Document:

Exhibit 10.1

FORBEARANCE AGREEMENT

          FORBEARANCE
AGREEMENT (this “Agreement”), dated as of
December 30, 2008 (the “Effective Date”), is entered into by and among U.S. SHIPPING PARTNERS L.P., a Delaware
limited partnership (the “MLP”), U.S.
SHIPPING OPERATING LLC, a Delaware limited liability company (“Operating
LLC”), ITB BALTIMORE LLC, a
Delaware limited liability company, ITB
GROTON LLC, a Delaware limited liability company, ITB JACKSONVILLE LLC, a Delaware limited
liability company, ITB MOBILE LLC,
a Delaware limited liability company, ITB NEW
YORK LLC, a Delaware limited liability company, ITB PHILADELPHIA LLC, a Delaware limited
liability company, USS CHARTERING LLC,
a Delaware limited liability company (“Charter LLC”), USCS CHEMICAL CHARTERING LLC, a Delaware
limited liability company (“Chemical Chartering”), USCS CHEMICAL PIONEER INC., a Delaware
corporation (“Chemical Pioneer”), USCS
CHARLESTON LLC, a Delaware limited liability company (“Charleston”),
USCS CHARLESTON CHARTERING LLC, a
Delaware limited liability company (“USCS Chartering”), USCS ATB LLC, a Delaware limited liability
company (“ATB LLC”), USS ATB 1 LLC,
a Delaware limited liability company (“ATB1 LLC”), USS ATB 2 LLC, a Delaware limited liability
company (“ATB2 LLC”), USCS SEA VENTURE
LLC, a Delaware limited liability company (“Sea Venture LLC”),
USS M/V HOUSTON LLC, a Delaware
limited liability company (“Houston LLC”), U.S. SHIPPING FINANCE CORP., a Delaware corporation (“Finance
Corp.”), USS JV MANAGER INC.,
a Delaware corporation (“JV Manager”), USS
PC HOLDING CORP., a Delaware corporation (“PC Holding”) and USS PRODUCT MANAGER LLC, a Delaware limited
liability company (“Product Manager”) (each of the foregoing being
individually called a “Borrower” and collectively, the “Borrowers”),
the various financial institutions as are or may become parties to the Credit
Agreement as hereinafter defined (collectively, the “Lenders”), CANADIAN IMPERIAL BANK OF COMMERCE, as
Letter of Credit Issuer, CANADIAN IMPERIAL
BANK OF COMMERCE (“CIBC”), as administrative agent (in such
capacity together with its successors in such capacity, the “Administrative
Agent”) for the Lenders, LEHMAN
COMMERCIAL PAPER INC., as the syndication agent (in such capacity
together with its successors in such capacity, the “Syndication Agent”)
for the Lenders, and KEYBANK NATIONAL
ASSOCIATION, as collateral agent (in such capacity, together with
its successors in such capacity, the “Collateral Agent”) for the Secured
Parties (as defined in the Credit Agreement hereinafter defined).

W I T N E S S E T H:

          WHEREAS,
the Borrowers, the Lenders, the Letter of Credit Issuer, the Administrative
Agent, the Syndication Agent and the Collateral Agent have entered into that
certain Third Amended and Restated Credit Agreement dated as of August 7,
2006, as amended by the First Amendment to Third Amended and Restated Credit
Agreement dated as of August 28, 2006, as further amended by the Second
Amendment to Third Amended and Restated Credit Agreement dated as of April 25,
2007, as further amended by the Third Amendment to Third Amended and Restated
Credit Agreement dated as of June 29, 2007, as further amended by the
Waiver and Fourth Amendment to Third Amended and Restated Credit Agreement
dated as of October 20, 2008 (as so amended and as may be further amended or
otherwise modified, the “Credit Agreement”);

          WHEREAS,
the Borrowers have informed the Lenders, the Letter of Credit Issuer, the
Administrative Agent, the Syndication Agent and the Collateral Agent that they
will fail to (i) make the scheduled principal repayment due in respect of the
Term Loans on December 31, 2008 and (ii) make the payment of some or all of the
interest due in respect of the Loans on December 31, 2008, which will result in
the occurrence of Events of Default under Section 8.1.1 of the Credit Agreement
(the “Prospective Events of Default”);

          WHEREAS,
the Borrowers have requested that the Lenders, the Letter of Credit Issuer, the
Administrative Agent, the Syndication Agent and the Collateral Agent forbear
from exercising certain rights and remedies in respect of the Prospective
Events of Default, and subject to the terms and conditions hereof, and Lenders,
the Letter of Credit Issuer, the Administrative Agent, the Syndication Agent and
the Collateral Agent are willing to agree to such request, but only upon the
terms and conditions set forth herein.

          NOW
THEREFORE, in consideration of the foregoing and the
mutual agreements set forth herein, the parties hereto agree as follows:

          SECTION 1. Definitions. Unless
otherwise defined in this Agreement, each capitalized term used in this
Agreement has the meaning assigned to such term in the Credit Agreement.

          SECTION 2. Forbearance Provisions.
On the terms and subject to the conditions set forth in this Agreement, the
Agents and the Majority Lenders agree to forbear from taking any action or
exercising any right or remedy permitted to be taken or exercised by them under
the Credit Agreement or the other Loan Documents with respect to the
Prospective Events of Default during the period (the “Forbearance Period”)
commencing on the Effective Date (as hereinafter defined) and terminating on
the Termination Date (as hereinafter defined); provided, however,
that such forbearance shall extend only to the Prospective Events of Default
and not to any other Defaults or Events of Default now existing or occurring
after the Effective Date and shall not in any way or manner restrict the Agents
or the Lenders from exercising any rights or remedies they may have with
respect to the Prospective Events of Default from and after the termination or
expiration of the Forbearance Period or with respect to any other Default or
Event of Default at any time. “Termination Date” shall mean the earliest to
occur of any of the following events: (i) 5:00 p.m. (Eastern time) on February
10, 2009; (ii) the occurrence and continuance of an Event of Default other than
the Prospective Events of Default; and (iii) the failure by any Loan Party to
comply with any of the provisions of this Agreement or any other documents or
agreements to be entered into or delivered in connection with this Agreement.
The Forbearance Period shall automatically terminate and expire on the
Termination Date without any requirement for notice to any Loan Party or any
other Person and all rights, remedies and privileges of the Agents and the
Lenders under the Credit Agreement and the other Loan Documents shall be
available to, and capable of exercise by, the Agents and the Lenders.

2

          SECTION 3. Restructuring and Strategic
Alternatives. During the term of this Forbearance Agreement, the Borrowers
shall engage in good faith negotiations with the Administrative Agent and the
Lenders regarding restructuring and strategic alternatives which shall include
a possible sale of the Borrowers. Failure of the Borrower to conduct such good
faith negotiations shall constitute an Event of Default. The Administrative
Agent and the Lenders shall not incur any liabilities or obligations under this
provision.

          SECTION 4. Representations and
Warranties, Etc. To induce the Lenders to enter into this Agreement, each
of the Borrowers shall have represented and warranted to the Administrative
Agent, the Letter of Credit Issuer, the Collateral Agent, the Syndication Agent
and the Lenders, and by its execution and delivery of this Agreement such
Borrower does hereby represent and warrant to the Administrative Agent, the
Letter of Credit Issuer, the Collateral Agent, the Syndication Agent and the
Lenders, that:

	
   

  	
   

  
	
   

  	
            (a)     each
  of the representations and warranties by such Borrower contained in the
  Credit Agreement and in the other Loan Documents are true and correct on and
  as of the date hereof in all material respects as though made as of the date
  hereof, except those that by their terms relate solely as to an earlier date,
  in which event they shall be true and correct on and as of such earlier date;

  
	
   

  	
   

  
	
   

  	
            (b)     the
  execution, delivery and performance of this Agreement has been duly
  authorized by all requisite organizational action on the part of such
  Borrower;

  
	
   

  	
   

  
	
   

  	
            (c)     the
  Credit Agreement and each other Loan Document to which it is a party
  constitute valid and legally binding agreements enforceable against such
  Borrower in accordance with their respective terms, except as such
  enforceability may be limited by bankruptcy, insolvency, reorganization,
  moratorium, fraudulent transfer or other similar laws relating to or
  affecting the enforcement of creditors’ rights generally and by general
  principles of equity; and

  
	
   

  	
   

  
	
   

  	
            (d)     no
  Default or Event of Default exists under the Credit Agreement or any of the
  other Loan Documents (after giving effect to this Agreement). 

  

          SECTION 5. Ratification. Each
Borrower hereby ratifies and confirms, as of the Effective Date, (a) the
covenants and agreements contained in each Loan Document to which it is a
party, including, in each case, as such covenants and agreements may be
modified by this Agreement and the transactions contemplated thereby and
(b) all of the Obligations under the Credit Agreement and the other Loan
Documents. In furtherance of the foregoing, each Borrower hereby confirms and
acknowledges, as of the date hereof, that it is validly indebted to the
Administrative Agent, the Collateral Agent, the Letter of Credit Issuer, the
Lenders and the Secured Hedge Counterparties for the payment in full of all
Secured Obligations (as defined in the Security Agreements), without defense,
counterclaim, offset, cross-complaint, claim or demand of any kind or nature
whatsoever. Each Guarantor hereby confirms and acknowledges as of the date
hereof that it is validly indebted to the Administrative Agent, the Collateral
Agent, the Letter of Credit Issuer, the Lenders and the Secured Hedge
Counterparties for the payment in full of all Secured Obligations (as defined
in the Security Agreements) which it has guaranteed, without defense,
counterclaim, offset, cross-complaint, claim or demand of any kind or nature whatsoever.

3

          SECTION 6. Limited Purpose. This
Agreement shall be limited precisely as written and shall not be deemed (i) to
be a consent granted pursuant to, or a waiver or modification of, any other
term or condition of the Credit Agreement or any of the instruments or
agreements referred to therein or a waiver of any Default or Event of Default
under the Credit Agreement, whether or not known to the Agents or the Lenders
or (ii) to prejudice any other right or remedies which the Agents or the
Lenders may now have or have in the future under or in connection with the
Credit Agreement or any of the instruments or agreements referred to therein.
Except to the extent hereby waived or modified, the Credit Agreement and each
of the other Loan Documents shall continue in full force in accordance with the
provisions thereof on the date hereof. 

          SECTION 7. Release. Each of the
Borrowers and each of the Guarantors, on its own behalf, and on behalf of its
successors and assigns, hereby releases, waives and forever discharges the
Administrative Agent, the Collateral Agent, the Letter of Credit Issuer, the
Lenders and the Secured Hedge Counterparties and all of their officers,
directors, employees and agents from any and all actions, causes of action,
debts, dues, claims, demands, liabilities and obligations of every kind and
nature, both in law and equity, known or unknown, whether matured or unmatured,
absolute or contingent arising from the beginning of the world through the date
hereof with respect to this Agreement, the Credit Agreement, the other Loan
Documents and the transactions contemplated thereby.

          SECTION 8. Effectiveness. This
Agreement shall become effective as of the Effective Date when all of the
conditions set forth in this Section have been satisfied. 

	
   

  	
   

  
	
   

  	
            (a)     The
  Administrative Agent shall have received duly executed counterparts of this
  Agreement from the Borrowers, the Administrative Agent, the Letter of Credit
  Issuer and the Majority Lenders; and

  
	
   

  	
   

  
	
   

  	
            (b)     The
  Administrative Agent shall have received all reasonable fees, costs and
  expenses incurred in connection with the negotiation, preparation, execution
  and delivery of this Agreement and related documents, including all
  reasonable fees and disbursements of counsel to the Administrative Agent. The
  Borrowers hereby acknowledge and agree that the fees and expenses set forth
  in this Section shall be paid upon the Borrowers’ execution of this Agreement
  and are not refundable for any reason. 

  

          SECTION 9. Governing Law; Severability;
Entire Agreement. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE
UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO ANY CONFLICTS OF LAW PRINCIPLES THAT WOULD REQUIRE THE APPLICATION OF
THE LAW OF ANY OTHER JURISDICTION). Any provision of this Agreement or any
other Loan Document which is prohibited or unenforceable in any jurisdiction
shall, as to such provision and such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction. This Agreement and
the other Transaction Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any
prior agreements, written or oral, with respect thereto. 

4

          SECTION 10. Costs and Expenses. Each
of the Borrowers agrees that its obligations set forth in Section 10.3 of the
Credit Agreement shall extend to the preparation, execution and delivery of
this Agreement (whether or not this Agreement becomes effective).

          SECTION 11. Execution in Counterparts.
This Agreement may be executed by the parties hereto in several counterparts,
each of which shall be deemed to be an original and all of which shall
constitute together but one and the same agreement.

          SECTION 12. Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns; provided, however,
that (a) no Borrower may assign or transfer its rights or obligations hereunder
without the prior written consent of the Administrative Agent, the Letter of
Credit Issuer and all Lenders; and (b) the rights of sale, assignment and
transfer of the Lenders are subject to Section 10.11 of the Credit Agreement. 

          SECTION 13. Miscellaneous.
(a) On and after the effectiveness of this Agreement, each reference in
each Transaction Document to “the Credit Agreement”, “thereunder”,
“thereof” or words of like import referring to the Credit Agreement
shall mean and be a reference to the Credit Agreement as amended or otherwise
modified by this Agreement; (b) the execution, delivery and effectiveness
of this Agreement shall not, except as expressly provided herein, operate as a
waiver of any default of any Borrower or any right, power or remedy of the
Administrative Agent, the Letter of Credit Issuer, the Syndication Agent, the
Collateral Agent or the Lenders under any of the Loan Documents, nor constitute
a waiver of any provision of any of the Loan Documents; (c) this Agreement
is a Loan Document executed pursuant to the Credit Agreement and shall (unless
otherwise expressly indicated therein) be construed, administered and applied
in accordance with the terms and provisions of the Credit Agreement; and
(d) a facsimile signature of any party hereto shall be deemed to be an original
signature for purposes of this Agreement.

[Remainder of Page Left Intentionally Blank]

5

          IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed by its
officers thereunto duly authorized as of the date first above written. 

	
   

  	
   

  	
   

  
	
   

  	
  BORROWERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. SHIPPING PARTNERS L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  US Shipping
  General Partner LLC,

  
	
   

  	
   

  	
  its General
  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. SHIPPING OPERATING LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  ITB BALTIMORE LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  ITB GROTON LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  ITB JACKSONVILLE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  

6

	
   

  	
   

  	
   

  
	
   

  	
  ITB MOBILE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  ITB NEW YORK LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  ITB PHILADELPHIA LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USS CHARTERING LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USCS CHEMICAL CHARTERING LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USCS CHEMICAL PIONEER INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  

7

	
   

  	
   

  	
   

  
	
   

  	
  USCS CHARLESTON CHARTERING LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USCS CHARLESTON LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USCS ATB LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USCS ATB 1 LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USCS ATB 2 LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USCS SEA VENTURE LLC

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  

8

	
   

  	
   

  	
   

  
	
   

  	
  USS M/V HOUSTON LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  U.S. SHIPPING FINANCE CORP. 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USS PRODUCT MANAGER LLC 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USS JV MANAGER INC. 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  USS PC HOLDING CORP. 

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  
	
   

  	
   

  	
  

  
	
   

  	
  Name:

  	
  Ronald L.
  O’Kelley

  
	
   

  	
  Title:

  	
  Chief
  Executive Officer

  

9

	
   

  	
   

  	
   

  
	
  Acknowledged
  and Agreed:

  	
   

  
	
   

  	
   

  	
   

  
	
  GUARANTORS:

  	
   

  
	
   

  	
   

  	
   

  
	
  USS ATB 3 LLC 

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  	
   

  
	
   

  	
  

  	
   

  
	
  Name:

  	
  Ronald L.
  O’Kelley

  	
   

  
	
  Title:

  	
  Chief
  Executive Officer

  	
   

  
	
   

  	
   

  	
   

  
	
  USS ATB 4 LLC 

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Ronald
  L. O’Kelley

  	
   

  
	
   

  	
  

  	
   

  
	
  Name:

  	
  Ronald L.
  O’Kelley

  	
   

  
	
  Title:

  	
  Chief
  Executive Officer

  	
   

  

10

	
   

  	
   

  	
   

  
	
  AGENTS AND LENDERS:

  	
   

  
	
   

  	
   

  	
   

  
	
  CANADIAN IMPERIAL BANK OF COMMERCE, as
  Administrative Agent and Letter of Credit Issuer

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  LEHMAN COMMERCIAL PAPER INC., as Syndication
  Agent and Lender

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  KEYBANK NATIONAL ASSOCIATION, as Collateral
  Agent

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/

  	
   

  
	
   

  	
  

  	
   

  
	
   

  	
  Name:

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
	
  

  	
   ,

  
	
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11seriesd_spa.htm

    Exhibit 10.1

     

    
      SERIES D
PREFERRED STOCK PURCHASE AGREEMENT

       

      THIS
SERIES D PREFERRED STOCK PURCHASE AGREEMENT is made as of the 30th day of
December 2008 by and among International Stem Cell Corporation, a Delaware
corporation (the "Company"), the investors listed on Exhibit A attached to this
Agreement (each a "Purchaser" and together the "Purchasers").

       

      The
parties hereby agree as follows:

       

      1.           Purchase
and Sale of Preferred Stock.

       

      
        	
                 
      

              	
                1.1

              	
                Sale
      and Issuance of Series D Preferred
Stock.

              

      

       

      
        	
                 
      

              	
                1.1.1

              	
                The
      Company shall adopt and file with the Secretary of State of the State of
      Delaware on or before the Initial Closing (as defined below) the
      Certificate of Designation in the form of Exhibit B attached to this
      Agreement (the "Certificate").

              

      

       

      
        	
                 
      

              	
                1.1.2

              	
                Subject
      to the terms and conditions of this Agreement, each Purchaser agrees to
      purchase at the Closing (as defined below) and the Company agrees to sell
      and issue to each Purchaser at the Closing that number of shares of Series
      D Preferred Stock, $.001 par value per share (the "Series D Preferred
      Stock"), set forth opposite each Purchaser's name on Exhibit A, at a
      purchase price of $100,000 per share. The shares of Series D Preferred
      Stock issued to the Purchasers pursuant to this Agreement (including any
      shares issued at the Initial Closing and any Additional Shares, as defined
      below) shall be referred to in this Agreement as the
    "Shares."

