**Exhibit 10.13.1**

 

**LETTER OF INTENT BY AND BETWEENEXETER LIFE SCIENCES,INC. AND ADVANCED CELL TECHNOLOGY, INC.**

 

This letter, dated March 16, 2003, confirms theintention of Exeter Life Sciences, an Arizona corporation (referred to hereinas either “Exeter” or “Buyer”), to acquire all of the outstanding shares ofcapital stock of Advanced Cell Technology, Inc. (“ACT”), (the “Acquisition”).  For purposes hereof, the term “Sellers” shallmean the persons or entities selling their shares of capital stock of ACT ascontemplated herein.  This letter merelystates the intentions of the parties and does not create any legal obligationsexcept for the provisions of paragraphs 8 through 17 hereof.  Consummation of the Acquisition contemplatedhereby is subject in all respects to Buyer’s and ACT’s review of the legal, taxand accounting issues associated with this transaction and the execution anddelivery of a definitive agreement (“Definitive Agreement”) and satisfaction ofthe other conditions specified below.

 

The intended principal terms of the acquisition areas follows:

 

1.               **Outline of Basic Transaction**.  Buyer intends to acquire all of the shares ofcapital stock of ACT (the “Acquired Stock”), all of which Acquired Stock isowned beneficially and of record by the owners of 100% of the outstandingcommon and preferred stock of ACT (hereinafter the “Sellers”) as set forth on Schedule 1.  The parties intend that the Acquisition willbe accomplished using the following structure:

 

•                  Exeterand ACT will merge, with Exeter as the surviving company (the “Exeter/ACTMerger”).  All of the Acquired Stock willbe converted into shares of Exeter Series T Preferred Stock at aconversion ratio to be determined based upon the relative value of shares ofACT and Exeter, determined on a fully diluted basis, assuming an equity valueof $10 million for ACT and $143.8 million for Exeter (the “Conversion Ratio”).

 

2.                                                               **Exeter/ACT Merger Consideration**.  Atthe closing of the Exeter/ACT Merger, (a) all outstanding shares of CommonStock of ACT will be converted into Exeter Series T Preferred Stock at theConversion Ratio; and (b) all issued employee stock options of ACT will bereissued under the Exeter Employee Stock Option Plan (“Exeter ESOP”) at theConversion Ratio, with a new option price determined by multiplying the currentoption price by the multiplier determined by the Conversion Ratio.  In addition, at the closing of the Exeter/ACTMerger, Exeter will assume all outstanding debt obligations of ACT (as setforth on Schedule 2), and all matured debt, plus interest, if any, will bepaid in full at the closing.  Prior toclosing all options to acquire ACT stock held by ACT Group, Inc. shall beexercised by ACT Group, Inc. on a cashless exercise basis, meaning that thestated exercise price shall be paid through surrender of options representingshares with a value equal to the exercise price applying ACT’s implied equityvalue in the merger.

 

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3.                                       **Stock Conversion**.

 

At the time of a liquidity event of ACT (to bedefined in the Definitive Agreement), all Holders of Exeter Series TPreferred Stock will convert these shares into shares of ACT at a conversionratio to be determined by the Board of Exeter based upon the relationshipbetween the implied equity value of ACT in the liquidity event and the equityvalue of Exeter, excluding any value associated with ACT.  At the time of a liquidity event of the entireExeter organization, the present ACT shareholders will be afforded theopportunity to participate in the liquidity event in a manner not lessfavorable than all other Exeter shareholders.  In the event of a liquidity event with a non-ACTsubsidiary of Exeter, the present ACT shareholders will be afforded theopportunity to participate in the liquidity event through the ability to converttheir Exeter shares into shares of the non-ACT subsidiary on a basis to benegotiated with the investment bankers at the time of the transaction, but inno event upon terms less favorable than shareholders in the non-ACTsubsidiaries of Exeter.  A liquidityevent is a (i) registered offering, (ii) sale of a significantsubsidiary or substantially all the assets of Exeter (excluding thecontemplated sale of Kronos Science to Blue Horse Labs) or (iii) a privateplacement by Exeter that would create value to any class or series of stock inExeter.  The term liquidity event specificallyexcludes a sale by a shareholder of any or all of their holdings for personalreasons.

