Exhibit 10.1
 
INTERNATIONAL STEM CELL CORPORATION
SECURITIES PURCHASE AGREEMENT
SERIES C CONVERTIBLE PREFERRED STOCK

SECURITIES PURCHASE AGREEMENT (the “Agreement”) dated as of August 20, 2008,
between International Stem Cell Corporation, a Delaware corporation (the
“Company”), and X-Master, Inc., a New Hampshire corporation (the“Investor”).

WITNESSETH:

WHEREAS, the Company desires to sell to the Investor (or Investor’s designee,
provided that such designee is an "accredited investor" as defined in Rule 501
of Regulation D promulgated under the Securities Act of 1933), and the Investor
desires to purchase, an aggregate of up to 3,000,000 shares of Series C Stock
(as defined below) of the Company (the “Shares”), convertible to shares of
Common Stock of the Company based on an initial conversion price of $.25 per
share, all for an aggregate price of $3,000,000;

WHEREAS, the Investor desires to purchase the Shares in three tranches, with an
initial tranche of 700,000 Shares purchased on or before August 22, 2008; an
additional tranche of 1,300,000 Shares to be purchased on or before September
23, 2008; and a third tranche of 1,000,000 Shares to be purchased on or before
December 15, 2008. The purchase of each tranche subsequent to the first shall be
subject to Investor’s determination, in Investor’s sole discretion, that there
has been no material adverse change in the Company’s business or financial
prospects; and

WHEREAS, the following terms appearing herein shall have the following meanings
unless otherwise defined herein:

“Agreement” has the meaning set forth in the preamble.

“Blue Sky Laws” has the meaning set forth in Section 2.20.

“Certificate of Designation” means the Certificate of Designation of Rights,
Preferences, Privileges and Restrictions of the Series C Preferred Stock of
International Stem Cell Corporation in the form attached as Exhibit 1 to be
filed with the Delaware Secretary of State prior to the Closing.

“Certificate of Incorporation” means the Amended and Restated Certificate of
Incorporation of the Company filed with the Secretary of State of the State of
Delaware.

“Closing” and “Closing Date” have the meanings set forth in Section 1.2.

 

--------------------------------------------------------------------------------

 

“Common Stock” shall mean stock of the Company of any class (however designated)
whether now or hereafter authorized, which generally has the right to
participate in the voting and in the distribution of earnings and assets of the
Company without limit as to amount or percentage, including the Company’s Common
Stock, $.001 par value per share.

“Common Stock Equivalents” means any securities of the Company or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, rights,
options, warrants or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

“Company” has the meaning set forth in the preamble and includes any corporation
that shall succeed to or assume, directly or indirectly, the obligations of the
Company hereunder.

“Conversion Price” has the meaning assigned thereto in the Certificate of
Designation.

The term “corporation” shall mean any corporation, association, joint stock
company, business trust, limited liability company or other similar
organization.

“Exchange Act” means the Securities Exchange Act of 1934.

“Material Adverse Effect” has the meaning set forth in Section 2.2.

“Material Agreement” shall mean any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company is a party or by which the Company or any
property or asset of the Company is bound or affected.

“Own” shall mean own beneficially, as that term is defined in the rules and
regulations of the SEC.

“Person” shall mean any individual, sole proprietorship, partnership,
corporation, limited liability company, business trust, unincorporated
association, joint stock corporation, trust, joint venture or other entity, any
university or similar institution, or any government or any agency or
instrumentality or political subdivision thereof.

“Required Approvals” has the meaning set forth in Section 2.5.

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
the Transaction Documents, including any Underlying Shares issuable upon
exercise or conversion in full of the Series C Stock, assuming that the
Conversion Price is at all times on and after the date of determination 75% of
the then Conversion Price on the Trading Day immediately prior to the date of
determination.

“SEC” shall mean the Securities and Exchange Commission.

 
2

--------------------------------------------------------------------------------

 

“SEC Reports” has the meaning set forth in Section 2.8.

“Securities” shall mean the Shares.

“Securities Act” means the Securities Act of 1933.

“Series C Stock” shall mean the Series C Convertible Preferred Stock, par value
$.001 per share, of the Company, having the terms set forth in the Certificate
of Designation.

“Shares” has the meaning set forth in the preamble.

“Share Price” shall mean $1.00 per Share.

“Subsidiary” means any subsidiary of the Company as set forth on Schedule 2.1
and shall, where applicable, include any direct or indirect subsidiary of the
Company formed or acquired after the date hereof.

“Taxes” shall mean all Federal, state, local and foreign income, franchise,
property, sales, use, excise and other taxes, including obligations for
withholding taxes from payments due or made to any other person and any
interest, penalties or additions to tax.

“Transaction Document” means this Agreement, the exhibits and schedules hereto
and the Certificate of Designation.

“Transfer Agent” has the meaning set forth in Section 1.2(b).

“Underlying Shares” shall mean the shares of Common Stock issued from time to
time upon conversion of the Shares.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
parties hereto hereby agree as follows:

1.
Purchase and Sale of Stock.

 
1.1
Sale and Issuance of Securities.

 
1.1.1
First Tranche

The Company shall sell to the Investor and the Investor shall purchase from the
Company, 700,000 Shares at a price per Share equal to the Share Price.

 
3

--------------------------------------------------------------------------------

 

 
1.1.2
Second Tranche

Subject to Investor’s determination, in Investor’s sole discretion, that there
has been no Material Adverse Effect with respect to the Company, Investor shall
purchase an additional 1,300,000 Shares at the Share Price, such option to be
exercised by delivery of written notice to the Company on or before September
15, 2008.

 
1.1.3
Third Tranche

 
Subject to Investor’s determination, in Investor’s sole discretion, that there
has been no Material Adverse Effect with respect to the Company, Investor (or
Investor's designee) shall purchase an additional 1,000,000 Shares at the Share
Price, such option to be exercised by delivery of written notice to the Company
on or before December 1, 2008.

1.2
The closing of the purchase and sale of each tranche described in Sections
1.1.1, 1.1.2 and 1.1.3, respectively shall take place at the offices of McLane,
Graf, Raulerson & Middleton, Professional Association or such other place as is
mutually acceptable to the parties no later than:

 
1.2.1
for the first tranche, August 20, 2008;

 
1.2.2
for the second tranche, September 23, 2008; and

 
1.2.3
for the third tranche, December 15, 2008.