              

      

       

      
        	
                 
      

              	
                1.2

              	
                Closing;
      Delivery.

              

      

       

      
        	
                 
      

              	
                1.2.1

              	
                The
      initial purchase and sale of the Shares shall take place remotely via the
      exchange of documents and signatures, at 10:00 a.m., on December 30, 2008,
      or at such other time and place as the Company and the Purchasers mutually
      agree upon, orally or in writing (which time and place are designated as
      the "Initial Closing"). In the event there is more than one closing, the
      term "Closing" shall apply to each such closing unless otherwise
      specified.

              

      

       

      
        	
                 
      

              	
                1.2.2

              	
                At
      each Closing, the Company shall deliver to each Purchaser a certificate
      representing the Shares being purchased by such Purchaser at such Closing
      against payment of the purchase price therefor by wire transfer to a bank
      account designated by the Company.

              

      

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

      

      
        	
                 
      

              	
                1.3

              	
                Sale
      of Additional Shares of Preferred
Stock.

              

      

       

      
        	
                 
      

              	
                1.3.1

              	
                After
      the Initial Closing, the Company shall sell, on the same terms and
      conditions as those contained in this Agreement, up to forty (40)
      additional shares (subject to appropriate adjustment in the event of any
      stock dividend, stock split, combination or similar recapitalization
      affecting such shares) of Series D Preferred Stock (the "Additional
      Shares"), to one or more purchasers (the "Additional Purchasers") as
      follows:

              

      

       

      
        
          
            
              
                
                  
                    
                      
                        	 	
                                Tranche

                              	
                                Price

                              	
                                No.
      of Shares

                              	
                                Closing
      Date

                              
	 	 	 	 	 
	 	
                                Second

                              	
                                $1,000,000

                              	
                                10

                              	
                                February
      5, 2009

                              
	 	
                                Third

                              	
                                $1,000,000

                              	
                                10

                              	
                                March
      20,2009

                              
	 	
                                Fourth

                              	
                                $1,000,000

                              	
                                10

                              	
                                June
      30, 2009

                              
	 	
                                Fifth

                              	
                                $1,000,000

                              	
                                10

                              	
                                September
      20,
2009

                              

                      

                    

                  

                

              

            

          

        

      

       

      The
purchase of the Second tranche shall be subject to the fulfillment of the
closing
conditions set forth in section 4 hereof, and shall be further subject to
Purchaser's
determination that no Material Adverse Effect has occurred with respect
to the Company. The Third, Fourth and Fifth tranches may be purchased
at the
Purchasers' sole option and in their sole discretion. The Purchasers shall
give the
Company thirty (30) days' prior written notice from the Closing Date of
their
intention to purchase each optional tranche. To extent the Purchasers fail to
exercise
their option to purchase the Additional Shares at any of the optional
tranches,
all rights Purchasers may have to purchase Additional Shares at future
optional
tranches shall then expire.

       

      
        	
                 
      

              	
                1.4

              	
                Use of Proceeds. $500,000.00 of
      the proceeds from the Initial Closing shan be used to effect a partial
      payoff the OlD Senior Secured Convertible Note dated May 14, 2008
      currently held by Gemini Master Fund Ltd. (the "Gemini Note"). The
      remainder of the Gemini Note shall be paid in full using the proceeds from
      the second tranche. Thereafter, the Company shall use the net proceeds
      from the sale of the Shares and the Additional Shares for working capital
      purposes and will not use the 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,

              

      

       

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

      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, except short term
securities issued by or guaranteed by the United States government or an agency
thereof or money market funds comprised of such securities.

       

      
        	
                 
      

              	
                1.5

              	
                Defined Terms Used in this
      Agreement. In addition to the terms defined above, the following
      terms used in this Agreement shall be construed to have the meanings set
      forth or referenced below.

              

      

       

      "Affiliate" means, with respect to any
specified Person, any other Person who, directly or indirectly, controls, is
controlled by, or is under common control with such Person, including, without
limitation, any general partner, managing member, officer or director of such
Person or any venture capital fund now or hereafter existing that is controlled
by one or more general partners or managing members of, or shares the same
management company with, such Person.

       

      "Code" means the Internal Revenue Code of 1986,
as amended.

       

      "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 Intellectual Property" means all
patents, patent applications, trademarks, trademark applications, service marks,
tradenames, copyrights, trade secrets, licenses, domain names, mask works,
information and proprietary rights and processes as are necessary to the conduct
of the Company's business as now conducted and as presently proposed to be
conducted.

       

      "Employment Agreements" means the employment
agreement between the Company and Rouslan Semechkin, and the employment
agreement between the Company and Andrei Semechkin, in the forms attached as
Exhibit C and Exhibit D, respectively, to this Agreement.

       

      "Investors' Rights Agreement" means the
agreement among the Company and the Purchasers [and certain other stockholders
of the Company] dated as of the date of the Initial Closing, in the form of
Exhibit E attached to this
Agreement.

       

      "Key Employee" means any executive-level
employee (including division director and vice president-level positions) as
well as any employee or consultant who either alone or in concert with others
develops, invents, programs or designs any Company Intellectual
Property.

       

      "Knowledge," including the phrase "to the Company's knowledge," shall mean the
actual knowledge after reasonable investigation of the following officers:
Jeffrey Janus, Kenneth C.
Aldrich, and William B. Adams.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

       

      "Management Rights Letter" means the agreement
between the Company and the Purchasers, dated as of the date of the Initial
Closing, in the form of Exhibit F attached to this Agreement.

       

      "Material Adverse Effect" means a material
adverse effect on the business, assets (including intangible assets),
liabilities, financial condition, property, prospects or results of operations
of the Company.

       

      "Person" means any individual, corporation,
partnership, trust, limited liability company, association or other
entity.

       

      "Purchaser" means each of the Purchasers who is
initially a party to this Agreement and any Additional Purchaser who becomes a
party to this Agreement at a subsequent Closing under Section 1.3.

       

      "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations promulgated
thereunder.

       

      "Shares" means the shares of Series D Preferred
Stock issued at the Initial Closing and any Additional Shares issued at a
subsequent Closing under Section
1.3.

       

      "Subsidiary" means any entity in which the
Company owns thirty (30%) or more of the outstanding voting
securities.

       

      "Transaction Agreements" means this Agreement,
the Investors' Rights Agreement, the Management Rights Letter, and the
Employment Agreements.

       

      2.
Representations and Warranties of the Company.

       

      The
Company hereby represents and warrants to each Purchaser that, except disclosed
in any SEC
Report (as defined below) filed after January 1, 2008 or as set forth on the
Disclosure

      Schedule
attached as Exhibit G to this Agreement, which exceptions shall be deemed to be
part of the
representations and warranties made hereunder, the following representations are
true and complete
as of the date of the Initial Closing, except as otherwise indicated. The
Disclosure Schedule
shall be arranged in sections corresponding to the numbered and lettered
sections and subsections
contained in this Section 2, and the disclosures in any section or subsection of
the Disclosure Schedule shall qualify other sections and subsections in this
Section 2 only to the extent it
is readily apparent from a reading of the disclosure that such disclosure is
applicable to such
other sections and subsections.

       

      For
purposes of these representations and warranties, the term "the Company" shall
include any Subsidiaries of the Company, unless otherwise noted
herein.

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      
        
          
            	
                  	
                    2.1

                  	
                    Organization, Good Standing, Corporate
      Power and Qualification. The Company is a corporation duly
      organized, validly existing and in good standing under the laws of the
      State of Delaware and has all requisite corporate power and authority to
      carry on its business as presently conducted and as proposed to be
      conducted. The Company is duly qualified to transact business and is in
      good standing in each jurisdiction in which the failure to so qualify
      would have a Material Adverse
Effect.

                  

          

        

      

       

      
        
          
            	
                  	
                    2.2

                  	
                    Capitalization. The
      capitalization of the Company is as set forth in Section 2.2 of the
      Disclosure Schedule (whether or not disclosed in SEC Reports), which
      Schedule 2.2 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.

                  

          

        

      

      
        
           

          
            	
                  	
                    2.3

                  	
                    Authorization. All corporate
      action required to be taken by the Company's Board of Directors and
      stockholders in order to authorize the Company to enter into the
      Transaction Agreements, and to issue the Shares at the Closing and the
      Common Stock issuable upon conversion of the Shares, has been taken or
      will be taken prior to the Closing. All action on the part of the officers
      of the Company necessary for the execution and delivery of the Transaction
      Agreements, the performance of all obligations of the Company under the
      Transaction Agreements to be performed as of the Closing, and the issuance
      and delivery of the Shares has been taken or will be taken prior to the
      Closing. The Transaction Agreements, when executed and delivered by the
      Company, shall constitute valid and legally binding obligations of the
      Company, enforceable against the Company in accordance with their
      respective terms except (i) as limited by applicable bankruptcy,
      insolvency, reorganization, moratorium, fraudulent conveyance, or other
      laws of general application relating to or affecting the enforcement of
      creditors' rights generally, (ii) as limited by laws relating to the
      availability of specific performance, injunctive relief, or other
      equitable remedies, or (iii) to the extent the indemnification provisions
      contained in the Investors' Rights Agreement [and the Indemnification
      Agreement] may be limited by applicable federal or state securities
      laws.

                  

          

        

      

       

      
        	
                 
      

              	
                2.4

              	
                Valid Issuance of Shares. The
      Shares, when issued, sold and delivered in accordance with the terms and
      for the consideration set forth in this Agreement, will be validly issued,
      fully paid and nonassessable and free of restrictions on transfer other
      than restrictions on transfer under the Transaction Agreements, applicable
      state and federal securities laws and liens or encumbrances created by or
      imposed by a Purchaser. Assuming the accuracy of the representations of
      the Purchasers in Section 3 of this Agreement and subject to the filings
      described in Section 2.5(ii) below, the Shares will be issued in
      compliance with all applicable federal and state securities laws. The
      Common Stock issuable upon conversion of the Shares has been duly reserved
      for issuance, and upon issuance in accordance with the terms of the
      Certificate, will be validly issued, fully paid and nonassessable and free
      of restrictions on transfer other than restrictions on transfer under the
      Transaction Agreements, applicable federal and state securities laws and
      liens or encumbrances created by or imposed by a Purchaser. Based in part
      upon the representations of the Purchasers in Section 3 of this Agreement,
      and subject to Section 2.5 below, the Common Stock issuable upon
      conversion of the Shares will be issued in compliance with all applicable
      federal and state securities laws.

              

      

       

      
        	
                 
      

              	
                2.5

              	
                Governmental Consents and
      Filings. Assuming the accuracy of the representations made by the
      Purchasers in Section 3 of this Agreement, no consent, approval, order or
      authorization of, or registration, qualification, designation, declaration
      or filing with, any federal, state or local governmental authority is
      required on the part of the Company in connection with the consummation of
      the transactions contemplated by this Agreement, except for (i) the filing
      of the Certificate, which will have been filed as of the Initial Closing,
      and (ii) filings pursuant to Regulation D of the Securities Act, and
      applicable state securities laws, which have been made or will be made in
      a timely manner.

              

      

       

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                2.6

              	
                Litigation. There is no claim,
      action, suit, proceeding, arbitration, complaint, charge or investigation
      pending or to the Company's knowledge, currently threatened (i) against
      the Company or any officer, director or Key Employee of the Company
      arising out of their employment or board relationship with the Company; or
      (ii) that questions the validity of the Transaction Agreements or the
      right of the Company to enter into them, or to consummate the transactions
      contemplated by the Transaction Agreements. Neither the Company nor, to
      the Company's knowledge, any of its officers, directors or Key Employees
      is a party or is named as subject to the provisions of any order, writ,
      injunction, judgment or decree of any court or government agency or
      instrumentality (in the case of officers, directors or Key Employees, such
      as would affect the Company). There is no action, suit, proceeding or
      investigation by the Company pending or which the Company intends to
      initiate. The foregoing includes, without limitation, actions, suits,
      proceedings or investigations pending or threatened in writing (or any
      basis therefor known to the Company) involving the prior employment of any
      of the Company's employees, their services provided in connection with the
      Company's business, or any information or techniques allegedly proprietary
      to any of their former employers, or their obligations under any
      agreements with prior employers.

              

      

       

      
        	
                 
      

              	
                2.7

              	
                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 Notes 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.

              

      

      
      

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                2.8

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.9

              	
                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.

              

      

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                2.10

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.11

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.12

              	
                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.

              

      

       

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                2.13

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.14

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.15

              	
                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.

              

      

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                2.16

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.17

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.18

              	
                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.

              

      

       

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                2.19

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.20

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.21

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.22

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.23

              	
                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

              

      

       

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      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.

       

      
        	
              	
                2.24

              	
                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.

              

      

       

      
        	
              	
                2.25

              	
                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.

              

      

      
        
            
   
   
  
   
 

           

          
            
              
              

            

            
              12

              
                

              

            

            
              
              

            

          

           

          
            	
                  	
                    2.26

                  	
                    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.  
       

                  

          

        

      

       

      
        	
                 
      

              	
                2.27

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.28

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.29

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.30

              	
                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.

              

      

       

      
        	
                 
      

              	
                2.31

              	
                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 Shares, (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 Shares.

              

      

       

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                2.32

              	
                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 IS(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.

              

      

       

      
        	
                 
      

              	
                2.33

              	
                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.

              

      

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

       

      
        	
                3.

              	
                Representations
      and Warranties of the Purchasers.

              

      

       

      Each
Purchaser hereby represents and warrants to the Company, severally and not
jointly, that:

       

      
        	
                 
      

              	
                3.1

              	
                Authorization. The Purchaser (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
      Purchaser 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 Purchaser.

              

      

       

      
        	
                 
      

              	
                3.2.1

              	
                This
      Agreement is made with the Purchaser in reliance upon the Purchaser's
      representation to the Company, which by the Purchaser's execution of this
      Agreement the Purchaser hereby confirms, that the Securities to be
      received by the Purchaser will be acquired for investment for the
      Purchaser'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 Purchaser
      would constitute an "underwriter" under the Securities Act. The Purchaser
      has not granted any right to any other person to acquire the Securities
      purchased by the Purchaser or the Underlying Shares except as permitted by
      the Securities Act and Blue Sky
Laws.

              

      

       

      
        	
                 
      

              	
                3.2.2

              	
                The
      Purchaser 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 Purchaser's
      representations set forth in this
Agreement.

              

      

       

      
        	
                 
      

              	
                3.2.3

              	
                The
      Purchaser covenants that it will not dispose of the Securities or the
      Underlying Shares except in compliance without registration under the
      Securities Act of 1933 or pursuant to an applicable exemption
      thereunder.

              

      

       

      
        
          	
                	
                  3.2.4

                	
                  In
      connection with the investment representations made herein, the Purchaser
      represents that (i) the Purchaser is able to fend for itself in the
      transactions contemplated hereby; (ii) the Purchaser has such knowledge
      and experience in financial and business matters as to be capable of
      evaluating the merits and risks of the Purchaser's prospective
      investment

                

        

      

       

      
        
          
          

        

        
          15

          
            

          

        

        
          
          

        

      

       

      in the
Securities; (iii) the Purchaser has the ability to bear the economic
risks of
the Purchaser's prospective investment and can afford the complete
loss of such investment; (iv) the Purchaser has received all the information
it considers necessary or appropriate for deciding whether to purchase
the Shares; (v) the Purchaser 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 Purchaser 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 Purchaser satisfactorily answered by the Company.

       

      
        	
                 
      

              	
                3.2.5

              	
                The
      Purchaser further represents by execution of this Agreement that the
      Purchaser qualifies as an "accredited investor" as such term is defined
      under Rule 501 promulgated under the Securities Act. Any Purchaser 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 Purchaser 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 Purchaser
      without registration under the Securities Act or an exemption therefrom,
      and therefore the Purchaser 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.

       

      
        
          
          

        

        
          16

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                3.4

              	
                Brokers or Finders. The
      Purchaser represents and warrants that neither the Company nor the
      Purchaser has incurred, directly or indirectly, as a result of any action
      taken by the Purchaser (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
      Purchaser 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
      Purchaser contained herein.

              

      

       

      
        	
                4.

              	
                Conditions
      to the Purchasers' Obligations at
Closing.

              

      

       

      The
obligations of each Purchaser to purchase Shares at the Initial Closing or any
subsequent Closing are subject to the fulfillment, on or before such Closing, of
each of the following conditions, unless otherwise waived:

       

      
        	
                 
      

              	
                4.1

              	
                Representations and Warranties.
      The representations and warranties of the Company contained in Section 2
      shall be true and correct in all respects as of such
    Closing.

              

      

      
        
          	 	 	 
	
                   
      

                	
                  4.2

                	
                  Performance. The Company shall
      have performed and complied with all covenants, agreements, obligations
      and conditions contained in this Agreement that are required to be
      performed or complied with by the Company on or before such
      Closing.

                

        

      

       

      
        	
                 
      

              	
                4.3

              	
                Compliance Certificate. The
      Chief Executive Officer of the Company shall deliver to the Purchasers at
      such Closing a certificate certifying that the conditions specified in
      Section 4 have been fulfilled.

              

      

       

      
        	
                 
      

              	
                4.4

              	
                Qualifications. All
      authorizations, approvals or permits, if any, of any governmental
      authority or regulatory body of the United States or of any state that are
      required in connection with the lawful issuance and sale of the Shares
      pursuant to this Agreement shall be obtained and effective as of such
      Closing.

              

      

       

      
        	
                 
      

              	
                4.5

              	
                Opinion of Company Counsel. The
      Purchasers shall have received from DLA Piper, counsel for the Company, an
      opinion, dated as of the Initial Closing, in substantially the form of
      Exhibit H attached to this
Agreement.

              

      

       

      
        	
                 
      

              	
                4.6

              	
                Board of Directors. As of the
      Initial Closing, the authorized size of the Board shall be seven (7), and
      the Board shall include Rouslan Semechkin as Series C Director, and Andrei
      Semechkin as Series D Director.

              

      

       

      
        	
                 
      

              	
                4.7

              	
                Investors' Rights Agreement. The
      Company and each Purchaser (other than the Purchaser relying upon this
      condition to excuse such Purchaser's performance hereunder )[ and the
      other stockholders of the Company named as parties thereto] shall have
      executed and delivered the Investors' Rights
  Agreement.

