common stock offered in this prospectus. This prospectus, which forms a part of the registration statement, does not contain all of the information included in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits for that information. With respect to references made in this prospectus to any contract or other document of Bioheart, Inc., such references are not necessarily complete and you should read the entire text of those documents, which have been filed as exhibits to the registration statement of which this prospectus is a part, for complete information. You may review a copy of the registration statement, including exhibits and any schedule filed therewith, and obtain copies of such materials at prescribed rates, at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants, such as Bioheart, Inc., that file electronically with the SEC.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Index to Consolidated Financial Statements
         
    F-2  
    F-3  
    F-4  
    F-5  
    F-6  
    F-7  
    F-20  
    F-21  
    F-22  
    F-23  
    F-24  

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm
Board of Directors
Bioheart, Inc.
      We have audited the accompanying consolidated balance sheets of Bioheart, Inc. and Subsidiaries (a development stage enterprise) (the “Company”) as of December 31, 2005 and 2004, and the related statements of operations, shareholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2005 and the period from August 12, 1999 (date of inception) through December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
      In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bioheart, Inc. and Subsidiaries (a development stage enterprise) as of December 31, 2005 and 2004, and the results of their consolidated operations and their consolidated cash flows for each of the three years in the period ended December 31, 2005 and the period from August 12, 1999 (date of inception) through December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.
/s/  Grant Thornton LLP
Fort Lauderdale, Florida
February 8, 2007

F-2


Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Consolidated Balance Sheets
                     
    As of December 31,
     
    2005   2004
         
ASSETS
Current assets
               
 
Cash and cash equivalents
  $ 5,157,872     $ 181,984  
 
Receivables
    72,037        
 
Inventory
    160,352       342,500  
 
Prepaid expenses
    54,302       60,345  
             
   
Total current assets
    5,444,563       584,829  
Property and equipment, net
    414,348       134,457  
Deposits
    10,159       9,344  
             
   
Total assets
  $ 5,869,070     $ 728,630  
             
 
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities
               
 
Accounts payable
  $ 225,058     $ 624,121  
 
Accrued expenses
    353,267       984,564  
 
Deferred revenue
    656,500       776,500  
 
Note payable
          200,000  
             
   
Total current liabilities
    1,234,825       2,585,185  
 
Deferred rent
    47,813        
             
   
Total liabilities
    1,282,638       2,585,185  
Commitments and contingencies (Note 6)
               
Shareholders’ equity (deficit)
               
 
Preferred stock ($0.001 par value) 5,000,000 shares authorized, none issued and outstanding
           
 
Common stock ($0.001 par value) 40,000,000 shares authorized, 18,861,427 and 15,475,798 shares issued and outstanding as of December 31, 2005 and 2004, respectively
    18,862       15,476  
 
Additional paid-in capital
    56,080,772       42,700,817  
 
Deferred stock compensation
    (181,325 )     (567,528 )
 
Deficit accumulated during the development stage
    (51,331,877 )     (44,005,320 )
             
   
Total shareholders’ equity (deficit)
    4,586,432       (1,856,555 )
             
   
Total liabilities and shareholders’ equity (deficit)
  $ 5,869,070     $ 728,630  
             
The accompanying notes are an integral part of these consolidated financial statements.

F-3


Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Consolidated Statements of Operations
                                     
                Cumulative
                Period from
                August 12,
        1999 (date of
    Years Ended December 31,   inception) to
        December 31,
    2005   2004   2003   2005
                 
Revenues
    135,350       85,500       46,120       330,010  
Cost of sales
    87,427       46,430       30,000       181,857  
                         
   
Gross profit
    47,923       39,070       16,120       148,153  
Expenses:
                               
 
Research and development
    4,533,820       3,786,604       3,501,539       38,503,030  
 
Marketing, general and administrative
    2,830,926       1,731,441       2,522,856       13,052,799  
 
Depreciation and amortization
    46,320       33,588       31,441       159,573  
                         
   
Total expenses
    7,411,066       5,551,633       6,055,836       51,715,402  
 
Loss from operations
    (7,363,143 )     (5,512,563 )     (6,039,716 )     (51,567,249 )
Interest income
    45,122       5,570       6,860       260,739  
Interest expense
    (8,536 )     (12,158 )     (4,672 )     (25,367 )
                         
   
Total interest income (expense)
    36,586       (6,588 )     2,188       235,372  
   
Loss before income taxes
    (7,326,557 )     (5,519,151 )     (6,037,528 )     (51,331,877 )
Income taxes
                       
                         
   
Net loss
  $ (7,326,557 )   $ (5,519,151 )   $ (6,037,528 )   $ (51,331,877 )
                         
Loss per share — basic and diluted
  $ (0.42 )   $ (0.37 )   $ (0.46 )        
                         
Weighted average shares outstanding — basic and diluted
    17,243,568       14,874,788       12,985,372          
                         
The accompanying notes are an integral part of these consolidated financial statements.

F-4


Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Consolidated Statement of Shareholders’ Equity (Deficit)
                                                           
                        Deficit    
                    Accumulated    
    Common Stock   Additional           During the    
        Paid-In   Deferred   Contributed   Development    
    Shares   Amount   Capital   Compensation   Capital   Stage   Total
                             
Balance as of August 12, 1999 (date of inception)
        $     $     $     $     $     $  
 
Issuance of common stock
    7,000,000       7,000       393,000                         400,000  
 
Stock-based compensation
                98,000       (98,000 )                  
 
Amortization of stock-based compensation
                      49,000                   49,000  
 
Net loss
                                  (903,290 )     (903,290 )
                                           
Balance as of December 31, 1999
    7,000,000     $ 7,000     $ 491,000     $ (49,000 )   $     $ (903,290 )   $ (454,290 )
 
Issuance of common stock (net of issuance costs of $61,905)
    1,208,825       1,209       9,607,486                         9,608,695  
 
Stock-based compensation
                2,559,000       (2,559,000 )                  
 
Fair value of warrants granted in exchange for licenses and intellectual property
                5,220,000                         5,220,000  
 
Amortization of stock-based compensation
                      1,080,692                   1,080,692  
 
Contributed capital
                            1,050,000             1,050,000  
 
Common stock issued in exchange for services
    6,446       6       51,994                         52,000  
 
Net loss
                                  (14,113,933 )     (14,113,933 )
                                           
Balance as of December 31, 2000
    8,215,271     $ 8,215     $ 17,929,480     $ (1,527,308 )   $ 1,050,000     $ (15,017,223 )   $ 2,443,164  
 
Issuance of common stock (net of issuance costs of $98,996)
    797,750       798       6,282,206                         6,283,004  
 
Stock-based compensation
                779,000       (779,000 )                  
 
Amortization of stock-based compensation
                      1,523,000                   1,523,000  
 
Conversion of contributed capital to common stock
    131,250       131       1,049,869             (1,050,000 )            
 
Common stock issued in exchange for services
    6,710       6       53,994                         54,000  
 
Net loss
                                  (8,173,464 )     (8,173,464 )
                                           
Balance as of December 31, 2001
    9,150,981     $ 9,150     $ 26,094,549     $ (783,308 )   $     $ (23,190,687 )   $ 2,129,704  
 
Issuance of common stock
    884,525       885       7,075,315                         7,076,200  
 
Stock-based compensation
                143,521       (143,521 )                  
 
Amortization of stock-based compensation
                      613,083                   613,083  
 
Common stock issued in exchange for services
    28,438       29       227,474                         227,503  
 
Net loss
                                  (9,257,954 )     (9,257,954 )
                                           
Balance as of December 31, 2002
    10,063,944     $ 10,064     $ 33,540,859     $ (313,746 )   $     $ (32,448,641 )   $ 788,536  
 
Effect of stock split
    2,932,694       2,932       (2,932 )                        
 
Issuance of common stock
    909,225       909       3,181,365                         3,182,274  
 
Stock-based compensation
                (155,893 )     155,893                    
 
Amortization of stock-based compensation
                      79,371                   79,371  
 
Common stock issued in exchange for services
    233,579       234       823,653                         823,887  
 
Net loss
                                  (6,037,528 )     (6,037,528 )
                                           
Balance as of December 31, 2003
    14,139,442     $ 14,139     $ 37,387,052     $ (78,482 )   $     $ (38,486,169 )   $ (1,163,460 )
 
Issuance of common stock
    1,308,833       1,309       4,579,604                         4,580,913  
 
Stock-based compensation
                637,858       (637,858 )                  
 
Amortization of stock-based compensation
                        148,812                   148,812  
 
Common stock issued in exchange for services
    27,523       28       96,303                         96,331  
 
Net loss
                                  (5,519,151 )     (5,519,151 )
                                           
Balance as of December 31, 2004
    15,475,798     $ 15,476     $ 42,700,817     $ (567,528 )   $     $ (44,005,320 )   $ (1,856,555 )
 
Issuance of common stock (net of issuance costs of $32,507)
    3,228,589       3,229       11,264,325                         11,267,554  
 
Issuance of common stock in lieu of cash compensation
    1,958       2       6,851                         6,853  
 
Stock-based compensation
                1,566,147       (1,566,147 )                  
 
Amortization of stock-based compensation
                      1,952,350                   1,952,350  
 
Issuance of common stock in exchange for release of accrued liabilities
    155,082       155       542,632                         542,787  
 
Net loss
                                  (7,326,557 )     (7,326,557 )
                                           
Balance as of December 31, 2005
    18,861,427     $ 18,862     $ 56,080,772     $ (181,325 )   $     $ (51,331,877 )   $ 4,586,432  
The accompanying notes are an integral part of these consolidated financial statements.

F-5


Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Consolidated Statements of Cash Flows
                                         
                Cumulative
                Period from
        August 12, 1999
    Years Ended December 31,   (date of inception)
        to December 31,
    2005   2004   2003   2005
                 
Cash flows from operating activities
                               
 
Net loss
  $ (7,326,557 )   $ (5,519,151 )   $ (6,037,528 )   $ (51,331,877 )
 
Adjustments to reconcile net loss to net cash used in operating activities
                               
   
Depreciation and amortization
    46,320       33,588       31,441       159,573  
   
Write off of note receivable
          45,000       120,000       165,000  
   
Warrants granted in exchange of licenses and intellectual property
                      5,220,000  
   
Common stock issued in exchange for services
    6,853       96,330       823,887       1,260,574  
   
Stock-based compensation
    1,952,350       148,812       79,371       5,446,308  
   
Change in assets and liabilities
                               
     
Receivables
    (72,037 )                 (72,037 )
     
Inventories
    182,148       (342,500 )           (160,352 )
     
Prepaid expenses
    6,044       (3,742 )     18,689       (54,302 )
     
Other assets
    (815 )     (54,344 )     5,000       (175,159 )
     
Accounts payable
    (399,063 )     398,305       (697,999 )     225,058  
     
Accrued expenses and deferred rent
    (40,698 )     303,043       (146,979 )     943,867  
     
Deferred revenue
    (120,000 )     (81,000 )     857,500       656,500  
                         
       
Net cash used in operating activities
    (5,765,455 )     (4,975,659 )     (4,946,618 )     (37,716,847 )
Cash flows from investing activities
                               
     
Acquisition of property and equipment
    (326,211 )     (58,500 )     (32,317 )     (573,921 )
                         
       
Net cash used in investing activities
    (326,211 )     (58,500 )     (32,317 )     (573,921 )
Cash flows from financing activities
                               
     
Proceed from note payable
                200,000       200,000  
     
Repayment of note payable
    (200,000 )                 (200,000 )
     
Proceeds from issuance of common stock, net
    11,267,554       4,580,913       3,182,274       43,448,640  
                         
       
Net cash provided by financing activities
    11,067,554       4,580,913       3,382,274       43,448,640  
                         
       
Net increase (decrease) in cash and cash equivalents
    4,975,888       (453,246 )     (1,596,661 )     5,157,872  
Cash and cash equivalents, beginning of period
    181,984       635,230       2,231,891        
                         
Cash and cash equivalents, end of period
  $ 5,157,872     $ 181,984     $ 635,230     $ 5,157,872  
                         
Disclosure of cash flow information
                               
Interest paid
  $ 8,536     $ 12,158     $ 4,672     $ 25,367  
                         
Income taxes paid
  $     $     $     $  
                         
The accompanying notes are an integral part of these consolidated financial statements.

F-6


Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Organization and Business
      Bioheart, Inc. (the “Company”) is a biotechnology company focused on the discovery, development and commercialization of therapies using cells derived from a patient’s body, and related devices, for the treatment of heart damage. The Company’s lead product candidate is MyoCell, an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with living muscle tissue for the purpose of improving cardiac function. The Company was incorporated in Florida on August 12, 1999.
Development Stage
      The Company has operated as a development stage enterprise since its inception by devoting substantially all of its effort to raising capital, research and development of products noted above, and developing markets for its products. Accordingly, the financial statements of the Company have been prepared in accordance with the accounting and reporting principles prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises, issued by the Financial Accounting Standards Board (“FASB”).
      Prior to marketing its products in the United States, the Company’s products must undergo rigorous preclinical and clinical testing and an extensive regulatory approval process implemented by the Food and Drug Administration (the “FDA”) and other regulatory authorities. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials. The Company’s success will depend in part on its ability to successfully complete clinical trials, obtain necessary regulatory approvals, obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. The Company will require substantial future capital in order to meet its objectives. The Company currently has no committed sources of capital. The Company will need to seek substantial additional financing through public and/or private financing, and financing may not be available when the Company needs it or may not be available on acceptable terms.
Basis of Consolidation
      The accompanying consolidated financial statements include the accounts of Bioheart, Inc. and its wholly-owned subsidiaries. The Company has established various subsidiaries in foreign countries and through December 31, 2005 these foreign entities have been largely inactive. All intercompany transactions are eliminated in consolidation.
Cash and Cash Equivalents
      Cash and cash equivalents consist of cash and money market funds with maturities of three months or less when purchased. The carrying value of these instruments approximates fair value. The Company generally invests its excess cash in high credit quality debt instruments or U.S. government securities. These investments are periodically reviewed and modified to take advantage of trends in yields and interest rates. The related interest income is accrued as earned.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
Inventory
      Inventory, consisting primarily of finished catheters, is stated at the lower of cost or market, including provisions for obsolescence and expiration. Cost is determined by the first-in, first-out (FIFO) method for valuing inventories.
Revenue Recognition
      The Company’s revenue policy is to recognize sales revenue upon delivery of the product sold or completion of the service transaction. Revenues from product sales and service transactions are recognized when persuasive evidence of an arrangement exists, the price is fixed or determined, collection is reasonably assured and delivery of product or service has occurred.
      Based on an asset purchase arrangement entered into in June 2003, the Company recognizes revenue related to a joint licensing transaction and product delivery agreement with a minority shareholder requiring the delivery of 160 catheters. Payments of $900,000 received pursuant to this agreement were initially recorded as deferred revenue. The Company is recognizing the $900,000 as revenue on a pro rata basis as the catheters are delivered.
Research and Development Expenses
      Research and development expenditures, including payments to collaborative research partners, are charged to expense as incurred. The Company expenses amounts paid to obtain patents or acquire licenses as the ultimate recoverability of the amounts paid is uncertain.
Marketing Expense
      The Company expenses the cost of marketing as incurred. Marketing expense was $247,460, $254,186 and $217,322 for the years ended December 31, 2005, 2004 and 2003, respectively, and $1,611,540 for the cumulative period from August 12, 1999 (date of inception) to December 31, 2005.
Income Taxes
      The Company accounts for income taxes under SFAS No. 109, Accounting for Income Taxes. Deferred tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
Stock Options
      SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure (“SFAS No. 123”), establishes the use of the fair value based method of accounting for stock-based compensation arrangements, under which compensation cost is determined using the fair value of stock-based compensation determined as of the grant date, and is recognized over the periods in which the related services are rendered. SFAS No. 123 also permits companies to elect to continue using the intrinsic value accounting method specified in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB No. 25”), to account for stock-based compensation related to option grants and stock awards to employees. The Company has elected to retain the intrinsic value based method for such grants and awards, and has disclosed the pro forma effect of using the fair value based method to account for its stock-based compensation. Option grants to nonemployees are

F-8


Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
valued using the fair value based method prescribed by SFAS No. 123 and expensed over the period services are provided.
      The Company has recognized in the statement of operations the costs related to nonemployee services in shared-based payment transactions by using the estimated fair value of the stock at the date of grant in accordance with SFAS No. 123. Adjusted pro forma information regarding net loss is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of these options was estimated at the date of grant using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 4.40%; estimated volatility of 56.0%; dividend yield of 0%; and a weighted average expected life of the options of 5.0 years.
      For purposes of adjusted pro forma disclosures, the estimated fair value of the options is amortized to expense over the vesting period. The Company’s adjusted pro forma information is as follows:
                         
    Year Ended December 31,
     
    2005   2004   2003
             
Net loss — as reported
  $ (7,326,557 )   $ (5,519,151 )   $ (6,037,528 )
Deduct: Stock compensation expense determined under fair value method
    (466,944 )     (345,664 )     (740,819 )
                   
Adjusted pro forma net loss
  $ (7,793,501 )   $ (5,864,815 )   $ (6,778,347 )
                   
Loss per share — basic and diluted:
                       
Loss per share — as reported
  $ (0.42 )   $ (0.37 )   $ (0.46 )
                   
Loss per share — pro forma
  $ (0.45 )   $ (0.39 )   $ (0.52 )
                   
      The pro forma effect on net loss for the periods presented may not be representative of the pro forma effect on operations in future years.
Fair Value of Financial Instruments
      The fair value of cash and cash equivalents, receivables, and accounts payable approximate their carrying amounts due to their short term nature.
Earnings (Loss) Per Share
      Basic earnings (loss) per share are computed by dividing net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed by dividing net earnings (loss) for the period by the weighted average number of common shares outstanding during the period, plus the dilutive effect of common stock equivalents, such as stock options. For all periods presented, all common stock equivalents were excluded because their inclusion would have been anti-dilutive. Potentially dilutive common stock equivalents as of December 31, 2005 include stock options to purchase up to 2,877,608 shares of common stock at exercise prices ranging from $0.79 to $3.50.
Use of Estimates
      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
      In December 2004, the FASB issued Statement 123(R), Share-Based Payment (“SFAS No. 123R”), which addresses the accounting for share-based payment transactions (for example, stock options and awards of restricted stock) in which an employer receives employee services in exchange for equity securities of the company or liabilities that are based on a fair value of the company’s equity securities. This statement eliminates use of APB No. 25, and requires such transactions to be accounted for using a fair value-based method and recording compensation expense rather than optional pro forma disclosure. The new standard substantially amends SFAS No. 123. The statement is effective on January 1, 2006 and will require the Company to recognize an expense for the fair value of its unvested outstanding stock options in future financial statements. The adoption of this standard will result in the Company recording additional compensation expense of $197,972 in 2006, for options granted as of December 31, 2005.
      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections (“SFAS No. 154”), which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 requires that changes in accounting principle be retrospectively applied. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of SFAS No. 154 to have a material effect on the Company’s financial statements.
      In June 2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount, which is more than 50% likely of being realized upon ultimate settlement. The interpretation is effective for fiscal years beginning after December 15, 2006. The Company has not yet analyzed the impact that FIN 48 will have on the financial condition, results of operations, cash flows or disclosures.
      In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of this standard to have a material effect on the Company’s financial statements.
      In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 requires registrants to quantify misstatements using both the balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material based on relevant quantitative and qualitative factors. The guidance is effective for the first fiscal period

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
ending after November 15, 2006. The Company is currently evaluating the impact of the adoption of SAB No. 108 on the Company’s financial statements.
      A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.
2. Collaborative License and Research/ Development Agreements
      The Company has entered into a number of contractual relationships for technology licenses and research and development projects. The following provides a summary of the Company’s significant contractual relationships:
      During February 2000, the Company entered into an agreement (the “Agreement”) with a collaborative research partner for the full license of all patents, patents pending and future developments related to heart muscle function improvement and angiogenesis. As consideration for the Agreement, the Company paid $1,000,000 in cash and issued warrants to purchase 1,200,000 shares of Company common stock at an exercise price of $8.00 per share. The warrants had a fair value of $4.35 per warrant at the date of grant as computed using the Black-Scholes option valuation model using the following assumptions; estimated volatility of 65%, expected holding period of four years, and a risk free rate of 6%. During the year ended December 31, 2000, the Company recorded approximately $5,220,000 of expense related to these warrants, which is included as part of research and development expenses in the accompanying consolidated statements of operations. Under the terms of the Agreement, the Company is required to pay consideration of $3,000,000 upon the entering of a FDA Phase II clinical trial utilizing the technology of the research collaborator. In addition, if the Company obtains FDA approval of a method of heart muscle regeneration utilizing the patented technology contemplated under the Agreement, the Company will be required to pay additional consideration of $5,000,000. Further, if the Company produces successful commercial products that result directly from the patents contemplated under the Agreement, the Company will be required to pay royalties of 5% from specific sales as determined in the Agreement over the period of the patents’ useful lives.
      During 2000, the Company entered into an agreement with a certain research scientist (the “Scientist”), who at the time was a member of the Company’s Board of Directors, for various services and for intellectual property assigned to the Company. As part of the Scientist’s compensation, upon the satisfaction of certain defined conditions, the Company is obligated to grant options to purchase 400,000 shares of the Company’s common stock at an exercise price of $4.00 per share as revalued during the stock split dated March 5, 2003. The Scientist’s options only vest if the Scientist’s intellectual property produces successful commercial products for the Company that result directly from the Scientist’s intellectual property and generate in excess of $10,000,000 in U.S. revenue for the Company over a consecutive twelve month period during the term of the agreement. As the performance conditions had not been met, the Company has not recorded any related expense. In addition, the Company paid the Scientist $40,000 for consulting services in the year ended December 31, 2003 and $160,000 for the cumulative period from August 12, 1999 (date of inception) to December 31, 2005.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
3. Property and Equipment
      Property and equipment as of December 31 is summarized as follows:
                 
    2005   2004
         
Laboratory and medical equipment
  $ 177,891     $ 129,037  
Furniture, fixtures and equipment
    117,174       113,873  
Computer equipment
    10,783       1,800  
Leasehold improvements
    3,000       3,000  
             
      308,848       247,710  
Less accumulated depreciation and amortization
    (159,573 )     (113,253 )
             
      149,275       134,457  
Construction in process
    265,073        
             
    $ 414,348     $ 134,457  
             
      Property and equipment is stated at cost and depreciated over the estimated useful lives of the assets, ranging from three to seven years, using the straight-line method. Leasehold improvements are amortized over the shorter of 15 years or the remaining life of the lease. Improvements that extend the life of the asset are capitalized. Repairs and maintenance are charged to expense as incurred.
4. Accrued Expenses
      Accrued expenses consist of the following as of December 31:
                 
    2005   2004
         
Contract research and development
  $ 152,295     $ 226,223  
Royalty fees
    140,000       80,000  
Payroll, employee benefits and payroll taxes
    51,714       24,586  
CEO reimbursed expenses
          600,000  
Financed insurance
          26,269  
Professional fees
          24,000  
Other
    9,258       3,486  
             
    $ 353,267     $ 984,564  
             
5. Debt
      Note Payable
      The Company had a note payable to a bank that was paid in full along with accrued interest during September 2005. Interest was charged at a rate of 5.25% per annum.
      Line of Credit
      In May 2005, the Company entered into a line of credit agreement with a bank with all principal and all accrued interest not yet paid due May 27, 2006. The promissory note was for $1,200,000 at a variable interest rate of LIBOR plus 2.00% (6.34% as of December 31, 2005) due each month starting in June 2005. The Company made no borrowings under the line of credit and did not renew the line of credit upon expiration.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
6. Commitments and Contingencies
      Leases
      The Company entered into several operating lease agreements for facilities. Terms of certain lease arrangements include renewal options, escalation clauses, and payment of executory costs such as real estate taxes, insurance and common area maintenance.
      Approximate annual future minimum lease obligations under noncancelable operating lease agreements as of December 31, 2005 are as follows:
         
Year Ending December 31,    
     
2006
  $ 76,000  
2007
    78,000  
2008
    80,000  
2009
    82,000  
2010
    7,000  
       
Total
  $ 323,000  
       
      Rent expense was $110,093, $115,648 and $150,871 for the years ended December 31, 2005, 2004 and 2003, respectively and $919,751 for the cumulative period from August 12, 1999 (date of inception) to December 31, 2005.
      In 2005, the Company was provided with a tenant improvement allowance of $60,150 towards its improvements. Pursuant to SFAS No. 13, Accounting for Leases, and FASB Technical Bulletin  88-1, Issues Related to Accounting for Leases, the Company has recorded the tenant-funded improvements and the related deferred rent in its consolidated balance sheets. The deferred rent is being amortized as a reduction to rent expense on a straight line basis over the remaining life of the lease.
      In November 2006, the Company amended its facility lease to include additional space through 2010. The amendment for the additional space contains terms similar to the terms of the existing facility lease, including escalation clauses. The annual future minimum lease obligations related to the amendment range from approximately $39,000 to $44,000.
      Royalty Payments
      The Company is obligated to pay royalties on commercial sales of certain products that may be developed and sold under various licenses and agreements that have been obtained by the Company.
      The Company has entered into various licensing agreements that include the potential for royalty payments, as follows:
      William Beaumont Hospital
      In June 2000, the Company entered into an exclusive license agreement to use certain patents for the whole life of the patents in future projects. The royalty on the gross sales of products and services that directly rely upon the claims of the patents are in a range between 2% and 4% depending on gross sales. The patents’ lives end in 2015. The agreement also calls for a minimum royalty fee ranging from $10,000 per year to $200,000 per year for the term of the agreement, which is the remaining useful life of the patents expiring in 2015. As of December 31, 2005 and 2004, the Company’s liability under this agreement is $140,000 and $80,000, respectively which is reflected as a component of accrued expenses on the consolidated balance sheet.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
During 2005, 2004, and 2003 and for the cumulative period from August 12, 1999 (date of inception) to December 31, 2005, the Company incurred expenses of $60,000, $40,000, $40,000 and $140,000, respectively.
      Legal Proceedings
      The Company is subject to legal proceedings that arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such matters, if any, in excess of applicable insurance coverage, is not likely to have a material impact on the Company’s business, financial position, consolidated results of operations or liquidity. However, as the outcome of litigation and other claims is difficult to predict significant changes in the estimated exposures could exist.
7. Related Party Transactions
      As of December 31, 2004, accrued expenses included $600,000 of estimated travel and other related expenses advanced to the Company by the Company’s CEO. During 2005, this debt to the Company’s CEO was converted to shares in the Company’s common stock valued at $542,787, as it was determined that the actual advances were only $542,787.
      The son of one of the Company’s directors is an officer of the Company. The amount paid to this individual as salary for the years ended December 31, 2005 and 2004 and for the period from August 12, 1999 (date of inception) to December 31, 2005 was $119,839, $29,808 and $149,647, respectively.
      A cousin of the Company’s CEO is an officer of the Company. During 2005, 2004, and 2003 and for the period from August 12, 1999 (date of inception) to December 31, 2005, the Company paid this individual salary of $130,500, $136,500, $125,000 and $505,752, respectively. In addition, the Company utilized a printing entity controlled by this individual and paid this entity $9,511, $18,790, $9,276 and $390,699, respectively for the years ended December 31, 2005, 2004, and 2003 and for the period from August 12, 1999 (date of inception) to December 31, 2005.
      The sister-in -law of the Company’s CEO is an officer of the Company. The amount paid to this individual as salary for the years ended December 31, 2005, and 2004 and for the period from August 12, 1999 (date of inception) to December 31, 2005 was $60,523, $58,253, and $118,776, respectively.
8. Shareholders’ Equity
      Capital Stock
      In 2005, the Company sold 3,228,589 shares of common stock at a price of $3.50 per share to various investors. The Company also issued 1,958 shares in exchange for services and issued 155,082 shares in exchange for debt at a price of $3.50 per share.
      In 2004, the Company sold 1,308,833 shares of common stock at a price of $3.50 per share to various investors. The Company also issued 3,000 shares to various vendors in exchange for services valued at $10,500. The Company also issued 24,523 shares to the Company’s CEO as compensation for services valued at $85,830.
      In March 2003, the Company effected a stock split, issuing 2,932,694 additional shares of the Company’s common stock. The stock split provided two shares of common stock for every one share issued as of that date. The Company’s CEO and founding shareholder, who owned 7,131,250 shares of common stock, did not participate in the stock split.
      After the stock split, the selling price of the Company’s shares of common stock was reduced from $8.00 to $3.50 per share.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
      After the 2003 stock split, the Company sold 909,225 shares of common stock at a price of $3.50 per share to various investors. The Company issued 118,132 shares valued at $416,383 to employees as compensation for services related to the closing of various locations. The Company also issued 6,876 shares to various vendors in exchange for services valued at $24,066 and issued 108,571 shares to the Company’s CEO as compensation for services provided to the Company during 2003 and 2002.
      In 2002, the Company sold 884,525 shares of common stock at a price of $8.00 per share to various investors. The Company also issued 28,438 shares to various vendors in exchange for services valued at $227,503.
      In 2001, the Company sold 797,750 shares of common stock at a price of $8.00 per share to various investors. The Company also issued 6,710 shares to various vendors in exchange for services valued at $54,000 and issued 131,250 shares to the Company’s CEO as compensation for services provided to the Company during 2001.
      In 2000, the Company sold 1,208,825 shares of common stock at a price of $8.00 per share to various investors. Of the 1,208,825 shares sold in 2000, payment on 62,500 of these shares was not received until January 2001.
      In 1999, the Company’s CEO and founding shareholder contributed $400,000 to the Company in exchange for 7,000,000 shares of common stock.
      CEO Paid in and Contributed Capital
      During 2005, the Company’s CEO was issued 155,082 shares of the Company’s common stock at a price of $3.50 per share in exchange for $542,787 of debt due to travel and other related expenses advanced by the Company’s CEO during the previous three years.
      The Company’s CEO elected not to receive salary payments of $85,830, $130,000 and $250,000 for services provided to the Company during 2004, 2003 and 2002, respectively. Such amounts were converted into 24,523, 37,143 and 71,428 shares of the Company’s common stock at a price of $3.50 per share on December 31, 2004 and 2003, respectively, where the 2003 and 2002 shares were both issued in 2003.
      In 2001, the Company’s CEO also elected not to receive a salary payment or a stock conversion of $250,000 for services provided during 2001.
      In 2000, the Company’s CEO and founding shareholder contributed $800,000 to the Company and elected not to receive payment for $250,000 of salary related to services provided to the Company during 2000. Such amounts were recorded as contributed capital during 2000. On June 28, 2001, the Company’s Board of Directors approved the conversion of this contributed capital and salary deferral into 131,250 shares of the Company’s common stock at a price of $8.00 per share.
9. Stock Options
      In December 1999, the Company adopted two stock option plans; an employee stock option plan and a directors and consultants stock option plan (collectively referred to as the Stock Option Plans), under which a total of 2,000,000 shares of common stock were reserved for issuance upon exercise of options granted by the Company. In 2001, the Company amended the Stock Options Plans to increase the total shares of common stock reserved for issuance to 2,750,000. In 2003, the Company approved an increase of 500,000 shares, making the total 3,250,000 shares available for issuance under the Stock Option Plans.
      The Stock Option Plans provide for the granting of incentive and non-qualified options. The exercise price of incentive stock options must equal at least the fair value of the common stock on the date of grant,

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
and the exercise price of non-statutory stock options may be no less than the per share par value . The options have terms of up to ten years after the date of grant and become exercisable as determined upon grant, typically over either three or four year periods from the date of grant. Certain outstanding options vested over a one-year period and some vested immediately.
      As a result of the stock split in March 2003, the exercise price per share of all outstanding options was revalued to reflect the change in the outstanding number of shares.
      A summary of option activity is as follows:
                   
    Shares Underlying   Weighted Average
    Options   Exercise Price
         
Options outstanding as of December 31, 2002
    2,234,605       2.61  
 
Granted
    323,464       3.50  
 
Cancelled
    (803,525 )     3.33  
             
Options outstanding as of December 31, 2003
    1,754,544       2.44  
 
Granted
    729,215       3.50  
 
Cancelled
    (114,000 )     3.50  
             
Options outstanding as of December 31, 2004
    2,369,759       2.72  
 
Granted
    795,670       3.50  
 
Cancelled
    (287,821 )     2.73  
             
Options outstanding as of December 31, 2005
    2,877,608       2.93  
             
Exercisable as of December 31, 2005
    2,335,895          
             
Available for grant as of December 31, 2005
    372,392          
             
      The weighted average fair value per share of options granted during 2005, 2004 and 2003 was $1.84. The weighted average remaining contractual life of the options outstanding as of December 31, 2005 and 2004 was approximately 7.1 years.
      As of December 31, 2005, the exercise prices of the Company’s outstanding stock options are as follows:
                 
        Weighted Average Remaining
Per Share Exercise Price   Shares   Contractual Life (Years)
         
$0.79
    562,000       4.0  
1.75
    67,500       4.1  
3.50
    2,248,108       7.9  
             
      2,877,608          
             
      As of December 31, 2005, the exercisable stock options are as follows:
                 
        Weighted Average Remaining
Per Share Exercise Price   Shares   Contractual Life (Years)
         
$0.79
    562,000       4.0  
1.75
    67,500       4.1  
3.50
    1,706,395       7.6  
             
      2,335,895          
             

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
10. Deferred Compensation
      In 2005, 2004 and 2003, the Company granted 718,621, 304,215 and 53,143 stock options, respectively, to various consultants and advisory board members. For accounting purposes, the measurement date for these options is when the counterparty’s performance is complete and, therefore, are required to be remeasured as of each balance sheet date. The Company computed the fair value of the options using the Black-Scholes option valuation model in accordance with SFAS No. 123. Such amounts have been recorded as deferred compensation and are being amortized over the vesting period of the related options, which is generally three years.
11. Income Taxes
      Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred income taxes are as follows:
                         
    December 31,
     
    2005   2004   2003
             
Deferred tax assets:
                       
Deferred compensation
  $ 2,165,000     $ 1,421,000     $ 1,363,000  
Net operating loss carryforward
    17,102,000       15,088,000       13,079,000  
                   
Total deferred tax assets
    19,267,000       16,509,000       14,442,000  
Valuation allowance for deferred tax assets
    (19,267,000 )     (16,509,000 )     (14,442,000 )
                   
Net deferred tax assets
  $     $     $  
                   
      SFAS No. 109 requires a valuation allowance to reduce the deferred tax assets reported if, based on the weight of the evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. After consideration of all the evidence, both positive and negative, management has determined that a valuation allowance of $19,267,000 as of December 31, 2005 is necessary to reduce the deferred tax assets to the amount that will more likely than not be realized. The change in the valuation allowance for the current year is $2,758,000. The effective tax rate of 0% differs from the statutory rate of 35% for all periods presented due primarily to the valuation allowance.
      As of December 31, 2005, 2004 and 2003, the Company had federal income tax net operating loss carryforwards of approximately $45,448,000, $40,097,000 and $35,758,000, respectively. The operating loss carryforwards will expire beginning in 2019.
12. Subsequent Events
      Licensing Agreements
      In February 2006, the Company entered into an agreement to license from The Cleveland Clinic Foundation various patents. In exchange for the license, the Company agreed to pay: 1) $250,000 upon the closing of the agreement; 2) $1,250,000 upon the closing of the Company’s private or public financing that generates at least $5,000,000 or September 30, 2006, whichever is first to occur; 3) a maintenance fee of $150,000 per year for the duration of the license starting in the second year; 4) various milestone payments ranging from $200,000 upon the approval of an Investigational New Drug application by the FDA and $1,000,000 upon the first commercial sale of an FDA approved licensed product; and 5) a 5% royalty on the net sales of products and services that directly rely upon the claims of the patents for the first $300,000,000 of annual net sales and a 3% royalty for any annual net sales over $300,000,000. The royalty percentage shall be

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
reduced by 0.5% for each 1.0% of license fees paid to any other entity, however, the royalty percentage shall not be reduced under 2.5%. Subsequent to December 31, 2005, the Company has paid $1,500,000 under this agreement, and such amounts have been included in research and development expense. Total potential milestone payments under this agreement are $2,250,000. At the option of The Cleveland Clinic Foundation, 50% of the milestone payments may be paid in the form of Company common stock.
      In April 2006, the Company entered into an agreement to buy from TriCardia, LLC an exclusive license for various patents to be used in the MyoCath II project. In exchange for the license, the Company agreed to do the following: 1) pay $100,000 upon the closing of the agreement; and 2) issue a warrant exercisable for 52,632 shares of the Company’s common stock at an exercise price of $4.75 per share. The warrant shall vest on a straight line basis over a 12 month period and expires on February 28, 2016. The fair value of this warrant of approximately $193,000 will be amortized to research and development expense on a straight line basis over the twelve month vesting period.
      In December 2006, the Company entered into an agreement with Tissue Genesis, Inc.(“Tissue Genesis”), for exclusive distribution rights to Tissue Genesis products and a license for various patents to be used in the treatment of acute myocardial infarction. In exchange for the license, the Company agreed to do the following: 1) issue 21,052 shares of the Company’s common stock at a price of $4.75 and expires on December 31, 2026; and 2) issue a warrant exercisable for 2,500,000 shares of the Company’s common stock to Tissue Genesis at an exercise price of $4.75 per share. This warrant shall vest in three parts as follows: i) 1,000,000 shares vesting only upon the Company’s successful completion of human safety testing of the licensed technology, ii) 750,000 shares vesting only upon the Company exceeding net sales of $10 million or net profit of $2 million from the licensed technology, and iii) 750,000 shares vesting only upon the Company exceeding net sales of $100 million or net profit of $20 million from the licensed technology. Since the issuance of these warrants is contingent upon the achievement of the specific milestones, the fair value of this warrant, which is valued at approximately $9,200,000 as of December 31, 2006, will only be expensed to research and development as these various milestones are achieved. In the event of an acquisition (or merger) of the Company by a third party, all unvested shares of common stock subject to the warrant shall immediately vest prior to such event. In addition, the Company will pay a 2% royalty of net sales of licensed products.
      Settlement Agreement
      On August 24, 2006, the Company entered into an agreement with an officer of the Company, who is the cousin of the Company’s CEO. The terms of the agreement are as follows:
  •  As full and complete settlement for unpaid salary for past services, the Company issued 77,143 shares of the Company’s common stock and agreed to pay the employee’s income taxes related to the receipt of the Company’s common stock estimated to be approximately $153,000. Based on a fair value of the common stock of $4.75 per share which is based on a current valuation of the Company, the related liability for the issuance of the common stock and the $153,000 in cash is $519,699, which will be expensed in August 2006
 
  •  As consideration for continued employment as an officer of the Company, the employee will receive an annual salary of $130,000 per year
 
  •  The Company issued to the employee a warrant to purchase 305,000 shares of the Company’s common stock at an exercise price of $3.50 per share. This warrant is exercisable immediately and expires 10 years from the date of grant. The fair value of his warrant of approximately $1,200,000 will be recorded as compensation expense in August 2006.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
  •  The Company issued stock options to purchase up to 457,500 shares of the Company’s common stock at an exercise price of $3.50 per share. These stock options are exercisable immediately and expire 10 years from the date of grant. The fair value of these stock options of approximately $1,800,000 will be recorded as compensation expense in August 2006.
      The fair value of the warrant and the stock options was estimated at the date of grant by using the Black-Scholes pricing model with the following assumptions: risk-free rate of 6%; volatility of 100%; and an expected holding period of 5 years.
      Private Placement
      Commencing in 2006, the Company initiated capital raising activities through the use of a rolling private placement. Through January 31, 2007, the Company has raised net proceeds of approximately $9.0 million through the sale of 1,921,485 shares of the Company’s common stock at a price of $4.75 per share to various investors.
      Issuance of Stock Options to Employees
      In October 2006 through December 2006, the Company issued stock options to purchase 39,852 shares of the Company’s common stock at an exercise price of $4.75 per share.
      In January 2007, the Company issued stock options to purchase 56,000 shares of the Company’s common stock at an exercise price of $5.23 per share.
13. Supplemental Disclosure of Cash Flow Information
      During the years ended December 31, 2005, 2004, and 2003 and for the period from August 12, 1999 (date of inception) through December 31, 2005, the Company incurred non-cash stock compensation expense for stock options issued of $1,952,350, $148,812, $79,371, and $5,446,308, respectively.
      In 2000, the Company incurred an expense of $5,220,000 related to the issuance of a warrant in exchange for licenses and intellectual property.
      In 2005, the Company issued 155,082 shares of the Company’s common stock valued at $542,787 to its CEO.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Consolidated Balance Sheets
                     
    September 30,   December 31,
    2006   2005
         
    (Unaudited)    
ASSETS
               
Current assets:
               
 
Cash and cash equivalents
  $ 5,183,441     $ 5,157,872  
 
Receivables
    134,992       72,037  
 
Inventory
    126,462       160,352  
 
Prepaid expenses
    95,484       54,302  
             
   
Total current assets
    5,540,379       5,444,563  
Property and equipment, net
    523,176       414,348  
Deferred offering costs
    94,954        
Other assets
    68,854       10,159  
             
   
Total assets
  $ 6,227,363     $ 5,869,070  
             
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
 
Accounts payable
  $ 1,559,706     $ 225,058  
 
Accrued expenses
    577,733       353,267  
 
Deferred revenue
    634,000       656,500  
             
   
Total current liabilities
    2,771,439       1,234,825  
             
 
Deferred rent
    39,522       47,813  
             
   
Total liabilities
    2,810,961       1,282,638  
Commitments and contingencies
               
Shareholders’ equity
               
 
Preferred stock ($0.001 par value) 5,000,000 shares authorized, none issued and outstanding
           
 
Common stock ($0.001 par value) 40,000,000 shares authorized, 20,098,537 and 18,861,427 shares issued and outstanding as of September 30, 2006 and December 31, 2005, respectively
    20,099       18,862  
 
Additional paid-in capital
    65,671,979       56,080,772  
 
Deferred Compensation
          (181,325 )
 
Deficit accumulated during the development stage
    (62,275,676 )     (51,331,877 )
             
   
Total shareholders’ equity
    3,416,402       4,586,432  
             
   
Total liabilities and shareholders’ equity
  $ 6,227,363     $ 5,869,070  
             

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Consolidated Statements of Operations
(Unaudited)
                             
            Cumulative
            Period from
        August 12,
    For the Nine-Month Periods   1999 (Date of
    Ended September 30,   Inception) to
        September 30,
    2006   2005   2006
             
Revenues
    106,488       126,637       436,498  
Cost of sales
    63,240       75,000       245,097  
                   
 
Gross profit
    43,248       51,637       191,401  
Expenses:
                       
 
Research and development
    5,339,463       3,142,288       43,842,493  
 
Marketing, general and administrative
    5,679,787       2,110,617       18,732,586  
 
Depreciation and amortization
    45,961       32,900       205,534  
                   
   
Total expenses
    11,065,211       5,285,805       62,780,613  
 
Loss from operations
    (11,021,963 )     (5,234,168 )     (62,589,212 )
Interest income
    78,351       17,317       339,090  
Interest expense
    (187 )     (8,536 )     (25,554 )
                   
 
Total interest income
    78,164       8,781       313,536  
 
Loss before income taxes
  $ (10,943,799 )   $ (5,225,387 )   $ (62,275,676 )
Income taxes
                 
                   
 
Net loss
  $ (10,943,799 )   $ (5,225,387 )   $ (62,275,676 )
                   
Loss per share — basic and diluted
  $ (0.57 )   $ (0.31 )        
                   
Weighted average shares outstanding — basic and diluted
    19,057,111       16,681,098          
                   

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Consolidated Statement of Shareholders’ Equity
(Unaudited)
                                                   
                    Deficit    
                Accumulated    
    Common Stock   Additional       During the    
        Paid-In   Deferred   Development    
    Shares   Amount   Capital   Compensation   Stage   Total
                         
Balance as of December 31, 2005
    18,861,427     $ 18,862     $ 56,080,772     $ (181,325 )   $ (51,331,877 )   $ 4,586,432  
 
Reclassification of deferred compensation due to adoption of SFAS No. 123(R)
                (181,325 )     181,325              
 
Issuance of common stock
    1,159,967       1,155       5,396,998                   5,398,153  
 
Equity instruments issued in connection with settlement agreement
    77,143       77       3,294,352                   3,294,429  
 
Common stock issued in exchange for services
          5       16,438                   16,443  
 
Fair value of warrants granted in exchange for licenses
                96,578                   96,578  
 
Stock-based compensation
                968,166                   968,166  
 
Net loss
                            (10,943,799 )     (10,943,799 )
                                     
Balance as of September 30, 2006
    20,098,537     $ 20,099     $ 65,671,979     $     $ (62,275,676 )   $ 3,416,402  
                                     

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Statements of Cash Flows
Unaudited
                                   
    For the Nine-Month Periods   Cumulative Period
    Ended September 30,   from August 12, 1999
        (Date of Inception)
    2006   2005   to September 30, 2006
             
Cash flows from operating activities
                       
 
Net loss
  $ (10,943,799 )   $ (5,225,387 )   $ (62,275,676 )
 
Adjustments to reconcile net loss to net cash used in operating activities
                       
   
Depreciation and amortization
    45,961       32,900       205,534  
   
Write off of note receivable
                165,000  
   
Warrants granted in exchange for licenses and intellectual property
    96,578             5,316,578  
   
Equity instruments issued in connection with settlement agreement
    3,294,429             3,294,429  
   
Common stock issued in exchange for services
    16,443             1,277,017  
   
Stock-based compensation
    968,166       1,464,263       6,414,474  
   
Change in assets and liabilities
                       
     
Receivables
    (62,955 )     (60,150 )     (134,992 )
     
Inventories
    33,890       (10,000 )     (126,462 )
     
Prepaid expenses
    (41,182 )     (28,994 )     (95,484 )
     
Other current assets
          6,586        
     
Deferred offering costs
    (94,954 )           (94,954 )
     
Other assets
    (58,695 )     (815 )     (233,854 )
     
Accounts payable
    1,334,648       (415,399 )     1,559,706  
     
Accrued expenses and deferred rent
    216,175       (179,754 )     1,160,042  
     
Deferred revenue
    (22,500 )     (22,500 )     634,000  
                   
       
Net cash used in operating activities
    (5,217,795 )     (4,439,250 )     (42,934,642 )
Cash flows from investing activities
                       
     
Acquisition of property and equipment
    (154,789 )     (288,823 )     (728,710 )
                   
       
Net cash used in investing activities
    (154,789 )     (288,823 )     (728,710 )
Cash flows from financing activities
                       
     
Proceeds from note payable
                200,000  
     
Repayment of note payable
          (200,000 )     (200,000 )
     
Proceeds from issuance of common stock, net
    5,398,153       10,290,061       48,846,793  
                   
       
Net cash provided by financing activities
    5,398,153       10,090,061       48,846,793  
                   
         
Net increase in cash and cash equivalents
    25,569       5,361,988       5,183,441  
Cash and cash equivalents, beginning of period
    5,157,872       181,984        
                   
Cash and cash equivalents, end of period
  $ 5,183,441     $ 5,543,972     $ 5,183,441  
                   
Disclosures of cash flow information:
                       
Interest paid
  $ 187     $ 8,536     $ 25,554  
Income taxes paid
  $     $     $  

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Summary of Significant Accounting Policies
     Organization and Business
      Bioheart, Inc. (the “Company”) is a biotechnology company focused on the discovery, development and commercialization of therapies using cells derived from a patient’s body, and related devices, for the treatment of heart damage. The Company’s lead product candidate is MyoCell, an innovative clinical therapy designed to populate regions of scar tissue within a patient’s heart with living muscle tissue for the purpose of improving cardiac function. The Company was incorporated in Florida on August 12, 1999.
     Development Stage
      The Company has operated as a development stage enterprise since its inception by devoting substantially all of its effort to raising capital, research and development of products noted above, and developing markets for its products. Accordingly, the financial statements of the Company have been prepared in accordance with the accounting and reporting principles prescribed by Statement of Financial Accounting Standards (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises, issued by the Financial Accounting Standards Board (the “FASB”).
      Prior to marketing its products in the United States, the Company’s products must undergo rigorous preclinical and clinical testing and an extensive regulatory approval process implemented by the Food and Drug Administration (the “FDA”). There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials. The Company’s success will depend in part on its ability to successfully complete clinical trials, obtain necessary regulatory approvals, implement its commercialization strategy, obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company. The Company will require substantial future capital in order to meet its objectives. The Company currently has no committed sources of capital. The Company will need to seek substantial additional financing through public and/or private financing, and financing may not be available when the Company needs it or may not be available on acceptable terms.
     Interim Financial Statements
      The accompanying unaudited interim condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting of interim financial information. Pursuant to such rules and regulations, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted. The accompanying unaudited interim condensed financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included elsewhere in this prospectus.
      In the opinion of management, the unaudited interim condensed financial statements of the Company contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 2006, the results of its operations for the nine month periods ended September 30, 2006 and 2005 and its cash flows for the nine month periods ended September 30, 2006 and 2005. The results of operations and cash flows for the nine month period ended September 30, 2006 are not necessarily indicative of the results of operations or cash flows which may be reported for the year ended December 31, 2006.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
(Unaudited)
     Basis of Consolidation
      The accompanying consolidated financial statements include the accounts of Bioheart, Inc. and its wholly-owned subsidiaries. The Company has established various subsidiaries in foreign countries and through December 31, 2005 these foreign entities have been inactive. All intercompany transactions are eliminated in consolidation.
     Use of Estimates
      The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
     Stock Options
      On January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS No. 123R”) using the modified prospective transition method. SFAS No. 123R requires the Company to measure all share-based payment awards granted after January 1, 2006, including those with employees, at fair value. Under SFAS No. 123R, the fair value of stock options and other equity-based compensation must be recognized as expense in the statements of operations over the requisite service period of each award.
      Beginning January 1, 2006, the Company has recognized compensation expense under SFAS No. 123R for the unvested portions of outstanding share-based awards previously granted under our employee stock option plan, over the periods these awards continue to vest. This compensation expense is recognized based on the fair values and attribution methods that were previously disclosed in our prior period financial statements.
      Prior to January 1, 2006, the Company applied the intrinsic value-based method of accounting for share-based payment transactions with our employees, as prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44, Accounting for Certain Transactions Involving Stock Compensation-An Interpretation of APB Opinion No. 25. Under the intrinsic value method, compensation expense was recognized only if the current market price of the underlying stock exceeded the exercise price of the share-based payment award as of the measurement date (typically the date of grant). Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), established accounting and disclosure requirements using a fair value-based method of accounting for stock-based employee compensation plans. As permitted by SFAS No. 123 and by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation — Transition and Disclosure, the Company disclosed on a pro forma basis the net income and earnings per share that would have resulted had we adopted SFAS No. 123 for measurement purposes.
      Adjusted pro forma information regarding net loss is required by SFAS No. 123 and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS No. 123. The fair value of these options was estimated at the date of grant using the Black-Scholes pricing model with the following assumptions: risk-free interest rate of 6.00%; estimated volatility of 100.0%; dividend yield of 0%; and a weighted average expected life of the options of 5.0 years.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
(Unaudited)
     Recent Accounting Pronouncements
      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, (“SFAS No. 154”) which changes the requirements for the accounting and reporting of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in accounting principle as well as to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS No. 154 requires that changes in accounting principle be retrospectively applied. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not expect the adoption of this standard to have a material effect on the Company’s financial statements.
      In June 2006, the FASB issued FASB Interpretation Number 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109. The interpretation contains a two step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. The interpretation is effective for the first interim period in the fiscal years beginning after December 15, 2006. The Company has not yet analyzed the impact that this interpretation will have on its financial condition, results of operations, cash flows or disclosures.
      In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after December 15, 2006. The Company does not expect the adoption of this standard to have a material effect on the Company’s financial statements.
      In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (“SAB No. 108”), which provides interpretive guidance on the consideration of the effects of prior year misstatements in quantifying current year misstatements for the purpose of a materiality assessment. SAB No. 108 requires registrants to quantify misstatements using both the balance sheet and income statement approaches and to evaluate whether either approach results in quantifying an error that is material based on relevant quantitative and qualitative factors. The guidance is effective for the first fiscal period ending after November 15, 2006. The Company is currently evaluating the impact of the adoption of SAB No. 108 on the Company’s financial statements.
      A variety of proposed or otherwise potential accounting standards are currently under study by standard-setting organizations and various regulatory agencies. Because of the tentative and preliminary nature of these proposed standards, management has not determined whether implementation of such proposed standards would be material to the Company’s consolidated financial statements.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
(Unaudited)
2. Collaborative License and Research/ Development Agreements
      The Company has entered into a number of contractual relationships for technology licenses and research and development projects. The following provides a summary of the Company’s significant contractual relationships:
      In February 2006, the Company entered into an agreement to buy from The Cleveland Clinic Foundation an exclusive license for various patents to be used in the MyoCell II with SDF-1 project.
      In exchange for the license, the Company agreed to pay: 1) $250,000 upon the closing of the agreement; 2) $1,250,000 upon the closing of the Company’s private or public financing that generates at least $5,000,000 or September 30, 2006, whichever is first to occur; 3) a maintenance fee of $150,000 per year for the duration of the license starting in the second year; 4) various milestone payments ranging from $200,000 upon the approval of an Investigational New Drug application by the FDA and $1,000,000 upon the first commercial sale of an FDA approved licensed product; and 5) a 5% royalty on the net sales of products and services that directly rely upon the claims of the patents for the first $300,000,000 of annual net sales and a 3% royalty for any annual net sales over $300,000,000. The royalty percentage shall be reduced by 0.5% for each 1.0% of license fees paid to any other entity. However, the royalty percentage shall not be reduced under 2.5%. Subsequent to December 31, 2005, the Company has paid $1,500,000 under this agreement, and such amounts have been included in research and development expense. Total potential milestone payments under this agreement are $2,250,000. At the option of The Cleveland Clinic Foundation, 50% of the milestone payments may be paid in the form of common stock.
      Upon the closing of this agreement in February 2006, the first payment of $250,000 was made. The second amount due of $1,250,000 was paid as follows: on September 28, 2006, a payment of $312,000 was made, the balance of $938,000 was accrued on September 30, 2006 and subsequently paid in October 2006.
      In April 2006, the Company entered into an agreement to license from TriCardia, LLC various patents to be used in the MyoCath II project. In exchange for the license, the Company agreed to do the following: 1) pay $100,000 upon the closing of the agreement; and 2) issue a warrant exercisable for 52,632 shares of the Company’s common stock at an exercise price of $4.75 per share. The warrant shall vest on a straight line basis over a 12 month period and expires on February 28, 2016. The fair value of this warrant of approximately $193,000 is being amortized to research and development expense on a straight line basis over the twelve month vesting period.
3. Related Party Transactions
      The son of one of the Company’s directors is an officer of the Company. The amount paid to this individual as salary for the nine month periods ended September 30, 2006 and 2005 was $96,154 and $81,894, respectively.
      A cousin of the Company’s CEO is an officer of the Company. During the nine month periods ended September 30, 2006 and 2005, the Company paid this individual salary of $100,000. In addition, the Company utilized a printing entity controlled by this individual and paid this entity $12,199 and $5,495 for the nine-month periods ended September 30, 2006 and 2005, respectively.
      The sister-in -law of the Company’s CEO is an officer of the Company. The amount paid to this individual as salary for the nine month periods ended September 30, 2006 and 2005 were $46,175 and $46,174, respectively.

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Table of Contents

Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
(Unaudited)
      On August 24, 2006, the Company entered into an agreement with an officer of the Company, who is the cousin of the Company’s CEO. The terms of the agreement are as follows:
  •  The Company issued 77,143 shares of the Company’s common stock and agreed to pay the employee’s income taxes related to the receipt of the Company’s common stock estimated to be approximately $153,000. Based on a fair value of the common stock of $4.75 per share which is based on a current valuation of the Company, the related liability for the issuance of the common stock and the $153,000 in cash is $519,699, which was expensed in August 2006.
 
  •  As consideration for continued employment as an officer of the Company, the employee will receive an annual salary of $130,000 per year.
 
  •  The Company issued to the employee a warrant to purchase 305,000 shares of the Company’s common stock at an exercise price of $3.50 per share. This warrant is exercisable immediately and expires 10 years from the date of grant. The fair value of this warrant of approximately $1,200,000 was recorded as compensation expense in August 2006.
 
  •  The Company issued stock options to purchase up to 457,500 shares of the Company’s common stock at an exercise price of $3.50 per share. These stock options are exercisable immediately and expire 10 years from the date of grant. The fair value of these stock options of approximately $1,800,000 was recorded as compensation expense in August 2006.
      The fair value of the warrant and the stock options was estimated at the date of grant by using the Black-Scholes pricing model with the following assumptions: risk-free rate of 6%; volatility of 100%; and an expected holding period of 5 years.
4. Shareholders’ Equity
     Capital Stock
      Commencing in 2006, the Company initiated capital raising activities through the use of a rolling private placement. During the nine month period ended September 30, 2006, the Company raised net proceeds of approximately $5.4 million through the sale of 1,155,269 shares of common stock at a price of $4.75 per share to various investors. Continuing through January 31, 2007, the Company raised additional net proceeds of approximately $3.6 million through the sale of 766,216 shares of common stock at a price of $4.75 per share. The Company also issued 77,143 shares of common stock to an officer of the Company at a price of $3.50 per share.
5. Stock Options
      In December 1999, the Company adopted two stock option plans; an employee stock option plan and a directors and consultants stock option plan (collectively referred to as the “Stock Option Plans”), under which a total of 2,000,000 shares of common stock were reserved for issuance upon exercise of options granted by the Company. During 2001, the Company amended the Stock Options Plans to increase the total shares of common stock reserved for issuance to 2,750,000. During 2003, the Company approved an increase of 500,000 shares, making the total 3,250,000 shares available for issuance under the Stock Option Plans. During July 2006, the Company approved an increase of 1,750,000 shares, making the total 5,000,000 shares available for issuance under the Stock Option Plans.
      The Stock Option Plans provide for the granting of incentive and non-qualified options. The terms of stock options granted under the plans are determined by the Compensation Committee of the Board of Directors at the time of grant, including the exercise price, term and any restrictions on the exercisability of

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Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
(Unaudited)
such option. The exercise price of incentive stock options must equal at least the fair value of the common stock on the date of grant, and the exercise price of non-statutory stock options may be no less than the per share par value . The options have terms of up to ten years after the date of grant and become exercisable as determined upon grant, typically over either three or four year periods from the date of grant. Certain outstanding options vested over a one-year period and some vested immediately.
      The following information applies to options outstanding and exercisable at September 30, 2006:
                                   
            Weighted-Average    
            Remaining   Aggregate
    Shares Under   Weighted-Average   Contractual Term   Intrinsic
    Option   Exercise Price   (in years)   Value
                 
Options outstanding at January 1, 2006
    2,877,608     $ 2.93       7.1     $ 1,640,237  
 
Granted
    867,500     $ 3.63       9.9     $ 971,600  
 
Exercised
                       
 
Forfeited
    (637,833 )   $ 3.50       6.9        
                         
Options outstanding at September 30, 2006
    3,107,275     $ 3.01       7.9     $ 5,406,659  
                         
Options exercisable at September 30, 2006
    2,639,391     $ 2.91       7.2     $ 4,856,479  
                         
Available for grant at September 30, 2006
    1,892,725                          
                         
      The weighted average fair value per share of options granted during the nine month period ended September 30, 2006 was $3.82. The weighted average remaining contractual life of the options outstanding is approximately 7.2 years as of September 30, 2006.
      For the nine month period ended September 30, 2006, the Company recognized $4,262,595 in stock-based compensation costs of which $238,141 represents research and development and the remaining amount is marketing, general and administrative expense. No tax benefits were attributed to the stock-based compensation expense because a valuation allowance was maintained for all net deferred tax assets. The Company elected to adopt the alternative method of calculating the historical pool of windfall tax benefits as permitted by FASB Staff Position (“FSP”) No. SFAS  123R-c, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards. This is a simplified method to determine the pool of windfall tax benefits that is used in determining the tax effects of stock compensation in the results of operations and cash flow reporting for awards that were outstanding as of the adoption of SFAS No. 123R. As of September 30, 2006, the Company had $1,642,376 of unrecognized compensation costs related to non-vested stock option awards that is expected to be recognized over a weighted average period of 2.3 years.