Each such closing described above is referred to herein as the “Closing” and
each such date described above is referred to herein as a “Closing Date.”  At
each such Closing and on each such Closing Date:

 
1.2.4
the Investor shall deliver to the Company or its designees by wire transfer or
such other method of payment as the Company shall approve, an amount equal to
the purchase price of the Shares; and

 
1.2.5
the Company shall, either directly or through its transfer agent (the “Transfer
Agent”) arrange delivery to the Investor of one or more stock certificates
registered in the name of the Investor, representing the Shares purchased at the
Closing.

1.3
Investor’s Conditions of Closing.  The obligation of the Investor to complete
the purchase of the Securities at each of the Closings is subject to fulfillment
of the following conditions:

 
1.3.1
the Company shall have filed the Certificate of Designation in the form attached
as Exhibit 1 hereto with the Secretary of State of the State of Delaware;

 
4

--------------------------------------------------------------------------------

 

 
1.3.2
the Company shall deliver to the Investor an opinion of counsel in the form
attached as Exhibit 2;

 
1.3.3
the representation and warranties of the Company set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (to the extent such representations and warranties speak as of a
later date or for representations and warranties that speak as of a specific
date) as of such later date as though made on and as of the Closing Date, and
the Company shall have performed in all material respects all covenants and
other obligations required to be performed by it under this Agreement at or
prior to the Closing Date;

 
1.3.4
the absence of a Material Adverse Change from the date of this Agreement up to,
and including, the Closing Date;

 
1.3.5
the Company shall have obtained the requisite approval of the transactions
contemplated hereby by the Company’s board of directors and stockholders (if
applicable);

 
1.3.6
the Company shall have executed and delivered all other documents reasonably
requested by counsel for the Investor that are necessary to complete the
transactions contemplated hereby;

 
1.3.7
the Company shall have delivered to the Investor a certified copy of the
Certificate of Incorporation, Certificate of Designation, the Company’s By-Laws
and a Certificate of Good Standing issued by the Secretary of State of the State
of Delaware; and

 
1.3.8
the Company’s Board of Directors shall have created a vacancy on the Company’s
Board for the Series C Stock director designee, and the Investor’s designee to
the Company’s Board of Directors shall have been appointed to fill the vacancy
for the Series C Stock director seat created by the Certificate of Designation
and the Board of Directors, such appointment to become effective upon filing by
such board designee of the requisite SEC disclosure forms.

1.4
Company’s Conditions of Closing.  The obligation of the Company to complete the
sale of the Securities at each of the Closings is subject to fulfillment of the
following conditions, each of which may waived by the Company:

 
1.4.1
the representation and warranties of the Investor set forth in this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (to the extent such representations and warranties speak as of a
later date) as of such later date as though made on and as of the Closing Date;

 
5

--------------------------------------------------------------------------------

 

 
1.4.2
the Company shall have filed the Certificate of Designation in the form attached
as Exhibit 1 hereto with the Secretary of State of the State of Delaware; and

 
1.4.3
the Company shall have obtained the requisite approval of the transactions
contemplated hereby by the Company’s stockholders (if applicable) and board of
directors.

2.
Representations, Warranties and Covenants of the Company.

Except as disclosed in the SEC Reports filed after January 1, 2008 and except as
set forth in a Disclosure Schedule hereto, the Company hereby makes the
following representations and warranties to Investor:

 
2.1
Subsidiaries.  All of the direct and indirect subsidiaries of the Company are
set forth on Schedule 2.1 (whether or not disclosed in SEC Reports).  The
Company owns, directly or indirectly, all of the capital stock or other equity
interests of each Subsidiary free and clear of any Liens, and all of the issued
and outstanding shares of capital stock of each Subsidiary are validly issued
and are fully paid, non-assessable and free of preemptive and similar rights to
subscribe for or purchase securities.  If the Company has no subsidiaries, all
other references to the Subsidiaries or any of them in this Section 2.1 shall be
disregarded.

 
2.2
Organization and Qualification.  The Company and each of the Subsidiaries is an
entity duly incorporated or otherwise organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
(as applicable), with the requisite power and authority to own and use its
properties and assets and to carry on its business as currently
conducted.  Neither the Company nor any Subsidiary is in violation or default of
any of the provisions of its respective certificate or articles of
incorporation, bylaws or other organizational or charter documents.  Each of the
Company and the Subsidiaries is duly qualified to conduct business and is in
good standing as a foreign corporation or other entity in each jurisdiction in
which the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not have or reasonably be expected to result
in (i) a material adverse effect on the legality, validity or enforceability of
any Transaction Document, (ii) a material adverse effect on the results of
operations, assets, business, prospects or condition (financial or otherwise) of
the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse
effect on the Company’s ability to perform in any material respect on a timely
basis its obligations under any Transaction Document (any of (i), (ii) or (iii),
a “Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.  The Company has furnished to
the Investor true and correct copies of the Company's Certificate of
Incorporation and the Company's By-Laws, as each is currently in effect.

 
6

--------------------------------------------------------------------------------

 

 
2.3
Authorization; Enforcement.  The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by each
of the Transaction Documents and otherwise to carry out its obligations
hereunder and thereunder.  The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals.  Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.

 
2.4
No Conflicts.  The execution, delivery and performance of the Transaction
Documents by the Company and the consummation by the Company of the other
transactions contemplated hereby and thereby do not and will not: (i) conflict
with or violate any provision of the Company’s or any Subsidiary’s certificate
or articles of incorporation, bylaws or other organizational or charter
documents, or (ii) conflict with, or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, result in the
creation of any Lien upon any of the properties or assets of the Company or any
Subsidiary, or give to others any rights of termination, amendment, acceleration
or cancellation (with or without notice, lapse of time or both) of, any
agreement, credit facility, debt or other instrument (evidencing a Company or
Subsidiary debt or otherwise) or other understanding to which the Company or any
Subsidiary is a party or by which any property or asset of the Company or any
Subsidiary is bound or affected (other than Liens in favor of the Investor), or
(iii) subject to the Required Approvals, conflict with or result in a violation
of any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or a
Subsidiary is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company or a Subsidiary
is bound or affected; except in the case of each of clauses (ii) and (iii), such
as could not have or reasonably be expected to result in a Material Adverse
Effect.