              

      

       

       

      
        
          
          

        

        
          17

          
            

          

        

        
          
          

        

      

       

      
        	
                 
      

              	
                4.8

              	
                Employment Agreements. The
      Company and each of Rouslan Semechkin and Andrei Semechkin shall have
      executed and delivered the Employment
  Agreements.

              

      

       

      
        	
                 
      

              	
                4.9

              	
                Certificate of Designation. The
      Company shall have filed the Certificate of Designation with the Secretary
      of State of Delaware on or prior to the Closing, which shall continue to
      be in full force and effect as of the
Closing.

              

      

       

      
        	
                 
      

              	
                4.10

              	
                Secretary's Certificate. The
      Secretary of the Company shall have delivered to the Purchasers at the
      Closing a certificate certifying (i) the Bylaws of the Company, and (ii)
      resolutions of the Board of Directors of the Company approving the
      Transaction Agreements and the transactions contemplated under the
      Transaction Agreements.

              

      

       

      
        	
                 
      

              	
                4.11

              	
                Proceedings and Documents. All
      corporate and other proceedings in connection with the transactions
      contemplated at the Closing and all documents incident thereto shall be
      reasonably satisfactory in form and substance to each Purchaser, and each
      Purchaser (or its counsel) shall have received all such counterpart
      original and certified or other copies of such documents as reasonably
      requested. Such documents may include good standing
      certificates.

              

      

       

      
        	
                 
      

              	
                4.12

              	
                Management Rights. A Management
      Rights Letter shall have been executed by the Company and delivered to
      each Purchaser to whom it is
addressed.

              

      

       

      5. Conditions of the Company's Obligations at
Closing. The obligations of the Company to sell Shares to the Purchasers
at the Initial Closing or any subsequent Closing are subject to the fulfillment,
on or before the Closing, of each of the following conditions, unless otherwise
waived:

       

      
        	
              	
                5.l 

              	
                Representations and Warranties.
      The representations and warranties of each Purchaser contained in Section
      3 shall be true and correct in all respects as of such
      Closing.

              

      

       

      
        	
              	
                5.2

              	
                Performance. The Purchasers
      shall have performed and complied with all covenants, agreements,
      obligations and conditions contained in this Agreement that are required
      to be performed or complied with by them on or before such
      Closing.

              

      

       

      
        	
              	
                5.3 

              	
                Qualifications. All
      authorizations, approvals or permits, if any, of any governmental
      authority or regulatory body of the United States or of any state that are
      required in connection with the lawful issuance and sale of the Share
      pursuant to this Agreement shall be obtained and effective as of the
      Closing.

              

      

       

      
        
          
          

        

        
          18

          
            

          

        

        
          
          

        

      

       

       

      
        	
              	
                5.4 

              	
                Investors' Rights Agreement.
      Each Purchaser shall have executed and delivered the Investors' Rights
      Agreement.

              

      

       

      
        	
              	
                5.5 

              	
                Employment Agreements. The
      Company and each of Rouslan Semechkin and Andrei Semechkin shall have
      executed and delivered the Employment
  Agreements.

              

      

       

      6. Miscellaneous.

       

      
        	
                 
      

              	
                6.1

              	
                Survival of Warranties. Unless
      otherwise set forth in this Agreement, the representations and warranties
      of the Company and the Purchasers contained in or made pursuant to this
      Agreement shall survive the execution and delivery of this Agreement and
      the Closing and shall in no way be affected by any investigation or
      knowledge of the subject matter thereof made by or on behalf of the
      Purchasers or the Company.

              

      

       

      
        	
                 
      

              	
                6.2

              	
                Successors and Assigns. The
      terms and conditions of this Agreement shall inure to the benefit of and
      be binding upon the respective successors and assigns of the parties.
      Nothing in this Agreement, express or implied, is intended to confer upon
      any party other than the parties hereto or their respective successors and
      assigns any rights, remedies, obligations, or liabilities under or by
      reason of this Agreement, except as expressly provided in this
      Agreement.

              

      

       

      
        	
                 
      

              	
                6.3

              	
                Governing Law. This Agreement
      shall be governed by, and construed in accordance with, the laws of the
      State of Delaware, regardless of the laws that might otherwise govern
      under applicable principles of conflicts of
law,

              

      

       

      
        	
                 
      

              	
                6.4

              	
                Counterparts; Facsimile. This
      Agreement may be executed and delivered by facsimile signature and 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.

              

      

       

      
        	
                 
      

              	
                6.5

              	
                Titles and Subtitles. The titles
      and subtitles used in this Agreement are used for convenience only and are
      not to be considered in construing or interpreting this
      Agreement.

              

      

       

      
        	
                 
      

              	
                6.6

              	
                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.

              

      

       

      
        
          
          

        

        
          19

          
            

          

        

        
          
          

        

      

       

      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

       

      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

       

      
        	
                 
      

              	
                6.7

              	
                No Finder's Fees. Each party
      represents that it neither is nor will be obligated for any finder's fee
      or commission in connection with this transaction. Each Purchaser agrees
      to indemnify and to hold harmless the Company from any liability for any
      commission or compensation in the nature of a finder's or broker's fee
      arising out of this transaction (and the costs and expenses of defending
      against such liability or asserted liability) for which each Purchaser or
      any of its officers, employees, or representatives is responsible. The
      Company agrees to indemnify and hold harmless each Purchaser from any
      liability for any commission or compensation in the nature of a finder's
      or broker's fee arising out of this transaction (and the costs and
      expenses of defending against such liability or asserted liability) for
      which the Company or any of its officers, employees or representatives is
      responsible .

              

      

       

      
        
          
          

        

        
          20

          
            

          

        

        
          
          

        

      

       

       

      
        
          	
                	
                  6.8

                	
                  Amendments and Waivers. Except
      as set forth in Section 1.3 of this Agreement, any term of this Agreement
      may be amended, terminated or waived only with the written consent of the
      Company and (i) the holders of at least 55% of the then-outstanding Shares
      or (ii) for an amendment, termination or waiver effected prior to the
      Initial Closing, Purchasers obligated to purchase 55% of the Shares to be
      issued at the Initial Closing. Any amendment or waiver effected in
      accordance with this Section 6.8 shall be binding upon the Purchasers and
      each transferee of the Shares (or the Common Stock issuable upon
      conversion thereof), each future holder of all such securities, and the
      Company.

                

        

      

       

      
        	
                 
      

              	
                6.9

              	
                Severability. The invalidity or
      unenforceability of any provision hereof shall in no way affect the
      validity or enforceability of any other
  provision.

              

      

       

      
        	
                 
      

              	
                6.10

              	
                Delays or Omissions. No delay or
      omission to exercise any right, power or remedy accruing to any party
      under this Agreement, upon any breach or default of any other party under
      this Agreement, shall impair any such right, power or remedy of such
      non-breaching or non-defaulting party nor shall it be construed to be a
      waiver of any such breach or default, or an acquiescence therein, or of or
      in any similar breach or default thereafter occurring; nor shall any
      waiver of any single breach or default be deemed a waiver of any other
      breach or default theretofore or thereafter occurring. Any waiver, permit,
      consent or approval of any kind or character on the part of any party of
      any breach or default under this Agreement, or any waiver on the part of
      any party of any provisions or conditions of this Agreement, must be in
      writing and shall be effective only to the extent specifically set forth
      in such writing. All remedies, either under this Agreement or by law or
      otherwise afforded to any party, shall be cumulative and not
      alternative.

              

      

       

      
        	
                 
      

              	
                6.11

              	
                Entire Agreement. This Agreement
      (including the Exhibits hereto), the Certificate of Incorporation and the
      other Transaction Agreements constitute the full and entire understanding
      and agreement between the parties with respect to the subject matter
      hereof, and any other written or oral agreement relating to the subject
      matter hereof existing between the parties are expressly
      canceled.

              

      

       

      
        	
                 
      

              	
                6.12

              	
                Corporate Securities Law. THE
      SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT
      BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
      CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR THE PAYMENT OR RECEIPT OF
      ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE QUALIFICATION IS
      UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION
      BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE
      RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
      UPON THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO
      EXEMPT.

              

      

       

      
        	
                 
      

              	
                6.13

              	
                Dispute Resolution. The parties
      (a) hereby irrevocably and unconditionally submit to the jurisdiction of
      the federal and state courts located within the geographic boundaries of
      the United States District Court for the District of Delaware for the
      purpose of any suit, action or other proceeding arising out of or based
      upon this Agreement.

              

      

       

       

      
        
          
          

        

        
          21

          
            

          

        

        
          
          

        

      

       

      
        	
              	
                6.14

              	
                No Commitment for Additional
      Financing. The Company acknowledges and agrees that no Purchaser
      has made any representation, undertaking, commitment or agreement to
      provide or assist the Company in obtaining any financing, investment or
      other assistance, other than the purchase of the Shares as set forth
      herein and subject to the conditions set forth herein. In addition, the
      Company acknowledges and agrees that (i) no statements, whether written or
      oral, made by any Purchaser or its representatives on or after the date of
      this Agreement shall create an obligation, commitment or agreement to
      provide or assist the Company in obtaining any financing or investment,
      (ii) the Company shall not rely on any such statement by any Purchaser or
      its representatives and (iii) an obligation, commitment or agreement to
      provide or assist the Company in obtaining any financing or investment may
      only be created by a written agreement, signed by such Purchaser and the
      Company, setting forth the terms and conditions of such financing or
      investment and stating that the parties intend for such writing to be a
      binding obligation or agreement. Each Purchaser shall have the right, in
      it sole and absolute discretion, to refuse or decline to participate in
      any other financing of or investment in the Company, and shall have no
      obligation to assist or cooperate with the Company in obtaining any
      financing, investment or other
assistance.

              

      

       

      
        	
              	
                6.15

              	
                Third Tranche of Series C
      Financing. The Securities Purchase Agreement between X-Master, Inc.
      and the Company dated August 30,2008, with respect to the third tranche of
      financing described therein, is entirely superseded by this Agreement and
      an related agreements hereto.

              

      

       

      [Signature
page follows.]

       

       

       

       

      
        
          
          

        

        
          22

          
            

          

        

        
          
          

        

      

      IN
WITNESS WHEREOF, the parties have executed this Series D Preferred Stock
Purchase Agreement as of the date first written above. COMPANY:

       

       

      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          
                                            
                                              
                                                
                                                  
                                                    
                                                      
                                                        
                                                          
                                                            
                                                              
                                                                
                                                                  
                                                                    
                                                                      
                                                                        
                                                                          
                                                                            
                                                                              
                                                                                
                                                                                  
                                                                                    
                                                                                      
                                                                                        
                                                                                          
                                                                                            
                                                                                              
                                                                                                
                                                                                                  
                                                                                                    
                                                                                                      
                                                                                                        
                                                                                                          
                                                                                                            
                                                                                                              
                                                                                                                
                                                                                                                  
                                                                                                                    
                                                                                                                      
                                                                                                                        	 
      	 
      	 	 
      
	 
      	 
      	 COMPANY:
	 
      	 
      	 	 
      
	
                                                                                                                                 

                                                                                                                              	 
      	 By:	
                                                                                                                                 

                                                                                                                              
	 	 	 	 
	 	 	 Name:	 
	 	 	 	
                                                                                                                                 (print)

                                                                                                                              
	 	 	 Title:	 
	 	 	 	 
	 	 	 Address:	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	PURCHASERS:
	 	 	 	 
	 	 	 
	 	 	 /s/
      Andrei Semechkin
	 	 	 Andrei
      Semechkin
	 	 	 
	 	 	 /s/
      Rouslan Semechkin
	 	 	 Rouslan
      Semechik
	 	 	 
	 	 	 X-MASTER,
      INC.
	 	 	 
	 	 	 By:
      /s/ Rouslan Semechkin
	 	 	 Rouslan
      Semechkin, President
	 	 	 

                                                                                                                      

                                                                                                                    

                                                                                                                  

                                                                                                                

                                                                                                              

                                                                                                            

                                                                                                          

                                                                                                        

                                                                                                      

                                                                                                    

                                                                                                  

                                                                                                

                                                                                              

                                                                                            

                                                                                          

                                                                                        

                                                                                      

                                                                                    

                                                                                  

                                                                                

                                                                              

                                                                            

                                                                          

                                                                        

                                                                      

                                                                    

                                                                  

                                                                

                                                              

                                                            

                                                          

                                                        

                                                      

                                                    

                                                  

                                                

                                              

                                            

                                          

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

       

       

       

       

      [Signature
page - Series D Preferred Stock Purchase Agreement]

       

      
        
          
          

        

        
          23

          
            

          

        

        
          
          

        

      

       

       

      EXHIBIT
A

       

      SCHEDULE
OF PURCHASERS

       

      
        
          
            	
                    Andrei
      Semechkin

                  	
                    10
      Shares (February 5, 2008)

                  
	 	 
	
                    Rouslan
      Semechkin

                  	 
      
	 	 
	
                    X-Master,
      Inc.

                  	
                    10
      Shares (December 30,
2008)

                  

          

        

      

      

      The
Investors may purchase the optional tranches in such amounts and at such times
as they shall mutually agree.

       

      
        
          
          

        

        
          24

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
B

       

      

       

      FORM
OF CERTIFICATE OF DESIGNATION

      INTERNATIONAL
STEM CELL CORPORATION

      
        
          

          CERTIFICATE OF DESIGNATION
OF RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS OF THE SERIES D PREFERRED
STOCK

           

          The Board
of Directors of International Stem Cell Corporation (the "Corporation") hereby
provides for the issuance of a series of preferred stock of the Corporation and
does hereby fix and determine the rights, preferences, privileges, restrictions,
and other matters related to said series of preferred stock as
follows:

          

          1.           Designation of
Series D
Preferred Stock.  The shares of such series shall be designated
as "Series D Preferred Stock" and the number of shares constituting such
series shall be fifty (50) shares of Series D Preferred Stock, par value $0.001
per share ("Series D
Preferred Stock").

           

          2.           Rank, Parity and
Seniority.  The Series D Preferred Stock shall rank senior to
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock, Common Stock, and any other capital stock of the Corporation that is
junior to the Series D Preferred Stock (the "Junior
Shares") as to liquidation, dividends, redemption and upon a Liquidation
Event (as defined in Section 4(a)
below).  Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and any other series of Preferred Stock subsequently created
that is junior to the Series D Preferred Stock may be referred to collectively
in this Designation as "Junior
Preferred Stock."

           

          3.           Dividend Provisions –
Accruing and Participating.

           

          (a)           Accruing Series D
Dividends.

           

          (i)           From
the date of the issuance of any shares of Series D Preferred Stock through
December 31, 2011, dividends at the rate per annum of ten percent (10%) of the
Base Amount per share shall accrue on such shares of Series D Preferred Stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to the Series
D Preferred Stock) (the "Ten
Percent Dividend").  From and after January 1, 2012, dividends
at the rate per annum of six percent (6%) of the Base Amount per share shall
accrue on such shares of Series D Preferred Stock (subject to appropriate
adjustment in the event of any stock dividend, stock split, combination or other
similar recapitalization with respect to the Series D Preferred Stock) (the
"Six
Percent Dividend" and, together with the Ten Percent Dividend, the "Accruing
Series D Dividends").  "Base Amount" shall mean the Series D
Original Issue Price (defined below).

           

          (ii)           Accruing
Series D Dividends shall accrue, whether or not declared, and shall be
cumulative; provided
however, that such Accruing Series D Dividends shall be paid, from funds
lawfully available for the payment of dividends, to the holders of the Series D
Preferred Stock on the fifteenth (15th) day of
the first month following each calendar quarter.  Accruing Series D
Dividends which are not paid by such date shall accrue additional interest at
the rate of one and one half (1.5%) per month, until paid in full.

           

          
            
               

            

            
              B-1

              
                

              

            

            
               

            

          

          

           

          (iii)           The
Corporation shall not declare, pay or set aside any dividends on shares of any
other class or series of capital stock of the Corporation (other than dividends
on shares of Common Stock payable in shares of Common Stock) unless (in addition
to the obtaining of any required consents) the holders of the Series D Preferred
Stock then outstanding shall first receive, or simultaneously receive, a
dividend on each outstanding share of Series D Preferred Stock in an amount at
least equal to the greater of (i) the amount of the aggregate Accruing Series D
Dividends then accrued on such share of Series D Preferred Stock and not
previously paid and (ii) (A) in the case of a dividend on Common Stock or any
class or series that is convertible into Common Stock, that dividend per share
of Series D Preferred Stock as would equal the product of (1) the dividend
payable on each share of such class or series determined, if applicable, as if
all shares of such class or series had been converted into Common Stock and (2)
the number of shares of Common Stock issuable upon conversion of a share of
Series D Preferred Stock, in each case calculated on the record date for
determination of holders entitled to receive such dividend or (B) in the case of
a dividend on any class or series that is not convertible into Common Stock, at
a rate per share of Series D Preferred Stock determined by (1) dividing the
amount of the dividend payable on each share of such class or series of capital
stock by the original issuance price of such class or series of capital stock
(subject to appropriate adjustment in the event of any stock dividend, stock
split, combination or other similar recapitalization with respect to such class
or series) and (2) multiplying such fraction by an amount equal to the Series D
Original Issue Price (as defined below); provided that, if the Corporation
declares, pays or sets aside, on the same date, a dividend on shares of more
than one class or series of capital stock of the Corporation, the dividend
payable to the holders of Series D Preferred Stock pursuant to this Section 1 shall be
calculated based upon the dividend on the class or series of capital stock that
would result in the highest Series D Preferred Stock dividend.  The
"Series D
Original Issue Price" means one hundred thousand dollars ($100,000) per
share, subject to appropriate adjustment in the event of any stock dividend,
stock split, combination, or other similar recapitalization with respect to the
Series D Preferred Stock. 