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Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
(Unaudited)
      The following table illustrates the effect on net loss and basic and diluted loss per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to options granted under the Company’s stock option plans for the nine month period ended September 30, 2005:
         
    Nine Month Period
    Ended
    September 30, 2005
     
Net loss — as reported
  $ (5,225,387 )
Deduct: Stock compensation expense determined under fair value method
    (326,402 )
       
Adjusted pro forma net loss
  $ (5,551,789 )
       
Basic and diluted loss per common share:
       
As reported
  $ (0.31 )
Adjusted pro forma
  $ (0.33 )
      The following information applies to options outstanding and exercisable at September 30, 2006:
                                         
    Options Outstanding    
        Options Exercisable
        Weighted-Average        
        Remaining   Weighted-Average       Weighted-Average
    Shares   Contractual Life   Exercise Price   Shares   Exercise Price
                     
$0.79
    562,000       3.3     $ 0.79       562,000     $ 0.79  
$1.75
    67,500       3.4     $ 1.75       67,500     $ 1.75  
$3.50
    2,386,775       8.1     $ 3.50       1,938,250     $ 3.50  
$4.75
    91,000       9.9     $ 4.75       71,641     $ 4.75  
                               
      3,107,275             $ 3.01       2,639,391     $ 2.91  
                               
      The Company uses the Black-Scholes option-pricing model to determine the fair value of stock options on the date of grant. This model derives the fair value of stock options based on certain assumptions related to expected stock price volatility, expected option life, risk-free interest rate and dividend yield. The Company’s expected volatility is based on the historical volatility of other publicly traded development stage companies in the same industry. The estimated expected option life is based primarily on historical employee exercise patterns and considers whether and the extent to which the options are in-the -money. The risk-free interest rate assumption is based upon the U.S. Treasury yield curve appropriate for the term of the expected life of the options.
      For the nine month period ended September 30, 2006 and the nine month period ending September 30, 2005, the fair value of each option grant was estimated on the date of grant using the following weighted-average assumptions.
                 
    For the Nine Months Ended
     
    September 30, 2006   September 30, 2005
         
Expected dividend yield
    00.0 %     00.0 %
Expected price volatility
    100.0 %     56.0 %
Risk free interest rate
    6.0 %     4.4 %
Expected life of options in years
    5       5  

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Bioheart, Inc. and Subsidiaries
(A development stage enterprise)
Notes to Consolidated Financial Statements — (Continued)
(Unaudited)
6. Subsequent Events
      In November 2006, the Company amended their facility lease to include additional space through 2010. The amendment for the additional space contains terms similar to the terms of the existing facility lease, including escalation clauses. The annual future minimum lease obligations related to the amendment range from approximately $39,000 to $44,000.
      In December 2006, the Company entered into an agreement with Tissue Genesis, Inc.(“Tissue Genesis”), for exclusive distribution rights to Tissue Genesis products and a license for various patents to be used in the treatment of acute myocardial infarction and heart failure. In exchange for the license, the Company agreed to do the following: 1) issue 21,052 shares of the Company’s common stock at a price of $4.75; and 2) issue a warrant exercisable for 2,500,000 shares of the Company’s common stock to Tissue Genesis at an exercise price of $4.75 per share. This warrant shall vest in three parts as follows: i) 1,000,000 shares vesting only upon the Company’s successful completion of human safety testing of the licensed technology, ii) 750,000 shares vesting only upon the Company exceeding net sales of $10 million or net profit of $2 million from the licensed technology, and iii) 750,000 shares vesting only upon the Company exceeding net sales of $100 million or net profit of $20 million from the licensed technology. Since the issuance of these warrants is contingent upon the achievement of the specific milestones, the fair value of this warrant, which is valued at approximately $9,200,000 as of December 31, 2006, will only be expensed to research and development as these various milestones are achieved. In the event of an acquisition (or merger) of the Company by a third party, all unvested shares of common stock subject to the warrant shall immediately vest prior to such event. In addition, the Company will pay a 2% royalty of net sales of licensed products.
      In October 2006 through December 2006, the Company issued stock options to employees to purchase 39,852 shares of the Company’s common stock at an exercise price of $4.75 per share.
      In January 2007, the Company issued stock options to employees to purchase 56,000 shares of the Company’s common stock at an exercise price of $5.23 per share.
7. Supplemental Disclosure of Cash Flow Information
      During the nine month periods ended September 30, 2006 and 2005 and for the period from August 12, 1999 (date of inception) through September 30, 2006, the Company incurred non-cash compensation related to a settlement agreement through the issuance of equity instruments of $1,537,629, $0, and $1,537,629, respectively.
      During the nine month periods ended September 30, 2006 and 2005 and for the period from August 12, 1999 (date of inception) through September 30, 2006, the Company issued common stock in exchange for services of $16,443, $0, and $1,277,017, respectively.
      During the nine month periods ended September 30, 2006 and 2005 and for the period from August 12, 1999 (date of inception) through September 30, 2006, the Company issued warrants for licenses and intellectual property resulting in expense of $96,578, $0, and $5,316,578, respectively.

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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13.      Other Expenses of Issuance and Distribution
      The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of the common stock being registered hereby. All amounts are estimates except the SEC Registration Fee, the NASDAQ Global Market filing fee and the NASD filing fee.
         
    Amount to
    be Paid
     
SEC registration fee
  $ 3,745  
NASD filing fee
    4,000  
NASDAQ Global Market filing fee
    100,000  
Printing expenses
    *  
Legal fees and expenses
    *  
Accounting fees and expenses
    *  
Blue Sky qualification fees and expenses
    *  
Transfer Agent and registrar fees
    *  
Miscellaneous
    *  
       
Total
  $ *  
       
 
To be filed by amendment
Item 14.      Indemnification of Directors and Officers
      We are incorporated under the laws of the State of Florida. Our articles of incorporation require us to indemnify and limit the liability of directors to the fullest extent permitted by the Florida Business Corporation Act (the “FBCA”), as it currently exists or as it may be amended in the future.
      Pursuant to the FBCA, a Florida corporation may indemnify any person who may be a party to any third party proceeding by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee, or agent of another entity, against liability incurred in connection with such proceeding (including any appeal thereof) if he or she acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
      In addition, in accordance with the FBCA, a Florida corporation is permitted to indemnify any person who may be a party to a derivative action if such person acted in any of the capacities set forth in the preceding paragraph, against expenses and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expenses of litigating the proceeding to conclusion, actually and reasonably incurred in connection with the defense or settlement of such proceeding (including appeals), provided that the person acted under the standards set forth in the preceding paragraph. However, no indemnification shall be made for any claim, issue, or matter for which such person is found to be liable unless, and only to the extent that, the court determines that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which the court deems proper.
      Any indemnification made under the above provisions, unless pursuant to a court’s determination, may be made only after a determination that the person to be indemnified has met the standard of conduct described above. This determination is to be made by a majority vote of a quorum consisting of the disinterested directors of the board of directors, by duly selected independent legal counsel, or by a majority vote of the

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disinterested shareholders. The board of directors also may designate a special committee of disinterested directors to make this determination. Notwithstanding the foregoing, a Florida corporation must indemnify any director, officer, employee or agent of a corporation who has been successful in the defense of any proceeding referred to above.
      Generally, pursuant to the FBCA, a director of a Florida corporation is not personally liable for monetary damages to our company or any other person for any statement, vote, decision, or failure to act, regarding corporate management or policy, unless: (a) the director breached or failed to perform his duties as a director; and (b) the director’s breach of, or failure to perform, those duties constitutes (i) a violation of criminal law, unless the director had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful, (ii) a transaction from which the director derived an improper personal benefit, either directly or indirectly, (iii) an approval of an unlawful distribution, (iv) with respect to a proceeding by or in the right of the company to procure a judgment in its favor or by or in the right of a shareholder, conscious disregard for the best interest of the company, or willful misconduct, or (v) with respect to a proceeding by or in the right of someone other than the company or a shareholder, recklessness or an act or omission which was committed in bad faith or with malicious purpose or in a manner exhibiting wanton and willful disregard of human rights, safety, or property. The term “recklessness,” as used above, means the action, or omission to act, in conscious disregard of a risk: (a) known, or so obvious that it should have been known, to the directors; and (b) known to the director, or so obvious that it should have been known, to be so great as to make it highly probable that harm would follow from such action or omission.
      Furthermore, under the FBCA, a Florida corporation is authorized to make any other further indemnification or advancement of expenses of any of its directors, officers, employees or agents under any bylaw, agreement, vote of shareholders or disinterested directors, or otherwise, both for actions taken in an official capacity and for actions taken in other capacities while holding such office. However, a corporation cannot indemnify or advance expenses if a judgment or other final adjudication establishes that the actions of the director, officer, employee, or agent were material to the adjudicated cause of action and the director, officer, employee, or agent (a) violated criminal law, unless the director, officer, employee, or agent had reasonable cause to believe his or her conduct was unlawful, (b) derived an improper personal benefit from a transaction, (c) was or is a director in a circumstance where the liability for unlawful distributions applies, or (d) engaged in willful misconduct or conscious disregard for the best interests of the corporation in a proceeding by or in right of the corporation to procure a judgment in its favor.
      At present, there is no pending litigation or proceeding involving any of our directors or executive officers as to which indemnification is required or permitted and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification.
      We maintain a liability insurance policy, pursuant to which our directors and officers may be insured against liability they incur for serving in their capacities as directors and officers of our company, including liabilities arising under the Securities Act or otherwise.
      We plan to enter into an underwriting agreement which provides that the underwriters are obligated, under some circumstances, to indemnify our directors, officers and controlling persons against specified liabilities, including liabilities under the Securities Act.
Item 15.      Recent Sales of Unregistered Securities.
      Since January 1, 2004, we have issued the following securities in unregistered transactions pursuant to Section 4(2) of the Securities Act and following regulations promulgated thereunder, Rule 701 and Regulation D.
Rule 701
      Between January 1, 2004 and January 31, 2007, we issued to directors, employees and consultants an aggregate of 4,958 shares of our common stock for a deemed aggregate sales price of $17,353, an aggregate of 2,715,218 stock options with exercise prices ranging from $3.50 to $5.23 and an aggregate exercise price of

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$6,888,077 and 305,000 warrants with an exercise price of $3.50 and an aggregate exercise price of $1,067,500. Between January 1, 2004 and January 31, 2007, we have issued 223 shares of our common stock upon the exercise of options described above.
      The issuances listed above were deemed exempt from registration under the Securities Act of 1933, as amended, pursuant to Rule 701 thereunder. In accordance with Rule 701, the shares were issued pursuant to a written compensatory benefit plan and/or written compensation contract and the issuances did not, during any consecutive 12 month period, exceed 15% of the then outstanding shares of our common stock, calculated in accordance with the provisions of Rule 701.
Rule 506 of Regulation D and Section 4(2)
      Between January 1, 2004 and January 31, 2007, we issued an aggregate of 6,734,500 shares of our common stock at prices between $3.75 and $4.75 per share for an aggregate sales price of $25,302,232. In connection with $207,650 of the foregoing issuances we paid to an affiliate of one of our directors a fee of $10,383. In connection with $5,140,000 of the foregoing issuances, we issued to two of our directors and one of our consultants options and warrants to purchase up to 389,871 shares of common stock at exercise prices equal to then prevailing common stock sales price (between $1.75 per share and $3.50 per share). An indeterminate portion of the securities we issued to our Vice President of Public Relations in a settlement were in consideration in part for his efforts assisting us raise capital since January 1, 2004.
      In December 2006, in consideration for entering into an exclusive distribution and license agreement with us, we issued a third party 21,052 shares of our common stock for a deemed aggregate sales price of $99,997 and a warrant with a per share exercise price of $4.75 to purchase 2,500,000 shares of our common stock.
      The sales of the above securities were deemed to be exempt from registration in reliance on Section 4(2) of the Securities Act or Regulation D promulgated thereunder as transactions by an issuer not involving any public offering. All recipients were either accredited or sophisticated investors, as those terms are defined in the Securities Act and the regulations promulgated thereunder. The recipients of securities in each transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about us or had access, through employment or other relationships, to such information.

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Item 16.      Exhibits and Financial Statement Schedules
      (a) Exhibits
         
Exhibit    
Number   Description
     
  1 .1†   Form of Underwriting Agreement.
  3 .1   Articles of Incorporation of the Registrant, as amended to date, as currently in effect.
  3 .2†   Form of Amended and Restated Articles of Incorporation to be in effect upon completion of this offering.
  3 .3   Amended and Restated Bylaws
  4 .1   Reference is made to exhibits 3.1 through 3.3
  4 .2†   Form of Common Stock Certificate
  5 .1†   Opinion of Hunton & Williams, LLP
  10 .1**   1999 Officers and Employees Stock Option Plan
  10 .2**   1999 Directors and Consultants Stock Option Plan
  10 .3   Form of Option Agreement under Officers and Employees Stock Option Plan
  10 .4†   Form of Option Agreement under Directors and Consultants Stock Option Plan
  10 .5   Consulting Agreement between the registrant and Richard Spencer III, dated March 18, 2004.
  10 .6**   Employment Letter Agreement between the registrant and Scott Bromley, dated August 24, 2006.
  10 .7   Lease Agreement between the registrant and Sawgrass Business Plaza, LLC, as amended, dated November 14, 2006.
  10 .8   Asset Purchase Agreement between the registrant and Advanced Cardiovascular Systems, Inc., dated June 24, 2003.
  10 .9†   Conditionally Exclusive License Agreement between the registrant, Dr. Peter Law and Cell Transplants International, LLC, dated February 7, 2000, as amended.
  10 .10   Manufacturing and Service Agreement between the registrant and Bolton Medical, Inc., dated September 30, 2005.
  14 .1†   Code of Ethics for Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and persons performing similar functions
  14 .2†   Code of Business Conduct and Ethics
  23 .1   Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm
  23 .2†   Consent of Hunton & Williams LLP (See Exhibit 5.1).
  24 .1   Power of Attorney (included on signature page)
 
  †  To be filed by amendment.
 
**  Indicates management contract or compensatory plan.
      (b) Schedules have been omitted because they are inapplicable or the requested information is shown in our financial statements or notes thereto.
Item 17.      Undertakings
      The undersigned hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
      Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisions described in Item 14 or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by one of our directors, officers, or

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controlling persons in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
      We hereby undertake that:
        (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
 
        (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

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SIGNATURES
      Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Miami, in the County of Miami-Dade, State of Florida, on the 9th day of February, 2007.
  BIOHEART, INC.
  By:  /s/ Howard J. Leonhardt
 
 
  Howard J. Leonhardt
  Chief Executive Officer
  and Chairman of the Board
POWER OF ATTORNEY
      Each person whose signature appears below constitutes and appoints Howard J. Leonhardt his or her true and lawful attorney-in -fact and agent, each acting alone, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments to the registration statement on Form  S-1, and to any registration statement filed under Securities and Exchange Commission Rule 462, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in -fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in -fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
      Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
             
Signature   Title   Date
         
 
/s/ Howard J. Leonhardt
 
Howard J. Leonhardt
  Chief Executive Officer and Chairman of the Board
(principal executive officer)
  February 9, 2007
 
/s/ William H. Kline
 
William H. Kline
  Chief Financial Officer
(principal financial and
accounting officer)
  February 9, 2007
 
/s/ Sam Ahn, M.D.
 
Sam Ahn, M.D.
  Director   February 9, 2007
 
/s/ Bruce Carson
 
Bruce Carson
  Director   February 9, 2007
 
/s/ Peggy Farley
 
Peggy A. Farley
  Director   February 9, 2007
 
/s/ David Gury
 
David Gury
  Director   February 9, 2007

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Signature   Title   Date
         
 
/s/ William P. Murphy, Jr., M.D.
 
William P. Murphy, Jr., M.D.
  Director   February 9, 2007
 
/s/ Richard T. Spencer III
 
Richard T. Spencer III
  Director   February 9, 2007
 
/s/ Mike Tomas
 
Mike Tomas
  Director   February 9, 2007
 
/s/ Linda Tufts
 
Linda Tufts
  Director   February 9, 2007

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EXHIBIT INDEX
         
Exhibit    
Number   Description
     
  3 .1   Articles of Incorporation of the Registrant, as amended to date, as currently in effect.
  3 .3   Amended and Restated Bylaws
  10 .1**   1999 Officers and Employees Stock Option Plan
  10 .2**   1999 Directors and Consultants Stock Option Plan
  10 .3   Form of Option Agreement under Officers and Employees Stock Option Plan
  10 .5   Consulting Agreement between the registrant and Richard Spencer III, dated March 18, 2004.
  10 .6**   Employment Letter Agreement between the registrant and Scott Bromley, dated August 24, 2006.
  10 .7   Lease Agreement between the registrant and Sawgrass Business Plaza, LLC, as amended, dated November 14, 2006.
  10 .8   Asset Purchase Agreement between the registrant and Advanced Cardiovascular Systems, Inc., dated June 24, 2003.
  10 .10   Manufacturing and Service Agreement between the registrant and Bolton Medical, Inc., dated September 30, 2005.
  23 .1   Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.
  24 .1   Power of Attorney (included on signature page)
 
  †  To be filed by amendment.
 
**  Indicates management contract or compensatory plan.

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EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF

BIOHEART, INC.
(a Florida corporation)
ARTICLE I — NAME
     The name of the Corporation is BIOHEART, INC. (hereinafter called the “Corporation”).
ARTICLE II — CAPITAL STOCK
     The aggregate number of shares of capital stock which the Corporation shall have the authority to issue is 1,000 shares of Common Stock, par value $.01 per share.
ARTICLE III — MAILING ADDRESS
     The current address of the principal place of business of the Corporation is 3425 Stallion Lane, Weston, Florida 33331.
ARTICLE IV — INITIAL BOARD OF DIRECTORS
     The Corporation’s Board of Directors (the “Board”) shall consist of not fewer than one (1) nor more than five (5) directors, and shall initially consist of one (1) director. The number of directors within these limits may be increased or decreased from time to time as provided in the Bylaws of the Corporation. The names and address of the initial director of the Corporation is as follows:
Howard J. Leonhardt
3425 Stallion Lane
Weston, Florida 33331
ARTICLE V — INITIAL REGISTERED AGENT
     The street address of the initial registered office of the Corporation is 3425 Stallion Lane, Weston, Florida 33331. The name of the initial registered agent of the Corporation at that address is Howard J. Leonhardt.
ARTICLE VI — INCORPORATOR
     The name and address of the incorporator of the Corporation is Howard J. Leonhardt, 3425 Stallion Lane, Weston, Florida 33331.

 


 

ARTICLE VII — INDEMNIFICATION
     The Corporation shall indemnify and may advance expenses to, and may purchase and maintain insurance on behalf of, its officers and directors to the fullest extent permitted by law as now or hereafter in effect. Without limiting the generality of the foregoing, the Bylaws may provide for indemnification and advancement of expenses to officers, directors, employees and agents on such terms and conditions as the Board may from time to time deem appropriate or advisable.
ARTICLE VIII — BYLAWS
     The Board shall have the power to adopt, amend or repeal the Bylaws of the Corporation or any part thereof.
      IN WITNESS WHEREOF , the incorporator has executed these Articles of Incorporation of BIOHEART, INC. this 10th day of August, 1999.
         
     
  /s/    
  HOWARD J. LEONHARDT   
  Incorporator   

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CONSENT OF REGISTERED AGENT
OF

BIOHEART, INC.
     The undersigned, Howard J. Leonhardt, whose business address is 3425 Stallion Lane, Weston, Florida 33331, hereby accepts appointment as the initial registered agent of BIOHEART, INC. , a Florida corporation, and accepts the obligations provided for in Section 607.0505, Florida Statutes.
         
     
  /s/    
  HOWARD J. LEONHARDT   
  Registered Agent   
 

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ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF

BIOHEART, INC.
(a Florida corporation)
     Pursuant to the provisions of Section 607.1006 of the Florida Business Corporation Act (the “ Act ”), Bioheart, Inc., a Florida corporation (the “ Corporation ”) adopts the following Articles of Amendment to its Articles of Incorporation:
     1. The name of the Corporation is BIOHEART, INC.
     2. Article II of the Corporation’s Articles of Incorporation is hereby deleted in its entirety and replaced with the following:
ARTICLE II — CAPITAL STOCK
     The aggregate number of shares of capital stock which the Corporation shall have the authority to issue is 25,000,000 shares, consisting of (a) 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “ Preferred Stock ”) and (b) 20,000,000 shares of Common Stock, par value $0.001 per share (the “ Common Stock ”).
     A statement of the powers, preferences and rights, and the qualifications, limitations or restrictions thereof, in respect of each class of stock of the Corporation, is as follows:
      A. Preferred Stock
          1. General . The Preferred Stock may be issued from time to time in one or more classes or series, the shares of each class or series to have such designations and powers, preferences and rights, and qualifications, limitations and restrictions thereof as are stated and expressed herein and in the resolution or resolutions providing for the issue of such class or series adopted by the Board of Directors as hereinafter prescribed.
          2. Preferences . Authority is hereby expressly granted to and vested in the Board of Directors to authorize the issuance of the Preferred Stock from time to time in one or more classes or series, to determine and take necessary proceedings fully to effect the issuance of any such Preferred Stock and, with respect to each class or series of the Preferred Stock, to fix and state by the resolution or resolutions

 


 

from time to time adopted providing for the issuance thereof the following:
               (a) whether or not the class or series is to have voting rights, full or limited, or is to be without voting rights;
               (b) the number of shares to constitute the class or series and the designations thereof;
               (c) the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to any class or series;
               (d) whether or not the shares of any class or series shall be redeemable and if redeemable the redemption price or prices, and the time or times at which and the terms and conditions upon which, such shares shall be redeemable and the manner of redemption;
               (e) whether or not the shares of a class or series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and if such retirement or sinking fund or funds be established, the annual amount thereof and the terms and provisions relative to the operation thereof;
               (f) the dividend rate, if any, whether dividends are payable in cash, stock of the Corporation, or other property, the conditions upon which and the times when such dividends are payable, the preference to or the relation to the payment of the dividends payable on any other class or classes or series of stock, whether or not such dividend shall be cumulative or noncumulative, and if cumulative, the date or dates from which such dividends shall accumulate;
               (g) the preferences, if any, and the amounts thereof that the holders of any class or series thereof shall be entitled to receive upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Corporation;
               (h) whether or not the shares of any class or series shall be convertible into, or exchangeable for, the shares of any other class or classes or of any other series of the same or any other class or classes of the Corporation’s capital stock and the conversion price or prices or ratio or ratios or the rate or rates at which such conversion or exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and
               (i) such other rights or limitations with respect to any class or series as the Board of Directors may deem advisable.

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     The shares of each class or series of the Preferred Stock may vary from the shares of any other series thereof in any or all of the foregoing respects. The Board of Directors may increase the number of shares of Preferred Stock designated for any existing class or series by a resolution adding to such class or series authorized and unissued shares of the Preferred Stock not designated for any other class or series. The Board of Directors may decrease the number of shares of the Preferred Stock designated for any existing class or series by a resolution, subtracting from such series unissued shares of the Preferred Stock designated for such class or series, and the shares so subtracted shall become authorized, unissued and undesignated shares of the Preferred Stock.
      B. Common Stock .
          1. General . All shares of Common Stock shall be identical and shall entitle the holders thereof to the same powers, preferences, qualifications, limitations, privileges and other rights.
          2. Voting Rights . Except as otherwise required by law or as may be provided by the resolutions of the Board of Directors authorizing the issuance of any class or series of the Preferred Stock, as hereinabove provided, all rights to vote and all voting power shall be vested exclusively in the holders of the Common Stock and each holder of shares of Common Stock shall be entitled to one vote for each share of Common Stock standing in such holder’s name on the books of the Corporation.
          3. Dividends . Subject to the rights of the holders of the Preferred Stock, the holders of the Common Stock shall be entitled to receive when, as and if declared by the Board of Directors, out of funds legally available therefor, dividends (payable in cash, stock or otherwise) as the Board of Directors may from time to time determine, payable to shareholders of record on such date or dates as shall be fixed for such purpose by the Board of Directors in accordance with the Florida Business Corporation Act.
          4. Other . The Common Stock and holders thereof shall have all such other powers and rights as provided by law.”
     3. The following Article IX is hereby added to the Corporation’s Articles of Incorporation:
ARTICLE IX
     A. Call of Special Shareholders Meeting . Except as otherwise required by law, the Corporation shall not be required to hold a special meeting of shareholders of the Corporation unless (in addition

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to any other requirements of law) (i) the holders of not less than fifty (50) percent of all the votes entitled to be cast on any issue proposed to be considered at the proposed special meeting sign, date and deliver to the Corporation’s secretary one or more written demands for the meeting describing the purpose or purposes for which it is to be held; or (ii) the meeting is called by (a) the Board of Directors pursuant to a resolution approved by a majority of the entire Board, or (b) the Corporation’s Chairman of the Board or Chief Executive Officer. Only business within the purpose or purposes described in the special meeting notice required by Section 607.0705 of the Florida Business Corporation Act may be conducted at a special shareholders’ meeting.
     B. Limitation of Liability . To the fullest extent permitted under the Florida Business Corporation Act and other applicable law, no Director shall be personally liable to the Corporation or the holders of shares of capital stock for monetary damages for breach of fiduciary duty as a director. No amendment to or repeal of this provision shall apply to or have any effect on the liability or alleged liability of any Director for or with respect to any acts or omissions of such Director occurring prior to such amendment or repeal. If the law of the Corporation’s state of incorporation is hereafter amended to authorize corporation action further eliminating or limiting the personal liability of directors, then the liability of a Director of this Corporation shall be eliminated or limited to the fullest extent then permitted. No repeal or modification of this paragraph “B” shall adversely effect any right of or protection afforded to a Director of the Corporation existing immediately prior to such repeal or modification.”
     4. The Amendments hereby made to the Articles of Incorporation were duly adopted by a written consent executed by all of the Shareholders and all the members of the Board of Directors of the Corporation as of the 21st day of December, 1999, pursuant to Sections 607.0704 and 607.0821 of the Florida Business Corporation Act. The number of votes cast was sufficient for approval of the Articles of Amendment to the Articles of Incorporation.
      IN WITNESS WHEREOF , the incorporator has executed these Articles of Amendment to the Articles of Incorporation of BIOHEART, INC. this 21st day of December, 1999.
         
  BIOHEART, INC.
 
 
  By:   /s/    
    Howard J. Leonhardt, President   
       
 

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ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF

BIOHEART, INC.
(a Florida corporation)
     Pursuant to the provisions of Section 607.1006 of the Florida Business Corporation Act (the “ Act ”), Bioheart, Inc., a Florida corporation (the “ Corporation ”) adopts the following Articles of Amendment to its Articles of Incorporation:
     1. The name of the Corporation is BIOHEART, INC.
     2. Article IV of the Corporation’s Articles of Incorporation is hereby amended and restated in its entirety and replaced with the following:
ARTICLE IV — BOARD OF DIRECTORS
     The Corporation’s Board of Directors (the “Board”) shall consist of not fewer than one (1) nor more than nine (9) directors. The number of directors within these limits may be increased or decreased from time to time as provided in the Bylaws of the Corporation.”
     3. The Amendments hereby made to the Articles of Incorporation were duly adopted by written consent executed by shareholders of the Corporation holding the requisite number of shares of capital stock of the Corporation dated as of January 26, 2001, and by written consent of all the members of the Board of Directors of the Corporation dated as of January 25, 2001, pursuant to Sections 607.0704 and 607.0821 of the Florida Business Corporation Act. The number of votes cast was sufficient for approval of these Articles of Amendment to the Articles of Incorporation.
      IN WITNESS WHEREOF , the undersigned has executed these Articles of Amendment to the Articles of Incorporation of BIOHEART, INC. this 26 day of January 2001.
         
  BIOHEART, INC.
 
 
  By:   /s/ John Bobitt    
    Name:   John Bobitt   
    Title:   CFO, Secretary and Director   
 


 

ARTICLES OF AMENDMENT TO THE
ARTICLES OF INCORPORATION
OF

BIOHEART, INC.
(a Florida corporation)
     Pursuant to the provisions of Section 607.1006 of the Florida Business Corporation Act (the “Act”), Bioheart, Inc., a Florida corporation (the “Corporation”) adopts the following Articles of Amendment to its Articles of Incorporation:
1.     The name of the Corporation is BIOHEART, INC.
2.     Article II of the Corporation’s Articles of Incorporation is hereby deleted in its entirety and replaced with the following:
ARTICLE II — CAPITAL STOCK
     The aggregate number of shares of capital stock which the Corporation shall have the authority to issue is 45,000,000 shares, consisting of (a) 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “ Preferred Stock ”) and (b) 40,000,000 shares of Common Stock, par value $0.001 per share (the “ Common Stock ”).
     A statement of the powers, preferences and rights, and the qualifications, limitations or residents thereof; in respect of each class of stock of the Corporation, is as follows:
      A.       Preferred Stock
     1.      General. The Preferred Stock may be issued from time to time in one or more classes or series, the share of each class or series to have such designations and powers, preferences and rights, and qualifications, limitations and restrictions thereof as are stated and expressed herein and in the resolutions providing for the issue of such class or series adopted by the Board of Directors as hereinafter prescribed.
     2.      Preferences. Authority is hereby expressly granted to and vested in the Board of Directors to authorize the issuance of the Preferred Stock from time to time in one or more classes or series, to determine and take necessary proceedings fully to effect the issuance of any such Preferred Stock and with respect to each class or series of Preferred Stock, to fix and state by the resolution or resolutions from time to time adopted providing for the issuance thereof the following:
     (a)     whether or not the class or series is to have voting rights, full or limited, or is to be without voting rights;

 


 

     (b)     the number of shares to constitute the class or series and the designations thereof;
     (c)     the preferences and relative, participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, if any, with respect to any class or series;
     (d)     whether or not the share of any, class or series shall be redeemable and if redeemable the redemption price or prices, and the time or times at which and the terns and conditions upon which, such shares shall be redeemable and the manner of redemption;
     (e)     whether or not the shares of a class or series shall be subject to the operation of retirement or sinking funds to be applied to the purchase or redemption of such shares for retirement, and if such retirement or sinking fund or funds be established, the annual amount thereof and the terms and provisions relative to the operation thereof;
     (f)     the dividend rate, if any, whether dividends are payable in cash, stock or the Corporation, or other property, the conditions upon which and the times when such dividends are payable, the preferences to or the relation to the payment of the dividends payable on any other class or classes or series of stock, whether or not such dividend shall be cumulative or non-cumulative, and if cumulative, the date or dates from which such dividends shall accumulate;
     (g)     the preferences, if any, and the amounts thereof that the holders of any class or series thereof shall be entitled to receive upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Corporation;
     (h)     whether or not the shares of any class or series shall be convertible into, or exchangeable for, the shares or any other class or classes or of any other series of the same or any other class or classes of the Corporation’s capital stock and the conversion price or prices or ratio or ratios or the rate or rates at which such conversion or exchange may be made, with such adjustments, if any, as shall be stated and expressed or provided for in such resolution or resolutions; and
     (i)     such other rights or limitations with respect to any class or series as the Board of Directors may deem advisable.
The shares of each class or series of the Preferred Stock may vary from the shares of any other series thereof in any or all of the foregoing respects. The Board of Directors may increase the number of shares of Preferred Stock designated for any existing class or series by a resolution adding to such class or series, authorized and unissued shares of the Preferred Stock not designated for any other class or series. The Board of Directors may decrease the number of shares of the Preferred Stock designated for any existing class or series by a resolution,

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subtracting from such series unissued and undesignated shares of the Preferred Stock.
      B.       Common Stock
     1.      General. All shares of Common Stock shall be identical and shall , entitle the holders thereof to the same powers, preferences, qualifications, limitations, privileges and other rights.
     2.      Voting Rights. Except as otherwise required by law or as may be provided by the resolutions of the Board of Directors authorizing the issuance of any class or series of the Preferred Stock, as hereinabove provided, all rights to vote and all voting power shall be vested exclusively in the holders of the Common Stock and each holder of shares of Common Stock shall be entitled to one vote for each share of Common Stock standing in such holder’s name on the books of the Corporation,
     3.      Dividends. Subject to the rights of the holders of the Preferred Stock, the holders of the Common Stock shall be entitled to receive when, as and if declared by the Board of Directors, out of funds legally available therefore, dividends (payable in cash, stock or otherwise) as the Board of Directors may from time to time determine, payable to shareholders of record or such date or dates as shall be fixed for such purpose by the Board of Directors in accordance with the Florida Business Corporation Act.
     4.      Other. The Common Stock and holders thereof shall have all such other powers and rights as provided by law.
3.     The Amendments hereby made to the Articles of Incorporation were approved by the unanimous consent of the Board of Directors pursuant to Section 607.0821 of the Florida business Corporation Act, and duly adopted by the majority vote of the Shareholders of the Corporation at the Corporation’s annual meeting held on the 20 th day of July, 2005, pursuant to Sections 607.0701 of the Florida Business Corporation Act. The number of votes cast was sufficient for approval of the Articles of Amendment to the Articles of Incorporation.

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      IN WITNESS HEREOF , the undersigned has executed these Articles of Amendment to the Articles of Incorporation of BIOHEART, INC. this 9 th day of August, 2006.
         
  BIOHEART, INC.
 
 
  By:   /s/ Howard J. Leonhardt    
    Howard J. Leonhardt   
    Chief Executive Officer   
 

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EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
BIOHEART, INC.
(hereinafter called the “Corporation”)
ARTICLE I
OFFICES
      Section 1. Registered Office . The registered office of the Corporation required by the Florida Business Corporation Act must be maintained in the State of Florida and need not be identical with the principal office of the State of Florida. The address of the registered office may be changed from time to time by the Board of Directors or, if within the country, by the registered agent. The business office of the registered agent of the Corporation shall be identical to such registered office.
      Section 2. Principal Place of Business. The Corporation may have such principal and other business offices in the State of Florida as the Board of Directors may designate or as the business of the Corporation may require from time to time.
      Section 3. Other Offices . The Corporation may also have offices at such other places both within and outside the State of Florida as the Board of Directors may from time to time determine.
ARTICLE II
MEETINGS OF SHAREHOLDERS
      Section 1. Annual Meetings . The annual meeting of shareholders of the Corporation for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held at the time and place designated by the Board of Directors of the Corporation.
      Section 2. Special Meetings . Special meetings of the shareholders may be called by the Chairman of the Board of Directors, the Chief Executive Officer of the Corporation, by resolution of a majority of the full Board of Directors, or by the holder or holders of not less than a majority of all the outstanding shares of stock of the Corporation entitled to vote on the matter or matters to be presented at the meeting. Such request shall state the purpose or purposes of the proposed meeting. No business shall be conducted at any special meeting other than the business for which the special meeting is called as set forth in the notice of the special meeting. Special meetings shall be held at the time and place designated by the Chief Executive Officer of the Corporation.
      Section 3. Place and Presiding Officer . Meetings of the shareholders may be held within or outside the State of Florida. Meetings of the shareholders may be presided over by the Chairman of the Board, the President or any Vice President. The Secretary of the Corporation, or any person chosen by the person presiding over the shareholders’ meeting, shall act as Secretary for the meeting.
      Section 4. Notice . Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the meeting, personally, by United States mail, or in such

 


 

other manner as may be permitted by law, by or at the direction of the Chairman of the Board, the President, the Secretary, or the officer or persons calling the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid.
      Section 5 . Notice of Adjourned Meetings . When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. If, however, after the adjournment the Board of Directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given as provided in Section 4 of this Article II to each shareholder of record on the new record date entitled to vote at such meeting.
      Section 6 . Record Date . The Board of Directors may fix in advance a date as the record date for any determination of shareholders, such date in any case to be not more than seventy days (or such longer period as may from time to time be permitted by law) and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such determination of shareholders is to be taken.
     If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders.
     When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 6, such determination shall apply to any adjournment thereof, unless the Board of Directors fixes a new record date for the adjourned meeting.
      Section 7. List of Shareholders Entitled to Vote . The officer of the Corporation who has charge of the stock ledger of the Corporation shall prepare and make, at least 10 days before every meeting of shareholders, a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. Such list shall be open to the examination of any shareholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder of the Corporation who is present.
      Section 8 . Shareholder Quorum and Voting . A majority of the total number of shares outstanding and entitled to vote, present in person or represented by proxy thereat, shall constitute a quorum at a meeting of shareholders for the transaction of business, except as otherwise provided by law or by the Corporation’s Articles of Incorporation, as amended (the “Articles of Incorporation”). If a specified item of business is required to be voted on by a class or series of shares, a majority of the total number of shares outstanding and entitled to vote of such class or series, present in person or represented by proxy thereat, shall constitute a quorum at a meeting of shareholders for the transaction of such item of business by such class or series. If, however, a quorum does not exist at a meeting, the holders of a majority of the shares present at such meeting and entitled to vote may adjourn the meeting

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from time to time, without notice other than by announcement at the meeting, until the requisite number of shares entitled to vote shall be present. At any such adjourned meeting at which a quorum exists, any business may be transacted which might have been transacted at the meeting as originally noticed. After a quorum has been established at a meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof.
     If a quorum exists, action on a matter (other than the election of directors) is approved by a voting group if the votes cast within the voting group favoring the action exceed the votes cast within the voting group opposing the action unless a greater number of affirmative votes is required by law or by the Articles of Incorporation. If a quorum exists, directors will be elected by a plurality of the votes cast by the shares entitled to vote in the election. Unless the Articles of Incorporation provides otherwise, shareholders do not have a right to cumulate their votes for directors.
      Section 9. Inspectors of Election . Before any meeting of shareholders, the Board of Directors may appoint an inspector of elections to act at the meeting and any adjournment thereof. If no inspector of elections is so appointed by the Board, then the Chairman of the meeting may appoint an inspector of elections to act at the meeting. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder’s proxy shall, appoint a person to fill that vacancy.
     The inspectors shall:
  (a)   ascertain the number of shares outstanding and the voting power of each;
 
  (b)   determine the shares represented at the meeting and the validity of proxies and ballots;
 
  (c)   count all votes and ballots;
 
  (d)   determine and retain for a reasonable period a record of the disposition of any challenges made to any determination made by the inspectors; and
 
  (e)   certify their determination of the number of shares represented at the meeting, and their count of all votes and ballots.
     The inspectors may appoint or retain other persons or entities to assist the inspectors in the performance of the duties of the inspectors. In determining the validity and counting of proxies and ballots, the inspectors shall act in accordance with applicable law.
      Section 10. Order of Business .
     (a) (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of any other business to be considered by the shareholders of the Corporation may be made at any annual meeting of shareholders, only (i) pursuant to the Corporation’s notice of meeting (or any supplement thereto), (ii) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (iii) by any shareholder of the Corporation who is a holder of record at the time of the giving of the notice provided for in this Section 10, who is entitled to vote at the meeting and who complies with the procedures set forth in this Section 10.

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     (2) For nominations or other business properly to be brought before an annual meeting by a shareholder of the Corporation, the shareholder must have given timely notice thereof in proper written form to the Secretary of the Corporation and any such proposed business other than the nomination of persons for election to the Board of Directors must constitute a proper matter for shareholder action. To be timely, a shareholder’s notice must be delivered in person or by facsimile, or sent by U.S. certified mail and received, at the principal executive offices of the Corporation not earlier than the 120th day prior and not later than the close of business on the 90th day prior to the anniversary date of the immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days earlier or more than 60 days later than such anniversary date, notice by the shareholder to be timely must be so delivered or received not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of notice by a shareholder as described above. To be in proper written form, a shareholder’s notice to the Secretary of the Corporation shall set forth in writing as to each matter the shareholder proposes to bring before the annual meeting: (i) as to each person whom the shareholder proposes to nominate for election or re-election as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the annual meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration) and the reasons for conducting such business at the annual meeting and in the event that such business includes a proposal to amend the bylaws of the Corporation, the language of the proposed amendment; (iii) the name and address, as they appear on the Corporation’s books, of the shareholder proposing such business or nomination and the name and address of the beneficial owner, if any, on whose behalf the nomination or proposal is being made; (iv) the class or series and number of shares of the Corporation which are beneficially owned or owned of record by the shareholder and the beneficial owner; (v) any material interest of the shareholder in such nomination or other business; (vi) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such annual meeting on the matter proposed and intends to appear in person or by proxy at such meeting to propose such nomination or other business; and (vii) if the shareholder intends to solicit proxies in support of such shareholder’s proposal, a representation to that effect.
     (3) Notwithstanding anything in paragraph (a)(2) above to the contrary, in the event that the number of directors to be elected to the Board of Directors at an annual meeting of the shareholders is increased in accordance with Article III, Section 2 and there is no public announcement naming all of the nominees for directors or specifying the size of the increased Board of Directors made by the Corporation at least 90 days prior to the first anniversary of the date of the immediately preceding annual meeting, a shareholder’s notice required by this Section 10 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered in person or by facsimile, or sent by U.S. certified mail and received by the Secretary of the Corporation at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
     (b) Only such business shall be conducted at a special meeting of shareholders as shall have

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been brought before the meeting pursuant to the Corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation’s notice of meeting (i) by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (ii) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who is a holder of record at the time of the giving of notice provided for in this Section 10, who is entitled to vote at the meeting for the election of directors and who complies with the procedures set forth in this Section 10. In the event a special meeting of shareholders is properly called for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation’s notice of meeting, if the shareholder has given timely notice thereof in proper written form to the Secretary of the Corporation. To be timely, a shareholder’s notice must be delivered in person or by facsimile, or sent by U.S. certified mail and received, at the principal executive offices of the Corporation not earlier than the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement of the date of such special meeting is first made. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of notice by a shareholder as described above. To be in proper written form, such notice must meet the requirements of paragraph (a)(2) above applicable to nominations of persons for election to the Board of Directors.
     (c) The notice requirements set forth in this Section 10 shall be deemed satisfied by a shareholder if the shareholder has notified the Corporation of his or her intention to make a nomination or present a proposal at the applicable meeting of shareholders and such shareholder’s nominee or proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for such meeting; provided, however, that if such shareholder does not appear or send a qualified representative to present such nominee or proposal at such meeting, the Corporation need not present such nominee or proposal for a vote at such meeting notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 10, to be considered a qualified representative of the shareholder, a person must be authorized by a writing executed by such shareholder or an electronic transmission (as defined in the Florida Business Corporation Act, as amended) delivered by such shareholder to the Secretary of the Corporation to act for such shareholder as proxy at the meeting of shareholders and such person must produce such writing or electronic transmission, or a reliable reproduction of such writing or electronic transmission, at the meeting of shareholders. The Corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the Corporation (including any applicable requirements regarding the independence of directors).
     (d) Except as otherwise provided in the Corporation’s Articles of Incorporation, as amended from time to time, only such persons who are nominated in accordance with this Section 10 or are chosen to fill any vacancy occurring in the Board of Directors in accordance with Article III, Section 3 shall be eligible to serve as directors of the Corporation and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 10. The Chairman of a meeting shall refuse to permit any business to be brought before the meeting which fails to comply with the foregoing or if a shareholder solicits proxies in support of such shareholder’s nominee or proposal without such shareholder having made the representation required by clause (vii) of paragraph (a)(2) above.

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     (e) For purposes of this Section 10, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Services, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
     (f) Notwithstanding the foregoing provisions of this Section 10, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder, and all applicable rules and requirements of the Nasdaq Stock Market (the “NASDAQ”) or, if the Corporation’s shares are not listed on the NASDAQ, the applicable rules and requirements of the primary securities exchange or quotation system on which the Corporation’s shares are listed or quoted, in each case with respect to the matters set forth in this Section 10. Nothing in this Section 10 shall be deemed to affect any rights of shareholders to request inclusion of proposals or nominations in the Corporation’s proxy statement pursuant to applicable rules and regulations promulgated under the Exchange Act.
ARTICLE III
DIRECTORS
      Section 1. Function . All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the Board of Directors.
      Section 2. Number . The number of directors of the Corporation shall not be less than six nor more than nine. The authorized number of directors, within the limits above specified, shall be determined by the affirmative vote of a majority of the entire Board of Directors given at a regular or special meeting thereof. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
     At each annual meeting the shareholders shall elect directors to hold office until the next succeeding annual meeting. Each director so elected shall hold office for the term of which he or she is elected and until his or her successor shall have been elected and qualified or until his or her earlier resignation, retirement, removal from office or death.
      Section 3. Vacancies . Any vacancy occurring in the Board of Directors, including a vacancy created by an increase in the number of directors, may be filled until the next succeeding annual election by the affirmative vote of a majority of the directors then in office, though less than a quorum of the Board of Directors, provided, that in case of a vacancy created by removal of a director, the shareholders shall have the right to fill such vacancy at the same meeting or any adjournment thereof.
      Section 4. Removal of Directors . A director may be removed by shareholders, but only for cause and only by the affirmative vote of the holders of at least a majority of the voting power of the then outstanding shares of the Corporation’s voting capital stock (“Voting Stock”), voting together as a single class. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if the director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal or has been adjudged by a court of competent jurisdiction to be liable for negligence or misconduct in the performance of his or her duty to the Corporation in a matter of substantial importance to the Corporation, and such adjudication is no longer subject to direct appeal.

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     Notwithstanding the foregoing, and except as otherwise provided by law, in the event that holders of any class or series of Preferred Stock are entitled, voting separately as a class, to elect one or more directors, the provisions of this Section 4 shall apply, in respect to the removal of a director so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares of Voting Stock voting together as a single class.
      Section 5. Resignation of Directors . Any director may resign at any time effective upon giving written notice to the Corporation, unless the notice specifies a later time for the effectiveness of such resignation.
      Section 6. Quorum and Voting . A majority of the number of directors fixed by, or in the manner provided in, these bylaws shall constitute a quorum for the transaction of business; provided, however, that whenever, for any reason, a vacancy occurs in the Board of Directors, the quorum shall consist of a majority of the remaining directors until the vacancy has been filled. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.
      Section 7. Executive and Other Committees . The Board of Directors, by resolution adopted by a majority of the entire Board of Directors, may designate from among its members an executive committee and one or more other committees. Each committee of the Board of Directors shall have such powers and functions as may be delegated to it by resolution adopted by the entire Board of Directors, except as prohibited by law.
     The Board of Directors, by resolution adopted in accordance with this Section 7, shall designate a Chairman for each committee it establishes who shall preside at all meetings of the committee and who shall have such additional duties as shall from time to time be designated by the Board of Directors.
     The Board of Directors, by resolution adopted in accordance with this Section 7, may designate one or more directors as alternate members of any such committee, who may act in the place and stead of any absent member or members at any meeting of such committee.
      Section 8. Meetings . Regular meetings of the Board of Directors shall be held without notice at the location of and immediately after the adjournment of the annual meeting of shareholders in each year, and at such other time and place, as may be determined by the Board of Directors. Notice of the time and place of special meetings of the Board of Directors shall be given to each director either by personal delivery, telegram, cablegram, telephone, or electronic mail at least two days prior to the meeting. Notice may also be given through the postal service if mailed at least five days prior to the meeting.
     Notice of a meeting of the Board of Directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.
     Except as otherwise provided in the Articles of Incorporation, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be

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specified in the notice or waiver of notice of such meeting.
     A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the Board of Directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of adjournment, to the other directors.
     Meetings of the Board of Directors may be called by the Chairman of the Board or by any two directors.
     Members of the Board of Directors may participate in a meeting of such board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.
     Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or if such position is vacant or such person is absent, the directors shall elect a Chairman for the meeting from one of their members present.
      Section 9. Action Without a Meeting . Any action required to be taken at a meeting of the directors or any action which may be taken at a meeting of the directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so to be taken, signed by all of the directors or all the members of the committee, as the case may be, is filed in the minutes of the proceedings of the board or of the committee. Such consent shall have the same effect as a unanimous vote.
      Section 10. Fees and Compensation . Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board of Directors.
ARTICLE IV
OFFICERS
      Section 1. Types . The officers of the Corporation shall consist of a Chairman of the Board, a Chief Executive Officer, a Chief Financial Officer, a Secretary, a Treasurer and such Vice Presidents and other officers as may be appointed by the Board of Directors or by a duly appointed officer authorized by these bylaws or by resolution of the Board of Directors to appoint officers.
      Section 2. Appointment and Term . The officers of the Corporation shall be appointed by the Board of Directors or by a duly appointed officer authorized to appoint officers. Each officer shall hold office until the first Board of Directors meeting immediately following the annual shareholders meeting next occurring after his or her appointment to office and until his or her successor shall have been appointed or until his or her earlier resignation, retirement, removal from office or death.
      Section 3. Authority and Duties . The officers of the Corporation shall have the authority and shall exercise the powers and perform the duties specified below and as may be additionally specified from time to time by resolution of the Board of Directors.

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      (a) Chief Executive Officer . The Chief Executive Officer of the Corporation shall, subject to the provisions of these Bylaws and the control of the Board of Directors, have general and active management, direction, and supervision over the business of the Corporation and over its officers. He shall perform all duties incident to the office of chief executive and such other duties as from time to time may be assigned to him by the Board of Directors. The Chief Executive Officer shall report directly to the Board of Directors and shall have the right to delegate any of his powers to any other officer or employee.
      (b) Chief Financial Officer . The Chief Financial Officer shall be responsible for the financial affairs of the Corporation and shall be the chief accounting officer for federal securities law purposes. The Chief Financial Officer shall be responsible for the supervision of the Treasurer. He shall perform all duties incident to the office of chief financial officer, and such other duties as may from time to time be assigned to him by the Board of Directors or Chief Executive Officer.
      (c) Secretary . The Secretary shall keep or cause to be kept, at the principal executive office or such other place as the Board of Directors may order, a book of minutes of all meetings of shareholders, the Board of Directors and its committees, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Board of Directors and committee meetings, the number of shares present or represented at shareholders meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, a copy of the Bylaws of the Corporation at the principal executive office or business office of the Corporation.
     The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the Corporation’s transfer agent or registrar, if one be appointed, a stock register, or a duplicate stock register, showing the names of the shareholders and their addresses, the number and classes of shares held by each and, for holders of certificated shares, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation.
     The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors and any committees thereof required by these Bylaws or by law to be given, shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors.
      (d) Treasurer . The Treasurer shall have the custody of the corporate funds and securities of the Corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the Corporation, and shall send or cause to be sent to the shareholders of the Corporation such financial statements and reports as are by law or these Bylaws required to be sent to them.
     The Treasurer shall deposit all moneys and valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer and directors, whenever they request it, an account of all transactions and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors.

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      Section 4. Removal of Officers . Any officer may be removed by the Board of Directors at any time with or without cause. Removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed; provided, however, the appointment of any officer shall not of itself create contract rights.
ARTICLE V
STOCK
      Section 1. Stock Certificates . Certificates representing shares in the Corporation shall be signed by the Chief Executive Officer or Chief Financial Officer and the Secretary or an assistant Secretary. In addition, such certificates may be signed by a transfer agent or a registrar (other than the Corporation itself) and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures on such certificates may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of its issuance.
     Each certificate representing shares shall state upon the face thereof: the name of the Corporation; that the Corporation is organized under the laws of Florida; the name of the person or persons to whom issued; the number and class of shares and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate or a statement that the shares are without par value.
      Section 2. Lost Certificates . The Board of Directors may direct a new certificate or uncertificated shares to be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or uncertificated shares, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.
      Section 3. Transfers . Transfers of shares of capital stock of the Corporation shall be made only on the stock record of the Corporation by the holder of record thereof or by his attorney thereunto authorized by the power of attorney duly executed and filed with the Secretary of the Corporation or the transfer agent thereof, and (1) in the case of certificated shares, only on surrender of the certificate or certificates representing such shares, properly endorsed or accompanied by a duly executed stock transfer power, or (2) in the case of uncertificated shares, upon receipt of proper transfer instructions from the registered owner of such uncertificated shares, or from a duly authorized attorney or from an individual presenting proper evidence of succession, assignment or authority to transfer the stock. The Board of Directors may make such additional rules and regulations as it may deem expedient concerning the issue and transfer of certificates representing shares of the capital stock of the Corporation.
      Section 4. Beneficial Owners . The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such

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owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
ARTICLE VI
GENERAL PROVISIONS
      Section 1. Disbursements . All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
      Section 2. Fiscal Year . The fiscal year of the Corporation shall end on December 31 of each year, unless otherwise fixed by resolution of the Board of Directors.
      Section 3. Voting Securities Owned by the Corporation . Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may, at the direction of the Board of Directors, be executed in the name of and on behalf of the Corporation by the Chairman of the Board of Directors, the Chief Executive Officer or any other officer or officers authorized by the Board of Directors, and any such officer may, at the direction of the Board of Directors, vote, represent and exercise on behalf of the Corporation all rights incident to any and all shares of any other corporation or corporations.
ARTICLE VII
DIVIDENDS
     The Board of Directors of the Corporation may, from time to time, declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and by the Articles of Incorporation.
ARTICLE VIII
INDEMNIFICATION
      Section 1. General . The Corporation shall indemnify to the fullest extent authorized or permitted by law (as now or hereafter in effect) any person made, or threatened to be made, a defendant or witness to any action, suit or proceeding (whether civil or criminal or otherwise) by reason of the fact that he, his testator or intestate, is or was a director or officer of the Corporation or by reason of the fact that such director or officer, at the request of the Corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity. Nothing contained herein shall affect any rights to indemnification to which employees other than directors and officers may be entitled by law. No amendment or repeal of this Section 1 shall apply to or have any effect on any right to indemnification provided hereunder with respect to any acts or omissions occurring prior to such amendment or repeal.
      Section 2. Further Assurance . In furtherance and not in limitation of the powers conferred by statute:
          (a) the Corporation may purchase and maintain insurance on behalf of any person

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who is or was a director, officer, employee or agent of the Corporation, or is serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of law; and
          (b) the Corporation may create a trust fund, grant a security interest and/or use other means (including, without limitation, letters of credit, surety bonds and/or other similar arrangements), as well as enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere.
ARTICLE IX
ACTION WITH RESPECT TO
SECURITIES OF OTHER CORPORATIONS
     Unless otherwise directed by the Board of Directors, the Chief Executive Officer or his or her designee shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of shareholders of or with respect to any action of shareholders of any other corporation in which the Corporation may hold securities and to otherwise exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other corporation.
ARTICLE X
AMENDMENT
     The power to adopt, alter, amend or repeal bylaws shall be vested in the Board of Directors. Bylaws adopted by the Board of Directors may be repealed or changed, and new bylaws may be adopted by shareholders only if such repeal, change or adoption is approved by the affirmative vote of the holders of at least 75% of the then outstanding shares entitled to vote, voting together as a single class.
ARTICLE XI
CONTINUING EFFECT OF BYLAW PROVISIONS
     Any provisions contained in these bylaws which, at the time of its adoption, was authorized or permitted by applicable law shall continue to remain in full force and effect until such time as such provision is specifically amended in accordance with these bylaws, notwithstanding any subsequent modification of such law (except to the extent such bylaw provision expressly provides for its modification by or as a result of any such subsequently enacted law).