 
2.5
Filings, Consents and Approvals.  The Company is not required to obtain any
consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) filings required pursuant to Section 4.4, (ii) the notice and/or
application(s) to each applicable Trading Market for the issuance and sale of
the Securities and the listing of the Underlying Shares for trading thereon in
the time and manner required thereby, and (iii) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws, (collectively, the “Required Approvals”).

 
7

--------------------------------------------------------------------------------

 

 
2.6
Issuance of the Securities.  The Securities are duly authorized and, when issued
and paid for in accordance with the applicable Transaction Documents, will be
duly and validly issued, fully paid and nonassessable, free and clear of all
Liens imposed by the Company other than restrictions on transfer provided for in
the Transaction Documents.  The Underlying Shares, when issued in accordance
with the terms of the Transaction Documents, will be validly issued, fully paid
and nonassessable, free and clear of all Liens imposed by the Company other than
restrictions on transfer provided for in the Transaction Documents.  The Company
has reserved from its duly authorized capital stock a number of shares of Common
Stock for issuance of the Underlying Shares at least equal to the Required
Minimum on the date hereof.

 
2.7
Capitalization.  The capitalization of the Company is as set forth on Schedule
2.7 (whether or not disclosed in SEC Reports), which Schedule 2.7 shall also
include the number of shares of Common Stock owned beneficially, and of record,
by Affiliates of the Company as of the date hereof if not already reported on
Form 3 or Form 4.  The Company has not issued any capital stock since its most
recently filed periodic report under the Exchange Act, other than pursuant to
the exercise of employee stock options under the Company’s stock option plans,
the issuance of shares of Common Stock to employees pursuant to the Company’s
employee stock purchase plans and pursuant to the conversion or exercise of
Common Stock Equivalents outstanding as of the date of the most recently filed
periodic report under the Exchange Act.  No Person has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by the Transaction
Documents.  Except as a result of the purchase and sale of the Securities or as
described in the SEC Reports, there are no outstanding options, warrants, scrip
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities, rights or obligations convertible into or
exercisable or exchangeable for, or giving any Person any right to subscribe for
or acquire, any shares of Common Stock, or contracts, commitments,
understandings or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock or Common Stock
Equivalents.  Except as set forth in the Disclosure Schedules, the issuance and
sale of the Securities will not obligate the Company to issue shares of Common
Stock or other securities to any Person (other than the Investor) and will not
result in a right of any holder of Company securities to adjust the exercise,
conversion, exchange or reset price under any of such securities. All of the
outstanding shares of capital stock of the Company are validly issued, fully
paid and nonassessable, have been issued in compliance with all federal and
state securities laws, and none of such outstanding shares was issued in
violation of any preemptive rights or similar rights to subscribe for or
purchase securities.  No further approval or authorization of any stockholder,
the Board of Directors or others is required for the issuance and sale of the
Securities.  There are no stockholders agreements, voting agreements or other
similar agreements with respect to the Company’s capital stock to which the
Company is a party or, to the knowledge of the Company, between or among any of
the Company’s stockholders.

 
8

--------------------------------------------------------------------------------

 

 
2.8
SEC Reports; Financial Statements.  The Company has filed all reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Reports prior to the
expiration of any such extension.  As of their respective dates, the SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.  The financial statements of the Company included in the SEC Reports
comply in all material respects with applicable accounting requirements and the
rules and regulations of the Commission with respect thereto as in effect at the
time of filing.  Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved (“GAAP”), except as may be otherwise specified
in such financial statements or the Note thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated Subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.

 
2.9
Material Changes.  Since the date of the latest audited financial statements
included within the SEC Reports, except as specifically disclosed in a
subsequent SEC Report filed prior to the date hereof and for operating losses
incurred in the ordinary course of business consistent with past losses, (i)
there has been no event, occurrence or development that has had or that could
reasonably be expected to result in a Material Adverse Effect, (ii) the Company
has not incurred any liabilities (contingent or otherwise) other than (A) trade
payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected
in the Company’s financial statements pursuant to GAAP or disclosed in filings
made with the Commission, (iii) the Company has not altered its method of
accounting, (iv) the Company has not declared or made any dividend or
distribution of cash or other property to its stockholders or purchased,
redeemed or made any agreements to purchase or redeem any shares of its capital
stock and (v) the Company has not issued any equity securities to any officer,
director or Affiliate, except pursuant to existing Company stock option plans.
The Company does not have pending before the Commission any request for
confidential treatment of information.  Except for the issuance of the
Securities contemplated by this Agreement or as set forth in the Disclosure
Schedules, no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business,
properties, operations or financial condition, that would be required to be
disclosed by the Company under applicable securities laws at the time this
representation is made or deemed made that has not been publicly disclosed at
least two Trading Days prior to the date that this representation is made.

 
9

--------------------------------------------------------------------------------

 

 
2.10
Litigation.  There is no action, suit, inquiry, notice of violation, proceeding
or investigation pending or, to the knowledge of the Company, threatened against
or affecting the Company, any Subsidiary or any of their respective properties
before or by any court, arbitrator, governmental or administrative agency or
regulatory authority (federal, state, county, local or foreign) (collectively,
an “Action”) which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, if there were an unfavorable decision, have or reasonably be expected to
result in a Material Adverse Effect.  Neither the Company nor any Subsidiary,
nor, to the knowledge of the Company, any director or officer thereof, is or has
been the subject of any Action involving a claim of violation of or liability
under federal or state securities laws or a claim of breach of fiduciary
duty.  There has not been, and to the knowledge of the Company, there is not
pending or contemplated, any investigation by the Commission involving the
Company or any current or former director or officer of the Company.  The
Commission has not issued any stop order or other order suspending the
effectiveness of any registration statement filed by the Company or any
Subsidiary under the Exchange Act or the Securities Act.

 
2.11
Labor Relations.  No material labor dispute exists or, to the knowledge of the
Company, is imminent with respect to any of the employees of the Company which
could reasonably be expected to result in a Material Adverse Effect.  None of
the Company’s or its Subsidiaries’ employees is a member of a union that relates
to such employee’s relationship with the Company or such Subsidiary, and neither
the Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that their relationships
with their employees are good.  No executive officer, to the knowledge of the
Company, is, or is now expected to be, in violation of any material term of any
employment contract, confidentiality, disclosure or proprietary information
agreement or non-competition agreement, or any other contract or agreement or
any restrictive covenant in favor of any third party, and the continued
employment of each such executive officer does not subject the Company or any of
its Subsidiaries to any liability with respect to any of the foregoing
matters.  The Company and its Subsidiaries are in compliance with all U.S.
federal, state, local and foreign laws and regulations relating to employment
and employment practices, terms and conditions of employment and wages and
hours, except where the failure to be in compliance could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.

