EXHIBIT 10.2

ESCROW AGREEMENT

This Escrow Agreement (this “Agreement”), dated as of February 3, 2009, is
entered into by and among International Stem Cell Corporation, a Delaware
corporation (“Company”), Gemini Master Fund, Ltd. (“Holder”) and Torrey Pines
Bank, a California banking association, as escrow agent (“Escrow Agent”).

R E C I T A L S:

WHEREAS, the Holder holds an OID Senior Secured Convertible Note in the original
principal amount of $1,000,000 issued by the Company (the “Note”), of which
$400,000 in principal amount is outstanding as of the close of business January
30, 2009; and

WHEREAS, pursuant to the terms of that certain Extension Agreement dated as of
January 30, 2009 between the Company and its subsidiaries and the Holder
(“Extension Agreement”), the parties thereto have agreed that (1) the Company
shall deposit $400,000 into an escrow account held by Escrow Agent in accordance
with the terms hereof, and (2) the maturity date of the Note shall be
extended until the date (the “Extended Maturity Date”) which is two (2) months
following the date on which the Company makes such deposit into escrow with
Escrow Agent (“Deposit Date”);

A G R E E M E N T:

NOW THEREFORE, in consideration of the foregoing premises and the mutual
covenants set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

1. Appointment of Escrow Agent.  The Company and the Holder hereby appoint
Escrow Agent to act as escrow agent hereunder, and Escrow Agent hereby accepts
such appointment and agrees to act as escrow agent and to hold, safeguard and
disburse the Escrow Fund (as defined below) pursuant to the terms and conditions
hereof.
 
2. Escrow of Funds.
 
(a) Deposit into Escrow.  Promptly following execution of this Agreement, the
Company shall deposit with Escrow Agent an amount equal to Four Hundred Thousand
Dollars ($400,000) in immediately available funds (“Deposited Funds”).  The
“Escrow Fund” is the Deposited Funds as increased by any interest
thereon.  Escrow Agent will provide acknowledgment upon receipt of funds.  Upon
receipt by Escrow Agent, Escrow Agent shall hold the Escrow Fund in escrow for
the benefit of the Company and the Holder in accordance with this
Agreement.  This Agreement shall not become effective until the Escrow Agent
receives the Deposited Funds, which shall constitute the Deposit Date.
 
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(b) Investment of Funds.  Except as the Company and the Holder may from time to
time otherwise jointly instruct Escrow Agent in writing, the Escrow Fund shall
be invested in an interest bearing account with Escrow Agent until disbursement
of the entire Escrow Fund.  The parties hereto agree that (i) all interest
accrued on the Escrow Fund shall be paid to the Company (regardless of whether
the Escrow Fund is distributed to the Company or the Holder), and (ii) for tax
reporting purposes, all interest and/or other taxable income earned on the
Escrow Fund in any tax year shall be taxable to the Company.  Escrow Agent
agrees to provide to the Company the appropriate form to report such interest
and/or other taxable income earned (i.e., 1099 Misc., etc.).
 
3. Disbursements.
 
(a) Escrow Fund.  On the Extended Maturity Date, Escrow Agent shall distribute
the Escrow Fund in accordance with the written instructions delivered by the
Holder to Escrow Agent.  The Holder and the Company agree that from the Escrow
Fund:
 
(1) the Holder shall receive $400,000 less the aggregate principal amount of the
Note converted by the Holder, and
 
(2) the Company shall receive the balance of the Escrow Fund which has not been
distributed to the Holder pursuant to Section 3(a)(1) above.
 
(b) Interest.  The Escrow Agent shall distribute any and all accrued interest on
the Escrow Fund to the Company.
 
(c) Wire Details.  Distributions to the parties hereunder shall be paid by wire
transfer as follows:
 

 

  If to the Holder, to:          
Bank of New York
ABA#  021-000-018
F/A/O  Jefferies & Company, Inc.
A/C#  890-000-7001
F/F/C  Gemini Master Fund, Ltd.
FFC#  662-70252
          If to the Company, to:             Bank: City National Bank
2029 Century Park East
Suite 200
Los Angeles, CA 90067
    ABA#: 1220-16066     Acct Name: International Stem Cell Corporation    
Contact: Michael Forget, (310) 282-7865     A/C#: 112-618-724

                              

(d) Termination.  Upon disbursement of the entire Escrow Fund in accordance
herewith, the escrow hereunder shall terminate.
 