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EXHIBIT 10.1
 
BIOHEART, INC.
1999 OFFICERS AND EMPLOYEES STOCK OPTION PLAN
as amended and restated effective as of October 8, 2001
 
     1.  Purpose . The purpose of this Plan is to advance the interests of BIOHEART, INC., a Florida corporation (the “Company”), and its Related Entities by providing an additional incentive to attract and retain qualified and competent persons who provide services to the Company and its Related Entities, and upon whose efforts and judgment the success of the Company and its Related Entities is largely dependent, through the encouragement of stock ownership in the Company by such persons.
     2.  Definitions . As used herein, the following terms shall have the meanings indicated:
          (a) “Board” shall mean the Board of Directors of the Company.
          (b) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
          (c) “Committee” shall mean the committee appointed by the Board pursuant to Section 14(a) hereof, or, if such committee is not appointed, the Board.
          (d) “Common Stock” shall mean the Company’s Common Stock, par value $.01 per share.
          (e) “Company” shall mean BIOHEART, INC., a Florida corporation, and its successors and assignees.
          (f) “Consultant” shall mean any person (other than an Employee or a Director, solely with respect to rendering services in such person’s capacity as a Director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.
          (g) “Continuous Service” shall mean the continuous service to the Company or Related Entity, without interruption, in any capacity of Employee, Director or Consultant. Continuous Service shall not be considered interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entity, or any successor, in any capacity of Employee, Director or Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity in any capacity of Employee, Director or Consultant (except as otherwise provided in the Option Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

 


 

          (h) “Director” shall mean a member of the Board or of the board of directors of any Related Entity.
          (i) “Effective Date” shall mean December 1, 1999.
          (j) “Employee” shall mean any person, including an Officer or Director, who is an employee of the Company or any Related Entity. The payment of a Director’s normal compensation and fee (as applicable to all Directors or Committee members, as the case may be) by the Company or a Related Entity shall not be sufficient to constitute “employment” by the Company.
          (k) “Fair Market Value” of a Share on any date of reference shall mean the fair market value of a Share of the Company’s Common Stock on that date, as determined by the Committee or the Board in a fair and uniform manner. After the Publicly-Traded Date, Fair Market Value shall mean the “Closing Price” (as defined below) of the Common Stock on the business day immediately preceding the date of reference, unless the Committee or the Board in its sole discretion shall determine otherwise in a fair and uniform manner. For the purpose of determining Fair Market Value, the “Closing Price” of the Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on the National Association of Securities Dealers Automated Quotations System (“NASDAQ”), or any similar system of automated dissemination of quotations of securities prices in common use, the last reported sale price of Common Stock on such system or, if sales prices are not reported, the mean between the closing high bid and low asked quotations for such day of Common Stock on such system, as reported in any newspaper of general circulation or (iii) if neither clause (i) or (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least five of the ten preceding days.
          (l) “Incentive Stock Option” shall mean an incentive stock option as defined in Section 422 of the Internal Revenue Code.
          (m) “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option.
          (n) “Officer” shall mean the Company’s Chairman of the Board, President, Chief Executive Officer, principal financial officer, principal accounting officer, any vice-president of the Company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Officers of Subsidiaries shall be deemed Officers of the Company if they perform such policy-making functions for the Company. As used in this paragraph, the phrase “policy-making function” does not include policy-making functions that are not significant If pursuant to Item 401(b) of

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Regulation S-K (17 C.F.R. § 229.401(b)) the Company identifies a person as an “executive officer,” the person so identified shall be deemed an “‘Officer” even though such person may not otherwise be an “Officer” pursuant to the foregoing provisions of this paragraph.
          (o) “Option” (when capitalized) shall mean any option granted under this Plan.
          (p) “Option Agreement” means the agreement between the Company and the Optionee for the grant of an option.
          (q) “Optionee” shall mean a person to whom a stock option is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person.
          (r) “Outside Director” shall mean a member of the Board who qualifies as an “outside director” under Section 162(m) of the Internal Revenue Code and the regulations thereunder and as a “Non-Employee Director” under Rule 16b-3 promulgated under the Securities Exchange Act.
          (s) “Parent” shall mean any corporation (other than the Company), whether now or hereafter existing, in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50% or more of the combined voting power of all classes of stock in one of the other corporations in the chain.
          (t) “Plan” shall mean this 1999 Officers and Employees Stock Option Plan for the Company.
          (u) “Publicly-Traded Date” shall mean the date on which the Common Stock of the Company, or the stock of any successor company into which the Option or any substituted option or right becomes exercisable pursuant to Section 10(c) hereof, is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act.
          (v) “Related Entity” shall mean any Parent, Subsidiary and any business, corporation, partnership, limited liability company or other entity in which the Company, a Parent or a Subsidiary holds a substantial ownership interest, directly or indirectly.
          (w) “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended from time to time.
          (x) “Share” shall mean a share of Common Stock.
          (y) “Subsidiary” shall mean any corporation (other than the Company), whether now or hereafter existing, in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

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     3.  Shares Available for Option Grants . The Committee or the Board may grant to Optionees from time to time Options to purchase an aggregate of up to Two Million Seven Hundred Fifty Thousand (2,750,000) Shares from the Company’s authorized and unissued Shares, less the number of Shares with respect to issued and outstanding Options granted under the Company’s 1999 Directors and Consultants Stock Option Plan, as amended from time to time (the “Directors Plan”). If any Option granted under the Plan and/or the Directors Plan shall terminate, expire, or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares.
     4.  Incentive and Non-Qualified Options .
          (a) An Option granted hereunder shall be either an Incentive Stock Option or a Non-Qualified Stock Option as determined by the Committee or the Board at the time of grant of the Option and shall clearly state whether it is an Incentive Stock Option or Non-Qualified Stock Option. All Incentive Stock Options shall be granted within 10 years from the effective date of this Plan. Incentive Stock Options may not be granted to any person who is not an Employee of the Company, the Parent or a Subsidiary.
          (b) Options otherwise qualifying as Incentive Stock Options hereunder will not be treated as Incentive Stock Options to the extent that the aggregate fair market value (determined at the time the Option is granted) of the Shares, with respect to which Options meeting the requirements of Section 422(b) of the Code are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its Parent and Subsidiaries, exceeds $100,000.
     5.  Conditions for Grant of Options .
          (a) Each Option shall be evidenced by an Option Agreement that may contain any term deemed necessary or desirable by the Committee or the Board, provided such terms are not inconsistent with this Plan or any applicable law. Optionees shall be those persons selected by the Committee or the Board from the class of all Employees, including Officers and Directors who are Employees.
          (b) In granting Options, the Committee or the Board shall take into consideration the contribution the person has made to the success of the Company or its Subsidiaries and such other factors as the Committee or the Board shall determine. The Committee or the Board shall also have the authority to consult with and receive recommendations from officers and other personnel of the Company and its Subsidiaries with regard to these matters. The Committee or the Board may from time to time in granting Options under the Plan prescribe such other terms and conditions concerning such Options as it deems appropriate, including, without limitation, (i) prescribing the date or dates on which the Option becomes exercisable, (ii) providing that the Option rights accrue or become exercisable in installments over a period of years, or upon the attainment of stated goals or both, or (iii) relating an Option to the Continuous Service of the Optionee for a specified period of time, provided that such terms and conditions are not more favorable to an Optionee than those expressly permitted herein.

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          (c) The Options granted to employees under this Plan shall be in addition to regular salaries, pension, life insurance or other benefits related to their employment or Continuous Service with the Company or its Related Entities. Neither the Plan nor any Option granted under the Plan shall confer upon any person any right to employment or continuance of employment or Continuous Service by the Company or its Related Entities.
          (d) The Committee or the Board shall have the discretion to grant Options that are exercisable for unvested Shares. Should the Optionee’s Continuous Service cease while holding such unvested Shares, the Company shall have the right to repurchase, at the exercise price paid per share, any or all of those unvested Shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Committee or the Board and set forth in the Option Agreement for the relevant Option.
          (e) Notwithstanding any other provision of this Plan, an Incentive Stock Option shall not be granted to any person owning directly or indirectly (through attribution under Section 424(d) of the Code) at the date of grant, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company (or of its parent or subsidiary corporation [as defined in Section 424 of the Code] at the date of grant) unless the option price of such Option is at least 110% of the Fair Market Value of the Shares subject to such Option on the date the Option is granted, and such Option by its terms is not exercisable after the expiration of five years from the date such Option is granted.
          (f) Notwithstanding any other provision of this Plan, and in addition to any other requirements of this Plan, the aggregate number of Options granted to any one Optionee may not exceed Six Hundred Thousand (600,000), subject to adjustment as provided in Section 10 hereof.
     6.  Option Price . The option price per Share of any Option shall be any price determined by the Committee or the Board but shall not be less than the par value per Share; provided, however, that in no event shall the option price per Share of any Incentive Stock Option be less than the Fair Market Value of the Shares underlying such Option on the date such Option is granted.
     7.  Exercise of Options .
          (a) An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, (ii) full payment of the aggregate option price of the Shares as to which the Option is exercised has been made, and (iii) arrangements that are satisfactory to the Committee or the Board in its sole discretion have been made for the Optionee’s payment to the Company of the amount that is necessary for the Company or Subsidiary employing the Optionee to withhold in accordance with applicable Federal or state tax withholding requirements.

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          (b) The consideration to be paid for the Shares to be issued upon exercise of an Option, as well as the method of payment of the exercise price and of any withholding and employment taxes applicable thereto, shall be determined by the Committee or the Board and may, in the discretion of the Committee or the Board, consist of: (1) cash, (2) certified or official bank check, (3) money order, (4) Shares that have been held by the Optionee for at least six (6) months (or such other Shares as the Company determines will not cause the Company to recognize for financial accounting purposes a charge for compensation expense), (5) the withholding of Shares issuable upon exercise of the Option, (6) pursuant to a “cashless exercise” procedure, by delivery of a properly executed exercise notice together with such other documentation, and subject to such guidelines, as the Board or the Committee shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the Company of proceeds from the sale of Shares or a margin loan sufficient to pay the exercise price and any applicable income or employment taxes, or (7) in such other consideration as the Committee or the Board deems appropriate, or by a combination of the above. In the case of an Incentive Stock Option, the permissible methods of payment shall be specified at the time the Option is granted. The Committee or the Board in its sole discretion may accept a personal check in full or partial payment of any Shares. If the exercise price is paid, and/or the Optionee’s tax withholding obligation is satisfied, in whole or in part with Shares, or through the withholding of Shares issuable upon exercise of the Option, the value of the Shares surrendered or withheld shall be their Fair Market Value on the date the Option is exercised.
          (c) The Committee or the Board in its sole discretion may, on an individual basis or pursuant to a general program established in connection with this Plan, cause the Company to lend money to an Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to obtain the cash necessary to exercise all or a portion of an Option granted hereunder or to pay any tax liability of the Optionee attributable to such exercise. If the exercise price is paid in whole or part with the Optionee’s promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon exercise of the Option, (iii) bear interest at the prime rate of the Company’s principal lender, and (iv) contain such other terms as the Committee or the Board in its sole discretion shall reasonably require.
          (d) No Optionee shall be deemed to be a holder of any Shares subject to an Option unless and until a stock certificate or certificates for those Shares are issued to that person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date the stock certificate is issued, except as expressly provided in Section 10 hereof.
     8.  Exercisability of Options .
          (a) Any Option shall become exercisable in such amounts, at such intervals and upon such terms as the Committee or the Board shall provide in the Option Agreement for that Option, except as otherwise provided in this Section 8.
          (b) The expiration date of an Option shall be determined by the Committee or the Board at the time of grant, but in no event shall an Option be exercisable after the expiration of 10 years from the date of grant of the Option.

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          (c) Unless otherwise provided in any Option, each outstanding Option shall become immediately fully exercisable in the event of a “Change in Control” or in the event that the Committee or the Board exercises its discretion to provide a cancellation notice with respect to the Option pursuant to Section 9(b) hereof. For this purpose, the term “Change in Control” shall mean:
               (i) Approval by the shareholders of the Company of a reorganization, merger, consolidation or other form of corporate transaction or series of transactions (other than an initial public offering, private placement or other offering of the Company), in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such reorganization, merger, consolidation or other transaction, or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or
               (ii) The acquisition (other than from the Company) by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of beneficial ownership (within the meaning of Rule 13-d promulgated under the Securities Exchange Act, of more than 50% of either the then outstanding shares of the Company’s Common Stock or the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a “Controlling Interest”) excluding, for this purpose, any acquisitions by (1) the Company or its Subsidiaries, (2) any person, entity or “group” that as of the date on which the Option is granted owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a Controlling Interest, (3) any employee benefit plan of the Company or its Subsidiaries, or (4) Howard Leonhardt.
          (d) The Committee or the Board may in its sole discretion accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option.
     9.  Termination of Option Period .
          (a) Unless otherwise provided in any Option Agreement, the unexercised portion of any Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:
               (i) three months after the date on which the Optionee’s Continuous Service is terminated other than by reason of (A) Cause, which, solely for purposes of this Plan, shall mean the termination of the Optionee’s Continuous Service by reason of the Optionee’s willful misconduct or gross negligence, (B) a mental or physical disability (within the meaning of Internal Revenue Code Section nee)) of the Optionee as determined by a medical doctor satisfactory to the Committee, or (C) death of the Optionee;

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               (ii) immediately upon the termination of the Optionee’s Continuous Service for Cause;
               (iii) twelve months after the date on which the Optionee’s Continuous Service is terminated by reason of a mental or physical disability (within the meaning of Section 22(e) of the Code) as determined by a medical doctor satisfactory to the Committee or the Board;
               (iv) (A) twelve months after the date of termination of the Optionee’s Continuous Service by reason of the death of the Optionee, or, if later, (B) three months after the date on which the Optionee shall die if such death shall occur during the one year period specified in Subsection 9(a)(iii) hereof;
               (v) immediately in the event that the Optionee shall file any lawsuit or arbitration claim against the Company or any Subsidiary, or any of their respective officers, directors or shareholders; or
               (vi) the tenth anniversary of the date of grant of the Option.
          (b) To the extent not previously exercised, (i) each Option shall terminate immediately in the event of (1) the liquidation or dissolution of the Company, or (2) any reorganization, merger, consolidation or other form of corporate transaction (each a “Corporate Transaction”) in which either the Company does not survive or the Shares are exchange for or converted into securities issued by another entity, unless the successor or acquiring entity, or an affiliate thereof, assumes the Option or substitutes an equivalent option or right pursuant to Section 10(c) hereof, and (ii) the Committee or the Board in its sole discretion may by written notice (“cancellation notice”) cancel, effective upon the consummation of any corporate transaction described in Subsection 8(c)(i) hereof, any Option that remains unexercised on such date. The Committee or the Board shall give written notice of any proposed transaction referred to in this Section 9(b) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that Optionees may have a reasonable period of time prior to the closing date of such transaction within which to exercise any Options that then are exercisable (including any Options that may become exercisable upon the closing date of such transaction). An Optionee may condition his exercise of any Option upon the consummation of a transaction referred to in this Section 9(b).
     10.  Adjustment of Shares .
          (a) If at any time while the Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in that event, the Board or the Committee:

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               (i) shall make appropriate adjustment in the maximum number of Shares available for grant under the Plan, or available for grant to any person under the Plan, so that the same percentage of the Company’s issued and outstanding Shares shall continue to be subject to being so optioned; and
               (ii) may, in its discretion, make any adjustments it deems appropriate in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company’s issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price.
          (b) Unless otherwise provided in any Option Agreement, the Board or the Committee may change the terms of Options outstanding under this Plan, with respect to the option price or the number of Shares subject to the Options, or both, when, in the sole discretion of the Board or the Committee, such adjustments become appropriate so as to preserve benefits under the Plan.
          (c) In the event of any Corporate Transaction as defined in Section 9(b) hereof, in which the Company does not survive, or in which the Shares are exchanged for or converted into securities issued by another entity, then the successor or acquiring entity or an affiliate thereof may, with the consent of the Committee or the Board, assume each outstanding Option or substitute an equivalent option or right pursuant to and in accordance with the terms and conditions of the agreement effectuating the Corporate Transaction.
          (d) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with a direct sale or upon the exercise of rights or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made to, the number of or exercise price for Shares then subject to outstanding Options granted under the Plan.
          (e) Without limiting the generality of the foregoing, the existence of outstanding Options granted under the Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise.
     11. Transferability of Options and Shares . No Incentive Stock Option, and unless the prior written consent of the Committee or the Board is obtained (which consent may be withheld for any reason) and the transaction does not violate the requirements of Rule 16b-3 promulgated under the Securities Exchange Act no Non-Qualified Stock Option, shall be subject to alienation, assignment, pledge, charge or other transfer other than by the Optionee by will or the laws of

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descent and distribution, and any attempt to make any such prohibited transfer shall be void. Each Option shall be exercisable during the Optionee’s lifetime only by the Optionee, or in the case of a Non-Qualified Stock Option that has been assigned or transferred with the prior written consent of the Committee or the Board, only by the permitted assignee.
     12.  Restrictive Covenants . As a condition to an Optionee receiving a grant of an Option under this Plan, or the receiving of Shares upon exercise of such Option, the Committee or the Board may require that the Optionee comply with certain restrictive covenants to be specified in the Optionee’s Option Agreement. In such a case, the Optionee must execute an Option Agreement acknowledging the restrictive covenants set forth therein, consenting to comply with such restrictive covenants, and that the Option Agreement is conditioned on compliance with those restrictive covenants.
     13.  Issuance of Shares .
          (a) Notwithstanding any other provision of this Plan, the Company shall not be obligated to issue any Shares unless it is advised by counsel of its selection that it may do so without violation of the applicable Federal and State laws pertaining to the issuance of securities, and may require any stock so issued to bear a legend, may give its transfer agent instructions, and may take such other steps, as in its judgment are reasonably required to prevent any such violation.
          (b) As a condition to any sale or issuance of Shares upon exercise of any Option, the Committee or the Board may require such agreements or undertakings as the Committee or the Board may deem necessary or advisable to facilitate compliance with any applicable law or regulation including, but not limited to, the following:
               (i) a representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares;
               (ii) a representation, warranty and/or agreement to be bound by any legends endorsed upon the certificate(s) for the Shares that are, in the opinion of the Committee or the Board, necessary or appropriate to facilitate compliance with the provisions of any securities laws deemed by the Committee or the Board to be applicable to the issuance and transfer of those Shares; and
               (iii) a Stockholders Agreement in a form prescribed by the Board or the Committee respecting the transfer and disposition of the Shares and restrictions thereon prior to the Publicly-Traded Date.
     14.  Administration of the Plan .
          (a) The Plan shall be administered by the Board or, at the discretion of the Board, by a committee appointed by the Board (the “Committee”) which shall be composed of two or more Directors. At any time after the Publicly Traded Date, the membership of the

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Committee shall be constituted so as to comply at all times with the then applicable requirements for Outside Directors of Rule 16b-3 promulgated under the Securities Exchange Act and Section 162(m) of the Code. The Committee shall serve at the pleasure of the Board and shall have the powers designated herein and such other powers as the Board may from time to time confer upon it.
          (b) The Committee or the Board from time to time, may adopt rules and regulations for carrying out the purposes of the Plan. The determinations of the Committee or the Board, and its interpretation and construction of any provision of the Plan or any Option Agreement, shall be final and conclusive.
          (c) Any and all decisions or determinations of the Committee shall be made either (i) by a majority vote of the members of the Committee at a meeting or (ii) without a meeting by the unanimous written approval of the members of the Committee.
     15.  Withholding or Deduction for Taxes . If at any time specified herein for the making of any issuance or delivery of any Option or Common Stock to any Optionee, any law or regulation of any governmental authority having jurisdiction in the premises shall require the Company to withhold, or to make any deduction for, any taxes or to take any other action in connection with the issuance or delivery then to be made, the issuance or delivery shall be deferred until the withholding or deduction shall have been provided for by the Optionee or beneficiary, or other appropriate action shall have been taken.
     16.  Interpretation .
          (a) As it is the intent of the Company that after the Publicly-Traded Date, the Plan shall comply in all respects with Rule 16b-3 promulgated under the Securities Exchange Act (“Rule 16b-3”), any ambiguities or inconsistencies in construction of the Plan shall be interpreted to give effect to such intention, and if any provision of the Plan is found not to be in compliance with Rule 16b-3, such provision shall be deemed null and void to the extent required to permit the Plan to comply with Rule 16b-3. The Committee or the Board may from time to time adopt rules and regulations under, and amend, the Plan in furtherance of the intent of the foregoing.
          (b) The Plan and any Option Agreements entered into pursuant to the Plan shall be administered and interpreted so that all Incentive Stock Options granted under the Plan will qualify as Incentive Stock Options under Section 422 of the Code. If any provision of the Plan or any Option Agreement relating to an Incentive Stock Option should be held invalid for the granting of Incentive Stock Options or illegal for any reason, that determination shall not affect the remaining provisions hereof, but instead the Plan and the Option Agreement shall be construed and enforced as if such provision had never been included in the Plan or the Option Agreement.
          (c) This Plan shall be governed by the laws of the State of Florida.
          (d) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan.

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          (e) Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate.
     17.  Amendment and Discontinuation of the Plan . The Committee or the Board may from time to time amend, suspend or terminate the Plan or any Option; provided, however, that, any amendment to the Plan shall be subject to the approval of the Company’s shareholders if such shareholder approval is required by any applicable federal or state law or regulation (including, without limitation, Rule 16b-3 or to comply with Section 162(m) of the Code) or the rules of any stock exchange or automated quotation system on which the Common Stock may then be listed or granted. Except to the extent provided in Sections 9 and 10 hereof, no amendment, suspension or termination of the Plan or any Option issued hereunder shall substantially impair the rights or benefits of any Optionee pursuant to any Option previously granted without the consent of the Optionee.
     18.  Effective Date and Termination Date . The effective date of the Plan is the Effective Date, and the Plan shall terminate on the 10th anniversary of the Effective Date. This Plan, as amended and restated, shall be effective as of October 8, 200l (which is the date on which the Board adopted the Plan, as so amended and restated). The Plan, as amended and restated, shall be submitted to the shareholders of the Company for their approval and adoption, and Options hereunder may be granted prior to such approval and adoption; provided, however, that any Incentive Stock Options hereunder, and but only to the extent otherwise required by law or the rules of any stock exchange or automated quotation system in which the Common Stock may be listed, any Non-Qualified Stock Options hereunder, may be granted prior to such approval and adoption but shall be contingent upon obtaining such approval and adoption.

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Exhibit 10.2
 
BIOHEART, INC.
1999 DIRECTORS AND CONSULTANTS STOCK OPTION PLAN
 
     1.  Purpose . The purpose of this Plan is to advance the interests of BIOHEART, INC., a Florida corporation (the “Company”), and its Subsidiaries by providing an additional incentive to attract and retain qualified and competent persons who provide management services and upon whose efforts and judgment the success of the Company and its Subsidiaries is largely dependent, through the encouragement of stock ownership in the Company by such persons.
     2.  Definitions . As used herein, the following terms shall have the meaning indicated:
          (a) “Board” shall mean the Board of Directors of the Company.
          (b) “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
          (c) “Committee” shall mean the committee appointed by the Board pursuant to Section 13(a) hereof; or, if such committee is not appointed, the Board.
          (d) “Common Stock” shall mean the Company’s Common Stock, par value $.01 per share.
          (e) “Company” shall mean BIOHEART, INC., a Florida corporation.
          (f) “Director” shall mean a member of the Board.
          (g) “Effective Date” shall mean December 1, 1999.
          (h) “Fair Market Value” of a Share on any date of reference shall mean the fair market value of a Share of the Company’s Common Stock on that date, as determined by the Committee in a fair and uniform manner. After the Publicly-Traded Date, the Fair Market Value shall mean the “Closing Price” (as defined below) of the Common Stock on the business day immediately preceding the date of reference, unless the Committee in its sole discretion shall determine otherwise in a fair and uniform manner. For the purpose of determining Fair Market Value, the “Closing Price” of the Common Stock on any business day shall be (i) if the Common Stock is listed or admitted for trading on any United States national securities exchange, or if actual transactions are otherwise reported on a consolidated transaction reporting system, the last reported sale price of Common Stock on such exchange or reporting system, as reported in any newspaper of general circulation, (ii) if the Common Stock is quoted on the National Association of Securities

 


 

Dealers Automated Quotations System (“NASDAQ”), or any similar system of automated dissemination of quotations of securities prices in common use, the last reported sale price of Common Stock on such system or, if sales prices are not reported, the mean between the closing high bid and low asked quotations for such day of Common Stock on such system, as reported in any newspaper of general circulation or (iii) if neither clause (i) or (ii) is applicable, the mean between the high bid and low asked quotations for the Common Stock as reported by the National Quotation Bureau, Incorporated if at least two securities dealers have inserted both bid and asked quotations for Common Stock on at least five of the ten preceding days.
          (i) “Internal Revenue Code” shall mean the Internal Revenue Code of 1986, as amended from time to time.
          (j) “Officer” shall mean the Company’s Chairman of the Board, President, Chief Executive Officer, principal financial officer, principal accounting officer, any vice president of the Company in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company. Officers of Subsidiaries shall be deemed Officers of the Company if they perform such policy-making functions for the Company. As used in this paragraph, the phrase “policy-making function” does not include policy-making functions that are not significant. If pursuant to Item 401(b) of Regulation S-K (17 C.F.R. § 229.401(b)) the Company identifies a person as an “executive officer,” the person so identified shall be deemed an “Officer” even though such person may not otherwise be an “Officer” pursuant to the foregoing provisions of this paragraph.
          (k) “Option” (when capitalized) shall mean any option granted under this Plan.
          (l) “Option Agreement” means the agreement between the Company and the Optionee for the grant of an option.
          (m) “Optionee” shall mean a person to whom a stock option is granted under this Plan or any person who succeeds to the rights of such person under this Plan by reason of the death of such person.
          (n) “Outside Director” shall mean a member of the Board who qualifies as an “outside director” under Section 162(m) of the Internal Revenue Code and the regulations thereunder and as a “Non-Employee Director” under Rule 16b-3 promulgated under the Securities Exchange Act.
          (o) “Plan” shall mean this Stock Option Plan for the Company.
          (p) “Publicly-Traded Date,” when applied to the Shares, shall mean the date on which the Common Stock of the Company, or the stock of any successor company into which the Shares are substituted or exchanged, is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act.

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          (q) “Securities Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
          (r) “Share” shall mean a share of Common Stock.
          (s) “Subsidiary” shall mean any corporation (other than the Company) in any unbroken chain of corporations beginning with the Company if, at the time of the granting of the Option, each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.
     3.  Shares Available for Option Grants . The Committee or the Board may grant to Optionees from time to time Options to purchase an aggregate of up to Two Million (2,000,000) Shares from the Company’s authorized and unissued Shares, less the number of Shares with respect to issued and outstanding Options granted under the Company’s 1999 Officers and Employees Stock Option Plan (the “Employee Plan”). If any Option granted under the Plan and/or the Employee Plan shall terminate, expire, or be canceled or surrendered as to any Shares, new Options may thereafter be granted covering such Shares.
     4.  Conditions for Grant of Options .
          (a) Each Option shall be evidenced by an option agreement that may contain any term deemed necessary or desirable by the Committee or the Board, provided such terms are not inconsistent with this Plan or any applicable law. Optionees shall be (i) Directors who are not employees of the Company or of any Subsidiary, and (ii) those persons selected by the Committee or the Board who provide consulting or other services as independent contractors to the Company. Any person who files with the Committee, in a form satisfactory to the Committee, a written waiver of eligibility to receive any Option under this Plan shall not be eligible to receive any Option under this Plan for the duration of such waiver.
          (b) In granting Options, the Committee or the Board shall take into consideration the contribution the person has made to the success of the Company or its Subsidiaries and such other factors as the Committee shall determine. The Committee or the Board shall also have the authority to consult with and receive recommendations from officers and other personnel of the Company and its Subsidiaries with regard to these matters. The Committee or the Board may from time to time in granting Options under the Plan prescribe such other terms and conditions concerning such Options as it deems appropriate, including, without limitation, (i) prescribing the date or dates on which the Option becomes exercisable, (ii) providing that the Option rights accrue or become exercisable in installments over a period of years, or upon the attainment of stated goals or both, or (iii) relating an Option to the continued service of the Optionee for a specified period of time, provided that such terms and conditions are not more favorable to an Optionee than those expressly permitted herein.

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          (c) Neither the Plan nor any Option granted under the Plan shall confer upon any person any right to service or continuance of service with the Company or its Subsidiaries.
          (d) Notwithstanding any other provision of this Plan, and in addition to any other requirements of this Plan, the aggregate number of Options granted to any one Optionee may not exceed Six Hundred Thousand (600,000), subject to adjustment as provided in Section 10 hereof.
     5.  Option Price . The option price per Share of any Option shall be any price determined by the Committee but shall not be less than the par value per Share.
     6. Exercise of Options . An Option shall be deemed exercised when (i) the Company has received written notice of such exercise in accordance with the terms of the Option, and (ii) full payment of the aggregate option price of the Shares as to which the Option is exercised has been made. The consideration to be paid for the Shares to be issued upon exercise of an Option, as well as the method of payment of the exercise price, shall be determined by the Committee or the Board and may, in the discretion of the Committee or the Board, consist of: (1) cash, (2) certified or official bank check, (3) money order, (4) Shares that have been held by the Optionee for at least six (6) months (or such other Shares as the Company determines will not cause the Company to recognize for a financial accounting purposes a change for compensation expense), (5) the withholding of Shares issuable upon exercise of the Option, (6) pursuant to a “cashless exercise” procedure, by delivery of a properly executed exercise notice together with such other documentation, and subject to such guidelines, as the Board or the Committee shall require to effect an exercise of the Option and delivery to the Company by a licensed broker acceptable to the Company of proceeds from the sale of Shares or a margin loan sufficient to pay the exercise price and any applicable income or employment taxes, or (7) in such other consideration as the Committee or the Board deems appropriate, or by a combination of the above. The Committee or the Board in its sole discretion may accept a personal check in full or partial payment of any Shares. If the exercise price is paid in whole or in part with Shares, or through the withholding of Shares issuable upon exercise of the Option, the value of the Shares surrendered or withheld shall be their Fair Market Value on the date the Option is exercised. The Company in its sole discretion may, on an individual basis or pursuant to a general program established in connection with this Plan, lend money to an Optionee, guarantee a loan to an Optionee, or otherwise assist an Optionee to obtain the cash necessary to exercise all or a portion of an Option granted hereunder or to pay any tax liability of the Optionee attributable to such exercise. If the exercise price is paid in whole or part with Optionee’s promissory note, such note shall (i) provide for full recourse to the maker, (ii) be collateralized by the pledge of the Shares that the Optionee purchases upon exercise of such Option, (iii) bear interest at the prime rate of the Company’s principal lender, and (iv) contain such other terms as the Board in its sole discretion shall reasonably require. No Optionee shall be deemed to be a holder of any Shares subject to an Option

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unless and until a stock certificate or certificates for such Shares are issued to such person(s) under the terms of this Plan. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property) or distributions or other rights for which the record date is prior to the date such stock certificate is issued, except as expressly provided in Section 10 hereof.
     7.  Exercisability of Options . Any Option shall become exercisable in such amounts, at such intervals and upon such terms as the Committee or the Board shall provide in such Option, except as otherwise provided in this Section 8.
          (a) The expiration date of an Option shall be determined by the Committee at the time of grant, but in no event shall an Option be exercisable after the expiration of 10 years from the date of grant of the Option.
          (b) Unless otherwise provided in any Option, each outstanding Option shall become immediately fully exercisable in the event of a “Change in Control” or in the event that the Committee or the Board exercises its discretion to provide a cancellation notice with respect to the Option pursuant to Section 9(b) hereof. For this purpose, the term “Change in Control” shall mean:
               (i) Approval by the shareholders of the Company of a reorganization, merger, consolidation or other form of corporate transaction or series of transactions (other than an initial public offering, private placement or other offering of the Company), in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation or other transaction do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, in substantially the same proportions as their ownership immediately prior to such reorganization, merger, consolidation or other transaction, or a liquidation or dissolution of the Company or the sale of all or substantially all of the assets of the Company (unless such reorganization, merger, consolidation or other corporate transaction, liquidation, dissolution or sale is subsequently abandoned); or
               (ii) The acquisition (other than from the Company) by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act, of [more than 50%] [20% or 30%] of either the then outstanding shares of the Company’s Common Stock or the combined voting power of the Company’s then outstanding voting securities entitled to vote generally in the election of directors (hereinafter referred to as the ownership of a “Controlling Interest”) excluding, for this purpose, any acquisitions by (1) the Company or its Subsidiaries, (2) any person, entity or “group” that as of the date on which the Option is granted owns beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act) of a Controlling Interest, (3) any employee benefit plan of the Company or its Subsidiaries, or (4) Howard Leonhardt.

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          (c) The Committee or the Board may in its sole discretion accelerate the date on which any Option may be exercised and may accelerate the vesting of any Shares subject to any Option or previously acquired by the exercise of any Option.
     8.  Termination of Option Period .
          (a) Unless otherwise provided in any Option agreement, the unexercised portion of any Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of the following:
               (i) three (3) months after the date on which the Optionee’s service with the Company is terminated other than by reason of (A) Cause, which, solely for purposes of this Plan, shall mean the termination of the Optionee’s service by reason of the Optionee’s willful misconduct or gross negligence, (B) a mental or physical disability (within the meaning of Internal Revenue Code Section 22(e) of the Optionee as determined by a medical doctor satisfactory to the Committee, or (C) death of the Optionee;
               (ii) immediately upon the termination of the Optionee’s service with the Company for Cause;
               (iii) twelve (12) months after the date on which the Optionee’s service with the Company is terminated by reason of a mental or physical disability (within the meaning of Section 22(e) of the Code) as determined by a medical doctor satisfactory to the Committee;
               (iv) (A) twelve (12) months after the date of termination of the Optionee’s service with the Company by reason of death of the Optionee, or, if later, (B) three months after the date on which the Optionee shall die if such death shall occur during the one year period specified in Subsection 9(a)(iii) hereof;
               (v) immediately in the event that the Optionee shall file any lawsuit or arbitration claim against the Company or any Subsidiary, or any of their respective officers, directors or shareholders; or
               (vi) ten years from the date of grant of the Option.
          (b) To the extent not previously exercised, (i) each Option shall terminate immediately in the event of (1) the liquidation or dissolution of the Company, or (2) any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive, unless the successor corporation, or a parent or subsidiary of such successor corporation, assumes the Option or substitutes an equivalent option or right pursuant to Section 10(c) hereof, and (ii) the Committee or the Board in its sole discretion may by written notice (“cancellation notice”) cancel, effective upon the consummation of any corporate transaction described in Subsection 8(b)(i) hereof in which the Company does survive, any Option that remains unexercised on such date. The Committee or the Board shall give written notice of any proposed transaction referred to in this Section 9(b) a

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reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that Optionees may have a reasonable period of time prior to the closing date of such transaction within which to exercise any Options that then are exercisable (including any Options that may become exercisable upon the closing date of such transaction). An Optionee may condition his exercise of any Option upon the consummation of a transaction referred to in this Section 9(b).
     9.  Adjustment of Shares .
          (a) If at any time while the Plan is in effect or unexercised Options are outstanding, there shall be any increase or decrease in the number of issued and outstanding Shares through the declaration of a stock dividend or through any recapitalization resulting in a stock split-up, combination or exchange of Shares, then and in such event:
               (i) appropriate adjustment shall be made in the maximum number of Shares available for grant under the Plan, so that the same percentage of the Company’s issued and outstanding Shares shall continue to be subject to being so optioned; and
               (ii) the Board or the Committee may, in its discretion, make any adjustments it deems appropriate in the number of Shares and the exercise price per Share thereof then subject to any outstanding Option, so that the same percentage of the Company’s issued and outstanding Shares shall remain subject to purchase at the same aggregate exercise price.
          (b) Unless otherwise provided in any Option, the Committee may change the terms of Options outstanding under this Plan, with respect to the option price or the number of Shares subject to the Options, or both, when, in the Committee’s sole discretion, such adjustments become appropriate so as to preserve but not increase benefits under the Plan.
          (c) In the event of a proposed sale of all or substantially all of the Company’s assets or any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive, where the securities of the successor corporation, or its parent company, are issued to the Company’s shareholders, then the successor corporation or a parent of the successor corporation may, with the consent of the Committee or the Board, assume each outstanding Option or substitute an equivalent option or right. If the successor corporation, or its parent, does not cause such an assumption or substitution to occur, or the Committee or the Board does not consent to such an assumption or substitution, then each Option shall terminate pursuant to Section 9(b) hereof upon the consummation of sale, merger, consolidation or other corporate transaction.
          (d) Except as otherwise expressly provided herein, the issuance by the Company of shares of its capital stock of any class, or securities convertible into shares of capital stock of any class, either in connection with direct sale or upon the exercise of rights

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or warrants to subscribe therefor, or upon conversion of shares or obligations of the Company convertible into such shares or other securities, shall not affect, and no adjustment by reason thereof shall be made to, the number of or exercise price for Shares then subject to outstanding Options granted under the Plan.
          (e) Without limiting the generality of the foregoing, the existence of outstanding Options granted under the Plan shall not affect in any manner the right or power of the Company to make, authorize or consummate (i) any or all adjustments, recapitalizations, reorganizations or other changes in the Company’s capital structure or its business; (ii) any merger or consolidation of the Company; (iii) any issue by the Company of debt securities, or preferred or preference stock that would rank above the Shares subject to outstanding Options; (iv) the dissolution or liquidation of the Company; (v) any sale, transfer or assignment of all or any part of the assets or business of the Company; or (vi) any other corporate act or proceeding, whether of a similar character or otherwise.
     10.  Transferability of Options . Unless the prior written consent of the Committee or the Board is obtained (which consent may be withheld for any reason) and the transaction does not violate the requirements of Rule 16b-3 promulgated under the Securities Exchange Act, no Option shall be subject to alienation, assignment, pledge, charge or other transfer other than by the Optionee by will or the laws of descent and distribution, and any attempt to make any such prohibited transfer shall be void. Each Option shall be exercisable during the Optionee’s lifetime only by the Optionee, or in the case of an Option that has been assigned or transferred with the prior written consent of the Committee or the Board, only by the permitted assignee.
     11.  Restrictive Covenants . As a condition to a Participant receiving a grant of an Option under this Plan, or the receiving of Shares upon exercise of such Option, the Committee or the Board may require that the Participant comply with certain restrictive covenants to be specified in the Participant’s Option Agreement. In such a case, the Participant must execute an Option Agreement acknowledging the restrictive covenants set forth therein, consenting to comply with such restrictive covenants, and that the Option Agreement is conditioned on compliance with those restrictive covenants
     12.  Issuance of Shares .
          (a) Notwithstanding any other provision of this Plan, the Company shall not be obligated to issue any Shares unless it is advised by counsel of its selection that it may do so without violation of the applicable Federal and State laws pertaining to the issuance of securities, and may require any stock so issued to bear a legend, may give its transfer agent instructions, and may take such other steps, as in its judgment are reasonably required to prevent any such violation.
          (b) As a condition to any sale or issuance of Shares upon exercise of any Option, the Committee may require such agreements or undertakings as the Committee may deem necessary or advisable to facilitate compliance with any applicable law or regulation including, but not limited to, the following:

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               (i) a representation and warranty by the Optionee to the Company, at the time any Option is exercised, that he is acquiring the Shares to be issued to him for investment and not with a view to, or for sale in connection with, the distribution of any such Shares;
               (ii) a representation, warranty and/or agreement to be bound by any legends endorsed upon the certificate(s) for such Shares that are, in the opinion of the Committee, necessary or appropriate to facilitate compliance with the provisions of any securities laws deemed by the Committee to be applicable to the issuance and transfer of such Shares; and
               (iii) a Stockholders Agreement in a form prescribed by the Board or the Committee respecting the transfer and disposition of the Shares and restrictions thereon prior to the Publicly-Traded Date.
13. Administration of the Plan.
          (a) The Plan shall be administered by the Board or, at the discretion of the Board, by a committee appointed by the Board (the “Committee”) which shall be composed of two or more Directors. At any time that any shares of the Common Stock of the Company shall be registered under Section 12 of the Securities Exchange Act of 1934, the membership of the Committee shall be constituted so as to comply at all times with the then applicable requirements for Outside Directors of Rule 16b-3 promulgated under the Securities Exchange Act and Section 162(m) of the Internal Revenue Code. The Committee shall serve at the pleasure of the Board and shall have the powers designated herein and such other powers as the Board may from time to time confer upon it.
          (b) The Board may grant Options pursuant to this Plan to any persons to whom Options may be granted under Section 5(a)) hereof.
          (c) The Committee or the Board, from time to time, may adopt rules and regulations for carrying out the purposes of the Plan. The determinations by the Board or the Committee and its interpretation and construction of any provision of the Plan or any Option shall be final and conclusive.
          (d) Any and all decisions or determinations of the Board or the Committee shall be made either (i) by a majority vote of the members of the Board or the Committee at a meeting or (ii) without a meeting by the unanimous written approval of the members of the Board or the Committee.
     14.  Withholding or Deduction for Taxes . If at any time specified herein for the making of any issuance or delivery of any Option or Common Stock to any Optionee, any law or regulation of any governmental authority having jurisdiction in the premises shall require the Company to withhold, or to make any deduction for, any taxes or take any other action in connection with the issuance or delivery then to be made, such issuance or delivery shall be deferred until such withholding or deduction shall have been provided for by the Optionee or beneficiary, or other appropriate action shall have been taken.

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     15.  Interpretation .
          (a) As it is the intent of the Company that the Plan comply in all respects with Rule 16b-3 promulgated under the Securities Exchange Act (“Rule 16b-3”), any ambiguities or inconsistencies in construction of the Plan shall be interpreted to give effect to such intention, and if any provision of the Plan is found not to be in compliance with Rule 16b-3, such provision shall be deemed null and void to the extent required to permit the Plan to comply with Rule 16b-3. The Committee or the Board may from time to time adopt rules and regulations under, and amend, the Plan in furtherance of the intent of the foregoing.
          (b) This Plan shall be governed by the laws of the State of Florida.
          (c) Headings contained in this Plan are for convenience only and shall in no manner be construed as part of this Plan.
          (d) Any reference to the masculine, feminine, or neuter gender shall be a reference to such other gender as is appropriate.
     16.  Amendment and Discontinuation of the Plan . The Committee or the Board may from time to time amend, suspend or terminate the Plan or any Option; provided, however, that, any amendment to the Plan shall be subject to the approval of the Company’s shareholders if such shareholder approval is required by any federal or state law or regulation (including, without limitation, at any time after the Publicly-Traded Date, Rule 16b-3 or to comply with Section 162(m) of the Internal Revenue Code) or the rules of any Stock exchange or automated quotation system on which the Common Stock may then be listed or granted. Except to the extent provided in Sections 9 and 10 hereof, no amendment, suspension or termination of the Plan or any Option issued hereunder shall substantially impair the rights or benefits of any Optionee pursuant to any Option previously granted without the consent of the Optionee.
     17.  Effective Date and Termination Date . The effective date of the Plan is the date on which the Board adopts this Plan, and the Plan shall terminate on the 10th anniversary of the Effective Date.

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Exhibit 10.3
BIOHEART, INC.
INCENTIVE STOCK OPTION AGREEMENT
FOR
Agreement
     1.  Grant of Option . BIOHEART, INC. (the “Company”) hereby grants, as of      , (the “Date of Grant”), to           (the “Optionee”) an option (the “Option”) to purchase up to              shares of the Company’s Common Stock, $.01 par value (the “Stock”), at an exercise price per share equal to $           (the “Exercise Price”). The Option shall be subject to the terms and conditions set forth herein. The Option was issued pursuant to the Company’s 1999 Officers and Employees Stock Option Plan (the “Plan”), which is incorporated herein for all purposes. The Option shall be treated by the Company as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”) and not a nonqualified stock option, if and to the extent that the limitations under Section 4(b) of the Plan and Section 422(d) of the Code, are not exceeded. The Optionee hereby acknowledges receipt of a copy of the Plan and agrees to be bound by all of the terms and conditions hereof and thereof.
     2.  Definitions . Unless otherwise provided herein, terms used herein that are defined in the Plan and not defined herein shall have the meanings attributed thereto in the Plan.
     3.  Exercise Schedule . Except as otherwise provided in Section 6 or 12 of this Agreement, or in the Plan, the Option is exercisable in installments as provided below, which shall be cumulative. To the extent that the Option has become exercisable with respect to a percentage of Shares as provided below, the Option may thereafter be exercised by the Optionee, in whole or in part, at any time or from time to time prior to the expiration of the Option as provided herein. The following table indicates each date (the “Vesting Date”) upon which the Optionee shall be entitled to exercise the Option with respect to the percentage of Shares granted as indicated beside the date, provided that the Optionee has been continuously employed by the Company or a Subsidiary through and on the applicable Vesting Date:
     
Percentage of Shares   Vesting Date
25%   first anniversary of Date of Grant
     
25%   second anniversary of Date of Grant
     
25%   third anniversary of Date of Grant
     
25%   fourth anniversary of Date of Grant
     Except as otherwise specifically provided herein, there shall be no proportionate or partial vesting in the periods prior to each Vesting Date, and all vesting shall occur only on the appropriate Vesting Date. Upon the Optionee’s termination of employment with the Company and its Subsidiaries, any unvested portion of the Option shall terminate and be null and void.

 


 

     4.  Method of Exercise . This Option shall be exercisable in whole or in part in accordance with the exercise schedule set forth in Section 3 hereof by written notice which shall state the election to exercise the Option, the number of Shares in respect of which the Option is being exercised, and such other representations and agreements as to the holder’s investment intent with respect to such Shares as may be required by the Company pursuant to the provisions of the Plan. Such written notice shall be signed by the Optionee and shall be delivered in person or by certified mail to the Chief Financial Officer of the Company. The written notice shall be accompanied by payment of the Exercise Price. This Option shall be deemed to be exercised after (a) receipt by the Company of such written notice accompanied by the Exercise Price, and (b) arrangements that are satisfactory to the Board or the Committee in its sole discretion have been made for Optionee’s payment to the Company of the amount that is necessary to be withheld in accordance with applicable Federal or state withholding requirements. No Shares will be issued pursuant to the Option unless and until such issuance and such exercise shall comply with all relevant provisions of applicable law, including the requirements of any stock exchange upon which the Stock then may be traded.
     5.  Method of Payment . Payment of the exercise price shall be by any of the following, or a combination thereof, at the election of the Optionee: (a) cash; (b) check; (c) with Shares that have been held by the Optionee for at least 6 months (or such other Shares as the Company determines will not cause the Company to recognize for financial accounting purposes a charge for compensation expense); or (d) such other consideration or in such other manner as may be determined by the Board or the Committee in its absolute discretion.
     6.  Termination of Option .
     (a) Any unexercised portion of the Option shall automatically and without notice terminate and become null and void at the time of the earliest to occur of:
          (i) three (3) months after the date on which the Optionee’s employment with the Company and its Subsidiaries is terminated for any reason other than by reason of (A) Cause, which, solely for purposes of this Agreement, shall mean the termination of the Optionee’s employment by reason of the Optionee’s willful misconduct or gross negligence, (B) a mental or physical disability (within the meaning of Section 22(e) of the Internal Revenue Code of 1986, as amended) of the Optionee as determined by a medical doctor satisfactory to the Committee, or (C) death;
          (ii) immediately upon the termination of the Optionee’s employment with the Company and its Subsidiaries for Cause;
          (iii) twelve (12) months after the date on which the Optionee’s employment with the Company and its Subsidiaries is terminated by reason of a mental or physical disability (within the meaning of Section 22(e) of the Internal Revenue Code of 1986, as amended) as determined by a medical doctor satisfactory to the Committee;
          (iv) twelve (12) months after the date of termination of the Optionee’s employment with the Company and its Subsidiaries by reason of the death of the Optionee (or if later, three months after the date on which the Optionee shall die if such death shall occur during the one year period specified in paragraph (iii) of this Section 6);

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          (v) immediately in the event that the Optionee shall file any lawsuit or arbitration claim against the Company or any Subsidiary, or any of their respective officers, directors or shareholders of the Company;
          (vi) the tenth (10 th ) anniversary of the Date of Grant; or
          (vii) termination under Section 12 hereof.
     (b) To the extent not previously exercised, (i) the Option shall terminate immediately in the event of (1) the liquidation or dissolution of the Company, or (2) any reorganization, merger, consolidation or other form of corporate transaction in which the Company does not survive, unless the successor corporation, or a parent or subsidiary of such successor corporation, assumes the Option or substitutes an equivalent option or right pursuant to Section 10(c) of the Plan, and (ii) the Committee or the Board in its sole discretion may by written notice (“cancellation notice”) cancel, effective upon the consummation of any corporate transaction described in Subsection 8(b)(i) of the Plan in which the Company does survive, any Option that remains unexercised on such date. The Committee or the Board shall give written notice of any proposed transaction referred to in this Section 6(b) a reasonable period of time prior to the closing date for such transaction (which notice may be given either before or after approval of such transaction), in order that the Optionee may have a reasonable period of time prior to the closing date of such transaction within which to exercise the Option if and to the extent that it then is exercisable (including any portion of the Option that may become exercisable upon the closing date of such transaction). The Optionee may condition his exercise of the Option upon the consummation of a transaction referred to in this Section 6(b).
     7.  Transferability . The Option granted hereby is not transferable otherwise than by will or under the applicable laws of descent and distribution, and during the lifetime of the Optionee the Option shall be exercisable only by the Optionee or the Optionee’s guardian or legal representative. In addition, the Option shall not be assigned, negotiated, pledged or hypothecated in any way (whether by operation of law or otherwise), and the Option shall not be subject to execution, attachment or similar process. Upon any attempt to transfer, assign, negotiate, pledge or hypothecate the Option, or in the event of any levy upon the Option by reason of execution, attachment or similar process contrary to the provisions hereof, the Option shall immediately become null and void.
     8.  No Rights of Stockholders . Neither the Optionee nor any personal representative (or beneficiary) shall be, or shall have any of the rights and privileges of, a stockholder of the Company with respect to any shares of Stock purchasable or issuable upon the exercise of the Option, in whole or in part, prior to the date of exercise of the Option.

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9. Stockholders Agreements; Restrictions.
     (a)  Stockholders Agreement. Unless the requirements under this sentence are waived in writing by the Company, the Optionee shall not be permitted to exercise the Option or to be issued any shares of Stock thereunder unless and until the Optionee executes and delivers to the Company the form of stockholders agreement then in effect among the Company and its stockholders (which agreement may be the stockholders agreement utilized in connection with the Company’s initial private offering to investors) (the “Stockholders Agreement”). In addition to any rights or obligations of Optionee under such Stockholders Agreement, the Optionee is and shall be subject to the following provisions of this Section 9 and the other provisions of this Option Agreement.
     (b)  Restrictions While Stock is Not Registered; Restricted Shares . The shares of Stock subject to the Option specified in Section 1 and (i) all shares of the Company’s capital stock received as a dividend or other distribution upon such shares, and (ii) all shares of capital stock or other securities of the Company into which such shares may be changed or for which such shares shall be exchanged, whether through reorganization, recapitalization, stock split-ups or the like, shall be subject to the provisions of this Section 9 at all times, and only at those times, that shares of the Company’s Common Stock are not Publicly-Held (such times during which the Stock is not so Publicly-Held hereinafter being referred to as the “Restricted Period”) and are during the Restricted Period hereinafter referred to as “Restricted Shares.” For purposes of this Agreement, “Publicly-Held” means that the Common Stock of the Company, or the stock of any successor company into which the Common Stock is substituted or exchanged, is registered pursuant to Section 12(b) or 12(g) of the Securities Exchange Act.
     (c)  No Sale or Pledge of Restricted Shares . Except as otherwise provided herein, the Optionee agrees and covenants that during the Restricted Period he or she will not sell, pledge, encumber or otherwise transfer or dispose of, and will not permit to be sold, encumbered, attached or otherwise disposed of or transferred in any manner, either voluntarily or by operation of law (all hereinafter collectively referred to as “transfers”), all or any portion of the Restricted Shares or any interest therein except in accordance with and subject to the terms of this Section 9.
     (d)  Involuntary Transfer Repurchase Option . Whenever, during the Restricted Period, the Optionee has any notice or knowledge of any attempted, pending, or consummated involuntary transfer or lien or charge upon any of the Restricted Shares, whether by operation of law or otherwise, the Optionee shall give immediate written notice thereof to the Company. Whenever the Company has any other notice or knowledge of any such attempted, impending, or consummated involuntary transfer, lien, or charge, it shall give written notice thereof to the Optionee. In either case, the Optionee agrees to disclose forthwith to the Company all pertinent information in his possession relating thereto. If during the Restricted Period any of the Restricted Shares are subjected to any such involuntary transfer, lien, or charge, the Company and its designated purchaser shall at all times have the immediate and continuing option to purchase such of the Restricted Shares upon notice by the Company to the Optionee or other record holder at a price determined according to Section 9(f) below, and any of the Restricted Shares so purchased by the Company or its designated purchaser shall in every case be free and clear of such transfer, lien, or charge.

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     (e)  Repurchase Option on Termination of Employment . Anything set forth in this Agreement to the contrary notwithstanding, the Company shall have the right (but not the obligation) to purchase or designate a purchaser of all, but not less than all, of the Restricted Shares (including, without limitation, any Restricted Shares transferred pursuant to Section 2.3.1 of the Stockholders Agreement) during the Restricted Period and after termination of the Optionee’s employment relationship with the Company for any reason, for the purchase price specified in Section 9(f) hereof. The Company may exercise its right to purchase or designate a purchaser of the Restricted Shares at any time (without any time limitation) after the Optionee’s termination of employment or service and during the Restricted Period. If the Company chooses to exercise its right to purchase the Restricted Shares hereunder, the Company shall give its notice of its exercise of this right to the Optionee or his or her legal representative specifying in such notice a date not later than ten (10) days following the date of giving such notice on which the Company or its designated purchaser shall deliver, or be prepared to deliver the check or promissory note for the purchase price and the Optionee or his or her legal representative shall deliver all stock certificates evidencing such Restricted Shares duly endorsed in blank for transfer or with separate stock powers endorsed in blank for transfer.
     (f)  Repurchase Price . For purposes of Section 9(d) and (e) hereof, the per share purchase price of Restricted Shares shall be an amount equal to the Fair Market Value of such share, determined by the Board or the Committee as of any date determined by the Board or the Committee that is not more than one year prior to the date of the event giving rise to the Company’s right to purchase such Restricted Shares under this Section 9. Any determination of Fair Market Value made by the Board or the Committee shall be binding and conclusive on all parties unless shown to have been made in an arbitrary and capricious manner. The purchase price shall, at the option of the Company, be payable in cash or in the form of the Company’s promissory note payable in up to three equal annual installments commencing 12 months after the acquisition by the Company (“Acquisition Date”) of the Restricted Shares, together with interest on the unpaid balance thereof at the rate equal to the prime rate of interest of Citibank, N.A. on the Acquisition Date.
     (g)  Voting Rights . As a condition to Optionee’s exercise of any Option pursuant to this Agreement, the Company may in its discretion require that Optionee enter into a voting agreement that grants to specified persons designated therein the voting rights for all shares of Stock acquired pursuant to the exercise of such Options, until the earlier of (i) 10 years from the date of exercise of the Option, or (ii) the end of the Restricted Period, such voting agreement to be in such form as the Company reasonably may request.
     (h)  Legends . The certificate or certificates representing any Shares acquired pursuant to the exercise of an Option prior to the last day of the Restricted Period shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws or the Stockholders Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.

5


 

THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER, RIGHT OF FIRST REFUSAL AND REDEMPTION OR REPURCHASE OPTIONS HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS SET FORTH IN THE STOCK OPTION AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE ISSUER. SUCH TRANSFER RESTRICTIONS, RIGHT OF FIRST REFUSAL AND REDEMPTION OR REPURCHASE RIGHTS ARE BINDING ON TRANSFEREES OF THESE SHARES.
     10.  Market Stand-Off Agreement . In the event of an initial public offering of the Company’s securities and upon request of the Company or the underwriters managing any underwritten offering of the Company’s securities, the Optionee agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Shares (other than those included in the registration) acquired pursuant to the exercise of the Option, without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 180 days) from the effective date of such registration as may be requested by the Company or such managing underwriters.
     11.  Optionee’s Representations . By executing this Agreement, Optionee hereby represents and warrants to the Company as to all provisions set forth in the Investment Representation Statement attached hereto as Exhibit A. In addition, in the event the Company’s issuance of the Shares purchasable pursuant to the exercise of this Option has not been registered under the Securities Act of 1933, as amended, at the time this Option is exercised, Optionee shall, if required by the Company, concurrently with the exercise of all or any portion of this Option, execute and deliver to the Company such Investment Representation Statement or such other form as the Company may request.
     12. Options Terminate if Optionee Violates Agreements . The Participant hereby acknowledges and agrees, as a condition to receiving a grant of the Options, and the receiving of Shares upon exercise of such Options, to be bound by the restrictive covenant provisions of that certain Employment Agreement, dated      , entered into by and between the Company and the Participant, as well as any and all restrictive covenant agreements including the Noncompetition Agreement and the Inventions and Proprietary Rights Assignment and Confidentiality Agreement. In the event the Participant breaches any of the restrictive covenant provisions and/or agreements, the Board may, within its sole and absolute discretion and upon written notice to the Optionee, terminate this Agreement and, consequently (a) the Options hereunder shall become immediately void and shall no longer have any force any effect, and (b) any and all Shares Optionee received pursuant to this Agreement must be returned to the Company immediately upon demand by the Company upon the Company’s return of the exercise price

6


 

paid by the Optionee. The determination as to whether the Executive has breached any of the restrictive covenant provisions and/or agreements shall be made by the Board, in good faith, and shall be binding and conclusive on all parties.
     13.  Acceleration of Exercisability of Option . Except as otherwise determined by the Board or the Committee, in its sole and absolute discretion, this Option shall become immediately exercisable in the event of a Change in Control, or in the event the Committee or the Board exercises its discretion to cancel the Option pursuant to Sections 6(b) or (c) hereof.
     14.  No Right to Continued Employment . Neither the Option nor this Agreement shall confer upon the Optionee any right to continued employment or service with the Company.
     15.  Law Governing . This Agreement shall be governed in accordance with and governed by the internal laws of the State of Florida.
     16.  Incentive Stock Option Treatment . The terms of this Option shall be interpreted in a manner consistent with the intent of the Company and the Optionee that the Option qualify as an Incentive Stock Option under Section 422 of the Code. If any provision of the Plan or the Agreement shall be impermissible in order for the Option to qualify as an Incentive Stock Option, then the Option shall be construed and enforced as if such provision had never been included in the Plan or the Option.
     17.  Interpretation . The Optionee accepts the Option subject to all the terms and provisions of the Plan and this Agreement. The undersigned Optionee hereby accepts as binding, conclusive and final all decisions or interpretations of the Committee upon any questions arising under the Plan and this Agreement.
     18.  Notices . Any notice under this Agreement shall be in writing and shall be deemed to have been duly given when delivered personally or when deposited in the United States mail, registered, postage prepaid, and addressed, in the case of the Company, to the Company’s Secretary at 3425 Stallion Lane, Weston, Florida 33331, or if the Company should move its principal office, to such principal office, and, in the case of the Optionee, to the Optionee’s last permanent address as shown on the Company’s records, subject to the right of either party to designate some other address at any time hereafter in a notice satisfying the requirements of this Section.
     19.  Tax Consequences . Set forth below is a brief summary as of the date of this Option of certain of the federal tax consequences of exercise of this Option and disposition of the Shares under the law in effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
     (a) Exercise of Option . There will be no regular federal income tax liability upon the exercise of the Option, although the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price will be treated as an adjustment to the alternative minimum tax for federal tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise.

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     (b) Disposition of Shares . If Shares transferred pursuant to the Option are held for at least one year after exercise and are disposed of at least two years after the Date of Grant, any gain realized on disposition of the Shares will also be treated as long-term capital gain for federal income tax purposes. If Shares purchased under an Option are disposed of within such one-year period or within two years after the Date of Grant, any gain realized on such disposition will be treated as compensation income (taxable at ordinary income rates) to the extent of the difference between the Exercise Price and the lesser of (1) the fair market value of the Shares on the date of exercise, or (2) the sale price of the Shares.
     (c) Notice of Disqualifying Disposition of Option Shares . If the Optionee sells or otherwise disposes of any of the Shares acquired pursuant to the Option on or before the later of (1) the date two years after the Date of Grant, (2) the date one year after the date of exercise, the Optionee shall immediately notify the Company in writing of such disposition. The Optionee agrees that the Optionee may be subject to the income tax withholding by the Company on the compensation income recognized by the Optionee from the early disposition by payment in cash or out of the current earnings paid to the Optionee.
     The foregoing discussion assumes that, and only is applicable if, the fair market value of the Shares as of the date on which the Option is granted is not less than the Exercise Price. The Company believes that it has made a good faith effort to determine the fair market value of the Shares and does not believe that the Exercise Price is less than the fair market value of the Shares on the Date of Grant. No assurances can be given, however, that the Internal Revenue Service would not take a contrary position, or that the Internal Revenue Service would not treat the Option as an Incentive Stock Option for some other reason. If the Exercise Price is determined to be less than the fair market value of a Share on the Date of Grant, then the Option may be taxable as a non-qualified option. The holder of a non-qualified option will be treated as having received compensation income (taxable at ordinary income tax rates) at the time the option is exercised equal to the excess, if any, of the fair market value of the Shares on the date of exercise over the Exercise Price. If Shares transferred pursuant to the non-qualified option are held for at least one year, any gain realized on disposition of the Shares will be treated as long-term capital gain for federal income tax purposes.

8


 

     IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the            day of           .
         
  COMPANY:


BIOHEART, INC.
 
 
  By:      
       
       
 
     Optionee acknowledges receipt of a copy of the Plan and represents that he or she is familiar with the terms and provisions thereof, and hereby accepts this Option subject to all of the terms and provisions thereof. Optionee has reviewed the Plan and this Option in their entirety, has had an opportunity to obtain the advice of counsel prior to executing this Option, and fully understands all provisions of the Option.
         
Dated: __________________  OPTIONEE:
 
 
  By:      
       
       

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EXHIBIT A
INVESTMENT REPRESENTATION STATEMENT
         
PURCHASER
  :    
 
COMPANY
  :   BIOHEART, INC.
 