           

          4.           Liquidation
Preference.

           

          (a)           Preference.  In
the event of any liquidation, dissolution or winding up of the Corporation,
either voluntary or involuntary (each, a "Liquidation
Event"), the holders of Series D Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets of the
Corporation to the holders of Junior Preferred Stock and Common Stock, an amount
per share equal to the sum of (i) one hundred percent (100%) of the Series D
Original Issue Price (as adjusted for any stock splits, stock dividends, reverse
stock splits, stock combinations and other similar capitalization changes with
respect to the Series D Preferred Stock), and (ii) any accrued but unpaid
Accruing Series D Dividends attributable to such share of Series D Preferred
Stock to which such holder is entitled (such sum, the "Liquidation
Amount").  If upon the occurrence of a Liquidation Event, the
assets and funds legally available for distribution to stockholders shall be
insufficient to permit the payment to all holders of Series D Preferred Stock of
the full Liquidation Amount for such series, then the entire assets and funds of
the Corporation legally available for distribution to stockholders shall be
distributed ratably among the holders of Series D Preferred Stock until one
hundred percent (100%) of the Series D Original Issue Price and any accrued but
unpaid Accruing Series D Dividends attributable to such shares of Series D
Preferred Stock have been paid in full.  Such payments shall be
distributed based on the preferential amounts each such holder of such series is
otherwise entitled to receive.  For the avoidance of doubt, the Series
D Preferred Stock shall rank senior to the Junior Preferred Stock in the
distribution of assets of the Corporation in the event of any Liquidation
Event.

           

          
            
               

            

            
              B-2

              
                

              

            

            
               

            

          

          (b)           Distributions of Residual
Value to Holders of Common Stock.  After the payment of all
preferential amounts required to be paid to the holders of each series of the
Series D Preferred Stock upon a Liquidation Event, the assets and funds of the
Corporation remaining available for distribution to stockholders, if any, shall
be distributed ratably among the holders of Junior Preferred Stock and Common
Stock in accordance with the Certificate of Incorporation.

           

          (c)           Deemed Liquidation
Events.  Unless waived by written approval or consent of the
holders of at least sixty-seven percent (67%) of the outstanding shares of
Series D Preferred Stock, voting together as a single class on an "as-converted"
basis (the "Majority
Series D Holders"), each of the following transactions shall be deemed to
be a liquidation, dissolution or winding up of the Corporation as those terms
are used in and for purposes of this Section 4 (each such
event being a "Deemed
Liquidation Event").  Written notice of such election shall be
given to the Corporation at least ten (10) days prior to the effective date of
any such event.

           

          (i)           any
reorganization, consolidation, merger or similar transaction or series of
related transactions in which (A) the Corporation is a constituent corporation
or a party thereto, or (B) a subsidiary of the Corporation is a constituent
party and the Corporation issues shares of its capital stock pursuant to such
combination transaction if, in either case, as a result of such transaction, the
voting securities of the Corporation that are outstanding immediately prior to
the consummation of such transaction (other than any such
securities that are held by the acquiring organization) do not represent, or are
not converted into, securities of the surviving or resulting corporation of such
transaction (or such surviving or resulting corporation’s parent corporation if
the surviving or resulting corporation is owned by the parent corporation) that,
immediately after the consummation of such transaction, together possess at
least a majority of the total voting power of all securities of such surviving
or resulting corporation (or its parent corporation, if applicable) that are
outstanding immediately after the consummation of such transaction;

           

          (ii)           a
sale, lease or other transfer or disposition in any transaction or series of
related transactions of all or substantially all of the assets, or the exclusive
license of all or substantially all of the intellectual property, of the
Corporation and its subsidiaries taken as a whole or the sale or disposition
(whether by merger or otherwise) of one or more subsidiaries of the Corporation
if substantially all of the assets (including intellectual property) of the
Corporation and its subsidiaries taken as a whole are held by such subsidiary or
subsidiaries, except where such sale, lease, transfer, other disposition or
license is to a wholly-owned subsidiary of the Corporation or is otherwise
licensed in the ordinary course of business; or

           

          
            
               

            

            
              B-3

              
                

              

            

            
               

            

          

          (iii)           (i)
any transaction or series of related transactions occurring after the Original
Issue Date, as a result of which, securities representing in excess of fifty
percent (50%) of the voting power of the Corporation are transferred and/or
issued and the stockholders of the Corporation immediately prior to such event
hold less than fifty percent (50%) of the voting securities of the Corporation
immediately after such event; or (ii) any transaction or series of related
transactions involving any recapitalization, leveraged buyout, management
buyout, reclassification of capital structure, or other redemption and
recapitalization of shares of capital stock in which existing stockholders’
shares of capital stock are being redeemed or retired pursuant to a change in
voting control, the principal purpose of which is to effect an acquisition of
the Corporation, provided, however, notwithstanding
anything contained in this Section 4(c)(iii) to the contrary, a Deemed
Liquidation Event shall not include the issuance by the Corporation of shares of
capital stock to existing or new stockholders where the principal purpose of the
transaction (or series of related transactions) is the consummation of an equity
financing designed to raise working capital for general corporate purposes or
the acquisition of another company or technology rights.

           

          (d)           Liquidating
Redemption.  In the event of a Deemed Liquidation Event, if the
Corporation does not effect a dissolution of the Corporation under the Delaware
General Corporations Law within sixty (60) days after such Deemed Liquidation
Event, then (A) the Corporation shall deliver a written notice to each holder of
Series D Preferred Stock no later than the 60th day after the Deemed Liquidation
Event advising such holders of their right (and the requirements to be met to
secure such right) pursuant to the terms of the following clause (B) to require
the redemption of such shares of Series D Preferred Stock, and (B) if the
Majority Series D Holders, as a single class, so request in a written instrument
delivered to the Corporation not later than ninety (90) days after such Deemed
Liquidation Event, the Corporation shall use the consideration received by the
Corporation for such Deemed Liquidation Event (net of any retained liabilities
associated with the assets sold or intellectual property licensed, as determined
in good faith by the Board of Directors), together with any other assets of the
Corporation available for distribution to its stockholders, to the extent
legally available therefor (collectively, the "Available
Proceeds"), to redeem, on the 120th day after such Deemed Liquidation
Event (the "Liquidation
Redemption Date"), all outstanding shares of Series D Preferred Stock at
a price equal to such amounts set forth in Subsection
4(a).  Notwithstanding the foregoing, in the event of a
redemption pursuant to the preceding sentence, if the Available Proceeds are not
sufficient to redeem in full all outstanding shares of Series D Preferred Stock,
the Corporation shall redeem a pro rata portion of each holder’s shares of
Series D Preferred Stock, ratably according to the number of outstanding shares
of Series D Preferred Stock held by each holder thereof and multiplied by the
Liquidation Amount attributable to such shares, and shall redeem the remaining
shares to have been redeemed as soon as practicable after the Corporation has
funds legally available therefor.  Prior to the distribution or
redemption provided for in this subsection, the Corporation shall not expend or
dissipate the consideration received for such Deemed Liquidation Event, except
to discharge expenses including, without limitation, discharge of tax liability
incurred in connection with such Deemed Liquidation Event.

           

          (e)           Consideration.  If
any of the assets of this Corporation are to be distributed under this Section 4 in a form
other than cash, the fair market value of such assets shall be determined in
good faith by the Board of Directors, including a majority of the directors
nominated and elected by the holders of the Series D Preferred
Stock.  Any securities shall be valued as follows:

           

          
            
               

            

            
              B-4

              
                

              

            

            
               

            

          

          

           

          (i)          
  Securities not subject to investment letter or other similar restrictions
on free marketability covered by subparagraph (ii) below:

           

          (A)           If
traded on a securities exchange, the value shall be deemed to be the average of
the closing prices of the securities on such exchange over the thirty (30) day
period ending three days prior to the distribution;

           

          (B)           If
actively traded over-the-counter, the value shall be deemed to be the average of
the closing bid or sale prices (whichever is applicable) over the thirty (30)
day period ending three days prior to the distribution; and

           

          (C)           If
there is no active public market, the value shall be the fair market value
thereof, as determined by the Board of Directors, including a majority of the
directors nominated and elected by the holders of the Series D Preferred
Stock.

           

          (ii)           The
method of valuation of securities subject to investment letter or other
restrictions on free marketability (other than restrictions arising solely by
virtue of a stockholder's status as an affiliate or former affiliate) shall be
to make an appropriate discount from the market value determined as above in
clause (i) (A), (B) or (C) to reflect the approximate fair market value thereof,
as determined in good faith by the Board of Directors, including a majority of
the directors nominated and elected by the holders of the Series D Preferred
Stock.

           

          (iii)           The
Corporation shall give each holder of record of Series D Preferred Stock written
notice of the transaction which, if effected, will constitute a Deemed
Liquidation Event not later than ten (10) days prior to the stockholders'
meeting called to approve such transaction, or ten (10) days prior to the
closing of such transaction, whichever is earlier, and shall also notify such
holders in writing of the final approval of such transaction.  The
first notice shall describe the material terms and conditions of the pending
transaction and the applicable provisions of Section
4(d).  The Corporation shall thereafter give such holders
prompt notice of any material changes in the terms of the pending
transaction.  In the event the requirements of Section 4(d) are not
complied with, the Corporation shall forthwith either:

           

          (A)           cause
such closing to be postponed until such time as the requirements of this Section 4(e) have
been complied with; or

           

          (B)           cancel
such transaction, in which event the rights, preferences and privileges of the
Series D Preferred Stock shall continue in effect in accordance with the terms
of this Certificate of Incorporation, as the same may be amended and/or restated
from time to time.

           

          (f)           Allocation of Escrow
Following Deemed Liquidation Event.  In the event of a Deemed
Liquidation Event, if any portion of the consideration payable to the
stockholders of the Corporation is placed into escrow and/or is payable to the
stockholders of the Corporation subject to contingencies, the merger or
acquisition agreement shall provide that (a) the portion of such consideration
that is not placed in escrow and not subject to any contingencies (the "Initial
Consideration") shall be allocated among the holders of capital stock of
the Corporation in accordance with Subsections 4(a) and (b) as if
the Initial Consideration were the only consideration payable in connection with
such Deemed Liquidation Event, and (b) any additional consideration which
becomes payable to the stockholders of the Corporation upon release from escrow
or satisfaction of contingencies shall be allocated among the holders of capital
stock of the Corporation in accordance with Subsections 4(a) and
(b) after taking into account the previous payment of the Initial
Consideration as part of the same transaction.

           

          
            
               

            

            
              B-5

              
                

              

            

            
               

            

          

          5.           Conversion
Rights.

           

          The
holders of Series D Preferred Stock shall have the following conversion rights
(the "Conversion
Rights"):

           

          (a)           Right to
Convert.  Each share of each series of Series D Preferred Stock
shall be convertible, at the option of the holder thereof, at any time and from
time to time, into such number of fully paid and nonassessable shares of Common
Stock as is determined by dividing the Series D Original Issue Price (as
adjusted for any stock splits, stock dividends, reverse stock splits, stock
combinations, and other similar capitalization changes with respect to the
Series D Preferred Stock), by the Conversion Price for the Series D Preferred
Stock (as defined below) in effect at the time of conversion.  Subject
to adjustment as provided further herein, the initial Conversion Price of the
Series D Preferred Stock shall initially be twenty-five cents ($0.25) per share
(the "Conversion
Price").  The Conversion Price for the Series D Preferred
Stock, and the rate at which shares of each series of Series D Preferred Stock
may be converted into shares of Common Stock, shall be subject to adjustment as
provided below.

           

          (b)           Automatic
Conversion.  All shares Series D Preferred Stock then
outstanding shall automatically be converted into shares of Common Stock, at the
then effective Conversion Price, upon the vote or consent in writing of the
Majority Series D Holders, as a single class.

           

          (c)           Fractional
Shares.  Fractional shares of Common Stock will not be issued
upon conversion of Series D Preferred Stock.  In lieu of any
fractional shares to which a holder would otherwise be entitled, the Corporation
shall pay cash in an amount equal to the product (calculated to the nearest
cent) of such fraction and the fair market value of one share of Common Stock as
determined in good faith by the Board of Directors.  Fractional shares
issuable upon such conversion shall be determined on the basis of the total
number of shares of Series D Preferred Stock that the holder is then converting
into Common Stock and the number of shares of Common Stock issuable upon
conversion of such shares of Series D Preferred Stock.

           

          (d)           Mechanics of
Conversion.

           

          (i)           Upon
conversion of a share of Series D Preferred Stock pursuant to Section 5, any and
all accrued but unpaid Accruing Series D Dividends with respect to such share
shall be paid in cash when and to the extent the corporation has funds legally
available therefor.

           

          
            
               

            

            
              B-6

              
                

              

            

            
               

            

          

          (ii)           Except
as provided in subparagraph (iii) below, in order for a holder of Series D
Preferred Stock to convert shares of Series D Preferred Stock into shares of
Common Stock, such holder shall surrender the certificate(s) representing such
shares of Series D Preferred Stock, at the office of the transfer agent for the
Series D Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any portion of the shares of the Series D
Preferred Stock represented by such certificate(s).  Such notice shall
state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be
issued.  If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form satisfactory to the Corporation, duly executed
by the registered holder or such holder's attorney duly authorized in
writing.  The date of receipt of such certificates and notice by the
transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the conversion date ("Conversion
Date").  If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act,
the conversion may at the option of any holder tendering Series D Preferred
Stock for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock issuable upon such conversion of Series D
Preferred Stock shall not be deemed to have converted such Series D Preferred
Stock until immediately prior to the closing of the sale of
securities.  The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver to the holder of such Series D Preferred
Stock, or to such holder's nominees, a certificate or certificates representing
the number of shares of Common Stock to which such holder is entitled upon
conversion of such Series D Preferred Stock and cash in payment of any Accruing
Series D Dividends, together with cash in lieu of any fractional
share.

           

          (iii)          In
the event of a conversion pursuant to Section 5(b) above,
the outstanding shares of Series D Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agents.  Such automatic conversion shall
be deemed to have been made on the effective date of the applicable vote or
written consent or decrease in the number of outstanding shares of Series D
Preferred Stock, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date which
date shall be referred to herein as the "Automatic
Conversion Date."  Immediately upon such automatic conversion,
all shares of Series D Preferred Stock shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate,
except only the right of the holders thereof, upon surrender of their
certificate or certificates therefor, to receive certificates representing the
number of shares of Common Stock into which such Series D Preferred Stock has
been converted and, if applicable, cash in payment of Accruing Series D
Dividends, together with cash in lieu of any fractional share (as provided in
Section 5(c)
above).  In the event that the automatic conversion of Series D
Preferred Stock is pursuant to the vote or consent of the Majority Series D
Holders, the Majority Series D Holders shall give written notice to the
Corporation and to each other holder of Series D Preferred Stock (the "Conversion Notice")
promptly following the vote or consent, as applicable, that the shares of Series
D Preferred Stock shall be converted to Common Stock.

           

          
            
               

            

            
              B-7

              
                

              

            

            
               

            

          

          (iv)           Promptly
following the date on which the Majority Series D Holders give the Conversion
Notice each holder of Series D Preferred Stock shall surrender to the
Corporation or its transfer agent the certificate(s) representing such holder's
Series D Preferred Stock together with a notice that states such holder's name
or the names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued.  If so required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or such
holder's attorney duly authorized in writing.  The Corporation shall
not be obligated to issue certificates representing the shares of Common Stock
issuable upon such automatic conversion or, if applicable, pay cash in payment
of any Accruing Series D Dividends, unless and until the certificates
representing such shares of Series D Preferred Stock are either delivered to the
Corporation or its transfer agent as provided above, or the holder notifies the
Corporation or its transfer agent that such certificate or certificates have
been lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates, including an indemnity bond in such amount as
the Corporation deems appropriate in its discretion.  As soon as
practicable following the Automatic Conversion Date and the surrender by the
holder of the certificate or certificates representing the Series D Preferred
Stock to be converted, the Corporation shall cause to be issued and delivered to
such holder, or to such holder's nominees, a certificate or certificates
representing the number of shares of Common Stock to which such holder is
entitled upon conversion of such Series D Preferred Stock and, if applicable,
cash in payment of Accruing Series D Dividends, together with cash in lieu of
any fractional share.

           

          (v)           The
Corporation shall at all times when shares of Series D Preferred Stock are
outstanding, reserve and keep available out of its authorized but unissued
stock, for the purpose of effecting the conversion of Series D Preferred Stock,
such number of its duly authorized shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of Series
D Preferred Stock.  Before taking any action which would cause an
adjustment reducing the Conversion Price below the then par value of the shares
of Common Stock issuable upon conversion of Series D Preferred Stock, the
Corporation will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly and legally
issue fully paid and nonassessable shares of Common Stock at such adjusted
Conversion Price.

           

          (e)           Adjustments to Conversion
Price for Diluting Issuances.

           

          (i)           Special
Definitions.  For purposes of this Section 5(e), the
following definitions shall apply:

           

          (A)         "Option"
shall mean rights, options or warrants to subscribe for, purchase or otherwise
acquire Common Stock or Convertible Securities.

           

          (B)         "Original
Issue Date" shall mean the date on which the first share of Series D
Preferred Stock was issued by the Corporation to any stockholder.

           

          
            
               

            

            
              B-8

              
                

              

            

            
               

            

          

          (C)           "Convertible
Securities" shall mean any evidence of indebtedness, shares or other
securities (including preferred stock) directly or indirectly convertible into,
or exercisable or exchangeable for, Common Stock.

           

          (D)           "Additional
Shares of Common Stock" shall mean all shares of Common Stock issued (or,
pursuant to Section 5(e)(iii)
below, deemed to be issued) by the Corporation after the Original Issue Date,
other than shares of Common
Stock (or Options or Convertible Securities) issued (or pursuant to Section 5(e)(iii)
below, deemed to be issued) by the Corporation:

           

          (I)      
     upon the conversion of shares of Series D
Preferred Stock or as a dividend or other distribution on the Series D Preferred
Stock;

           

          (II)           in
a transaction described in Section 5(f), (g),
(h) or (i) subject to
compliance with the specific provisions set forth therein;

           

          (III)          in
a transaction approved by the Majority Series D Holders where the Majority
Series D Holders waive the adjustment provisions of this Section 5(e);
or

           

          (IV)          shares
of Common Stock (and/or options or warrants therefor) issued to parties that are
providing the Corporation with equipment leases, real property leases, loans,
credit lines, guaranties of indebtedness, cash price reductions, or similar
transactions pursuant to debt financing or other commercial transactions, in
each such case approved by the Board of Directors including a majority of the
directors nominated and elected by the holders of the Series D Preferred Stock;
provided that,
shares issued qualifying under this subsection (IV) and subsection (VII) shall
not, in the aggregate, exceed $500,000 in value at issuance without the consent
of the Majority Series D Holders;

           

          (V)           shares
of Common Stock issuable upon conversion or exercise of Convertible Securities
outstanding as of the date of filing of this Certificate of
Designation;

           

          (VI)          shares
issued or issuable pursuant to an acquisition of another business or a joint
venture agreement approved by the Board of Directors including a majority of the
directors nominated and elected by the holders of the Series D Preferred
Stock;

           

          (VII)         shares
issued or issuable in connection with sponsored research, collaboration,
technology license, development, distribution, marketing or other similar
arrangements or strategic partnerships or alliances approved by the Board of
Directors including a majority of the directors nominated and elected by the
holders of the Series D Preferred Stock; provided that, shares
issued qualifying under this subsection (IV) and subsection (VII) shall not, in
the aggregate, exceed $500,000 in value at issuance without the consent of the
Majority Series D Holders;

           

          (VIII)       shares
that are otherwise excluded by consent of the Majority Series D Holders;
or

           

          
            
               

            

            
              B-9

              
                

              

            

            
               

            

          

          (IX)         shares
issuable pursuant to the current employee benefit plans of the corporation or
those approved in the future by the Board of Directors, including a majority of
the directors nominated and elected by the holders of the Series D Preferred
Stock.