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4. Duties of Escrow Agent
 
(a) Degree of Care.  Escrow Agent shall not be under any duty to give the Escrow
Fund held by it hereunder any greater degree of care than it gives its own
similar property and shall not be required to invest any funds held hereunder
except as directed in this Agreement.  Uncollected funds held hereunder shall
not earn or accrue interest.
 
(b) No Liability for Actions or Omissions.  Escrow Agent shall not be liable for
actions or omissions hereunder, except for its own gross negligence or willful
misconduct and, except with respect to claims based upon such gross negligence
or willful misconduct that are successfully asserted against Escrow Agent, the
other parties hereto shall jointly and severally indemnify and hold harmless
Escrow Agent (and any successor Escrow Agent) from and against any and all
losses, liabilities, claims, actions, damages and expenses, including reasonable
attorneys’ fees and disbursements, arising out of and in connection with this
Agreement.  Without limiting the foregoing, Escrow Agent shall in no event be
liable in connection with its investment or reinvestment of any cash held by it
hereunder in good faith, in accordance with the terms hereof, including, without
limitation, any liability for any delays (not resulting from its gross
negligence or willful misconduct) in the investment or reinvestment of the
Escrow Fund or any loss of interest incident to any such delays.
 
(c)   Reliance by Escrow Agent.  Escrow Agent shall be entitled to rely upon any
order, judgment, certification, demand, notice, instrument or other writing
delivered to it hereunder without being required to determine the authenticity
or the correctness of any fact stated therein or the propriety or validity of
the service thereof.  Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that the person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so.  Escrow
Agent may conclusively presume that the undersigned representative of any party
hereto which is an entity other than a natural person, or any other individual
designated in writing by such representative, has full power and authority to
instruct Escrow Agent on behalf of that party unless written notice to the
contrary is delivered to Escrow Agent.
 
(d) Advice of Counsel.  Escrow Agent may act pursuant to the advice of counsel
with respect to any matter relating to this Agreement and shall not be liable
for any action taken or omitted by it in good faith in accordance with such
advice.
 
(e) No Interest in Escrow Fund.  Escrow Agent does not have any interest in the
Escrow Fund deposited hereunder but is serving as escrow holder only and has
only possession thereof.  Any payments of income from the Escrow Fund shall be
subject to withholding regulations then in force with respect to United States
taxes.  The Company will provide Escrow Agent with appropriate Internal Revenue
Service Forms W-9 for tax identification number certification, or nonresident
alien certification.  To the extent that the Escrow Agent becomes liable for the
payment of any taxes in respect of income derived from the investment of funds
held or payments made hereunder, Escrow Agent shall satisfy such liability from
the Escrow Fund.  The Company agrees to indemnify and hold Escrow Agent harmless
from and against any taxes, additions for late payment, interest, penalties and
other expenses that may be assessed against Escrow Agent on or with respect to
any payment or other activities under this Agreement unless any such tax,
addition for late payment, interest, penalties and other expenses shall arise
out of or be caused by the actions of, or failure to act by, Escrow Agent.  The
provisions of this Article 4 shall survive notwithstanding any termination of
this Agreement or the resignation of Escrow Agent.
 
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(f) No Representation By Escrow Agent.  Escrow Agent makes no representation as
to the validity, value, genuineness or collectability of any security or other
document or instrument held by or delivered to it.
 
(g) No Advice.  Escrow Agent shall not be called upon to advise any party as to
the wisdom in selling or retaining or taking or refraining from any action with
respect to any securities or other property deposited hereunder.
 
(h) Resignation of Escrow Agent.  Escrow Agent (and any successor Escrow Agent)
may at any time resign as such by delivering the Escrow Fund to any successor
Escrow Agent jointly designated by the other parties hereto in writing, or to
any court of competent jurisdiction, whereupon Escrow Agent shall be discharged
of and from any and all further obligations arising in connection with this
Agreement.  The resignation of Escrow Agent will take effect on the earlier of
(i) the appointment of a successor (including a court of competent jurisdiction)
or (ii) the day which is thirty (30) days after the date of delivery of its
written notice of resignation to the other parties hereto.  If, at that time,
Escrow Agent has not received a designation of a successor Escrow Agent, Escrow
Agent’s sole responsibility after that time shall be to retain and safeguard the
Escrow Fund until receipt of a designation of successor Escrow Agent or a joint
written disposition instruction by the other parties hereto or a court order.
 