SECURITY
  :   COMMON STOCK
 
AMOUNT
  :    
 
DATE
  :    
In connection with the grant and exercise of options to purchase of the above-listed Securities, I, the Purchaser, represent to the Company the following:
     (a) I am aware of the Company’s business affairs and financial condition, and have acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Securities. I am purchasing these Securities for my own account for investment purposes only and not with a view to, or for the resale in connection with, any “distribution” thereof for purposes of the Securities Act of 1933, as amended (the “Securities Act”).
     (b) I understand that the Company’s issuance of the Securities has not been registered under the Securities Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of my investment intent as expressed herein. In this connection, I understand that, in the view of the Securities and Exchange Commission (the “SEC”), the statutory basis for such exemption may be unavailable if my representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future.
     (c) I further understand that the Securities must be held by me indefinitely unless the transfer is subsequently registered under the Securities Act or unless an exemption from registration is otherwise available, and that I cannot transfer or sell any Securities unless permitted under my Stock Option Agreement and the Stockholders Agreement referenced in Section 9(a) of this Stock Option Agreement. Moreover, I understand that the Company is under no obligation to register any transfer of the Securities. In addition, I understand that the certificate evidencing the Securities will be imprinted with a legend which prohibits the transfer of the Securities unless registered or such registration is not required in the opinion of counsel for the Company.
     (d) I am familiar and agree to comply with the provisions of Rule 701 and Rule 144, each promulgated under the Securities Act, which, in substance, permit limited public resale of “restricted securities” acquired, directly or indirectly, from the issuer thereof, in a non-public offering subject to the satisfaction of certain conditions, subject to the requirements of my Stock Option Agreement and the Stockholders Agreement.
         
  Signature of Purchaser:
 
 
     
     
     
 
Date: _________________

10

 

Exhibit 10.5
CONSULTING AGREEMENT
      THIS CONSULTING AGREEMENT (this “Agreement”), dated March 18, 2004, (the “Effective Date”), is made and entered by and between BIOHEART, INC., a Florida corporation (the “Company”) and Richard Spencer (the “Consultant”).
R E C I T A T I O N S
     A. The Company believes that the Consultant’s Services will be extremely beneficial to the Company and wishes to obtain such Services and the benefit of the Consultant’s knowledge and experience.
     B. The Company desires to retain the services of the Consultant and the Consultant desires to provide services to the Company, subject to the terms and conditions set forth in this Agreement.
O P E R A T I V E   P R O V I S I O N S
     In consideration of the foregoing recitations, the mutual promises hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending legally to be bound, hereby covenant and agree as follows:
ARTICLE I
Engagement
      1.1 Engagement of Consultant . The Company hereby engages the Consultant and Consultant hereby agrees to provide consulting services as set forth in Section 1.2 of this Agreement (the “Services”).
      1.2 Services to be Provided .
           A. Services. During the term of this Agreement, the Consultant personally shall perform the following services: (i) assisting Bioheart in reaching its financial goals; (ii) providing leadership training to Bioheart’s board of directors, officers, employees and consultants; and (iii) appearing at selected events as mutually agreed upon by Consultant and Bioheart (collectively referred to herein as the “Services”).
           B. Performance of Services. The Consultant is responsible for reasonably determining the method, details and means of performing the services required under this Agreement. Consultant’s business and affairs shall be conducted in accordance with all applicable federal, state and local laws and regulations. Such consultation may be by telephone, in writing or by other method of communication which the Company and the Consultant mutually agree.

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           C. Hours. Notwithstanding any other provision of this Agreement, it is agreed that the Consultant shall not be required to devote any minimum amount of time during any particular week or year, but shall perform services pursuant to this Agreement on an “as needed” basis at such times and for such periods as the Company and Consultant mutually agree. The Consultant shall use his best efforts in good faith to provide consulting services when requested to do so by the Company.
      1.3 Term of Agreement . The term of this Agreement shall commence on the Effective date and shall continue until March 18, 2007 (the “Term”), unless terminated in accordance with the provisions of Article 3 hereof. This Agreement may be renewed for an additional period(s) only upon the mutual written agreement of the parties.
      1.4 Nature of Consulting Relationship . It is agreed and understood by the parties to this Agreement that, for all purposes, during the term of this Agreement, the Consultant shall serve solely as an independent contractor of the Company and shall not be an employee of the Company in any capacity. Nothing in this Agreement shall be interpreted or construed as creating or establishing the relationship of employer and employee between the Consultant and Company. As an independent contractor, the Consultant (a) shall accept any directions issued by the Company pertaining to the goals to be attained and the results to be achieved by him, but shall be solely responsible for the manner and hours in which he will perform his services under this Agreement, (b) shall not be entitled to any employee or fringe benefits available to employees of the Company, and (c) shall be solely responsible for the payment of any federal, state and local taxes applicable to the fees and expenses paid or payable by the Company in connection with Consultant’s engagement.
ARTICLE II
Compensation
      2.1 Compensation . In consideration for the Services to be provided by the Consultant pursuant to Section 1.2 hereof, upon execution of this Agreement and subject to the execution of all other applicable agreements, the Company shall grant to Consultant an option to purchase 80,000 shares of the common stock of the Company, par value $.001 per share (the “Option”), at an exercise price equal to $3.50 per share, in accordance with the terms, conditions and provisions of the Company’s 1999 Directors and Consultants Stock Option Plan, and pursuant to the terms, conditions and provisions of the Stock Option Agreement, attached hereto as Exhibit A (the “Option Agreement”), to be entered into by and between the Company and the Consultant. The Option shall vest equally over a three-year period or immediately upon a “Change in Control” (as defined in the Option Agreement), whichever occurs first.

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      2.2 Expense Reimbursement . Upon the submission of proper substantiation by the Consultant, and subject to such rules and guidelines as the Company may from time to time adopt, the Company shall reimburse the Consultant for all reasonable expenses actually paid or incurred by the Consultant during the Term in the course of and pursuant to the business of the Company, including without limitation travel and lodging expenses necessarily incurred in performing the Services required hereunder. The Consultant shall account to the Company in writing for all expenses for which reimbursement is sought and shall supply to the Company copies of all relevant invoices, receipts or other evidence reasonably requested by the Company.
ARTICLE III
Termination
      3.1 Termination . Notwithstanding anything to the contrary contained in this Agreement:
           A. Expiration . This Agreement shall terminate upon the expiration of the Term as set forth in Section 1.3; or
           B. Breach . This Agreement shall terminate on the date on which one party (the “Terminating Party”) provides written notice of such termination to the other party (the “Breaching Party”) by reason of the fact that the Breaching Party has materially breached his or its obligations under this Agreement, which breach is not cured by the Breaching Party within thirty days after the Terminating Party has given written notice of such breach to the Breaching Party; provided that the Terminating Party shall not be obligated to offer notice and an opportunity to cure if the breach is not curable.
           C. Termination by the Company . The Company may terminate this Agreement as follows:
               (i) This Agreement shall terminate upon the death of Consultant , and the Company shall have no further obligation under this Agreement to make any payments to, or bestow any benefits on, the Consultant from and after the date of Consultant’s death, other than payments or benefits accrued and due and payable to Consultant prior to the date of his death.
               (ii) This Agreement shall terminate if as a result of Consultant’s incapacity due to accident or illness, Consultant shall have been unable to satisfactorily perform his Duties under this Agreement for a period of thirty consecutive days, or for an aggregate of forty-five days in any consecutive three-month period. In the event of a termination due to disability under this Section, the Company shall have no further obligation under this Agreement to make any payments to, or bestow any benefits on, Consultant from and after the date of the termination, other than payments or benefits accrued and due and payable to it prior to the date of termination pursuant to this Agreement.
               (iii) The Company may immediately terminate this Agreement for Cause at any time. For purposes of this Agreement, the Company shall have “Cause” to terminate this Agreement if Consultant (1) engages in common law fraud in his relations with the Company or

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any of its subsidiaries or affiliates, or with any customer or business contact of the Company or any of its subsidiaries or affiliates; (2) engages in misconduct injurious to the Company; or (3) is convicted of any crime involving an act of moral turpitude. In the event of a termination for Cause, the Company shall have no further obligation under this Agreement to make any payments to, or bestow any benefits on, the Consultant from and after the date of the termination, other than payments or benefits accrued and due and payable to it prior to the date of termination.
ARTICLE IV
Restrictive Covenants
      4.1 Confidentiality . The Consultant agrees to keep all Confidential Information (as defined in Section 4.2 herein) strictly and permanently confidential and agrees that he shall not at any time (whether during or after the Term) directly or indirectly use for any purpose, or disclose or permit to be disclosed to any person or entity, any Confidential Information. The Consultant acknowledges that the Confidential Information constitutes unique and valuable assets of the Company and such Confidential Information was acquired at great time and expense by the Company, and that any disclosure or other use of such Confidential Information, other than for the sole benefit of the Company, would be wrongful and would cause irreparable harm to the Company.
      4.2 Confidential Information . The term “Confidential Information” means any non-public information (whether or not in written form and whether or not expressly designated as confidential) relating directly or indirectly to the Company or any of the Company’s subsidiaries or affiliates or relating to the business, operations, financial affairs, performance, assets, investments, technology, processes, products, contracts, customers, licensees, sublicensees, suppliers, personnel, plans or prospects of the Company or any of the Company’s subsidiaries or affiliates, including such information consisting of or otherwise relating directly or indirectly to trade secrets, know how, technology, designs, drawings, processes, license or sublicense arrangements, formulae, proposals, customer lists or preference, pricing lists, referral sources, marketing or sales techniques or plans, operation manuals, service manuals, financial information, projections, lists of suppliers or distributors or sources of supply; provided, however , that “Confidential Information” shall not be deemed to include information which, at the time of initial disclosure to the Consultant, is part of, or without violation of this Agreement or fault of the Consultant becomes part of, the public knowledge of literature and is readily accessible to third parties.

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      4.3 Documents, Records, etc. All documents, records, data, apparatus, equipment and other physical property, whether or not pertaining to Confidential Information, which are furnished to the Consultant by the Company or are produced by the Consultant in connection with the Consultant’s service with the Company, if not otherwise indicated by the Consultant, will be and remain the sole property of the Company. The Consultant will return to the Company all such materials and property as and when requested by the Company. In any event, the Consultant will return all such materials and property immediately upon termination of the Consultant’s service with the Company for any reason. The Consultant will not retain with the Consultant any such material or property or any copies thereof after such termination.
ARTICLE V
Miscellaneous
      5.1 Entire Agreement; Amendment . This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, both written and oral, among the parties hereto. This Agreement may not be amended or modified in any way except by a written instrument executed by the Company and the Consultant.
      5.2 Notices . All notices under this Agreement shall be in writing and shall be given by personal delivery, or by reputable overnight courier, to the address set forth below:
     
If to the Consultant:
  Richard Spencer
3641 North 47th Avenue
Hollywood, Florida 33021
 
   
If to the Company:
  Bioheart, Inc.
2400 N. Commerce Parkway
Suite 408
Weston, Florida 33331
Attn: Howard J. Leonhardt,
         Chief Executive Officer
 
   
With a copy to:
  Tobin & Reyes, P.A.
7251 West Palmetto Park Road
Suite 205
Boca Raton, Florida 33433
Attn: David S. Tobin, Esq.

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or to such other person or persons or to such other address or addresses as the Consultant and the Company or their respective successors or assigns may hereafter furnish to the other by notice similarly given. Notices, if personally delivered, shall be deemed to have been received on the date of delivery, and if given by registered or certified mail, shall be deemed to have been received on the fifth business day after mailing.
      5.3 Governing Law . This Agreement shall be governed by, and construed and interpreted in accordance with, the laws of the State of Florida, without giving effect to the conflict of laws principles of each State. With respect to any disputes concerning federal law, such disputes shall be determined in accordance with the law as it would be interpreted and applied by the United States Court of Appeals for the Eleventh Circuit.
      5.4 Assignment: Successors and Assigns . Neither the Consultant nor the Company may make an assignment of this Agreement or any interest herein, by operation of laws or otherwise, without the prior written consent of the other party; provided that the Company may assign its rights under this Agreement with the consent of the Consultant in the event that the Company shall effect a reorganization, consolidate with or merge into any other corporation, partnership, organization or other entity, or transfer all or substantially all of its properties or assets to any other corporation, partnership, organization or other entity, but only if such assignee or the surviving entity in any such reorganization agrees to assume all of the Company’s obligations under this Agreement. This Agreement shall inure to the benefit of and be binding upon the Company and the Consultant, their respective heirs, personal representatives, executors, administrators, legal representatives, successors and assigns.
      5.5 Waiver . The waiver by any party hereto of the other party’s prompt and complete performance or breach or violation of any provision of this Agreement shall not operate nor be construed as a waiver of any subsequent breach or violation, and the waiver by any party hereto to exercise any right or remedy which he or it may possess shall not operate nor be construed as the waiver of such right or remedy by such party or as a bar to the exercise of such right or remedy by such party upon the occurrence of any subsequent breach or violation.
      5.6 Severability . The invalidity of any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall not affect the enforceability of the remaining portions of this Agreement or any part thereof, all of which are inserted conditionally on their being valid in law, and, in the event that any one or more of the words, phrases, sentences, clauses, sections or subsections contained in this Agreement shall be declared invalid by a court of competent jurisdiction, then this Agreement shall be construed as if such invalid word or words, phrase or phrases, sentence or sentences, clause or clauses, section or sections, or subsection or subsections had not been inserted.
      5.7 Arbitration of Disputes . Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Broward County, Florida, in accordance with the Rules of the American Arbitration Association then in effect (except to the extent that the procedures outlined below differ from such rules). The cost and

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expenses of the arbitration and of enforcement of any award in any court shall be borne by the non-prevailing party. If advances are required, each party will advance one-half of the estimated fees and expenses of the arbitrators. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. Although arbitration is contemplated to resolve disputes hereunder, either party may proceed to court to obtain an injunction to protect its rights hereunder, the parties agreeing that either could suffer irreparable harm by reason of any breach of this Agreement. Pursuit of an injunction shall not impair arbitration on all remaining issues. In the event that either party hereto shall bring suit seeking an injunction of any action constituting a breach of any of the terms or provisions of this Agreement, then the party at fault shall pay all reasonable court costs and attorney’s fees of the other.
      5.8 Consent to Jurisdiction . To the extent that any court action is permitted consistent with or to enforce Section 5.7 of this Agreement, the parties hereby consent to the jurisdiction of the Supreme Court of Florida, the Florida District Court of Appeal, and the United States District Court for the District of Florida. Accordingly, with respect to any such court action, the Consultant (i) submits to the personal jurisdiction of such courts; (ii) consents to service of process; and (iii) waives any other requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.
      5.9 Compliance with Legal Requirements . The Company shall not provide workers’ compensation, disability insurance, Social Security or unemployment compensation coverage nor any other statutory benefit to the Consultant. The Consultant shall comply at his expense with all applicable provisions of workers’ compensation laws, unemployment compensation laws, federal Social Security law, the Fair Labor Standards Act, federal, state and local income tax laws, and all other applicable federal, state and local laws, regulations and codes relating to terms and conditions of employment required to be fulfilled by employers or independent contractors.
      5.10 Gender and Number . Wherever the context shall so require, all words herein in the male gender shall be deemed to include the female or neuter gender, all singular words shall include the plural and all plural words shall include the singular.
      5.11 Section Headings . The section or other headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of any or all of the provisions of this Agreement.
      5.12 No Third Party Beneficiary other than Company . Nothing expressed or implied in this Agreement is intended, or shall be construed, to confer upon or give any person, firm, corporation, partnership, association or other entity, other than the parties hereto and each of their respective heirs, personal representatives, legal representatives, successors and assigns, any rights or remedies under or by reason of this Agreement.
      5.13 No Authority to Bind Company . The Consultant does not and shall not have any authority to enter into any contract or agreement for, on behalf of or in the name of the Company, or to legally bind the Company to any commitment or obligation.

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      IN WITNESS WHEREOF , the undersigned have executed this Agreement as of the date first above written.
         
  THE COMPANY:


BIOHEART, INC., a Florida corporation
 
 
  /s/    
  Howard Leonhardt, Chief Executive Officer   
     
 
  THE CONSULTANT:
 
 
  /s/    
  Richard Spencer   
     
 

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Exhibit 10.6
(BIOHEART)
August 4, 2006
Mr. Scott Bromley
441 127th Lane NW
Coon Rapids, MN 55448
     Re:      Employment matters related to Bioheart, Inc. (the “Company”)
Dear Scott:
     This letter agreement (the “Agreement”) shall set forth the agreements between you and the Company in connection with any and all issues related to your past, present and continued employment with the Company. Each of you and the Company hereby agree as follows:
     1. As full and complete settlement for unpaid salary or other compensation that may be owed to you for services rendered prior to the date of this Agreement, the Company shall issue to you 77,143 shares of the Company common stock, par value $.001 per share (the “Shares”). Additionally, the Company shall reimburse you an amount equal to all federal and state income taxes actually paid by you as a direct result of the issuance of the Shares. It is the intention of you and the Company that the value of each Share shall be equal to $3.50 and the aggregate value of the Shares, plus the reimbursement to you of amounts payable by you for state and federal income taxes directly as a result of the issuance of the Shares to you shall be equal to approximately $390,000.
     2. Subject to the terms and conditions of this Agreement, you agree to continue your employment with the Company as Vice President, Public Relations. The Company will pay you an annual salary equal to $130,000 (the “Salary”), and you shall continue to be eligible to participate in the benefit plans that the Company as provided to you and your family, if applicable, prior to the date of this Agreement. It is agreed that you will continue your public relations activities and fundraising activities as a part of your employment duties, and no additional compensation will be due to you for securing additional investment capital. In this regard, it is agreed that you will use your best efforts to raise a minimum of $1 million of investment capital for the Company during its next round of financing. Each of you and the Company understand that this Agreement is not a contract of employment for any definite term. Your employment with the Company shall continue to be “at-will,” and may be terminated at any time, for any reason, with or without cause or notice, by either you or the Company.
     3. You and the Company each ratify and affirm the validity of the following options granted to you: (i) an option to purchase 100,000 shares of common stock with an as adjusted exercise price of $0.79 per share which were granted to you on December 25, 1999 pursuant to
13794 NW 4th Street, Suite 212
Sunrise, Florida 33325 USA
Tel: 954-835-1500

 


 

Scott Bromley
August 4, 2006
Page 2 of 3
an Incentive Option Agreement, a copy of which is attached hereto as Exhibit A ; (ii) an option to purchase 42,000 shares of common stock with an as adjusted exercise price of $3.50 per share which were granted to you on December 18, 2000 pursuant to an Incentive Option Agreement, a copy of which is attached hereto as Exhibit B ; and (iii) an option to purchase 500 shares of common stock with an exercise price of $3.50 per share which were granted to you on December 31, 2005 pursuant to an Incentive Option Agreement, a copy of which is attached hereto as Exhibit C . We each agree that any all options which may have been previously granted to you by the Company are hereby terminated, and you agree not to seek to revive, exercise or transfer any such options. In order to increase the total number of options granted to you by the Company to 600,000, which is the maximum amount permitted under the Company’s 1999 Officers and Employees Stock Option Plan (the “1999 Plan”), effective upon the execution of this Agreement, the Company hereby grants you an “incentive” stock option top purchase 457,500 shares of the Company’s common stock, par value $.001 per share, under and in accordance with the 1999 Plan, which options shall be fully vested and exercisable for a period of ten (10) years from the date of grant at a per share exercise price equal to $3.50, all in accordance with the Option Agreement attached to this Agreement as Exhibit D.
     4. Effective upon the execution of this Agreement, the Company hereby grants you a warrant to purchase 305,000 shares of the Company’s common stock, par value $.001 per share, at the per share exercise price of $3.50, which warrant shall be fully vested and exercisable for a period of ten (10) years from the date of grant, all in accordance with the Warrant attached to this Agreement as Exhibit E .
     5. It is expressly understood and agreed that except as set forth in this Agreement, you are not entitled to, you shall have no right to, and you agree that you shall not request or pursue, any additional compensation from the Company, whether in the form of cash, stock, options, warrants, Company benefits or otherwise.
     6. In exchange for the covenants, promises and payments set forth in this Agreement, you agree to waive, release, remise, acquit, and forever discharge the Company, its officers, directors, employees, successors, attorneys, administrators, trustees, and assigns, from and against any and all actions, causes of action, claims, demands, damages, costs, expenses and debts whatsoever (collectively, the “Claims” and individually, a “Claim”), whether in law and in equity, which you have, have had, or which you or your agents, servants, employees, heirs, successors, attorneys, administrators, trustees, and assignees can, shall or may have against the Company on account of or in any way growing out of or relating to, any matter or thing which has happened, developed or occurred from the beginning of the world to the date of this Agreement, whether known or unknown, suspected or unsuspected, including, without limitation, any such Claims which are in any way connected with, based upon, related to or arising out of any amounts or obligations owed or payable to you by the Company, your employment by the Company or the services provided by you to the Company. In exchange for the covenants and promises set forth in this Agreement, the Company agrees to waive, release, remise, acquit, and forever discharge you and your assigns from and against any and all Claims, whether in law and in equity, which it has, has had, or which it or its agents, servants, employees, heirs, successors, attorneys, administrators, trustees, and assignees can, shall or may have against

 


 

Scott Bromley
August 4, 2006
Page 3 of 3
you on account of or in any way growing out of or relating to, any matter or thing which has happened, developed or occurred from the beginning of the world to the date of this Agreement, whether known or unknown, suspected or unsuspected, including, without limitation, any such Claims which are in any way connected with, based upon, related to or arising out of any amounts or obligations owed or payable to the Company by you, your employment by the Company or the services provided by you to the Company.
     7. You agree that in the event your employment by the Company is terminated for any reason, you will assist the Company, as requested, in the professional transition of work in progress, duties, files and pertinent information, including, but not limited to the preservation of positive relationships between the Company and its investors. You also agree not make any oral or written statement or engage in conduct of any kind that either directly or indirectly disparages, criticizes, defames or otherwise casts a negative characterization upon the Company or its shareholders, officers, directors, employees, or their relatives, nor shall you direct, encourage or assist anyone else to do so. You further agree not to take any action which could harm the relationship between the Company and its investors or potential investors.
     8. This Agreement and all controversies arising from or related to performance under this Agreement shall be governed by the internal laws of the State of Florida without regard to its rules concerning conflicts of laws. The parties exclusively, irrevocably and unconditionally submit to the exclusive jurisdiction of the courts of the State of Florida located in Broward County or in the United States District Court located in Broward County, Florida for the purposes of any suit, action or other proceeding arising out of this Agreement or the subject matter hereof brought by any party hereto.
     If this letter is consistent with your understanding of our agreement, please execute this letter in the space provided below. If you have any questions, or if you need additional information, please do not hesitate to contact me.
         
  Very truly yours,

Bioheart, Inc.
 
 
  By:   /s/    
    Howard J. Leonhardt,   
    Chief Executive Officer   
 
         
  Acknowledged and agreed to
this 24th day of August 2006.
 
 
  /s/ Scott Bromley    
  Scott Bromley   
     
 

 

 

Exhibit 10.7
OFFICE BUILDING LEASE
by and between
CRT-SFV, LLC
as Landlord
and
BIOHEART, INC.
as Tenant
Date: _______________, 2004

 


 

OFFICE BUILDING LEASE
                 
            Page
  1.    
DEFINED TERMS
    1  
  2.    
TERM
    4  
  3.    
USE
    5  
  4.    
RENT
    5  
  5.    
OPERATING COSTS
    6  
  6.    
ASSIGNMENT OR SUBLETTING
    11  
  7.    
INSURANCE
    16  
  8.    
DEFAULT
    19  
  9.    
ALTERATIONS
    25  
  10.    
LIENS
    26  
  11.    
ACCESS TO PREMISES
    27  
  12.    
SECURITY INTEREST IN PERSONAL PROPERTY; SECURITY AGREEMENT
    28  
  13.    
BUILDING PROJECT AND COMMON AREAS
    29  
  14.    
ENVIRONMENTAL LAWS
    29  
  15.    
CASUALTY DAMAGE
    30  
  16.    
CONDEMNATION
    31  
  17.    
REPAIR AND MAINTENANCE
    33  
  18.    
ESTOPPEL CERTIFICATES
    34  
  19.    
SUBORDINATION
    34  
  20.    
INDEMNIFICATION
    35  
  21.    
ANTIWAIVER
    35  
  22.    
NO REPRESENTATIONS BY LANDLORD
    36  
  23.    
SERVICES AND UTILITIES
    36  
  24.    
SECURITY DEPOSIT
    37  
  25.    
GOVERNMENTAL REGULATIONS
    38  
  26.    
SIGNS
    39  
  27.    
SURVIVAL
    39  
  28.    
BROKER
    39  
  29.    
QUIET ENJOYMENT
    40  
  30.    
END OF TERM
    40  
  31.    
RECORDATION
    41  
  32.    
LEASE NOT BINDING UNLESS EXECUTED
    41  
  33.    
ATTORNEYS’ FEES
    41  
  34.    
NOTICES
    42  
  35.    
RADON GAS
    43  
  36.    
SUCCESSORS AND ASSIGNS; PERSONS BOUND
    43  
  37.    
JURY WAIVER; COUNTERCLAIMS
    43  
  38.    
INTENTIONALLY OMITTED
    44  
  39.    
IMPOSSIBILITY OF PERFORMANCE
    44  
  40.    
GUARANTY
    44  
  41.    
TENANT’S REPRESENTATIONS
    44  
  42.    
INTENTIONALLY DELETED
    45  
     i     

 


 

                 
            Page  
  43.    
INTENTIONALLY DELETED
    45  
  44.    
PARKING
    45  
  45.    
INTENTIONALLY DELETED
    45  
  46.    
GENERAL PROVISIONS
    45  
EXHIBIT “A” — LEGAL DESCRIPTION OF BUILDING PROJECT
EXHIBIT “B” — SKETCH OF PREMISES
EXHIBIT “C” — SCHEDULE OF BASE RENT
EXHIBIT “D” — GUARANTY
EXHIBIT “E” — RULES AND REGULATIONS
EXHIBIT “F” — TENANT IMPROVEMENTS
RIDER NO. 1 — EXPANSION RIGHTS
RIDER NO. 2 — OPTION TO EXTEND
RIDER NO. 3 — LICENSE TO USE ROOFTOP SPACE
     ii     

 


 

OFFICE BUILDING LEASE
     THIS LEASE is made and entered into as of the Date of this Lease, by and between CRT-SFV, LLC, a Delaware limited liability company authorized to transact business in Florida (the “Landlord”), and BIOHEART, INC., a Florida corporation (the “ Tenant ”).
W I T N E S S E T H:
     Subject to the terms and conditions of this Lease, Landlord leases to Tenant and Tenant hires from Landlord the Premises. In addition to all other rights which it has under this Lease, Landlord expressly reserves all rights relative to the Building Project which are not expressly and specifically granted to Tenant under this Lease.
     Landlord and Tenant covenant and agree:
     1.  DEFINED TERMS. The following terms, as used in this Lease, shall have the following meanings in this Lease and all exhibits and riders to this Lease.
          (.1) “ADA” shall mean the Americans with Disabilities Act of 1990 and all similar present or future laws, together with all regulations promulgated under any of the laws.
          (.2) “Allocated Share” shall mean 3.24% as of the Date of this Lease. On January 1, 2005, the Allocated Share shall increase to 10.00%. This share is a stipulated percentage, agreed upon by the parties, and constitutes a material part of the economic basis of this Lease and the consideration to Landlord in entering into this Lease. If the area of the Premises or the area of the Building Project are changed after the Date of this Lease as a result of factors other than a recalculation of the area of the Premises or the Building Project as they exist at the Date of this Lease, the Allocated Share shall be equitably adjusted.
          (.3) “Alterations” shall mean any alteration, addition, or improvement in or on or to the Premises of any kind or nature, including the Tenant Improvements.
          (.4) “Bankruptcy Code” shall mean the Bankruptcy Code of 1978, 11 U.S.C. Section 101 et seq., as amended from time to time, or any successor statute.
          (.5) “Base Rent” shall mean the amounts set forth in the schedule attached as EXHIBIT “C” . The Base Rent is a flat amount and has not been calculated based on a price per square foot of space in the Premises.
          (.6) “Building” shall mean the office building in which the Premises are located, located at 13794 Northwest 4th Street, Sunrise, Florida 33325. The Building is located within the Building Project.
          (.7) “Building Project” shall mean all of the land and the improvements on the land known as Sawgrass Business Plaza, consisting of three buildings located at 13790, 13794, and 13798 N.W. 4th Street, Sunrise, Florida 33325 and more particularly described in the legal description attached as EXHIBIT “A” .

 


 

          (.8) “Building Standard” shall mean the type, brand, grade, or quality of materials Landlord designates from time to be the minimum quality to be used in the Building Project or, as the case may be, the exclusive type, brand, grade, or quality of material to be used in the Building Project.
          (.9) “Business Days” shall mean all days other than Saturdays, Sundays, or Legal Holidays.
          (.10) “Commencement Date” shall mean August 1, 2004.
          (.11) “Common Areas” shall have the definition set forth in the Building Project and Common Areas article of this Lease.
          (.12) “Date of this Lease” shall mean the date when the last one of the Landlord and Tenant has signed this Lease.
          (.13) “Emergency” shall mean the threat of imminent injury or damage to persons or property or the imminent imposition of a civil or criminal fine or penalty.
          (.14) “Environmental Laws” shall mean all applicable environmental ordinances, rules, regulations, statutes, orders, and laws of all local, state, or federal agencies or bodies with jurisdiction over the Premises or the activities conducted on the Premises (See the Environmental Laws article of this Lease).
          (.15) “Initial Month’s Rent” shall mean the sum of $3,114.65 which represents Base Rent and additional rent for Operating Costs for the first month of the Lease Term for which rent is due and not abated (including sales tax) and which Initial Month’s Rent shall be delivered to Landlord by Tenant on execution of this Lease by Tenant.
          (.16) “Guarantor(s)” shall mean Howard J. Leonhardt, and any other party who subsequently guaranties all or any part of Tenant’s obligations under this Lease. (See the Guaranty article of this Lease).
          (.17) “Landlord’s Notice Address” shall mean c/o Parthenon Realty, LLC, 11700 Great Oaks Way, Suite 200, Alpharetta, Georgia 30022, with a copy to Building Management Office at 1601 Forum Place, Suite 410, West Palm Beach, Florida 33401.
          (.18) “Lease Term” shall mean 66 calendar months, as extended or sooner terminated under the terms of this Lease (See the Term article of this Lease).
          (.19) “Leasing Broker” shall mean Parthenon Realty, LLC (See the Broker article of this Lease).
          (.20) “Legal Holidays” shall mean New Year’s Day, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, and Christmas Day.
          (.21) “Maximum Rate” shall mean the highest rate of interest permitted to be charged by applicable law.

2


 

          (.22) “Monetary Default” shall have the definition set forth in the Default article of this Lease.
          (.23) “Nonmonetary Default” shall have the definition set forth in the Default article of this Lease.
          (.24) “Normal Business Hours” shall mean 8:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 1:00 p.m. on Saturdays, Legal Holidays excluded.
          (.25) “Operating Costs” shall have the definition set forth in the Operating Costs article of this Lease.
          (.26) “Parking Areas” shall mean the areas available for automobile parking in connection with the Building Project as those areas may be designated by Landlord from time to time (See the Parking article of this Lease).
          (.27) “Parking Ratio” shall mean the number of parking spaces for each 1,000 rentable square feet of space in the Premises from time to time as specified by the zoning and land use regulations applicable to the Building Project. As of the Date of this Lease, the Parking Ratio is 4 parking spaces per 1,000 rentable square feet.
          (.28) “Personal Property” shall have the definition set forth in the Security Interest article of this Lease.
          (.29) “Plans” shall have the definition set forth in EXHIBIT “F” .
          (.30) “Premises” shall mean collectively Suite Nos. 210, 211, 212, and 213, located on the first floor of the Building. As of the Date of this Lease, the Premises shall be comprised of 1,947 rentable square feet consisting of the “clean room” and the front portion of Suite 211 only (the “ Initial Premises ”), which will not be separately demised from the then-unleased remainder of the Premises (the “ Remaining Premises ”). As of January 1, 2005, the Premises will be expanded to consist of the entire Premises, comprised of 6,015 rentable square feet. The Premises are depicted in the sketch attached as EXHIBIT “B” to this Lease. Landlord reserves the light to install, maintain, use, repair, and replace pipes, ducts, conduits, wires, and structural elements leading through the Premises in locations that will not materially interfere with Tenant’s use of the Premises. No other space is demised by intention or omission.
          (.31) “Prime Rate” shall mean the per annum interest rate as published in the Wall Street Journal from time to time as the “prime rate”.
          (.32) “Real Estate Taxes” shall have the definition set forth in the Operating Costs article of this Lease.
          (.33) “Regulations” shall have the definition set forth in the REIT Status article of this Lease.
          (.34) “rent” shall have the definition set forth in the Rent article of this Lease.

3


 

          (.35) “Rentable Area of the Premises” shall mean 6,015 square feet. This square footage figure is a stipulated amount, agreed upon by the parties, and constitutes a material part of the economic basis of this Lease and the consideration to Landlord in entering into this Lease.
          (.36) “Rules and Regulations” shall mean the rules and regulations for the Building Project promulgated by Landlord from time to time. The Rules and Regulations which apply as of the Date of this Lease are attached as EXHIBIT “E” .
          (.37) “Security Deposit” shall mean $9,343.95 (includes sales tax) as that amount may be increased or decreased from time to time, which Security Deposit shall be delivered to Landlord by Tenant on execution of this Lease by Tenant. Landlord directs Tenant to make the check for the Security Deposit payable to CRT-SFV, LLC — Security Deposits. (See the Security Deposit article of this Lease).
          (.38) “Security Interest” shall have the definition set forth in the Security Interest article of this Lease.
          (.39) “Substantial Completion” shall mean the date on which the Work is substantially completed so that Tenant may use the Premises for their intended purpose notwithstanding that punchlist items or insubstantial details concerning construction, decoration, or mechanical adjustment remain to be performed.
          (.40) “Tenant Improvements” shall have the definition set forth in EXHIBIT “F” .
          (.41) “Tenant Improvement Allowance” shall mean $60,150.00 to be paid in accordance with EXHIBIT “F” .
          (.42) “Tenant’s Notice Address” shall mean Suite 210-213, 13794 Northwest 4th Street, Sunrise, Florida 33325 from and after the Commencement Date. Before the Commencement Date, Tenant’s Notice Address shall mean 4800 N. Commerce Parkway, Suite 408, Weston, Florida 33326, with copies to David S. Tobin, Esquire, Tobin & Reyes, P.A., 7251 Palmetto Park Road, Suite 205, Boca Raton, Florida 33433.
          (.43) “Tenant’s Property” shall have the definition set forth in the End of Term article of this Lease.
          (.44) “Unavoidable Delay” shall have the definition set forth in Impossibility of Performance article of this Lease.
      2. TERM.
          2.1 General. Tenant shall have and hold the Premises for the Lease Term. The Lease Tern] shall commence on the Commencement Date.
          2.2 Delay in Delivery. If the Commencement Date is delayed because of failure to complete any alteration or construction work or for any other reason not attributable to

4


 

fault on the part of Tenant, or if Landlord is unable to deliver possession of the Premises on the Commencement Date by reason of the holding over of any prior tenant, Tenant shall not be required to commence payment of rent until the Commencement Date has occurred and Landlord has delivered possession of the Premises to Tenant. However, nothing set forth in this section will operate to extend the Lease Term and rent abatement will be the full extent of Landlord’s liability to Tenant on account of the delay.
          2.3 Possession before Commencement Date. Tenant shall observe and perform all of its obligations under this Lease (except its obligations to conduct business) from the earlier to occur of the date that the Premises are delivered to Tenant for the purpose of commencement of the Tenant Improvements or the date Tenant otherwise takes possession of the Premises until the Commencement Date in the same manner as though the Lease Term began when the Premises were so delivered to Tenant. Under no circumstances, however, may Tenant enter into possession of the Premises before the earlier to occur of the date that the Premises are delivered to Tenant for the purpose of commencement of Tenant Improvements or the Commencement Date, without the express written consent of Landlord and subject to any terms of the consent. Tenant shall not be required to pay rent for any period before the Commencement Date. However, Tenant shall pay for all utilities and services consumed by or on behalf of Tenant before the Commencement Date.
      3. USE.
          3.1 Generally. Tenant shall continuously use and occupy the Premises only for general office and research laboratory purposes directly related to the business conducted by Tenant as of the Date of this Lease and in accordance with applicable zoning codes, ordinances, and use restrictions. Tenant shall not use or permit or suffer the use of the Premises for any other business or purpose. This provision is in the nature of a restrictive covenant affecting real estate and it shall be unnecessary for Landlord to prove irreparable harm in order to obtain an injunction mandating compliance with this restrictive covenant.
          3.2 Initial Premises. Tenant acknowledges that there is no separate demising wall between the Initial Premises and the Remaining Premises. Prior to January 1, 2005, except as required for the performance of Tenant Improvements, Tenant shall not use, occupy, control, encroach upon or use any portion of the Remaining Premises for any purpose whatsoever, including, but not limited to, storage (the “Un-Authorized Use" ). Tenant agrees to indemnify and hold harmless the Landlord against any liability claim or cost including reasonable attorneys’ fees and costs) in connection with bodily injury, death, or property damage or destruction, occurring on or about the Remaining Premises resulting from or relating to any Un-Authorized Use therein. If prior to January 1, 2005, an Un-Authorized Use of the Remaining Premises occurs, Tenant shall be immediately responsible for the payment of full rent for the entire Premises.
      4. RENT.
          4.1 Base Rent. Tenant shall pay to Landlord in lawful United States currency the Base Rent. On the execution of this Lease by Tenant, Tenant shall pay to Landlord the Initial Month’s Rent as payment in advance of the installments of Base Rent and additional rent for

5


 

Operating Costs for the first month of the Lease Term for which rent is due and not abated. All Base Rent shall be payable in equal monthly installments, in advance, beginning on the Commencement Date, and continuing on the first day of each and every calendar month thereafter during the Lease Term. If the Lease Term commences on a day other than the first day of a month or expires on a day other than the last day of the month, the rent payments for such month shall prorated based on the number of days in such month that the Lease Term is in effect. Rent payments shall be made to Landlord at the following address: CRT-SFV, LLC, Broward County, Wachovia Lockbox, P.O. Box 931852, Atlanta, GA 31193-1852.
          4.2 Additional Rent. Unless otherwise expressly provided, all monetary obligations of Tenant to Landlord under this Lease, of any type or nature, other than Base Rent, shall be denominated as additional rent. Except as otherwise provided, all additional rent payments are due ten days after delivery of an invoice. Landlord shall have the same rights and remedies for defaults in the payment of additional rent as provided in this Lease for defaults in the payment of Base Rent.
          4.3 Taxes On Rent. Tenant shall pay monthly to Landlord any sales, use, or other tax (excluding state and federal income tax) now or hereafter imposed by the United States of America, the State in which the Premises are located, or any political subdivision of them, on any form of rent due under this Lease, or in substitution for any rent, notwithstanding the fact that the law imposing the tax may endeavor to impose it on Landlord.
          4.4 General. The term “rent” when used in this Lease shall include Base Rent and all forms of additional rent. All rent shall be paid to Landlord without demand, setoff, or deduction whatsoever, except as specifically provided in this Lease, at Landlord’s Notice Address, or at such other place as Landlord shall designate in writing to Tenant. Tenant’s obligations to pay rent are covenants independent of the Landlord’s obligations under this Lease.
      5. OPERATING COSTS.
          5.1 General. Tenant shall pay to Landlord its Allocated Share of Operating Costs in accordance with the terms and provisions of this article.
          5.2 Real Estate Taxes. The term “Real Estate Taxes” shall mean the total of all of the taxes, assessments, excises, levies, and other charges by any public authority, which are general or special, ordinary or extraordinary, foreseen or unforeseen, or of any kind and nature whatsoever, and which shall during or in respect to the Lease Term, be assessed, levied, charged, confirmed, or imposed upon, or become due and payable out of, or become a lien on the Building Project or appurtenances or facilities used in connection with the Building Project. Real Estate Taxes shall specifically include all ad valorem taxes, personal property taxes, transit taxes, special or extraordinary assessments, government levies, and all other taxes or other similar charges, if any, which are levied, assessed, or imposed upon, or become due and payable in connection with the Building Project or appurtenances or facilities used in connection with the Building Project; provided, however, that the following taxes are excluded from Real Estate Taxes (unless they are or shall become substitute taxes as provided in this section): any franchise, excise, income, gross receipts, profits, or similar tax assessed on or relating to the income of Landlord, and any capital levy, estate, gift, inheritance, transfer, or similar tax

6


 

assessed by reason of any inheritance, devise, gift, or transfer of any estate in the Building Project by Landlord. If, because of a future change in the method of taxation or in the taxing authority, or for any other reason, a franchise, income, transit, gross receipts, profits, or other tax or governmental imposition, however designated, shall be levied against Landlord in substitution in whole or in part for the Real Estate Taxes, or instead of additions to or increases of Real Estate Taxes, or otherwise as a result of or based on or arising out of the ownership, use, or operation of the Building Project, then the franchise, income, transit, gross receipts, profits, or other tax or governmental imposition shall be deemed to be included within the definition of “Real Estate Taxes”. As to special assessments that are payable over a period of time extending beyond the Lease Term, only a pro rata portion of the special assessments, covering the portion of the Lease Term that is unexpired at the time of the imposition of the assessment shall be included in “Real Estate Taxes”. If, by law, any assessment may be paid in installments, then, for the purposes of this Lease, (a) the assessment shall be deemed to have been payable in the maximum number of installments permitted by law, and (b) there shall be included in Real Estate Taxes, for each year in which the installments may be paid, the installments so becoming payable during that year, together with any interest payable on the assessments during the year. “Real Estate Taxes” shall also include all costs and expenses incurred by Landlord in contesting the amount of the assessment of the Building Project made for Real Estate Taxes, including attorneys’, accountants’, consultants’, and appraisers’ fees.
          5.3 Operating Costs. The term “ Operating Costs ” shall mean the total of all of the costs and expenses incurred or borne by Landlord relating to the ownership, operation, maintenance, repair, and security of the Building Project and the services provided tenants in the Building Project. By way of explanation and clarification, but not by way of limitation, Operating Costs will include, but not be limited to, the costs and expenses incurred for the following: Real Estate Taxes; steam and any other fuel; water rates and sewer rates; heating; air conditioning; ventilation; plumbing, electrical, fire sprinkler, fire alarm, and emergency generator systems; cleaning, by contract or otherwise; window washing (interior and exterior); elevators; escalators; pest control; trash and garbage removal (including dumpster and compactor rental); porter and matron service; protection and security; Common Areas decorations; repairs, replacements, maintenance, and alteration of Common Areas; assessments paid to property owners’ associations; amounts paid under easements or other recorded agreements affecting the Building Project; painting and carpeting of nontenant areas; repairs, maintenance, replacements, and improvements that are appropriate for the continued operation or security of the Building Project as a first-class building; exterior landscaping; fertilization and irrigation supply, repair, and maintenance; parking area maintenance, repair, and supply; property management fees; an onsite management office; all utilities serving the Building Project and not separately billed to or reimbursed by any tenant of the Building Project; music systems; depreciation on machinery and equipment used in the maintenance of the Building Project; janitorial services; fire, extended coverage, all risks, terrorism, earthquake, change in condition, sprinkler apparatus, plate glass, electronic data processing, boiler and machinery, rental guaranty or interruption, public liability and property damage, flood, and any other additional insurance customarily carried by owners of comparable buildings or required by any mortgagee of the Building Project; supplies; service and maintenance contracts for the Building Project; wages, salaries, disability benefits, pensions, profit sharing, hospitalization, retirement plans, group insurance, and other benefits respecting employees of the Landlord up to and including the building manager (including a pro rata share only of the wages and benefits of employees who are employed at more than one building, which

7


 

pro rata share shall be determined by Landlord and shall be based on Landlord’s estimate of the percentage of time spent by the employees at the Building Project); legal, accounting, and administrative costs; uniforms and working clothes for employees and the cleaning of them; expenses imposed on the Landlord under any law or any collective bargaining agreement concerning Landlord’s employees; workers’ compensation insurance; and payroll, social security, unemployment, and other similar taxes relating to employees. Landlord may contract for the performance of some or all of the management, operating, maintenance, repair, and security functions generally described in this subsection with any persons or entities whom Landlord shall deem appropriate, including persons or entities who are affiliated with Landlord.
          Operating Costs shall exclude, or have deducted from them, as the case may be and as shall be appropriate:
               (1) Leasing commissions, rent concessions to tenants, and tenant improvements;
               (2) Executive’s salaries above the grade of building manager;
               (3) Expenditures for capital items, except (a) those which, under generally accepted accounting principles, with deviations from such principles which are customary in the real estate industry, are expenses or regarded as deferred expenses, (b) capital expenditures required by law, (c) expenditures for improvements in security systems in the Building Project and (d) expenditures for materials, tools, supplies, and equipment purchased by Landlord to enable Landlord to supply services that Landlord would otherwise have obtained from a third party, in any of which cases the cost of the capital improvements or expenditures shall be included in Operating Costs for the year in which the costs are incurred and subsequent years, amortized on a straight line basis over an appropriate period, but in no event more than ten years, with an interest factor equal to the Prime Rate in effect at the time of Landlord’s having incurred the expenditure, but in no event greater than the Maximum Rate;
               (4) Painting, redecorating, or other work that Landlord performs for any tenant;
               (5) Insurance proceeds received by Landlord to the extent the proceeds are reimbursement for costs included in Operating Costs (net of costs of collection);
               (6) The cost of repairs or replacements (a) necessitated by the exercise of the power of eminent domain, or (b) incurred by reason of fire or other casualty;
               (7) Depreciation or amortization, except as specifically provided in this section;
               (8) Rent payable under any lease to which this Lease is subject;
               (9) Interest on, and amortization of, any mortgages encumbering the Building Project;

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               (10) Costs incurred in negotiating or enforcing leases against tenants, including attorneys’ fees;
               (11) Interest or other penalties for the late payment of any Real Estate Taxes;
               (12) Property management fees in excess of the rates then customarily charged for building management by property managers with equal or better qualifications for buildings of like class and character;
               (13) Advertising and promotional expenditures;
               (14) The incremental cost of furnishing services such as overtime HVAC to any tenant and costs incurred in performing work or furnishing services for individual tenants (including this Tenant);
               (15) Costs associated with the operation of the business of the partnership or entity which constitutes Landlord, including partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging, or hypothecating any of the Landlord’s interests in the Building Project, costs of any disputes between Landlord and its employees (if any) not engaged in Building Project operations, disputes of Landlord with the Building Project management company, or outside fees paid in connection with disputes with other tenants; and
               (16) The net amount recovered by Landlord from any tenant in the Building Project (other than through payments of additional rent for Operating Costs) or any third party to the extent the recovery constitutes reimbursement for costs previously included in Operating Costs.
          If Landlord shall purchase any item of capital equipment or make any capital expenditure designed to result in savings or reductions in Operating Costs, then the costs for the capital equipment or capital expenditure are to be included within the definition of Operating Costs for the year in which the costs are incurred and subsequent years, on a straight line basis, to the extent that the items are amortized over such period of time as reasonably can be estimated as the time in which the savings or reductions in Operating Costs are expected to equal Landlord’s costs for the capital equipment or capital expenditure, with an interest factor equal to the Prime Rate, but in no event greater than the Maximum Rate. If Landlord leases any item of capital equipment designed to result in savings or reductions in Operating Costs, then the rent and other costs paid under the leasing arrangement shall be included in Operating Costs for the year in which they are incurred.
          If during any period covered by a statement of Operating Costs, Landlord shall not furnish any particular item(s) of work, services, or utilities (which would constitute an Operating Cost under this section) to portions of the Building Project because those portions are not occupied or leased, or because the item of work, services, or utilities is not required or desired by the Tenant of that portion of the Building Project, or the Tenant is itself obtaining and providing that item of work, services, or utilities or is separately paying Landlord for that item (and not under a provision in its lease substantially the same as this section), or for other similar

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reasons, then, for the purpose of computing the rent payable on account of Operating Costs, the amount of the Operating Costs, for that item for that period, shall be increased by an amount equal to the additional operating and maintenance expenses that would reasonably have been incurred during that period by Landlord if it had at its own expense furnished the applicable item of work, services, or utilities to the applicable portion of the Building Project. Notwithstanding anything contained in this section to the contrary, this provision shall apply only to Operating Costs (such as, but not limited to, janitorial services, utilities, refuse and waste disposal, and management fees) which vary with occupancy or use, and under no circumstances shall it apply to any fixed costs which do not vary with occupancy or use.
          5.4 Payment. Landlord shall reasonably estimate the Operating Costs that will be payable for each calendar year during the Lease Term in advance and Tenant shall pay one twelfth of its share of the Operating Costs monthly in advance, together with the payment of Base Rent. After the end of each calendar year and after receipt by Landlord of all necessary information and computations, Landlord shall furnish Tenant a detailed statement of the actual Operating Costs for the year; and an adjustment shall be made between Landlord and Tenant with payment to or repayment by Landlord, as the case may require, to the end that Landlord shall receive the entire amount actually owed by Tenant for Operating Costs for the year and Tenant shall receive reimbursement for any overpayments. Any payment adjustment owed by Tenant will be due within 30 days following its receipt of Landlord’s invoice. Any refund will be credited against Tenant’s monthly rent obligations. Tenant waives and releases any and all objections or claims relating to Operating Costs for any calendar year unless, within 60 days after Landlord provides Tenant with the annual statement of the actual Operating Costs for the calendar year, Tenant provides Landlord notice that it disputes the statement. If Tenant disputes the statement then, pending resolution of the dispute, Tenant shall pay the rent in question to Landlord in the amount provided in the disputed statement.
          5.5 Proration. If the Commencement Date is not January 1, then the Operating Costs for the first calendar year of the Lease Term shall be a proportionate share of the Operating Costs for the entire year, which proportionate share shall be based on the ratio between the number of days from and after the Commencement Date to the number of days in the year. On the date of any expiration or termination of this Lease (except termination because of Tenant’s default), a proportionate share of the Operating Costs for the year during which the expiration or termination occurs shall immediately become due and payable by Tenant to Landlord, if not previously billed and paid. The proportionate share shall be based on the number of days that this Lease shall have been in existence during such year. Notwithstanding any expiration or sooner termination of this Lease, Landlord shall, as soon as reasonably practicable, compute the share of Operating Costs due from Tenant, which computations shall either be based on that year’s actual figures or be an estimate based on the most recent statements previously prepared by Landlord and furnished to Tenant under this article. If an estimate is used, then Landlord shall cause statements to be prepared on the basis of the year’s actual figures promptly after they are available, and within ten days after the statement or statements are issued Landlord and Tenant shall make appropriate adjustments of any estimated payments previously made.
          5.6 Delay in Billing. Any delay or failure of Landlord in billing for any rent under this article shall not constitute a waiver of or in any way impair the continuing obligation

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of Tenant to pay the rent. If any statement of Operating Costs should not be determined on a timely basis, Tenant shall continue to make payments at the rate in effect during the preceding period, and promptly following the final determination by Landlord there shall be an appropriate adjustment and payment by Tenant of all amounts on account of Operating Costs that would have been payable if the Operating Costs had been timely determined. If any amount is owed Tenant under the final determination, then Tenant shall deduct that amount from the rent due for the month(s) immediately following the month in which the final determination is made, provided, however, that if the Lease Term shall have expired in due course (and not because of a default by Tenant) on the date when the final determination is made, then Landlord shall promptly pay to Tenant all the amounts that are then due and owing.
          5.7 Alternate Computation. Notwithstanding anything contained in this article to the contrary, instead of including certain utility charges or services in Operating Costs, Landlord may bill Tenant and Tenant shall pay for those utilities or services in anyone or a combination of the following manners: (a) direct charges for services provided for the exclusive benefit of the Premises that are subject to quantification; (b) based on a formula that takes into account the relative intensity or quantity of use of utilities or services by Tenant and all other recipients of the utilities or services, as reasonably determined by Landlord; or (c) pro rata based on the proportion that the Rentable Area of the Premises bears to the total rentable area of the Tenant Premises within the Building Project that receive the applicable utilities or services. In addition, Landlord may, instead of including certain utility charges in Operating Costs, provide for direct delivery of the applicable utility services to Tenant by the utility providers. If so, all costs and Operating Costs incurred in connection with provision of the applicable utility services directly to tenants, including all costs associated with the provision of separate meters to Tenant Premises, shall be includable in Operating Costs or paid by Tenant and the other tenants receiving the meters in amounts as reasonably allocated by Landlord, and, after the direct provision of utility services has been effected, the applicable utility charges for ongoing service shall not be included in Operating Costs.
      6. ASSIGNMENT OR SUBLETTING.
          6.1 General; Definition of Transfer. Neither Tenant nor Tenant’s legal representatives or successors in interest by operation of law or otherwise shall transfer this Lease except as provided in this article. For purposes of this article, a “transfer” shall mean any of the following: (a) an assignment of this Lease; (b) a collateral assignment, mortgage, or other encumbrance involving this Lease; (c) a sublease, license agreement, or other agreement permitting all or any portion of the Premises to be used by others; (d) a reduction of Tenant’s assets to the point that this Lease is substantially Tenant’s only asset; (e) the agreement by a third party to assume, take over, or reimburse Tenant for any of Tenant’s obligations under this Lease in order to induce Tenant to lease space from the third party; or (f) any transfer of control of Tenant, which shall be defined as any issuance or transfer of stock in any corporate tenant or subtenant or any interest in any noncorporation entity tenant or subtenant, by sale, exchange, merger, consolidation, operation of law, or otherwise, or creation of new stock or interests, by which an aggregate of 50% or more of Tenant’s stock or equity interests shall be vested in one or more parties who are not stockholders or interest holders as of the Date of this Lease, or any transfer of the power to direct the operations of any entity (by equity ownership, contract, or otherwise), to one or more parties who are not stockholders or interest holders as of the Date of

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this Lease, however accomplished, and whether in a single transaction or in a series of related or unrelated transactions; provided that this subsection (f) shall only apply if and only if the primary purpose of the transfer of control is to avoid the restrictions on transfers otherwise imposed under this article. This section shall not apply to sales of stock by persons other than those deemed “insiders” within the meaning of the Securities Exchange Act of 1934 as amended, and an initial public offering of stock (unless such offering results in a change of control as defined in subsection (f) above), which sales are effected through any recognized securities exchange. Any modification or amendment to any sublease of any portion of the Premises shall be deemed a further sublease of this Lease. As used in this article, the term “transferee” shall include any assignee or subtenant of Tenant or any other party involved in any of the other transactions or events constituting a transfer.
          6.2 Request for Consent. If Tenant requests Landlord’s consent to a transfer, it shall submit in writing to Landlord, not later than 30 days before any anticipated transfer, (a) the name and address of the proposed transferee, (b) a duly executed counterpart of the proposed transfer agreement, (c) reasonably satisfactory information as to the nature and character of the business of the proposed transferee, as to the nature and character of its proposed use of the space, and otherwise responsive to the criteria set forth in the Reasonable Consent section of this article, and (d) banking, financial, or other credit information relating to the proposed transferee reasonably sufficient to enable Landlord to determine the financial responsibility and character of the proposed transferee, including balance sheets and profit and loss statements for the transferee covering the three years before the transfer, certified by the transferee, and a list of personal, banking, business, and credit references for the transferee.
          6.3 Recapture. Landlord shall have the following options to be exercised within 15 Business Days from submission of Tenant’s request for Landlord’s consent to a specific transfer:
               6.3.1 If Tenant proposes to assign this Lease or sublet all or substantially all of the Premises, Landlord shall have the option to cancel and terminate this Lease as of the proposed commencement date for the transfer.
               6.3.2 If Tenant proposes to sublet less than all or substantially all of the Premises or if a proposed sublease shall be for less than the balance of the Lease Term, Landlord shall have the option of canceling and terminating this Lease only as to the applicable portion of the Premises and the applicable portion of the Lease Term covered by the proposed sublease, effective as of the proposed commencement date of the sublease. If Landlord exercises this option, all rent for the Premises shall be equitably apportioned as of the commencement date of the sublease and Landlord, at Tenant’s expense, shall perform all work and make all alterations as may be required physically to separate the applicable portion of the Premises from the remainder of the Premises and to permit lawful occupancy of the separated portion.
                    If Landlord exercises either of its options under this article, Tenant shall have the right, to be exercised by notice given within ten days of Landlord’s notice of its exercise of an option under this article, to rescind its request for Landlord’s consent to the transfer and, if so, this Lease shall remain in full force and effect.