           

          (E)           "Market
Price" shall mean, with respect to one share of Common Stock on any date,
the fair market value of such share determined in accordance with the method set
forth in Section
4(e) above.

           

          (ii)     
      No Adjustment of Conversion
Price.  No adjustment in the number of shares of Common Stock
into which the Series D Preferred Stock is convertible shall be made, by
adjustment in the applicable Conversion Price for Series D Preferred Stock
unless the consideration per share (determined pursuant to Section 5(e)(v)
below) for an Additional Share of Common Stock (or Options or Convertible
Securities) issued or deemed to be issued by the Corporation is less
than the Conversion Price for Series D Preferred Stock in effect on the
date of, and immediately prior to, the issuance of such Additional Shares of
Common Stock.  The anti-dilution provisions of this instrument may be
waived with the written approval or consent of the Majority Series D
Holders.

           

          (iii)           Deemed Issuance of
Additional Shares of Common Stock.  If the Corporation at any
time, or from time to time, after the Original Issue Date shall issue any
Options or Convertible Securities, then the maximum number of shares of Common
Stock (as set forth in the instrument relating thereto without regard to any
provision contained therein designed to protect against dilution) issuable upon
the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible Securities,
shall be deemed to be Additional Shares of Common Stock issued as of the time of
such issuance, provided that in any such case
in which Additional Shares of Common Stock are deemed to be issued:

           

          (A)           no
further adjustment in the Conversion Price for Series D Preferred Stock shall be
made upon the subsequent issuance of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;

           

          (B)           if
such Options or Convertible Securities by their terms provide, with the passage
of time or otherwise, for any increase in the consideration payable to the
Corporation, or decrease in the number of shares of Common Stock issuable upon
the exercise, conversion or exchange thereof, the Conversion Price computed upon
the original issuance thereof, and any subsequent adjustment based thereon,
shall, upon any such increase or decrease becoming effective, be recomputed to
reflect such increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities;

           

          (C)           upon
the expiration of any such Options or any rights of conversion or exchange under
such Convertible Securities which shall not have been exercised, the Conversion
Price computed upon the original issuance thereof, and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as
if,

           

          
            
               

            

            
              B-10

              
                

              

            

            
               

            

          

          (I)        
   in the case of Convertible Securities or Options for Common
Stock, the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, that were actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issuance of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issuance of all such Convertible Securities which were actually
converted or exchanged, plus the additional consideration, if any, actually
received by the Corporation upon such conversion or exchange, and

           

          (II)           in
the case of Options for Convertible Securities, only the Convertible Securities,
if any, that were actually issued upon the exercise thereof were issued at the
time of issuance of such Options, and the consideration received by the
Corporation for the Additional Shares of Common Stock deemed to have been then
issued was the consideration actually received by the Corporation for the
issuance of all such Options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation upon the issuance of the
Convertible Securities with respect to which such Options were actually
exercised;

           

          (D)           no
readjustment pursuant to clause (C) above shall have the effect of increasing
the Conversion Price to an amount which exceeds the lower of (i) the
Conversion Price on the original adjustment date, or (ii) the Conversion
Price that would have resulted from any issuance of Additional Shares of Common
Stock between the original adjustment date and such readjustment
date;

           

          (E)           in
the case of any Options or Convertible Securities with a fluctuating conversion
or exercise price or exchange ratio (a "Variable
Rate Convertible Security"), then the price per share for which the
Additional Shares of Common Stock is issuable upon such exercise of such Options
or in the case of Convertible Securities or Options therefor, the conversion or
exchange of such Convertible Securities for purposes of the calculation of the
maximum number of shares issuable upon the exercise or conversion of such
Variable Rate Convertible Securities contemplated by this Section 5(e)(iii)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Variable Rate Convertible Security was one hundred percent
(100%) of the Market Price on such date (the "Assumed
Variable Market Price").  Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 5(e)(iii)(E)
with respect to any Variable Rate Convertible Security, the Conversion Price in
effect at such time shall be readjusted to equal the Conversion Price which
would have resulted if the Assumed Variable Market Price at the time of issuance
of the Variable Rate Convertible Security had been one hundred percent (100%) of
the Market Price existing at the time of the adjustment required by this
sentence;

           

          (F)           in
the case of any Options which expire by their terms not more than thirty (30)
days after the date of issuance thereof, no adjustments of the Conversion Price
(for such series of Preferred Stock so affected) shall be made until the
expiration or exercise of all such Options issued on the same date, whereupon
such adjustment shall be made in the manner provided in clause (C) above, or
until such number becomes determinable, as applicable; and

           

          
            
               

            

            
              B-11

              
                

              

            

            
               

            

          

          (G)           in
the event of any change in the number of shares of Common Stock deliverable, in
the consideration payable to this Corporation upon exercise of such Options or
Convertible Securities or in the conversion rate, excluding any changes under or
by reason of provisions designed to protect against dilution, the Conversion
Price in effect at the time of such event shall be readjusted to the Conversion
Price which would have been in effect at such time had such Options or
Convertible Securities to the extent then outstanding provided for such changed
number of shares, consideration or conversion rate, as the case may be, at the
time initially granted, issued or sold; provided that no further
adjustment shall be made for the actual issuance of Common Stock or any payment
of such consideration upon the exercise of any such Options or Convertible
Securities; provided further no
readjustment pursuant to this clause (G) shall have the effect of increasing the
Conversion Price (for such series of Preferred Stock so affected) to an amount
which exceeds the lower of (i) the Conversion Price on the original
adjustment date, or (ii) the Conversion Price that would have resulted from
any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.

           

          (iv)           Anti-Dilution Adjustment of
Conversion Price Upon Deemed Issuances of Additional Shares of Common Stock
Below Conversion Price.  Subject to the provisions of Section 5(e)(ii)
above, in the event the Corporation shall at any time after the Original Issue
Date issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 5(e)(iii)),
without consideration or for a consideration per share less than the Conversion
Price in effect on the date of and immediately prior to such issuance (the
"Dilutive
Price"), then and in such event such Conversion Price shall be reduced,
concurrently with such issuance, to a price equal to the per share consideration
for the Additional Shares (calculated to the nearest one-hundredth of a cent),
but in any event not less than $0.0001.

           

          (v)           Determination of
Consideration.  For purposes of this Section 5(e),
the consideration received by the Corporation for the issuance of any Additional
Shares of Common Stock shall be computed as follows:

           

          (A)           Cash and
Property.  Such consideration shall:

           

          (I)       
    insofar as it consists of cash, be the amount of cash
received by the Corporation (including the proceeds of any convertible debt
financing or debt financing with a warrant feature) deducting any underwriting
or similar concessions, commissions or compensation paid or allowed by the
Corporation, excluding amounts paid or payable for accrued interest or accrued
dividends;

           

          (II)           insofar
as it consists of property other than cash, be the fair market value thereof at
the time of such issuance, as determined in good faith by the Board of Directors
including a majority of the directors nominated and elected by the holders of
the Series D Preferred Stock; and

           

          
            
               

            

            
              B-12

              
                

              

            

            
               

            

          

          (III)          in
the event Additional Shares of Common Stock are issued together with other
shares or securities or other assets of the Corporation for consideration which
covers both, be the proportion of such consideration so received, computed as
provided in clauses (I) and (II) above, as determined in good faith by the Board
of Directors including a majority of the directors nominated and elected by the
holders of the Series D Preferred Stock.

           

          (B)           Options and Convertible
Securities.  The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Section
5(e)(iii) above, relating to Options and Convertible Securities, shall be
determined by dividing:

           

          (x)       
    the total amount, if any, received or receivable by the
Corporation as consideration for the issuance of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein designed to protect against dilution) payable to the
Corporation upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities, by

           

          (y)           the
maximum number of shares of Common Stock (as set forth in the instruments
relating thereto without regard to any provision contained therein designed to
protect against dilution) issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.

           

          (f)           Adjustment for Stock Splits
and Combinations.  If the Corporation shall at any time, or
from time to time, after the Original Issue Date effect a subdivision of the
outstanding Common Stock, the Conversion Price then in effect for Series D
Preferred Stock immediately before that subdivision shall be proportionately
decreased.  If the Corporation shall at any time, or from time to
time, after the Original Issue Date combine the outstanding shares of Common
Stock, the Conversion Price then in effect for Series D Preferred Stock
immediately before the combination shall be proportionately
increased.  Any adjustment under this subsection shall become
effective concurrently with the effectiveness of such subdivision or
combination.

           

          (g)           Adjustment for Common Stock
Dividends and Distributions.  If the Corporation at any time,
or from time to time, after the Original Issue Date, shall make or issue a
dividend or other distribution payable in additional shares of Common Stock,
then and in each such event the Conversion Price then in effect for Series D
Preferred Stock shall be decreased concurrently with the issuance of such
dividend or distribution, by multiplying the Conversion Price then in effect for
Series D Preferred Stock by a fraction: (x) the numerator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance, and (y) the denominator of which shall be the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance, plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.

           

          (h)           Adjustments for Other
Dividends and Distributions.  In the event the Corporation at
any time, or from time to time, after the Original Issue Date shall make or
issue a dividend or other distribution payable in property (other than cash) or
securities of the Corporation other than shares of Common Stock (and other than
as otherwise adjusted in this Section 5), then and
in each such event provision shall be made so that the holders of Series D
Preferred Stock shall receive upon conversion thereof in addition to the number
of shares of Common Stock receivable thereupon, the amount of property or
securities of the Corporation that they would have received had their Series D
Preferred Stock been converted into Common Stock immediately preceding the
record date for the determination of stockholders entitled to receive such
dividend or other distribution.

           

          
            
               

            

            
              B-13

              
                

              

            

            
               

            

          

          (i)           Adjustment for
Recapitalization, Reclassification, Exchange or
Substitution.  If the Common Stock issuable upon the conversion
of the Series D Preferred Stock shall be changed into the same or a different
number of shares of any class or classes of stock, whether by recapitalization,
reclassification, exchange, substitution or other similar event (other than
pursuant to subsections (f),
(g) and (h) above or a Deemed
Liquidation Event), each holder of Series D Preferred Stock shall thereafter
receive upon conversion of such Series D Preferred Stock, in lieu of the number
of shares of Common Stock which such holder would otherwise have been entitled
to receive, the number of shares of such other class or classes of stock which a
holder of the number of shares of Common Stock deliverable upon conversion of
the shares of Series D Preferred Stock held by such holder of Series D Preferred
Stock would have been entitled to receive upon such recapitalization,
reclassification, exchange, substitution or other similar event.

           

          (j)           No
Impairment.  The Corporation will not, by amendment of this
Certificate of Designation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series D Preferred Stock to be observed or performed hereunder
by the Corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this instrument and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holders of Series D Preferred Stock against impairment or dilution of
value.

           

          (k)           Certificate as to
Adjustments.  Upon the occurrence of each adjustment of the
Conversion Price for Series D Preferred Stock pursuant to this Section 5, the
Corporation at its expense shall promptly compute such adjustment in accordance
with the terms hereof and furnish to each holder of Series D Preferred Stock so
affected a certificate setting forth such adjustment and showing in reasonable
detail the facts upon which such adjustment is based.  The Corporation
shall, upon the written request at any time of any holder of Series D Preferred
Stock, furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments, (ii) the Conversion Price then in effect,
and (iii) the number of shares of Common Stock and the amount, if any, of any
other property which would then be received upon the conversion of Series D
Preferred Stock.

           

          (l)           Notices of Record
Date.  In the event of any taking by the Corporation of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, the Corporation shall mail to each holder of Series D Preferred
Stock at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend or distribution.

           

          
            
               

            

            
              B-14

              
                

              

            

            
               

            

          

          (m)           Notices.  All
notices hereunder shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the person to be notified; (ii) when
sent by confirmed telex or facsimile if sent during normal business hours of the
recipient, if not, then on the next business day; (iii) five (5) days after
having been sent by first class mail, return receipt requested, postage prepaid;
or (iv) by electronic transmission (email) but accompanied or confirmed by
electronic verification of receipt; or (v) the next business day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt.  All communications shall be
sent to the holder at its address and/or facsimile number appearing on the books
of the Corporation.

           

          6.           Status of Converted
Stock.  In the event any shares of Series D Preferred Stock
shall be converted pursuant to Section 5 hereof, the
shares so converted shall be cancelled and retired and shall be returned to the
status of undesignated preferred stock.

           

          7.           Voting
Rights.

           

          (a)           Preferred Stock Voting
Rights.  Except as may be otherwise provided in this
Certificate of Incorporation, the Series D Preferred Stock shall vote together
with all other classes and series of stock of the Corporation, including the
Common Stock, as a single class on all actions to be taken by the stockholders
of the Corporation.  Each share of Series D Preferred Stock shall
entitle the holder thereof to such number of votes per share on each action as
shall equal the number of shares of Common Stock into which such share of Series
D Preferred Stock is convertible on the record date for determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, the date such vote is taken or any written consent of stockholders
is solicited.  The holders of Series D Preferred Stock shall be
entitled to vote, together with holders of Common Stock, with respect to any
question upon which holders of Common Stock have the right to
vote.  Subject to the other provisions of this Certificate of
Incorporation, each holder of Series D Preferred Stock shall have full voting
rights and powers, and shall be entitled to notice of any stockholders’ meeting
in accordance with the Bylaws of the Corporation (as in effect at the time in
question) and applicable law, and shall be entitled to vote, together with the
holders of Common Stock, with respect to any question upon which holders of
Common Stock have the right to vote, except as may be prohibited by applicable
law.  Except as otherwise expressly provided herein or required by
applicable law, the holders of Series D Preferred Stock and the holders of
Common Stock shall vote together as a single class and not as separate
classes

           

          8.           Election of Board of
Directors.

           

          (a)           Board
Composition.  For so long as there are ten (10) shares of
Series D Preferred Stock outstanding (as adjusted for any stock splits, stock
dividends, reverse stock splits, stock combinations and other similar
capitalization changes with respect to the Series D Preferred Stock), the Board
of Directors shall be elected by the stockholders subject to the following
provisions:

           

          
            
               

            

            
              B-15

              
                

              

            

            
               

            

          

          (i)           for
so long as the holders of Series C Preferred Stock are entitled to nominate and
elect at least one (1) director, one (1) director shall be nominated and elected
by the holders of a majority of the outstanding shares of Series D Preferred
Stock voting as a single class; and

           

          (ii)           if
at any time there are no shares of Series C Preferred Stock outstanding or the
holders of Series C Preferred Stock are no longer entitled to nominate and elect
a director, two (2) directors shall nominated and elected by the holders of a
majority of the outstanding shares of Series D Preferred Stock voting as a
single class.

           

          (b)           Failure to
Elect.  If the holders of shares of Series D Preferred Stock
fail to elect a director to fill the directorship for which they are entitled to
elect a director, voting exclusively and as a separate class, pursuant to Subsection 8(a), then
any directorship not so filled shall remain vacant until such time as the
holders of the Series D Preferred Stock elect a person to fill such directorship
by vote or written consent in lieu of a meeting; and no such directorship may be
filled by stockholders of the Corporation other than by the stockholders of the
Corporation that are entitled to elect a person to fill such directorship,
voting exclusively and as a separate class.

           

          (c)           Vacancy.  If
there shall be any vacancy in the office of a director elected or to be elected
by the holders Series D Preferred Stock, then a director to hold office for the
unexpired term of such directorship may be elected by either: (i) a majority of
the remaining director or directors (if any) in office that were so elected by
the holders of such specified class of stock, by the affirmative vote of a
majority of such directors (or by the sole remaining director elected by the
holders of such specified class of stock if there be but one), or (ii) the
required vote of holders of the shares of such specified class of stock that are
entitled to elect such director as provided in Subsection 8(a)
above.

           

          (d)           Removal.  Subject
to Section 141(k) of the Delaware General Corporation Law, any director who
shall have been elected to the Board of Directors by the holders of any
specified class of stock, or by any director or directors elected by holders of
any specified class of stock as provided above, may be removed during his or her
term of office, without cause, by, and only by, the affirmative vote of shares
representing a majority of the voting power, on an as-converted basis, of all
the outstanding shares of such specified class of stock entitled to vote, given
either at a meeting of such stockholders duly called for that purpose or
pursuant to a written consent of stockholders without a meeting, and any vacancy
created by such removal may be filled only in the manner provided in Subsection
8(a).

           

          (e)           Procedures.  Any
meeting of the holders of any specified class of stock, and any action taken by
the holders of any specified class of stock by written consent without a
meeting, in order to elect or remove a director under this Section 8, shall be
held in accordance with the procedures and provisions of the Corporation’s
Bylaws, the Delaware General Corporation Law and applicable law regarding
stockholder meetings and stockholder actions by written consent, as such are
then in effect (including but not limited to procedures and provisions for
determining the record date for shares entitled to vote).