 

4.                                       **Primary Conditions to theAcquisition**.  The completion of the Acquisition will be subjectto the following conditions:

 

a.                                       ADefinitive Agreement, in a form acceptable to the parties and their respectivecounsel, and any related agreements contemplated hereby or thereby, shall havebeen approved by the Board of Directors of Buyer and the Board of Directors ofSeller, and shall have been executed by all parties.  

 

b.             Except as otherwise approved byBuyer, there shall not have been any material adverse change in the operationsor business (financial or otherwise) of ACT.

 

c.                                       Thereshall not be any pending or threatened litigation regarding the transactionscontemplated hereby or against ACT or ACT Group or any subsidiary.

 

d.                                      Priorto the execution of the Definitive Agreement, anticipated to be within sixty(60) days of the date hereof, Buyer shall have completed to its satisfactionits due diligence review of ACT, including a review of the intellectualproperty, legal, tax and accounting issues implicated by the transactioncontemplated herein.

 

e.                                       Priorto the closing of the Acquisition, ACT will buy out the debt instruments heldby Anthem/CIC Venture Partners and Gary Aronson, or secure the right for Exeterto purchase those debt instruments from the current holders at or prior to theclosing.

 

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f.                                         Prior to the closing of the Acquisition, theBoard of ACT Group shall approve a plan of dissolution whereby it will ceaseall operations and make a liquidating distribution to the members of itscapital structure in order of the priority of their interests in ACT Group.

 

5.                                       **Definitive Agreement and Closing**.  TheDefinitive Agreement will contain customary representations, warranties,covenants and indemnities of ACT and Buyer.  The parties shall use best efforts toconsummate the transactions contemplated hereby on or before May 31, 2003.  If the Acquisition is not closed by June 30,2003, then either party may terminate the transaction.

 

6.                                       **Employment of Key Staff**.  Forthe purposes of this paragraph, Key Staff shall be defined as Michael West,Gunnar Engstrom and Robert Lanza.  Buyerand ACT shall negotiate and accept offers of employment with the Key Staffprior to the execution of the Definitive Agreement.  Such Key Staff and other staff shall renouncetheir existing employment agreements with ACT prior to the execution of theDefinitive Agreement.

 

An option pool of 20% of the fully diluted equity ofACT shall be established and allocated among Key Staff and other currentemployees of ACT, as agreed to by Buyer and ACT prior to the execution of theDefinitive Agreement.

 

7.                                       **Board Representation**.  Fora minimum period of three (3) years following the Closing, the SurvivingCompany will allow a representative from ACT to sit on Exeter’s Board ofDirectors.  The ACT representative willbe subject to an annual review and reappointment at Exeter’s reasonablediscretion.  In the event ACT’srepresentative is removed from Exeter’s Board or not reappointed after anannual review, ACT may appoint a new representative to fill this position,subject to the same annual review and reappointment process as set forth in theprevious sentence.  Recusal or otherappropriate measures may be sought against the ACT representative in areas ofactual or potential “conflicts of interest.” For purposes of this Section, “conflicts of interest” shall consist ofthe ACT representative on Exeter’s Board or any immediate family member havinga “material financial interest” in a competitor of Exeter or any Exetersubsidiary, or any material involvement, whether as a director, officer,employee, promoter or consultant, with an enterprise that (a) is acompetitor of Exeter or any Exeter subsidiary, (b) has business dealingswith Exeter or any Exeter subsidiary in which the representative or familymember participates or is able to exert influence, or (c) operates in amanner that reflects adversely upon Exeter or any Exeter subsidiary.  In addition to the Exeter Board, ACT will beallowed one representative to sit on ACT’s Board of Directors under similarterms and conditions as outlined above for Exeter’s Board.