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          6.4 Reasonable Consent. If Landlord does not elect either of the options provided in the Recapture section of this article, Landlord shall not unreasonably withhold or delay its consent to a proposed transfer. Landlord shall be deemed to have reasonably withheld its consent to any proposed transfer unless all of the following conditions have been established to Landlord’s reasonable satisfaction:
               6.4.1 The proposed transferee has sufficient financial wherewithal to discharge its obligations under this Lease and the proposed agreement of transfer and as determined by Landlord’s criteria for selecting Building Project tenants and has a net worth, experience, and reputation that is not less than the net worth, experience, and reputation of Tenant on the Date of this Lease.
               6.4.2 The proposed transfer shall not, in Landlord’s reasonable judgment, cause physical harm to the Building Project or harm to the reputation of the Building Project that would result in an impairment of Landlord’s ability to lease space in the Building Project or a diminution in the rental value of space in the Building Project.
               6.4.3 The proposed use of the Premises by the proposed transferee will be a use permitted under this Lease and not prohibited by the Rules and Regulations, and will not violate any restrictive covenants or exclusive use provisions applicable to Landlord.
               6.4.4 The proposed transferee shall not be any person or entity who shall at that time be a tenant, subtenant, or other occupant of any part of the Building Project, or who dealt with Landlord or Landlord’s agent (directly or through a broker) as to space in the Building Project during the six months immediately preceding Tenant’s request for Landlord’s consent. Notwithstanding the foregoing, Landlord will not withhold its consent solely because the proposed transferee is an occupant of the Building Project if Landlord does not have space available for lease in the Building Project that is comparable to the space Tenant desires to transfer. For these purposes, Landlord shall be deemed to have comparable space if it has space which will be available within six months of the date of the proposed transfer on any floor anywhere within the Building Project which is approximately the same size as the space Tenant proposes to transfer, provided that if the space that Tenant proposes to transfer is contiguous to the space already leased by the proposed transferee, Landlord shall be deemed not to have comparable space.
               6.4.5 The proposed use of the Premises by the proposed transferee will not require alterations or additions to the Premises or the Building Project to comply with applicable law or governmental requirements and will not negatively affect insurance requirements or involve the introduction of materials to the Premises that are not in compliance with the Environmental Laws.
               6.4.6 Any mortgagee of the Building Project will consent to the proposed transfer if such consent is required under the relevant loan documents.
               6.4.7 The proposed use of the Premises will not increase the operating costs for the Building Project or the burden on the Building Project services, or generate additional foot traffic, elevator usage, Parking Area usage, or security concerns in the Building

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Project, or create an increased possibility that the comfort or safety, or both, of Landlord and the other occupants of the Building Project will be compromised or reduced.
               6.4.8 The proposed transferee shall not be, and shall not be affiliated with, anyone with whom Landlord or any of its affiliates has been involved with in its litigation.
               6.4.9 The proposed transfer will not cause a violation of another lease for space in the Building Project or give an occupant of the Building Project a right to cancel its lease.
               6.4.10 There shall be no default by Tenant, beyond any applicable grace period, under any of the terms, covenants, and conditions of this Lease at the time that Landlord’s consent to a transfer is requested and on the date of the commencement of the term of the proposed transfer.
               6.4.11 If the transfer is an assignment, the proposed assignee will assume in writing all of the obligations of Tenant under this Lease.
          Tenant acknowledges that the foregoing is not intended to be an exclusive list of the reasons for which Landlord may reasonably withhold its consent to a proposed transfer.
          6.5 Tenant’s Remedies. Tenant waives any remedy for money damages (nor shall Tenant claim any money damages by way of setoff, counterclaim, or defense) based on any claim that Landlord has unreasonably withheld, delayed, or conditioned its consent to a proposed transfer under this Lease. Tenant’s sole remedy in such an event shall be to institute an action or proceeding seeking specific performance, injunctive relief, or declaratory judgment.
          6.6 Transfer Documents. Any sublease shall provide that: (a) the subtenant shall comply with all applicable terms and conditions of this Lease to be performed by Tenant; (b) the sublease is expressly subject to all of the terms and provisions of this Lease; and (c) unless Landlord elects otherwise, the sublease will not survive a termination of this Lease (whether voluntary or involuntary) or resumption of possession of the Premises by Landlord following a default by Tenant. The sublease shall further provide that if Landlord elects that the sublease shall survive a termination of this Lease or resumption of possession of the Premises by Landlord following a default by Tenant, the subtenant will, at the election of the Landlord, attorn to the Landlord and continue to perform its obligations under its sublease as if this Lease had not been terminated and the sublease were a direct lease between the Landlord and the subtenant. Any assignment of lease shall contain an assumption by the assignee of all of the obligations of Tenant under this Lease.
          6.7 No Advertising. Tenant shall not advertise (but may list with brokers) its space for sublease at a rental rate lower than the greater of the then Building Project rental rate for the space or the rental rate then being paid by Tenant to Landlord.
          6.8 Consideration for Consent. If Tenant effects any transfer, then Tenant shall pay to Landlord a sum equal to (a) the net rent, additional rent, or other consideration paid to Tenant by any transferee that is in excess of the rent then being paid by Tenant to Landlord under this Lease for the portion of the Premises so transferred (on a prorated, square footage

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basis), and (b) any other profit or gain (after deducting any necessary expenses incurred) realized by Tenant from the transfer. The net rent, additional rent, or other consideration paid to Tenant shall be calculated by deducting from the gross rent, additional rent, or other consideration reasonable and customary real estate brokerage commissions actually paid by Tenant to third parties, tenant improvement allowances, rent concessions, the actual cost of improvements to the Premises made by Tenant for the transferee, and other direct out of pocket costs actually incurred by Tenant in connection with the transfer (as long as the costs are commercially reasonable and are commonly incurred by landlords in leasing similar space). Should Tenant sell multiple assets, including its interest under this Lease, Landlord shall not be bound by any allocation of the purchase price for such assets which may be included in an agreement between Tenant and the transferee. Rather, the profit or gain on the transfer of Tenant’s interest under this Lease as defined in subsection (b) above shall be the fair market value of Tenant’s interest under this Lease as of the date of the transfer less the costs of the transaction as generally described above. Upon reasonable notice, Landlord shall have the right to audit Tenant’s books and records to determine the amount payable to Landlord under this section. All sums payable by Tenant under this section shall be payable to Landlord immediately on receipt by Tenant.
          6.9 Permitted Transfers. The option in favor of Landlord set forth in the Recapture section of this article shall not apply to, and Landlord’s consent will not be required as to, a transfer to the parent entity of Tenant or to a wholly owned subsidiary entity of Tenant or of the parent entity of Tenant, or to any affiliated entity into or with which Tenant may be merged or consolidated, provided that (a) the merger is not part of a sale or transfer of Tenant’s business or assets to an entity which was not an affiliate of Tenant before the transfer, (b) the resulting entity shall own all or substantially all of the assets of Tenant, and (c) the net worth, experience, and reputation of the resulting entity is at least equal to the net worth, experience, and reputation of Tenant on the Commencement Date; provided further, that the form of any agreement of assignment or any sublease shall otherwise comply with the terms and conditions of this article.
          6.10 No Waiver. Consent by Landlord to a transfer shall not relieve Tenant from the obligation to obtain Landlord’s written consent to any further transfer.
          6.11 Acceptance of Payments. If this Lease is nevertheless assigned, or the Premises are sublet or occupied by anyone other than Tenant, Landlord may accept rent from the assignee, subtenant, or occupant and apply the net amount received to the rent reserved in this Lease, but no such assignment, subletting, occupancy, or acceptance of rent shall be deemed a waiver of the requirement for Landlord’s consent as contained in this article or constitute a novation or otherwise release Tenant from its obligations under this Lease.
          6.12 Continuing Liability. Except as provided in the Recapture section of this article, following any transfer, Tenant and Guarantor shall remain liable to Landlord for the prompt and continuing payment of all forms of rent payable under this Lease following the transfer. The joint and several liability of Tenant, Guarantor, and any immediate and remote successor in interest of Tenant (by assignment or otherwise), and the due performance of the obligations of this Lease on Tenant’s part to be performed or observed, shall not in any way be discharged, released, or impaired by any (a) agreement that modifies any of the rights or obligations of the parties under this Lease, (b) stipulation that extends the time within which an obligation under this Lease is to be performed, (c) waiver of the performance of an obligation

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required under this Lease, or (d) failure to enforce any of the obligations set forth in this Lease, unless Landlord agrees to such release or discharge in writing.
          6.13 Administrative Fee. If Landlord consents to any transfer, Tenant shall pay to Landlord, on demand, an administrative fee of the greater of (a) all reasonable attorneys’ fees and actual costs associated with Landlord’s consent to any transfer and the review and preparation of all documents associated therewith, or (b) $750.
          6.14 Landlord Transfer . Landlord may assign or encumber its interest under this Lease. If any portion of the Premises is sold, transferred, or leased, or if Landlord’s interest in any underlying lease of the Premises is transferred or sold, Landlord shall be relieved of all existing and future obligations and liabilities under this Lease, provided that the purchaser, transferee, or tenant of the Premises assumes in writing those obligations and liabilities.
          6.15 Improper Transfer . Any transfer by Tenant in violation of this article shall be void and shall constitute a default under this Lease.
     7.  INSURANCE .
          7.1 Tenant’s Insurance . Tenant shall, on or before the earlier of the Commencement Date or the date on which Tenant first enters the Premises for any purpose, obtain and keep in full force and effect at all times thereafter the following insurance coverages relating to the Premises:
               7.1.1 Commercial General Liability . Insurance against loss or liability in connection with bodily injury, death, or property damage or destruction, occurring on or about the Premises under one or more policies of commercial general liability insurance, including, but not limited, to the release of polluted, biohazard, or other environmentally toxic substances related to Tenant’s use of the Premises. Each policy shall be written on an occurrence basis and contain coverage at least as broad as that provided under the then most current Insurance Services Office (ISO) commercial general liability insurance form which provides the broadest coverage. Each policy shall specifically include the Premises and all areas, including sidewalks and corridors, adjoining or appurtenant to the Premises. The insurance coverage shall be in an initial amount of not less than $3 million per occurrence limit, $3 million general aggregate limit, $3 million personal and advertising limit, and $3 million products/completed operations limit, which coverage limits may be effected with umbrella coverage. Each policy shall also include the broad form comprehensive general liability endorsement or equivalent and, in addition, shall provide at least the following extensions or endorsements: (a) coverage for explosion, collapse, and underground damage hazards, when applicable; (b) personal injury coverage to include liability assumed under any contract; (c) a cross liability or severability of interest extension or endorsement or equivalent so that in the event that one insured files a claim against another insured under the policy, the policy affords coverage for the insured against whom the claim is made as if separate policies had been issued; (d) a knowledge of occurrence extension or endorsement so that knowledge of an occurrence by the agent, servant, or employee of the insured shall not in itself constitute knowledge by the insured, unless a managing general partner or an executive officer, as the case may be, shall have received the notice from the agent, servant, or employee; (e) a notice of occurrence extension or endorsement so that if the insured

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reports the occurrence of an accident to its workers’ compensation carrier and the occurrence later develops into a liability claim, the failure to report the occurrence immediately to each or any other company when reported to the workers’ compensation carrier shall not be deemed a violation of the other company’s policy conditions; (f) an unintentional errors and omissions extension or endorsement so that failure of the insured to disclose all hazards existing as of the inception date of the policy shall not prejudice the insured as to the coverage afforded by the policy, provided the failure or omission is not intentional; and (g) a blanket additional insured extension or endorsement or equivalent providing coverage for unspecified additional parties as their interest may appear with the insured.
               7.1.2 Intentionally Omitted .
               7.1.3 Property . All risk property insurance, including fire and lightning, extended coverage, sprinkler damage, theft, vandalism, and malicious mischief, or the ISO causes of loss-special form, in an amount adequate to cover 100% of the replacement costs, without co-insurance, of Tenant’s Property.
               7.1.4 Workers’ Compensation . Workers’ compensation insurance in the amount required by law and employer’s liability coverage of $1 million per occurrence and covering all persons employed, directly or indirectly, in connection with Tenant’s business or the Tenant Improvements or any future Alterations.
               7.1.5 Business Interruption . Business income and extra expense insurance covering the risks to be insured by the all risk property insurance described above, on an actual loss sustained basis, but in all events in an amount sufficient to prevent Tenant from being a co-insurer of any loss covered under the applicable policy or policies. Notwithstanding the foregoing, Tenant shall not be required to obtain business income and extra expenses insurance. However, the Waiver of Subrogation section of this article shall apply notwithstanding that Tenant may not obtain such business income and extra expense insurance and Tenant waives and releases claims against Landlord which would be covered by the business income and extra expense coverages described above even though Tenant may not be maintaining those coverages.
          7.2 Construction . Except for work to be performed by Landlord, before any Alterations are undertaken by or on behalf of Tenant, Tenant shall obtain and maintain, at its expense, or Tenant shall require any contractor performing work on the Premises to obtain and maintain, at no expense to Landlord, in addition to workers’ compensation insurance as required by the law of the State in which the Premises are located, all risk builder’s risk insurance in the amount of the replacement cost of the applicable Alterations (or such other amount reasonably required by Landlord), automobile and commercial general liability insurance (including contractor’s liability coverage, contractual liability coverage, completed operations coverage, broad form property damage coverage, and contractor’s protective liability) written on an occurrence basis with a minimum limit of $2 million per occurrence limit, $2 million general aggregate limit, $2 million personal and advertising limit, and $2 million products/completed operations limit; which coverage limits may be effected with umbrella coverage. The contractor’s commercial general liability insurance shall cover claims arising out of (a) the general contractor’s operations, (b) acts of independent contractors, (c) products/completed

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operations (with broad form property damage), (d) liability assumed under contract (on a broad form property damage basis), (e) liability assumed under contract (on a broad form blanket basis), (f) explosion, collapse, and underground damage hazards, when applicable, and (g) owned/nonowned/hired vehicles.
          7.3 Insurance Requirements . All insurance policies shall be (a) in form reasonably satisfactory to Landlord; and (b) written with insurance companies reasonably satisfactory to Landlord and having a policyholder rating of at least “A-” and a financial size category of at least “Class XII” as rated in the most recent edition of “Best’s Key Rating Guide” for insurance companies, and authorized to engage in the business of insurance in the State in which the Premises are located. The commercial general liability and comprehensive automobile liability insurance policies shall name Landlord and Landlord’s directors, officers, partners, agents, employees, and managing agent, as additional insureds and shall provide that they may not be terminated or modified in any way that would materially decrease the protection afforded Landlord under this Lease without 30 days’ advance notice to Landlord. The minimum limits of insurance specified in this article shall in no way limit or diminish Tenant’s liability under this Lease. Tenant shall furnish to Landlord, not less than 15 days before the date the insurance is first required to be carried by Tenant, and thereafter at least 15 days before the expiration of each policy, evidence of insurance (on ACORD 27 or other form acceptable to Landlord), and such other evidence of coverages as Landlord may reasonably request, and evidence of payment of all premiums and other expenses owed in connection with the policies. Any minimum amount of coverage specified in this article shall be subject to increase at any time, and from time to time, after commencement of the third full year of the Lease Term, if Landlord shall reasonably determine that an increase is necessary for adequate protection. Within 30 days after demand by Landlord that the minimum amount of any coverage be increased, Tenant shall furnish Landlord with evidence of the increased coverage.
          7.4 Waiver of Subrogation . Except as set forth below, Landlord and Tenant each expressly, knowingly, and voluntarily waive and release any claims that they may have against the other or the other’s employees, agents, or contractors and against every other tenant in the Building Project who shall have executed a waiver similar to this one for damage to its properties and loss of business (specifically including loss of rent by Landlord and business interruption by Tenant) as a result of the acts or omissions of the other party or the other party’s employees, agents, or contractors (specifically including the negligence of either party or its employees, agents, or contractors and the intentional misconduct of the employees, agents, or contractors of either party), to the extent any such claims are covered by the workers’ compensation, employer’s liability, property, rental income, business income, or extra expense insurance described in this Lease, or other property insurance that either party may carry at the time of an occurrence. Landlord and Tenant shall each, on or before the earlier of the Commencement Date or the date on which Tenant first enters the Premises for any purpose, obtain and keep in full force and effect at all times thereafter a waiver of subrogation from its insurer concerning the workers’ compensation, employer’s liability, property, rental income, and business interruption insurance maintained by it for the Building Project and the property located in the Building Project.
          7.5 Landlord’s Insurance . Landlord shall maintain fire and extended coverage insurance on the Building Project in an amount not less than 80% of the replacement

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cost of the Building Project and commercial general liability insurance relating to the Building Project and its appurtenances in an amount not less than $3 million per occurrence. In addition, Landlord may, at its option, maintain coverages in excess of the minimum limits set forth in this section and additional coverages as specified in the definition of Operating Costs. The total cost of all insurance maintained by Landlord under this section shall be included in Operating Costs.
     8.  DEFAULT .
          8.1 Events of Default . Each of the following shall be an event of default under this Lease: (a) Tenant fails to make any payment of rent within five business days following the date such payment is due (a “Monetary Default”); or (b) Tenant fails to perform any other obligation under this Lease or the Rules and Regulations (a “Nonmonetary Default”); or (c) Tenant or any Guarantor or surety for Tenant’s obligations under this Lease becomes bankrupt or insolvent or makes a general assignment for the benefit of creditors or takes the benefit of any insolvency act, or if any debtor proceedings be taken by or against Tenant or any Guarantor or surety (and, in the case of Guarantor’s bankruptcy, Tenant fails to obtain a substitute Guarantor acceptable to Landlord in its sole discretion); or (d) a receiver or trustee in bankruptcy is appointed for the Tenant’s property and the appointment is not vacated and set aside within 60 days from the date of the appointment; or (e) Tenant rejects this Lease in any bankruptcy, insolvency, reorganization, or arrangement proceedings under the Bankruptcy Code or any State insolvency laws; or (f) Tenant ceases to conduct fully its business as specified in this Lease for a period of 30 consecutive days; or (g) Tenant, before the expiration of the Lease Term, and without the written consent of Landlord, vacates the Premises or abandons possession of the Premises; or (h) the leasehold estate granted to Tenant by this Lease is taken on execution or other legal process; or (i) Tenant transfers this Lease in violation of the Assignment or Subletting article.
          8.2 Grace Periods .
               8.2.1 Nonmonetary Defaults . Provided the default does not involve an Emergency that must be addressed in a shorter time frame, Tenant shall have a period of ten (10) days after written notice from Landlord of a Nonmonetary Default in which to cure the default. In addition, provided that the default does not involve an Emergency that must be addressed in a shorter time frame, this grace period shall be extended if the default is of a nature that it cannot be completely cured within such grace period solely as a result of nonfinancial circumstances outside of Tenant’s control, provided that Tenant has promptly commenced all appropriate actions to cure the default within such cure period and those actions are thereafter diligently and continuously pursued by Tenant in good faith. In no event, however, shall the grace period exceed a total of 90 days. If the Nonmonetary Default is not cured before the expiration of the grace period, as extended, then Landlord may pursue any or all of its remedies.
               8.2.2 Statutory Notices . The notices of defaults to be given under this section may be the same as the notice required under Section 83.20, Florida Statutes or any successor statute and this Lease shall not be construed to require Landlord to give two separate notices to Tenant before proceeding with any remedies.

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               8.2.3 Default Status . Tenant shall not be considered in default under this Lease until any applicable grace period has expired without the applicable event of default having been cured.
          8.3 Landlord’s Remedies . If Tenant is in default, in addition to all other remedies available to Landlord at law or in equity, Landlord may:
               8.3.1 Retake possession of the Premises and relet the Premises or any part of the Premises in the name of Landlord, or otherwise, as Tenant’s agent, for a term shorter or longer than the balance of the Lease Term, and may grant concessions or free rent to the new Tenant, thereby terminating Tenant’s tenancy in the Premises and right to possess the Premises, without terminating Tenant’s obligations to pay rent. If Landlord retakes possession of the Premises, Landlord shall use good faith efforts to relet the Premises. Good faith efforts shall not require Landlord to: (a) use any greater efforts than Landlord then uses to lease other properties Landlord or its affiliates owns or manages; (b) relet the Premises in preference to any other space in the Building Project; (c) relet the Premises to any party that Landlord could reasonably reject as a transferee under the Assignment or Subletting article of this Lease; (d) accept rent in an amount which is less than the fair market rental for the Premises; (e) perform any tenant improvements, grant any tenant improvement allowances, grant any “free rent,” or otherwise pay any sums or grant any monetary concessions in order to obtain a new tenant; (f) observe any instruction given by Tenant about the reletting process or accept any tenant offered by Tenant unless the offered tenant leases the entire Premises and the criteria of this section are otherwise fully met. Any entry or reentry by Landlord, whether had or taken under summary proceedings or otherwise, shall not absolve or discharge Tenant from liability under this Lease. “Reenter” and “re-entry” as used in this Lease are not restricted to their technical legal meaning. No reentry or taking possession of the Premises by Landlord shall be construed as an election on Landlord’s part to accept a surrender of the Premises unless a notice of such intention is given to Tenant. Landlord’s failure to relet the Premises after using good faith efforts or Landlord’s failure to collect rent on reletting, shall not affect Tenant’s liability under this Lease. Landlord shall not, in any event, be required to pay Tenant any surplus of any sums received by Landlord on a reletting of the Premises in excess of the rent provided in this Lease.
               8.3.2 Institute a distress for rent action and obtain a distress writ under Sections 83.11 through 83.19, Florida Statutes.
               8.3.3 Obtain injunctive and declaratory relief, temporary or permanent, or both, against Tenant or any acts, conduct, or omissions of Tenant, and further to obtain specific performance of any term, covenant, or condition of this Lease;
               8.3.4 After regaining possession of the Premises, remove all or any part of Tenant’s Property from the Premises and any property removed may be stored at the cost of, and for the account of, Tenant, and Landlord shall not be responsible for the care or safekeeping of Tenant’s Property whether in transport, storage, or otherwise, and Tenant waives any and all claims against Landlord for loss, destruction, damage, or injury that may be occasioned by any acts taken by Landlord under this section. Landlord may retain possession of Tenant’s Property until all storage charges and all other amounts owed by Tenant to Landlord under this Default article have been paid in full. Nothing set forth in this section shall limit Landlord’s rights to

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enforce any lien or security interest in favor of Landlord against Tenant’s Property or Landlord’s rights under the End of Term article of this Lease; and
               8.3.5 If all or any part of the Premises is then assigned, sublet, transferred, or occupied by someone other than Tenant, Landlord, at its option, may collect directly from the assignee, subtenant, transferee, or occupant all rent becoming due to Tenant by reason of the assignment, sublease, transfer, or occupancy. Any collection directly by Landlord from the assignee, subtenant, transferee, or occupant shall not be construed to constitute a novation or a release of Tenant from the further performance of its obligations under this Lease.
          8.4 Acceleration . If Tenant is in default, Landlord may declare the entire balance of all forms of rent due under this Lease for the remainder of the Lease Term to be forthwith due and payable and may collect the then present value of the rents (calculated using a discount rate equal to the discount rate of the Miami, Florida branch of the Federal Reserve Bank in effect as of the date of the default). If Landlord exercises its remedy to retake possession of the Premises and collects from Tenant all forms of rent owed for the remainder of the Lease Term, Landlord shall account to Tenant, at the date of the expiration of the Lease Term, for amounts actually collected by Landlord as a result of a reletting, net of the Tenant’s obligations as specified above.
          8.5 Bankruptcy .
               8.5.1 The meaning of “adequate assurance of future performance” as used in the Bankruptcy Code shall include at least the following: (a) the posting of a security deposit in, or increase of the existing Security Deposit by, a sum equal to three months’ installments of Base Rent and additional rent for Operating Costs at the then current rate; (b) that the Tenant, if it is seeking to assume this Lease without assigning it, or the proposed assignee has sufficient financial wherewithal to discharge its obligations under this Lease and the proposed agreement of assignment as determined by Landlord’s criteria for selecting Building Project tenants as of the date of the assumption of this Lease and has a net worth, experience, and reputation that is not less than the net worth, experience, and reputation that Tenant had on the Commencement Date; and (c) that the conditions to Landlord’s consent to a transfer set forth in the Reasonable Consent section of the Assignment or Subletting article of this Lease have all been met. If Tenant receives or is to receive any valuable consideration for an assignment of this Lease, 50% of the consideration, after deducting therefrom (1) the brokerage commissions, if any, and other expenses reasonably incurred by Tenant for the assignment, and (2) any portion of the consideration reasonably designated by the assignee as paid for the purchase of Tenant’s Property, shall be and become the sole and exclusive property of Landlord and shall be paid over to Landlord directly by the assignee. If, under the provisions of the Bankruptcy Code, Tenant assumes this Lease and proposes to assign it to any person or entity whom shall have made a bona fide offer to accept an assignment of this Lease on terms acceptable to Tenant, then notice of the proposed assignment setting forth: (i) the name and address of the proposed assignee, (ii) all of the terms and conditions of the proposed assignment, and (iii) the adequate assurance to be provided Landlord to assure the proposed assignee’s future performance under this Lease, shall be given to Landlord by Tenant no later than 20 days after receipt by Tenant, but in any event no later than ten days before the date that Tenant shall make application to a court of competent jurisdiction for authority and approval to enter into the assumption and assignment, and Landlord

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shall thereupon have the prior right and option, to be exercised by notice to Tenant given at any time before the relocation date of the proposed assignment, to accept an assignment of this Lease on the same terms and conditions and for the same consideration, if any, as the bona fide offer made by the proposed assignee, less any brokerage commission that may be payable out of the consideration to be paid by the assignee for the assignment of this Lease.
               8.5.2 For purposes of the Bankruptcy Code, “adequate protection” of Landlord’s interest in the Premises prior to assumption or assignment of this Lease by Tenant shall include, but not be limited to, the posting of a security deposit in, or increase of the existing Security Deposit by, a sum equal to three months’ installments of Base Rent and additional rent for Operating Costs at the then current rate. Tenant acknowledges that absent full and timely performance of its obligations under this Lease, Landlord’s interest in the Premises and this Lease will not be adequately protected. Consequently, if a proceeding under any chapter of the Bankruptcy Code is instituted by or against Tenant, Tenant shall, at all times subsequent to the filing of the case, be in full and complete compliance with the provisions of Section 365(d)(3) of the Bankruptcy Code. If Tenant fails to comply at all times and in all respects with the provisions of Section 365(d)(3) of the Bankruptcy Code, the failure shall constitute “cause” for modification of the automatic stay of Section 362 of the Bankruptcy Code in order to permit Landlord to pursue whatever state law remedies may be available to it, including eviction.
               8.5.3 All attorneys’ fees incurred by Landlord in connection with any bankruptcy proceedings involving Tenant or incurred by Landlord in connection with any default by Tenant under this Lease shall be deemed an “actual pecuniary loss” that Tenant must pay as a condition to assuming this Lease.
               8.5.4 If a bankruptcy petition is filed by or against Tenant, Tenant shall immediately execute a stipulation or other pleading evidencing consent to a lifting or modification of the automatic stay of Section 362 of the Bankruptcy Code, allowing Landlord to enforce the terms of this Lease.
               8.5.5 When, under the Bankruptcy Code, any trustee or debtor in possession is obligated to pay reasonable use and occupancy charges for the use of all or part of the Premises, the charges shall be not less than the Base Rent and additional rent payable under this Lease as of that date.
               8.5.6 If a proceeding under any chapter of the Bankruptcy Code is instituted by or against Tenant, Tenant shall not seek an extension of time within which it must assume or reject this Lease under Section 365(d)(4) of the Bankruptcy Code, and Tenant irrevocably waives and relinquishes any right it may have to seek an extension to the fullest extent permitted by applicable law. Failure of Tenant to assume this Lease within the 60-day time period provided in Section 365(d)(4) of the Bankruptcy Code, without extension of that time period, shall conclusively and irrevocably constitute the Tenant’s rejection of this Lease and waiver of any rights of Tenant to assume or assign this Lease.
               8.5.7 “ Prompt cure ” of any existing defaults for purposes of assuming this Lease in any case under the Bankruptcy Code, includes, but not by way of limitation: (a) in the case of Monetary Defaults, the payment of not less than three months’ rent delinquencies,

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and all other payments and charges whatsoever, on the date of assumption, and not less than three additional months’ delinquencies in each succeeding month until all Monetary Defaults have been cured; provided however, that in no event shall the period of cure exceed three months from the date of assumption; (b) in the case of Nonmonetary Defaults, any default that can be cured by a single act, circumstance, or event, shall be cured no later than the date of assumption. To the extent any Nonmonetary Default requires a series of acts, circumstances, or events, the default shall be cured within 30 days of the date of assumption of this Lease, unless the default cannot, in good faith, be completely remedied during the 30 day period, in which event Tenant shall have a reasonable amount of time to cure the default.
               8.5.8 Rejection of this Lease by Tenant under the Bankruptcy Code shall constitute a substantial default and breach of this Lease by Tenant. Upon the occurrence of any event such material default by Tenant, Landlord may terminate this Lease by written notice to Tenant.
          8.6 Landlord’s Right to Perform . If Tenant is in default, Landlord may perform the obligations of Tenant, and if Landlord, in doing so, makes any expenditures or incurs any obligation for the payment of money, including reasonable attorneys’ fees, the sums so paid or obligations incurred shall be paid by Tenant to Landlord within five days of rendition of a bill or statement to Tenant therefor. Any exercise by Landlord of its rights under this section or under any other reservation of a right by Landlord to enter upon the Premises and to make or perform any repairs, Alterations, or other work in the Premises, which, in the first instance, is the Tenant’s obligation under this Lease, shall not be deemed to: (a) impose any obligation on Landlord to do so; (b) render Landlord liable to Tenant or any third party for the failure to do so; or (c) relieve Tenant from any obligation to indemnify Landlord as otherwise provided elsewhere in this Lease, This section shall survive the expiration or sooner termination of this Lease.
          8.7 Jurisdiction and Venue . Any legal action or proceeding arising out of or in any way connected with this Lease shall be instituted in a court (federal or state) located in Broward County, Florida, which shall be the exclusive jurisdiction and venue for litigation concerning this Lease. Landlord and Tenant shall be subject to the jurisdiction of those courts in any legal action or proceeding. In addition, Landlord and Tenant waive any objection that they may now or hereafter have to the laying of venue of any action or proceeding in those courts, and further waives the right to plead or claim that any action or proceeding brought in any of those courts has been brought in an inconvenient forum. This provision shall not be construed as a waiver of service of process in any action or proceeding.
          8.8 Remedies Cumulative . The remedies provided in this Lease or presently or hereafter existing at law or in equity shall be cumulative and concurrent, and may be exercised as often as occasion therefor shall occur. No single or partial exercise by Landlord of any remedy shall preclude any other or further exercise of that remedy or of any other remedy.
          8.9 Multiple Defaults . Tenant acknowledges that any rights or options of first refusal, or to extend the Lease Term, to expand the size of the Premises, to delete space from the Premises, to purchase the Premises or the Building Project, or other similar rights or options that have been granted to Tenant under this Lease are conditioned on the prompt and

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diligent performance of the terms of this Lease by Tenant. Accordingly, should Tenant, on three or more occasions during any 12-month period, (a) fail to pay any installment of rent within five days of the due date; or (b) otherwise default under this Lease; in addition to all other remedies available to Landlord, all such rights and options shall automatically, and without further action on the part of any party, expire and be deemed canceled and of no further force and effect.
          8.10 Late Charges . If any payment due Landlord under this Lease shall not be paid within five days of the date when due, Tenant shall pay, in addition to the payment then due, an administrative charge equal to the greater of (a) 5% of the past due payment; or (b) $250.
          8.11 Interest . All payments due Landlord under this Lease shall bear interest at the lesser of: (a) the Prime Rate in effect as of the date when the installment was due, plus 500 basis points, or (b) the Maximum Rate, accruing from the date the obligation arose through the date payment is actually received by Landlord.
          8.12 Bad Checks . If any check given to Landlord for any payment under this Lease is dishonored for any reason whatsoever not attributable to Landlord, in addition to all other remedies available to Landlord, at Landlord’s option, all future payments from Tenant shall be made by cashier’s check drawn on a bank located in the county where the Premises are located or by Federal Reserve wire transfer to Landlord’s account.
          8.13 Limitation of Remedies; Exculpation . Tenant waives all remedies for defaults by Landlord and all claims under any indemnities granted by Landlord under this Lease based on loss of business or profits or for other consequential damages or for punitive or special damages of any kind or, except as specifically provided in this Lease, to terminate this Lease. None of Landlord’s officers, employees, agents, directors, shareholders, partners, or affiliates shall ever have any personal liability to Tenant under this Lease, Tenant shall look solely to Landlord’s estate and interest in the Building Project for the satisfaction of any right or remedy of Tenant under this Lease, or for the collection of any judgment (or other judicial process) requiring the payment of money by Landlord, and no other property or assets of Landlord or its principals shall be subject to levy, execution, or other enforcement procedure for the satisfaction of Tenant’s rights or remedies under this Lease, the relationship of Landlord and Tenant under this Lease, Tenant’s use and occupancy of the Premises, or any other liability of Landlord to Tenant of whatever kind or nature, No act or omission of Landlord or its agents shall constitute an actual or constructive eviction of Tenant unless Landlord shall have first received notice of Tenant’s claim and shall have failed to cure it after having been afforded a reasonable time to do so, which in no event shall be less than 30 days.
          8.14 Presumption of Abandonment . It shall be conclusively presumed that Tenant has abandoned the Premises if Tenant fails to keep the Premises open for business during regular business hours for ten consecutive days while in Monetary Default. The grace periods set forth in this article shall not apply to the application of this presumption. In the event of an abandonment, Landlord shall have the right to immediately retake possession of the Premises without legal process.
          8.15 Landlord’s Default . Landlord shall be in default under this Lease if Landlord fails to perform any of Landlord’s obligations under this Lease and the failure

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continues for more than 30 days after notice from Tenant specifying the default, or if the default is of a nature that it cannot be completely cured within the 30-day period solely as a result of nonfinancial circumstances outside of Landlord’s control, if Landlord fails to begin curing the default within the 30-day period or fails thereafter to cure the default within the time reasonably necessary to do so, and if Landlord’s failure materially affects Tenant’s use and occupancy of the Premises. Notwithstanding anything contained in this Lease to the contrary, Landlord’s mortgagee shall have a reasonable right, but not an obligation, to cure any defaults by Landlord. Tenant shall have no remedies as to any default by Landlord under this Lease until the expiration of a cure period in favor of Landlord’s mortgagee equal to a reasonable period of time following the expiration of the Landlord’s cure period as provided above.
     9.  ALTERATIONS .
          9.1 Consent Required . Tenant shall make no Alterations without the prior written consent of Landlord, which consent may be arbitrarily withheld. However, Landlord will not unreasonably withhold or delay consent to nonstructural interior Alterations, provided that they do not affect utility services or plumbing and electrical lines or other systems of the Building Project, are not visible from outside the Premises, and do not require other alterations, additions, or improvements to portions of the Building Project outside the Premises.
          9.2 Conditions . All Alterations shall be performed in accordance with the following conditions:
               9.2.1 All Alterations requiring a building permit shall be performed in accordance with plans and specifications first submitted to Landlord for its prior written approval, which approval shall not be unreasonably withheld. Landlord shall be given, in writing, a good description of all other Alterations. Any changes in or deviations from the plans originally approved by Landlord must be similarly approved by Landlord.
               9.2.2 All Alterations shall be done in a good and workmanlike manner. Tenant shall, before the commencement of any Alterations, obtain and exhibit to Landlord any governmental permit required for the Alterations. All Alterations performed by or on behalf of Tenant shall comply with Landlord’s standards, guidelines, and procedures for construction in the Building Project.
               9.2.3 All Alterations shall be done in compliance with all other applicable provisions of this Lease and with all applicable laws, ordinances, directives, rules, and regulations of governmental authorities having jurisdiction, including the ADA and all laws dealing with the abatement, storage, transportation, and disposal of asbestos or other hazardous materials, which work, if required, shall be effected by contractors and consultants approved by Landlord and in strict compliance with all applicable laws. Notwithstanding anything to the contrary contained in this article, Tenant shall not penetrate or disrupt the structural columns of the building located within the Premises or any area within three feet of any structural column, in performing any Alterations.
               9.2.4 All work shall be performed by contractors having, in the reasonable opinion of Landlord, the proper qualifications. Tenant shall provide Landlord with

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the name of the Tenant’s contractor, a copy of the contractor’s licenses to do work in the subject jurisdiction(s), a Contractor’s Qualification Statement in the most current American Institute of Architects form, a copy of the executed contract between the Tenant and its contractor, and a copy of the contractor’s work schedule. All contractors shall obtain a payment and performance bond in form complying with Section 713.23, Florida Statutes and deliver a copy of the bond to Landlord before commencement of any Alterations.
               9.2.5 Before the commencement of any work by or for Tenant, Tenant shall furnish to Landlord certificates evidencing the existence of builder’s risk, comprehensive general liability, and workers’ compensation insurance complying with the requirements of the Insurance article of this Lease.
               9.2.6 All work to be performed by Tenant shall be done in a manner that will not unreasonably interfere with or disturb other tenants and occupants of the Building Project. Tenant shall submit to Landlord a plan for execution of the work indicating in reasonable detail the manner in which the work shall be prosecuted in view of the necessity of minimizing noise and inconvenience to the users of the Building Project. The plan shall be subject to the reasonable approval of Landlord. The plan shall provide that all portions of the work involving excessive noise or inconvenience to other users of the Building Project shall be done after Normal Business Hours.
               9.2.7 Any damage to any part of the Building Project that occurs as a result of any Alterations shall be promptly repaired by Tenant to the reasonable satisfaction of Landlord.
               9.2.8 Tenant and its contractor and all other persons performing any Alterations shall abide by Landlord’s job site rules and regulations and fully cooperate with Landlord’s construction representative(s) in coordinating all of the work in the Building Project, including hours of work, parking, and use of the construction elevator.
               9.2.9 All Alterations will comply with the requirements of any energy efficiency program offered by the electric service provider to the Building Project.
               9.2.10 After the initial Tenant Improvements, Landlord, or its agent or contractor, may supervise the performance of any Alterations, and, if so, Tenant shall pay to Landlord an amount equal to 7.5% of the cost of the work, as a fee for supervision and coordination of the work and as reimbursement for expenses incurred by Landlord in connection with Landlord’s supervision and coordination.
     10.  LIENS . The interest of Landlord in the Premises shall not be subject in any way to any liens, including construction liens, for improvements to or other work performed in the Premises by or on behalf of Tenant. Tenant shall have no power or authority to create any lien or permit any lien to attach to the present estate, reversion, or other estate of Landlord (or the interest of any ground lessor) in the Premises or in the Building Project and all mechanics, materialmen, contractors, artisans, and other parties contracting with Tenant or its representatives or privies as to the Premises or any part of the Premises are charged with notice that they must look to the Tenant to secure payment of any bill for work done or material furnished or for any

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other purpose during the Lease Term. These provisions are made with express reference to Section 713.10, Florida Statutes. Notwithstanding these provisions, Tenant, at its expense, shall cause any lien filed against the Premises or the Building Project for work or materials claimed to have been furnished to Tenant to be discharged of record or properly transferred to a bond under Section 713.24, Florida Statutes, within ten days after notice to Tenant. Further, Tenant agrees to indemnify, defend, and save Landlord harmless from and against any damage or loss, including reasonable attorneys’ fees, incurred by Landlord as a result of any liens or other claims arising out of or related to work performed in the Premises by or on behalf of Tenant. Tenant shall notify every contractor making improvements to the Premises that the interest of the Landlord in the Premises shall not be subject to liens for improvements to or other work performed in the Premises by or on behalf of Tenant. Tenant shall execute, acknowledge, and deliver without charge a short form of lease or notice in recordable form containing a confirmation that the interest of Landlord in the Premises and the Building Project shall not be subject to liens for improvements or other work performed in the Premises by or on behalf of Tenant. If a short form of lease or notice is executed, it shall expressly provide that it shall be of no further force or effect after the last day of the Lease Term or on the filing by Landlord of an affidavit that the Lease Term has expired or this Lease has been terminated or that the Tenant’s right to possession of the Premises has been terminated.
     11.  ACCESS TO PREMISES .
          11.1 Right of Entry . Landlord and persons authorized by Landlord may enter the Premises at any time without notice to Tenant in the event of an Emergency or to provide routine janitorial services. Landlord and persons authorized by Landlord shall also have the right to enter the Premises at all reasonable times and on reasonable advance oral or written notice for the purposes of making repairs, replacements, and improvements that may be Landlord’s obligation under this Lease or that Landlord deems necessary for the safety, protection, or preservation of the Building Project or when entry will facilitate repairs, alterations, or additions to the Building Project. If reasonably necessary for the protection and safety of Tenant, Landlord may temporarily close the Premises to perform repairs, alterations, or additions to the Building Project, provided that Landlord shall use reasonable efforts to perform all work after Normal Business Hours. Landlord and persons authorized by Landlord shall also have the right to enter the Premises at all reasonable times and on reasonable advance oral or written notice to inspect the Premises and conduct such tests and investigations (including a Phase I Indoor Air Quality audit) to evaluate the indoor air quality in the Premises or the Building, or both. In exercising its right of entry under this article, Landlord shall use commercially reasonable, good faith efforts to (a) minimize any interference with the conduct of Tenant’s business and Tenant’s use and enjoyment of the Premises, (b) prevent breaches in security, (c) avoid damage to the Premises or the equipment, fixtures, or personal property of Tenant in the Premises, and (d) respect the integrity of the “clean-room” by coordinating any required entry with Tenant for scheduled maintenance.
          11.2 Landlord Transfers . Landlord may exhibit the Premises to prospective purchasers or mortgagees of Landlord’s interest in the Premises during Normal Business Hours after reasonable advance oral or written notice. During the last six months of the Lease Term, Landlord or its agents may exhibit the Premises to prospective tenants during Normal Business Hours after reasonable advance oral or written notice.

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     12.  SECURITY INTEREST IN PERSONAL PROPERTY; SECURITY AGREEMENT . Tenant grants and creates a lien and security interest in favor of Landlord in and to all of the following personal property of Tenant (the “Personal Property”): all furniture, fixtures, and equipment used by Tenant in connection with its business conducted on the Premises, and all insurance proceeds of or relating to any or all of the Personal Property and all accessions and additions to, substitutions for, and replacements, products, and proceeds of any or all of the Personal Property. If Tenant shall default under this Lease, or is no longer in possession of the Premises for any reason, then and in that event, Landlord may, in addition to any other remedies available to Landlord, enter on the Premises and take possession of any and all of the Personal Property, without liability for trespass or conversion, and sell the Personal Property at public or private sale, with or without having the property at the sale, after giving Tenant reasonable notice of the time and place of any public sale or of the time after which any private sale is to be made, at which sale the Landlord or its assigns may purchase the Personal Property. Unless otherwise provided by law, and without intending to exclude any other manner of giving Tenant reasonable notice, the requirement of reasonable notice shall be met if the notice is given in the manner prescribed in this Lease at least five days before the date of the sale. The proceeds from any disposition of the Personal Property, less all expenses incurred in connection with the taking of possession, holding, and selling of the Personal Property (including reasonable attorneys’ fees) shall be applied as a credit against the indebtedness secured by the Security Interest. Any surplus shall be paid to Tenant or as otherwise required by law, and Tenant shall pay any deficiencies forthwith. Tenant shall repair, replace, and install furniture, fixtures, and equipment in the Premises, as necessary, with items of equal quality and utility, so that at all times the physical condition and appearance of the Premises shall be commensurate with a first-class operation of the type permitted under this Lease. All additions, substitutions, or replacements shall be deemed a part of the Personal Property. None of the Personal Property or any right or interest in or to the Personal Property shall be conveyed, transferred, assigned, mortgaged, or encumbered in any manner by Tenant without the prior written consent of Landlord, which may be granted or withheld in Landlord’s sole discretion. This Lease constitutes a security agreement under the Uniform Commercial Code and creates a security interest in the Personal Property (the “ Security Interest ”). The Security Interest secures payment and performance of all of Tenant’s obligations under this Lease. Tenant shall take all necessary action to maintain and preserve the Security Interest concerning the Personal Property including the executing, delivering, filing, refiling, recording, or rerecording of any financing statements, continuation statements, or other security agreements, and the giving of any instruments of further assurance that Landlord from time to time may request to protect the Security Interest. Without limiting the foregoing, Tenant appoints Landlord as Tenant’s attorney-in-fact to execute, deliver, and file any instruments for and on behalf of Tenant, but Landlord shall not be required, and shall not be deemed to be under any duty to Tenant, any guarantor or surety of this Lease, or any other person to protect, perfect, secure, or insure the Security Interest nor shall Landlord have any obligation for, among other things, the filing of any financing statements under the Uniform Commercial Code. The limited power of attorney granted by Tenant in the immediately preceding sentence, being coupled with an interest, is deemed to be irrevocable by Tenant. Notwithstanding the expiration or sooner termination of this Lease, the terms of this article shall survive as a security agreement as to the Security Interest until repayment or satisfaction in full of all obligations of Tenant under this Lease. The Personal Property shall at all times remain in the Premises, subject to the control of Landlord. In

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the event of a sale, lease, or encumbrance of the Building Project, Landlord shall have the right to transfer the Security Interest to the purchaser, landlord, tenant, or mortgagee and if the Security Interest is transferred, Landlord shall thereafter be relieved from any liability concerning the Security Interest.
     13.  BUILDING PROJECT AND COMMON AREAS .
          13.1 Definition of Common Areas . The “ Common Areas ” of the Building Project include such areas and facilities as a lobby, delivery facilities, walkways, common corridors, landscaped and planted areas, parking facilities, elevators, stairways, and public restrooms. Landlord shall operate, manage, equip, light, repair, and maintain the Common Areas. Landlord may, at any time and from time to time, without it constituting an actual or constructive eviction, and without otherwise incurring any liability to Tenant, increase, reduce, or change the number, type, size, location, elevation, nature, and use of any of the Common Areas, make improvements, alterations, or additions to the Building Project, remove or change the arrangement or location, or both, of entrances or passageways, corridors, elevators, stairs, public restrooms, or other public parts of the Building Project, and change the name or number by which the Building Project is known. Landlord may also temporarily close the Common Areas to make repairs.
          13.2 Tenant’s Rights . As long as Tenant is entitled to possession of the Premises, Tenant shall have a nonexclusive right, in common with Landlord, the other tenants of the Building Project, and all others to whom Landlord has granted or may hereafter grant rights, to use the Common Areas, subject to the terms of this Lease and the Rules and Regulations. The Common Areas shall at all times be subject to the exclusive control and management of Landlord. Landlord may grant third parties specific rights concerning portions of the Common Areas and any such grant shall not be deemed an infringement on any rights granted to Tenant under this Lease or otherwise.
          13.3 No Implied Rights . This Lease does not create, nor will Tenant have any express or implied easement for, or other rights to, air, light, or view over, from, or about the Building Project.
          13.4 Rules and Regulations . Tenant shall conform to the Rules and Regulations. No failure of Landlord to enforce any Rules and Regulations against any other tenant shall be deemed a default by Landlord under this Lease, or excuse compliance with the Rules and Regulations by Tenant.
     14.  ENVIRONMENTAL LAWS .
          14.1 Compliance with Laws . Tenant’s use of, and activities on, the Premises shall be conducted in compliance with all Environmental Laws. If any of Tenant’s activities require the use of “hazardous” or “toxic” substances, as those terms are defined by any of the Environmental Laws, then Tenant represents and warrants to Landlord that Tenant has received all permits and approvals required under the Environmental Laws concerning the toxic or hazardous substances. Tenant shall maintain the Premises in a “clean” condition during the

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Lease Term. As used in this article, the term “clean” shall mean that the Premises are in complete compliance with the Environmental Laws and this Lease.
          14.2 Tenant’s Breach . If Tenant breaches any of its obligations contained in this article or fails to notify Landlord of the release of any hazardous or toxic substances from the Premises, then, in addition to all other rights and remedies available to Landlord, Landlord shall have the right to initiate a clean up of the Premises, in which case Landlord shall be reimbursed by Tenant for, and indemnified by Tenant from, any and all costs, expenses, losses, and liabilities incurred in connection with the clean up (including all reasonable attorneys’ fees) by Landlord. In the alternative, Landlord may require Tenant to clean up the Premises and to fully indemnify and hold Landlord harmless from any and all losses, liabilities, expenses (including but not limited to reasonable attorneys’ fees), and costs incurred by Landlord in connection with Tenant’s clean up action. Notwithstanding anything in this article, Tenant agrees to pay, and shall indemnify defend, and hold Landlord harmless from and against, any and all losses, claims, liabilities, costs, and expenses (including reasonable attorneys’ fees) incurred by Landlord as a result of any breach by Tenant of its obligations under this article, and as a result of any contamination of the Premises because of Tenant’s use of hazardous or toxic substances on the Premises.
          14.3 Ongoing Use of Hazardous Substances . If Tenant’s operations require the ongoing use of hazardous or toxic substances, then Tenant shall supply Landlord with copies of reports and any other monitoring information required by the Environmental Laws. As used in this article, “Premises” shall mean and refer to the property that is the subject of this Lease as well as any portion of the Building Project that may be damaged or contaminated by the release of any toxic or hazardous substance.
          14.4 Survival . This article shall survive the expiration or sooner termination of this Lease.
     15.  CASUALTY DAMAGE .
          15.1 Termination Rights . If: (a) the Building Project shall be so damaged that substantial alteration or reconstruction of the Building Project shall, in Landlord’s opinion, be required (whether or not the Premises shall have been damaged by the casualty); or (b) any mortgagee of the Building Project should require that the insurance proceeds payable as a result of a casualty be applied to the payment of the mortgage debt; or (c) there is any material loss to the Building Project that is not covered by insurance required to be maintained by Landlord under this Lease; or (d) the Premises shall be partially damaged by casualty during the last two years of the Lease Term, and the estimated cost of repair exceeds 25% of the Base Rent then remaining to be paid by Tenant for the balance of the Lease Term; Landlord may, within 60 days after the casualty, give notice to Tenant of Landlord’s election to terminate this Lease, and the balance of the Lease Term shall automatically expire on the fifth day after the notice is delivered.
          15.2 Restoration . Within 90 days of the date of any casualty which requires substantial alteration or reconstruction of the Building Project, as described in Section 15.1 , Landlord shall notify Tenant whether Landlord intends to rebuild the Building Project, and, if so, whether the Building Project can be rebuilt so that the Premises will be made tenantable within

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          12 months of the date of the casualty (or, in the case of a casualty affecting buildings other than the Building alone in the general area in which the Building Project is located, such as, but not limited to, a hurricane, earthquake, or fire, within 18 months from the date of the casualty) (the “ Restoration Period ”). If the notice indicates that Landlord does not intend to rebuild or that the Building Project cannot be rebuilt so that the Premises will be made tenantable within the Restoration Period, Tenant may, within ten days of Landlord’s notice, give Landlord notice that Tenant elects to terminate this Lease, and the balance of the Lease Term shall automatically expire on the fifth day after the notice is delivered. Should Landlord’s notice indicate that the Building Project can be rebuilt so that the Premises will be made tenantable within the Restoration Period or if the notice indicates that rebuilding will take longer than the Restoration Period but Tenant does not elect to terminate this Lease within ten days of Landlord’s notice, Landlord shall proceed with reasonable diligence to rebuild the Building Project in accordance with the terms of this article. Should the rebuilding not be substantially completed so that the Premises are rendered tenantable by the date (the “ Outside Date ”) which is the later of the end of the Restoration Period or the completion date estimated in Landlord’s Notice, then Tenant shall have the right to terminate this Lease by giving not less than 30 days’ prior written notice to Landlord, which notice must be sent before Tenant resumes its business in the Premises, but in any event no later than ten days after the Outside Date, and this Lease shall terminate as of the date specified in the notice with the same effect as if that date were the scheduled expiration date of this Lease. Notwithstanding the foregoing, if Tenant sends a notice of termination and Landlord, prior to the date of termination specified in the notice, substantially completes the rebuilding so that the Premises are rendered tenantable, then Tenant’s notice shall be without force or effect and this Lease shall continue in full force and effect. The Outside Date shall be extended by the cumulative periods of any delays caused by Tenant or any of the events described in the Impossibility of Performance article of this Lease. If Landlord does not elect to terminate this Lease, Landlord shall proceed with reasonable diligence to restore the Building Project and the Premises to substantially the same condition they were in immediately before the happening of the casualty. However, Landlord shall not be required to restore any unleased premises in the Building Project or any portion of Tenant’s Property. When repairs to the Premises that are Landlord’s obligation under this article have been completed by Landlord, Tenant shall complete the restoration or replacement of the Premises and all of Tenant’s Property necessary to permit Tenant’s reoccupancy of the Premises.
          15.3 Rent Abatement . Rent shall abate in proportion to the portion of the Premises not useable by Tenant as a result of any casualty covered by insurance carried or required to be carried by Landlord under this Lease, as of the date on which the Premises becomes unusable. Landlord shall not be liable to Tenant for any delay in restoring the Premises or any inconvenience or annoyance to Tenant or injury to Tenant’s business resulting in any way from the damage or the repairs, Tenant’s sole remedy being the right to an abatement of rent.
          15.4 Override . The rights given Tenant under this article are in lieu of and override any rights that Tenant may have by statute or under other applicable law.
     16.  CONDEMNATION .
          16.1 Definition of Taking . For purposes of this article, any of the following three events shall be deemed a “ Taking ”; (a) if any part of the Building Project is taken or

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condemned through the exercise of the power of eminent domain by any governmental or private board, body, or agency having the right to exercise such power; or (b) if any part of the Building Project is conveyed to any condemning authority under threat of condemnation before or after proceedings have been commenced to acquire the property by the condemning authority; or (c) if a “taking” is judicially declared in any proceeding in which Landlord is a party. As of the Date of this Lease, Landlord has not received any notice of pending condemnation affecting the Building.
          16.2 Total Taking . In the event of a Taking of all of the Premises, this Lease shall terminate on the date on which possession of the Premises is delivered to the condemning authority (the “ Condemnation Date ”) and rent shall be apportioned and paid to the Condemnation Date.
          16.3 Partial Taking . In the event of a Taking of a portion but less than all of the Premises or, even if no portion of the Premises is taken, if a portion of the Building Project is taken resulting in a loss of parking spaces so that the Building Project has fewer parking spaces than is required by applicable law as of the Condemnation Date, as finally determined following any application for a variance, then either Landlord or Tenant may elect to terminate this Lease effective as of the Condemnation Date by providing notice of termination to the other not later than ten days after the Condemnation Date, and rent shall be apportioned and paid to the Condemnation Date. If Tenant sends a notice of termination because the Building Project will have fewer spaces than is required by applicable law and Landlord, within 15 days of receipt of the notice, notifies Tenant that Landlord will provide additional parking on the Building Project or on property adjacent to the Building Project so that the Building Project will have sufficient parking spaces to meet the requirements of applicable law, then Tenant’s notice shall be without force or effect and this Lease shall continue in full force and effect.
          16.4 Rent Abatement . If either party, having a right to terminate this Lease under the Partial Taking section of this article, fails to terminate this Lease within the time and in the manner provided in the Partial Taking section of this article, or elects not to terminate this Lease, this Lease shall continue in full force and effect but rent payable under this Lease shall abate in direct proportion to the difference in the fair market rental value of the Premises before and after the Taking. No rental abatement shall be granted Tenant for a loss of parking spaces or for the loss of any other portion of the Common Areas, Tenant recognizing that Tenant’s right to use parking spaces and the Common Areas in common with Landlord’s other tenants does not vest in Tenant any leasehold or other ownership interest in any of the parking spaces or Common Areas.
          16.5 Restoration . In any case in which this Lease shall not terminate, but shall continue as to the portion of the Premises remaining after the Taking, Landlord shall restore that portion of the Premises so remaining to as near a complete architectural unit as is practical; provided, however, that if Landlord’s costs and expenses incurred or to be incurred in connection with the restoration are reasonably estimated by Landlord to exceed the amount of the award to be received by Landlord for any buildings or structures taken and for damages to the remaining buildings or structures, Landlord, regardless of whether Landlord and Tenant have earlier elected to continue this Lease as to the remaining Premises, may nevertheless terminate this Lease by notice to Tenant within 30 days following Landlord’s receipt of notice of the amount of the

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award. Landlord’s obligations to restore the Premises under this section shall be conditioned on the consent of any mortgagee of the Building Project to the use of the condemnation award for that purpose.
          16.6 Assignment of Rights . Except to the extent set forth in the Tenant Compensation Rights section of this article, all awards in condemnation, whether recovered as a result of litigation, or in settlement of litigation or threatened condemnation, or as part of a private purchase in lieu of condemnation, and whether termed compensation or damages, but payable in any event for the Taking of all or a portion of the Premises or the Building Project shall belong solely to Landlord. Tenant assigns to Landlord all of Tenant’s right, title, and interest, if any, in and to all awards in condemnation, and all rights to an apportionment of the awards, including all compensation and damages representing the value of any property or improvements taken, damages by way of the reduction in value of the remaining property not taken, damages on account of any reduction in the value of Tenant’s leasehold estate or representing the value of Tenant’s leasehold improvements, damages for any loss or impairment of access, and, in general, all compensation and damages of whatever kind, nature, or description that may be payable on account of any Taking or on account of the use of the property so taken by the condemning authority.
          16.7 Withdrawal of Awards . Tenant shall, accordingly, make no claim by way of apportionment or otherwise to any awards in condemnation payable to Landlord under the provisions of this Condemnation article and, therefore, consents to Landlord’s withdrawal of any sum deposited into the court registry of any court of competent jurisdiction by a condemning authority, at any time during the pendency of condemnation proceedings, should the proceedings be initiated against Landlord, except to the extent to which any sums so deposited represent damages or compensation that belongs to Tenant under the provisions of the Tenant Compensation Rights section of this article.
          16.8 Tenant Compensation Rights . Tenant shall have the right to claim and recover, provided Tenant asserts and pursues its claims against the condemning authority, only that compensation or damage representing Tenant’s moving and relocation expenses, the value of Tenant’s Property, and its business damage claim.
          16.9 Right to Participate . Tenant shall be entitled to participate in all condemnation proceedings affecting the Premises.
     17.  REPAIR AND MAINTENANCE .
          17.1 Landlord’s Obligations . Landlord shall repair and maintain in good order and condition, ordinary wear and tear excepted, the Common Areas, the roof of the Building, the outside walls of the Building, the exterior windows of the Building, the structural portions of the Building, the elevators, and the electrical, plumbing, mechanical, fire protection, and HVAC systems servicing the Building. However, unless the waiver of subrogation section of this Lease applies, Tenant shall pay the cost of any such repairs or maintenance resulting from acts or omissions of Tenant, its employees, agents, or contractors. Additionally, Landlord shall replace the building standard fluorescent light tubes in the Premises. Tenant waives the provisions of any law, or any right Tenant may have under common law, permitting Tenant to

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make repairs at Landlord’s expense or to withhold rent or terminate this Lease based on any alleged failure of Landlord to make repairs. All costs associated with the repair and maintenance obligations of Landlord under this article shall be included in and constitute Operating Costs.
          17.2 Tenant’s Obligations . Except as provided in the Landlord’s Obligations section of this article, Landlord shall have no maintenance obligation concerning the Premises and no obligation to make any repairs or replacements, in, on, or to the Premises. Tenant assumes the full and sole responsibility for the condition, operation, repair, replacement, and maintenance of the Premises, including all improvements, throughout the Lease Term, except to the extent expressly set forth in the Landlord’s Obligations section of this article. Tenant shall maintain the Premises in good repair and in a clean, attractive, first-class condition. Without limiting the generality of foregoing, Tenant shall repair, replace, and maintain in good and operational order and condition the nonstructural interior portions of the Premises, exterior and interior portions of all doors and lock sets, door frames, and door checks, interior windows, plate and window glass, floor coverings, wall coverings, decorations, furniture, fixtures, equipment, and appliances and the electrical and mechanical systems not considered Building Project standard that have been installed for the exclusive use and benefit of Tenant such as additional HVAC equipment, hot water heaters, electrical services for computers or similar items, and security or telephone systems for the Premises. All replacements shall be of equal quality and class to the original items replaced. Tenant shall not commit or allow to be committed any waste on any portion of the Premises. Tenant shall be solely responsible for all of Landlord’s reasonable out-of-pocket costs incurred in removing the tobacco odor and any staining or damage to the Premises as a result of Tenant, or its employees, agents, contractors, invitees, or guests smoking any tobacco or tobacco related product in the Premises in violation of the Rules and Regulations.
     18.  ESTOPPEL CERTIFICATES . From time to time, Tenant, on not less than five days’ prior notice from Landlord or Landlord’s mortgagee, shall execute and deliver to Landlord or Landlord’s mortgagee, as the case may be, an estoppel certificate in a form generally consistent with the requirements of institutional lenders and certified to Landlord and any mortgagee or prospective mortgagee or purchaser of the Building Project. In addition, if requested, Tenant shall provide any financial information concerning Tenant and Tenant’s business operations and Guarantor that may be reasonably requested by any mortgagee or prospective mortgagee or purchaser of the Building Project. Tenant acknowledges that Landlord will suffer substantial damages if Tenant does not provide an estoppel certificate within the time periods provided in this article. Therefore, Tenant shall pay Landlord the sum of $100 per day for each day of delay in delivering an estoppel certificate. The parties agree that this is a fair and reasonable estimation of Landlord’s actual costs and damages which would be incurred in the event of a delay in the delivery of the estoppel certificate and does not constitute a penalty.
     19.  SUBORDINATION . This Lease is and shall be subject and subordinate to any ground, overriding, or underlying leases and the rights of the landlords under those leases and to all mortgages that may now or hereafter affect the leases or the Building Project, and to all renewals, modifications, consolidations, replacements, and extensions of the leases and mortgages; provided, however, Tenant agrees that any such landlord or mortgagee shall have the right at any time to subordinate its interest in any ground, overriding or underlying lease, or mortgage, as the case may be, without Tenant’s consent, by notice in writing to Tenant, and

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thereupon this Lease shall be deemed prior to such interest without regard to their respective dates of execution, delivery or recording and in that event such landlord or mortgagee shall have the same rights with respect to this Lease as though this Lease had been executed prior to the execution, delivery and recording of such interest and had been assigned to such landlord or mortgagee. This article shall be selfoperative and no further instrument of subordination shall be necessary. However, in confirmation of this subordination, Tenant shall execute promptly any certificate that Landlord may request. The failure of Tenant to execute any certificate within ten days following written demand by Landlord shall constitute a material default under the terms of this Lease. If any ground or underlying lease is terminated, or any mortgage foreclosed, this Lease shall not terminate or be terminable by Tenant unless Tenant was specifically named in any termination or foreclosure judgment or final order. If any ground or underlying lease is terminated, or if the interest of Landlord under this Lease is transferred by reason of or assigned in lieu of foreclosure or other proceedings for enforcement of any mortgage, or if the holder of any mortgage acquires a lease in substitution for the mortgage, or if this Lease is terminated by termination of any lease or by foreclosure of any mortgage to which this Lease is or may be subordinate, then Tenant will, at the option to be exercised in writing by the Landlord under any ground or underlying lease or the purchaser, assignee, or tenant, as the case may be, (a) attorn to it and will perform for its benefit all the terms, covenants, and conditions of this Lease on Tenant’s part to be performed with the same force and effect as if the landlord or the purchaser, assignee, or tenant were the landlord originally named in this Lease, or (b) enter into a new lease with the landlord or the purchaser, assignee, or tenant for the remainder of the Lease Term and otherwise on the same terms, conditions, and rents as provided in this Lease.
     20.  INDEMNIFICATION . Landlord and Tenant shall each indemnify, defend, and save harmless the other party and the other party’s employees, agents, and contractors (the “ Indemnified Parties ”) from and against any and all loss, damage, claim, demand, liability, or expense (including reasonable attorneys’ fees) resulting from claims by third parties and based on any acts or omissions (specifically including negligence and the failure to comply with this Lease) of the indemnitor, its employees, agents, and contractors in connection with the Building Project and only to the extent caused in whole or in part by acts or omissions of the indemnitor, its employees, agents, and contractors, regardless of whether or not the claim is caused in part by any of the Indemnified Parties. The indemnitor shall have the right to assume the defense of any claim covered by this indemnity on behalf of both itself and the Indemnified Parties, provided that the lawyers selected by the indemnitor to handle the defense are reasonably satisfactory to the Indemnified Parties and the representation will not result in a conflict of interest for the lawyers. The Indemnified Parties may not settle any claim covered by this Indemnification article without the consent of the indemnitor. When any claim is caused by the joint acts or omissions of the indemnitor and the Indemnified Parties, the indemnitor’s duties under this article shall be in proportion to the indemnitor’s allocable share of the joint liability. This Indemnification article shall not be construed to restrict, limit, or modify either party’s insurance obligations under this Lease. Either party’s compliance with the insurance requirements under this Lease shall not restrict, limit, or modify that party’s obligations under this Indemnification article.
     21.  ANTIWAIVER . The failure of a party to insist on the strict performance of any provision of this Lease or to exercise any remedy for any default shall not be construed as a waiver. The waiver of any noncompliance with this Lease shall not prevent subsequent similar

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noncompliance from being a default No notice to or demand on a party shall of itself entitle the party to any other or further notice or demand in similar or other circumstances. No waiver shall be effective unless expressed in writing and signed by the waiving party. The receipt by Landlord of any rent after default on the part of Tenant (whether the rent is due before or after the default) shall not be deemed to operate as a waiver of any then existing default by Tenant or of the right of Landlord to enforce the payment of any other rent reserved in this Lease that may be due and owing at that time, or otherwise, or to pursue eviction or any other remedies available to Landlord. No payment by Tenant, or receipt by Landlord, of a lesser amount than the rent actually owed under the terms of this Lease shall be deemed to be other than on account of the earliest stipulated rent, nor shall any endorsement of, or statement on, any check or any letter accompanying any check or payment of rent be deemed an accord and satisfaction. Landlord may accept the check or payment without prejudice to Landlord’s right to recover the balance of the rent or to pursue any other remedy. No act of Landlord shall be deemed an acceptance of a surrender of the Premises and no agreement to accept a surrender shall be valid unless in writing and signed by Landlord. The acceptance of the keys to the Premises by the Landlord from the Tenant before the termination of this Lease will not operate as a termination of this Lease or a surrender of the Premises unless done under a written agreement duly executed on behalf of Landlord and specifically evidencing an express intention by Landlord so to effect a termination or accept a surrender. It is the intention of the parties that this article modify the common law rules of waiver and estoppel and the provisions of any statutes which might dictate a contrary result
     22.  NO REPRESENTATIONS BY LANDLORD . Neither Landlord nor Landlord’s agents have made any representations or promises concerning the physical condition of the Building Project or the Premises, Tenant’s ability to use the Premises for the uses permitted under this Lease, the area of the Premises or the manner of calculating such area, anticipated Operating Costs, or any other matter affecting or relating to the Premises, except as expressly set forth in this Lease and no rights, easements, or licenses are acquired by Tenant by implication or otherwise except as expressly set forth in this Lease.
     23.  SERVICES AND UTILITIES .
          23.1 Services Furnished . Landlord shall furnish the following services:
               23.1.1 Air conditioning.
               23.1.2 Janitorial and general cleaning services on Business Days.
          23.2 Modification of Systems . Tenant shall pay to Landlord the costs of any modification to any Building Project utility or service system necessary to accommodate Tenant Notwithstanding the foregoing, Landlord shall not be required to make any modification to any utility or service system of the Building Project on behalf of Tenant.
          23.3 Electrical Utility Provider . Landlord has advised Tenant that presently Florida Power & Light Company is the utility company selected by Landlord to provide electricity service for the Building. However, if permitted by law, Landlord may at any time and

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from time to time during the Lease Term contract for service from a different company or companies providing electricity service.
          23.4 No Liability . Landlord shall not be liable to Tenant for any loss or damage or expense that Tenant may sustain or incur if either the quantity or character of electric service or any other utility service to the Premises is changed or is no longer available or suitable for Tenant’s requirements. Tenant’s use of electrical and heating, ventilating, and air conditioning services furnished by Landlord shall not exceed, either in voltage, rated capacity, use, or overall load, that which Landlord deems to be standard for the Building. If Tenant requests permission to consume electrical or heating, ventilating, and air conditioning services in excess of building standard levels, Landlord may refuse to consent to the usage or may consent on conditions specified by Landlord (including the installation of utility service upgrades, submeters, air handlers, or cooling units), and all costs associated with the additional usage and the installation and maintenance of facilities for the additional usage shall be paid by Tenant as additional rent.
          23.5 Interruption of Services . In no event shall Landlord be liable for damages resulting from any of the fixtures or equipment in the Building Project being out of repair, or for injury to persons, property, or business caused by any defects in the electric, elevator, HVAC, or water apparatus, or for any damages arising out of the failure to furnish HVAC, elevator, water, janitor, or other service, unless caused by the negligence or intentional acts of Landlord, and any interruption or failure shall in no manner constitute an actual or constructive eviction of Tenant or entitle Tenant to abatement of any rent due under this Lease.
          23.6 Access Systems . If at any time during the Lease Term the Building Project has any type of card access system for the Parking Areas or the Building, Tenant shall purchase access cards for all occupants of the Premises from Landlord at a building standard charge and shall comply with building standard terms relating to access to the Parking Areas and the Building.
          23.7 Electrical Services . Landlord shall not provide or be obligated to cause any other party to provide any electrical services to the Premises. Tenant shall be solely responsible for all charges for electrical services to the Premises, including electricity costs for HVAC services to the Premises and all costs associated with the provision of a separate electric meter for the Premises. Tenant shall maintain active electrical service to the Premises at all times during the Lease Term.
     24.  SECURITY DEPOSIT .
          24.1 General . The Security Deposit shall be held by Landlord as security for Tenant’s full and faithful performance of this Lease including the payment of rent. The Security Deposit shall not be considered an advance payment of rent and is not intended to serve as liquidated damages nor to be a measure of Landlord’s damages for any default by Tenant. The Security Deposit may be commingled with other funds of Landlord and Landlord shall have no liability for the accrual or payment of any interest on the Security Deposit.