 
2.12
Compliance.  Neither the Company nor any Subsidiary (i) is in default under or
in violation of (and no event has occurred that has not been waived that, with
notice or lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound (whether or not such
default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body, or (iii) is or has been in violation of
any statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could not
have or reasonably be expected to result in a Material Adverse Effect.

 
10

--------------------------------------------------------------------------------

 

 
2.13
Regulatory Permits.  The Company and the Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state, local or
foreign regulatory authorities necessary to conduct their respective businesses
as described in the SEC Reports, except where the failure to possess such
permits could not reasonably be expected to result in a Material Adverse Effect
(“Material Permits”), and neither the Company nor any Subsidiary has received
any notice of proceedings relating to the revocation or modification of any
Material Permit.

 
2.14
Title to Assets.  The Company and the Subsidiaries have good and marketable
title in fee simple to all real property owned by them and good and marketable
title in all personal property owned by them that is material to the business of
the Company and the Subsidiaries, in each case free and clear of all Liens,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and proposed to be made of such
property by the Company and the Subsidiaries and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties.  Any real property and facilities held under lease by the
Company and the Subsidiaries are held by them under valid, subsisting and
enforceable leases with which the Company and the Subsidiaries are in
compliance.

 
2.15
Patents and Trademarks.  The Company and the Subsidiaries have, or have rights
to use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, trade secrets, inventions, copyrights, licenses and
other intellectual property rights and similar rights necessary or material for
use in connection with their respective businesses as described in the SEC
Reports and which the failure to so have could have a Material Adverse Effect
(collectively, the “Intellectual Property Rights”).  Neither the Company nor any
Subsidiary has received a notice (written or otherwise) that any of the
Intellectual Property Rights used by the Company or any Subsidiary violates or
infringes upon the rights of any Person.  To the knowledge of the Company, all
such Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.  The
Company and its Subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their intellectual properties,
except where failure to do so could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The Company has duly
and properly filed or caused to be filed with the United States Patent and
Trademark Office (the “PTO”) and applicable foreign and international patent
authorities all patent applications owned by the Company (the “Company Patent
Applications”). To the knowledge of the Company, the Company has complied with
the PTO’s duty of candor and disclosure for the Company Patent Applications and
has made no material misrepresentation in the Company Patent Applications.  The
Company is not aware of any information material to a determination of
patentability regarding the Company Patent Applications not called to the
attention of the PTO or similar foreign authority.  The Company is not aware of
any information not called to the attention of the PTO or similar foreign
authority that would preclude the grant of a patent for the Company Patent
Applications.  The Company has no knowledge of any information that would
preclude the Company from having clear title to the Company Patent Applications.

 
11

--------------------------------------------------------------------------------

 

 
2.16
Insurance.  The Company and the Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which the Company and
the Subsidiaries are engaged, including, but not limited to, directors and
officers insurance coverage at least equal to the aggregate Subscription
Amount.  Neither the Company nor any Subsidiary has any reason to believe that
it will not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business without a significant increase in cost.

 
2.17
Transactions with Affiliates and Employees.  Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $10,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.

 
2.18
Sarbanes-Oxley; Internal Accounting Controls.  The Company is in material
compliance with all provisions of the Sarbanes-Oxley Act of 2002 which are
applicable to it as of the Closing Date.  The Company and the Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management’s general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability, (iii) access to assets is permitted
only in accordance with management’s general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.  The Company has established disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and
designed such disclosure controls and procedures to ensure that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission’s rules and forms.  The Company’s
certifying officers have evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by the Company’s
most recently filed periodic report under the Exchange Act (such date, the
“Evaluation Date”).  The Company presented in its most recently filed periodic
report under the Exchange Act the conclusions of the certifying officers about
the effectiveness of the disclosure controls and procedures based on their
evaluations as of the Evaluation Date.  Since the Evaluation Date, there have
been no changes in the Company’s internal control over financial reporting (as
such term is defined in the Exchange Act) that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.

 
12

--------------------------------------------------------------------------------

 

 
2.19
Certain Fees.  No brokerage or finder’s fees or commissions are or will be
payable by the Investor to any broker, financial advisor or consultant, finder,
placement agent, investment banker, bank or other Person with respect to the
transactions contemplated by the Transaction Documents as a result of any action
taken by the Company.

 
2.20
Private Placement.  Assuming the accuracy of the Investor’s representations and
warranties set forth in Section 3.2, no registration under the Securities Act or
under any state securities or blue sky laws (“Blue Sky Laws”) is required for
the offer and sale of the Securities by the Company to the Investor as
contemplated hereby.  The issuance and sale of the Securities hereunder does not
contravene the rules and regulations of the OTC Bulletin Board.

 
2.21
Investment Company.  The Company is not, and is not an Affiliate of, and
immediately after receipt of payment for the Securities, will not be or be an
Affiliate of, an “investment company” within the meaning of the Investment
Company Act of 1940, as amended.  The Company shall conduct its business in a
manner so that it will not become subject to the Investment Company Act of 1940,
as amended.

 
2.22
Registration Rights.  No Person has any right to cause the Company to effect the
registration under the Securities Act of any securities of the Company.

 
2.23
Listing and Maintenance Requirements.  The Common Stock is registered pursuant
to Section 12(g) of the Exchange Act, and the Company has taken no action
designed to, or which to its knowledge is likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act nor has
the Company received any notification that the Commission is contemplating
terminating such registration.  The Company has not, in the 12 months preceding
the date hereof, received notice from any Trading Market on which the Common
Stock is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.

 
2.24
Application of Takeover Protections.  The Company and the Board of Directors
have taken all necessary action, if any, in order to render inapplicable any
control share acquisition, business combination, poison pill (including any
distribution under a rights agreement) or other similar anti-takeover provision
under the Company’s certificate of incorporation (or similar charter documents)
or the laws of its state of incorporation that is or could become applicable to
the Investor as a result of the Investor and the Company fulfilling their
obligations or exercising their rights under the Transaction Documents,
including without limitation as a result of the Company’s issuance of the
Securities and the Investor’s ownership of the Securities.