 

                Forpurposes of this Section, the following shall not constitute a “materialfinancial interest”: (i) being or becoming a passive investor in any fundor any privately or publicly owned competitor so long as the ACT representativeon Exeter’s Board or any immediate family member does not hold or assume amanagement position therein; (ii) making any non-directed blindinvestment; or (iii) serving in any otherwise proscribed capacity ortaking

 

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anyotherwise proscribed action with respect to a competitor where its competingactivity does not constitute and does not propose to constitute a significantline of business.

 

8.                                       **Conduct of Business**.  Duringthe period from the date hereof to the earlier of the termination of thisletter of intent in accordance with its terms or the execution and delivery ofthe Definitive Agreement, ACT shall:

 

a.                                       conduct its business in the same manner as ithas been regularly conducted including maintaining all contracts and permits infull force and effect;

 

b.                                      use its best efforts to preserve the assetsand associated interests and to maintain its business and employees, salesrepresentatives, customers, assets, suppliers, licenses and operations inaccordance with past custom and practice;

 

c.                                       use its best efforts to satisfy each of theclosing conditions contained herein and to consummate the transactionscontemplated hereby;

 

d.                                      not enter into any transaction other than inthe ordinary course of business, nor any transaction with affiliated persons orentities, other than as contemplated in the Definitive Agreement or as requiredto allow maturing loans to roll over until completion of the Acquisition; and

 

e.                                       not (i) redeem or repurchase any stock, (ii) issueadditional stock, stock options (except where approved by Buyer for theScientific Advisory Board), or warrants (except those necessary to allowmaturing loans to roll over until completion of the Acquisition), (iii) incurany debt except in the ordinary course of business consistent with pastpractices, (iv) make any loans, or (v) increase the compensation,incentive arrangements or other benefits of any employee other than in theordinary course of business consistent with past practices, without priorconsent of Buyer.

 

9.                                       **Representations of ACT and Buyer**.  ACTrepresents and warrants to Buyer that: (a) it has the power and authorityto execute and deliver this letter of intent, (b) the execution anddelivery of this letter of intent does not breach or violate any commitment orobligation to which it is bound, and (c) all of the Sellers set forth on Schedule 1own 100% of the capital stock of ACT, free and clear of any claims, liens orencumbrances whatsoever.  Buyerrepresents and warrants to Sellers that: (a) it has the power andauthority to execute and deliver this letter of intent; and (b) theexecution and delivery of this letter of intent does not breach or violate anycommitment or obligation to which it is bound.

 

10.                                 **Available Information**.  Unless and until this letteris terminated, ACT shall make available to Buyer, and permit complete access toBuyer, its attorneys, accountants, representatives, advisors and other agents,all records, books of account, documents and information of ACT so that Buyermay conduct a complete due diligence review and may investigate any and allaspects of the business, assets, prospects and financial condition.  Further,

 

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theyshall cooperate with Buyer in communicating with all relevant third parties inconnection with such review.

 

11.**                                ****All Information Confidential**.  Exceptas otherwise required by law, all proprietary information concerning a partyprovided to the other party (oral, written or otherwise), including alldocuments and copies of documents or papers containing proprietary information(“Evaluation Information”) will be kept in confidence by the receiving party.  The party receiving such EvaluationInformation will take reasonable steps necessary to ensure the confidentialityof the Evaluation Information by itself, its employees, agents, consultants,advisors and affiliates.  EvaluationInformation does not include information that (i) is or becomes generallyavailable to the public other than as a result of an unauthorized disclosure bythe receiving party or its affiliates or representatives; (ii) was withinor comes into the receiving party’s possession, provided that the source ofsuch information was not known by the receiving party to be bound by aconfidentiality agreement with, or other contractual, legal, or fiduciaryobligation of confidentiality to the party providing the information; (iii) isdisclosed by the receiving party to others with the consent of the other party;or (iv) is independently developed by the receiving party.  The foregoing shall in no way limit, negate orrestrict the terms and provisions of the Mutual Confidentiality Agreementbetween the parties hereto dated February 4, 2003, and in the event ofconflict, the Mutual Confidentiality Agreement shall control.

 

12.**                                ****Fees**.  Each party shall bear their own legal andaccounting fees and other expenses relating to this transaction, including anyfinder or broker acting on their behalf.