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          24.2 Application of Security Deposit . Landlord may use, apply, or retain the whole or any part of the Security Deposit to the extent required for the payment of any rent or for any sum that Landlord may be required to expend by reason of Tenant’s default under any of the provisions of this Lease. Tenant expressly acknowledges that Tenant shall not have the right to apply the Security Deposit to rent. Application of the Security Deposit to rents owed shall be at the sole option of Landlord, and the right to possession of the Premises by Landlord for nonpayment of rent or for any other reason shall not in any event be affected by the existence of the Security Deposit.
          24.3 Replenishment of Security Deposit . If Landlord uses, applies, or retains the whole or any part of the Security Deposit in accordance with its Lease, Tenant shall deliver to Landlord the amount necessary to replenish the Security Deposit to its original sum within five days after notification from Landlord of the amount due. Failure to pay the amount due within the required time period shall constitute a material default under this Lease.
          24.4 Transfer of Building Project . In the event of a sale, lease, or encumbrance of the Building Project or any part of the Building Project, Landlord shall have the right to transfer the Security Deposit to the purchaser, landlord, tenant, or mortgagee and if the Security Deposit is transferred, Landlord shall thereafter be relieved from any liability concerning the Security Deposit, provided the transferee has assumed Landlord’s obligations hereunder.
          24.5 Prohibition on Tenant Assignment . Tenant shall not assign or encumber its rights concerning the Security Deposit. Landlord and its successors or assigns shall not be bound by any purported assignment or have any liability to any purported assignee.
          24.6 When Returned . If Tenant fully and faithfully complies with all of the terms, covenants, and conditions of this Lease, any part of the Security Deposit not used or retained by Landlord under the terms of this Lease shall be returned to Tenant within 30 days after the expiration of the Lease Term and after Tenant’s delivery of possession of the Premises to Landlord. However, if at the expiration of the Lease Term there are any amounts that may be due from Tenant that have not yet been finally determined (for example, rent for Operating Costs for the year in which the Lease Term expires) then Landlord may estimate the amounts which will be owed and deduct them from the Security Deposit. When the actual amounts are finally determined, an adjustment shall be made between Landlord and Tenant with payment to or repayment by Landlord, as the case may require, to the end that Landlord shall receive the entire amount actually owed by Tenant and Tenant shall receive reimbursement for any overpayments.
     25.  GOVERNMENTAL REGULATIONS .
          25.1 Tenant to Comply . Tenant shall promptly comply with all laws, orders, and regulations of all county, municipal, state, federal, and other applicable governmental authorities, and all recorded covenants and restrictions affecting the Building Project, now in force, or that may hereafter be in force, pertaining to Tenant or its use of the Premises, and shall faithfully observe, in the use of the Premises, all municipal and county ordinances and state and federal laws now in force or that may hereafter be in force, that shall impose any duty on Tenant concerning the Premises or the use or occupancy of the Premises, including all laws relating to

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fire and safety, hazardous materials, indoor air quality, and to persons with disabilities (whether the requirements be structural or nonstructural), and specifically, but without limitation, installation and maintenance of sprinklers, fire alarms, smoke detectors and other sensors, and alterations and other measures necessary to comply with the ADA. At Landlord’s option, any required compliance, installation, and maintenance may be performed by Landlord, at Tenant’s expense, to be paid by Tenant promptly when billed by Landlord.
          25.2 Insurance Requirements . Tenant shall comply with all requirements of the Board of Fire Underwriters of the State where the Premises are located or any other similar body affecting the Premises and shall not use the Premises in a manner that shall increase the rate of fire insurance or other insurance of Landlord over that in effect during the year before the Commencement Date. If the use of the Premises by Tenant increases any insurance rate concerning the Building Project, Tenant shall reimburse Landlord for the additional costs.
          25.3 Licenses and Permits . Tenant shall obtain all licenses and permits from time to time required to enable Tenant to conduct its business under this Lease. No failure of Tenant to obtain or maintain any licenses or permits, or extensions or renewals of them, shall release Tenant from the performance and observance of Tenant’s obligations under this Lease.
          25.4 Alterations Required by ADA . If, as a result of Tenant’s use of the Premises or the making of any Alterations by Tenant, any additions, alterations, or improvements shall be required to be made by Landlord to any part of the Premises or the Building Project to comply with any requirements of the ADA, Tenant shall reimburse Landlord on demand for the costs incurred by Landlord to effect such compliance. Landlord shall comply with ADA concerning portions of the Building Project not leased or available for leasing to tenants (unless compliance is triggered by a specific use or alteration of the Premises by Tenant).
     26.  SIGNS . Tenant will not place or permit to be placed or maintained on any portion of the Building Project, including on any exterior door, wall, or window of the Premises, or within the interior of the Premises, if visible from the exterior of the Premises, any signage or advertising matter of any kind, without first obtaining Landlord’s written approval and consent, which may be arbitrarily withheld. Notwithstanding the foregoing, Tenant (at its cost) shall be permitted to place a sign bearing its name on the entrance door to the Premises and will be furnished a single listing of its name in the Building’s Directory (at Landlord’s cost), all in accordance with the criteria adopted from time to time by Landlord for the Building Project. All door signs shall be in Building Standard format purchased by Tenant from graphics fabricator designated by Landlord. Any changes or additional listings in the Directory shall be furnished (subject to availability of space) for a building standard charge.
     27.  SURVIVAL . Any liability or obligation of Landlord or Tenant arising during the Lease Term shall survive the expiration or earlier termination of this Lease, including obligations and liabilities relating to (a) the adjustments of Operating Cost rent referenced in the Operating Costs article of this Lease, (b) the condition of the Premises or the removal of Tenant’s Property, and (c) the indemnification provisions of this Lease.
     28.  BROKER . Landlord and Tenant represent and warrant that they neither consulted nor negotiated with any broker or finder regarding the Premises, except the Leasing

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Broker. Landlord and Tenant agree to indemnify, defend, and save the other harmless from and against any claims for fees or commissions from anyone other than the Leasing Broker with whom they have dealt in connection with the Premises or this Lease including attorneys’ fees incurred in defending any claim. Landlord shall indemnify and hold Tenant harmless against payment of any leasing commission due the Leasing Broker in connection with this Lease.
     29.  QUIET ENJOYMENT .
          29.1 Landlord’s Covenant . Landlord covenants and agrees that, on Tenant’s paying rent and performing all of the other provisions of this Lease on its part to be performed, Tenant may peaceably and quietly hold and enjoy the Premises for the Lease Term without material hindrance or interruption by Landlord or any other person claiming by, through, or under Landlord, subject, nevertheless, to the terms, covenants, and conditions of this Lease and all existing or future ground leases, underlying leases, mortgages, or deeds of trust encumbering the Building Project.
          29.2 Temporary Closing . Notwithstanding the foregoing, Landlord may temporarily close the Building Project and preclude access to the Premises in the event of casualty, governmental requirements, the threat of an emergency such as a hurricane, civil commotion, terrorism, war like operation, invasion, rebellion, hostilities, military or usurped power, sabotage, floods, other natural disasters, or acts of God, or if Landlord reasonably deems it necessary in order to prevent damage or injury to person or property, and at all times subject to Landlord’s security policies and procedures.
     30.  END OF TERM .
          30.1 Surrender Obligations . Tenant shall surrender the Premises to Landlord at the expiration or sooner termination of this Lease in good order and condition, broom clean, except for reasonable wear and tear and damage by fire or other casualty covered by the property insurance carried or required to be carried by Landlord under this Lease and Tenant shall surrender all keys for the Premises to Landlord. Unless Landlord shall have consented in writing to Tenant’s holding over, Tenant shall be liable to Landlord for all damages, including any consequential damages, that Landlord may suffer by reason of any holding over by Tenant, and Tenant shall indemnify, defend, and save Landlord harmless against all costs, claims, loss, or liability resulting from delay by Tenant in so surrendering the Premises, including any claims made by any succeeding tenant founded on any delay. No holding over by Tenant or payments of money by Tenant to Landlord after the expiration of the Lease Term shall be construed to extend the Lease Term or prevent Landlord from immediate recovery of possession of the Premises.
          30.2 Landlord’s Property . The term “ Landlord’s Property ” shall mean all fixtures, equipment, improvements, appurtenances, and carpeting attached to or built into the Premises at the Commencement Date or during the Lease Term, whether or not by or at the expense of Tenant, and any personal property in the Premises on the Commencement Date, unless the personal property was paid for by Tenant. All Alterations, whether temporary or permanent in character, including HVAC equipment, wall coverings, carpeting and other floor coverings, ceiling tiles, blinds and other window treatments, lighting fixtures and bulbs, built in

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or attached shelving, built in furniture, millwork, counter tops, cabinetry, all doors (both exterior and interior), bathroom fixtures, sinks, kitchen area improvements, and wall mirrors, made by Landlord or Tenant in or on the Premises shall be deemed Landlord’s Property. All of Landlord’s Property shall be and remain a part of the Premises at the expiration or sooner termination of the Lease Term (without compensation to Tenant) and shall not be removed or replaced by Tenant without the prior written consent of Landlord.
          30.3 Tenant’s Property . The term “ Tenant’s Property ” shall mean all moveable machinery and equipment, including moveable communications equipment and moveable office equipment, that are installed in the Premises by or for the account of Tenant without expense to Landlord and that can be removed without damage to the Premises or the Building Project, and all moveable furniture, furnishings, and other articles of moveable personal property owned by Tenant and located in the Premises.
          30.4 Removal and Restoration Obligations . On the expiration or sooner termination of the Lease Term, Tenant, at its expense, shall remove from the Premises all of Tenant’s Property and all Alterations that Landlord designates by notice to Tenant. Tenant shall also repair any damage to the Premises and the Building Project caused by the removal. Any items of Tenant’s Property that shall remain in the Premises after the expiration or sooner termination of the Lease Term, may, at the option of Landlord, be deemed to have been abandoned, and in that case, those items may be retained by Landlord as its property to be disposed of by Landlord, without accountability to Tenant or any other party, in the manner Landlord shall determine, at Tenant’s expense.
     31.  RECORDATION . Tenant shall not record this Lease or any memorandum, “short form,” or other notice of this Lease without the prior written consent of Landlord.
     32.  LEASE NOT BINDING UNLESS EXECUTED . Submission by Landlord of this Lease for execution by Tenant shall not constitute an offer and shall confer no rights nor impose any obligations on either party unless and until both Landlord and Tenant shall have executed and delivered this Lease.
     33.  ATTORNEYS’ FEES . In any suit, action, or other proceeding, including arbitration or bankruptcy, arising out of or in any manner relating to this Lease, the Premises, or the Building Project (including (a) the enforcement or interpretation of either party’s rights or obligations under this Lease whether in contract, tort, or both, or (b) the declaration of any rights or obligations under this Lease) the prevailing party, as determined by the court or arbitrator, shall be entitled to recover from the losing party reasonable attorneys’ fees and disbursements (including disbursements that would not otherwise be taxable as costs in the proceeding). In addition, if Landlord becomes a party to any suit or proceeding affecting the Premises or involving this Lease or Tenant’s interest under this Lease, other than a suit between Landlord and Tenant, or if Landlord engages counsel to collect any of the amounts owed under this Lease, or to enforce performance of any of the agreements, conditions, covenants, provisions, or stipulations of this Lease, without commencing litigation, then the costs, expenses, and reasonable attorneys’ fees and disbursements incurred by Landlord shall be paid to Landlord by Tenant. All references in this Lease to attorneys’ fees shall be deemed to include all legal assistants’, paralegals’, and law clerks’ fees and shall include all fees incurred through all post-

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judgment and appellate levels and in connection with collection, arbitration, and bankruptcy proceedings. However, the term “attorneys’ fees” shall exclude fees for lawyers who are employees of a party.
     34.  NOTICES .
          34.1 General Requirements . Except as otherwise expressly provided, any notice, demand, request, election, or other communication (a “ Communication ”) required or permitted to be given or made to or by any party to this Lease or otherwise given or made under this Lease, shall be in writing. A Communication shall be deemed to have been delivered and received on the earlier of the day actually received (by whatever means sent, including means not authorized by this article) if received before 5:00 p.m. on a Business Day (or, if not received before 5:00 p.m. on a Business Day, on the first Business Day after the day of receipt) or, regardless of whether or not received after the following dates, (a) on the date of transmittal by telecopier to the addressee’s Notice Address, with the confirmation sheet obtained by the sender being deemed conclusive proof of the transmission of the telecopy; (b) on the date of delivery or refusal of delivery, if by hand delivery; (c) on the first Business Day after having been delivered to a nationally recognized overnight air courier service (such as Federal Express) for “next business day” delivery; or (d) on the third Business Day after having been deposited with the United States Postal Service, Registered or Certified Mail, Return Receipt Requested; in each case addressed to the respective party at the party’s Notice Address, which Notice Address may be changed by notice delivered to the other party in accordance with the terms of this article; provided that if Tenant has vacated the Premises or is in default of this Lease, Communications may be delivered by any manner permitted by law for service of process. Any Communication transmitted by telecopier after 5:00 p.m. shall be deemed to have been made on the next Business Day following the date on which it was transmitted. Notwithstanding the foregoing, any Communication which is in fact received, regardless of whether it is sent in compliance with the requirements of this article, shall be effective as of the date received. If any Communication is returned to the addressor because it is refused, unclaimed, or the addressee has moved, or is otherwise not delivered or deliverable through no fault of the addressor, effective notice shall still be deemed to have been given. If there is more than one party constituting Tenant, any Communication may be given by or to anyone of them, and shall have the same force and effect as if given by or to all of them.
          34.2 Notices by and to Lawyers . Any lawyer representing Landlord or Tenant may give any Communication under this Lease on behalf of the lawyer’s client. Any Communication so given by a lawyer shall be deemed to have been given by the lawyer’s client. Notwithstanding anything to the contrary in this Lease, any obligation to send a copy of a Communication to a party’s lawyer shall only apply to Communications which are notices of a default under this Lease. Failure to give a copy of any Communication to the lawyer for a party will not affect the validity of the Communication provided that the Communication has been given to the party represented by that lawyer.
          34.3 Section 83.20, Florida Statutes . Any notices required under Section 83.20, Florida Statutes, shall be deemed to have been fully given, made, sent, and received if sent in compliance with this article.

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          34.4 Change of Notice Address . Either party may change its Notice Address by notice to the other party. However, this will not permit a party to add additional persons to receive Communications or copies of Communications so that more than a maximum of two persons are entitled to receive any Communication or copy of any Communication.
     35.  RADON GAS . The following notification is provided under Section 404.056(6), Florida Statutes: “Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county health department.”
     36.  SUCCESSORS AND ASSIGNS; PERSONS BOUND . This Lease shall bind and inure to the benefit of the heirs, personal representatives, administrators, and, except as otherwise provided, the successors or assigns of the parties to this Lease. If there is more than one party constituting Tenant, each party shall be jointly and severally liable with the other parties constituting Tenant for the performance of all of the obligations of Tenant under this Lease. If Tenant is a partnership, each and every present and future general partner of Tenant shall be and remain at all times jointly and severally liable under this Lease and neither the death, resignation, or withdrawal of any partner, nor the subsequent modification or waiver of any of the terms and provisions of this Lease, shall operate to release any partner under this Lease.
     37.  JURY WAIVER; COUNTERCLAIMS . LANDLORD AND TENANT WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM INVOLVING ANY MA TIER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH (A) THIS LEASE, (B) THE RELATIONSHIP OF LANDLORD AND TENANT, (C) TENANT’S USE OR OCCUPANCY OF THE PREMISES, OR (D) THE RIGHT TO ANY STATUTORY RELIEF OR REMEDY. TENANT FURTHER WAIVES THE RIGHT TO INTERPOSE ANY PERMISSIVE COUNTERCLAIM OF ANY NATURE IN ANY ACTION OR PROCEEDING COMMENCED BY LANDLORD TO OBTAIN POSSESSION OF THE PREMISES. IF TENANT VIOLATES THIS PROVISION BY FILING A PERMISSIVE COUNTERCLAIM, WITHOUT PREJUDICE TO LANDLORD’S RIGHT TO HAVE THE COUNTERCLAIM DISMISSED, THE PARTIES STIPULATE THAT SHOULD THE COURT PERMIT TENANT TO MAINTAIN THE COUNTERCLAIM, THE COUNTERCLAIM SHALL BE SEVERED AND TRIED SEPARATELY FROM THE ACTION FOR POSSESSION UNDER RULE 1.270(b) OF THE FLORIDA RULES OF CIVIL PROCEDURE OR OTHER APPLICABLE LAW. THE ACTION FOR POSSESSION SHALL THEN PROCEED UNDER THE SUMMARY PROCEDURES SET FORTH IN SECTION 51.011, FLORIDA STATUTES. THE WAIVERS SET FORTH IN THIS ARTICLE ARE MADE KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY BY TENANT. TENANT FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THESE WAIVERS WITH COUNSEL. THIS PROVISION IS A MATERIAL INDUCEMENT TO LANDLORD IN AGREEING TO ENTER INTO THIS LEASE.

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     38.  INTENTIONALLY OMITTED .
     39.  IMPOSSIBILITY OF PERFORMANCE . For purposes of this Lease, the term “ Unavoidable Delay ” shall mean any delays due to strikes, lockouts, civil commotion, war or warlike operations, terrorism, bioterrorism, invasion, rebellion, hostilities, military or usurped power, sabotage, government regulations or controls, inability to obtain any material, utility, or service because of governmental restrictions, hurricanes, floods, or other natural disasters, acts of God, or any other cause beyond the direct control of the party delayed (not including the insolvency or financial condition of that party or the increased cost of obtaining labor and materials). Notwithstanding anything in this Lease to the contrary, if Landlord or Tenant shall be delayed in the performance of any act required under this Lease by reason of any Unavoidable Delay, then provided notice of the Unavoidable Delay is given to the other party within ten days after its occurrence, performance of the act shall be excused for the period of the delay and the period for the performance of the act shall be extended for a reasonable period, in no event to exceed a period equivalent to the period of the delay.
     40.  GUARANTY . Payment of all rents and charges and the performance of all covenants of Tenant contained in this Lease are guaranteed by the Guarantor under the Guaranty that is attached as an exhibit to this Lease. The Guaranty is a part of this Lease and Tenant agrees to be bound by the terms of the Guaranty that relate to this Lease.
     41.  TENANT’S REPRESENTATIONS . Tenant represents and warrants as follows:
          41.1 Tenant is duly organized, validly existing, and in good standing under the laws of the State in which it was formed and is duly qualified to transact business in the State in which the Premises are located.
          41.2 Tenant has full power to execute, deliver, and perform its obligations under this Lease.
          41.3 The execution and delivery of this Lease, and the performance by Tenant of its obligations under this Lease, have been duly authorized by all necessary action of Tenant, and do not contravene or conflict with any provisions of Tenant’s Articles of Incorporation and By-Laws, or any other agreement binding on Tenant.
          41.4 The individual executing this Lease on behalf of Tenant has full authority to do so.
          41.5 The scroll seal set forth immediately below the signature of the individual executing this Lease on Tenant’s behalf has been adopted by the corporation as its seal for the purpose of execution of this Lease and the scroll seal has been affixed to this Lease as the seal of the corporation and not as the personal or private seal of the officer executing this Lease on behalf of the corporation.
          41.6 Tenant’s financial statements and the information describing Tenants’ business and background previously furnished to Landlord were at the time given true and correct in all material respects and there have been no adverse material changes to the information subsequent to the date given.

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     42.  INTENTIONALLY DELETED .
     43.  INTENTIONALLY DELETED .
     44.  PARKING .
          44.1 Tenant’s Rights . Tenant shall be entitled to use no more than the number of parking spaces in the Parking Areas that corresponds to the Parking Ratio applied to the Rentable Area of the Premises, rounded down to the nearest whole number. The parking spaces may only be used by principals, employees, and guests of Tenant.
          44.2 Reserved Parking . Except for particular spaces and areas designated from time to time by Landlord for reserved parking, if any, all parking in the Parking Areas shall be on an unreserved, first come, first served basis.
          44.3 Landlord’s Rights . Landlord reserves the right to (a) reduce the number of spaces in the Parking Areas as long as the number of spaces remaining is in compliance with all applicable governmental requirements; (b) reserve spaces for the exclusive use of specific tenants or other parties and change the location of any reserved parking spaces assigned to Tenant; and (c) change the access to the Parking Areas, provided that some manner of reasonable access to the Parking Areas remains after the change; and none of the foregoing shall entitle Tenant to any claim against Landlord or to any abatement of rent.
     45.  INTENTIONALLY DELETED .
     46.  GENERAL PROVISIONS .
          46.1 Construction of Language . Whenever in this Lease the context allows, the terms “Lease,” “Lease Term,” and “term of this Lease,” or terms of similar import, shall be deemed to include all renewals, extensions, or modifications of this Lease or the Lease Tenn. The words “including” and “include” when used in this Lease shall be deemed to mean “including, but not limited to,” or “including without limitation.” The headings of articles and sections in this Lease are for convenience only and shall not be relevant for purposes of interpretation of this Lease. This Lease has been negotiated “at arm’s-length” by Landlord and Tenant, each having the opportunity to be represented by legal counsel of its choice and to negotiate the form and substance of this Lease. Therefore, this Lease shall not be more strictly construed against either party by reason of the fact that one party may have drafted this Lease.
          46.2 Drafts . No inference shall be drawn from the modification or deletion of versions of the provisions of this Lease contained in any drafts exchanged between the parties before execution of the final version of this Lease that would be inconsistent in any way with the construction or interpretation that would be appropriate if the prior drafts had never existed.
          46.3 Severability . If any provision of this Lease or the application of a provision to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease and the application of the invalid or unenforceable provision to persons or circumstances other than those as to which it is invalid or unenforceable shall not be affected, and the remainder of this Lease shall otherwise remain in full force and effect. Moreover, the

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invalid or unenforceable provision shall be reformed, if possible, so as to accomplish most closely the intent of the parties consistent with applicable law.
          46.4 Integration . This Lease shall constitute the entire agreement of the parties concerning the matters covered by this Lease. All prior understandings and agreements had between the parties concerning those matters, including all preliminary negotiations, lease proposals, letters of intent, and similar documents, are merged into this Lease, which alone fully and completely expresses their understanding. No person, firm or corporation has at any time had any authority from Landlord to make any representations or promises on behalf of Landlord, and Tenant expressly agrees that if any such representations or promises have been made by Landlord or others, Tenant waives all rights to rely on them.
          46.5 Amendment . This Lease may not be amended, modified, altered, or changed in any respect, except by further agreement in writing duly executed on behalf of Landlord and Tenant.
          46.6 Exhibits and Riders . All exhibits and riders attached to this Lease shall, by this reference, be incorporated into this Lease.
          46.7 Relationship of Parties . A fiduciary relationship shall not exist between the parties and neither party shall owe fiduciary duties to the other. This Lease is not perceived by the parties to be a “complex transaction” and should not be construed as a “complex transaction.”
          46.8 Governing Law . This Lease has been negotiated and executed in Florida. It shall be construed and enforced in accordance with the laws of the State of Florida, without application of conflicts of laws principles.
          46.9 Fax Transmissions . This Lease may be transmitted between the parties by facsimile machine. Landlord and Tenant intend that faxed signatures constitute original signatures and that a faxed Lease containing the signatures (original or faxed) of Landlord and Tenant is binding on Landlord and Tenant.
          46.10 Counterparts . This Lease may be executed by the parties signing different counterparts of this Lease, which counterparts together shall constitute the agreement of the parties.
          46.11 Confidentiality . Tenant shall not disclose the terms of this Lease to any third party without Landlord’s prior consent, except to Tenant’s attorneys, accountants and professional consultants.
[SIGNATURES ON FOLLOWING PAGE]

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     IN WITNESS WHEREOF, this Lease has been executed on behalf of Landlord and Tenant as of the Date of this Lease.

WITNESSES:
 
 
Signature of Witness 1
 
 
Print name of Witness 1
 
 
 
Signature of Witness 2
 
 
 
Print name of Witness 2
LANDLORD:
CRT-SFV, LLC, a Delaware limited liability
company authorized to transact business in Florida
By:   PARTHENON REALTY, LLC, a Georgia
limited liability company, as manager
     By:  
 
William F. Freeman, III
Senior Vice President
(SEAL)
Date Executed:  
 


 

 
 
Signature of Witness 1
 
 
Print name of Witness 1
 
 
 
Signature of Witness 2
 
 
 
Print name of Witness 2
TENANT:
 
BIOHEART, INC., a Florida corporation
By:  
 
Name:  
 
Title:  
 
(CORPORATE SEAL)
 
 
Date Executed:  
 


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EXHIBIT “A”
LEGAL DESCRIPTION OF BUILDING PROJECT
PARCEL I : A PORTION OF PARCEL I OF MARINA WEST PARCEL “A”, ACCORDING TO THE PLAT THEREOF, AS RECORDED IN PLAT BOOK 121, AT PAGE 17, OF THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA. MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCE AT THE SOUTHWEST CORNER OF SAID PARCEL I: THENCE NORTH 00°03’49” EAST, 525.39 FEET; THENCE ACROSS SAID PARCEL NORTH 89°43’17” EAST, 1209.78 FEET TO THE POINT OF BEGINNING; THENCE ACROSS SAID PARCEL FOR THE NEXT SEVEN (7) COURSES: NORTH 89°43’17” EAST, 580.00 FEET; THENCE SOUTH 00°16’43” EAST, 387.80 FEET; THENCE NORTH 88°38’42” WEST, 58.10 FEET; THENCE NORTH 76°57’50” WEST, 52.39 FEET; THENCE SOUTH 80°54’06” WEST, 64.71 FEET; THENCE SOUTH 89°43’17” WEST, 407.00 FEET; THENCE NORTH 00°16’43” WEST, 384.00 FEET TO THE POINT OF BEGINNING. SAID LANDS LYING IN THE CITY OF SUNRISE, BROWARD COUNTY, FLORIDA.
PARCEL II : EASEMENT FOR THE BENEFIT OF PARCEL I AS CREATED BY EASEMENT DATED FEBRUARY 10, 1988 AND FILED OCTOBER 16, 1990 IN OFFICIAL RECORDS BOOK 17840 AT PAGE 532, FOR INSTALLATION AND MAINTENANCE OF A WATER LINE OVER, UNDER AND ACROSS THE LANDS DESCRIBED AS FOLLOWS:
A PORTION OF PARCEL I OF MARINA WEST PARCEL “A”, ACCORDING TO THE PLAT THEREOF, AS RECORDED IN PLAT BOOK 121, AT PAGE 17, OF THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA, MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCE AT THE SOUTHWEST CORNER OF SAID PARCEL 1: NORTH 00°03’49” EAST, 525.39 FEET; THENCE ACROSS SAID PARCEL NORTH 89°43’17” EAST, 1789.78 FEET TO THE POINT OF BEGINNING: THENCE CONTINUE NORTH 89°43’17” EAST, 3.00 FEET; THENCE SOUTH 00°16’43” EAST, 389.89 FEET; THENCE NORTH 88°38’42” WEST, 61.36 FEET; THENCE NORTH 76°57’50” WEST, 52.20 FEET; THENCE SOUTH 80°54’06” WEST, 64.47 FEET; THENCE SOUTH 89°43’17” WEST, 410.15 FEET; THENCE NORTH 00°16’43” WEST, 322.14 FEET; THENCE NORTH 02°54’04” EAST, 54.08 FEET; THENCE SOUTH 00°16’43” EAST, 374.14 FEET; THENCE NORTH 89°43’17” EAST, 407.00 FEET; THENCE NORTH 80°54’06” EAST, 64.71 FEET; THENCE SOUTH 76°57’50” EAST, 52.39 FEET; THENCE SOUTH 88°38’42” EAST, 58.10 FEET; THENCE NORTH 00°16’43” WEST, 387.80 FEET TO THE POINT OF BEGINNING. SAID LANDS LYING IN THE CITY OF SUNRISE, BROWARD COUNTY, FLORIDA. SUBJECT TO THE TERMS, PROVISIONS AND CONDITIONS SET FORTH IN SAID INSTRUMENT.
PARCEL III : EASEMENT FOR THE BENEFIT OF PARCEL I AS CREATED BY EASEMENT DATED FEBRUARY 5, 1991 AND FILED MARCH 20, 1991 IN OFFICIAL RECORDS BOOK 18232, AT PAGE 756, OF THE PUBLIC RECORDS OF BROWARD

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COUNTY, FLORIDA, FOR OPERATION AND MAINTENANCE OF A DRAINAGE PIPE UNDER AND ACROSS THE LANDS DESCRIBED AS FOLLOWS:
A PORTION OF PARCEL I OF MARINA WEST PARCEL “A”, ACCORDING TO THE PLAT THEREOF, AS RECORDED IN PLAT BOOK 121, AT PAGE 17, OF THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA. BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF SAID PARCEL I; THENCE NORTH 00°03’49” EAST, ALONG THE WEST LINE OF SAID PARCEL I, A DISTANCE OF 525.39 FEET; THENCE NORTH 89°43’17” EAST, A DISTANCE OF 1194.78 FEET TO THE POINT OF BEGINNING, SAID POINT ALSO BEING LOCATED ON THE SOUTHERLY RIGHT-OFWAY LINE OF N.W. 4TH STREET AS DESCRIBED IN OFFICIAL RECORDS BOOK 14312, AT PAGE 78, OF THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA; THENCE CONTINUE NORTH 89°43’17” EAST, ALONG SAID SOUTHERLY RIGHT-OF-WAY LINE, A DISTANCE OF 15.00 FEET; THENCE SOUTH 00°16’43” EAST, A DISTANCE OF 392.26 FEET; THENCE SOUTH 88°43’26” WEST, A DISTANCE OF 15.00 FEET; THENCE NORTH 00°16’43” WEST, A DISTANCE OF 392.00 FEET TO THE POINT OF BEGINNING. SAID LANDS LYING IN THE CITY OF SUNRISE, BROWARD COUNTY, FLORIDA. SUBJECT TO THE TERMS, PROVISIONS AND CONDITIONS SET FORTH IN SAID INSTRUMENT.

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EXHIBIT “B”
SKETCH OF PREMISES
(CHART)

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EXHIBIT “C”
SCHEDULE OF BASE RENT
     The Base Rent (excluding sales tax) during the initial Lease Term shall be:
                         
 
  PERIOD     MONTHLY RENT     PERIOD RENT  
 
8/1/04 — 12/31/04
    $ 1,947.00*       $ 9,735.00*    
 
1/1/05 — 7/31/05
    $ 6,015.00       $ 42,105.00    
 
8/1/05 — 7/31/06
    $ 6,330.79       $ 75,969.48    
 
8/1/06 — 7/31/07
    $ 6,380.91       $ 76,570.92    
 
8/1/07 — 7/31/08
    $ 6,571.39       $ 78,856.68    
 
8/1/08 — 7/31/09
    $ 6,766.88       $ 81,202.56    
 
8/1/09 — 1/31/10
    $ 6,967.38       $ 41,804.28    
 
 
*   Represents 1,947 rentable square feet only

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EXHIBIT “D”
CONTINUING GUARANTY
THIS IS A GENERAL GUARANTY WHICH IS ENFORCEABLE BY
THE LANDLORD, ITS SUCCESSORS AND ASSIGNS. THIS IS ALSO
AN ABSOLUTE AND UNCONDITIONAL GUARANTY.
     For value received and in consideration of and in order to induce CRT -SFV, LLC, a Delaware a limited liability company authorized to transact business in Florida (the “Landlord”) to enter into that certain Lease dated _______________, 2004, between Landlord and BIOHEART, INC., a Florida corporation (the “Tenant”), for space at Suites 210, 211, 212, and 213, 13794 Northwest 4th Street, Sunrise, Florida 33325 (the “Lease”) and other good and valuable considerations, the undersigned (the “Guarantor”), acting as principal and not as surety merely, absolutely and unconditionally, for himself and his legal representatives, successors, and assigns, guarantees to the Landlord and to its legal representatives, successors, and assigns, the prompt and full performance and observance by the Tenant and by its legal representatives, successors, and assigns, of all of the covenants, terms, provisions, conditions, and agreements required to be performed by Tenant under the Lease, whether, before, during, or after the Lease Term.
     Terms used in this Guaranty which are defined in the Lease shall have the same definitions as those terms have in the Lease unless the context clearly indicates a contrary intent.
     Notice of all defaults is waived, and consent is given to all extensions of time that the Landlord may grant to Tenant in the performance of any of the terms of the Lease or to the waiving in whole or in part of performance, or to the releasing of Tenant in whole or in part from any performance, or to the adjusting of any dispute concerning the Lease. The undersigned shall pay all expenses, including legal fees and disbursements paid or incurred by Landlord in endeavoring to enforce this Guaranty, unless Landlord is the non-prevailing party in its enforcement efforts.
     This Guaranty shall not be impaired by, and Guarantor consents to, any modification, supplement, extension, or amendment of the Lease to which the parties to the Lease may hereafter agree. The liability of the Guarantor hereunder is direct and unconditional and may be enforced without requiring the Landlord first to resort to any other right, remedy, or security. Presentment, notice, and demand to Tenant and Guarantor and subsequent dishonor are not conditions for proceeding against Guarantor. Guarantor shall have no right of recourse to security for the debts and obligations of Tenant to Landlord.
     This Guaranty is a continuing guaranty that shall be effective before the commencement of the Lease Term, and shall remain effective following the Lease Term as to any surviving provisions that remain effective after the termination of the Lease. The Guarantor’s obligations under this Guaranty shall also continue in full force and effect after any transfer of the Tenant’s interest under the Lease as defined in the Lease.
     The liability of Guarantor under this Guaranty shall in no way be affected, modified, or diminished by reason of (a) any assignment, renewal, modification, amendment, or extension of

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the Lease, or (b) any modification or waiver of or change in any of the terms, covenants, and conditions of the Lease by Landlord and Tenant, or (c) any extension of time that may be granted by Landlord to Tenant, or (d) any consent, release, indulgence, or other action, inaction, or omission under or in respect of the Lease, or (e) any dealings or transactions or matter or thing occurring between Landlord and Tenant, or (f) any bankruptcy, insolvency, reorganization, liquidation, arrangement, assignment for the benefit of creditors, receivership, trusteeship, or similar proceeding affecting Tenant, or the rejection or disaffirmance of the Lease in any proceedings, whether or not notice of the proceedings is given to Guarantor.
     Should Landlord be obligated by any bankruptcy or other law to repay to Tenant or to Guarantor or to any trustee, receiver, or other representative of either of them, any amounts previously paid, this Guaranty shall be reinstated in the amount of the repayments.
     For purposes of this Guaranty, on a default by Tenant under the Lease the entire balance of all forms of rent due under the Lease for the remainder of the Lease Term may be declared to be forthwith due and payable as provided in the Lease notwithstanding any stay, injunction, or other prohibition preventing a similar declaration as against Tenant and, in the event of any such declaration by Landlord, all of the obligations shall forthwith become due and payable by Guarantor under this Guaranty.
     No delay on the part of Landlord in exercising any right under this Guaranty or failure to exercise any right shall operate as a waiver of or otherwise affect any right nor shall any single or partial exercise of a right preclude any other or further exercise of the right or the exercise of any other right.
     No waiver or modification of any provision or this Guaranty nor any termination of this Guaranty shall be effective unless in writing and signed by Landlord; nor shall any such waiver be applicable except in the specific instance for which given.
     All of Landlord’s rights and remedies under the Lease and under this Guaranty, now or hereafter existing at law or in equity or by statute or otherwise, are intended to be distinct, separate, and cumulative and no exercise or partial exercise of any right or remedy mentioned in the Lease or this Guaranty is intended to be in exclusion of or a waiver of any of the others.
     If Landlord assigns the Lease or sells the Building Project, Landlord may assign this Guaranty to the assignee or transferee, who shall thereupon succeed to the rights of Landlord under this Guaranty to the same extent as if the assignee were an original guaranteed party named in this Guaranty, and the same rights shall accrue to each subsequent assignee of this Guaranty. If Tenant assigns or sublets the Premises, the obligations of the Guarantor under this Guaranty shall remain in full force and effect.
     From time to time, Guarantor, on not less than five days’ prior notice, shall execute and deliver to Landlord an estoppel certificate in a form generally consistent with the requirements of institutional lenders and certified to Landlord and any mortgagee or prospective mortgagee or purchaser of the Building Project. In addition, if requested, Guarantor shall provide any financial information concerning Guarantor that may be reasonably requested by any mortgagee or prospective mortgagee or purchaser of the Building Project, provided such mortgagee or

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prospective mortgagee or purchaser of the Building Project agrees to hold such financial information concerning Guarantor in confidence.
     If any provision of this Guaranty or the application of any provision to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of that provision and this Guaranty and the application of the provision to persons or circumstances other than those as to which it is invalid or enforceable shall not be affected thereby, and the remainder of the provision and this Guaranty shall otherwise remain in full force and effect.
     As a further inducement to Landlord to make and enter into the Lease and in consideration of Landlord’s execution of the Lease, Landlord and Guarantor waive trial by jury in any action or proceeding brought on, under, or by virtue of this Guaranty.
     Without regard to principles of conflicts of laws, the validity, interpretation, performance, and enforcement of this Guaranty shall be governed by and construed in accordance with the internal laws of the State of Florida and shall be deemed to have been made and performed in the State of Florida.
     Any legal action or proceeding arising out of or in any way connected with this Guaranty shall be instituted in a court (federal or state) located in Broward County, Florida, which shall be the exclusive jurisdiction and venue for litigation concerning this Guaranty. Landlord and Guarantor shall be subject to the personal jurisdiction of those courts in any legal action or proceeding. In addition, Landlord and Guarantor waive any objection that they may now have or hereafter have to the laying of venue of any action or proceeding in those courts, and further waive the right to plead or claim that any action or proceeding brought in any of those courts has been brought in an inconvenient form.
     If there is more than one Guarantor, the liability of each Guarantor shall be joint and several with all other Guarantors.
Howard J. Leonhardt, Guarantor
 
 
Signature
 
 
Guarantor’s address:
 
 
 
 
Guarantor’s Social Security No. __________________________________
Guarantor’s Driver’s License No. _________________________________
 
Dated: __________________, 2004

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STATE OF
    )      
 
    )     ss:
COUNTY OF
    )      
     The foregoing instrument was acknowledged before me this ___ day of ____________, 2004, by ____________, who is personally known to me or who has produced           as identification.
OFFICIAL NOTARIAL SEAL:
 
 
 
(type, print, or stamp name)
 
NOTARY PUBLIC
My commission expires: _________________________________
Commission No. _________________________________

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EXHIBIT “E”
RULES AND REGULATIONS
     1. The sidewalks and public portions of the Building Project, such as entrances, passages, courts, parking areas, elevators, vestibules, stairways, corridors, or halls shall not be obstructed or encumbered by Tenant or its employees, agents, invitees, or guests nor shall they be used for any purpose other than ingress and egress to and from the Premises.
     2. No awnings or other projections shall be attached to the outside walls of the Building Project. No curtains, blinds, shades, louvered openings, or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises, without the prior written consent of Landlord, unless installed by Landlord. No aerial or antenna shall be erected on the roof or exterior walls of the Premises or on the Building Project without the prior written consent of Landlord in each instance.
     3. No sign, advertisement, notice, or other lettering shall be exhibited, inscribed, painted, or affixed by Tenant on any part of the outside of the Premises or Building Project or on corridor walls or doors or mounted on the inside of any windows without the prior written consent of Landlord. Signs on any entrance door or doors shall conform to Building Project standards and shall, at Tenant’s expense, be inscribed, painted, or affixed for Tenant by sign makers approved by Landlord.
     4. The sashes, sash doors, skylights, windows, heating, ventilating, and air conditioning vents and doors that reflect or admit light and air into the halls, passageways, or other public places in the Building Project shall not be covered or obstructed by Tenant, or its employees, agents, invitees, or guests, nor shall any bottles, parcels, or other articles be placed outside of the Premises.
     5. No show cases or other articles shall be put in front of or affixed to any part of the exterior of the Building Project, nor placed in the public halls, corridors, or vestibules without the prior written consent of Landlord.
     6. Whenever Tenant shall submit to Landlord any plan, agreement, assignment, sublease, or other document for Landlord’s consent or approval, Tenant shall reimburse Landlord, on demand, for the actual out-of-pocket costs for the services of any architect, engineer, or attorney employed by Landlord to review or prepare the plan, agreement, assignment, sublease, consent, or other document.
     7. The water and wash closets and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown in them. All damages resulting from any misuse of fixtures shall be borne by the Tenant who, or whose employees, agents, invitees, or guests, shall have caused the damages.
     8. Tenant shall not in any way deface any part of the Premises or the Building Project. Tenant shall not lay linoleum, or other similar floor covering, so that the same shall come in direct contact with the floor of the Building, and, if linoleum or other similar floor

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covering is desired to be used, an interlining of builder’s deadening felt shall be first affixed to the floor, by a paste or other material, soluble in water, the use of cement or other similar adhesive material being expressly prohibited.
     9. No animals of any kind (except dogs assisting disabled persons) shall be brought on the Premises or Building Project.
     10. No cooking shall be done or permitted by Tenant on the Premises except in conformity to law and then only in the utility kitchen (if a utility kitchen was provided for in approved plans for the Premises or if Landlord has consented in writing to a kitchen), which is to be primarily used by Tenant’s employees for heating beverages and light snacks. No heating equipment may be placed inside the Premises without the prior written consent of Landlord in each instance. Tenant shall not cause or permit any unusual or objectionable odors to be produced on or permeate from the Premises.
     11. No office space in the Building Project shall be used for the distribution or for the storage of merchandise or for the sale at auction or otherwise of merchandise, goods, or property of any kind.
     12. Tenant shall not make or permit to be made any unseemly or disturbing noises or disturb or interfere with occupants of the Building Project or neighboring premises or those having business with them, whether by the use of any musical instrument, radio, talking machine, unmusical noise, whistling, singing, or in any other way. Tenant shall not throw anything out of the doors or windows or down the corridors, stairwells, or elevator shafts of the Building Project.
     13. Neither Tenant nor any of Tenant’s employees, agents, invitees, or guests shall at any time bring or keep on the Premises any inflammable, combustible, or explosive substance or any chemical substance, other than reasonable amounts of cleaning fluids and solvents required in the normal operation of Tenant’s business, all of which shall only be used in strict compliance with all applicable Environmental Laws.
     14. Landlord shall have a valid pass key to all spaces within the Premises at all times during the Lease Term except for Tenant’s secure areas. Except for Tenant’s secure areas, no additional locks or bolts of any kind shall be placed on any of the doors or windows by Tenant, nor shall any changes be made in existing locks or the mechanism of the locks, without the prior written consent of the Landlord and unless and until a duplicate key is delivered to Landlord. Tenant must, on the termination of its tenancy, restore to the Landlord all keys to stores, offices, and toilet rooms, either furnished to or otherwise procured by Tenant, and in the event of the loss of any keys so furnished, Tenant shall pay Landlord for the replacement cost of them.
     15. All deliveries, removals, or the carrying in or out of any safes, freights, furniture, or bulky matter of any description may be accomplished only with the prior approval of Landlord and then only in approved areas, through the approved loading/service area doors, and during approved hours. Tenant shall assume all liability and risk concerning these movements. Landlord may restrict the location where heavy or bulky matters may be placed inside the Premises. Landlord reserves the right to inspect all freight to be brought into the Building

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Project and to exclude from the Building Project all freight that can or may violate any of these Rules and Regulations or this Lease.
     16. Tenant shall not, unless otherwise approved by Landlord, occupy or permit any portion of the Premises demised to it to be occupied as, by, or for a public stenographer or typist, barber shop, bootblacking, beauty shop or manicuring, beauty parlor, telephone or telegraph agency, telephone or secretarial service, messenger service, travel or tourist agency, a personnel or employment agency, public restaurant or bar, commercial document reproduction or offset printing service, ATM or similar machines, retail, wholesale, or discount shop for sale of merchandise, retail service shop, labor union, school, classroom, or training facility, an entertainment, sports, or recreation facility, an office or facility of a foreign consulate or any other form of governmental or quasigovernmental bureau, department, or agency, including an autonomous governmental corporation, a place of public assembly (including a meeting center, theater, or public forum), a facility for the provision of social welfare or clinical health services, a telemarketing facility, a customer service call center, a firm the principal business of which is real estate brokerage, a company engaged in the business of renting office or desk space, a public finance (personal loan) business, or manufacturing, unless Tenant’s Lease expressly grants permission to do so. Tenant shall not operate or permit to be operated on the Premises any coin or token operated vending machine or similar device (including telephones, lockers, toilets, scales, amusement devices, and machines for sale of beverages, foods, candy, cigarettes, or other goods), except for those vending machines or similar devices that are for the sole and exclusive use of Tenant’s employees, and then only if operation of the machines or devices does not violate the lease of any other tenant of the Building Project. Tenant shall not engage or pay any employees on the Premises, except those actually working for Tenant on the Premises, nor advertise for labor giving an address at the Premises.
     17. Tenant shall not create or use any advertising mentioning or exhibiting any likeness of the Building Project without the prior written consent of Landlord. Landlord shall have the right to prohibit any advertising that, in Landlord’s reasonable opinion, tends to impair the reputation of the Building Project or its desirability as a building for offices, and on notice from Landlord, Tenant shall discontinue the advertising.
     18. Landlord reserves the right to exclude from the Building Project at all times other than Normal Business Hours all persons who do not present a pass to the Building Project on a form or card approved by Landlord. Tenant shall be responsible for all its employees, agents, invitees, or guests who have been issued a pass at the request of Tenant and shall be liable to Landlord for all acts of those persons.
     19. The Premises shall not be used for lodging or sleeping, or for any immoral, disreputable, or illegal purposes, or for any purpose that may be dangerous to life, limb, or property.
     20. Any maintenance requirements of Tenant will be attended to by Landlord only on application at the Landlord’s office at the Building Project. Landlord’s employees shall not perform any work or do anything outside of their regular duties, unless under specific instructions from the office of Landlord.

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     21. Canvassing, soliciting, and peddling within the Building Project or in the Common Areas is prohibited and Tenant shall cooperate to prevent the such activities.
     22. There shall not be used in any space, or in the public halls of the Building Project, either by Tenant or by jobbers or others, in the delivery or receipt of merchandise to Tenant, any hand trucks, except those equipped with rubber tires and side guards. No hand trucks shall be used in elevators other than those designated by Landlord as service elevators. All deliveries shall be confined to the service areas and through the approved service entries.
     23. All paneling or other wood products not considered furniture that Tenant shall install in the Premises shall be of fire retardant materials. Before the installation of these materials, Tenant shall submit to Landlord a satisfactory (in the reasonable opinion of Landlord) certification of the materials’ fire retardant characteristics.
     24. Tenant, its employees, agents, contractors, and invitees shall not be permitted to occupy at anyone time more than the number of parking spaces in the Parking Areas permitted in the Lease (including any parking spaces reserved exclusively for Tenant). Usage of parking spaces shall be in common with all other tenants of the Building Project and their employees, agents, contractors, and invitees. All parking space usage shall be subject to any reasonable rules and regulations for the sale and proper use of parking spaces that Landlord may prescribe. Tenant’s employees, agents, contractors, and invitees shall abide by all posted roadway signs in and about the parking facilities. Landlord shall have the right to tow or otherwise remove vehicles of Tenant and its employees, agents, contractors, or invitees that are improperly parked, blocking ingress or egress lanes, or violating parking rules, at the expense of Tenant or the owner of the vehicle, or both, and without liability to Landlord. Upon request by Landlord, Tenant shall furnish Landlord with the license numbers and descriptions of any vehicles of Tenant, its principals, employees, agents, and contractors. Tenant acknowledges that reserved parking spaces, if any, shall only be reserved during the hours of 8:00 a.m. to 5:00 p.m., Monday through Friday, Legal Holidays excluded.
     25. Parking spaces may be used for the parking of passenger vehicles only and shall not be used for parking commercial vehicles or trucks (except sports utility vehicles, mini-vans, and pick-up trucks utilized as personal transportation), boats, personal watercraft, or trailers. No parking space may be used for the storage of equipment or other personal property. Overnight parking in the Parking Areas is prohibited. Landlord, in Landlord’s sole and absolute discretion, may establish from time to time a parking decal or pass card system, security check-in, or other reasonable mechanism to restrict parking in the Parking Areas.
     26. All trucks and delivery vans shall be parked in designated areas only and not parked in spaces reserved for cars. All delivery service doors are to remain closed except during the time that deliveries, garbage removal, or other approved uses are taking place. All loading and unloading of goods shall be done only at the times, in the areas, and through the entrances designated for loading purposes by Landlord.
     27. Tenant shall be responsible for the removal and proper disposition of all crates, oversized trash, boxes, and items termed garbage from the Premises. The corridors and parking and delivery areas are to be kept clear of these items. Tenant shall provide convenient and

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adequate receptacles for the collection of standard items of trash and shall facilitate the removal of trash by Landlord. Tenant shall ensure that liquids are not disposed of in the receptacles.
     28. Tenant shall not conduct any business, loading or unloading, assembling, or any other work connected with Tenant’s business in any public areas.
     29. Landlord shall not be responsible for lost or stolen personal property, equipment, or money occurring anywhere on the Premises or Building Project, regardless of how or when the loss occurs.
     30. Neither Tenant, nor its employees, agents, invitees, or guests, shall paint or decorate the Premises, or mark, paint, or cut into, drive nails or screw into nor in any way deface any part of the Premises or Building Project without the prior written consent of Landlord. Notwithstanding the foregoing, standard picture hanging shall be permitted without Landlord’s prior consent. If Tenant desires a signal, communications, alarm, or other utility or service connection installed or changed, the work shall be done at the expense of Tenant, with the approval and under the direction of Landlord.
     31. Tenant shall give Landlord prompt notice of all accidents to or defects in air conditioning equipment, plumbing, electric facilities, or any part or appurtenance of the Premises.
     32. Tenant agrees and fully understands that the overall aesthetic appearance of the Building Project is of paramount importance; thus Landlord shall maintain complete aesthetic control over any and every portion of the Premises visible from outside the Premises including all fixtures, equipment, signs, exterior lighting, plumbing fixtures, shades, awnings, merchandise, displays, art work, wall coverings, or any other object used in Tenant’s business. Landlord’s control over the visual aesthetics shall be complete and arbitrary. Landlord will notify Tenant in writing of any aesthetic deficiencies and Tenant will have seven days to correct the deficiencies to Landlord’s satisfaction or Tenant shall be in default of this Lease and the Default article shall apply.
     33. Tenant shall not install, operate, or maintain in the Premises or in any other area of the Building Project, any electrical equipment that does not bear the U/L (Underwriters Laboratories) seal of approval, or that would overload the electrical system or any part of the system beyond its capacity for proper, efficient, and safe operation as determined by Landlord, taking into consideration the overall electrical system and the present and future requirements therefor in the Building Project. Tenant shall not furnish any cooling or heating to the Premises, including the use of any electronic or gas heating devices, without Landlord’s prior written consent.
     34. Under applicable law, the Building Project is deemed to be a “no smoking” building and smoking is prohibited in all interior areas of the Building Project. In addition, Landlord may, from time to time, designate nonsmoking areas in all or any portion of the exterior Common Areas.
     35. Tenant shall not allow the Premises to be occupied by more than four persons per 1,000 square feet of rentable area.