 
13

--------------------------------------------------------------------------------

 

 
2.25
Disclosure.  Except with respect to the material terms and conditions of the
transactions contemplated by the Transaction Documents, the Company confirms
that neither it nor any other Person acting on its behalf has provided any of
the Investor or their agents or counsel with any information that it believes
constitutes or might constitute material, nonpublic information.  The Company
understands and confirms that the Investor will rely on the foregoing
representation in effecting transactions in securities of the Company.  All
disclosure furnished by or on behalf of the Company to the Investor regarding
the Company, its business and the transactions contemplated hereby, including
the Disclosure Schedules to this Agreement, is true and correct and does not
contain any untrue statement of a material fact or, when taken together, omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.  The
press releases disseminated by the Company during the twelve months preceding
the date of this Agreement taken as a whole do not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made and when made, not misleading.  The
Company acknowledges and agrees that Investor does not make nor has made any
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in Section 3 hereof.

 
2.26
No Integrated Offering.  Assuming the accuracy of the Investor’s representations
and warranties set forth in Section 3, neither the Company, nor any of its
Affiliates, nor any Person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would cause this offering of the
Securities to be integrated with prior offerings by the Company for purposes of
(i) the Securities Act which would require the registration of any such
securities under the Securities Act, or (ii) any applicable shareholder approval
provisions of the OTC Bulletin Board or any Trading Market on which any of the
securities of the Company are listed or designated.

 
2.27
Solvency.  Based on the consolidated financial condition of the Company as of
the Closing Date after giving effect to the receipt by the Company of the
proceeds from the sale of the Securities hereunder, (i) the fair saleable value
of the Company’s assets exceeds the amount that will be required to be paid on
or in respect of the Company’s existing debts and other liabilities (including
known contingent liabilities) as they mature, (ii) the Company’s assets do not
constitute unreasonably small capital to carry on its business as now conducted
and as proposed to be conducted including its capital needs taking into account
the particular capital requirements of the business conducted by the Company,
and projected capital requirements and capital availability thereof, and (iii)
the current cash flow of the Company, together with the proceeds the Company
would receive, were it to liquidate all of its assets, after taking into account
all anticipated uses of the cash, would be sufficient to pay all amounts on or
in respect of its liabilities when such amounts are required to be paid.  The
Company does not intend to incur debts beyond its ability to pay such debts as
they mature (taking into account the timing and amounts of cash to be payable on
or in respect of its debt).  The Company has no knowledge of any facts or
circumstances which lead it to believe that it will file for reorganization or
liquidation under the bankruptcy or reorganization laws of any jurisdiction
within one year from the Closing Date.

 
14

--------------------------------------------------------------------------------

 

 
2.28
Tax Status.  Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and each Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any Subsidiary.

 
2.29
No General Solicitation.  Neither the Company nor any person acting on behalf of
the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising.  The Company has offered the Securities for
sale only to the Investor and certain other “accredited investors” within the
meaning of Rule 501 under the Securities Act.

 
2.30
Foreign Corrupt Practices.  Neither the Company, nor to the knowledge of the
Company, any agent or other person acting on behalf of the Company, has (i)
directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv) violated in
any material respect any provision of the Foreign Corrupt Practices Act of 1977,
as amended.

 
2.31
Accountants.  The Company’s accounting firm is Vasquez & Company.  To the
knowledge and belief of the Company, such accounting firm (i) is a registered
public accounting firm as required by the Exchange Act and (ii) shall express
its opinion with respect to the financial statements to be included in the
Company’s Annual Report for the year ending December 31, 2009.

 
2.32
No Disagreements with Accountants and Lawyers.  There are no disagreements of
any kind presently existing, or reasonably anticipated by the Company to arise,
between the Company and the accountants and lawyers formerly or presently
employed by the Company, and the Company is not aware of any circumstances with
respect to its accountants or lawyers which could affect the Company’s ability
to perform any of its obligations under any of the Transaction Documents.

 
2.33
Regulation M Compliance.  The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii) and
(iii), compensation paid to the Company’s placement agent in connection with the
placement of the Securities.

 
15

--------------------------------------------------------------------------------

 

 
2.34
No Longer “Shell”.  The Company has not been a Shell Company since December 28,
2006.  The Company filed Form 10 Information with the Commission in accordance
with the rules and regulations of the Commission under the Exchange Act on or
about December 29, 2006, and at all times since such date the Company has been
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
and timely filed (or obtained extensions in respect thereof and filed within the
applicable grace period) all reports and other materials required to be filed
thereunder.

 
2.35
Clinical Studies.  The clinical, pre-clinical and other studies and tests
conducted by or on behalf of or sponsored by the Company or in which the Company
or products or product candidates have participated that are described in the
SEC Reports were and, if still pending, are being conducted in accordance in all
material respects with all applicable federal, state or foreign statutes, laws,
rules and regulations, as applicable (including, without limitation, those
administered by the Food and Drug Administration of the U.S. Department of
Health and Human Services (the “FDA”) or by any foreign, federal, state or local
governmental or regulatory authority performing functions similar to those
performed by the FDA and current Good Laboratory and Good Clinical Practices)
and in accordance with experimental protocols, procedures and controls pursuant
to, where applicable, accepted professional scientific methods. The descriptions
in the SEC Reports of the results of such studies, tests and trials are accurate
and complete in all material respects and fairly present the published data
derived from such studies, tests and trials.  The Company has not received any
notices or other correspondence from the FDA or any other foreign, federal,
state or local governmental or regulatory authority performing functions similar
to those performed by the FDA with respect to any ongoing clinical or
pre-clinical studies or tests requiring the termination, suspension or material
modification of such studies, tests or preclinical or clinical trials, which
termination, suspension or material modification would reasonably be expected to
result in a Material Adverse Effect. No filing or submission to the FDA or any
other federal, state or foreign regulatory body, that is intended to be the
basis for any approval, contains any material statement or material false
information.  The Company is in compliance with all applicable federal, state,
local and foreign laws, regulations, orders and decrees governing their business
as prescribed by the FDA, or any other federal, state or foreign agencies or
bodies, including those bodies and agencies engaged in the regulation of
pharmaceuticals or biohazardous substances or materials, except where
noncompliance would not, singly or in the aggregate, result in a Material
Adverse Effect.