           

          9.           Protective
Provisions.

           

          
            
               

            

            
              B-16

              
                

              

            

            
               

            

          

          (A)           For the Holders of Preferred
Stock.  For so long as there are ten (10) shares of Series D
Preferred Stock outstanding (as adjusted for any stock splits, stock dividends,
reverse stock splits, stock combinations and other similar capitalization
changes with respect to the Series D Preferred Stock), the Corporation shall
not, and shall not permit any subsidiary to, without the prior written consent
or affirmative vote of the Majority Series D Holders, consenting or voting
together as a single class:

           

          (a)           liquidate,
dissolve or wind-up the affairs of the Company, or effect any Deemed Liquidation
Event, or otherwise make an assignment for the benefit of creditors or appoint
or consent to the appointment of a receiver or trustee for the Corporation or a
subsidiary, the assets of the Corporation or a subsidiary, or a substantial part
of any such assets or make any voluntary bankruptcy of the Corporation or any
subsidiary; or

           

          (b)           amend,
alter, or repeal any provision of the Certificate of Incorporation, certificates
of designation, Bylaws or other document or agreement in a manner adverse to the
Series D Preferred Stock; or

           

          (c)           sell,
transfer, or assign substantially all of its assets or permit any subsidiary to
sell, transfer, or assign, substantially all of its assets, except in either
case to a wholly-owned subsidiary of the Corporation; or

           

          (d)           create
or authorize the creation of or issue or obligate itself to issue any other
security, or any other securities convertible into or exercisable for any equity
security, having rights, preferences or privileges senior to or in addition to
those granted the Series D Preferred Stock, or altering the percentage of board
seats held by the Series C and D Directors combined (or, the Series D Directors,
as the case may be), or increase the authorized number of shares of Series D
Preferred Stock; or

           

          (e)           purchase
or redeem or pay any dividend on any capital stock prior to the Series D
Preferred Stock; or

           

          (f)           create
or authorize the creation of any new debt security if the Company’s aggregate
indebtedness would exceed $100,000; or

           

          (g)           increase
or decrease the size of the Board of Directors; or

           

          (h)           enter
into any agreement or commit itself to take any action with respect to any of
the foregoing, other than a letter of intent or other similar non-binding
agreement that provides for approval required by this Section 9(A) prior to
consummation of the transactions contemplated by such agreement.

           

          (B)           Protective Provisions For
the Board of Directors.  For so long as there are ten (10)
shares of Series D Preferred Stock outstanding (as adjusted for any stock
splits, stock dividends, reverse stock splits, stock combinations and other
similar capitalization changes with respect to the Series D Preferred Stock),
the Corporation shall not take or commit itself to take any of the following
actions unless such actions are adopted, approved or ratified by a majority of
the members of the Board of Directors, including a majority of the directors
nominated and elected by the holders of the Series D Preferred Stock, at any
regular or special meeting of the Board of Directors duly called and at which a
quorum is present:

           

          
            
               

            

            
              B-17

              
                

              

            

            
               

            

          

          (a)           make
loans or advances to employees, except as in the ordinary course of business as
part of travel advances or salary (promissory notes for purchase of shares
permitted);

           

          (b)           hire,
fire, or change the compensation of the founders of the Corporation, including
approving any option grants;

           

          (c)           make
guarantees of indebtedness for money borrowed except in the ordinary course of
business;

           

          (d)           change
the principal business of the Corporation, enter new lines of business, or exit
the current line of business;

           

          (e)           own
or permit any subsidiary to own any stock or other securities of any other
corporation, partnership, or entity unless it is wholly owned by the
Corporation;

           

          (f)           incur
any debt security, or debt that is secured by any assets of the Corporation
(other than sale & lease-back types of credit);

           

          (g)           make
investments in, or loans to, any third parties;

           

          (h)           sell,
transfer, license, pledge, or encumber technology or intellectual property,
other than licenses granted in the ordinary course of business; or

           

          (i)           incur
aggregate indebtedness in excess of $100,000.

           

          10.           Amendments or
Waivers.  The rights, preferences, privileges and other terms
of the Series D Preferred Stock may be amended or waived as to all shares of
Series D Preferred Stock in any instance where such amendment or waiver impacts
only the Series D Preferred Stock upon the written agreement of the holders of a
majority of the outstanding shares of Series D Preferred Stock (without the
necessity of convening any meeting of stockholders).

           

           

          
            

            

          

        

      

       

      
        
          
          

        

        
          B-18

          
            

          

        

        
          
          

        

      

       

      

      EXHIBIT
C

       

       

      
        
          EMPLOYMENT
AGREEMENT 

          (Andrei
Semechkin)

           

          THIS
AGREEMENT is made as of the 30th day of December, 2008 ("Commencement Date"), by
and between International Stem Cell Corporation, a Delaware corporation with a
principal place of business at 2595 Jason Court, Oceanside, California (the
"Company"), and Andrei Semechkin (the"Employee"), with an address at 1 Overlook
Drive, Unit 11, Amherst, New Hampshire ("Agreement").

           

          FACTUAL
BACKGROUND:

           

          A. On
December 30, 2008, the Company entered into a Preferred Stock Purchase Agreement
with Andrei Semechkin, Rouslan Semechkin, and X-Master, Inc., (the "Investors")
pursuant to which the Investors agreed to purchase at least ten (10) shares of
Series D Preferred Stock from the Company for a purchase price of One Million
Dollars ($1,000,000 USD). As a material and essential inducement for the
Investors to enter into the Preferred Stock Purchase Agreement, the Company
agreed to employ Rouslan Semechkin and Andrei Semechkin in accordance with
the terms thereof.

           

          B. The
Company wishes to employ Employee as Chief Business Officer. Employee will
report directly to the Board of Directors of the Company and will, in
collaboration with the Chief Executive Officer, develop the overall business
strategy for the Company, attract and allocate Company resources, oversee the
creation and implementation of personnel policy, define target markets, identify
and develop new business opportunities, and identify and develop international
business opportunities. Employee wishes to accept such employment subject to the
terms and conditions of this Agreement

           

          NOW,
THEREFORE, in consideration of the foregoing, the employment provided hereunder,
and other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:

           

          1. EMPLOYMENT.
Upon Employee providing Company with documentation verifying Employee's identity
and legal authorization to work in the United States, Company agrees to employ
Employee, and Employee agrees to perform the duties assigned to him for the Term
of this Agreement (as defined in Section 2 of the Agreement) pursuant to the
terms and conditions set forth herein.

           

          2. TERM. The
term of Employee's employment hereunder shall be for a period of five (5) years,
beginning on the Commencement Date set forth above and continuing for a period
of five (5) years following such date ("Term"), unless sooner terminated in
accordance with section 4 below.

           

          3. COMPENSATION.
For all services to be rendered by Employee in any capacity hereunder, the
Company shall pay Employee the following:

           

          
            
              
              

            

            
              C-1

              
                

              

            

            
              
              

            

          

          
 

          (a)
SALARY. The Company shall pay Employee an annual salary equal to or higher than
the highest salary paid to any officer other than the President or CEO, and in
no event less than One Hundred Eighty Thousand Dollars ($180,000 USD), less
withholding and other taxes required by federal and state law (the "Annual Base
Salary"). Employee's Annual Base Salary shall be payable in equal installments
at such payment intervals as are the usual custom of the Company, but not less
often than monthly. During the Term, Employee shan be eligible to receive
increases in his Annual Base Salary pursuant to periodic salary reviews by the
Board of Directors it being understood such increases are not guaranteed, but
are subject to Employee's job performance and the determination by the Board of
Directors, in its sole discretion, to award salary increases to Employee. The
Annual Base Salary shall not be decreased during the Term, unless the
reduction is made as part of, and is consistent with, a general reduction of the
annual base salaries paid to the President, the Chief Executive Officer and
employees of similar position and status within the Company.

           

          (b)
BENEFITS. During the Term, Employee shall be entitled to participate in all
employee welfare and health benefit plans and other employee benefit plans
established or maintained by the Company for the benefit of its employees.
Employee shall be required to comply with all conditions attendant to coverage
by such plans and shall be entitled to benefits only in accordance with the
terms and conditions of such plans as they may be amended from time to time.
Nothing herein shall be construed as requiring the Company to establish or
continue any particular benefit plan.

           

          (c)
VACATION AND LEAVE. During the Term, Employee shall be entitled to accrue and
carry over vacation benefits in a manner consistent with other senior executives
of the Company (including the President and Chief Executive Officer), in
accordance with the Company's vacation policy as in effect from time to time. In
addition, Employee shall be allowed to take up to thirty (30) days unpaid leave
(or such greater amount as Employee deems necessary to attend to his business
and personal affairs) during each year of the Term.

           

          (d)
BONUS. Employee may also be awarded a bonus or bonuses from time to time during
the Term in such amounts, if any, and at such time, if any, as the Company may
determine, in its sole discretion. Employee shall be entitled to participate in
any annual performance bonus program for employees with bonus amounts and
performance criteria to achieve the bonus amounts as set and formally approved
by the Company in its sole discretion.

           

          4.
TERMINATION.

           

          (a) FOR
CAUSE. Although Company anticipates a mutually rewarding employment relationship
with Employee, Company may terminate Employee's employment immediately at any
time for Cause. For purposes of this Agreement, "Cause" is defined as: (i)
Employee's conviction or entry of a plea of nolo contendere for fraud,
misappropriation or embezzlement, or any felony or crime of moral turpitude or
that otherwise negatively impacts Employee's ability to effectively perform
Employee's duties hereunder; (ii)
Employee's inability to perform the essential functions of Employee's position,
with or without reasonable accommodation, due to a mental or physical disability
for a period of 120 days; or (iii) Employee's death. In the event Employee's
employment is terminated in accordance
with this section 4(a), Employee shall not be entitled to payment of any further
compensation, salary or benefits under the terms of this Agreement except (i)
Annual Base Salary through the date of termination; (ii) any vested benefits
under the then current employee benefit plans in which the Employee
participates; (iii) accrued but unused vacation; and (iv) any benefit
continuation or conversion rights under the then current employee benefit
plans in which the Employee participates.

           

          
            
              
              

            

            
              C-2

              
                

              

            

            
              
              

            

          

           

          (b)
VOLUNTARY RESIGNATION BY EMPLOYEE. Employee may resign from employment at any
time for any reason by giving sixty (60) days written notice to Company of such
intention. In such event, Company may, in its discretion, permit Employee to
work through the notice period or accept Employee's immediate resignation.
In the event of a voluntary resignation or other termination by the Employee,
Employee shall not be entitled to payment of any further compensation, salary or
benefits under the terms of this Agreement except (i) Annual Base Salary through
the date of termination; (ii) any vested benefits under the then current
employee benefit plans in which the Employee participates; (iii) accrued but
unused vacation; and (iv) any benefit continuation or conversion rights under
the then current employee benefit plans in which the Employee
participates.

           

          5. CONFLICTS
OF INTEREST. During the term of Employee's employment with Company, Employee
must not engage in any work, paid or unpaid, that creates a conflict of interest
which materially and substantially disrupts the operations of Company. Such work
shall include, but is not limited to, directly competing with Company in any
way, or acting as an officer, director, employee, or consultant of any business
enterprise of the same nature as, or which is in direct competition with, the
business in which Company is now engaged or in which Company becomes engaged
during the term of Employee's employment with Company, as may be determined by
Company in its reasonable discretion. If Company believes such a conflict exists
during the term of this Agreement, Company may ask Employee to choose to
discontinue the other work and/or activities or resign employment with Company.
Notwithstanding the foregoing, the Company acknowledges that the Employee may
become an investor in companies and business enterprises who may be in the same
or similar business to the Company's business, and the Company hereby agrees and
acknowledges that such investments shall not violate this section
5.

           

          6. CONFIDENTIALITY
AND PROPRIETARY RIGHTS. As a condition of employment, Employee agrees to read,
sign and abide by Company's Employee Invention and Confidentiality Agreement
(which agreement shall be modified to allow the investment in business
enterprises who may be in the same or similar business to the Company's
business), which is provided with this Agreement and incorporated herein by
reference.

           

          7. GOVERNING
LAW, JURISDICTION AND VENUE. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

           

          8. HEADINGS.
The descriptive headings of the several sections of this Agreement are inserted
for convenience of reference only and shall not control or affect the meanings
or construction of any of the provisions hereof.

           

          
            
              
              

            

            
              C-3

              
                

              

            

            
              
              

            

          

          
 

          9. SEVERABILITY
AND VIOLATION OF LAWS. If any provision of this Agreement shall be held invalid
or unenforceable according to law, such provision shall be modified to the
extent necessary to bring it within the legal requirements. Any such invalidity
or unenforceability shall not affect the remaining provisions of this Agreement,
and such remaining provisions shall continue in full force and
effect.

           

          10. NOTICES.
Any notice or other communication required or permitted under this agreement
shall be in writing and shall be deemed to have been duly given (a) upon hand
delivery, or (b) on the third day following delivery to the U.S. Postal Service
as certified or registered mail, return receipt requested and postage prepaid,
(c) on the first day following delivery to a nationally recognized United States
overnight courier services for next business day delivery with fee prepaid, or
(d) when telecopied or sent by facsimile transmission if an additional notice is
also given under (a), (b) or (c) above within three (3) days thereafter. Any
such notice or communication shall be directed to a party at its address set
forth below or at such other address as may be designated by a party in a notice
given to all other parties hereto in accordance with the provisions of this
section.

          

          FOR THE
COMPANY:

           

          Mr.
Kenneth C. Aldrich

          Chairman
of the Board

          2595
Jason Court

          Oceanside,
CA 92056

          Telephone:
(760) 940-6383

          Telecopy:
(760) 940-6387

           

          with a
copy to:

           

          DL
Piper

          4365
Executive Drive, Suite 1100

          San
Diego, California 92121-2133

          Attention:
Douglas J. Rein, Esquire

          Telephone:
858-677-1443

          Fax:
858-638-5043

           

          
            
              
              

            

            
              C-4

              
                

              

            

            
              
              

            

          

           

          FOR THE
EMPLOYEE:

           

          Mr.
Andrei Semechkin

          1
Overlook Drive, Unit 11

          Amherst,
NH 03031

           

          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, Esq.

          Telephone:
603-625-6464

          Telecopy:
603-625-5650

           

          11. ASSIGNMENT.
The rights and obligations of Company together with its obligations and all of
Employee's covenants and agreements hereunder may be assigned by Company to any
parent, subsidiary or other affiliate of the Company by operation of law or by
contractual assignment; provided, however, that the Company shall continue to
guarantee the obligations, agreements, duties and covenants hereunder. The
rights and obligations of Employee under this Agreement are not
assignable.

           

          12. COMPLETE
AND ENTIRE AGREEMENT. This Agreement, including the Company's Employee Invention
and Confidentiality Agreement, contains all of the terms agreed upon by the
parties with respect to the subject matter hereof and supersedes an prior
agreements, representations and warranties of the parties as to the subject
matter hereof.

           

          13. AMENDMENTS.
This Agreement may be amended, or any provision of the Agreement may be waived,
provided that any such amendment or waiver will be binding on the parties only
if such amendment or waiver is set forth in a writing executed by all parties
hereto. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other
breach.

           

          14. SURVIVAL.
Sections 6, 7, 9 and 10 shall survive expiration of the Term of this Agreement
and/or termination of Employee's employment under this Agreement.

          

          [Signature
Page Follows]

           

           

           

          
            
              
              

            

            
              C-5

              
                

              

            

            
              
              

            

          

           

          IN
WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the
date first written above.

           

          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        	 
      	 
      	 
      
	 
      	 
      	
                                                INTERNATIONAL
      STEM CELL CORPORATION

                                              
	 	 	 
	 	 	 
	 
      	 
      	 
	
                                                Witness

                                              	 
      	
                                                Kenneth
      C. Aldrich, CEO

                                              
	 	 	 
	 	 	 
	 	 	 
	 	 	 
	Witness	 	Andrei
      Semechkin
	 	 	 

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

           

           

           

           

          
            [Signature
Page to Employment Agreement – A. Semechkin]

             

             

             

             

             

             

             

          

        

      

       

      
        
          
          

        

        
          C-6

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
D

       

       

      
         

        
          EMPLOYMENT
AGREEMENT

          (Rouslan
Semechkin)

           

          THIS AGREEMENT is made as of the 30th
day
of
December,
2008
("Commencement Date"), by and between International Stem Cell Corporation, a Delaware corporation with a principal place of business at 2595 Jason Court, Oceanside, California (the "Company"), and
Rouslan Semechkin (the "Employee"), with an address
at 1 Overlook Drive, Unit 11, Amherst, New Hampshire
("Agreement").

           

          FACTUAL
BACKGROUND:

           

          A. On
December 30, 2008, the Company entered into a Preferred Stock Purchase Agreement
with Andrei Semechkin, Rouslan Semechkin and X-Master, Inc., (the "Investors")
pursuant to which the Investors agreed to purchase at least ten (10) shares of
Series D Preferred Stock from the Company for a purchase price of up to Five
Million Dollars ($5,000,000 USD). As a material and essential inducement for the
Investors to enter into the Preferred Stock Purchase Agreement, the Company
agreed to employ Rouslan Semechkin and Andrei Semechkin in accordance with the
terms thereof.

           

          B. The
Company wishes to employ Employee initially as a research scientist reporting
directly to the Chief Scientist and upon Employee attaining his PhD, as Senior
Research Scientist (or such other senior research position commensurate with
Employee's experience and status with the Company) and Employee wishes to accept
such employment subject to the terms and conditions of this
Agreement.

           

          NOW,
THEREFORE, in consideration of the foregoing, the employment provided hereunder,
and other valuable consideration, receipt of which is hereby acknowledged, the
parties hereto agree as follows:

           

          1. EMPLOYMENT.
Upon Employee providing Company with documentation verifying Employee's identity
and legal authorization to work in the United States, Company agrees to employ
Employee, and Employee agrees to perform the duties assigned to him for the Term
of this Agreement (as defined in Section 2 of the Agreement) pursuant to the
terms and conditions set forth herein.

           

          2.
 TERM. The
term of Employee's employment hereunder shall be for a period of five (5) years,
beginning on the Commencement Date set forth above and continuing for a period
of five (5) years following such date ("Term"), unless sooner terminated in
accordance with section 4 below.