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     36. Tenant will take all steps necessary to prevent: inadequate ventilation, emission of chemical contaminants from indoor or outdoor sources, or both, or emission of biological contaminants. Tenant will not allow any unsafe levels of chemical or biological contaminants (including volatile organic compounds) in the Premises, and will take all steps necessary to prevent the release of contaminants from adhesives (for example, upholstery, wallpaper, carpet, machinery, supplies, and cleaning agents).
     37. Tenant shall comply with any recycling programs for the Building Project implemented by Landlord from time to time.
     38. Tenant shall not obtain for use in the Premises ice, drinking water, towel, barbering, bootblacking, floor polishing, lighting maintenance, cleaning, or other similar services from any persons not authorized by Landlord in writing to furnish the services.
     39. Landlord may, on request by any tenant, waive compliance by the tenant with any of the Rules and Regulations provided that (a) no waiver shall be effective unless in writing and signed by Landlord or Landlord’s authorized agent, (b) a waiver shall not relieve the tenant from the obligation to comply with the rule or regulation in the future unless expressly consented to by Landlord, and (c) no waiver granted to any tenant shall relieve any other tenant from the obligation of complying with the Rules and Regulations unless the other tenant has received a similar waiver in writing from Landlord.
     40. Whenever these Rules and Regulations directly conflict with any of the rights or obligations of Tenant under this Lease, this Lease shall govern.

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EXHIBIT “F”
TENANT IMPROVEMENTS
     Landlord has made no representation or promise as to the condition of the Premises. Landlord shall not perform any alterations, additions, or improvements in order to make the Premises suitable and ready for occupancy and use by Tenant. Tenant has inspected the Premises, is fully familiar with the physical condition of the Premises, and shall accept the Premises “as is,” “where is,” without any warranty, express or implied, or representation as to fitness or suitability.
     Tenant shall, at its sole cost and expense, perform the improvements to the Premises desired by Tenant (the “ Tenant Improvements ”). Landlord acknowledges that Tenant desires to perform the following limited amount of Tenant Improvements initially (and may perform additional Tenant Improvements at a later time): install new carpet and repaint the Premises and minor cosmetic touch up (all choices and changes to this initial work shall be submitted for Landlord’s prior approval). If any additional Tenant Improvements are desired to be performed by Tenant, then prior to commencement of any such additional work, Tenant shall furnish to Landlord, for Landlord’s written approval, a permit set (final construction drawings) of plans and specifications for the Tenant Improvements (the “Plans”). The Plans shall include the following: fully dimensioned architectural plan; electric/telephone outlet diagram; reflective ceiling plan with light switches; mechanical plan; furniture plan; electric power circuitry diagram; plumbing plans; all color and finish selections; all special equipment and fixture specifications; and fire sprinkler design drawings.
     The Plans will be prepared by a licensed architect and the electrical and mechanical plans will be prepared by a licensed professional engineer. The Plans shall be produced on CAD. The architect and engineer will be subject to Landlord’s approval, which shall not be unreasonably withheld. The Plans shall comply with all applicable laws, ordinances, directives, rules, regulations, and other requirements imposed by any and all governmental authorities having or asserting jurisdiction over the Premises. Landlord shall review the Plans and either approve or disapprove them, within a reasonable period of time. Should Landlord disapprove them, Tenant shall make any necessary modifications and resubmit the Plans to Landlord in final form within ten days following receipt of Landlord’s disapproval of them. The approval by Landlord of the Plans and any approval by Landlord of any similar plans and specifications for any other Alterations or the supervision by Landlord of any work performed on behalf of Tenant shall not (a) imply Landlord’s approval of the plans and specifications as to quality of design or fitness of any material or device used; (b) imply that the plans and specifications are in compliance with any codes or other requirements of governmental authority (it being agreed that compliance with these requirements is solely Tenant’s responsibility); (c) impose any liability on Landlord to Tenant or any third party; or (d) serve as a waiver or forfeiture of any right of Landlord. The Tenant Improvements shall be constructed by a general contractor selected and paid by Tenant and approved by Landlord. The contractor’s license(s) to do business in the jurisdiction(s) in which the Premises are located, a Contractor’s Qualification Statement for the contractor in the most current American Institute of Architects form, the fully executed contract between Tenant and the general contractor, the general contractor’s work schedule, and all building or other governmental permits required for the Tenant Improvements shall be delivered to Landlord

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before commencement of the Tenant Improvements. Tenant shall cooperate as reasonably necessary so that its general contractor will cause the Tenant Improvements to be completed promptly and with due diligence. The Tenant Improvements shall be performed in accordance with the Plans and shall be done in a good and workmanlike manner using new materials. All work shall be done in compliance with all other applicable provisions of this Lease and with all applicable laws, ordinances, directives, rules, regulations, and other requirements of any governmental authorities having or asserting jurisdiction over the Premises. Before the commencement of any work by Tenant, Tenant shall furnish to Landlord certificates evidencing the existence of builder’s risk, commercial general liability, and workers’ compensation insurance complying with the requirements set forth in the Insurance article of this Lease. Any damage to any part of the Building Project that occurs as a result of the Tenant Improvements shall be promptly repaired by Tenant.
     Tenant shall also ensure compliance with the following requirements concerning construction:
     1. Tenant and all construction personnel shall abide by Landlord’s job site rules and regulations and fully cooperate with Landlord’s construction representatives in coordinating all construction activities in the Building Project, including rules and regulations concerning working hours, parking, and use of the construction elevator.
     2. All transportation of construction materials shall be on the padded construction elevator only. Tenant shall be responsible for cleaning up any refuse or other materials left behind by construction personnel at the end of each work day.
     3. Tenant shall deliver to Landlord all forms of approval provided by the appropriate local governmental authorities to certify that the Tenant Improvements have been completed and the Premises are ready for occupancy, including a [mal, unconditional certificate of occupancy.
     4. At all times during construction, Tenant shall allow Landlord access to the Premises for inspection purposes. On completion of the Tenant Improvements, Tenant’s general contractor shall review the Premises with Landlord and Tenant and secure Landlord’s and Tenant’s acceptance of the Tenant Improvements.
     If and for as long as Tenant is not in default under this Lease beyond any applicable grace period, Tenant shall be entitled to a fixed price tenant improvement allowance in the amount set forth in Article 1 of this Lease. The tenant improvement allowance shall be paid to Tenant in reimbursement for the total out of pocket costs paid by Tenant for the design professional fees and the “hard costs” of construction of the Tenant Improvements (whether performed initially, as described in the second paragraph of this Exhibit, or thereafter). The allowance may not be applied to any other costs such as, but not limited to, the costs of Tenant’s furniture, trade fixtures, and equipment, cabling and wiring costs, and moving expenses. If the total amount paid by Tenant for the Tenant Improvements is less than the tenant improvement allowance, Tenant shall not receive cash or any credit against rent for the unused portion of the allowance. The tenant improvement allowance shall be paid within 21 days after all of the following events have occurred: (a) the Tenant Improvements have been substantially completed; (b) Tenant has delivered to Landlord final releases of lien from Tenant’s general contractor and all lienors

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giving notice as defined in the Florida Construction Lien Law and a final contractor’s affidavit from the general contractor in accordance with the Florida Construction Lien Law, and all other receipts and supporting information concerning payment for the work that Landlord may reasonably request; (c) Tenant has moved into the Premises and opened for business in the Premises; and (d) Tenant has paid the rent due for the first month of the Lease Term. Tenant shall provide Landlord with true copies of bills paid by Tenant for the Tenant Improvements, and Landlord shall reimburse Tenant for the amount set forth in the bills up to the amount of the allowance. At Landlord’s option, the tenant improvement allowance or any portion of it may be paid by Landlord directly to the general contractor performing the Tenant Improvements or to any lienor giving notice as defined in the Florida Construction Lien Law. If Tenant is in default under this Lease beyond any applicable grace period, Landlord may, in addition to all its other available rights and remedies, withhold payment of any unpaid portion of the tenant improvement allowance, even if Tenant has already paid for all or a portion of the cost of the Tenant Improvements.
     The tenant improvement allowance is being paid by Landlord as an inducement to Tenant to enter into this Lease and as consideration for the execution of this Lease by Tenant and the performance by Tenant under this Lease for the full Lease Term. If after Tenant has been granted all or any portion of the allowance, the Lease Term is thereafter terminated by virtue of a default by Tenant or Landlord resumes possession of the Premises consequent on a default by Tenant, and Landlord is precluded by applicable law from collecting the full amount of damages attributable to the default as provided in the Default article of this Lease, then, in addition to all other available damages and remedies, Landlord shall also be entitled to recover from Tenant the unamortized portion (calculated using an interest rate of 12% per annum compounded monthly) of the tenant improvement allowance, which sum shall not be deemed rent. This obligation of Tenant to repay the unamortized balance of the tenant improvement allowance to Landlord shall survive the expiration or sooner termination of the Lease Term.
     The tenant improvement allowance provisions of this exhibit shall not apply to any additional space added to the original Premises at any time after the Date of this Lease, whether by any options under this Lease or otherwise, or to any portion of the original Premises or any additions to the Premises in the event of a renewal or extension of the initial Lease Term, whether under any options under this Lease or otherwise, unless expressly so provided in this Lease or an amendment to this Lease.

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RIDER NO. 1 ANNEXED TO AND MADE A PART OF LEASE BETWEEN
CRT-SFV, LLC, AS LANDLORD,
AND
BIOHEART, INC., AS TENANT
EXPANSION RIGHTS
     If at any time during the Lease Term, space adjacent to the Premises becomes available for leasing by Landlord, then, provided that Tenant shall not be in default under the Lease, Landlord shall promptly advise Tenant of the availability of the space and negotiate in good faith with Tenant on the terms for the space. If Landlord and Tenant are not able, for any reason, to execute a new lease, or an amendment to the Lease, for the available space within 10 days after notice has been given to Tenant of the availability of the space, then the rights of Tenant to lease the space shall terminate and thereafter Landlord shall be free to rent the space which is the subject of Landlord’s notice to Tenant to whomever Landlord wishes and on whatever terms it desires. The rights granted in this Rider are subject and subordinate to all rights of third parties to lease space in the Building Project which have been granted by Landlord prior to the Date of the Lease. Tenant shall have no rights under this Rider during the last two years of the Lease Term.
     IN WITNESS WHEREOF, this Rider has been executed on behalf of Landlord and Tenant as of the Date of the Lease.

WITNESSES:
LANDLORD:
CRT-SFV, LLC, a Delaware limited liability
company authorized to transact business in Florida
By:   PARTHENON REALTY, LLC, a Georgia
limited liability company, as manager
     By:  
 
William F. Freeman, III
Senior Vice President
(SEAL)
Date Executed:  
 


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TENANT:
BIOHEART, INC., a Florida corporation
By:  
 
Name:  
 
Title:  
 
(CORPORATE SEAL)
Date Executed:  
 


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RIDER NO. 2 ANNEXED TO AND MADE A PART OF LEASE BETWEEN
CRT-SFV, LLC, AS LANDLORD,
AND
BIOHEART, INC., AS TENANT
OPTION TO EXTEND
     1. Tenant shall have the option to extend the Lease Term for an additional period of 60 months, for the Premises as originally demised under the Lease on the same terms and conditions as provided in the Lease (unless hereafter changed or modified by a mutual agreement in writing), except that, for the extended term:
          (a) on exercise of this option to extend the Lease Term, the Lease, as extended, shall not contain any further option to extend as provided in this Rider;
          (b) the Base Rent shall be determined in accordance with Paragraph 3 of this Rider, but in no event shall it be less than the Base Rent payable for the l2-month period immediately preceding the expiration of the original term of the Lease; and
          (c) Landlord shall have no obligation to perform any alterations or tenant improvements or other work in the Premises and Tenant shall continue possession of the Premises in its “as is,” “where is,” and “with all faults” condition.
     2. The exercise of the option set forth in this Rider shall only be effective on, and in strict compliance with, the following terms and conditions:
          (a) Notice of Tenant’s exercise of the option (the “ Extension Notice ”) shall be given by Tenant to Landlord no earlier than one year and no later than nine months prior to the expiration date of the initial Lease Term. Time shall be of the essence as to the exercise of any election by Tenant under this Rider.
          (b) At the time of Tenant giving Landlord notice of its election to extend the Lease Term and on the expiration of the initial term, the Lease shall be in full force and effect and Tenant shall not be in default under any of the terms, covenants, and conditions of the Lease beyond any applicable grace period.
          (c) No portion of the Premises is sublet to anyone at the expiration date of the Lease Term.
          (d) The Lease has not been assigned by Tenant at the expiration date of the Lease Term.
     3. The Base Rent, exclusive of any sales and use taxes, shall be a sum equal to the fair and reasonable market rental value of the Premises for each year of the extended term, taking into account the rentals at which extensions or renewals of leases are being concluded for comparable space and duration in the Building within the six months prior to the Tenant’s Extension Notice, or if there are no comparable transactions in the Building, the rentals at which extensions or renewals of leases are being concluded in comparable buildings in the Sunrise,

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Florida area at that time and for such a term and taking into account the terms and conditions of the Lease and anticipated inflation (the “ Fair Market Rental Value ” or the “ Value ”).
          (a) Within 30 days after receipt of the Extension Notice, Landlord shall advise Tenant of the applicable Base Rent for the extended term. Tenant, within 30 days after the date on which Landlord advises Tenant of the applicable Base Rent for the extended term, shall either (i) give Landlord final binding notice (“ Binding Notice ”) of Tenant’s exercise of its option, or (ii) if Tenant disagrees with Landlord’s determination of the Fair Market Rental Value, provide Landlord with notice of rejection (the “ Rejection Notice ”). If Tenant fails to provide Landlord with either a Binding Notice or Rejection Notice within the 30-day period, Tenant’s election of the option to extend the Lease shall, at Landlord’s option, be null and void and of no further force and effect. If Tenant provides Landlord with a Binding Notice, Landlord and Tenant shall enter into an amendment to the Lease extending the Lease Term in accordance with the terms and conditions of this Rider.
          (b) If Tenant provides Landlord with a Rejection Notice, Landlord and Tenant shall work together in good faith to agree on the Fair Market Rental Value for the Premises during the extended term. On agreement, Landlord and Tenant shall enter into an amendment to the Lease extending the Lease Term in accordance with the terms and conditions of this Rider.
          (c) If Landlord and Tenant cannot agree on the Value within 30 days after receipt of the Rejection Notice, Tenant shall have the option to withdraw its election to extend the Lease Term by giving Landlord notice of withdrawal within ten days after the expiration of the 30-day period. If Tenant elects to withdraw its election to extend, Tenant’s right to extend the Lease Term shall be null and void and of no further force and effect.
          (d) If Landlord and Tenant cannot agree on the Value within 30 days after receipt of the Rejection Notice and, in addition, Tenant does not elect to withdraw its election to extend the Lease Term, Landlord and Tenant, within 20 days after the expiration of the 30-day period, shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Value (collectively referred to as the “ Estimates ”). If the higher of the Estimates is not more than 105% of the lower of the Estimates, then the Fair Market Rental Value shall be the average of the two Estimates. If the higher of the Estimates is more than 105% of the lower of the Estimates, Landlord and Tenant, within seven days after the exchange of the Estimates, shall each select an MAI appraiser with experience in commercial real estate activities, including at least ten years experience in appraising office space in the local area in which the Building Project is located. On selection, Landlord’s and Tenant’s appraisers shall work together in good faith to agree on which of the two Estimates most closely reflects the Fair Market Rental Value. The estimate that is selected by the appraisers shall be binding on both Landlord and Tenant. If either Landlord or Tenant fails to appoint an appraiser within the sevenday period referred to above, the appraiser appointed by the other party shall be the sole appraiser for the purposes of this section. If the two appraisers cannot agree on which of the two Estimates most closely reflects the Value within 20 days after their appointment, then, within ten days after the expiration of the 20-day period, the two appraisers shall select a third appraiser meeting the criteria stated above. Once the third appraiser has been selected, then, as soon thereafter as practical but in any case within 14 days, the third appraiser shall make his determination as to which of the Estimates most closely reflects the Fair Market Rental Value. The determination by

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the third appraiser shall be rendered in writing to both Landlord and Tenant and shall be final and binding on them. If the third appraiser believes that expert advice would materially assist him, he may retain one or more qualified persons to provide expert advice. The parties shall share equally in the cost of the third appraiser and of any experts retained by the third appraiser. Any fees of any counselor experts engaged directly by Landlord or Tenant, including the appraisers selected by Landlord and Tenant, however, shall be borne by the party retaining the counselor expert.
          (e) On a determination of the Value under the preceding procedure, Landlord and Tenant shall enter into an amendment to the Lease extending the Lease Term in accordance with the terms and conditions of this Rider.
     4. If at the date of commencement of the extended term, the Base Rent shall not have been determined, then, pending determination, Tenant shall pay to Landlord Base Rent at a sum equal to (a) the Base Rent payable for the immediately preceding 12month period plus (b) 33% of the Base Rent (the “ Temporary Rate ”). After a determination of Base Rent is made (x) if the rate is greater than the Temporary Rate, Tenant shall promptly pay to Landlord the difference between the rent previously paid at the Temporary Rate and the greater rate, as determined or (y) if the rate is less than the Temporary Rate, Landlord shall promptly pay to Tenant the difference between the rent previously paid at the Temporary Rate and the lesser rate, as determined.
     IN WITNESS WHEREOF, this Rider has been executed on behalf of Landlord and Tenant as of the Date of the Lease.
LANDLORD:
CRT-SFV, LLC, a Delaware limited liability
company authorized to transact business in Florida
By:   PARTHENON REALTY, LLC, a Georgia
limited liability company, as manager
     By:  
 
William F. Freeman, III
Senior Vice President
(SEAL)
Date Executed:  
 


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TENANT:
BIOHEART, INC., a Florida corporation
By:  
 
Name:  
 
Title:  
 
(CORPORATE SEAL)
Date Executed:  
 


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RIDER NO. 3 ANNEXED TO AND MADE A PART OF LEASE BETWEEN
CRT-SFV, LLC, AS LANDLORD,
AND
BIOHEART, INC., AS TENANT
LICENSE TO USE ROOFTOP SPACE
     1.  License to Use Rooftop Space . Subject to the terms of this License, Landlord grants to Tenant a license to locate one satellite dish up to 18” in diameter (the “ Equipment ”) in the area on the roof of the Building to be designated by Landlord (the “ Equipment Space ”) during the Lease Term. The rights granted under this License are non-exclusive, limited use rights, in the nature of a license, which rights are personal to Tenant and may not be assigned. Tenant understands and agrees that Landlord may, from time to time, upon not less than 90 days’ written notice, relocate the Equipment Space to another area of the roof of the Building Project; provided that such relocation shall not materially, substantially, and unreasonably interfere with Tenant’s use of the Equipment and shall be made at Landlord’s sole cost and expense.
     Tenant shall pay, as additional rent together with its monthly payments of Base Rent, the sum of 100.00 (plus sales tax) per month for the period that Tenant locates its Equipment on roof during the term of this License.
     2.  Installation of the Equipment . Tenant shall, at its sole cost and expense, and at its sole risk, install the Equipment in a good and workmanlike manner, and in compliance with all of the following (the “ Codes ”): building, electric, communications, and safety codes, ordinances, standards, regulations, and requirements of the Federal Government, including, without limitation, the Federal Communications Commission (the “ FCC ”) or any successor agency having jurisdiction over radio or telecommunications, the Federal Aviation Association, the State of Florida, Broward County, and all other governmental authorities having jurisdiction. Prior to installation, Tenant shall deliver to Landlord copies of Tenant’s plans and specifications for the installation for the Equipment and proof that all plans and specifications are in accordance with the Codes. Tenant shall cause the plans and specifications for the Equipment to conform to Landlord’s design and engineering criteria provided to Tenant from time to time in effect and shall make any reasonable changes required by Landlord or its agents, engineers, or architects. In no event shall Tenant’s installation of the Equipment damage the Building Project or existing structures on the Building Project. or interfere with the maintenance of the Building Project, any system contained in the Building Project, any system currently serving the Building Project, or any radio or telecommunication equipment operated from the Building Project. Without limiting the generality of the foregoing, Tenant shall not install the Equipment in any manner which would void or limit any warranty or guaranty covering the roof of the Building Project. Tenant shall notify Landlord upon completion of the installation of the Equipment Landlord’s review and approval of the plans and specifications for the installation of the Equipment and Landlord’s supervision and inspection of such installation shall not be construed in any way as approval by Landlord of the adequacy or safety of the installation of the Equipment or as a waiver of any of Landlord’s rights under this License, and Tenant shall be solely responsible for the adequacy and safety of the installation and operation of the Equipment and solely liable for any damages or injury arising out of such installation and operation, other than injury or damages arising out of the negligence or willful misconduct of Landlord. Tenant

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shall pay to Landlord, upon demand, the cost of repairing any damage to the Building Project caused by such installation (including, but not limited to, all costs associated with any impairment of any roof warranty or guaranty) other than damages occurring due to the gross negligence or willful misconduct of Landlord.
     3.  Access to the Equipment . During the Lease Term, Landlord agrees that Tenant shall have access to the Equipment Space as provided in this License for the purpose of installing, operating, maintaining, repairing, and removing the Equipment, provided however, that such access shall be limited to authorized employees and agents of Tenant, or persons under their direct supervision. Upon request, Tenant shall deliver to Landlord a list of Tenant’s authorized employees and agents prior to any access to the Equipment Space, and those persons shall be required to give 48 hours’ minimum advance notice prior to such access (except in case of an Emergency). Landlord shall have no responsibility or liability for the conduct or safety of any of Tenant’s representatives, or repair, maintenance, and engineering personnel while in any part of the Building Project or the Equipment Space; it being understood and agreed that Tenant shall be solely liable for any injury to or death of any such person from any cause other than the gross negligence or willful misconduct of Landlord.
     4.  Operation of Equipment . Tenant shall operate the Equipment in strict compliance with Landlord’s rules and regulations, as communicated by Landlord to Tenant, and the Codes. Tenant covenants that the design and plans of the Equipment conform to the Codes. Tenant shall be solely responsible for obtaining all required permits, licenses, and consents, and all renewals thereof, to install and operate the Equipment and shall provide copies thereof to Landlord upon request. In the event Tenant shall not have all such permits, licenses, and consents upon the execution date of this License, Tenant shall immediately commence the diligent prosecution of applications to obtain them. Nothing herein shall imply any duty or responsibility on the part of Landlord to obtain for Tenant any license or permit or renewal or extension thereof which may be necessary or proper for the conduct of Tenant’s activities. The operation of the Equipment shall not interfere with the maintenance or operation of the Building Project, or any system now or hereafter contained in or serving the Building Project, or the operation of any existing radio or telecommunication equipment operated on or from the Building Project.
     5.  Other Radio or Telecommunication Equipment . During the Lease Term, and subject to Landlord’s rights under this License and under the Lease, Landlord reserves the right to lease space in the Building Project and grant licenses for space on the roof of the Building Project, for the operation of radio, telecommunication, and other equipment by other tenants and licensees and may relocate the Equipment Space in accordance with Paragraph 1 hereof, from time to time to utilize the space on the roof in a manner satisfactory to Landlord; provided, however, that such other equipment or relocation shall not unreasonably interfere with Tenant’s installation, operation, maintenance, or repair of the Equipment
     6.  Indemnification of Landlord and Tenant . Tenant hereby agrees to indemnify and hold Landlord, its agents, and employees harmless from and against any and all costs, claims, damages, causes of action, and liability which may arise by reason of any occurrence attributable to or arising out of the installation, maintenance, repair, operation, or removal of any of the Equipment, including, without limitation, any claim or cause of action, or demand against Landlord, its agents, and employees arising out of any such occurrence, except when caused by

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the gross negligence or willful misconduct of Landlord. Landlord hereby agrees to indemnify and hold Tenant, its agents and employees, harmless from and against any and all costs, claims, damages, causes of action, and liability which may arise out of any such occurrence when caused by the gross negligence or willful misconduct of Landlord.
     7.  Non-Liability for Certain Matters .
          (a) Except as set forth in Paragraph 6 above, Landlord shall not be liable to Tenant by reason of inconvenience, annoyance, or injury to the Building Project or Equipment Space or activities conducted by Tenant therefrom, arising from the necessity of repairing any portion of the Building Project or Equipment Space, whether due to fire or otherwise, or from the making of any alterations or improvements in, or to, any portion of the Building Project or Equipment Space or in, or to, its fixtures, appurtenance, or equipment.
          (b) Tenant shall give Landlord prompt written notice of any accident to any equipment or apparatus belonging to Landlord. Landlord shall not be liable for any latent defect or change or modification in the Building Project or Equipment Space, nor for any damage to property or persons caused by any overflow or leakage of water, steam, gas, electricity, or any other substance from any other source whatsoever except for such damage caused by the gross negligence or willful misconduct of Landlord.
          (c) Landlord has not made any representations as to the condition or suitability of the Building Project of the Equipment Space for the uses intended to be made of them by Tenant, nor does this License constitute any representation or warranty that such use is a legal or allowable use.
     8.  Casualty . Tenant shall be solely responsible for any loss or damage to the Equipment arising from casualty, fire, flood, tornado, or other acts of God.
     9.  Landlord’s Rules and Regulations . Landlord shall have the power, from time to time, to promulgate by written notice to Tenant all reasonably necessary or appropriate rules or regulations governing the operation of the Equipment, access to the Equipment Space, and transportation of the Equipment into and out of the Building Project, to insure the safe and orderly operation of the Building Project; provided, that such rules and regulations shall not unreasonably interfere with Tenant’s use of the Equipment Space as contemplated herein. Tenant covenants and agrees to comply with all such rules and regulations.
     10.  Removal of Equipment . On the expiration or sooner termination of this License, Tenant shall, at its sole cost and expense, remove from the Equipment Space the Equipment and any or all other property of Tenant and Tenant shall repair any damage to the Equipment Space and the Building Project resulting from such removal. Should Tenant fail to remove the Equipment or repair any damage resulting from removal, Landlord may remove the Equipment and repair all damage caused thereby and Tenant shall pay all costs incurred by Landlord upon demand.
     11.  Utilities . Tenant shall, at its sale cost and expense, obtain electrical and telephone service and any other utilities necessary for utilization of the Equipment Space, including the installation of a separate meter and main breaker. Tenant shall pay the electrical utility provider

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directly for the electricity It consumes for its operations at the Equipment Space. Landlord shall not be liable to Tenant for any stoppages or shortages of electrical power furnished to the Equipment Space because of any act, omission, or requirement of the public utility serving the Building Project, or the act or omission of any other tenant or licensee of the Building Project, or for any other cause beyond the control of Landlord.
     IN WITNESS WHEREOF, this Rider has been executed on behalf of Landlord and Tenant as of the Date of the Lease.
LANDLORD:
CRT-SFV, LLC, a Delaware limited liability
company authorized to transact business in Florida
By:   PARTHENON REALTY, LLC, a Georgia
limited liability company, as manager
     By:  
 
William F. Freeman, III
Senior Vice President
(SEAL)
        Date Executed:  
 
TENANT:
BIOHEART, INC., a Florida corporation
By:  
 
Name:  
 
Title:  
 
(CORPORATE SEAL)
Date Executed:  
 

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CORPORATE RESOLUTIONS
     The undersigned Officer of BIOHEART, INC, a Florida corporation (the “ Corporation ”), hereby certifies that the following is, a, true and correct copy of Resolutions adopted at a duly called meeting of the Directors of the Corporation held on _______________, 2004, at which a quorum of Directors were present and voting throughout:
“BE IT RESOLVED that this Corporation enter into a Lease with CRT-SFV, LLC (the “ Landlord ”) for space in Sawgrass Business Plaza, 13794 Northwest 4th Street, Sunrise, Florida.
“BE IT FURTHER RESOLVED that the President or any other officer of this Corporation, acting singly or together, be and hereby is and are authorized and directed to negotiate the specific terms and conditions of the Lease and the rent and charges in connection therewith and to execute and deliver on behalf of this Corporation such Lease, security agreements, financing statements, certificates, estoppels, subordination, attornment, and non-disturbance agreements, and such other documents as may be necessary or required by Landlord with respect to the Lease,
“BE IT FURTHER RESOLVED, that any and all actions taken since the last meeting of the Board of Directors of this Corporation by the Directors and officers of this Corporation be, and they hereby are, ratified, confirmed, and approved in all respects,
“BE IT FURTHER RESOLVED, that the foregoing Resolutions are in conformity with the Articles of Incorporation and the By-Laws of the Corporation, and are within its corporate powers, The authority given hereunder shall be deemed retroactive to the extent necessary or convenient for the full effectuation of these Resolutions. In such event, all acts performed prior to the adoption of these Resolutions, but which are necessary or convenient for the full effectuation of these Resolutions, are hereby ratified, adopted, and affirmed, The authority conferred by these Resolutions shall continue in full force and effect until actual written notice of revocation of these Resolutions shall have been received by the Landlord,”
     I FURTHER CERTIFY (i) that the above Resolutions were duly and regularly enacted at a joint meeting of the Board of Directors called for that purpose and held in accordance with the Articles of Incorporation and By-Laws of the Corporation and the statutes of the State of Florida; (ii) that the Directors of the Corporation have full power and authority to bind the Corporation pursuant thereto; and (iii) that the Resolutions arc in full force and effect and have not been altered, modified, or rescinded in any way.
     IN WITNESS WHEREOF, I have affixed my name as _______________ of the Corporation, and have affixed the corporate seal of the Corporation this ___ day of ____________, 2004.

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FIRST AMENDMENT TO LEASE
FIRST AMENDMENT TO THAT CERTAIN LEASE AGREEMENT (the “Lease”), dated the ___day of November, 2006, by and between SAWGRASS BUSINESS PLAZA, L.L.C. a Florida Corporation, as successor in interest to CRT-SFV, LLC, a Delaware Corporation (hereinafter referred to as “Landlord”) and BIOHEART, INC. a Florida Corporation (hereinafter referred to as “Tenant”).
LANDLORD AND TENANT entered into a Lease Agreement dated the 10 th day of August, 2004, for certain premises known as Suite 210, 211, 212 & 213 of the Sawgrass Business Plaza, 13794 NW 4 Street, Sunrise, FL, the (“Leased Premises”).
WHEREAS, Tenant now desires to modify said Lease to provide for an expansion of Premises and;
WHEREAS, Landlord consented to the expansion of Premises, subject to the following terms and conditions hereafter set forth;
THEREFORE, Landlord and Tenant do hereby agree to and do so incorporate into the Lease by reference hereto, the following changes to the original Lease Agreement:
     
 
   
EXPANSION
PREMISES:
  Suites 208/209, consisting of approximately 2,585 Rentable Square feet.
 
   
LEASE
TERM:
  The lease Term commences January 1, 2006 and Terminates January 31, 2010.
 
   
BASE RENT:
  Expansion Premises only:
 
  January 1, 2007 – December 31, 2007: $15.00 per Net Rentable Square Foot, or $38,775.00 annually, or $3,231.25 per month, plus sales tax and CAM.
 
   
 
  January 1, 2008 – December 31, 2008: $15.60 per Net Rentable Square Foot, or $40,326.00 annually, or $3,360.50 per month, plus sales tax and CAM.
 
   
 
  January 1, 2009 – December 31, 2009: $16.22 per Net Rentable Square Foot, or $41,928.70 annually, or $3,494.06 per month, plus sales tax and CAM.
 
   
 
  January 1, 2010 – January 31, 2010: $16.87 per Net Rentable Square Foot, or $43,608.95 annually, or $3,634.08 per month, plus sales tax and CAM.
Landlord, at Landlord’s sole expense, shall repaint and replace carpet and blinds in Expansion Premises using building standard finishes. Demolish walls at front of reception area and remove headers (if it does not affect ceiling) to create a new conference room. Cut archway to connect

 


 

Existing and Expansion Premises. Demolish one interior wall at rear of Expansion Premises to expand an interior office to one of the existing offices. Replace damaged or stained ceiling tiles, remove existing data/phone lines in Expansion Premises. Landlord shall also open up walk way at rear of half wall in back open area of premises.
Except as herein modified or amended, the provisions, conditions and terms of the Lease, as previously amended, shall remain unchanged and in fill force and effect.
In the ease of any inconsistency between the provisions of the Lease and this First Amendment, the provisions of this First Amendment shall govern and control. Under no circumstances shall this First Amendment be deemed to grant Tenant any further rights to extend the Lease, provided, however, any such additional rights specifically provided Tenant in the Lease are not hereby relinquished or waived.
Submission of this First Amendment by Landlord is not an offer to enter into this First Amendment, but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this First Amendment until Landlord has executed and delivered the same to Tenant.
The capitalized terms used in this First Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this First Amendment.
Tenant confirms that the Lease remains in full force and effect, that Landlord is in compliance with the Lease provisions, and that Tenant has no defenses, claims or offsets against Landlord. Except as specifically modified in this instrument, the Lease initially executed remains in full force and effect as of the date(s) originally executed. This instrument shall become effective only upon execution of it by both Landlord and Tenant.
UNLESS expressly stated herein, this First Amendment will not modify the original Lease.
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to that certain Office Lease Agreement as of the date first mentioned above.
             
WITNESSES; ATTESTATION        
(Two of each signatory mandatory)        
 
      LANDLORD:    
        SAWGRASS BUSINESS PLAZA, LLC, a Florida
    Limited Liability Corporation
Printed Name:
           
 
         
 
      By: PERMONT DEVELOPMENT, LLC
 
        Managing Member  
         
Printed Name:
           
 
         
 
   
As to Landlord
      By:  
 
      Name: Michael T. Montero
 
      Title: Manager

-2-


 

             
         
         
 
      TENANT:    
         
    BIOHEART, INC., a Florida Corporation
Printed Name:
           
 
         
 
         
 
      By:   
         
Printed Name:
      Name:     
 
         
 
      Title:     
 
         
 
         
 
         

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SECOND AMENDMENT TO LEASE
      THIS SECOND AMENDMENT TO LEASE (the “Second Amendment”) is made and entered into as of the ___day of February, 2007, by and between SAWGRASS BUSINESS PLAZA, LLC , a Florida Corporation, as successor in interest to CRT-SFV, LLC, a Delaware Corporation (the “Landlord”) and BIOHEART, INC. , a Florida Corporation (the “Tenant”).
      WHEREAS , under that certain Lease Agreement dated August 10, 2004, and that certain First Amendment to Lease dated November 14, 2006 (collectively the “Lease”), Landlord leased to Tenant the premises known as Suite 210, 211, 212 and 213 (the “Premises”) and Suite 208 and 209 (the “Expansion Premises”) of the Sawgrass Business Plaza, 13794 NW 4 Street, Sunrise, Florida.
      WHEREAS , the parties desire to amend the Lease;
      NOW, THEREFORE , for and in consideration of the mutual promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, do hereby agree as follows:
          1. Section 46.11 of the original Lease is hereby deleted in its entirety and replaced with the following: “Tenant shall not disclose the terms of this Lease to any third party without Landlord’s prior consent, except to Tenant’s attorney’s, accountants and professional consultants. Notwithstanding the foregoing, Landlord acknowledges and agrees that Tenant may disclose the terms and/or status of this Lease to the extent required by law, regulation or requirement of any governmental or regulatory authority including, without limitation, any prevailing securities laws or regulations or policies of the Securities and Exchange Commission.
          2. Except as herein modified or amended, the provisions, conditions and terms of the Lease, as previously amended, shall remain unchanged and in full force and effect.
          3. In the case of any inconsistency between the provisions of the Lease and this Second Amendment, the provisions of this Second Amendment shall govern and control. Under no circumstances shall this Second Amendment be deemed to grant Tenant any further rights to extend the Lease, provided, however, any such additional rights specifically provided Tenant in the Lease are not hereby relinquished or waived.
          4. The capitalized terms used in this Second Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Second Amendment.
          5. Tenant confirms that the Lease remains in full force and effect, that Landlord is in compliance with the Lease provisions, and that Tenant has no defenses, claims or offsets against Landlord. Except as specifically modified in this instrument, the Lease initially executed remains in full forth and effect as of the date(s) originally executed. This instrument shall become effective only upon execution of it by both Landlord and Tenant.

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      IN WITNESS WHEREOF , the undersigned have executed this Second Amendment to that certain Lease Agreement as of the date first mentioned above.
             
WITNESSES        
 
      LANDLORD:    
        SAWGRASS BUSINESS PLAZA, LLC,
        a Florida Limited Liability Corporation
             
 
      By: PERMONT DEVELOPMENT, LLC
 
        Managing Member  
         
Printed Name:
         
 
         
 
   
As to Landlord
           
         
         
 
      TENANT:    
    BIOHEART, INC.,
Printed Name:
      a Florida Corporation    
 
         
 
         
 
      By:   
             
 
      Name:   
 
         
 
      Title:   
 
         
 
         
 
         

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Exhibit 10.8
*****
ASSET PURCHASE AGREEMENT
BETWEEN
ADVANCED CARDIOVASCULAR SYSTEMS, INC.
AND
BIOHEART, INC.
Dated as of June 24, 2003
*****

 


 

TABLE OF CONTENTS
         
    PAGE
ARTICLE 1 PURCHASE AND SALE
    1  
1.1 Items Included in the Assets
    1  
1.2 Excluded Assets
    2  
1.3 Assumed and Retained Liabilities
    2  
1.4 Closing
    2  
1.5 Title
    2  
 
       
ARTICLE 2 CONSIDERATION
    2  
2.1 Purchase Price
    2  
 
       
ARTICLE 3 LICENSE AGREEMENT
    3  
3.1 Definitions
    3  
3.2 License from Buyer to Seller
    3  
3.3 Assignment; Successors and Assigns
    3  
3.4 Termination of License
    3  
3.5 Government Approvals
    4  
3.6 Patent Filings
    4  
3.7 Enforcement
    4  
 
       
ARTICLE 4 SUPPLY AGREEMENT
    4  
4.1 Supply
    4  
4.2 Labels.
    4  
4.3 Permits
    5  
4.4 Shipping Costs; Risk of Loss
    5  
4.5 Defective Products
    5  
4.6 Exclusivity; Termination
    5  
 
       
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF SELLER
    5  
5.1 Organization and Good Standing
    5  
5.2 Binding Agreement
    6  
5.3 Assumed Contracts
    6  
5.4 Litigation; Claims
    6  
5.5 Operations In Accordance with Law
    6  
5.6 Title to Assets.
    6  
5.7 Defaults; Liens; Required Consents
    7  
5.8 Intellectual Property.
    7  
5.9 No Other Representations
    8  
 
       
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF BUYER
    8  
6.1 Organization and Good Standing
    8  
6.2 Binding Agreement
    8  
6.3 Litigation; Claims
    8  
6.4 No Other Representations
    8  
     -i-     

 


 

         
    PAGE
ARTICLE 7 ITEMS TO BE DELIVERED AT CLOSING
    9  
7.1 Deliveries by Seller
    9  
7.2 Deliveries by Buyer
    9  
 
       
ARTICLE 8 SURVIVAL AND INDEMNIFICATION
    9  
8.1 Survival
    9  
8.2 Indemnification.
    9  
 
       
ARTICLE 9 OTHER PROVISIONS
    11  
9.1 Confidentiality.
    11  
9.2 Expenses; Certain Taxes.
    12  
9.3 Successors
    12  
9.4 Assignment
    12  
9.5 Further Assurances
    12  
9.6 Notices
    12  
9.7 Headings and Table of Contents; Certain References
    13  
9.8 Governing Law
    14  
9.9 Waiver of Provisions
    14  
9.10 Counterparts
    14  
9.11 Entire Agreement
    14  
9.12 Severability
    14  
9.13 No Joint Venture
    14  
9.14 No Third-Party Rights
    14  
SCHEDULES
     
Schedule 1.1(a)  
Product Intellectual Property Assumed Contracts
Schedule 1.1(b)  
Assumed Contracts
Schedule 1.1(d)  
Manuals, Forms, and Diagrams
Schedule 1.2  
Excluded Assets
EXHIBITS
     
Exhibit A  
Specifications
Exhibit B  
Form of Bill of Sale, Assignment and Assumption
Exhibit C  
Form of Patent Assignment

 


 

ASSET PURCHASE AGREEMENT
     This Asset Purchase Agreement (this “ Agreement ”) is entered into this 24th day of June, 2003, between Advanced Cardiovascular Systems, Inc., a California corporation (“ Buyer ”), and Bioheart, Inc., a Florida corporation (“ Seller ”).
     WHEREAS, Seller is focused on the discovery, development, and commercialization of cell-based therapy products for the treatment of cardiovascular diseases, including myocardial infarction, congestive heart failure, and cardiovascular electrical abnormalities;
     WHEREAS, part of Seller’s business consists of the production of a catheter-based micro-implant system, including the system named MyoCath™ (the “ Product ”); and
     WHEREAS, Seller wishes to sell to Buyer certain assets of Seller specifically related to the Product as more particularly set forth herein, and Buyer wishes to purchase such assets, each under the terms and conditions herein.
     NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
     1.1 Items Included in the Assets . At Closing (as defined in Section 1.4 ), Seller shall sell, transfer, and assign to Buyer, and Buyer shall purchase and acquire from Seller, all of Seller’s right, title, and interest in and to the following assets (the “ Assets ”) free and clear of all liens, charges, claims, pledge, security interests, and other encumbrances (collectively, “ Liens ”), except as specifically assumed by Purchaser pursuant to the terms of this Agreement.
          (a)  Product Intellectual Property . All of Seller’s right, title and interest (whether owned, licensed, or otherwise) in all United States and foreign patents and patent applications listed on Schedule 1.1(a) , and all know-how, manufacturing processes, trade secrets, inventions, discoveries, and technical information including information embodied in drawings, designs, material specifications, processing instructions, formulas, equipment specifications, product specifications, confidential data, computer software, electronic files, research notebooks, invention disclosures, research and development reports, and the like specifically related thereto and all amendments, modifications, and improvements to any of the foregoing, in each case as they specifically relate to the Product (collectively, the “ Product Intellectual Property ”).
          (b)  Contracts . Each agreement, instrument, contract, and other commitment listed in S chedule 1.1(b) (each, an “ Assumed Contract ”)
          (c)  Files and Clinical Records . All records and documentation relating to the Product, including all (i) regulatory filings, together with any supporting documents; (ii) clinical studies and tests, including any such filings; (iii) permits, documents, studies, and tests; (iv) all reporting documents required by any regulatory authority; (vi) other correspondence with regulatory agencies, adverse event files, investigation safety reports, complaint files; (vi) manufacturing records; and (vii) foreign equivalents of the foregoing (collectively, the “ Files and Clinical Records ”). Seller may retain one copy of all such Files and Clinical Records for

 


 

evaluating the Product and to make, have made, sell, offer to sell and use the Product; provided , however , Seller shall not disclose to any other person such records and documentation or use such records and documentation for any other use.
          (d)  Manuals, Forms, and Diagrams . All of the manuals, forms, and diagrams relating to the Product listed on Schedule l.1(d) (the “ Manuals, Forms and Diagrams ”). Seller may retain one copy of all such Files and Clinical Records for evaluating the Product and to make, have made, sell, offer to sell and use the Product; provided , however , Seller shall not disclose to any other person such records and documentation or use such records and documentation for any other use.
     1.2 Excluded Assets . There shall be excluded from the Assets to be transferred and conveyed hereunder, and Seller shall retain all of its right, title and interest in and to, (a) all assets relating to the Product listed on Schedule 1.2 and (b) all other assets of Seller not specifically included in Section 1.1 . Without limiting the generality of the foregoing, Buyer acknowledges and agrees that no assets of Seller relating to the discovery, development, and commercialization of cell-based therapy products for the treatment of cardiovascular diseases, including myocardial infarction, congestive heart failure, and cardiovascular electrical abnormalities, are being conveyed under this Agreement. It is the intent of the parties that only those Assets specifically included in Section 1.1 related to the Product are to be conveyed to Buyer hereunder.
     1.3 Assumed and Retained Liabilities . Except for obligations arising on or after the Closing Date (as defined in Section 1.4 ) under the Assumed Contracts which Buyer hereby assumes as of the Closing Date (the “ Assumed Liabilities ”), Buyer shall not assume any liabilities or obligations of Seller, and Seller shall be liable for all liabilities and obligations arising from or in connection with ownership of the Assets or operation of Seller’s business before the Closing Date, whether such liability or obligation be absolute, accrued, fixed, contingent or otherwise and whether known or unknown.
     1.4 Closing . The simultaneous execution of this Agreement and closing of the transactions contemplated by this Agreement (the “ Closing ”) shall occur on June 24, 2003 (the “ Closing Date ”), at 10:00 a.m., local time, at the offices of Faegre & Benson LLP, 2200 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota (or at such other time or place as Buyer and Seller may agree).
     1.5 Title . Title to the Assets shall pass to Buyer as of the Closing Date.
ARTICLE 2
CONSIDERATION
     2.1 Purchase Price . As consideration for the Assets, Buyer shall pay to Seller the amount of $900,000 (the “ Purchase Price ”), on the Closing Date, by wire transfer of immediately available United States funds to an account specified by Seller.

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ARTICLE 3
LICENSE AGREEMENT
     3.1 Definitions . The following terms have the meanings set forth below (which are equally applicable to both the singular and plural forms of the terms defined):
          (a) “ ACS Background IP Rights ” means all IP Rights relating to intellectual property owned, developed or controlled (via license or otherwise) by Buyer (i) existing on the date hereof, or (ii) after the Closing Date.
          (b) “ Bioheart Foreground IP Rights ” means all IP Rights specifically relating to the Product that are conceived or first reduced to practice by Seller during the term of the License granted in this Article 3 . The terms “ conceived ” and “ first reduced to practice ” will be interpreted according to U.S. patent law.
          (c) “ IP Rights ” means all intangible property rights arising under equity or operation of law including all rights under or to intellectual property.
     3.2 License from Buyer to Seller . As of the Closing Date, Buyer hereby grants to Seller, and Seller accepts from Buyer, a co-exclusive (Buyer has the right to practice the Product Intellectual Property as well as Seller), worldwide, fully paid up, irrevocable license (the “ License ”), without the right to assign, transfer or sublicense to any third party the Product Intellectual Property except as set forth in Section 3.2 of this Agreement, to make, have made, sell, offer to sell and use the Product. Except for the License granted hereunder, Buyer retains all rights under the Product Intellectual Property for itself and Affiliates (as hereinafter defined).
     3.3 Assignment; Successors and Assigns . The License granted to Seller under Section 3.2 shall be a personal right of the Seller and may not be assigned to another Person (as defined herein) without the prior consent of Buyer; provided , however , that Seller shall have the right to assign this License without the consent of Buyer in connection with (a) a change of control of the Seller, or (b) the sale of all or substantially all of the Seller’s assets. Any assignment or transfer of this License to any third party, other than in connection with a change of control of the Seller, or the sale of all or substantially all of the Seller’s assets, shall be considered a material breach of this license and this license shall automatically terminate upon such breach. Any assignment of this license shall not relieve the assignee from the requirement of obtaining the prior consent of Buyer to any further assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties and their successors and permitted assigns. “ Person ” means any individual, corporation, partnership, limited liability company, association, joint venture, trust, government or governmental instrumentality, agency, division or office or any other entity, organization or group.
     3.4 Termination of License . Unless the license under this Agreement is terminated according to the provisions in this Agreement, this license shall terminate with the last to expire of any issued or granted patents, or the final rejection, including any appeals, of any patent applications, directly related to Product Intellectual Property. Seller will not acquire any rights in and is not entitled to move, sell, copy, license, or otherwise exploit ACS Background IP Rights in any manner (except the License granted under Section 3.2 ), and Buyer will not acquire

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any rights in and is not entitled to use, sell, copy, license, or otherwise exploit Bioheart Foreground IP Rights in any manner.
     3.5 Government Approvals . Seller shall reasonably cooperate with Buyer in connection with the preparation, filing and prosecution of regulatory applications for the conduct of clinical trials and for the marketing of the Products in order to obtain the approval of government or regulatory authorities for the same. In addition, Seller agrees that it will grant to Buyer any necessary or appropriate authorizations to (a) allow access to, and refer to, applicable data, files, or information on file with any governmental or regulatory authorities specifically relating to the Product Intellectual Property, including without limitation safety data and drug master files and (b) reference any such data, files, or information in Buyer’s and its Affiliates’ filings with any governmental or regulatory authorities.
     3.6 Patent Filings . Buyer will have the exclusive right, at Buyer’s expense, to file, prosecute, issue, maintain, license, enforce or defend all patent applications and patents, throughout the world, containing Product Intellectual Property. Seller will provide reasonable cooperation and assistance to Buyer under this Section 3.6 related to such activities.
     3.7 Enforcement . A party learning of an infringement of the Product Intellectual Property rights by an un-Affiliated third Person will notify the other party. Buyer will have the primary right to enforce Product Intellectual Property rights under this Agreement. Any recovery as a result of enforcement under this Section 3.7 will inure solely to the benefit of Buyer. If Buyer enforces any Product Intellectual Property rights under this Agreement, (a) Seller will reasonably cooperate with Buyer in making available its employees and records for purposes of providing evidence and background information in support of the enforcement, and (b) Seller agrees to be named as a party to any claim, lawsuit or other action necessary for Buyer to initiate, maintain or pursue such claim, lawsuit or action. If Buyer shall fail, within a period of 90 days after learning of such infringement, to take such action, Seller shall have the right to take such action at Seller’s expense and for Seller’s benefit. Neither party may settle a claim or action related to the infringement of the Product Intellectual Property without the consent of the other party, if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party’s rights under this Agreement.
ARTICLE 4
SUPPLY AGREEMENT
     4.1 Supply . Seller agrees to manufacture and deliver to Buyer, at no cost to Buyer, a total of 160 units of the Product, less any units of the Product delivered by Seller to Buyer prior to the Closing Date (the “ Supply Units ”).
     4.2 Labels .
          (a) Each Product shall be labeled as either having a shelf life of 6 months, 12 months, or 24 months. From the date of this Agreement until the second anniversary of such date, Seller shall replace (at no cost to Buyer) any Supply Unit delivered to Buyer and labeled as having a shelf life of 6 months that expires before the Supply Unit is used.

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          (b) If any testing conducted by Seller extends the shelf life noted on any of the Supply Units delivered by Seller to Buyer, then Buyer has the option to return those Supply Units to Seller to be re-labeled with the extended expiration date (at no cost to Buyer).
     4.3 Permits . Seller shall be responsible for obtaining and maintaining any permits or approvals from any United States or foreign regulatory authorities and any other government authorities that are required in connection with its manufacture and delivery of the Supply Units to Buyer under this Article 4 . Seller shall be responsible for all process, analytical method and equipment validation and shall take all necessary steps for its facilities used for the manufacture of Supply Units to pass government inspection.
     4.4 Shipping Costs; Risk of Loss . Buyer shall pay all shipping and transportation costs associated with the shipping and transportation of the Supply Units to Buyer from Seller or by Buyer to Seller. Deliveries of Supply Units shall be F.O.B. Seller’s distribution facility or such other sites as Seller may, from time to time, designate (the “ Distribution Facility ”). Title to Supply Units sold and risk of casualty, with respect to the Supply Units, will pass to Buyer upon Seller’s tender of the Supply Units to Buyer or a common carrier at the Distribution Facility.
     4.5 Defective Products . All Supply Units delivered hereunder shall be subject to final inspection and approval by Buyer within 20 days after delivery of the Supply Units to Buyer. If such inspection discloses that a Supply Unit fails to conform to the specifications as described in Exhibit A , or is defective or damaged in any manner (a “ Defective Product ”), Buyer shall return the Defective Product to Seller within the 20-day inspection period specifying the failure, defect or damage in reasonable detail. Seller shall replace the Defective Product within 30 days of receiving the Defective Product.
     4.6 Exclusivity; Termination . Seller shall not manufacture for, or transfer any units of the Product to, any other party (except for Seller) until Seller has delivered to Buyer 160 units of the Product that Buyer has accepted and approved. Seller shall complete its obligations under this Article 4 no later than December 31, 2003. Upon the delivery of the 160th Supply Unit accepted and approved by Buyer,
          (a) Seller may continue to manufacture the Product or have the Product manufactured only for Seller and make, have made, sell, offer to sell and use the Product consistent with the License granted in Section 3.2 ; and
          (b) Seller’s obligations under this Article 4 shall be terminated.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
     Seller represents and warrants to Buyer as follows:
     5.1 Organization and Good Standing . Seller is a duly incorporated, duly organized, and validly existing corporation in good standing under the laws of the State of Florida, with full corporate power and authority to own or lease its properties and assets, conduct its business as now conducted and enter into and complete all transactions contemplated by this Agreement.

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     5.2 Binding Agreement . This Agreement has been duly excluded and delivered by Seller and is a valid and binding obligation and agreement of Seller, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws from time to time in effect affecting creditors’ rights generally or by principles governing the availability of equitable remedies (the “ Enforcement Liabilities ”)). The execution, delivery, and performance of this Agreement have been approved by the board of directors of Seller and will not violate, contravene, result in a breach of, create any right of acceleration or prepayment under, or constitute a default under (with or without due notice or lapse of time or both) (a) the articles of incorporation or by-laws of Seller, (b) any judgment, law, rule, regulation or decree applicable to Seller, or (c) any contract or agreement relating to the Product.
     5.3 Assumed Contracts . Seller has made available to Buyer a true, correct, and complete copy of the Assumed Contract (or, in the case of any oral Assumed Contract, a description thereof that is included in Schedule 1.1(b) ), while together with the agreement described in Schedule 5.3(a) constitute all agreements, instruments, contracts, and other commitments, oral or written, to which Seller is a party or by which Seller is bound that relate to the Product. Seller has not breached any representation, warranty or covenant contained in any Assumed Contract and, to the best of its knowledge, is not in default with respect thereto. Except as set forth in Schedule 5.3(b) , Seller has no knowledge that any other party to any Assumed Contract is in breach or default or is claimed to be in breach or default in complying with any provision thereof. Except as set forth in Schedule 5.3(b) , each Assumed Contract is in full force and effect and is valid and binding upon the parties thereto in accordance with its terms (subject to Enforcement Limitations).
     5.4 Litigation; Claims . Except as set forth in Schedule 5.4 , there is no action, suit, litigation, proceeding, claim or investigation pending, or to Seller’s knowledge threatened, against or with respect to Seller, the Product or any Assets, and (b) Seller is not operating under, subject to or in default with respect to, any order, injunction, or decree of any court or any federal, state, municipal, or other governmental agency or instrumentality.
     5.5 Operations in Accordance with Law . To the best of its knowledge, Seller is in compliance with all laws, rules, regulations, ordinances, and administrative orders applicable to the Product. To Seller’s knowledge, its business has been conducted, and the Assets have been maintained and used, in compliance with all applicable federal, state, and local laws, regulations, ordinances, and other requirements of all governmental authorities having jurisdiction over Seller or the Assets.
     5.6 Title to Assets .
          (a) Seller has good title to the Assets (or, in the case of licensed software and other Assets not owned by Seller, such rights as are necessary to permit such use), free and clear of all Liens.
          (b) Except as set forth in Schedule 5.6 , the Assets include all assets of Seller that Seller uses or holds for use in the manufacture, use, or sale of the Product on the date hereof.

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     5.7 Defaults; Liens; Required Consents . The execution, delivery and performance of this Agreement and any of the transactions contemplated hereby will not (a) violate, conflict with or constitute a breach or default under, or require any consent, approval, filing or notice under any provisions of, or result in the acceleration of any obligation under, or result in the termination of, any material contract, agreement, lease, security agreement, promissory note, mortgage, Lien or license relating to any of the Assets, Seller, or Seller’s Affiliates; (b) result in the creation or imposition of any Lien in favor of any Person upon any of the Assets; or (c) constitute an event that, after notice or lapse of time or both, would result in any such breach, default, violation, conflict, termination, acceleration or the creation or imposition of any Lien on any of the Assets. “ Affiliate ” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by or is under common control with, that Person. For purposes of the foregoing definition, control means (i) the direct or indirect ownership of at least 50% of the outstanding voting securities or other equity interests of such Person, (ii) the present right or ability to elect or appoint 50% or more of the members of the board of directors or similar governing body of such Person, or (iii) the present right or ability to control the decision making authority of such Person.
     5.8 Intellectual Property .
          (a) Seller is the sole and exclusive owner of, or otherwise has a valid license or right to use and freely transfer, the Product Intellectual Property, free and clear of any Liens. The Product Intellectual Property constitutes all IP Rights owned by or licensed to Seller relating to the Product. All Product Intellectual Property remains in full force and effect including, without limitation, rights transferred in the Purchase Agreement between Seller and John Geis and Michael Braun.
          (b) Seller and Comedicus Incorporated entered into a License Agreement, dated January 31, 2000, as amended (the “ License Agreement ”). Except as set forth on Schedule 5.8 , the License Agreement is in full force and effect and is valid and binding upon the parties thereto in accordance with its terms. Except as set forth on Schedule 5.8 , neither Seller nor Comedicus Incorporated has breached any representation, warranty or covenant contained in the License Agreement and is not in default with respect thereto.
          (c) Seller has not entered into any agreement or commitment or obligation with any un-Affiliated third Person that conflicts in any way with its obligations under this Agreement.
          (d) Each individual and entity, including each employee, agent, consultant, and contractor, who has materially contributed to or participated in any material way in the conception, creation, reduction to practice and/or development of the Product Intellectual Property was at the time of such contribution or participation a party to and bound by a valid, enforceable, duly executed agreement with Seller, a copy of which has been previously provided to Buyer (the “ Invention Agreement ”).
          (e) To the best of Seller’s knowledge, the Product Intellectual Property is valid and enforceable.

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          (f) To the best of Seller’s knowledge, no product or process incorporating any Product Intellectual Property infringes, misappropriates, or otherwise violates any IP Rights of any un-Affiliated third Person.
          (g) Each of Seller’s consultants, agents, advisors, attorneys, outside contractors and clinical investigators having access to any confidential information will be subject to a valid, binding and enforceable agreement or obligation with respect to nondisclosure and non-use of confidential information.
     5.9 No Other Representations . Seller is not making any representations or warranties, express or implied, of any nature whatsoever with respect to the Assets, except for the representations and warranties in this Article 5 .
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows;
     6.1 Organization and Good Standing . Buyer is a duly incorporated, duly organized, and validly existing corporation in good standing under the laws of the State of California, with full corporate power and authority to own or lease its properties and assets, conduct its business as now conducted and enter into and complete all transactions contemplated by this Agreement.
     6.2 Binding Agreement . This Agreement has been duly executed and delivered by Buyer and is a valid and binding obligation and agreement of Buyer, enforceable in accordance with its terms (subject to Enforcement Limitations). The execution, delivery, and performance of this Agreement have received all necessary corporate approval and will not violate, contravene, result in a breach of, create any right of acceleration or prepayment under, or constitute a default under (with or without due notice or lapse of time or both) (a) the articles of incorporation or by laws of Buyer or (b) any judgment, law, rule, regulation or decree applicable to Buyer.
     6.3 Litigation; Claims . There is no action, suit, litigation, proceeding, claim, or investigation pending, or to Buyer’s knowledge threatened, against or with respect to Buyer that, if adversely determined, would be reasonably likely to have a material adverse effect on Buyer’s ability to consummate the transactions contemplated herein. Buyer is not operating under, subject to or in default with respect to, any order, injunction, or decree of any court or any federal, state, municipal, or other governmental agency or instrumentality that would be reasonably likely to have a material adverse effect on Buyer’s ability to consummate the transactions contemplated herein.
     6.4 No Other Representations . Buyer is not making any representations or warranties, express or implied, of any nature whatsoever, except for the representations and warranties in this Article 6 .