 
16

--------------------------------------------------------------------------------

 

3.
Representations and Warranties of the Investor.  The Investor represents and
warrants to the Company as follows:

 
3.1
Authorization.  The Investor (i) has full power and authority to execute,
deliver and perform this Agreement and the other Transaction Documents to which
it is a party and to incur the obligations herein and therein and (ii) if
applicable, has been authorized by all necessary corporate action to execute,
deliver and perform this Agreement and the other Transaction Documents and to
consummate the transactions contemplated hereby.  Each of this Agreement and the
other Transaction Documents is a valid and binding obligation of Investor
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, reorganization, insolvency, moratorium or similar laws affecting the
enforcement of creditors’ rights and the availability of equitable remedies
(regardless of whether such enforceability is considered in a proceeding at law
or equity).

 

  3.2 Securities Laws Representations and Covenants of Investor.

 
 
3.2.1
This Agreement is made with the Investor in reliance upon the Investor’s
representation to the Company, which by the Investor’s execution of this
Agreement the Investor hereby confirms, that the Securities to be received by
the Investor will be acquired for investment for the Investor’s own account, not
as a nominee or agent, and not with a view to the resale or distribution of any
part thereof such that the Investor would constitute an “underwriter” under the
Securities Act.  The Investor has not granted any right to any other person to
acquire the Securities purchased by the Investor or the Underlying Shares except
as permitted by the Securities Act and Blue Sky Laws.

 
3.2.2
The Investor understands and acknowledges that the offering of the Securities
pursuant to this Agreement will not be registered under the Securities Act or
qualified under any Blue Sky Laws on the grounds that the offering and sale of
the Securities are exempt from registration and qualification, respectively,
under the Securities Act and the Blue Sky Laws, and that the Company’s reliance
upon such exemption is predicated upon the Investor’s representations set forth
in this Agreement.

 
3.2.3
The Investor covenants that, unless the Securities, the Underlying Shares or any
other shares of capital stock of the Company received in respect of the
foregoing have been registered pursuant to the Securities Act, the Investor will
not dispose of such securities unless and until the Investor shall have notified
the Company of the proposed disposition and shall have furnished the Company
with an opinion of counsel reasonably satisfactory in form and substance to the
Company and its counsel to the effect that (i) such disposition will not require
registration under the Securities Act and (ii) appropriate action necessary for
compliance with the Securities Act and any applicable state, local or foreign
law has been taken; provided, however, that the Investor may dispose of such
securities without providing the opinion referred to above if the Company has
been provided with adequate assurance, reasonably satisfactory to the Company
and its counsel, that such disposition is made in compliance with Rule 144 under
the Securities Act (or any similar or analogous rule) and any applicable state,
local or foreign law.

 
17

--------------------------------------------------------------------------------

 

 
3.2.4
In connection with the investment representations made herein, the Investor
represents that (i) the Investor is able to fend for itself in the Contemplated
Transactions; (ii) the Investor has such knowledge and experience in financial
and business matters as to be capable of evaluating the merits and risks of the
Investor’s prospective investment in the Securities; (iii) the Investor has the
ability to bear the economic risks of the Investor’s prospective investment and
can afford the complete loss of such investment; (iv) the Investor has received
all the information it considers necessary or appropriate for deciding whether
to purchase the Shares; (v) the Investor has been furnished with and has had
access to such information as it has requested, including information to verify
the accuracy of the information supplied; and (vi) the Investor has had access
to officers of the Company and an opportunity to ask questions of and receive
answers from such officers and has had all questions that have been asked by the
Investor satisfactorily answered by the Company.

 
3.2.5
The Investor further represents by execution of this Agreement that the Investor
qualifies as an “accredited investor” as such term is defined under Rule 501
promulgated under the Securities Act.  Any Investor that is a corporation, a
partnership, a trust or other business entity further represents by execution of
this Agreement that it has not been organized for the purpose of purchasing the
Securities.

 
3.2.6
By acceptance hereof, the Investor agrees that the Securities, the Underlying
Shares and any shares of capital stock of the Company received in respect of the
foregoing held by it may not be sold by the Investor without registration under
the Securities Act or an exemption therefrom, and therefore the Investor may be
required to hold such securities for an indeterminate period.

  3.3 Legends.  All certificates for the Securities, the Underlying Shares and
each certificate representing any shares of capital stock of the Company
received in respect of the foregoing, whether by reason of a stock split or
share reclassification thereof, a stock dividend thereon or otherwise and each
certificate for any such securities issued to subsequent transferees of any such
certificate (unless otherwise permitted herein) shall bear the following legend:

 
“THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.  SUCH SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT.”
 
In addition, such certificates shall bear any legend that, in the opinion of the
Company’s counsel, is required under the other Transaction Documents or pursuant
to any state, local or foreign law governing the Securities and the Underlying
Shares.

 
18

--------------------------------------------------------------------------------

 
 
 
3.4
Brokers or Finders.  The Investor represents and warrants that neither the
Company nor the Investor has incurred, directly or indirectly, as a result of
any action taken by the Investor (assuming that no unilateral action is taken by
the Company), any liability for brokerage of finders’ fees or agents’
commissions or any similar charges in connection with this Agreement.

 
3.5
Acknowledgment of Reliance.  The Investor hereby agrees and acknowledges that
the Company has been induced to enter into this Agreement and to issue and sell
the Shares hereunder, in part, based upon the representations, warranties and
covenants of the Investor contained herein.

4.
Additional Covenants of the Company.

4.1
Expenses; Indemnification.

 
4.1.1
The Company agrees to pay on the Closing Date or prior to the date payment is
due and save the Investor harmless against liability for the payment of (1) any
stamp or similar taxes (including interest and penalties, if any) that may be
determined to be payable in respect of the execution and delivery of this
Agreement or the other Transaction Documents, the issue and sale of the
Securities and the Underlying Shares, (2) the expense of preparing and issuing
the Securities and the Underlying Shares, (3) the cost of delivering the
Securities and the Underlying Shares of the Investor to the Investor’s home
office, insured to the Investor’s satisfaction, and (4) the costs and expenses
incurred in the preparation of all certificates and letters on behalf of the
Company and of the Company’s performance and compliance with all agreements and
conditions contained herein on its part to be performed or complied with.