 

13.                                 **Exclusivity**.  Buyer shall, contemporaneously with theexecution of this Agreement, pay Seller $200,000 in return for Seller’sagreement that, prior to the termination or expiration of this Letter ofIntent, neither ACT nor any of its affiliates or representatives willnegotiate, solicit or encourage in any way (including by way of furnishing anynon-public information concerning the business, properties or assets) thepossible sale to any other person or entity of all or a material portion of thebusiness or assets of ACT (whether by sale of assets, merger, or sale of stockor other business combination), other than sales of inventory or immaterialportions of its assets in the ordinary course.  ACT shall promptly notify Buyer if it isapproached by any person interested in acquiring its assets or capital stock.  If Exeter decides not to proceed with thetransactions contemplated in this Letter of Intent, then ACT will issue in Exeter’sbehalf capital stock of ACT at $1.14 per share to Exeter, to be issued creditedas fully paid.

 

13.                                 **Publicity**.  The parties hereto agree that neither partywill issue any press release concerning the subject of this letter of intent orotherwise disclose the same to any person (except its officers, employees,agents, and advisors having a need to know in order to effect the transactioncontemplated hereby) unless mutually agreed.

 

15.                                 **Termination**.  The provisions of Paragraphs 11, 12 and 13hereof will survive any termination of this letter on the terms set forththerein.

 

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16.                                 **Governing Law**.  This letter shall be governed by andconstrued in accordance with the internal laws of the State of Arizona, withoutregard to conflict of laws principles.

 

17.                                 **Counterparts**.  This letter may be executed in any number ofcounterparts, each of which when so executed shall be deemed to be an originaland all of which taken together shall constitute one and the same agreement.  One or more counterparts of this letter may bedelivered via facsimile with the intention that they shall have the same effectas an original executed counterpart hereof.

 

18.                                 **Entire Agreement**.  This letter constitutes the full and entireunderstanding and agreement between the parties with regard to the subjectshereof and thereof.  Any previous letterof agreement (with the exception of the Convertible Bridge Note) among theparties relative to the specific subject matter hereof is superseded by thisletter.

 

 
|   | Exeter Life Sciences, Inc.,  an Arizona corporation    |
|--------|-------------------------------------------------------------|
|   |                                                        |
|   |                                                        |
|   | /s/ Jonathan Thatcher                                       |   |
|   | By:                                                         | Jonathan Thatcher |
|   | Its:                                                        | President |
|   |                                                        |
|   | Advanced Cell Technology, Inc.  A Delaware corporation |
|   |                                                        |
|   |                                                        |
|   | /s/ Michael West                                            |   |
|   | By:                                                         | Michael West |   |
|   | Its:                                                        | President |   |
|   |                                                        | 3-16-03 |

 

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**Schedule 1**

 

**List of Sellers**

 
| **Seller**                    | ** ** | **Number of Shares** | ** ** |
|-------------------------------|------------|----------------------|------------|
| ACT Group, Inc.          |       | 6,811,146            |       |
| Avian Farms, Inc.        |       | 1,060,000            |       |
| University  of Massachusetts* |       | 357,263              |       |
| Wendy Ingles                  |       | 1,474                |       |
| James Robl                    |       | 96,000               |       |

 

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*In the context of a new license, ACT and UMasshave agreed to issue to UMass an additional 73,263 shares.  This transaction has not been consummated andis not reflected in the above numbers.

 

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**Schedule 2**

 

**List of Debt Obligations**

 
| Accounts  Payable                   |       | $     | 1,531,510.92     |       |
|-------------------------------------|------------|-------|------------------|------------|
| Accrued  Payroll & Benefit |       | $     | 231,294.46       |       |
| Related  Party Notes SOMA           |       | $     | 15,000           |       |
| Interest  Payable SOMA              |       | $     | 2505.89          |       |
| Note Payable  ACT Group             |       | $     | 1,000,000        |       |
| Interest  Payable ACT Group         |       | $     | 56,876.70        |       |
| **Total**                           | ** ** | **$** | **2,837,187.97** | ** ** |

 

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