           

          3. COMPENSATION.
For all services to be rendered by Employee in any capacity hereunder, the
Company shall pay Employee the following:

           

          
            
              
              

            

            
              D-1

              
                

              

            

            
              
              

            

          

          
 

          (a)
SALARY. The Company shall initially pay Employee an annual salary of Eighty
Thousand Dollars ($80,000) while he is employed as a research scientist, and an
annual salary of One Hundred Twenty Thousand Dollars ($120,000) upon Employee
attaining his PhD and corresponding promotion by the Company to Senior Research
Scientist or a similar position commensurate with Employee's experience and
status with the Company, less withholding and other taxes required by federal
and state law (the "Annual Base Salary"). Employee's Annual Base Salary shall,
in any event, be not less than the annual base salaries paid to employees of
similar position and status within the Company. Employee's Annual Base Salary
shall be payable in equal installments at such payment intervals as are the
usual custom of the Company, but not less often than monthly. Employee shall be
eligible to receive increases in his Annual Base Salary pursuant to periodic
salary reviews by the Company it being understood such increases are not
guaranteed, but are subject to Employee's job performance and the determination
by the Company, in its sole discretion, to award salary increases to Employee.
The Annual Base Salary shall not be decreased during the Term, unless the
reduction is made as part of, and is consistent with, a general reduction
of the annual base salaries paid to employees of similar position and
status within the Company.

           

          (b)
BENEFITS. During the Term, Employee shall be entitled to participate in all
employee welfare and health benefit plans and other employee benefit plans
established or maintained by the Company for the benefit of its employees.
Employee shall be required to comply with all conditions attendant to coverage
by such plans and shall be entitled to benefits only in accordance with the
terms and conditions of such plans as they may be amended from time to time.
Nothing herein shall be construed as requiring the Company to establish or
continue any particular benefit plan.

           

          (c)
VACATION AND LEAVE. During the Term, Employee shall be
entitled to accrue and carry over vacation benefits in a manner consistent with
employees of similar position and status within the Company, in accordance with
the Company's vacation policy as in effect from time to time. In addition,
Employee shall be allowed to take up to thirty (30) days
unpaid leave (or such greater amount as Employee deems necessary to attend to
his business and personal affairs) during each year of the Term.

           

          (d)
BONUS. Employee may also be awarded a bonus or bonuses from time to time during
the Term in such amounts, if any, and at such time, if any, as the Company may
determine, in its sole discretion. Employee shall be entitled to participate in
any annual performance bonus program for employees with bonus amounts and
performance criteria to achieve the bonus amounts as set and formally approved
by the Company in its sole discretion.

           

          4.
TERMINATION.

           

          (a) FOR
CAUSE. Although Company anticipates a mutually rewarding employment relationship
with Employee, Company may terminate Employee's employment immediately at any
time for Cause. For purposes of this Agreement, "Cause" is defined as: (i)
Employee's conviction or entry of a plea of nolo contendere for fraud,
misappropriation or embezzlement, or any felony or crime of moral turpitude or
that otherwise negatively impacts Employee's ability to effectively perform
Employee's duties hereunder; (ii)
Employee's inability to perform the essential functions of Employee's position,
with or without reasonable accommodation, due to a mental or physical disability
for a period of 120 days; or
(iii) Employee's death. In the event Employee's employment is terminated in
accordance with this section 4(a), Employee shall not be entitled to payment of
any further compensation, salary or benefits under the terms of this Agreement
except (i) Annual Base Salary through the date of termination; (ii) any vested
benefits under the then current employee benefit plans in which the Employee
participates; (iii) accrued but unused vacation; and (iv) any benefit
continuation or conversion rights under the then current employee benefit
plans in which the Employee participates.

           

          
            
              
              

            

            
              D-2

              
                

              

            

            
              
              

            

          

           

          (b)
VOLUNTARY RESIGNATION BY EMPLOYEE. Employee may resign from employment at any
time for any reason by giving sixty (60) days written notice to Company of such
intention. In such event, Company may, in its discretion, permit Employee to
work through the notice period or accept Employee's immediate resignation. In
the event of a voluntary resignation or other termination by the Employee,
Employee shall not be entitled to payment of any further compensation,
salary or benefits under the terms of this Agreement except (i) Annual Base
Salary through the date of termination; (ii) any vested benefits under the then
current employee benefit plans in which the Employee participates; (iii) accrued
but unused vacation; and (iv) any benefit continuation or conversion rights
under the then current employee benefit plans in which the Employee
participates.

           

          5.
CONFLICTS OF INTEREST. During the term of Employee's employment with Company,
Employee must not engage in any work, paid or unpaid, that creates a conflict of
interest which materially and substantially disrupts the operations of Company.
Such work shall include, but is not limited to, directly competing with Company
in any way, or acting as an officer, director, employee, or consultant of any
business enterprise of the same nature as, or which is in direct competition
with, the business in which Company is now engaged or in which Company becomes
engaged during the term of Employee's employment with Company, as may be
determined by Company in its reasonable discretion. If Company believes such a
conflict exists during the term of this Agreement, Company may ask Employee to
choose to discontinue the other work and/or activities or resign employment with
Company. Notwithstanding the foregoing, the Company acknowledges that the
Employee may become an investor in companies and business enterprises who may be
in the same or similar business to the Company's business, and the Company
hereby agrees and acknowledges that such investments shall not violate this
section 5.

           

          6. CONFIDENTIALITY
AND PROPRIETARY RIGHTS. As a condition of employment, Employee agrees to read,
sign and abide by Company's Employee Invention and Confidentiality Agreement
(which agreement shall be modified to allow investment in business enterprises
who may be in the same or similar business to the Company's business), which is
provided with this Agreement and incorporated herein by reference.

           

          7. GOVERNING
LAW, JURISDICTION AND VENUE. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.

           

          8. HEADINGS.
The descriptive headings of the several sections of this Agreement are
inserted for convenience of reference only and shall not control or affect the
meanings or construction of any of the provisions hereof.

           

           

          
            
              
              

            

            
              D-3

              
                

              

            

            
              
              

            

          

          

           

          9. SEVERABILITY
AND VIOLATION OF LAWS. If any provision of this Agreement shall be held invalid
or unenforceable according to law, such provision shall be modified to the
extent necessary to bring it within the legal requirements. Any such invalidity
or unenforceability shall not affect the remaining provisions of this Agreement,
and such remaining provisions shall continue in full force and
effect.

           

          10. NOTICES.
Any notice or other communication required or permitted under this agreement
shall be in writing and shall be deemed to have been duly given (a) upon hand
delivery, or (b) on the third day following delivery to the U.S. Postal Service
as certified or registered mail, return receipt requested and postage prepaid,
(c) on the first day following delivery to a nationally recognized United States
overnight courier services for next business day delivery with fee prepaid, or
(d) when telecopied or sent by facsimile transmission if an additional notice is
also given under (a), (b) or (c) above within three (3) days thereafter. Any
such notice or communication shall be directed to a party at its address set
forth below or at such other address as may be designated by a party in a
notice given to all other parties hereto in accordance with the provisions of
this section.

          

          FOR THE
COMPANY:

           

          Mr.
Kenneth C. Aldrich

          Chairman
of the Board

          2595
Jason Court

          Oceanside,
CA 92056

          Telephone:
(760) 940-6383

          Telecopy:
(760) 940-6387

           

          with a
copy to:

           

          DL
Piper

          4365
Executive Drive, Suite 1100

          San
Diego, California 92121-2133

          Attention:
Douglas J. Rein, Esquire

          Telephone:
858-677-1443

          Fax:
858-638-5043

           

          FOR THE
EMPLOYEE:

           

          Mr.
Rouslan Semechkin

          1
Overlook Drive, Unit 11

          Amherst,
NH 03031

           

          
            
              
              

            

            
              D-4

              
                

              

            

            
              
              

            

          

           

          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, Esq.

          Telephone:
603-625-6464

          Telecopy:
603-625-5650

          

           

          11.
ASSIGNMENT. The rights and obligations of Company together with its obligations
and all of Employee's covenants and agreements hereunder may be assigned by
Company to any parent, subsidiary or other affiliate of the Company by operation
of law or by contractual assignment; provided, however, that the Company shall
continue to guarantee the obligations, agreements, duties and covenants
hereunder. The rights and obligations of Employee under this Agreement are not
assignable.

           

          12. COMPLETE
AND ENTIRE AGREEMENT. This Agreement, including the Company's Employee Invention
and Confidentiality Agreement, contains all of the terms agreed upon by the
parties with respect to the subject matter hereof and supersedes all prior
agreements, representations and warranties of the parties as to the subject
matter hereof.

           

          13. AMENDMENTS.
This Agreement may be amended, or any provision of the Agreement may be waived,
provided that any such amendment or waiver will be binding on the parties only
if such amendment or waiver is set forth in a writing executed by all parties
hereto. The waiver by any party hereto of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any other
breach.

           

          14. SURVIVAL.
Sections 5, 6, 7, 9 and 10 shall survive expiration of the Term of this
Agreement and/or termination of Employee's employment under this
Agreement.

          

          [Signature
Page Follows]

           

          
            
              
              

            

            
              D-5

              
                

              

            

            
              
              

            

          

           

          IN
WITNESS WHEREOF, the parties hereto have executed this Agreement, all as of the
date first written above.

           

          
             

            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        
                                          	 
      	 
      	 
      
	 
      	 
      	
                                                  INTERNATIONAL
      STEM CELL CORPORATION

                                                
	 	 	 
	 	 	 
	 
      	 
      	By:
      
	
                                                  Witness

                                                	 
      	
                                                  Kenneth
      C. Aldrich, CEO

                                                
	 	 	 
	 	 	 
	 	 	 
	/s/
      signature	 	 
	Witness	 	Rouslan
      Semechkin
	 	 	 

                                        

                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

             

             

             

             

            
              [Signature
Page to Employment Agreement – R. Semechkin]

               

               

               

            

          

        

      

       

      
        
          
          

        

        
          D-6

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
E

       

      

       

      
         

        FORM
OF INVESTORS' RIGHTS AGREEMENT

         (International
Stem Cell Corporation)

         

         

         

        THIS
INVESTORS' RIGHTS AGREEMENT is made as of the 30th day of December 2008, by and
among International Stem Cell Corporation, a Delaware corporation (the
"Company"), and each of the investors listed on Schedule
A hereto, each of which is referred to in this Agreement as an
"Investor".

         

        RECITALS

         

        WHEREAS,
the Company and the Investors are parties to the Series D Preferred Stock
Purchase Agreement of even date herewith (the "Purchase Agreement");
and

         

        WHEREAS,
in order to induce the Company to enter into the Purchase Agreement and to
induce the Investors to invest funds in the Company pursuant to the Purchase
Agreement, the Investors and the Company hereby agree that this Agreement shall
govern certain rights of the Investors granted herein, including, but not
limited to, the right to participate in future equity offerings by the Company,
and shall govern certain other matters as set forth in this
Agreement;

         

        NOW,
THEREFORE, the parties hereby agree as follows: 

         

        
          	
                  1.

                	
                  Definitions.
      For purposes of this Agreement:

                

        

         

        
          	
                	
                  1.1

                	
                  "Affiliate" means, with respect to any
      specified Person, any other Person who, directly or indirectly, controls,
      is controlled by, or is under common control with such Person, including
      without limitation any general partner, managing member, officer or
      director of such Person or any venture capital fund now or hereafter
      existing that is controlled by one or more general partners or managing
      members of, or shares the same management company with, such
      Person.

                

        

         

        
          	
                	
                  1.2

                	
                  "Common Stock" means shares of the
      Company's common stock, par value $0.001 per
  share.

                

        

         

        
          	
                	
                  1.3

                	
                  "Derivative Securities" means any
      securities or rights convertible into, or exercisable or exchangeable for
      (in each case, directly or indirectly), Common Stock, including options
      and warrants.

                

        

         

        
          	
                	
                  1.4

                	
                  "Exchange Act" means the Securities
      Exchange Act of 1934, as amended, and the rules and regulations
      promulgated thereunder.

                

        

         

        
          	
                	
                  1.5

                	
                  "GAAP" means generally accepted
      accounting principles in the United
States.

                

        

         

        
          	
                	
                  1.6

                	
                  "Key Employee" means any executive-level
      employee (including division director and vice president-level positions)
      as well as any employee who, either alone or in concert with others,
      develops, invents, programs, or designs any Company Intellectual Property
      (as defined in the Purchase
Agreement).

                

        

         

         

        

        
          
            
               

            

            
              E-1

              
                

              

            

            
               

            

          

        

        

         

        

         

        
          	
                	
                  1.7

                	
                  "New Securities" means, collectively,
      equity securities of the Company, whether or not currently authorized, as
      well as rights, options, or warrants to purchase such equity securities,
      or securities of any type whatsoever that are, or may become, convertible
      or exchangeable into or exercisable for such equity
      securities.

                

        

         

        
          	
                	
                  1.8

                	
                  "Person"
      means any individual, corporation, partnership, trust, limited
      liability company, association or other
entity.

                

        

         

        
          	
                	
                  1.9

                	
                  "Preferred
      Stock" means, collectively, shares of the Company's Series A, B,
      C, and D Preferred Stock.

                

        

         

        
          	
                	
                  1.10

                	
                  "SEC" means the Securities and Exchange
      Commission.

                

        

         

        
          
            	
                  	
                    1.11

                  	
                    "Securities
      Act" means the Securities Act of 1933, as amended, and the rules
      and regulations promulgated
thereunder.

                  

          

        

         

        
          
            	
                  	
                    1.12

                  	
                    "Series
      C Director" means any director of the Company that the holders of
      record of the Series C Preferred Stock are entitled to elect pursuant to
      the Company's Series C Preferred Stock Certificate of
      Designation.

                  

          

        

         

        
          
            	
                  	
                    1.13

                  	
                    "Series
      D Director" means any director of the Company that the holders of
      record of the Series D Preferred Stock are entitled to elect pursuant to
      the Company's Series D Preferred Stock Certificate of
      Designation.

                  

          

        

         

        
          
            	
                  	
                    1.14

                  	
                    "Series
      D Preferred Stock" means shares of the Company's Series D Preferred
      Stock, par value $0.001 per
share.

                  

          

        

         

        
          
            
              	
                      2.

                    	
                      Rights
      to Future Stock
Issuances.

                    

            

          

        

         

        
          	
                	
                  2.1

                	
                  Participation
      Right .  If, at any time after the date of this Agreement and
      prior to the termination of this participation right pursuant to subsection
      2.5, the Company should desire to issue in a transaction not
      registered under the Securities Act any New Securities (as hereinafter
      defined), it shall give each Investor the right to purchase such
      Investor's pro rata share (or any part thereof) of all of such privately
      offered New Securities on the same terms as the Company is willing to sell
      such New Securities to any other person, for a period of thirty (30)
      calendar days after the initial issuance of such New Securities. Each such
      Investor's pro rata share of the New Securities shall be equal to that
      percentage of the outstanding Common Stock of the Company held by such
      Investor on the date of delivery of notice to such Investor, as set forth
      in Section
      2.2 below, of the Company's intention to sell and issue such New
      Securities. For purposes of this subsection
      2.1, the outstanding Common Stock of the Company shall include (i)
      outstanding shares of Common Stock, and (ii) shares of Common Stock issued
      or issuable upon exercise and/or conversion of any
      then outstanding options, warrants and Preferred Stock of the
      Company.

                

        

         

        
 

        
          
            
               

            

            
              E-2

              
                

              

            

            
               

            

          

        

        

        

         

         

        
          	
                	
                  2.2

                	
                  Notice;
      Over-Allotment .  Promptly after the sale or issuance by the
      Company of any New Securities, the Company shall notify in writing each
      such Investor of the sale and issuance of such securities, setting forth
      the terms of such sale. Within seven (7) days after receipt of such
      notice, each such Investor shall notify the Company whether such Investor
      desires to purchase such Investor's pro rata share, or any part thereof,
      of the New Securities so offered. If such Investor elects to purchase such
      Investor's pro rata share, as applicable, then such Investor shall have a
      right of over-allotment such that if any other Investor fails to purchase
      such
      Investor's pro rata share of the New Securities, such Investors who have
      elected to purchase their pro rata shares may purchase, on a pro rata
      basis, that portion of the New Securities which such other Investor(s)
      elected not to purchase.

                

        

         

        
          	
                	
                  2.3

                	
                  Closing
      of Investor Purchases.  If an Investor gives the
      Company notice that such Investor desires to purchase any
      of the New Securities offered by the Company, payment for the New Securities
      shall be by check or wire transfer, against delivery of the New Securities at
      the executive offices of the Company within twenty (20) days after giving
      the Company such notice. The Company shall take all such action as may be
      required by any regulatory authority in connection with the exercise by such Investor of
      the right to purchase New Securities as set forth in this Section
      2.

                

        

         

        
          	
                	
                  2.4

                	
                  Exempted
      Issuances.  The participation right contained in this Section
      2 shall not apply to the issuance by the Company of New Securities
      (i) upon conversion of any securities registrable under the Securities
      Act; (ii) to officers, directors or employees of, or consultants to, the
      Company pursuant to a warrant, stock grant, option agreement or plan,
      purchase plan or other employee stock incentive program or agreement
      approved by the Board of Directors; (iii) in connection with the
      acquisition by the Company of another business entity or majority
      ownership thereof approved by the Board of Directors; (iv) to lease
      companies, real estate lessors, banks or financial institutions, in
      connection with any lease or debt financing transaction approved by the
      Board of Directors; (v) to purchase equipment or services; (vi) upon
      exercise of warrants outstanding as of the date of this Agreement; (vii)
      in connection with any stock split, stock dividend, distribution,
      recapitalization or similar event; (viii) in connection with a strategic
      investment and/or acquisition of technology or intellectual property not
      principally for equity financing purposes approved by the Board of
      Directors; (ix) pursuant to the Purchase Agreement, including without
      limitation issuances of shares of Series D Preferred Stock; or (x) by way
      of a dividend or other distribution on New Securities described in the
      foregoing clauses (i) through (ix).

                

        

        

        
          
            
               

            

            
              E-3

              
                

              

            

            
               

            

          

        

        

        

        
          	
                	
                  2.5

                	
                  Termination.
      The participation right set forth in this Section
      2 shall terminate and be of no further force and effect upon such
      time as the Investor or its affiliates hold less than five (5) shares of
      Series D Preferred Stock.

                

        

         

        
          	
                  3.

                	
                  Additional
      Covenants.