 
19

--------------------------------------------------------------------------------

 

 
4.1.2
The Company will indemnify and hold Investor and its directors, officers,
shareholders, members, partners, employees and agents (and any other Persons
with a functionally equivalent role of a Person holding such titles
notwithstanding a lack of such title or any other title), each Person who
controls Investor (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act), and the directors, officers, shareholders,
agents, members, partners or employees (and any other Persons with a
functionally equivalent role of a Person holding such titles notwithstanding a
lack of such title or any other title) of such controlling person (each, an
“Investor Party”) harmless from any and all losses, liabilities, obligations,
claims, contingencies, damages, costs and expenses, including all judgments,
amounts paid in settlements, court costs and reasonable attorneys’ fees and
costs of investigation that any Investor Party may suffer or incur with respect
to any third party  as a result of or relating to (a) any breach of any of the
representations, warranties, covenants or agreements made by the Company in this
Agreement or in the other Transaction Documents or (b) any action instituted
against Investor in any capacity, or any of them or their respective Affiliates,
by any stockholder of the Company who is not an Affiliate of Investor, with
respect to any of the transactions contemplated by the Transaction Documents
(unless such action is based upon a breach of Investor’s representations,
warranties or covenants under the Transaction Documents or any agreements or
understandings Investor may have with any such stockholder or any violations by
the Investor of state or federal securities laws or any conduct by Investor
which constitutes fraud, gross negligence, willful misconduct or
malfeasance).  If any action shall be brought against any Investor Party in
respect of which indemnity may be sought pursuant to this Agreement, Investor
Party shall promptly notify the Company in writing, and the Company shall have
the right to assume the defense thereof with counsel of its own choosing
reasonably acceptable to the Investor Party.  Any Investor Party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of Investor Party except to the extent that (i) the employment thereof
has been specifically authorized by the Company in writing, (ii) the Company has
failed after a reasonable period of time to assume such defense and to employ
counsel or (iii) in such action there is, in the reasonable opinion of such
separate counsel, a material conflict on any material issue between the position
of the Company and the position of Investor Party, in which case the Company
shall be responsible for the reasonable fees and expenses of no more than one
such separate counsel.  The Company will not be liable to any Investor Party
under this Agreement (i) for any settlement by Investor Party effected without
the Company’s prior written consent, which shall not be unreasonably withheld or
delayed; or (ii) to the extent, but only to the extent that a loss, claim,
damage or liability is attributable to any Investor Party’s breach of any of the
representations, warranties, covenants or agreements made by Investor Party in
this Agreement or in the other Transaction Documents.

 
20

--------------------------------------------------------------------------------

 

 
4.2
Form D.  As soon as is practicable following the Closing, the Company shall
prepare and file with the SEC a Form D concerning the sale of the
Securities.  Thereafter, the Company shall furnish such information statements
to the stockholders of the Company in accordance with the appropriate SEC rules
and regulations and shall take all such other actions as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and non-assessable Warrant Shares upon the conversion of all Warrants from time
to time outstanding.

 
4.3
Use of Proceeds.  The Company shall use the net proceeds from the sale of the
Securities hereunder for working capital purposes and shall not use such
proceeds for (a) the satisfaction of any portion of the Company’s debt (other
than payment of trade payables in the ordinary course of the Company’s business
and prior practices), (b) the redemption of any Common Stock or Common Stock
Equivalents, (c) the settlement of any outstanding litigation, or (d) making any
investments in securities or otherwise purchasing any equity or debt securities,
including without limitation purchasing any corporate, governmental, municipal
or auction-rate bonds or other debts instruments (whether at auction, in the
open market or otherwise), any commercial or chattel paper, or any certificates
of deposit, or investing in any money market or mutual funds.

 
4.4
Securities Laws Disclosure; Publicity.  The Company shall, by 8:30 a.m. (New
York City time) on the Trading Day following the date hereof or as soon as
practical thereafter and with the time limits prescribed by law, issue a Current
Report on Form 8-K disclosing the material terms of the transactions
contemplated hereby and attaching the Transaction Documents as exhibits
thereto.  The Company may also issue a press release in conjunction with the
filing of such Form 8-K announcing this transaction.  Company and Investor shall
consult with each other in issuing any other press releases with respect to the
transactions contemplated hereby, and neither the Company nor Investor shall
issue any such press release or otherwise make any such public statement without
the prior consent of the Company, with respect to any press release of Investor,
or without the prior consent of Investor, with respect to any press release of
the Company, which consent shall not unreasonably be withheld or delayed, except
if such disclosure is required by law, in which case the disclosing party shall
promptly provide the other party with prior notice of such public statement or
communication.  Notwithstanding the foregoing, the Company shall not publicly
disclose the name of Investor, or include the name of Investor in any filing
with the Commission or any regulatory agency or Trading Market, without the
prior written consent of Investor, except (i) as required by federal securities
law in connection with (A) any registration statement filed under the Securities
Act covering the resale of the Securities, and (B) the filing of final
Transaction Documents (including signature pages thereto) with the Commission
and (ii) to the extent such disclosure is required by law or Trading Market
regulations, in which case the Company shall provide the Investor with prior
notice of such disclosure permitted under this clause (ii).

 
21

--------------------------------------------------------------------------------

 

 
4.5
Reservation and Listing of Securities.

 
4.5.1
The Company shall maintain a reserve from its duly authorized shares of Common
Stock for issuance pursuant to the Transaction Documents in such amount as may
be required to fulfill its obligations in full under the Transaction Documents.

 
4.5.2
If, on any date, the number of authorized but unissued (and otherwise
unreserved) shares of Common Stock is less than the Required Minimum on such
date, then the Board of Directors shall use commercially reasonable efforts to
amend the Company’s certificate or articles of incorporation to increase the
number of authorized but unissued shares of Common Stock to at least the
Required Minimum at such time, as soon as possible and in any event not later
than the 75th day after such date.