(i) Adverse Claims Against Escrow Fund.  In the event of any disagreement
between the other parties hereto resulting in adverse claims or demands being
made in connection with the Escrow Fund or in the event that Escrow Agent is in
doubt as to what action it should take hereunder, Escrow Agent shall be entitled
to retain the Escrow Fund until Escrow Agent shall have received (i) a court
order directing delivery of the Escrow Fund or (ii) a written agreement executed
by the Company and the Holder directing delivery of the Escrow Fund, in which
event Escrow Agent shall disburse the Escrow Fund in accordance with such order
or agreement.  Any court order shall be accompanied by a legal opinion by
counsel for the presenting party satisfactory to Escrow Agent to the effect that
the order is final and nonappealable.  Escrow Agent shall act on such court
order and legal opinion without further question or delay.  Escrow Agent may, in
its sole and absolute discretion, interplead the Escrow Fund or that portion of
Escrow Fund it then holds with any court of competent jurisdiction and name the
Company and the Holder in such interpleader action.  Upon filing the
interpleader action, the Escrow Agent shall be relieved of all liability as to
the Escrow Fund and shall be entitled to recover from the Company its reasonable
attorneys’ fees and other costs incurred in commencing and maintaining such
action.   The Company and the Holder by signing this Agreement submit themselves
to the jurisdiction of such court.  In no event shall the institution of such
interpleader action impair the rights of Escrow Agent described elsewhere this
Agreement.  Such interpleader action shall be filed in a court of competent
jurisdiction in accordance with Section 7 below.
 
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(j) Compensation of Escrow Agent.  The Company shall pay Escrow Agent
compensation (as payment in full) for the services to be rendered by Escrow
Agent hereunder in the amount equal to $1,250 at the time of execution of this
Agreement plus $100 per disbursement plus any out-of-pocket expenses
incurred.  The Company further agrees to reimburse Escrow Agent for all
reasonable expenses, disbursements and advances incurred or made by Escrow Agent
in performance of its duties hereunder (including reasonable fees, expenses and
disbursements of its counsel) prior to the distribution of any property held by
Escrow Agent under this Agreement.  If the property held by Escrow Agent under
this Agreement is insufficient to pay any such compensation and reimbursement to
which Escrow Agent is entitled, the Company shall be liable for such
compensation and reimbursement.
 
(k) Consent to Use of Name.  No printed or other matter in any language
(including, without limitation, prospectuses, notices, reports and promotional
material) that mentions Escrow Agent’s name or the rights, powers or duties of
Escrow Agent shall be issued by the other parties hereto or on such parties’
behalf unless Escrow Agent shall first have given its specific written consent
thereto.  Notwithstanding the above, Escrow Agent hereby expressly consents to
the mention of Escrow Agent’s name in any securities filings required to be made
by law.
 
5. Limited Responsibility.  This Agreement expressly sets forth all the duties
of Escrow Agent with respect to any and all matters pertinent hereto.  No
implied duties or obligations shall be read into this Agreement against Escrow
Agent.  Escrow Agent shall not be bound by the provisions of any agreement among
the other parties hereto except this Agreement.
 
6. Notices.  All notices, requests, demands and other communications provided
for by this Agreement shall be in writing and shall be deemed to have been given
when hand delivered, when received if sent by facsimile or email or by same day
or overnight recognized commercial courier service or three business days after
being mailed in any general or branch office of the United States Postal
Service, enclosed in a registered or certified postpaid envelope, addressed to
the address of the parties stated below or to such changed address as such party
may have fixed by notice:
 
If to the Company:

International Stem Cell Corporation
2595 Jason Court
Oceanside, CA 92056
Attn:  Kenneth Aldrich
Facsimile:  (760) 940-6387
Email: kaldrich@intlstemcell.com

If to the Holder:

Gemini Master Fund, Ltd.
c/o Gemini Strategies, LLC
135 Liverpool Drive, Suite C
Cardiff, CA 92007
Attn:  Steven Winters
Fax:  (858) 509-8808
Email:  steve@geministrategies.com

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With a copy to:
Peter J. Weisman, P.C.
767 Third Avenue, 6th Floor
New York, NY  10017
Fax:  (212) 676-5665
Email:  pweisman@pweisman.com

If to Escrow Agent:

Torrey Pines Bank
12220 El Camino Real, Ste. 120
San Diego, California  92130
Attn:  Teofla Rich, SVP
Facsimile:  858-755-2134
Email: TRich@TorreyPinesBank.com

7. Jurisdiction; Service of Process.  Any action, suit, contest, litigation or
similar proceeding (a “Proceeding”) relating to this Agreement or the
enforcement of any provision of this Agreement may be brought or otherwise
commenced only in any state or federal court located in the County of San Diego,
State of California.  Each party to this Agreement:  (a) expressly and
irrevocably consents and submits to the jurisdiction of each state and federal
court located in the County of San Diego, State of California (and each
appellate court located in the County of San Diego, State of California) in
connection with any such Proceeding; (b) agrees that each state and federal
court located in the County of San Diego, State of California shall be deemed to
be a convenient forum; and (c) agrees not to assert (by way of motion, as a
defense or otherwise), in any such Proceeding commenced in any state or federal
court located in the County of San Diego, State of California, any claim that
such party is not subject personally to the jurisdiction of such court, that
such Proceeding has been brought in an inconvenient forum, that the venue of
such Proceeding is improper or that this Agreement or the subject matter of this
Agreement may not be enforced in or by such court.
 
8. Execution of Agreement.  This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.  The exchange of copies of this Agreement and of
signature pages by facsimile transmission or PDF shall constitute effective
execution and delivery of this Agreement as to the parties and may be used in
lieu of the original Agreement for all purposes.  Signatures of the parties
transmitted by facsimile or PDF shall be deemed to be their original signatures
for any purposes whatsoever.
 
9. Section Headings, Construction.  The headings of sections in this Agreement
are provided for convenience only and will not affect its construction or
interpretation.
 
10. Waiver.  The rights and remedies of the parties to this Agreement are
cumulative and not alternative.  Neither the failure nor any delay by any party
in exercising any right, power or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power or privilege, and no single or partial exercise of any such right, power
or privilege will preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege.  To the
maximum extent permitted by applicable law:  (a) no claim or right arising out
of this Agreement or the documents referred to in this Agreement can be
discharged by one party, in whole or in part, by a waiver or renunciation of the
claim or right unless in writing signed by the other party; (b) no waiver that
may be given by a party will be applicable except in the specific instance for
which it is given; and (c) no notice to or demand on one party will be deemed to
be a waiver of any obligation of such party or of the right of the party giving
such notice or demand to take further action without notice or demand as
provided in this Agreement or the documents referred to in this Agreement.
 
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11. Entire Agreement and Modification.  This Agreement supersedes all prior
agreements among the parties with respect to its subject matter and constitutes
(along with the documents referred to in this Agreement) a complete and
exclusive statement of the terms of the agreement between the parties with
respect to its subject matter.  This Agreement may not be amended except by a
written agreement executed by the Company, the Holder and Escrow Agent.
 
12. Governing Law.  This Agreement shall be governed by and interpreted and
enforced in accordance with the laws of the State of California, USA, without
regard to the conflict of laws rules thereof.
 
13. Miscellaneous.
 
(a) Authority.  Each party hereto hereby represents and warrants to the other
parties that the execution and delivery by such party of this Agreement, and the
performance by such party of its obligations hereunder, have been duly and
validly authorized by such party, with no other action on the part of such party
being necessary.  This Agreement has been duly and validly executed and
delivered by such party and constitutes a legal, valid and binding obligation of
such party enforceable against such party in accordance with its terms.
 
(b) Further Assurances.  Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as any other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
 
(c) Assignment; Successors.  The Holder may assign this Agreement or its
respective rights or obligations hereunder in connection with any transfer of
the Note.  This Agreement shall be binding upon each party’s respective
successors.
 
*** Signatures Appear on the Next Page***
 
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.

COMPANY:

INTERNATIONAL STEM CELL CORPORATION
 

By:  /s/ Kenneth Aldrich     Name: Kenneth Aldrich     Title:    CEO  

 

HOLDER:

GEMINI MASTER FUND, LTD.
 
By:           GEMINI STRATEGIES, LLC, as investment manager

By:  /s/ Steven Winters     Name: Steven Winters     Title:    Managing Member  

 
ESCROW AGENT:

TORREY PINES BANK
 

By:  /s/ Teofla Rich     Name: Teofla Rich     Title:    SVP  

 
 
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