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ARTICLE 7
ITEMS TO BE DELIVERED AT CLOSING
     7.1 Deliveries by Seller . At Closing, Seller shall deliver to Buyer:
          (a) a Bill of Sale, Assignment and Assumption (the “ Bill of Sale ”), executed by Seller, in the form attached hereto as Exhibit B ;
          (b) an assignment, executed by Seller, in the form attached hereto as Exhibit C for any patents or patent applications comprising part of the Assets;
          (c) such other items expressly contemplated herein, including the Assets not necessary for Seller to fulfill its commitments in Article 4 .
     7.2 Deliveries by Buyer . At Closing, Buyer shall deliver to Seller:
          (a) the Purchase Price;
          (b) the Bill of Sale, executed by Buyer; and
          (c) such other items expressly contemplated herein.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
     8.1 Survival . In addition to the representations and warranties set forth in Article 5 , the statements contained in the Schedules, read in conjunction with the applicable representation set forth in Article 5 , shall be deemed to be representations and warranties of Seller hereunder. The representations and warranties hereunder shall survive the Closing and shall expire and terminate one year thereafter, except for claims based on fraud or intentional misrepresentation (“ Fraud Claims ”), which shall survive until the expiration of the applicable statute of limitations. The expiration of the survival period of the representations and warranties provided herein shall not affect the rights of any party in respect of any claim made by the party in a writing received by the other party before expiration of the survival period.
     8.2 Indemnification .
          (a) Seller shall indemnify and hold Buyer and its Affiliates and each of their respective officers, directors, shareholders and assignees harmless from and against any and all liabilities, damages, losses, costs and expenses (including reasonable attorneys’ fees and expenses) (each, a “ Loss ” and collectively, “ Losses ”) arising out of or resulting from (i) any inaccuracy in, or breach of, any representation, warranty, covenant or agreement made herein by Seller or in any agreement delivered pursuant hereto, (ii) the nonperformance or breach of any covenant or obligation to be performed by Seller hereunder or in any agreement delivered pursuant hereto, (iii) any liability of Seller that is not an Assumed Liability (including any liability of Seller that becomes a liability of Buyer under any common-law doctrine of de-facto merger or any doctrine of successor liability under any legal requirement), or (iv) the actual or

-9-


 

threatened commencement of any actions, suits, proceedings, demands, judgments, costs, legal fees and other expenses caused by the foregoing.
          (b) Buyer shall indemnify and hold harmless Seller and its Affiliates and each of their respective officers, directors, shareholders and assignees from and against any and all Losses arising out of or resulting from (i) any inaccuracy in, or breach of, any representation, warranty, covenant or agreement made herein by Buyer or in any agreement or document delivered pursuant hereto, (ii) the nonperformance or breach of any covenant or obligation to be performed by Buyer hereunder or in any agreement or document delivered pursuant hereto, (iii) any Assumed Liability or any liabilities or obligations arising from ownership or operation of the Assets after the Closing Date, or (iv) the actual or threatened commencement of any actions, suits, proceedings, demands, judgments, costs, legal fees and other expenses caused by any of the foregoing.
          (c) An indemnified party hereunder (the “ Claiming Party ”) shall give the indemnifying party (the “ Indemnifying Party ”) prompt written notice of any claim of a third party (a “ Third-Party Claim ”) as to which the Claiming Party proposes to demand indemnification hereunder. The Indemnifying Party shall forthwith assume the Good Faith Defense (as hereinafter defined) of the Third-Party Claim at its own expense and may settle the Third-Party Claim, but may not, without the consent of the Claiming Party, agree to (i) any injunctive relief affecting the Claiming Party or (ii) any settlement that would adversely affect the business or operations of the Claiming Party. The Indemnifying Party shall keep the Claiming Party updated on a reasonable basis regarding the status of the defense or settlement of any Third-Party Claim. “ Good Faith Defense ” means legal defense conducted by reputable counsel of good standing. If a Good Faith Defense is not commenced within 20 days following receipt of notice of the Third-Party Claim from the Claiming Party (or such shorter period, if any, during which a defense must be commenced in order for the defendant to preserve its right), the Claiming Party may, at its option, settle or defend the claim at the expense of the Indemnifying Party. The Claiming Party shall keep the Indemnifying Party updated on a reasonable basis regarding the status of the claim and its defense or settlement. Subject to the other provisions of this Section 8.2 , in the event that (A) a final judgment or order in favor of the third party is rendered against the Claiming Party, that is not subject to appeal or with respect to which the time to appeal has expired without an appeal having been made, or (B) the Third-Party Claim is settled in accordance with this Section 8.2(c) , resulting in liability on the part of the Claiming Party, then the amount of the liability together with costs and expenses (including reasonable attorneys’ fees) incurred by the Claiming Party shall be paid by the Indemnifying Party.
          (d) In addition to and not in limitation of Section 8.2(c) , a Claiming Party shall give prompt written notice to an Indemnifying Party of each claim for indemnification hereunder as to which the Claiming Party proposes to demand indemnification specifying the amount and nature of the claim. The failure to give notice to the Indemnifying Party shall not relieve the Indemnifying Party of any liability hereunder, unless the Indemnifying Party was prejudiced thereby.

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          (e) Except for Fraud Claims, the following shall apply:
               (i) (A) The right of Buyer to indemnification hereunder shall be limited, in the aggregate, to an amount equal to the Purchase Price (the “ Cap ”); and
                     (B) Seller shall have no obligation to indemnify Buyer hereunder unless and until the aggregate amount of indemnification to which Buyer is entitled (including for Third-Party Claims), exceeds $10,000 (the “ Basket ”), and then only for any amounts in excess of the Basket.
               (ii) (A) The right of seller to indemnification hereunder shall be limited, in the aggregate, to an amount equal to the Cap; and
                     (B) Buyer shall have no obligation to indemnify Seller hereunder unless and until the aggregate amount of indemnification to which Seller is entitled (including for Third-Party Claims) exceeds the Basket, and then only for any amounts in excess of the Basket.
               (iii) The right to indemnity under this Section 8.2 shall terminate on the first anniversary of the Closing Date or, in the event of a fraud or intentional misrepresentation, such right to indemnity shall terminate on the end of the applicable statute of limitations.
ARTICLE 9
OTHER PROVISIONS
     9.1 Confidentiality .
          (a) Each party, when it is the receiving party, agrees to hold the disclosing party’s Confidential Information (as defined below) in strict confidence and not to disclose such Confidential Information to any other Person without the prior written consent of the disclosing party; and not to use, at any time following the execution of this Agreement, any Confidential Information of the disclosing party for any purposes other than as permitted by this Agreement and to further the intents and purposes of this Agreement; provided , however , that each taxpayer participating in this transaction (and each employee, representative, or other agent of the taxpayer) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the taxpayer relating to such tax treatment and tax structure. “ Confidential Information ” means confidential and proprietary information of a party, whether in written, printed, verbal or electronic form, and whether disclosed before or after the effective date of this Agreement, including the terms of this Agreement, research and development activities, product design details and specifications, technology and know-how, sales and marketing plans, finances and business forecasts, procurement requirements and vendor information, customer lists, personnel information, and other proprietary information (including any Product intellectual Property, Files and Clinical Records, and Manuals, Forms and Diagrams, all of which shall be deemed to have been disclosed by Buyer to Seller).

-11-


 

          (b) If a receiving party is required to disclose Confidential Information of the disclosing party by any applicable law, regulation, legal process, judicial order or by any applicable order or requirement of any governmental or regulatory authority, it may do so only to the extent required thereby; provided , however , that the receiving party will (i) to the extent practical, provide advance notice to the disclosing party of the required disclosure to allow the disclosing party an opportunity to take steps to object to, prevent or limit its disclosure or obtain a protective or other similar order with respect to the required disclosure (collectively, “ Protective Measures ”), (ii) if requested by the disclosing party, cooperate with the disclosing party in seeking Protective Measures, and (iii) restrict disclosure to only that portion of the Confidential Information that is required to be disclosed.
     9.2 Expenses; Certain Taxes .
          (a) Each party hereto shall pay all expenses incurred by the party (or at the party’s direction) in connection with the transactions contemplated by this Agreement, including all fees and costs of attorneys, accountants, and other professional advisors and brokers.
          (b) Buyer shall pay all sales, use, transfer, documentary, and similar taxes (if any) imposed on the transactions contemplated by this Agreement.
     9.3 Successors . The rights created by this Agreement shall inure to the benefit of, and the obligations created hereby shall be binding upon, the successors and assigns of the respective parties hereto.
     9.4 Assignment . Subject to Section 3.2 , no party may assign this Agreement or any of its rights or obligations hereunder without the other party’s prior written consent, except that either party may sell, assign or otherwise transfer this Agreement, in whole or in part, to any Person that purchases all or substantially all of such party’s assets by way of merger, consolidation, sale of stock or assets without the other party’s consent; provided , however , that Buyer may assign this Agreement or any of its rights or obligations hereunder to any of its Affiliates without Seller’s consent. Any attempted assignment in contravention of the foregoing shall be void.
     9.5 Further Assurances . From time to time after Closing, each party and its Affiliates shall execute and deliver such documents and take such actions as the other parry reasonably requests in connection with carrying out and effectuating the intent and purpose hereof and all transactions and undertakings contemplated hereby.
     9.6 Notices . All notices and other communications hereunder shall be in writing and shall be effective only if delivered by hand or by nationally recognized overnight courier service to the addresses below:

-12-


 

     If to Buyer:
             Advanced Cardiovascular Systems, Inc.
3200 Lakeside Drive
Santa Clara, California 95054-2807
Attention: Thomas R. Peterson
Facsimile: (408) 845-3987
     with a copy to:
             Faegre & Benson LLP
2200 Wells Fargo Center
90 South Seventh Street
Minneapolis, Minnesota 55402-3901
Attention: Michael A Stanchfield
Facsimile: (612) 766-1600
     If to Seller:
             Bioheart, Inc.
2400 North Commerce Parkway
Suite 408
Weston, Florida 33133
Attention: John L. Babitt
Facsimile: (954) 385-5340
     with a copy to:
             Tobin & Reyes, P.A.
7251 West Palmetto Park Road
Suite 205
Boca Raton, Florida 33433
Attention: David S. Tobin, Esq.
Facsimile: (561) 620-0657
or to such other address as a party may from time to time designate in writing in accordance with the foregoing. All notices and other communications shall be deemed to have been given upon receipt thereof.
     9.7 Headings and Table of Contents; Certain References . The headings contained in this Agreement and the table of contents hereof are for convenience of reference only and neither such headings nor such table of contents shall affect the construction or interpretation of this Agreement. Each reference herein to “ include ” or “ includes ” or “ including ” shall be deemed to be followed by the words “ without limitation .” Each reference herein to Schedules, Sections, Articles, or Exhibits shall be deemed to be followed by “ hereto ” or “ herein ” unless otherwise noted.

-13-


 

     9.8 Governing Law . This Agreement shall be governed by and construed in accordance with the material laws of the State of California, without giving effect to principles of conflicts of law.
     9.9 Waiver of Provisions . Compliance with any term, covenant, representation, warranty or condition of this Agreement may be waived only by a written instrument executed by the party waiving compliance. No waiver of any provision hereof or any breach of any provision hereof, whether by conduct or otherwise, in any one or more instances shall be deemed to be, or construed as, a further or continuing waiver of any such provision or breach.
     9.10 Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one single agreement
     9.11 Entire Agreement . This Agreement, together with all Schedules and Exhibits hereto (which are incorporated herein as part of this Agreement), constitutes the entire agreement between the parties relating to the subject matter hereof and supersedes and cancels any and all prior agreements and understandings, written or oral, relating to the subject matter hereof, and may not be amended or modified except by a writing signed by all parties hereto.
     9.12 Severability . The provisions of this Agreement shall be deemed severable, and if any provision or application of any provision of this Agreement is held unlawful, invalid, void or unenforceable in any respect, such provision shall be revised or applied in a manner that renders it lawful and enforceable to the fullest extent possible to effectuate the intent of the parties hereto.
     9.13 No Joint Venture . Nothing in this Agreement shall be deemed to create an agency, joint venture or partnership relationship between the parties.
     9.14 No Third-Party Rights . This Agreement is not intended, and shall not be construed, to create any rights in any Person other than Seller and Buyer, and no Person may assert any rights as third-party beneficiary hereunder.
     9.15 Press Releases . Neither party (which shall include their respective employees, agents and representatives) shall issue or disseminate any press release or statement, nor initiate any communication of information regarding the terms of this Agreement (written or oral) to the communications media or third parties without the prior written consent of the other party.

-14-


 

     IN WITNESS WHEREOF, the parties have caused this Asset Purchase Agreement to be duly executed as of the date and year first above written.
ADVANCED CARDIOVASCULAR
SYSTEMS, INC.
 
By:  
 
Mark A. Murray
Vice President, Finance and Business
Development
   
BIOHEART. INC.
By:  
 
Its:  
 


-15-


 

EXHIBIT A
     
BIOHEART INC.
  Doc. D96-00026-01
Product Specification
  Rev.:10
TITLE: SR200 MyoCath o PEMI Device
  Cover Page
 
                                     
 
                            APPROVAL     EFFECTIVITY  
  REV     ECN#     DESCRIPTION     (sign & date)     DATE  
    1         N/A      
First draft of specification
    Mike Lee     02-JUN-00  
    2         N/A      
Update of specification
    Mike Lee     05-OCT-00  
    3         N/A      
Update of specification
    Mike Lee     16-JAN-01  
    4         N/A      
Update of specification
    Mike Lee     28-MAR-01  
    5         N/A      
Title device as SR200 MyoCath TM
    Mike Lee     05-DEC-01  
    6         N/A      
Update device classification, clarify
packaging/sterilization requirements
    Mike Lee     21-FEB-02  
    8         N/A      
Insertion depth reduced from 3 to 8mm to 3 to 6mm
    K. Kristoffersen     25-Jun-02  
    7         N/A      
Update functional specification of lumen leak test to remove requirement of air (other solutions may be more relevant).
    Mike Lee     21-FEB-02  
    9         0400      
Moving 6.1.2 and 6.1.3 to functional specifications; Changing burst requirements from 5 psi to 60 psi for the flush lumen, and 75 psi for the inject lumen; Decreasing maximum plunger force from 10 lb. Max to 1.75 lb. Max; Increasing several minimum tensile specifications; Documenting additional functional criteria.
    D. Fifer     01-Nov-02  
    10         0436      
Move 6.2.10.c to 6.6.1.
    M. Lee     08-Nov-02  
 
DISTRIBUTION
                 
 
  LOCATION     No.     RETRIEVAL (initial & date)  
 
 
             
 
 
             
 
 
             
 
 
             
 
 
             
 
 
             
 
 
             
 
 
CONFIDENTIAL
May not be reproduced, transmitted or disseminated in any form or by any means
without the written permission of an authorized representative of Bioheart, Inc.

 


 

EXHIBIT A
     
BIOHEART INC.
  Doc. D96-00026-01
Product Specification
  Rev.:10
TITLE: SR200 MyoCath TM PEMI Device
  Cover Page
 
1.0   TITLE : SR200 MyoCath TM (PEMI) Percutaneous MicroImplant Device
 
    Review Stage : Design Verification Phase
 
2.0   SCOPE:
 
    This Product Specification applies to the SR200 MyoCath™ device in the family of PEMI devices, hereafter known as the SR200 MyoCath™. To this date PEMI, SR200, and MyoCath™ have been used synonymously. In the future, it is the intent that the SR200 is a model in the MyoCath™ catheter family, in the larger PEMI family of percutaneous devices.
 
3.0   REFERENCES:
 
    D10-00026-01M-Curve MyoCath TM
D10-00026-02L-Curve MyoCath TM
 
4.0   CLINICAL APPLICATION:
 
    The SR200 MyoCath™ is a system to allow injection of myogenic, angiogenic and/or other aqueous solutions into the left ventricle myocardium. The SR200 MyoCath™ is for single use only.
 
    Additional clinical justifications are in the SR200 MyoCath™ Test Plan documents SR200 MyoCath™ Bench Test Plan, SR200 MyoCath™ Animal Test Plan, and SR200 MyoCath™ Biocompatibility Test Plan.
 
5.0   DEVICE DESCRIPTION:
  5.1.   The device is a catheter comprised of an injection lumen and a sheath lumen. The injection lumen should allow for the solution to be delivered with a reasonably low number of adverse events, within a reasonable rate in accordance with user feedback and with an acceptable level of retention and functionality. The sheath lumen allows flushing of the space between the core needle and the deflectable sheath to enhance needle movement.
 
  5.2.   The distal end of the device system should be atraumatic and facilitate ease of entry/tracking to the appropriate location in the heart. The distal needle tip should not buckle under standard insertion techniques.
 
  5.3.   The proximal end of the catheter should include sufficient standard connectors to allow the physician to connect to, monitor, flush and inject through. Standard syringe compatibility allows for manual incremental injections and flexibility for various solution delivery volumes.
 
CONFIDENTIAL
May not be reproduced, transmitted or disseminated in any form or by any means
without the written permission of an authorized representative of Bioheart, Inc.

 


 

EXHIBIT A
     
BIOHEART INC.
  Doc. D96-00026-01
Product Specification
  Rev.:10
TITLE: SR200 MyoCath TM PEMI Device
  Cover Page
 
  5.4.   The device is anatomically curved, or allowed to curve, to allow for proper placement(s) into the left ventricle. Positioning of the device will be predictable and stable once in place.
 
  5.5.   The environment in which the SR200 MyoCath™ is to be used will be a cardiology suite. The product will interface with cardiology equipment, instruments and devices.
 
  5.6.   This device is for single use only.
6.0   REGULATORY CLASSIFICATION
  5.1.   FDA Classification :
Class II
 
  5.2.   Outside U.S. Classifications:
Classifications for other countries (e.g. Europe, Canada, etc.) will be assessed as applicable.
6.0   DEVICE SPECIFICATION:
  6.1.   Dimensional Specification:
  6.1.1.   The system must pass through (enter and exit) a ring gauge of diameter < 0.105” (note 8.0F = 0.105”).
 
  6.1.2.   The insertable length of the device (distal catheter tip to the proximal strain relief) should be 105-125 cm.
 
  6.1.3.   The length of the needle should be ±1.5mm of the length indicated on the depth gauge for a range between 3-6mm while the catheter is in a mock arch curve.
  6.2.   Functional Specification
  6.2.1.   Flush and Inject:
                                             a.)   The time to prepare the Injection Lumen and Sheath Lumen must be compatible with the time restraints of a cardiology procedure- less than 30 seconds for each lumen when using water at room temperature.
                                             b.)   The flow rate of room temperature water through the injection lumen must be at least 0.05cc/sec of water with a force less than
 
CONFIDENTIAL
May not be reproduced, transmitted or disseminated in any form or by any means
without the written permission of an authorized representative of Bioheart, Inc.

 


 

EXHIBIT A
     
BIOHEART INC.
  Doc. D96-00026-01
Product Specification
  Rev.:10
TITLE: SR200 MyoCath TM PEMI Device
  Cover Page
 
                                                     1.75 on the 1cc syringe plunger. This plunger force correlates to the thumb pressure necessary to activate syringe injection through the catheter.
                                             c.)   The injection lumen must maintain an internal pressure of 75 psi. minimum.
                                             d.)   The sheath lumen must maintain an internal pressure of 60 psi. minimum.
  6.2.2.   Tensile Specifications:
                                              a.)   Injection (Needle) Core
         
 
Needle to distal core (polyimide) tubing
  1.0 lb. min.
 
Proximal core (hypotube) to distal core (polyimide)
  1.5 lb. min.
 
Proximal core (hypotube) to handle component (proximal slide)
  2.5 lb. min.
                                              b.)   Fluid Path Connectors
         
 
Luer connector to tubing
  3.0 lb. min.
   
(Sheath/flush Luer to flextube)
   
   
(Inject Luer to flextube)
   
 
Tubing to handle component
  3.0 lb. min.
   
(Inject flextube to proximal slide)
   
   
(Sheath inner flextube to seal housing)
   
                                              c.)   Catheter Shaft
         
 
Tip to pull-wire
  3.0 lb. min.
 
Tip to ribbon
  3.0 lb. min.
 
Deflectable tip to shaft (distal outer bond)
  2.0 lb. min.
 
Shaft to handle (proximal braid to deflection rod)
  4.0 lb. min.
                                              d.)   Internal Handle
         
 
Pull-wire to anchor pin
  4.0 lb. min.
 
Seal housing to multilumen
  2.0 lb. min.
 
CONFIDENTIAL
May not be reproduced, transmitted or disseminated in any form or by any means
without the written permission of an authorized representative of Bioheart, Inc.

 


 

EXHIBIT A
     
BIOHEART INC.
  Doc. D96-00026-01
Product Specification
  Rev.:10
TITLE: SR200 MyoCath TM PEMI Device
  Cover Page
 
  6.2.3.   Needle Lateral Fatigue:
 
      Needle Bond must be able to withstand 300 cycles at .200” range test with catheter fixed 2cm proximal of the catheter tip (simulating the needle insertion into a beating heart).
 
  6.2.4.   Flexibility:
 
      The device flexibility must meet the performance and safety requirements of the user.
 
  6.2.5.   Torque:
 
      The device torque characteristics must meet the performance and safety requirements of the user.
 
      Catheter Shaft :
         
  Entire shaft (tip to handle) must withstand 2 handle rotations while maintaining needle insertion and auto-retraction.
 
Shaft to deflection rod
  2.5 oz-in.
 
Distal outer bond
  2.5 oz-in.
  6.2.6.   Kink Resistance:
 
      The distal section must be able to withstand a 90° bend (in preferential plane only) around a 0.5” radius without kinking.
 
      The proximal section must be able to withstand a 90° bend around a 2.5” radius without kinking.
 
  6.2.7.   Deflection:
a.)   Curvature Compliance— The deflection curvature must be compatible with the expectations of the user and the product labeling.
b.)   Repeated Deflection— The distal section reliably and repeatedly deflects during a standard procedure. Device should deflect at least 100 times at body temperature.
 
CONFIDENTIAL
May not be reproduced, transmitted or disseminated in any form or by any means
without the written permission of an authorized representative of Bioheart, Inc.

 


 

  6.2.8.   Needle Insertion and Retraction:
 
      The manual needle core advancement feature must be compatible with the expectations of the user and the product labeling. The maximum advancement force must be less than 4.0 lb. The needle retraction mechanism must reliably and fully retract the extended needle when the manual force is removed.
 
  6.2.9.   Radiopacity:
 
      The catheter must be adequately radiopaque, allowing fluoroscopic visualization of the catheter during use.
 
  6.2.10.   Finished Device:
a.)   Must pass biocompatibility testing per ISO 10993 for an external communicating device in circulating blood with limited contact duration.
b.)   Must be non-pyrogenic
  6.3.   Physical Specification
  6.3.1.   The injection and sheath connector(s) will be labeled
 
  6.3.2.   The device should have the BIOHEART logo embossed or printed on it.
 
  6.3.3.   The device should have adequate markings/features to allow for accurate insertion depths.
  6.4.   Packaging and Labeling
  6.4.1.   The device will be packaged in a PETG tray and tray lid that is within a Tyvek/Nylon-Polyethylene pouch boxed in a chipboard carton.
 
  6.4.2.   Packaging for sterilization shall be in accordance with AAMI/FDS-1 TIR27, ISO 11137, EN 552/556, or equivalent.
 
  6.4.3.   Shipping configuration shall be designed to withstand simulated transit per ASTM 4169, Distribution Cycle 13, or equivalent.
 
  6.4.4.   Product labels will be on the pouch and the box.
 
CONFIDENTIAL
May not be reproduced, transmitted or disseminated in any form or by any means
without the written permission of an authorized representative of Bioheart, Inc.

 


 

EXHIBIT A
     
BIOHEART INC.
  Doc. D96-00026-01
Product Specification
  Rev.:10
TITLE: SR200 MyoCath TM PEMI Device
  Cover Page
 
  6.4.5.   Label information should meet the applicable regulatory clearance/approvals.
  6.5.   Sterilization
  6.5.1.   The product will be sterilized via E-beam sterilization method to a SAL of 10 -6 .
  6.6.   Shelf Life
  6.6.1.   Must be sterile in unopened package, through labeled “Use by Date.”
 
  6.6.2.   The product and sterile packaging will have a shelf life of at least 3 months, with 2 years preferable.
 
CONFIDENTIAL
May not be reproduced, transmitted or disseminated in any form or by any means
without the written permission of an authorized representative of Bioheart, Inc.

 


 

Exhibit B
Bill of Sale, Assignment and Assumption
     Reference is hereby made to the Asset Purchase Agreement, dated as of June 24, 2003 (the “Purchase Agreement”), between Advanced Cardiovascular Systems, Inc., a California corporation (“Buyer”), and Bioheart, Inc., a Florida corporation (“Seller”). Each term used in this Bill of Sale, Assignment and Assumption, if not otherwise defined herein, has the meaning ascribed therefor in the Purchase Agreement.
     In exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, (a) Seller hereby sells, assigns, transfers and conveys to Buyer all right, title and interest in and to all of the Assets, and (b) Buyer hereby assumes and agrees to perform when due the Assumed Liabilities.
     This Bill of Sale, Assignment and Assumption may be executed in one or more counterparts, any one of which need not contain the signature of more than one party, but all such counterparts taken together will constitute one and the same instrument.
         
Dated: June 24, 2003  ADVANCED CARDIOVASCULAR SYSTEMS, INC.
 
 
  By:   /s/    
    Mark A. Murray   
    Vice President, Finance and Business Development   
 
  BIOHEART, INC.
 
 
  By:      
    Its:    
       

B-1


 

         
Exhibit C
Patent Assignment
     This Patent Assignment (this “Assignment”) is made effective as of this 24th day of June, 2003, by BIOHEART, INC., a Florida corporation (“Assignor”), having its principal offices at 2400 North Commerce Parkway, Suite 408, Weston, FL, and ADVANCED CARDIOVASCULAR SYSTEMS, INC., a California corporation (“Assignee”), having its principal offices at 3200 Lakeside Drive, Santa Clara, CA.
RECITALS
  A.   Assignor is the sole and exclusive owner of the entire right, title and interest in and to the United States Letters Patents and pending patent applications (collectively the “Patents”) listed on Schedule A attached hereto, and in and to all inventions claimed or disclosed therein (“Inventions”).
 
  B.   Assignee is desirous of acquiring the entire right, title and interest in, to and under said Patents and the Inventions claimed therein.
AGREEMENT
     NOW, THEREFORE, in consideration of and exchange for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound thereby, the parties agree as follows:
1.   Assignor does hereby sell, assign, transfer and set over to Assignor all right, title, interest, and benefit of the Patents and Inventions, and any patents which may be granted or any patent applications related to the Patents and Inventions, including without limitation all reexaminations, reissues, continuations, continuations-in-part, divisions, other extensions, U. S. patents and applications having claims that are deemed patentable over any of the above Patents or Inventions based on 35 USC 103(c), and any international or non-U. S. patents and applications claiming priority from any of the above Patents or Inventions, the same to be held and enjoyed by Assignee for its own use and enjoyment, and for the use and enjoyment of its successors, assigns, or other legal representatives, to the end of the term or terms of the Patents or any patents that may issue from the Patents, as fully and entirely as the same would have been held and enjoyed by Assignor if this assignment and sale had not been made; together with all claims for damages by reason of past infringement of the Patents, with the right to sue for and collect the same for its own use and enjoyment, and for the use and enjoyment of its successors, assigns or other legal representatives.
 
2.   Assignor hereby requests the Commissioner of Patents and Trademarks of the United States of America, or any official or any jurisdiction whose duty it is to issue patents, to issue any and all patents resulting from applications pertaining to any of the Patents or Inventions to Assignee or its designee in accordance with the terms of this instrument.

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3.   Assignor agrees to execute all such documents, instruments or agreements necessary to more fully vest in Assignee the Patents and Inventions being assigned hereunder.
     IN WITNESS WHEREOF, Assignor has caused this Assignment to be executed as of the date first above written.
         
  ASSIGNOR
 
 
  By:   /s/    
    Name:      
    Title:      
 
             
STATE OF __________________
    )      
 
    )     §.
COUNTY OF __________________
    )      
     On this ___, before me personally appeared __________________, who produced __________________ as identification, who executed the foregoing instrument, and acknowledged that s/he executed the same as his/her free act and deed.
         
     
  /s/    
  Notary Public    
     
 

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Exhibit 10.10
MANUFACTURING AND SERVICE AGREEMENT
     This Manufacturing and Service Agreement (this “Agreement”) is effective as of September 30, 2005 (the “Effective Date”), by and between Bioheart, Inc., a Florida corporation (“Bioheart”), and Bolton Medical, Inc., a New Jersey corporation (“Bolton”).
RECITALS
     WHEREAS, Bioheart is a developer of a novel cellular based therapies to regenerate damaged heart muscle tissue, among these therapies is the use of autologous myogenic cells (“MyoCell ä ”) that can be delivered to the patient via (i) a catheter-based microimplant system (“MyoCath ä ”) or (ii) a surgical procedure; and
     WHEREAS, Bioheart has developed specifications for the MyoCath ä cardiac catheter to be utilized in connection with the delivery of its MyoCell ä product to a patient’s damaged heart muscle tissue, but currently does not have the capabilities of manufacturing the Product (as hereinafter defined); and
     WHEREAS, Bolton is experienced in and has the capability to provide manufacturing support for the Product; and
     WHEREAS, the parties desire to enter into an arrangement whereby Bolton will manufacture the Product for Bioheart to be used in clinical trials, and Bioheart will buy Products pursuant to the terms of this Agreement;
     NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
     When used in this Agreement, each of the following terms shall have the meaning specified in this Article I:
      Section 1.1 Product . “Product” or “Products” shall mean the item to be manufactured listed on Exhibit A as amended from time to time pursuant to Article III.
      Section 1.2 Affiliate . “Affiliate” means any entity which controls, is controlled by, or is under common control with Bioheart or Bolton, as the case may be.
      Section 1.3 Confidential Information . “Confidential Information” shall have the meaning specified in Article X.
      Section 1.4 FDA . “FDA” means the Food and Drug Administration.

 


 

      Section 1.5 Forecast . “Forecast” means a three-month “moving window” prediction on Product needs in the form of a written or electronic communication from Bioheart to Bolton and is intended to be used as a tool by which Bolton orders components.
      Section 1.6 Forecast Period . “Forecast Period” means the three-months following the end of the one-month period for each Order.
      Section 1.7 Bolton Technology . “Bolton Technology” means all Intellectual Property, including process sequences, validations and all other processes and procedures developed by Bolton.
      Section 1.8 Bioheart Technology . “Bioheart Technology” means all Intellectual Property developed by Bioheart.
      Section 1.9 Improvements . “Improvements” means any information, whether or not patentable, which is developed or acquired by Bioheart during the term of the Agreement relating to the Bioheart Technology.
      Section 1.10 Intellectual Property . “Intellectual Property” means all patents, patent applications, inventors’ certificates and applications therefore, printed and unprinted technical data, know-how, trade secrets, copyrights and other intellectual property rights, inventions, discoveries, techniques, works, processes, methods, plans, software, designs, specifications, communications, protocols, source and object codes and modifications, test procedures, program cards, tapes, disks and all other scientific or technical information, in whatever form.
      Section 1.11 Order . “Order” means a written or electronic communication from Bioheart to Bolton for Products for a one-month period.
      Section 1.12 Specification . “Specification” means a design document or document package that describes components, packaging, labeling, and functional test requirements for the Product.
ARTICLE II
ORDERS; ALTERNATIVE SUPPLIERS; FORECAST
      Section 2.1 Orders .
     (a) Orders . Each Order shall be in the form of a written or electronic communication and shall contain the following information: (i) a description of the Product by model number and revision number, (ii) the quantity of the Product, and (iii) the delivery date or shipping schedule. Each Order shall provide an order number for billing purposes and may include other instructions and terms as may be appropriate under the circumstances.
     (b) Confirmation of Orders . Bolton shall confirm all Orders within five business days of receipt. If Bolton is unable to meet the delivery schedule set forth in a proposed Order, or finds the schedule to be unacceptable for some other reason, the parties shall negotiate in good faith to resolve the disputed matter(s).

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     (c) Delivery of Orders . Bolton will deliver each Product within the time specified in the confirmation of the Order. Expedited Orders are subject to Bolton’s capacity and ability to obtain supplies.
     (d) Changed Orders . Bioheart may change an Order at any time and shall be responsible for all costs associated with an Order change including stop orders, components, works-in-process, and finished goods costs.
      Section 2.2 Material Management . Bolton will procure components from Bioheart approved manufacturers or suppliers in accordance with Bioheart’s component Specifications. Bolton will be responsible for all procurement, quality acceptance, inventory management, and supplier certification/qualification of components required for the manufacture of each Product. Bolton will be responsible for developing and maintaining agreements (addressing component price, support and end-of-life material management) with suppliers. Notwithstanding anything to the contrary herein contained, Bolton does not independently warrant any components it obtains from any supplier. Bolton’s sole warranty under this Agreement is set forth in Section 8.1.
      Section 2.3 Inability to Supply .
     (a) Acknowledgments . Bolton may not subcontract with third parties to manufacture or supply any or all of the Products hereunder without the prior written approval of Bioheart. Bioheart shall have the right to manufacture the Product for itself or to have the Product manufactured by Guidant Corporation (“Guidant”) or an Affiliate of Guidant in such quantities as Bioheart may determine from time to time in its sole discretion; provided , however , Bioheart agrees that so long as (i) Bolton’s manufactured Products are of a quality at least consistent with the quality of the Products manufactured by Guidant and (ii) the Per-Unit Cost is not greater than the cost of the Product charged to Bioheart by Guidant, Bolton shall have the right to manufacture not less than 200 of the Products each twelve months during the Term of this Agreement. Except as set forth in the immediately preceding sentence, Bioheart shall exclusively utilize Bolton to manufacture the Product.
     (b) Inability to Supply; Alternative Manufacturer . Bolton shall give Bioheart prompt written notice if Bolton determines that it is unable to timely supply Bioheart with Products in accordance with this Agreement.
      Section 2.4 Forecasts .
     (a) Bioheart shall send a Forecast to Bolton on the first business day of every month. Each Forecast shall be in a written or electronic communication and shall contain the following information: (i) a description of the Product by model number and revision number, (ii) the quantity of the Product, and (iii) the delivery date or shipping schedule for each of the following three months. For example, Bioheart will send Bolton a Forecast on November 3, 2005 covering production expectations for the months of December 2005 and January and February 2006.

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     (b) Bioheart may modify each forecast by the 15 th day of each month for the upcoming Forecast Period. If a Forecast change occurs either by Bioheart’s modifying a Forecast or by a monthly Forecast’s changing the requirements of a previous Forecast, Bioheart shall be responsible for all costs of all components ordered and paid by Bolton to meet a Forecast before it was changed.
ARTICLE III
BIOHEART SPECIFICATION CHANGES
      Section 3.1 Change Request . Bioheart may request, from time to time, changes to a Specification by written notice at least 90 days before the change is expected to occur. Bioheart shall provide Bolton with the changes to the Specification, including any unique processes, fixtures, or equipment necessary to produce the Product.
      Section 3.2 Acceptance . Bolton shall provide Bioheart with an “impact statement” advising Bioheart of the cost of the Product with the Specification change, support resources needed, costs associated with completing the design transfer and other implications the change may evoke. Cost will be based on necessary personnel hours at Bolton’s then-current rates. Upon agreement by both parties to the impact statement, Bolton shall supply Bioheart with an effective date of when the change will be implemented and design transfer will begin.
      Section 3.3 Transfer Activities .
     (a) Bioheart will supply drafts of impacted manufacturing procedures, on-line test procedures, fixture drawings, equipment specifications or other necessary documentation to convey the change to Bolton.
     (b) Bioheart will provide training and certification to the Bolton transfer support team for new designs. This training includes understanding of the Specification and unique process activities and testing.
     (c) Bolton will be responsible for implementing processes, which include validations, on-line verification testing, inspections, qualifications, and any other assembly, test, and equipment documentation necessary. Bioheart technical support will be available throughout the transfer process and any necessary validation process.
     (d) Bioheart will provide technical support to Bolton as needed after the design transfer activities are completed.
      Section 3.4 Change Cost . Bioheart shall be responsible for all costs associated with a Specification change including (a) excess and obsolete Products inventory, and rework costs, up to the amount required to satisfy the most recent Order before the change and (b) excess and obsolete component inventory cost up to the amount required to satisfy the most recent Forecast before the change.

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ARTICLE IV
RETURN GOODS AND FAILURE ANALYSIS
      Section 4.1 Product Handling . Bolton shall be responsible for handling and decontaminating biohazard Products per Bolton’s procedures, which handling and decontamination shall be at a cost of $75, which cost shall not be included in the standard Per-Cost. Upon documented decontamination, Bolton shall release the returned Product to Bioheart personnel for failure analysis. Bolton shall promptly notify Bioheart when Product arrives in the returned-goods lab.
      Section 4.2 Failure Analysis . Bioheart shall be responsible for tracking returned Products, conducting failure analysis, and reporting to regulatory agencies for all Products. If the failure mode cause or corrective action involves manufacturing, Bioheart shall provide Bolton with a copy of the failure analysis report.
      Section 4.3 Corrective Action . In the event the failure analysis report identifies manufacturing as part of the corrective action, Bolton shall make the necessary changes to the affected manufacturing process(es) as reasonably requested by Bioheart. Bioheart shall incur the cost of these changes as long as the device in question originally met Bioheart Specifications.
ARTICLE V
INVOICES; COSTS
      Section 5.1 Order Invoices . Bolton shall provide Bioheart with an invoice upon the earlier of (a) shipment of Products to or at the direction of Bioheart, or (b) the date on which the Products are available for shipment (the “Ready to Ship Date”). Invoices shall specify Order number, part number, lot number(s), quantity, and price of Products as described in Section 5.3, less any credit. Payment of Bolton invoices shall be under 30 days after shipment or the Ready to Ship Date, as applicable.
      Section 5.2 Other Invoices . Bolton shall provide Bioheart with an invoice for services rendered outside the standard costs in Exhibit B , including unique product testing, process validations, Specification changes. Invoices shall itemize the charges and be within the limits set forth in the approved “impact statement.” Payment of Bolton invoices outside the standard Per-Unit Costs shall be net 30 days.
      Section 5.3 Costs . The standard cost is a per-unit cost for each Product as listed in Exhibit B (the “Per-Unit Cost”) and covers all activities within this Agreement at no additional cost unless otherwise specified herein.
ARTICLE VI
DELIVERY
      Section 6.1 Shipping Documentation . Bolton shall ship finished product directly to Bioheart’s customers and will include with every shipment a packing slip that includes model number, lot number, revision level, number of Products and a certification of conformance to the Specifications. Bolton will provide duplicate copies if all such documentation to Bioheart simultaneous with each shipment.

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      Section 6.2 Risk of Loss . Possession, title, responsibility and risk of loss of the Products shall pass to Bioheart at the time of delivery to and acceptance by Bioheart or, if the Products are shipped by common carrier, delivery to and acceptance by the carrier selected by Bioheart. Bioheart shall bear all costs of shipping the Products. The parties acknowledge and agree that it may become necessary for Bolton to store finished Products in its facility at the request of Bioheart. In the event Bioheart requests Bolton to store finished Products at its facility, Bolton agrees to do so at no charge; provided , however , title, responsibility and risk of loss of such stored Products shall pass to Bioheart at the Ready to Ship Date.
ARTICLE VII
REGULATORY
      Section 7.1 Manufacturing . Bolton will manufacture the Products according to the Specifications for each model number. Additionally, Bolton will manufacture the Products according to current Good Manufacturing Practices (“cGMP”) as developed by the FDA, as such cGMP are amended from time to time. Bolton will test all sub-assemblies and final assemblies per Bioheart’s Specifications. Bolton is responsible for manufacturing product traceability until delivered to Bioheart or its customer as directed by Bioheart, shall retain all such records in accordance with the Quality Agreement described in Section 7.4 below and shall use its current procedures, process sequences, process validations and other documentation to manufacture Products according to the Specifications. Bolton shall also use its current procedures to receive, test and trace incoming components.
      Section 7.2 Changes . Bolton shall communicate to Bioheart changes made to components, processes, or test procedures used to manufacture any Product and documented. Bioheart must approve all changes to components, processes, and test procedures prior to implementation.
      Section 7.3 Regulations . Bolton will manufacture the Products in accordance with FDA’s Quality System Regulations manufacturing requirements.
      Section 7.4 Device History Record and Quality Standards . Bolton shall be responsible for maintaining Product traceability in accordance with Bioheart Specifications and the Bolton Quality Agreement then in effect between the parties.
      Section 7.6 Failure Reporting . Bolton will maintain and relay to Bioheart quality data, inspection and test data, failure trends, and scrap data for each lot of Products manufactured. Each party shall promptly report to the other party in writing on failure trends of the Product that it identifies that might reveal problems in the Product. Bioheart shall be responsible for trend analysis and will inform Bolton of any investigation and/or corrective action necessary as a result of such analysis.
      Section 7.7 Quality Control; Inspections of Facilities; Tours of Facilities . Bioheart shall have the right to inspect Bolton’s facilities and to conduct reasonable audits of Bolton’s quality control inspection processes and standards, including a review of documentation at reasonable times during normal business hours upon reasonable notice. Additionally, Bioheart shall have the right to conduct tours ofthe Bolton’s facilities for its invited guests during normal

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business hours, provided that Bioheart provides Bolton with at least 72 hours prior notice and a list of the individuals and their employer who will be attending such tour. Bolton shall have the right to reasonably reject any Bioheart invited guest based upon a legitimate business reason. Inspections, audits and tours shall be limited to areas affected by Products and this Agreement.
     All information disclosed in connection with such audits or inspections shall be deemed to be confidential information pursuant to the terms of this Agreement.
ARTICLE VIII
WARRANTY
      Section 8.1 General . Bolton’s warranty period is two years from the date of manufacture for each Product and is limited to correction of defects in Bolton’s workmanship. For the purpose of this Section, “workmanship” shall mean Bolton’s work in manufacturing and testing each Product in accordance with Bioheart’s Specifications. During the warranty period, Bolton shall, at its option and at its expense, (a) repair any defects in workmanship or replace the Product at no charge and return the Product to Bioheart’s inventory within 30 calendar days of Bolton’s receipt of any defective Product or (b) credit the full amount of the cost of the Product to Bioheart. In addition, Bolton will pass on to Bioheart all manufacturer’s component warranties to the extent they are transferable but will not independently warrant any components.
      Section 8.2 Sole Remedy . THE SOLE REMEDY UNDER THIS WARRANTY SHALL BE THE REPAIR, REPLACEMENT OR CREDIT FOR DEFECTIVE PARTS AS STATED ABOVE. THIS WARRANTY IS IN LIEU OF ANY OTHER WARRANTIES EITHER EXPRESS OR IMPLIED, INCLUDING MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE IX
INTELLECTUAL PROPERTY RIGHTS
      Section 9.1 Bioheart Technology . Bioheart shall own the entire right, title and interest in and to all Bioheart Technology and any Improvements thereto.
      Section 9.2 Bolton Technology . Bolton shall own the entire right, title and interest in and to all Bolton Technology.
ARTICLE X
CONFIDENTIALITY
      Section 10.1 Definitions . For the purpose of this Agreement,
     (a) “Confidential Information” means information (in any form or media) regarding a party’s customers, prospective customers (including lists of customers and prospective customers), methods of operation, engineering methods and processes (including any information which may be obtained by a party by reverse engineering, decompiling or examining any software or hardware provided by the other party under this Agreement), programs and databases, patents and designs, billing rates, billing procedures, vendors and suppliers, business methods, finances, management, or any other

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business information relating to such party (whether constituting a trade secret or proprietary or otherwise) which has value to such party and is treated by such party as being confidential; provided , however , that Confidential Information does not include information that (i) is known to the other party prior to receipt from the disclosing party hereunder, which knowledge shall be evidenced by written records, (ii) is or becomes in the public domain through no breach of this Agreement, (iii) is received from a third party without breach of any obligation of confidentiality or (iv) information independently developed by the other party.
     (b) “Person” shall mean and include any individual, partnership, association, corporation, trust, unincorporated organization, limited liability company or any other business entity or enterprise.
     (c) “Representative” shall mean a party’s employees, agents, or representatives, including, without limitation, financial advisors, lawyers, accountants, experts, and consultants.
      Section 10.2 Nondisclosure Covenants .
     (a) In connection with this Agreement, each party (the “Disclosing Party”) may furnish to the other party (the “Receiving Party”) or its Representatives certain Confidential Information. For a period of three years from the date of termination or expiration of this Agreement, the Receiving Party (i) shall maintain as confidential all Confidential Information disclosed to it by the Disclosing Party during the term of this Agreement, (ii) shall not, directly or indirectly, disclose any such Confidential Information to any Person other than those Representatives of the Receiving Party whose duties justify the need to know such Confidential Information and then only after each Representative has agreed to be bound by the provisions of this Confidentiality Agreement and clearly understands his or her obligation to protect the confidentiality of such Confidential Information and to restrict the use of such Confidential Information and (iii) shall treat such Confidential Information with the same degree of care as it treats its own Confidential Information (but in no case with less than a reasonable degree of care).
     (b) The disclosure of any Confidential Information is solely for the purpose of enabling each party to perform under this Agreement, and the Receiving Party shall not use any Confidential Information disclosed by the Disclosing Party for any other purpose.
     (c) Except as otherwise set forth in this Agreement, all Confidential Information supplied by the Disclosing Party shall remain the property of the Disclosing Party and will be promptly returned by the Receiving Party upon receipt of written request therefore or as provided in Section 12.5 hereof.
     (d) If the Receiving Party or its Representative is requested or becomes legally compelled to disclose any of the Confidential Information, it will provide the Disclosing Party with prompt written notice. If a protective order or other remedy is not obtained, then only that part of the Confidential Information that is legally required to be

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furnished will be furnished, and reasonable efforts will be made to obtain reliable assurances of confidentiality.
      Section 10.3 Injunctive Relief Authorized . Any material breach of this Section by a party or its Representatives will cause irreparable injury, and the non-breaching party shall be entitled to equitable relief, including injunctive relief and specific performance, in the event of a breach. The above will not be construed to limit the remedies available to a party. In addition, the prevailing party will be entitled to be reimbursed for all of its attorneys’ fees and expenses at all levels of proceedings and for investigations from the non-prevailing party.
      Section 10.4 Effect of Termination . This Article X shall survive termination of this Agreement.
ARTICLE XI
INDEMNIFICATION
      Section 11.1 By Bioheart . The Parties acknowledge that Bioheart will have control of and responsibility for the design, development, and marketing of the Product. Bioheart therefore agrees to indemnify, defend and hold Bolton harmless from and against any and all demands, claims, actions, causes of action, proceedings, suits, assessments, losses, damages, liabilities, settlements, judgments, fines, penalties, interest, costs and expenses (including fees and disbursements of counsel) of every kind (each a “Claim,” and collectively the “Claims”) arising out of or in connection with the use and sale of the Products to the extent such Claim does not arise from the negligence or willful misconduct of Bolton.
      Section 11.2 By Bolton . Bolton shall indemnify, defend and hold Bioheart harmless from and against any and all Claims arising out of or in connection with Bioheart’s manufacture, use and sale of the Product to the extent such Claim arises from the negligence or willful misconduct of Bolton.
      Section 11.3 Intellectual Property . Bioheart shall indemnify, defend, and hold Bolton harmless from and against all Claims arising from or relating to any actual or alleged infringement or misappropriation of any Intellectual Property rights of third patties arising from or in connection with the Product, except to the extent that such Claim is based on actual or alleged infringement or misappropriation of Bolton Technology.
      Section 11.4 Notice and Cooperation . The indemnitee under the indemnities provided under this Article shall give the indemnitor reasonably prompt written notice of any Claim subject to the indemnity and shall cooperate with the indemnitor and authorize the indemnitor to defend and settle the Claim in the indemnitor’s full discretion; provided, however that neither party may settle a Claim related to a liability without the consent of the other party if such settlement would impose any monetary obligation on the other party or require the other party to submit to an injunction or otherwise limit the other party’s rights to conduct its business thereafter. Any payment made by a party to settle any such Claim shall be at its own cost and expense.
      Section 11.6 Effect of Termination . This Article XI shall survive termination of this Agreement.

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ARTICLE XII
TERM AND TERMINATION
      Section 12.1 Term . The term (the “Term”) of this Agreement shall begin on the Effective Date and shall continue through September 30, 2007, unless terminated earlier pursuant to the terms hereof.
      Section 12.2 [Intentionally left blank.]
      Section 12.3 Termination for Breach . Either party may terminate this Agreement on 60 days’ written notice to the other party if the other party is in material default or breach of any provision of this Agreement; provided, however, that if the party receiving such notice cures the breach or default within such 60-day period (or, if such default is one which cannot reasonably be cured within such 60-day period, takes reasonable steps to begin cure of the default and thereafter diligently proceeds towards curing said default), this Agreement shall continue in full force and effect.
      Section 12.4 Termination for Insolvency . This Agreement may be immediately terminated without prejudice to any other rights which the terminating party may have, whether under this Agreement, in law, equity or otherwise, as follows:
     (a) By either party if the other party ceases doing business as a going concern, makes an assignment for the benefit of creditors, files a voluntary petition in bankruptcy, is adjudicated bankrupt or insolvent, files a petition seeking for itself any reorganization, composition, readjustment, liquidation, dissolution, or similar arrangement under any present or future statute, law, or regulation, or files an answer admitting the material allegations of a petition against it in any proceeding, consents to or acquiesces in the appointment of a trustee, receiver, or liquidator of it, or of all or any substantial part of its assets or properties, or if it or its shareholders shall take any action looking to its dissolution or liquidation.
     (b) By either party, if within 60 days after the commencement of any proceedings against the other party seeking reorganization, arrangement, readjustment, liquidation, dissolution, or similar relief under any present or future statute, law, or regulation, such proceedings shall not have been dismissed, or if within 60 days after the appointment without such party’s consent or acquiescence of any trustee, receiver, or liquidator of it or of all or any substantial part of its assets and properties, such appointment shall not be vacated.
      Section 12.5 Effect of Termination .
     (a) Return of Information . Upon termination of this Agreement, each party shall, at the request of the other party, promptly return to the other party, or otherwise dispose of as the other party may reasonably direct, all Confidential Information, samples, patterns, instruction books, technical pamphlets, advertising materials, plans, software, designs, specifications, communications protocols, source and object codes, program cards, tapes, disks and other materials, documents and papers and copies thereof whatsoever delivered by the other party and still in its possession or under its control.

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Upon termination of this Agreement for any reason, Bolton shall provide Bioheart with all Device History Records and Device Master Records per Sections 7.4 and 7.5.
     (b) Financial Consequences . In the event of termination for any reason other than a breach of this Agreement by Bolton, Bioheart shall pay Bolton, within 30 days of Bolton’s invoice setting forth the termination charges under this Section:
     (i) the Per-Unit Price for all finished Products existing at the time of termination that are delivered to Bioheart, through and including the final Order;
     (ii) Bolton’s cost (including labor, materials and a reasonable mark-up based on the percentage of work put into the Product) for all work in process through and including the final Order;
     (iii) Bolton’s cost of components actually ordered by Bolton which orders can not be cancelled, to produce a number of Products equal to the greater of (i) the number of Products contained in Bioheart’s most recent Forecast and (ii) the average number of Products included in the Bioheart’s Forecasts for the previous [6] months or in any previous Bioheart’s Forecasts if Termination happens in the first 6 months of the duration of the Agreement (Bolton shall then send to Bioheart such components); and
     (iv) if Bolton terminates this Agreement without cause, Bolton shall be responsible for all component costs, work-in-process costs, and finished goods costs remaining after filling all the Orders, and taking into account any costs associated with Forecasts and Specification changes.
Upon payment in full of the charges set forth in this Section, neither party shall incur any additional liability by reason of the termination of this Agreement.
ARTICLE XIII
MISCELLANEOUS
      Section 13.1 Governing Law and Jurisdiction . This Agreement shall be governed by and construed in accordance with the laws of the State of Florida. Both parties consent to the exclusive jurisdiction of the federal or state courts located in Broward County, Florida.
      Section 13.2 No Agency . It is understood and agreed between Bolton and Bioheart that the full and exclusive relationship between them is that of an independent contractor and nothing in this Agreement shall be construed to create any relationship between the parties other than that of independent contractor. Neither party shall have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other party or to bind the other party with regard to any other contract, agreement, or undertaking with a third party.
      Section 13.3 Titles and Headings . Titles and headings in this Agreement are for the convenience of the parties only and are not intended to be a part of or affect the meaning or interpretation of this Agreement.

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      Section 13.4 Interpretation . Each reference herein to “include” or “including” or “includes” shall be deemed to be followed by the words “without limitation”.
      Section 13.5 Severability of Provisions . If any term or provision of this Agreement or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Agreement or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.
      Section 13.6 Complete Contract; Conflicting Commercial Forms . This Agreement constitutes the entire agreement of the parties relating to the subject matter hereof. There are no promises, terms, conditions, obligations, or warranties other than those contained in this Agreement. This agreement is a continuation of the Manufacturing and Services agreement signed on December 10, 2003. Bioheart and Bolton the technology transfer has been completed and all services provided by Bolton on and after the Effective Date shall be in accordance with the terms set forth in this Agreement.
      Section 13.7 Amendment . This Agreement may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both parties.
      Section 13.8 Assignment . This Agreement may not be assigned by either party except to an Affiliate without the prior written consent of the other party; provided , however , Bioheart shall have the right to assign this Agreement without Bolton’s prior written consent in connection with the sale of all, or substantially all, or its assets or business.
      Section 13.9 No Use of Name . Neither party shall employ or use the name or logo of the other party in any publication or promotional materials or in any form of public distribution nor make any public disclosure of this Agreement without the prior express written consent of the other party, except as may be required for compliance with governmental obligations.
      Section 13.10 Notices . Any Orders, Forecasts, notices, waivers, and other communications required or permitted hereunder shall be in writing and shall be deemed to be fully given when delivered by hand or facsimile transmission or by an internationally recognized overnight courier service, addressed to the party to whom the notice is intended to be given at the addresses specified below.
          (a)   If to Bioheart:

13794 N.W. 4 th Street
Suite 212
Sunrise, Florida 33325
Attention: Howard J. Leonhardt, Chief Executive Officer

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                With a copy to:

Tobin & Reyes, P.A.
7251 West Palmetto Park Road
Suite 205
Boca Raton, Florida 33433
Attention: David S. Tobin, Esq.
          (b)   If to Bolton:

799 International Parkway
Sunrise, Florida 33325
Attention: Oscar Rospigliosi, Chief Exeeutive Officer
or such other addresses or addresses as either party may from time to time designate for itself by like notice.
      Section 13.11 Waiver . No provision of this Agreement shall be deemed to have been waived unless such waiver is in writing, signed by the waiving party. No failure by any party to insist upon the strict performance of any provision of this Agreement, or to exercise any right or remedy consequent upon a breach thereof, shall constitute a waiver of any such breach of such provision, or of any other provision. No waiver of any provision of this Agreement shall be deemed a waiver of any other provision of this Agreement or a waiver of such provision with respect to any subsequent breach, unless expressly provided in writing.
      Section 13.12 No Third-Party Beneficiary Rights . No person not a party to this Agreement is an intended beneficiary of this Agreement, and no person not a party to this Agreement shall have any right to enforce any term of this Agreement.
      Section 13.13 Force Majeure . Neither party shall be responsible for failure or delay in performing any or its obligations due to component or material market allocations or shortage conditions beyond such party’s influence or control, any act of God or public enemy, act of terrorism, war, riot, rebellion, insurrection, explosion, flood, storm, fire, earthquake, strike, injunction, governmental act, rule regulation, order, or directive or the order of any court of competent jurisdiction, freight embargoes, any other similar causes beyond the control and without the fault or negligence of such party. In the event of a delay or failure to perform due to any such cause, the time for performance shall be extended for a period of time equal to the time lost by reason of such cause, except that if any delay continues for a period of three months or more, the party not claiming a force majeure may terminate any affected Orders. The party invoking Force Majeure shall give prompt written notice thereof to the other party.
      Section 13.14 Counterparts . This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
      Section 13.15 Consultation With Counsel and Reliance . Bioheart and Bolton each acknowledge that it has consulted with, or has had the opportunity to consult with, counsel of its

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choice, and that in executing this Agreement it has not relied upon any statements, representations or agreements of any other person other than those contained herein.
      Section 13.16 Non-Solicitation . During the term of this Agreement and for a period of one (1) year after termination or expiration of this Agreement, neither party nor its Affiliates shall solicit for employment any person who is directly involved in the performance of this Agreement and who is an employee of the other party or its Affiliates.

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     IN WITNESS WHEREOF, each party has caused this Agreement to be signed and delivered by its duly authorized representative, effective as of the date first above written.
     
BIOHEART, INC.
  BOLTON MEDICAL, INC.
 
   
By:
  By:
 
   
Its:
  Its:
 
   
Date:
  Date:
 
   

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Exhibit A
Specifications

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Exhibit B
The price to Bioheart for each Product manufactured by Bolton for Bioheart under this Agreement shall be equal to the lesser of (i) Bolton’s actual cost of manufacturing such Product, plus thirty percent (30%) (the “Cost Plus Methodology”); and (ii) an amount to be mutually agreed between Bolton and Bioheart based on actual volume purchases and based on the actual historic manufacturing costs incurred by Bolton until that date. Notwithstanding the foregoing, in the event the Cost Plus Methodology is less than $1,500 per Product, all cost savings below that amount shall be shared equally by Bioheart and Bolton; provided, however, in the event either party incurs expenses in connection with the cost reduction, the party incurring such costs shall be entitled to reimbursement of those costs from the costs savings prior to the implementation of the cost sharing. For example, if Bolton’s actual cost of manufacturing a Product plus 30% is equal to $1,000, then the price of such Product to Bioheart shall equal $1,250, calculated as follows: (1,500-1,000)/2)+1,000 = $1,250.

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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
We have issued our report dated February 8, 2007, accompanying the financial statements of Bioheart, Inc. and subsidiaries (a Development Stage Company) contained in the Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption “Experts.”
/s/ Grant Thornton LLP
Fort Lauderdale, Florida
February 8, 2007