 
4.5.3
The Company shall apply for, to the extent necessary, and cause all Underlying
Shares to be listed, quoted and traded on the OTC Bulletin Board promptly
following the Closing Date.  The Company shall (i) if applicable in the time and
manner required by the OTC Bulletin Board, prepare and file with such market an
additional shares listing application covering a number of shares of Common
Stock at least equal to the Required Minimum on the date of such application,
(ii) take all steps necessary to cause such shares of Common Stock to be
approved for listing on such market as soon as possible thereafter, (iii)
provide to the Investor evidence of such listing, and (iv) maintain the listing
or quoting of the Company’s Common Stock on the OTC Bulletin Board or another
Trading Market so long as the Investor holds any Securities, including without
limitation the Underlying Shares on any date at least equal to the Required
Minimum on such date.

5.
Miscellaneous.

 
5.1
Entire Agreement; Successors and Assigns.  This Agreement (including all
schedules and exhibits thereto) constitutes the entire contract between the
parties relative to the subject matter hereof and thereof.  Any previous
agreement among the parties with respect to the sale of Securities is superseded
by this Agreement.  The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective executors, administrators,
heirs, successors and assigns of the parties.  Except as expressly provided
herein, nothing in this Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto, any rights, remedies, obligations
or liabilities under or by reason of this Agreement.

 
22

--------------------------------------------------------------------------------

 

 
5.2
Survival of Representations and Warranties.  Each of the Company on the one hand
and the Investor on the other hand has the right to reply upon the
representations, warranties, covenants and agreements of the other party
contained in this Agreement and the Closing Certificate, subject in the case of
the Company’s representations, warranties, covenants and agreements the to
information set forth in the Company Disclosure Letter and the documents
referenced therein.  All representations and warranties of the parties set forth
in this Agreement and the Closing Certificate shall survive the execution and
delivery of this Agreement and the Closing hereunder and shall continue in full
force and effect for twenty-four (24) months after the Closing.

 
5.3
Governing Law; Jurisdiction.  This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to
principles of conflicts of law.  Each party hereby irrevocably consents and
submits to the jurisdiction of any Delaware State or United States Federal Court
sitting in the State of Delaware, over any action or proceeding arising out of
or relating to this Agreement and irrevocably consents to the service of any and
all process in any such action or proceeding by registered mail addressed to
such party at its address specified herein.  Each party further waives any
objection to venue in Delaware and any objection to an action or proceeding in
such state on the basis of forum non-conveniens.  Each party also waives any
right to trial by jury.

 
5.4
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.

 
5.5
Headings.  The headings of the sections of this Agreement are for convenience
and shall not by themselves determine the interpretation of this Agreement.

 
5.6
Notices.  Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery and if a fax number
has been provided, upon delivery (with answerback confirmed), addressed to a
party at its address and the fax number, if any, shown below or at such other
address and fax number as such party may designate by three days advance notice
to the other party.

Any notice to the Investor shall be sent to the addresses set forth on the
signature pages hereof, with a copy to:

McLane, Graf, Raulerson & Middleton, Professional Association
900 Elm Street
P.O. Box 326
Manchester, NH  03105-0326
Attention:  Thomas W. Hildreth, Esquire
Telephone:  603-628-1177
Fax:  603-625-5650

 
23

--------------------------------------------------------------------------------

 

Any notice to the Company shall be sent to:

International Stem Cell Corporation
2595 Jason Court
Oceanside, CA 92056
Telephone: 760-940-6383
Fax: 760-940-6387

with a copy to:

DLA Piper US LLP
4365 Executive Drive, Suite 1100
San Diego, California 92121-2133
Attention:  Douglas J. Rein, Esquire
Telephone: 858-677-1443
Fax: 858-638-5043

 
5.7
Rights of Transferees.  Any and all rights and obligations of the Investor
herein incident to the ownership of the Securities or the Underlying Shares
shall pass successively to all subsequent transferees of such securities,
provided that such transfers are made in accordance with the requirements and
restrictions governing transfer of the Securities in the Transaction Documents,
until extinguished pursuant to the terms hereof.

 
5.8
Severability.  Whenever possible, each provision of this Agreement shall be
interpreted in such a manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be deemed prohibited or invalid
under such applicable law, such provision shall be ineffective to the extent of
such prohibition or invalidity, and such prohibition or invalidity shall not
invalidate the remainder of such provision or any other provision of this
Agreement.

 
5.9
Public Statements.  Neither the Company nor the Investor shall make any public
statement about the Contemplated Transactions without the prior written consent
of the other party, unless that party determines in good faith, on the advice of
legal counsel, that public disclosure is required by law, in which case that
party shall consult with the other party prior to making a statement.

 
24

--------------------------------------------------------------------------------

 

 
5.10
Amendments and Waivers.  Unless a particular provision or section of this
Agreement requires otherwise explicitly in a particular instance, any provision
of this Agreement may be amended and the observance of any provision of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and subscribers for or holders of fifty-five percent (55%) of the aggregate
Shares or then-outstanding Shares, respectively.  Any amendment or waiver
effected in accordance with this Section 5.11 shall be binding upon each holder
of any Securities purchased under this Agreement at the time outstanding
(including the Underlying Shares), each future holder of all such Securities
(including the Underlying Shares), and the Company.

[REMAINDER OF PAGE INTENTIONALLY BLANK]

 
25

--------------------------------------------------------------------------------

 

SIGNATURE PAGE
TO
INTERNATIONAL STEM CELL CORPORATION
SECURITIES PURCHASE AGREEMENT
 
IN WITNESS WHEREOF, the undersigned has executed this Agreement this 20th day of
August, 2008.

 
X-MASTER, INC.
 
 
By:             /s/Rouslan Semetchkine                         
 
Name:        Rouslan Semetchkine                              
 
Title:          President                                                   
 
Address:  1 Overlook Drive, #11
                  Amherst, NH  03031
 
ACCEPTED AND AGREED:
 
INTERNATIONAL STEM CELL CORPORATION
 
By:         /s/ Kenneth C.
Aldrich                                                  
 
Name:    Kenneth C.
Aldrich                                                        
 
Title:      CEO                                                                                  
 
Dated:   August 20,
2008                                                              
 

 
26

--------------------------------------------------------------------------------

 
 
SCHEDULES AND EXHIBITS TO THE SUBSCRIPTION AGREEMENT
 

Schedule 2.1 Subsidiaries Schedule 2.7 Capitalization Table     Exhibit 1:  Form
of Certificate of Designation Exhibit 2:  Form of Opinion

 
27

--------------------------------------------------------------------------------