                

        

         

        
          	
                	
                  3.1

                	
                  Insurance. 
      The Company shall use its commercially reasonable efforts to obtain,
      within ninety (90) days of the date hereof, from financially sound and
      reputable insurers Directors and Officers liability insurance in an amount
      and on terms and conditions satisfactory to the Board of Directors, and
      will use commercially reasonable efforts to cause such insurance policies
      to be maintained until such time as the Board of Directors determines that
      such insurance should be discontinued. The policy shall not be cancelable
      by the Company without prior approval by the Board of Directors including
      the Series C and D Directors.

                

        

         

        
          	
                	
                  3.2

                	
                  Employee
      Agreements.The Company will cause each person now or hereafter
      employed by it or by any subsidiary (or engaged by the Company or any
      subsidiary as a consultant/independent contractor) with access to
      confidential information and/or trade secrets to enter into a
      nondisclosure and proprietary rights assignment agreement. In addition,
      the Company shall not amend, modify, terminate, waive, or otherwise alter,
      in whole or in part, any of the above- referenced agreements or any
      restricted stock agreement between the Company and any employee, without
      the consent of the Board of
Directors.

                

        

         

        
          	
                	
                  3.3

                	
                  Matters
      Requiring Investor Director Approval.  So long as the holders
      of Series D Preferred Stock are entitled to elect a Series D Director, the
      Company hereby covenants and agrees with each of the Investors that it
      shall not, without approval of the Board of Directors, which approval must
      include the affirmative vote of the Series C and Series D
      Directors:

                

        

         

        
          
            	
                  	
                    3.3.1

                  	
                    make,
      or permit any subsidiary to make, any loan or advance to, or own any stock
      or other securities of, any subsidiary or other corporation, partnership,
      or other entity unless it is wholly owned (directly or indirectly) by the
      Company;

                  

          

        

         

        
          
            	
                  	
                    3.3.2

                  	
                    make,
      or permit any subsidiary to make, any loan or advance to any Person,
      including, without limitation, any employee or director of the Company or
      any subsidiary, except advances and similar expenditures in the ordinary
      course of business or under the terms of an employee stock or option plan
      approved by the Board of
Directors;

                  

          

        

         

        
          
            	
                  	
                    3.3.3

                  	
                    guarantee,
      directly or indirectly, or permit any subsidiary to guarantee, directly or
      indirectly, any indebtedness except for trade accounts of the Company or
      any subsidiary arising in the ordinary course of
  business;

                  

          

        

         

        

        
          
            
               

            

            
              E-4

              
                

              

            

            
               

            

          

        

        

        

        
          
            	
                  	
                    3.3.4

                  	
                    make
      any investment inconsistent with any investment policy approved by the
      Board of Directors;

                  

          

           

        

        
          
            	
                  	
                    3.3.5

                  	
                    incur
      any aggregate indebtedness in excess of $100,000 that is not already
      included in a budget approved by the Board of Directors, other than trade
      credit incurred in the ordinary course of
  business;

                  

          

        

        
           

          
            	
                  	
                    3.3.6

                  	
                    otherwise
      enter into or be a party to any transaction with any director, officer, or
      employee of the Company or any "associate" (as defined in Rule 12b-2
      promulgated under the Exchange Act) of any such person, except for
      transactions contemplated by this Agreement, the Purchase Agreement, and
      [the Employment Agreements] [; transactions resulting in payments to or by
      the Company in an aggregate amount less than $60,000 per year; or
      transactions made in the ordinary course of business and pursuant to
      reasonable requirements of the Company's business and upon fair and
      reasonable terms that are approved by a majority of the Board of
      Directors;

                  

          

        

        
           

          
            	
                  	
                    3.3.7

                  	
                    increase
      the compensation of the executive officers, including approving the
      creation or amendment of any option plans under which grants or stock
      awards may be made to executive
officers;

                  

          

        

        
           

          
            	
                  	
                    3.3.8

                  	
                    change
      the principal business of the Company, enter new lines of business, or
      exit the current line of
business;

                  

          

        

        
           

          
            	
                  	
                    3.3.9

                  	
                    sell,
      assign, license, pledge, or encumber material technology or intellectual
      property, other than licenses granted in the ordinary course of
      business.

                  

          

        

         

        
          	
                	
                  3.4

                	
                  Board
      Matters.  Unless otherwise determined by the vote of a
      majority of the directors then in office, the Board of Directors shall
      meet at least quarterly in accordance with an agreed-upon schedule. The
      Company shall reimburse the nonemployee directors for all reasonable
      out-of-pocket travel expenses incurred (consistent with the Company's
      travel policy) in connection with attending meetings of the Board of
      Directors. Except where prohibited by applicable law or where required by
      applicable listing standards or to obtain the benefit of an applicable
      rule or regulation (such as Rule 16b-3 or the exemptions provided under
      IRC §162(m)), each committee of the Company's Board of Directors shall
      include at least one Series C or Series D
  Director.

                

        

         

        
          	
                	
                  3.5

                	
                  Successor
      Indemnification.  If the Company or any of its successors or
      assignees consolidates with or merges into any other Person and is not the
      continuing or surviving corporation or entity of such consolidation or
      merger, then to the extent necessary, proper provision shall be made so
      that the successors and assignees of the Company assume the obligations of
      the Company with respect to indemnification of members of the Board of
      Directors as in effect immediately before such
      transaction, whether such obligations are contained in the Company's
      Bylaws, its Certificate of Incorporation, or elsewhere, as the case may
      be.

                

        

        

        

        
          
            
               

            

            
              E-5

              
                

              

            

            
               

            

          

        

        

        

         

         

        
          
            	
                    4.

                  	
                    Miscellaneous.

                  

          

        

         

        
          	
                	
                  4.1

                	
                  Successors and
      Assigns.  The rights under this Agreement may be assigned (but
      only with all related obligations) by an Investor without the Company's
      consent, so long as the assignee acquires the Investor's ownership
      interest in the Company.

                

        

         

        
          	
                	
                  4.2

                	
                  Governing
      Law.  This Agreement shall be governed by, and construed in
      accordance with, the laws of the State of Delaware, regardless of the laws
      that might otherwise govern under applicable principles of conflicts of
      law.

                

        

         

        
          	
                	
                  4.3

                	
                  Counterparts;
      Facsimile.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. This Agreement may
      also be executed and delivered by facsimile signature and 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.

                

        

         

        
          	
                	
                  4.4

                	
                  Titles and
      Subtitles.  The titles and subtitles used in this Agreement
      are for convenience only and are not to be considered in construing or
      interpreting this Agreement.

                

        

         

        
          	
                	
                  4.5

                	
                  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
      Schedule A, 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

                     

                    Any
      notice to the Company shall be sent to:

                     

                    International
      Stem Cell Corporation

                    2595
      Jason Court

                  

                

        

         

         

         

         

        

        
          
            
               

            

            
              E-6

              
                

              

            

            
               

            

          

        

        

        
          	
                	
                   

                	
                  

                    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

                  

                

        

         

         

        
          
            	
                  	
                    4.6

                  	
                    Amendments and
      Waivers.  Any term of this Agreement may be amended and the
      observance of any term 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 Investors holding a majority in
      interest of the Series D Preferred Stock then outstanding. Notwithstanding
      the foregoing, this Agreement may not be amended or terminated and the
      observance of any term hereof may not be waived with respect to any
      Investor without the written consent of such Investor, unless such
      amendment, termination, or waiver applies to all Investors in the same
      fashion. No waivers of or exceptions to any term, condition, or provision
      of this Agreement, in any one or more instances, shall be deemed to be or
      construed as a further or continuing waiver of any such term, condition,
      or provision.

                  

          

        

         

        
          	
                	
                  4.7

                	
                  Severability. 
      In case any one or more of the provisions contained in this Agreement is
      for any reason held to be invalid, illegal or unenforceable in any
      respect, such invalidity, illegality, or unenforceability shall not affect
      any other provision of this Agreement, and such invalid, illegal, or
      unenforceable provision shall be reformed and construed so that it will be
      valid, legal, and enforceable to the maximum extent permitted by
      law.

                

        

         

        
          	
                	
                  4.8

                	
                  Additional
      Investors.  Notwithstanding anything to the contrary contained
      herein, if the Company issues additional shares of the Company's Series D
      Preferred Stock after the date hereof, whether pursuant to the Purchase
      Agreement or otherwise, any purchaser of such shares of Series D Preferred
      Stock may become a party to this Agreement by executing and delivering an
      additional counterpart signature page to this Agreement, and thereafter
      shall be deemed an "Investor" for all purposes hereunder. No action or
      consent by the Investors shall be required for such joinder to this
      Agreement by such additional Investor, so long as such additional Investor
      has agreed in writing to be bound by all of the obligations as an
      "Investor" hereunder.

                

        

         

        
          
            	
                  	
                    4.9

                  	
                    Entire
      Agreement. This Agreement (including any Schedules and Exhibits
      hereto) constitutes the full and entire understanding and agreement among
      the parties with respect to the subject matter hereof, and any other
      written or oral agreement relating to the subject matter hereof existing
      between the parties is expressly
canceled.

                  

          

          
 

        

        
          
            
               

            

            
              E-7

              
                

              

            

            
               

            

          

        

        

         

         

        
          
            	
                  	
                    4.10

                  	
                    Termination. 
      This Agreement shall terminate at such time as there no longer are any
      shares of Series D Preferred Stock
outstanding.

                  

          

        

         

        [Signature
page follows.]

         

         

         

         

         

         

        

        
          
            
               

            

            
              E-8

              
                

              

            

            
               

            

          

        

        

        

        IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
written above.

         

         

        
           

          
            	 	

                    INTERNATIONAL
      STEM CELL CORPORATION

                     

                    By:                                                          

                    Name:

                    Title:

                     

                    INVESTOR:
      X-MASTER, INC.

                     

                    By:                                                          

                    Name:
      

                    Title:

                     

                     

                                                                             
      

                    Andrei
      Semechkin

                     

                     

                                                               
      

                    Rouslan
      Semechkin

                  

          

           

        

         

        

        [Signature
page for Investors' Rights Agreement]

         

         

        

        
          
            
               

            

            
              E-9

              
                

              

            

            
               

            

          

        

        

        

        SCHEDULE
A

         

        Investors

         

        Andrei
Semechkin

        1
Overlook Drive, #11

        Amherst,
NH 03031

         

        Rouslan
Semechkin

        1
Overlook Drive, #11

        Amherst,
NH 03031

         

        X-Master,
Inc.

        1
Overlook Drive, #11

         Amherst,
NH 03031

         

         

         

         

         

         

         

         

         

      

      
        
          
          

        

        
          E-10

          
            

          

        

        
          
          

        

      

      

      EXHIBIT
H

       

      

       

      FORM
OF LEGAL OPINION OF DLA PIPER

      
 

       

      
        DLA Piper LLP (US)

        4365
Executive Drive, Suite 1100

        San
Diego, California  92121-2133

        www.dlapiper.com

      

      

      
        	
                December
      __, 2008

              	
                OUR
      FILE NO. 356329-22

              
	 
      	 
      

      

      

      To the
Purchasers Pursuant

      to the
Series D Preferred Stock

      Purchase
Agreement

       

      
        	
                Re:

              	
                International
      Stem Cell Corporation

              

      

       

      Ladies
and Gentlemen:

       

      We have
acted as counsel to International Stem Cell Corporation, a Delaware corporation
(the “Company”), in
connection with the Series D Preferred Stock Purchase Agreement, dated as of
December __, 2008, between you and the Company (the “Agreement”) and the
transactions contemplated therein.  This opinion is being furnished to
you pursuant to Section 4.5 of the Agreement.  Capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
assigned to such terms in the Agreement.

       

      In
connection with this opinion, we have examined the following:

       

      1.            The
records of all proceedings made available to us by the Company relating to the
sale of the Shares pursuant to the Agreement.

       

      2.            The
executed copies of the Transaction Agreements.

       

      3.            The
certificates of various corporate officers of even date herewith delivered by
the Company to you pursuant to the Agreement.

       

      4.            The
other closing documents delivered by the Company on the date
hereof.

       

      5.            The
other instruments, corporate records, certificates and other documents listed on
Exhibit
A.

       

      As to
factual matters, subject to the further limitations on the scope of our review
and inquiry set forth below, we have relied solely upon certificates of public
officials (as to which we have assumed the accuracy, completeness and
genuineness) and of officers of the Company, written representations made by the
Company, written representations made to us by officers of the Company, and an
examination of documents made available to us by the Company.  We have
not undertaken to independently verify the accuracy of the facts set forth in
such certificates and representations; however, nothing has come to our
attention which would lead us to believe that such certificates or
representations are inaccurate.

       

      We have
assumed (i) the genuineness and authenticity of all documents submitted to us as
originals, (ii) the conformity to genuine, authentic originals of all documents
submitted to us as copies, (iii) the competence of all individuals executing
documents, (iv) the due execution and delivery of the Agreement by you, when due
execution and delivery are a prerequisite to the effectiveness thereof, (v) that
the Agreement is a binding obligation of yours, and (vi) that you have received
all of the documents and instruments that you were required to receive under the
Agreement.

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

            
              December
__, 2008

              Page
Two

            

          

        

      

      

      

       

      With
respect to our opinion in Paragraph 1 as to the good standing of the Company, we
have relied exclusively on the certificates of public officials.

       

      With
respect to our opinion in Paragraph 4, we express no opinion as to (i) the
availability of equitable remedies, including specific performance, (ii) the
effect of bankruptcy, insolvency, reorganization or similar laws affecting
creditors rights generally, (iii) compliance with applicable usury laws, and
(iv) the effect of Section 1698 of the California Civil Code and similar
statutes and federal laws and judicial decisions providing that oral
modifications to a contract or waivers of contractual provisions may be
enforceable, if the modification was performed, notwithstanding any express
provision in the agreement that the agreement may only be modified or an
obligation thereunder waived in writing or creating an implied agreement from
trade practices or course of conduct.

       

      With
respect to our opinion in Paragraph 6 that the shares of Common Stock issuable
upon conversion of the Series C Preferred Stock will be validly issued, we have
assumed that such shares will be evidenced by appropriate certificates, duly
executed and delivered.

       

      We have
assumed that the Transaction Agreements and the transactions contemplated
thereby were fair and reasonable to the Company at the time of their approval by
the Board of Directors of the Company.  We express no opinion as to
whether the directors or shareholders of the Company have complied with any
applicable fiduciary duties in connection with the authorization and performance
of the Transaction Agreements.

       

      Where we
render our opinion “to our knowledge” or concerning an item “known to us” or our
opinion otherwise refers to our knowledge, it is based solely upon certificates
of officers of the Company, written representations made to us by officers of
the Company and the current actual knowledge of Douglas Rein and Bethany
Blanton, the attorneys within the firm who have performed services for the
Company in connection with the transaction.  Except as set forth
herein, we have not undertaken any independent investigation to determine the
existence or absence of any fact and no inference as to our knowledge of the
existence or absence of any such fact should be drawn merely from our
representation of the Company with respect to other matters or the rendering of
the opinions set forth below.

       

      Our
opinion is limited to matters of the General Corporation Law of the State of
Delaware (the “DGCL”), the internal
laws of the State of California and the laws of the United States applicable
thereto.  With respect to the DGCL we have based our opinion solely
upon our examination of such statute as reported in standard, unofficial
compilations thereof and we have not examined any other laws or court cases
related thereto.  We express no opinion as to the laws of any other
jurisdiction, or the effect of such laws on the transactions contemplated by the
Transaction Agreements or on the opinions expressed herein.  Opinions
of counsel licensed to practice law in the states other than California have not
been obtained to support the opinions contained herein.

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

            
              December
__, 2008

              Page
Three

            

          

        

      

      

      We
express no opinion with respect to any questions of choice of law, choice of
venue or conflict of laws.  We express no opinion as to the compliance
or noncompliance with the antifraud provisions of state and federal laws, rules
and regulations concerning the issuance of securities, including, without
limitation, the accuracy and completeness of the information provided by the
Company to you in connection with the offer and sale of the
Shares.  We also express no opinion with respect to the enforceability
of the Agreement under Section 1670.5 of the California Civil Code.

       

      Based
upon our examination of the foregoing, in reliance thereon, and subject thereto,
we are of the opinion that, as of the date hereof:

       

      1.            The
Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.

       

      2.            The
Company has all requisite corporate power and authority to own and operate its
properties and to carry on its business as, to our knowledge, it is now
conducted and presently proposed to be conducted.

       

      3.            The
Company has the requisite corporate power and authority to execute, deliver,
carry out, and perform the Transaction Agreements and carry out and perform its
obligations under the terms of the Transaction Agreements.

       

      4.            The
Transaction Agreements have been duly authorized by all necessary corporate
action on the part of the Company, have been duly executed and delivered by the
Company and each constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.

       

      5.            The
authorized capital stock of the Company consists of 200,000,000 shares of Common
Stock and 20,000,000 shares of Preferred Stock.

       

      6.            The
issuance, sale and, delivery of the Shares by the Company to the Purchasers in
accordance with the Agreement has been duly authorized by all necessary
corporate action on the part of the Company, and the Shares, when so issued,
sold and delivered against payment therefor in accordance with the provisions of
the Agreement, will be validly issued, fully paid, and
non-assessable.  The Common Stock issuable upon conversion of the
Shares has been duly and validly reserved, and when issued in accordance with
the Certificate of Incorporation, will be validly issued, fully paid and
nonassessable.

       

      These
opinions are limited to the matters expressly stated herein and are rendered
solely for your benefit and may not be quoted or relied upon for any other
purpose or by an other person without our prior express written
consent.

       

      

      
        
          
             

          

          
             

            
              

            

          

          
             

            
              December
__, 2008

              Page
Four

            

          

        

      

      

      This
opinion is given as of the date hereof and we assume no obligation, to update or
supplement this opinion to reflect any facts or circumstances which may
hereafter come to our attention or any changes in laws which may hereafter
occur.

       

      Very
truly yours,

      

      

      

       

      DLA
Piper LLP (US)

       

      

       

      

       

      

       

       

      

       

      

      

      
        
          
             

          

          
             

            
              

            

          

          
             

            
              EXHIBIT A

              

               

            

          

        

      

      

      

      The
Certificate of Incorporation of the Company, as amended to date.

      

      The
Bylaws of the Company.

      

      Certificate
of Good Standing issued by the Delaware Secretary of State for the Company on
December [____], 2008.

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