isc_8k-ex1001.htm


    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